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Arbitration Over Offshore Leases Does Not Warrant Lawsuit Dismissal


Co-author Justin Cowan

Just because parties agree that disputes over a contract will be subject to binding arbitration doesn’t mean there won’t be wrestling at the courthouse beforehand. In LLOG Exploration Offshore, LLC v. Samson Contour Energy E&P, LLC, the United States District Court for the Eastern District of Louisiana resolved a motion to compel arbitration and to dismiss a lawsuit by staying the litigation pending the outcome of the arbitration but not dismissing the case.

Facts

Plaintiff LLOG and Samson entered into a Purchase and Sale Agreement under which Samson acquired four Gulf of Mexico oil and gas leases from LLOG. Samson later assigned the leases to a corporate predecessor to Fieldwood Energy Offshore, LLC . In 2020, Fieldwood filed for bankruptcy and indicated its intent to abandon the leases and have prior lessees perform plugging, abandoning, and decommissioning of the wells. The bankruptcy court confirmed Fieldwood’s plan and the Bureau of Safety and Environmental Enforcement ordered Samson and LLOG to decommission the wells, platforms and pipelines.

Procedure

In response to BSEE’s orders, LLOG demanded that Samson begin performing BSEE’s mandated maintenance and monitoring.  Samson ignored the letter and failed to comply with BSEE’s orders, leading LLOG to sue Samson for breach of contract and declaratory judgment. LLOG alleged that, by the terms of the PSA, Samson agreed to assume all costs and liabilities associated with plugging, abandoning, and decommissioning the wells and other structures on the four leases. Samson filed a motion to compel arbitration and to dismiss pursuant to the PSA, which both parties agreed contained a valid and enforceable agreement to arbitrate.  The only issue before the Court was whether to dismiss the underlying lawsuit or stay the proceedings pending arbitration.

Holding

The Court acknowledged the applicability of Section 3 of the Federal Arbitration Act, which states that upon being satisfied that an issue involved in a suit is referrable to arbitration under an agreement, the court shall on application of one of the parties stay the trial of the action until arbitration has been had.  Although Section 3 contemplates a stay, the Fifth Circuit has noted that “[t]his rule…was not intended to limit dismissal of a case in proper circumstances,” and that the “weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.”

However, dismissal is not required. Instead, courts have discretion to dismiss or stay a case in favor of arbitration.  The Court held that Samson provided no reason for the Court to exercise its discretion in favor of dismissal.  LLOG, on the other hand, provided multiple reasons to stay the case, including that a stay has the advantage over dismissal by avoiding the time and expense of opening a new case and allowing the Court to reopen and restore a case to its trial docket upon a motion from any party, should circumstances change (e.g. if the arbitrators deem a claim or party non-arbitrable).  Accordingly, the Court granted Samson’s motion to compel arbitration but denied its motion to dismiss, choosing to stay the case pending arbitration.

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