Hess Corp. v. Eni Petroleum US, LLC

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3464-12T4
HESS CORPORATION,
Plaintiff-Respondent, APPROVED FOR PUBLICATION
v. March 26, 2014
ENI PETROLEUM US, LLC, APPELLATE DIVISION
Defendant-Appellant,
and
ENI USA GAS MARKETING LLC,
Defendant.
___________________________________
Argued: December 18, 2013 – Decided: January 9, 2014
Before Judges Simonelli, Fasciale and Haas.
On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County,
Docket No. L-6149-10.
Gary M. Fellner argued the cause for
appellant (Porzio, Bromberg & Newman,
attorneys; Mr. Fellner, of counsel and on
the briefs; Michael J. Naporano, on the
briefs).
Christopher Raleigh argued the cause for
respondent (Cozen O'Connor, attorneys; Mr.
Raleigh, of counsel and on the brief;
Geoffrey D. Ferrer, on the brief).
The opinion of the court is delivered by
HAAS, J.A.D.
In this dispute over the application and effect of force
majeure provisions in a natural gas supply contract, defendant
Eni Petroleum US, LLC appeals from the March 7, 2013 amended
final judgment of the Law Division, which required defendant to
pay plaintiff Hess Corporation $317,000 in damages, $81,476.87
in prejudgment interest, and $263,024.15 in legal fees. After
reviewing the record in light of the contentions advanced on
appeal, we affirm.
The material facts are not in dispute. Defendant is a
Delaware corporation with its principal place of business in
Houston, Texas. It produces natural gas from, among other
locations, sources under the sea floor in the Gulf of Mexico.
Plaintiff is also a Delaware corporation, but has a place of
business in Woodbridge, New Jersey.
On September 5, 2007, the parties reached agreement on the
basic terms that would govern a series of natural gas sales from
defendant to plaintiff. Those general terms were contained in a
"Base Contract" prepared from an industry form published by the
North American Energy Standards Board (NAESB). The NAESB form
consists of three parts: (1) the Base Contract with General
Terms and Conditions; (2) a Transaction Confirmation form, which
allows the parties to fill in details regarding specific
2 A-3464-12T4
transactions; and (3) a "Special Provisions" addendum, which
could be used to modify the General Terms and Conditions.
Under the Base Contract, defendant agreed to "sell and
deliver" and plaintiff agreed to "receive and purchase" natural
gas. The Base Contract contained only the basic provisions that
would apply to any subsequent natural gas sales between the
parties, and did not recite the details for any specific
transaction. Instead, the details of each subsequent sale were
to be memorialized in written "Transaction Confirmations." The
Base Contract did not specify a particular source of the gas
defendant would sell, nor did it state that the gas would be
produced by defendant, rather than by another producer.
Beginning on November 20, 2007, the parties completed
Transaction Confirmation forms for the months of December 2007,
January, February, March, and April 2008 by filling in the
specific details of the next month's sale/purchase of natural
gas. Each Transaction Confirmation form specified that the
performance obligation was "Firm,"1 as well as the quantity,
price, delivery period, and delivery point for the following
1
"Firm" as defined in the Base Contract, means that performance
by either party may be interrupted "only to the extent that such
performance is prevented for reasons of Force Majeure." The
parties chose "Firm" over the option of "Interruptible," which
allows either party to interrupt performance for any reason
without liability.
3 A-3464-12T4
month's transaction. The delivery point for each transaction
was the "Tennessee Gas Pipeline on 2i - Zone L - 500 Leg"
("Tennessee 500").2 Each form also reiterated that it was
subject to the Base Contract dated September 5, 2007.
Critically, the Transaction Confirmation forms did not specify
which transporter3 was to be utilized for each transaction. The
forms also did not state that defendant would produce the
natural gas.
On March 20, 2008, the parties negotiated the April 2008
transaction that is the subject of this appeal. The agreement
was memorialized in a Transaction Confirmation signed on March
24, 2008. The parties agreed that defendant would deliver
20,000 MMBTU4 of gas per day to the Tennessee 500 Leg Pool5
#020999 from April 1 through April 30, 2008 for a contract price
2
The Tennessee 500 is an off-shore pipeline that runs north from
a platform in the Gulf of Mexico to Louisiana.
3
"Transporter" is defined in the Base Contract as "all Gas
gathering or pipeline companies, or local distribution
companies, acting in the capacity of a transporter, transporting
Gas for Seller or Buyer upstream or downstream, respectively, of
the Delivery Point pursuant to a particular transaction."
4
"MMBTU" means one million British Thermal Units. In the
industry, it is also referred to as "Dekatherms" and "Deks."
