No recovery: Consequences of the choice of the litigation route | Baker
A Houston oil and gas consultancy waived its right to seek arbitration in a long-standing dispute over its “persistent pursuit of litigation,” the Fifth Circuit was held last month in Int’l Energy Ventures Mgmt. LLC v United Energy Grp., Ltd., 2021 WL 2177062 (5th Cir. 28 May 2021). International Energy Ventures Management (IEVM) first sued United Energy Group (UEG) in Texas state court in 2013 for alleged non-payment for consulting services. The agreement governing these services contained an arbitration clause, which the ENPI initially ignored – until it became clear that its litigation strategy was failing. At this point, three months after the start of the case, the ENPI decided to impose arbitration. Since then, the dispute has made its way through one state court, one federal court, two arbitrations and vice versa. Last month, the Fifth Circuit said, âEnough. “
For nearly eight years, the ENPI has strategically oscillated between litigation and arbitration, in search of a more favorable forum. When the likelihood of a state court proceeding seemed low, the ENPI decided to impose arbitration; when the first arbitrator considered that the ENPI had waived its right to arbitration, he questioned himself; When this ongoing dispute was resolved in favor of the UEG, the ENPI filed a second legal action in a state court and simultaneously initiated a second arbitration.
This strategy, according to the Fifth Circuit, forced the UEG to incur significant expenses and delays, causing sufficient damage to justify the ENPI waiving its right to demand arbitration. Importantly, however, the Fifth Circuit made it clear that it is the courts, not the arbitrators, who make this decision. Two arbitrators ruled on whether the ENPI had waived its right to arbitrate through litigation – both were found to have exceeded their powers under the agreement, and the Fifth Circuit has therefore settled the question himself.
This case therefore provides a valuable lesson in the drafting of arbitration clauses. The arbitration clause required here that “[a]controversies arising from [the agreement] or its interpretation is regulated by a[n]
. . . arbitrator. . . in accordance with the rules of the American Arbitration Association. This language, the Fifth Circuit argued, was not “clear and unmistakable” enough to rebut the general presumption that courts – not arbitrators – resolve the issue of litigation waiver. Since the AAA rules “do not expressly give arbitrators the power to resolve waiver issues through judicial process,” simply invoking the rules in an arbitration clause does not give an arbitrator the power to resolve waiver issues through the courts. authority to resolve the problem.
Therefore, an arbitration clause must contain an explicit “clear indication” that the parties have agreed to arbitrate the waiver issue through conduct, lest an arbitrator who resolves the issue be considered to have exceeded his or her authority.