Wednesday October 21, 2020
A Houston state judge has awarded Vitol Americas Corp. $147 million after a contract dispute between the energy and commodities trader and Targa Channelview played out over a five-week Zoom bench trial.
The trial is believed by the lawyers involved to be the longest bench trial conducted over Zoom in Texas state courts and certainly the longest Zoom bench trial for a corporate dispute.
The dispute dates to December 2015, when Targa and Noble Americas Corp. (later acquired by Vitol) agreed to go into business together to process crude oil and condensate into splitter products — marketable products such as jet fuel and liquefied petroleum gas. In the contract, Targa agreed to process crude and condensate supplied by Noble in exchange for seven prepayments of $43 million each.
However, delays continued to occur on Targa’s end — so much so that it failed to bring its facility online by the deadline laid out in the contract. When that occurred, Vitol exercised its right to terminate the contract and asked Targa to return its prepayments, which had added up to roughly $129 million.
After Targa refused, Vitol filed suit in late 2018.
The heart of the case was whether the contract allowed Vitol to simply back out of the arrangement, no strings attached, or whether it could also get its money back.
Targa, which was represented by Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, argued at trial that termination was Vitol’s sole and exclusive remedy.
“We’re not faulting them for terminating,” AZA partner Tim Shelby, Targa’s lead lawyer at trial, said during closing arguments. “But they had one remedy, and that one remedy was termination. And they picked their path. … They elected to terminate, and that election has consequences under the parties’ agreement, under the specific language they negotiated.”
But because Vitol is “the most aggressive trading firm in the entire world,” Shelby continued, “They decided, ‘You know, we’re just going to roll the dice; we’re going to terminate. And then, who cares? We’ll just file a lawsuit and see what happens.’”
Vitol argued the opposite.
“We’ve talked about how to interpret contracts in the past, which is you do something that’s reasonable,” Vitol’s lead lawyer, Lee Kaplan of Smyser Kaplan & Veselka, said during closing arguments. “You avoid, when possible, a construction which is unreasonable, inequitable and oppressive. And we believe that Targa’s proposed interpretation would result in a forfeiture by Vitol. That’s particularly unreasonable given the rule that the law abhors forfeitures.”
The parties did not have to wait long at all for a ruling. Immediately following closing arguments, Harris County District Judge Larry Weiman said he was ruling for Vitol. He ordered Targa to pay back Vitol the $129 million plus prejudgment interest, which the Vitol anticipates will be $18 million.
“There’s no forfeiture provision that states that Vitol would forfeit $120 million that was prepaid,” Judge Weiman said when he ruled. “The prepayment represents a deposit. In accounting terms, it’s generally considered to be a liability on the part of the party that’s holding prepaid funds for the deposit.
While Judge Weiman declined to find that Targa had committed fraud with respect to Vitol’s warranty claims, he did find Targa committed fraud by failing to communicate to Vitol material problems and obstacles as it continued to face delays with its splitter facility. He ordered Targa to pay $10.5 million in fraud damages.
“Targa is confident in its positions, and it looks forward to appealing the decision in the very near future,” Shelby told The Texas Lawbook.
The case is presumed to be one Judge Weiman’s last — if not the last — lengthy corporate trials before he exits the bench. Known as a prolific trial judge, Weiman was up for reelection this year but got defeated in the Democratic primary by Houston lawyer Jeralynn Manor. It’s now a race between Manor and Republican Sharon Hemphill.
“He has tried more cases than probably any other judge in the state over the last 12 years,” Kaplan told The Lawbook. “He takes justifiable pride in trying cases. It would have been easy for [him] to say, ‘Look, I lost in the primary. I’m not going to be here anymore, so I’m going to just check out.’”
Kaplan and the rest of Vitol’s trial team at Smyser Kaplan & Veselka are among a growing group of lawyers who have warmed up to the idea of keeping Zoom bench trials around after COVID-19 once they have actually experienced one.
Practitioners near and far have commented over the last several months that it took a pandemic for the profession to realize that certain aspects of the practice of law — be it flying across the country just to attend a two-hour hearing or coordinating a deposition months in advance so that everyone’s schedules permit for them to be in the same room — can be carried out much more efficiently over Zoom or other electronic platforms.
“I just feel like Zoom trials can be very efficient,” Kaplan said. “You don’t have to schlep everything to and from the courthouse — you have the material with you. For a nonjury trial, I think it works well.”
The trial spanned 19 days over five weeks. Judge Weiman heard evidence from 18 live witnesses and several pre-taped depositions.
“They did a hell of a job,” he said. “They took the labor and work, knew the record, were fast on their feet and were thoughtful. They did everything right.”
Judge Weiman expressed remarkably high praise for all lawyers involved at the end of the trial.
“I want to acknowledge, first of all, that having presided in the past 12 years over 364 jury trials and 210 bench trials prior to this, I’ve never had finer counsel on both sides of the case,” he said. “I’ve never had a case that’s been better tried, prepared or better advocacy for each of your clients than I’ve seen during this trial.”
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