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In Gulf LNG Energy, LLC v. Eni USA Gas Marketing LLC,1 the Delaware Supreme Court held that appellee Eni USA Gas Marketing LLC’s (Eni) second arbitration proceeding against appellants Gulf LNG Energy, LLC and Gulf LNG Pipeline, LLC (together, Gulf) – in which Eni asserted different claims against Gulf – was an improper attempt to find fault with the first arbitration.  Even though Eni asserted different claims in the second arbitration, Delaware’s high court held that the focus should have been on what Eni sought, which it determined was an appeal of the first arbitration.  This opinion demonstrates that the Delaware Supreme Court, as with all of the Delaware courts, looks beyond the face of pleadings in order to come to thoughtful decisions on the merits.

Authors: Brian M. Rostocki Justin M. Forcier

Background

On December 8, 2007, Gulf and Eni entered into a terminal use agreement (the TUA), whereby Gulf would construct the Pascagoula Facility, and Eni would use the facility to receive, store, re-gasify, and deliver imported liquefied natural gas (LNG) to downstream businesses.  On March 2, 2016, Eni filed for arbitration with the American Arbitration Association.  In its arbitration demand, Eni alleged that the United States’ natural gas market had undergone a “radical change” due to unforeseen, vast new production and supply of shale gas in the United States that made import of LNG into the United States economically irrational and unsustainable.  Eni alleged that the TUA had been breached, as well as frustrated and terminated as a result of those alleged changes. 

The first arbitration was conducted according to the Federal Arbitration Act (the FAA).  The FAA requires that courts review arbitration decisions with limited power to alter the result.  Ultimately, Gulf was awarded $371,577,849 at the conclusion of the first arbitration for Gulf’s partial performance of the TUA and the agreement was terminated.  That award was confirmed by the Delaware Court of Chancery on February 1, 2019.  Eni’s claim for breach of the TUA was not decided because the tribunal held that the claim was “academic and deserves no further consideration” in light of the frustration of purpose finding. 

On June 3, 2019, following confirmation of the first arbitration award, Eni filed a second notice of arbitration in which Eni asserted claims for declaratory relief and damages for Gulf’s alleged breach of the TUA by engaging in LNG liquefaction- and export-related activities in direct contravention of the express terms of the TUA.  Eni also asserted one count for negligent misrepresentation arising out of Gulf’s alleged “wrongful conduct” before the first arbitration tribunal. 

Gulf filed an action in the Delaware Court of Chancery seeking a permanent injunction staying the second arbitration and a declaratory judgment barring Eni from pursuing the second arbitration.  The Court of Chancery held that Eni’s negligent misrepresentation claim was an impermissible collateral attack on the first arbitration award, and was impermissible under the FAA.  The court held that Eni’s breach of contract claims were not an impermissible collateral attack on the first arbitration award, however, because the first tribunal never reach the merits of the claim for breach of the same sections of the TUA.  Gulf filed an appeal arguing that the Court of Chancery erred when it did not enjoin all of the claims in the second arbitration.