AUSTIN - The Texas Supreme Court will soon hear arguments in a case challenging an arbitration provision in a contract between two offshore oil producers, Total E&P USA and MP Gulf of Mexico.
Court records show Total filed a petition for review on April 2, 2021, requesting that the Supreme Court reverse a court of appeals judgment that held an arbitration clause delegates arbitrability to the arbitrator.
According to Total’s petition, Total and Murphy were parties to oil-and-gas contracts. After Murphy billed Total for $41 million in costs, Total sought a judicial declaration regarding the proper allocation of costs under the parties’ Cost Sharing Agreement, which contains no arbitration provision for cost-allocation disputes arising under that agreement.
Murphy then initiated an arbitration before the American Arbitration Association, asserting that AAA arbitration was mandated under a second agreement, the System Operating Agreement, which does contain an arbitration clause, the petition states.
While the trial court denied Murphy’s motion to compel arbitration, the appellate court reversed, holding that the trial court had no authority to decide arbitrability under the System Operating Agreement, the petition states.
Total is arguing that the arbitration clause does not delegate arbitrability because it does not encompass all relevant disputes.
Murphy’s response states that under the Common System Operating Agreement’s arbitration clause, even an “alleged breach” must be submitted to arbitration.
Court records show that the Texas Civil Justice League filed an amicus curiae brief on Sept. 6, asking the Supreme Court to affirm the appellate court’s decision.
“The Petitioner has asked this Court to rule that parties cannot delegate arbitrability to the arbitrator in an agreement that incorporates AAA rules by reference,” TCJL’s brief states. “Put another way, they must specifically carve out AAA Rule 7(a) and separately provide for its application. If the Court were to adopt this position, it would represent a breath-taking public incursion into the realm of freely-made private agreements.”
Rule 7(a) grants an arbitrator the power to rule on his or her own jurisdiction.
The case is set to be heard on Sept. 20.
Case No. 21-0028