Fifth Circuit Rules in Favor of Beck Redden Client in Force Majeure Dispute Over Natural Gas Supply Contracts

  • January 23, 2013

On January 22, 2013, the U.S. Court of Appeals for the Fifth Circuit issued a decision in favor of our client in a consolidated appeal involving the interpretation of force majeure clauses in the natural gas industry.  Following the destruction caused by Hurricanes Katrina and Rita in 2005, our client—a natural gas marketing company—declared force majeure and suspended its delivery obligations to its customers when its own gas supplies were suspended by its upstream suppliers.  Two downstream customers sued on the theory that, even though our client’s suppliers had declared force majeure due to the hurricanes and suspended their supply obligations, our client could have found replacement gas on the spot market for delivery to its customers (at a dramatically inflated price).  These cases posed significant questions about whether, and when, a natural gas supplier owes an obligation to secure replacement gas on the spot market during an event of force majeure.

The two cases were consolidated for trial in the U.S. District Court for the Southern District of Mississippi and a bench trial was handled by Beck Redden partners David Jones and Jeff Golub.  Following that trial, the district court ruled in favor of our client on one contract and against our client on the other contract, reasoning that differences in the language and commercial context of the two contracts dictated different results.  Both cases were appealed to the Fifth Circuit.

In an opinion by Judge Edith Brown Clement, the Fifth Circuit ruled in favor of our client in both cases, holding that—on the language of these contracts and the record of these cases—our client had no duty to secure replacement gas on the spot market during an event of force majeure.  The appeal was handled and orally argued by Beck Redden appellate partner Russell Post.