5
"Pool" refers to an "aggregate point for gas supplies from
various sources," which operates to balance out the fluctuation
and uncertainty in production.
4 A-3464-12T4
"Inside FERC6 Gas Market Report First of Month Index." This gas
would be pooled with gas from other sources and plaintiff would
then be able to receive the gas at the Tennessee 500. Similar
to all the prior transactions, the parties left blank the
"transporter" information section of the Transaction
Confirmation form. Under "Special Conditions" on the form, they
also listed "None." The Base Contract and the Transaction
Confirmation form for the delivery period of April 1 through
April 30, 2008 constitute the full, integrated contract
controlling the transaction at issue in this appeal.
Defendant produced natural gas from wells located in the
Gulf of Mexico. Its wells were connected through underwater
pipelines to the Independence Hub ("I-Hub"), a floating platform
in the Gulf, approximately 185 miles off the coast of Louisiana.
Other producers also sent gas to the I-Hub. Once in the I-Hub,
the gas is aggregated, processed, and transported to shore
through other underwater pipelines. The natural gas defendant
produced at this location was transported through a single
underwater pipeline called the Independence Trail Pipeline,
owned and operated by a separate entity, Enterprise. The
Independence Trail leads to another platform in the Gulf called
6
"Inside FERC" refers to a public price index of the average
natural gas price for the prior month.
5 A-3464-12T4
the West Delta 68. From there, the gas goes to the Tennessee
500, where it is placed into the pool.
On April 8, 2008, a leak was discovered in the Independence
Trail Pipeline in a flexjoint that connected the Pipeline to the
I-Hub. As a result, Enterprise stopped all gas transportation
through the Pipeline. Because of the leak, defendant could not
get any gas from the I-Hub to the Tennessee 500 until June 2008,
when Enterprise repaired the Pipeline.
Upon learning of the leak, defendant notified plaintiff in
writing that it was declaring force majeure under the terms of
the Base Contract and that it would not be delivering any gas to
the Tennessee 500 for plaintiff. In pertinent part, the force
majeure terms of the contract state:
[N]either party shall be liable to the other
for failure to perform . . . to the extent
such failure was caused by a Force Majeure.
The term "Force Majeure" as employed herein
means any cause not reasonably within the
control of the party claiming suspension[.]
. . . .
Force Majeure shall include, but not be
limited to . . . interruption and/or
curtailment of Firm transportation and/or
storage by Transporters[.]
Plaintiff rejected defendant's declaration of force majeure
as a reason for its failure to perform under the contract.
Plaintiff pointed out that the Tennessee 500 pool is fed by a
6 A-3464-12T4
number of different sources.7 Therefore, the leak in the
Independence Trail Pipeline did not affect the availability of
natural gas at the Tennessee 500 delivery point. Plaintiff
noted that the Transaction Confirmation form also did not
identify Enterprise or the Independence Trail Pipeline as the
specific transporter. After defendant failed to provide gas to
plaintiff at the Tennessee 500 pool, plaintiff was forced to
purchase gas on the "spot market"8 to fulfill its own
obligations. This gas cost over $300,000 more than plaintiff
would have had to pay defendant for the gas under the March 24,
2008 Transaction Confirmation.
Plaintiff filed a breach of contract action against
defendant. Judge Richard Rebeck conducted a three-day bench
trial and issued a written decision finding defendant liable for
plaintiff's damages. The judge reviewed the pertinent
provisions of the Base Contract and the Transaction Confirmation
form, and noted that, in the March 24, 2008 form, the parties
7
Defendant conceded that it had other production points in the
Gulf that tied into the Tennessee 500 through pipelines not
affected by the leak on the Independence Trail Pipeline.
However, it argued that all of the gas was committed to other
customers and that, without the gas from the Independence Trail
Pipeline, it could not fulfill its contractual obligation to
plaintiff.
8
The "spot market" refers to the Intercontinental Exchange Spot
Market, an electronic system used to trade gas.
7 A-3464-12T4
identified only "the contract price, the delivery period, the
performance obligation (quantity/Firm) and delivery point
(Tennessee 500 Leg). No base contract number is listed nor a
transporter and transporter contract number identified. No
special conditions are set forth."
The judge found that "[t]he absence of a listed transporter
or special conditions is critical to the disposition of this
matter." Defendant had agreed to provide a specific quantity of
gas at a specific location, the Tennessee 500, during the month
of April 2008. Nothing in the contract stated that defendant
would only be able to provide the gas through a specific
transporter, Enterprise, using a specific route, the
Independence Trail Pipeline. Gas remained available from other
sources at the delivery point. Thus, the judge ruled that the
leak in the Independence Trail Pipeline did not constitute a
force majeure event under the contract and was not grounds for
excusing defendant's failure to perform the clear terms of its
agreement with plaintiff.
After the judge denied defendant's motion for
reconsideration, the parties stipulated to the amount of
damages, interest, and fees due to plaintiff and the judge
entered an amended final judgment on March 7, 2013. This appeal
followed.
8 A-3464-12T4
On appeal, defendant argues that the judge erred in
rejecting its force majeure defense. An appellate court must
accord deference to a trial court's factual findings when such
findings are "supported by adequate, substantial and credible
evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of
Am., 65 N.J. 474, 484 (1974). But "[a] trial court's
interpretation of the law and the legal consequences that flow
from established facts are not entitled to any special
deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan,
140 N.J. 366, 378 (1995). Contract interpretation is a question
of law. Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt.
Osteopathic Med. & Physical Therapy, 210 N.J. 597, 605 (2012).
Accordingly, no special deference is given to the trial court's
interpretation; rather, this court "look[s] at the contract with
fresh eyes." Kieffer v. Best Buy, 205 N.J. 213, 222-23 (2011);
see Manalapan Realty, supra, 140 N.J. at 378. Applying this
standard, we conclude that there was no error.
The parties agree that the Base Contract and Transaction
Confirmation are governed by the laws of New York. Applying New
York contract law, we must first determine whether the terms of
the contract are ambiguous. Int'l Multifoods Corp. v.
Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002).
Ambiguity is found if the terms in the contract are susceptible
9 A-3464-12T4
to more than one meaning. Chimart Assocs. v. Paul, 498 N.Y.S.2d
344, 346 (1986). The parties' differing subjective
interpretations, however, will not rise to the level of
ambiguity if the contract is otherwise clear. See, e.g.,
Bethlehem Steel Co. v. Turner Constr. Co., 161 N.Y.S.2d 90, 93
(1957); Moore v. Kopel, 653 N.Y.S.2d 927, 929 (App. Div. 1997).
Only if the contract is ambiguous will the court allow extrinsic
evidence of the meaning of the terms. However, if the contract
terms are unambiguous, the court will not permit extrinsic
evidence; rather, it will look only at the contract itself to
determine the intent of the parties. W.W.W. Assocs. v.
Giancontieri, 565 N.Y.S.2d 440, 443 (1990); R/S Assocs. v. N.Y.
Job Dev. Auth., 744 N.Y.S.2d 358, 360, rearg. denied, 747
N.Y.S.2d 411 (2002); Mercury Bay Boating Club, Inc. v. San Diego
Yacht Club, 557 N.Y.S.2d 851, 857 (1990).
In the present case, the parties agree that the contract is
unambiguous. The parties do not dispute the terms in the
contract, nor do they dispute the existence of the force majeure
provisions. They do, however, dispute the availability of the
force majeure defense in these specific circumstances. Thus, we
turn to a consideration of those provisions.
Force majeure clauses are narrowly construed. See, e.g.,
Kel Kim Corp. v. Cent. Markets, Inc., 524 N.Y.S.2d 384, 385
10 A-3464-12T4
(1987). "Ordinarily, only if the force majeure clause
specifically includes the event that actually prevents a party's
performance will that party be excused." Ibid.
Here, neither the Base Contract nor the Transaction
Confirmation specified the source of the natural gas defendant
would sell to plaintiff. The contract documents do not identify
a specific transporter which would deliver the gas or a specific
pipeline that would be used. No special conditions were placed
on defendant's obligation to provide the gas at the specified
date at the Tennessee 500. The contract documents merely fix
the price to be paid, the amount of gas to be delivered, and the
delivery point (the Tennessee 500) where the gas would be made
available to plaintiff.
Because there was nothing limiting defendant's performance
to only gas it produced through the I-Hub, an interruption in
the Independence Trail Pipeline bringing that gas to the
Tennessee 500 was irrelevant to defendant's obligation.
Defendant was required to have gas available in the Tennessee
500 pool for plaintiff, regardless of how it got there.
Defendant was free to use its other sources of gas to fill part
of the contract or to purchase gas from the pool or the spot-
market to meet its contractual obligation to plaintiff.
11 A-3464-12T4
Therefore, defendant could not invoke force majeure as a defense
to plaintiff's breach of contract claim.
As Judge Rebeck observed, the decision of the Texas Court
of Appeals in Virginia Power Energy Mktg., Inc. v. Apache Corp.,
297 S.W.3d 397 (Tex. App. 2009), is instructive. In that case,
the seller claimed force majeure under a NAESB contract, which
was identical to the Base Contract in this case. The seller,
Apache, had agreed to deliver natural gas to the buyer, Virginia
Power, at a delivery point called the Transco-65. Id. at 400.
Because of damages caused by hurricanes, Apache stated it lost
its gas supply and could not deliver the gas. Id. at 405. The
Transco-65, however, was unaffected by the storms and remained
open for business. Ibid.
As here, neither the Base Contract nor the subsequent
Transaction Confirmations revealed any intent by Apache to limit
its "gas supply" to any specific supply source. Id. at 406.
Instead, Apache argued that the term "gas supply" was commonly
understood in the industry "to refer only to those sources
internally designated by the seller." Id. at 405-06. On the
other hand, Virginia Power asserted that, "if a seller wishes to
limit its 'supply' to a specific source, it must expressly state
that intent in the contract." Id. at 406. The court rejected
Apache's argument, finding that, if the parties had intended to
12 A-3464-12T4
limit Apache's obligation to providing gas from a particular
source, this term should have been included in the Transaction
Confirmation. Id. at 406-07.9
Relying upon Virginia Power, Judge Rebeck stated:
The Texas court in Virginia Power, supra,
makes clear the significance and
requirements of delimiting terms that are to
control a contract such as that between
[defendant] and [plaintiff]. There was
testimony that [defendant's] sole source of
gas in the Gulf in quantities to meet the .
. . contract came from the Independence Hub
to the agreed upon deliver[y] point.
Likewise, as stated above, [defendant] had
other wellheads in the Gulf tied to the
delivery point that, according to the
testimony, were insufficient to supply
[plaintiff] or whose production was
committed. Since the source of its gas
supply was not set forth in the Base
Contract or as [a] special condition of the
Transaction Confirmation, [defendant] cannot
rely upon force majeure in this context to
excuse performance.
Likewise, absent the designation of the
Independence Trail Pipeline as the
transporter in the Base Contract or
Transaction Confirmation, [defendant] cannot
rely upon force majeure in this context to
excuse performance.
We discern no basis for disturbing the judge's reasoned
determination.
9
The court found there were questions of fact as to the
definition of Apache's "gas supply" and, accordingly, it
remanded the matter for further proceedings. Virginia Power,
supra, 297 S.W.3d at 409.
13 A-3464-12T4
Defendant argues that its performance should be excused
under the portion of the force majeure clause that states that a
force majeure event "shall include, but not be limited to . . .
interruption and/or curtailment of Firm transportation and/or
storage by Transporters." Because the transporter defendant
used, Enterprise, could not make its deliveries using the
Independence Trail Pipeline, defendant argues that its own
performance should have been excused. However, defendant's
argument ignores the fact that the parties did not identify
Enterprise as a transporter or the Independence Trail Pipeline
as the sole source of the gas needed to meet defendant's
obligation. This provision also plainly refers to
"transporters", thus indicating that the gas could come from
more than one point to the Tennessee 500. Thus, this provision
does not excuse defendant's performance.
Defendant cites Loomis v. N.Y. Cent. & Hudson River R.R.
Co., 96 N.E. 748, 751 (N.Y. 1911), in support of its contention
that "[t]he fact that the parties did not identify the
Transporter in the March 24 Transaction Confirmation was
insignificant, as the specific route the gas was to take to get
to the agreed Delivery Point was not essential." However, this
case is factually inapposite to the matter at hand. The issue
in Loomis was whether parol evidence could be admitted to show
14 A-3464-12T4
that the parties intended that a "carload of potatoes" be
delivered using a particular train route when the contract did
not so specify. Id. at 748. The court held that such parol
evidence was inadmissible. Id. at 751. Thus, this case has no
relevance to the circumstances presented here, where the parties
both agree that the contract is unambiguous and that parole
evidence cannot be admitted to alter the terms they agreed upon.
Significantly, however, in Loomis, the court stated that
"[t]he effect of not specifying the route was simply to leave
that subject open to the choice of the carrier, which could
select any route that it chose." Ibid. This principle plainly
supports the trial judge's determination. The source of the gas
and the route it would follow to the Tennessee 500 were plainly
"incidental" to the parties. The contract is clear: defendant
was required to provide plaintiff with a specific amount of gas
at the Tennessee 500 during April 2008, regardless of how it got
the gas to the delivery point. Thus, the leak in the
Independence Trail Pipeline did not excuse defendant's
performance.
Finally, defendant argues that the judge's interpretation
of the contract "negates the force majeure provision" and that
the judge erred in finding that defendant "waived" that
provision. We disagree. Had the contract documents set forth
15 A-3464-12T4
the source of the gas defendant proposed to sell and the
transporter it intended to use to deliver that gas, force
majeure could have been invoked. However, because the contract,
by its express and unambiguous terms, did not limit defendant's
obligation in that fashion, the judge correctly rejected
defendant's argument.
Affirmed.
16 A-3464-12T4