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Weil Wins First-of-Kind Delaware Supreme Court Victory for Kinder Morgan Upholding Important Arbitration Principles

Weil secured a significant appellate victory at the Delaware Supreme Court on behalf of our clients, Kinder Morgan and Gulf LNG, defeating Eni USA’s attempt to commence an arbitration intended to revisit a prior arbitration between the parties that had resulted in a $371 million award to Gulf. The ruling -- the first of its kind in the Delaware Supreme Court -- represents an important development in a line of cases concerning the judicial review provisions of the Federal Arbitration Act (FAA) and the collateral attack doctrine, and reaffirms the FAA’s bedrock principles of arbitration award finality and limited review.

In 2016, the U.S. subsidiary of Italian energy company Eni S.p.A. brought an arbitration against Gulf, seeking the termination of a 2007 agreement for the construction and use of a terminal in Pascagoula, Mississippi to import liquefied natural gas (LNG). Eni argued that the contract should be terminated for frustration of purpose because of marketplace developments, and in the alternative, that Gulf’s exploration of a project to make the terminal bi-directional breached the 2007 agreement. The arbitral panel terminated the agreement on a finding of frustration of purpose, but awarded Gulf restitutionary damages. In light of its finding of frustration, the panel ruled that Eni’s contract claim was “academic and deserves no further consideration.” Neither party challenged the arbitration award, and the Delaware Court of Chancery subsequently confirmed it in February 2019.

Just a few months later, Eni brought a second arbitration, reasserting its breach of contract claim and alleging that Gulf had made negligent misrepresentations to the first panel to obtain the damages award. Eni sought to recover, inter alia, the very damages awarded to Gulf as part of the first panel’s final award. Gulf promptly sought an injunction in the Court of Chancery to enjoin Eni’s arbitration as an impermissible collateral attack on the prior award, arguing that Eni’s claims were no more than a disguised attempt at getting a redo on the final award, outside of the time limit and narrow award review provisions of the FAA. The court rendered a split decision, enjoining Eni’s negligent misrepresentation claim as a collateral attack, but declining to enjoin Eni’s breach claim because the first panel had not reached the merits of, or granted relief based on, that claim.

On appeal, a majority of the Delaware Supreme Court sitting en banc ruled that the Court of Chancery should have enjoined both of Eni’s claims in the second arbitration. The court explained that the lower court erred in assessing Eni’s breach claim using principles of res judicata, rather than applying the collateral attack doctrine. But because both of Eni’s claims sought to revisit and recoup the damages awarded to Gulf during the first arbitration, the court ruled that they each constituted a collateral attack on the award and should be enjoined.   

The Weil team was led by Securities Litigation practice Co-Head Joseph Allerhand, who argued the appeal, and included counsel Seth Goodchild and associate Tania Matsuoka.