TOTAL E&P USA, Inc. v. Marubeni Oil & Gas (USA), Inc.REPLY to Response to 231 MOTION for Attorney Fees, 234 Corrected MOTION for Prejudgment and Post-Judgment InterestS.D. Tex.March 13, 20191 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION TOTAL E&P USA, INC. * CIVIL ACTION NO. Plaintiff * 4:16-cv-02671 * v. * JUDGE NANCY ATLAS * MARUBENI OIL & GAS (USA) INC. * Defendant * **************************************** MOGUS’S REPLY IN RESPONSE TO TOTAL’S OMNIBUS RESPONSE TO MOGUS’S MOTIONS FOR PREJUDGEMENT AND POST-JUDGMENT INTEREST AND ATTORNEY’S FEES AND COSTS Marubeni Oil & Gas (USA) LLC (“MOGUS”) hereby responds to the arguments raised by Total E&P USA, Inc. (“Total”) in its omnibus opposition1 to MOGUS’s Motion for Prejudgment and Post-Judgment Interest2 and MOGUS’s Motion for Attorney’s Fees and Costs.3 The plain language of the CEPS OA requires that the decommissioning costs unpaid by ATP and Total “shall bear interest . . . plus attorney’s fees, court costs, and other costs in connection with the collection of the unpaid amounts.” Such recovery was not made contingent on first obtaining an approved AFE or sending detailed billing statements to anyone other than ATP and Black Elk. The Court should reject Total’s arguments and enter a Final Judgment in favor of MOGUS and against Total in the principal amount of $12,677,584 as of June 30, 2017 1 Dkt. 239 (“Total Opposition”). 2 Dkt. 234. 3 Dkt. 231. Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 1 of 10 2 plus: (i) prejudgment interest in the amount of $1,744,559 calculated as of February 26, 2019; (ii) any prejudgment interest that continues to accrue at the contract rate until entry of the Final Judgment; (iii) post-judgment interest from the date of the Final Judgment until Total fully pays the judgment; (iv) attorney’s fees in the amount of $2,459,057.42; and (v) costs in the amount of $625,820.07. A. The AFE Provision in Section I.3.B Does not Apply. In seeking to avoid liability for interest and attorney’s fees, Total argues that such amounts are not recoverable “when an AFE is not approved.”4 But the specific AFE provision on which Total relies speaks only to “non-payment or short payment of Joint Account billings” and does not address whether interest on such billings or attorney’s fees and costs incurred to collect on those billings are recoverable.5 The Joint Account billings, or “JIBs,” to which this provision refers are the detailed bills for decommissioning costs incurred by MOGUS.6 These JIBs reflect the principal amounts of decommissioning costs incurred by MOGUS and do not include interest or attorney’s fees.7 Recovery of interest and attorney’s fees is instead addressed separately in the preceding paragraph of the accounting procedures. That provision does not tie the operator’s entitlement to interest or 4 Total Opposition, Dkt. 239, at pp. 2-6. 5 CEPS OA, Dkt. 234-2, at ¶ I.3.B of Exhibit C thereto (ECF p. 73) (emphasis added). 6 See Declaration of Oscar Hartman (“Hartman Declaration”), attached hereto as Exhibit A, at ¶ 4. 7 See id. at ¶ 5 (“The JIBs reflect only the principal amounts of decommissioning costs incurred by MOGUS and do not include any interest on those amounts. The JIBs also do not include MOGUS’s costs incurred in connection with this litigation, including any attorneys’ fees.”). The JIBs sent to ATP collectively amount to 566 pages and, due to the volume, have not been attached to this reply. The JIBs were provided to the Court with the Pretrial Order in globo as MOGUS Exhibit 27. Additional copies can be provided to the Court upon request. Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 2 of 10 3 attorney’s fees to an approved AFE. Rather, the relevant provision simply states that “the unpaid balance shall bear interest . . . plus attorney’s fees, court costs, and other costs in connection with the collection of the unpaid amounts.”8 Moreover, the question of whether Total was justified in its “non-payment . . . of Joint Account billings” has already been resolved against Total. On August 24, 2018, the Court granted summary judgment in favor of MOGUS finding that Total is “liable for its proportionate share of the costs of decommissioning CEPS.”9 In opposing summary judgment, Total never claimed that an approved AFE was required for the decommissioning work.10 It is only now – more than six months after Total has already been found liable – that Total claims its “obligation to pay . . . do[es] not apply where the AFE in connection with the at-issue activity was ‘not approved.’”11 That issue was resolved long ago and cannot be revived now in the context of interest and attorney’s fees. Total did not raise this argument on summary judgment because it knows that AFE approval was not required for these operations.12 In the pretrial order, both parties 8 CEPS OA, Dkt. 234-2, at ¶ I.3.B of Exhibit C thereto (ECF p. 73). 9 Dkt. 181 (adopting Dkt. 163, p. 25). 10 Total argued only that MOGUS should have sent AFEs to Total – not that such AFEs needed to be approved. The Court rejected that argument, finding that “Total’s rights – unlike its obligations – under the CEPS Operating Agreement were extinguished upon its assignment of the agreement to ATP” and that “Total had no rights to notice and participation, having assigned those rights to ATP.” Dkt. 181, at p. 4. 11 Total Opposition, Dkt. 239, at pp. 3-4. 12 See CEPS OA, Dkt. 234-2, at ¶ 11.3 (ECF p. 54) (providing that the operator “shall” conduct the government-mandated abandonment and that non-operators “will” pay their share). Total’s position also ignores that an AFE was approved for the original installation of the CEPS. Total’s election to participate in that AFE bound Total not just to pay for any costs of drilling but also any costs associated with the ultimate abandonment of the CEPS. Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 3 of 10 4 stipulated that “CEPS was required to be abandoned under the federal regulations because it was no longer useful for operations.”13 As a government-mandated operation, approval of an AFE – an Authorization for Expenditure – was not required under the operating agreement.14 In fact, Total’s own accounting expert, Mike Cougevan, explicitly confirmed this in his expert report: In such a situation [where decommissioning work is required by the government], a non-operator cannot “non-consent” or otherwise elect to not participate in the work, as it can certainly elect to do if the decommissioning work is not required by a governmental authority.15 Perry Murphree, former Chief Operating Officer of MOGUS, likewise testified that the non-operator does not “have an option . . . because it’s a requirement.”16 An approved AFE is required only for those operational activities in which the parties have an opportunity to vote on whether to participate. But, for decommissioning “required by a governmental authority,” there is no discretion for the parties to decide whether to participate. Rather, the agreement includes mandatory language providing that 13 Dkt. 212, at p. 7, ¶ 21 (emphasis added). 14 See CEPS OA, Dkt. 234-2, at ¶ 11.3 (ECF p. 54). AFE approval was also not required because the two other parties, ATP and Black Elk, were both in default and, as a result, were not “permitted to exercise any of [their] rights under [the] Agreement, including, without limitation, the right to vote . . . .” Id. at ¶ 15.10 (ECF pp. 59-60). The definition of “Default” includes, among other things, “a Common System Owner becoming bankrupt or insolvent . . . .” Id. Additionally, it has been well-established that ATP, through the bankruptcy filings, approved of MOGUS becoming operator and performing the decommissioning work. Total itself approved of the work when it represented in a bankruptcy filing that it did not object to “[c]ompletion by MOGUS of plugging and abandonment and decommissioning work ordered by BOEM and BSEE.” Dkt. 92-21, at p. 2. Therefore, additional approval through an AFE was not required. 15 See October 27, 2017 Expert Report of Michael W. Cougevan attached hereto as Exhibit B, at ECF p. 10. 16 See excerpts of the deposition of Perry Murphree, attached hereto as Exhibit C, at 164:12-17. Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 4 of 10 5 the operator “shall” complete the abandonment and that the non-operators “will” pay their share: 11.3 Abandonment Operations Required by Governmental Authority: The Operator shall conduct the abandonment of the Common System as required by law and any governmental authority, and the Abandonment Costs . . . will be shared by the Common System Owners based on the Common System Owner’s Equity Interest at the time of abandonment.17 Because there is no economic incentive for a non-operator to ever elect to participate in such operations, this mandatory language is essential to avoid a stalemate preventing the completion of a government-mandated abandonment due to a party’s refusal to participate. A similar issue was addressed in the Apache v. W&T case before Judge Hittner.18 In that case, the operator, Apache, sought to recover a share of government-mandated plugging and abandonment costs from the non-operator, W&T, pursuant to a joint operating agreement between the parties.19 Like the CEPS OA, the operating agreement in Apache included a nearly identical provision addressing government-mandated abandonment operations: 18.4 Abandonment Operations Required by Governmental Authority: The Operator shall conduct the abandonment and removal of any well, Production System or Facilities required by a governmental authority, and the Costs, risks and net proceeds will be shared by the 17 CEPS OA, Dkt. 234-2, at ¶ 11.3 (ECF p. 54) (emphasis added). By comparison, Article 11.1 of the CEPS OA, which does not concern abandonment “required by a governmental authority,” sets forth a procedure for proposing and voting on abandonment operations. Id. at ¶ 11.1 (ECF pp. 53- 54). 18 Apache Deepwater, LLC v. W&T Offshore, Inc., 2017 WL 6326886 (S.D. Tex. Aug. 25, 2017). 19 Id. at *2. Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 5 of 10 6 Participating Parties in such well, Production System or Facilities according to their Participating Interest Share.20 After the jury returned a verdict in favor of Apache, W&T moved to have the verdict set aside because there was no signed AFE approving the abandonment operations conducted.21 Judge Hittner denied the motion and upheld the jury’s finding that an AFE is not required “when plugging and abandoning the well was required by section 18.4.”22 Similarly here, partner approval, through an AFE or otherwise, was not required for the abandonment of the CEPS – a fact acknowledged by Total’s own accounting expert. Therefore, the approval or non-approval of an AFE has no effect on MOGUS’s rights to recover interest and attorney’s fees from Total. 20 The operating agreement in that case is publicly available at Dkt. 40-2 in Apache Corp., et al. v. W&T Offshore, Inc., Case No. 4:15-cv-00063 (S.D. Tex.). A copy of the agreement is also attached hereto as Exhibit D. 21 Apache, 2017 WL 6326886, at *2. Although Total claims that the jury’s verdict was based on parol evidence unique to that case, Total never identifies what that evidence is or how that evidence makes the agreement somehow distinguishable from the CEPS OA. See Total Opposition, Dkt. 239, at p. 5. 22 Apache, 2017 WL 6326886, at *2. In an earlier ruling, Judge Hittner had also awarded interest, litigation costs, and attorney’s fees to Apache under accounting procedures that contain the same pertinent language as the procedures on which Total relies here (“Acceptable reasons for non- payment or short-payment of Joint Account billings are as follows . . . when an AFE is not approved.”). Apache Deepwater, LLC v. W&T Offshore, Inc., 2017 WL 6326141, at *5-8 (S.D. Tex. May 31, 2017); see also Exhibit C hereto, at ECF p. 103. In addition to Apache, in the predecessor liability cases that have addressed the issue, courts found the predecessor liable for interest, litigation costs, and attorney’s fees. See Chieftain Int’l (U.S.), Inc. v. Denny Offshore Expl., Inc., 2008 WL 977356 (E.D. La. Jan. 25, 2008) (report and recommendation adopted by district judge in Dkt. 193 of Chieftain Int’l (U.S.), Inc. v. Denny Offshore Expl., Inc., Case No. 03- 1346 (E.D. La. Apr. 8, 2008)); see also Chieftain Int’l (U.S.), Inc. v. Statoil Expl. (U.S.), Inc., 2002 WL 10462 (E.D. La. Jan. 2, 2002) (same). Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 6 of 10 7 B. MOGUS Fulfilled the Requirements of Section I.2.A when it Sent JIBs to the “Non-Operators” – ATP and Black Elk. Total does not contest that MOGUS sent “proper bills” to ATP and Black Elk beginning in June 2014.23 However, Total argues that MOGUS “did not meet the contractual requirement” until it also sent detailed billing statements to Total in March 2017.24 Total is wrong. Under Section 1.2.A of the accounting procedures, MOGUS’s responsibility as operator was to “bill Non-Operators . . . for their proportionate share of the Joint Account for the preceding month.”25 It is these bills to Non-Operators – not predecessors like Total – that must be “accompanied by statements which identify the authority for expenditure, lease or facility, and all charges and credits summarized by appropriate categories of investment and expenses” (i.e., the JIBs).26 It is undisputed that, beginning in June 2014, MOGUS sent proper JIBs to ATP and Black Elk, who were the only two “Non-Operators” at the time MOGUS performed the work.27 Thus, contrary to Total’s arguments, MOGUS appropriately sent the JIBs to the correct parties under the agreement. 23 Total Opposition, Dkt. 239, at p. 6. 24 Id. at p. 7. 25 CEPS OA, Dkt. 234-2, at ¶ I.2.A of Exhibit C thereto (ECF p. 73) (emphasis added). See also note 14 supra (Although MOGUS sent AFEs and JIBs to ATP and Black Elk, MOGUS had no duty to do so because both parties were in default and had lost their rights). 26 CEPS OA, Dkt. 234-2, at ¶ I.2.A of Exhibit C thereto (ECF p. 73). 27 See Pretrial Order, Dkt. 212, at p. 7, ¶ 16 (“Since January 2010, the interests in CEPS have been held by MOGUS, ATP, and Black Elk . . . .”); see also excerpts of the deposition of Total’s operating agreement expert, Kirk Wardlaw (“Wardlaw Deposition”), attached hereto as Exhibit E, at 159:18-160:8 (Q: [I]s it true that [assignors] are also no longer a nonoperator, under the agreement? A: They are not a party to the operating agreement.). Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 7 of 10 8 MOGUS was under no obligation to also send detailed JIBs to Total.28 It has been established in this case that Total had assigned its rights under the CEPS OA to ATP in 2006. The Court recognized the legal effect of that assignment on summary judgment, finding that “Total’s rights – unlike its obligations – under the CEPS Operating Agreement were extinguished upon its assignment of the agreement to ATP.”29 Even Total’s own operating agreement expert, Kirk Wardlaw, agreed in his deposition that the Canyon Express operating agreements did not require the sending of JIBs to Total.30 Total’s arguments to the contrary lack merit and do not support a reduction to the interest, costs, and attorney’s fees requested by MOGUS. C. Total Concedes that MOGUS’s Attorney’s Fees and Costs are Reasonable. In its opposition, Total never questions the reasonableness of MOGUS’s lodestar calculation or its litigation costs. While Total has challenged MOGUS’s entitlement to attorney’s fees under the contract, it has provided nothing to overcome the “strong presumption that [MOGUS’s] lodestar figure is reasonable.”31 MOGUS’s lodestar and litigation costs should therefore be accepted in full. 28 Total’s attempt to resort to an equitable argument on this point is not credible. Since the ATP bankruptcy, Total has consistently refused to acknowledge any responsibility to pay for any share of the decommissioning costs. The lack of detailed JIBs provided to Total had absolutely no bearing on its refusal to pay. 29 Dkt. 181, at p. 4. 30 See Wardlaw Deposition, Exhibit E hereto, at 160:21-162:13 (recognizing that a predecessor does not need to receive AFEs and JIB because it is “not a party to the operating agreement”). 31 Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 554 (2010) (internal quotation marks omitted). Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 8 of 10 9 CONCLUSION For these reasons, MOGUS requests that the Court grant MOGUS’s motions and enter a Final Judgment in favor of MOGUS and against Total in the principal amount of $12,677,584 as of June 30, 2017 plus: (i) prejudgment interest in the amount of $1,744,559 calculated as of February 26, 2019; (ii) any prejudgment interest that continues to accrue at the contract rate until entry of the Final Judgment; (iii) post-judgment interest from the date of the Final Judgment until Total fully pays the judgment; (iv) attorney’s fees in the amount of $2,459,057.42; and (v) costs in the amount of $625,820.07. Respectfully submitted, LOOPER GOODWINE P.C. /s/ Paul J. Goodwine Paul J. Goodwine (Attorney-in-Charge) LA Bar No. 23757; SDTX ID No. 437800 Holly O. Thompson LA Bar No. 31277; SDTX ID No. 2953818 Taylor P. Mouledoux LA Bar No. 31889; SDTX ID No. 1581156 Taylor P. Gay LA Bar No. 35140; SDTX ID No. 3251449 650 Poydras Street, Suite 2400 New Orleans, Louisiana 70130 Telephone: (504) 503-1500 Telecopier: (504) 503-1501 pgoodwine@loopergoodwine.com hthompson@loopergoodwine.com tmouledoux@loopergoodwine.com tgay@loopergoodwine.com -and- Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 9 of 10 10 SCHONEKAS, EVANS, McGOEY & McEACHIN, LLC Kyle Schonekas LA Bar No. 11817; SDTX ID No. 305350 Joelle F. Evans LA Bar No. 23730; SDTX ID No. 436275 Andrea V. Timpa LA Bar No. 29455; SDTX ID No. 3362943 909 Poydras Street, Suite 1600 New Orleans, LA 70112 Telephone: (504) 680-6050 Telecopier: (504) 680-6051 kyle@semmlaw.com joelle@semmlaw.com andrea@semmlaw.com Attorneys for Marubeni Oil & Gas (USA) LLC CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the above and foregoing pleading has been served on all counsel of record for the parties via e-mail, FedEx and/or by electronic filing in the Court’s electronic filing system on this 13th day of March 2019. /s/ Paul J. Goodwine Paul J. Goodwine Case 4:16-cv-02671 Document 240 Filed on 03/13/19 in TXSD Page 10 of 10