Court Upholds Chevron Arbitration Award

(CN) - A Dallas federal court rebuffed a share owner of Chevron U.S.A., Kerr-McGee Oil & Gas Onshore LP and Total Petrochemicals USA who did not want to indirectly indemnify the companies in an environmental lawsuit.

The plaintiff, McGowan Working Partners Inc., wanted the court to strike an arbitration award of $1 million to Chevron and undecided amounts to the other two oil companies.

According to the ruling, the arbitration had ordered McGowan to pay for claims against Eland Energy Inc., which had sold interests in Chevron, Kerr-McGee and Total Petrochemicals to McGowan in 1996. When a lawsuit for polluted soil and groundwater hit Eland, Chevron, Kerr-McGee and Total Petrochemicals in Louisiana, Eland looked to McGowan to pay for its defense and to pay indemnity claims from the other three companies, the ruling says.

According to the ruling, McGowan defended Eland in court, as agreed upon in the 1996 sales contract. McGowan refused, however, to cover cross-claims from Chevron, Kerr-McGee and Total Petrochemicals, the ruling says. Those three companies demanded money from Eland to repay settlement and court expenses, according to the ruling.

Eland and McGowan entered arbitration, the ruling states. The arbitrators decided McGowan had to repay the $1 million Eland paid Chevron to help cover a $1.25 million settlement with the environmental plaintiffs, according to the ruling. The arbitration also allegedlly ordered McGowan to pay Eland for claims from Kerr-McGee and Total Petrochemicals, though the monetary amount for the claims had not been decided.

According to the ruling, McGowan wanted the court to strike the arbitration decision "on the ground that the arbitrators exceeded their authority by determining that McGowan agreed to indemnify Eland for 'upstream' indemnity obligations owed to third-parties and by deciding the reasonableness of the Chevron settlements."

The ruling states McGowan tried to argue that the arbitrators were "deciding issues that are outside the scope of the arbitration agreement."

Eland moved for the court to approve the arbitration decision, according to the ruling.

Federal judge Jeff Kaplan sided with Eland because the sales contract required McGowan to indemnify Eland for all claims related to the interests McGowan bought from Eland.

Judge Kaplan ruled that the arbitrators had also had the authority to decide whether Chevron's $1 million claim against Eland was reasonable.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit