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Energy & the Law

Arbitration in Louisiana – Another Budding Romance?

Posted in Contract Disputes, Litigation

omegaAre Louisiana courts as enamored with arbitration as their Texas counterparts? Looks like it. East of the Sabine, submitting your dispute to arbitration means you are pretty much saying adieu, farewell and bye-bye to a judicial mulligan.

In ExPert Oil & Gas, LLC v. Mack Energy Co., et al an arbitrator’s mistaken calculation did not nullify an arbitration award.

Round one

ExPert was the operator under a participation agreement and JOA. An audit of the joint account found that some expenditures were unauthorized and should be repaid. Neither party agreed with the auditor’s report and the matter was arbitrated. After an eight day hearing the arbitrator rendered a reasoned award ordering ExPert to credit $1.5 million to the joint account.  The district court, First Circuit, and Louisiana Supreme Court confirmed the arbitration award.

The real issue

After the Supreme Court affirmed the judgment confirming the award, the arbitrator revealed “that he committed gross professional negligence when performing the calculation of three categories of credits in the arbitration award” (so said ExPert). Those credits totaled $434,000. Never shirking a good fight, ExPert sued, alleging that the judgment was a relative nullity because of “ill practices”, referring to the arbitrator’s admission of his mistake. Accepting all facts in the petition as true, the question was whether ExPert was legally entitled to relief.  A judgment may be annulled by fraud or ill practices but not for mere error. La. Code Civ. P. 2004(B) is sufficiently broad to encompass all situations in which a judgment is rendered through an improper practice or procedure.

“Ill” practices?

Ill practices includes any improper practice or procedure which operates, even innocently, to deprive a litigant of a legal right. There are two criteria to determine whether a judgment was obtained by actionable fraud or ill practices:

  • The circumstances under which the judgment was rendered showed the deprivation of legal rights of the litigant seeking relief; and
  • Enforcement of the judgment would be unconscionable and inequitable.

The punch line

The court declined to vacate the award: By substituting arbitration for litigation, the parties are presumed to accept the risk of procedural and substantive mistakes by the arbitrator of either fact or law, which are not reviewable by the courts. ExPert failed to state a cause of action for nullity of the original judgment.

Questions, observations and one thing to ponder

  • Would the result have been different if the error had been presented during round one? The reasoning suggests it would not, but the court doesn’t say.
  • Could the error been discovered sooner, especially with a reasoned award?
  • If the amount in controversy allows, go with three arbitrators for a better chance of an error-free award.
  • Despite this unfortunate result, arbitration has its advantages.
  • Should Mack have just acknowledged the injustice and agreed to return the $435,000? Would you?

A musical interlude for the case.

And one for Christmas Advent.