Most of Judgment Against Oxy Subsidiary Overturned
A federal appeals court reversed most of a $412.2-million judgment against an Occidental Petroleum Corp. natural gas subsidiary in a suit charging breach of contract and an attempt to monopolize the market, Occidental announced Tuesday.
In an opinion dated Monday, the U.S. 10th Circuit Court of Appeals overturned a 1986 ruling that would have required Natural Gas Pipeline Co. of America, a subsidiary of Occidental’s MidCon Corp., to pay the money to Colorado Interstate Gas Co., a unit of Coastal Corp.
The appeals court let stand an $8-million judgment against Natural Gas for interfering with a contract between Colorado Interstate and a third natural gas supplier.
“It’s a pretty significant victory for Occidental,” said Gerald Stern, general counsel for Los Angeles-based Occidental.
On Tuesday, Coastal vowed to appeal the decision, either by seeking a rehearing before the 10th Circuit or by going to the U.S. Supreme Court.
“(The ruling) says it’s all right to use questionable business practices, that a little monopoly is all right . . . as long as it’s not forever,” said James A. Bailey, a spokesman for Houston-based Coastal.
Bailey also argued that the $8-million judgment would end up closer to $25 million when interest was included. He said Coastal was still reviewing the ruling and had made no decision on when to file an appeal.
The appeals court ruling is not expected to affect either company’s financial health. Stern said Occidental had made no provisions yet to pay any judgments arising from the suit.
The ruling also won’t set any precedents for the industry, in which such disputes are common, observers said. “No one expected (Colorado Interstate) to prevail on appeal to the full extent,” said M. Craig Schwerdt, an oil industry analyst with Seidler Amdec Securities Inc. in Los Angeles.
The appeals court overturned a 1986 ruling by a U.S. District Court in Wyoming. The suit, filed in 1983 by Colorado Interstate, grew out of a dispute over a 1982 contract with Natural Gas Pipeline similar to others prevalent in the industry at the time.
Dispute Over Contract
When natural gas prices were relatively high or rising, companies would contract to buy gas at fixed prices. When gas prices began falling in the early 1980s, some companies broke their contracts. Several lawsuits resulted; most were settled out of court.
Colorado Interstate’s suit alleged that Natural Gas broke its seven-year contract after only a year. Under the contract, Natural Gas was to buy nearly 200 million cubic feet of gas per day from Colorado Interstate.
The suit further alleged that Natural Gas interfered with Colorado Interstate’s relationship with a third supplier, Champlin Petroleum Co., which is now called Union Pacific Resources Co. When Natural Gas stopped buying gas from Colorado Interstate, Colorado was forced to stop buying gas from Champlin, the suit alleged. Not long after, Natural Gas arranged to buy gas directly from Champlin.
The suit also charged that Natural Gas was trying to monopolize the market for long-distance transportation of natural gas produced in Wyoming for its Trailblazer Pipeline System, a group of three pipelines.
After a monthlong trial, a federal jury ruled against Natural Gas in 1986. After being cut in subsequent rulings, the eventual judgment amounted to $60 million on the breach of contract issue, $343 million on the antitrust issue (which were triple damages) and $8 million for contract interference, Stern said.
The appeals court reversed the breach of contract ruling, upholding Occidental’s argument that its actions were required under Federal Energy Regulatory Commission rules, Occidental said. The appeals court also found no evidence of a monopoly attempt, though it let stand the contract interference finding.
