Think before you sue: Tips for resolving oil and gas disputes

By Kathy Silver

Doing business means inevitable disputes, and the oil and gas business sees plenty of these – no matter what the price of oil. Most trial lawyers love a good courtroom battle. But their clients would rather focus on business. So why isn’t there more serious effort toward early resolution of disputes in the energy business – either before or shortly after a lawsuit has been filed – particularly when the parties have an ongoing business arrangement?

Sometimes it just requires a practical and strategic approach. Here are examples of effective options and some issues to consider when deciding what approach to take. (Note: In any settlement meeting, the parties should agree that the discussions are confidential, inadmissible settlement negotiations under Rule 408 of the Texas or Federal Rules of Evidence.)

How important is the relationship?
Consider this example: Buyer agreed to purchase customized energy equipment from Seller. Buyer cancelled the contract after Seller ordered $2 million worth of custom equipment that could not be returned. Angry and frustrated, Seller’s officers wanted to sue because there was “no way” the company could absorb the loss.

The lawyer asked Seller: “How big a customer is this for your company?”
Seller: “It’s our biggest customer in North America.”
Lawyer: “Do you really want to sue your biggest customer in North America? That likely will destroy your business relationship with them.”

Rather than sue, the lawyer drafted a list of points for negotiations. The lawyers stayed out of the discussion and let the business people talk. The result? The parties worked out a business deal that strengthened their relationship and ensured future business.

Many lawyers would never suggest their clients speak to the opposing party without counsel. But business leaders typically are experienced negotiators. As long as the right people are selected and prepared, chances are they can work out a solution that maintains the relationship. In this case, the dispute was resolved, avoiding a lawsuit.

Get the facts, avoid discovery
But sometimes a suit is filed before a resolution can be discussed. Example: Storage company sued chemical and pipeline companies, claiming hydrocarbons were inaccurately measured when shipped between storage facility and chemical plant, resulting in an imbalance in the plant’s favor. The chemical company insisted the measurement was accurate. The dispute was about measurement; i.e., math. Key players and their lawyers met, reviewed data, and found that the storage company had incomplete data. The lawsuit was dismissed without a single deposition.

Mediate without a mediator
Another option is to have a meeting similar to a mediation, but without a mediator. The lawyers each make a short statement of the facts and law supporting their clients’ positions, including, when appropriate, specific contract language, communications, or other documents. A lawyer should note the amount of time, money and effort that will be involved if the parties do not resolve the case and encourage the clients to explore options for a business resolution. The client representatives must be prepared to know what cards to play and what cards to hold back for trial if the case does not settle. They also should be able to offer different business solutions.

There will always be cases that cannot be resolved early. But many disputes can be resolved if the parties have a face-to-face meeting. These are opportunities to keep businesses running – without going into a courtroom.

Kathy Silver is a trial lawyer handling oil and gas disputes and commercial litigation in the Houston office of Jackson Walker LLP. She can be reached at ksilver@jw.com.

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