In a much-awaited and pivotal decision in the PG&E chapter 11 proceeding, the U.S. Bankruptcy Court for the Northern District of California held that it not only has exclusive jurisdiction over the rejection of wholesale power-purchase agreements, but that the Federal Energy Regulatory Commission has no such jurisdiction and any determinations by FERC to the contrary would be void, according to Holland & Hart.

“While the decision might not be surprising to most bankruptcy practitioners, the proposition that FERC has no jurisdiction over the breach or modification of a power-purchase agreement is not only shocking to energy practitioners, but contrary to well-established authority in the energy arena,” the firm said on its website.

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Business owners often fail to carefully review the pre-printed sections of contracts to know what the contract actually says, warns Nancy Park in an article for Best Best & Krieger. The form may include terms that were not intended or conflict with the parties’ intent.

“Reading just the filled-in blanks for key monetary or timing terms may result in unintended consequences,” Park explains. “Also, the form user should beware that the party who drafted it may have included clauses favorable to that party. For instance, a broker-drafted form may include payment protections for that party, even though a buyer and seller are the intended actual signing parties to the contract.”

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A court recently ordered the seller of a car wash property in New Jersey to fully remediate previously undiscovered environmental contamination at the property in accordance with its contractual obligations, according to a post in the Riker Danzig Environmental Law Blog.

Jaan M. Hause explains in the post that “the seller could have more carefully crafted the language of the rider to limit its remediation obligations. Unfortunately for seller, the language in the rider obligating seller to remediate was extremely broad, and thus exposed seller to additional, costly liabilities that it did not intend to assume.”

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The U.S. Chamber of Commerce and other business and employer groups have just submitted amicus briefs calling on the 9th Circuit to reconsider decisions that, in the views of these amici, eviscerate mandatory arbitration provisions, writes Alison Frankel in a Reuters report.

The briefs come in the wake of the 9th Circuit’s June 28 rulings in which plaintiffs claimed they couldn’t be forced into arbitration because they sought injunctions against corporate defendants.

The court found that because California’s policy of allowing consumers to pursue public injunctions does not specifically obstruct arbitration, it’s not precluded by the Federal Arbitration Act.

Read the Reuters article.

By Shane Randolph and Jeff Nicholson
Opportune LLP

With over $370 trillion of global financial contracts referencing LIBOR (London Inter-bank Offered Rate), many oil and gas companies are curious about how the phase-out of LIBOR by 2021 could impact their organization. Many companies are beginning to ask how this transition will impact their organization and what steps can be taken now. The following is a discussion of:

• why LIBOR is being phased out;
• the transition plan for the phase-out;
• items companies should consider; and
• the steps that can be taken now.

Why is LIBOR Being Phased Out?
LIBOR has been the default local and international benchmark interest rate for a diverse range of financial products for decades. The rate is based on various banks’ proprietary observations rather than robust market transactions. This has left the rate vulnerable to manipulation and major rate-fixing scandals came to light starting in 2007. As a result, the U.K.’s Financial Conduct Authority (FCA) decided that it will no longer compel banks to submit LIBOR estimates by the end of 2021.

What is the Transition Plan?
As a response to the issue in the U.S., the U.S. Federal Reserve Board (the “Fed”) convened the Alternative Reference Rates Committee (ARRC) in 2014 to establish a viable alternative to the U.S. dollar LIBOR. The ARRC determined in 2017 that the overnight indexed swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR), a broad treasury repurchase agreement financing rate used when banks borrow or loan treasuries overnight, would be its preferred alternative reference rate. Accordingly, the Fed began publishing the SOFR daily rate on April 3, 2018 to prepare for its use as a benchmark rate.

The current transition timeline proposed by AARC has SOFR being the primary replacement for LIBOR in the U.S. by the end of 2021. The table below shows the ARRC’s anticipated completion dates and milestones to be achieved by those dates.

There are concerns about utilizing SOFR as a benchmark rate, and it will take time for enough liquidity to develop in the SOFR market to alleviate concerns regarding its viability as a benchmark. One issue is that SOFR is a spot rate from the median of overnight transactions, and it is likely to vary materially from day-to-day. Another issue is that SOFR has only a one-day tenor, whereas LIBOR has many different tenors.

What Should Companies Consider?
Companies should inventory all agreements that reference LIBOR. Also, when executing new agreements, management should carefully consider language addressing alternative or fallback rates if LIBOR is unable to be determined. If contracts are not amended to include alternative rates or fallback provisions in the absence of LIBOR before the relevant LIBOR index is discontinued, it could cause settlement issues or render contracts invalid.

From an accounting and financial reporting standpoint, the impact could be substantial. The primary areas affected include hedge accounting and accounting for debt modifications. In addition, discount rates for impairment testing, lease accounting, asset retirement obligations and fair value estimates will need to be assessed. Fortunately, both the U.S. and international accounting regulatory bodies, FASB and IASB, appear to be aligned and will provide significant relief for the transition, particularly in the areas of hedge accounting and debt modifications. As of now, the actions by the FASB and IASB are tentative proposals, but additional guidance should be provided by the end of 2019.

What Steps Can Be Taken Now?
At this stage in the process, companies should increase organizational awareness, carefully monitor the execution of new agreements referencing LIBOR and create an inventory of existing agreements and valuation models.

Increasing organizational awareness will be key for the transition away from LIBOR. While some may be aware of the impending LIBOR replacement, there may be a lack of appreciation of how broadly the event will impact the organization beyond hedging and debt activities. Increasing awareness throughout the organization will also assist in monitoring the execution of new agreements referencing LIBOR.

In summary, the replacement of LIBOR will have a significant impact globally. Oil and gas companies are encouraged to consider the impact to their organization and take steps to assess existing agreements and carefully monitor the execution of new agreements.

As a Managing Director at Opportune, Shane Randolph assists companies and financial institutions throughout North America, South America, Europe and Asia-Pacific in their understanding of what is possible as they deal with the challenges of implementing risk management programs and highly technical accounting pronouncements. He oversees the risk management, derivatives, stock-based compensation and complex securities service offerings of Opportune. He assists clients with the entire risk management life cycle, including strategy, execution, compliance, valuation and hedge accounting. He has undergraduate and graduate degrees in accounting from Oklahoma State University. He also is a member of the American Institute of Certified Public Accountants and maintains a Series 3 Securities License.

Jeff Nicholson is a Senior Consultant in the complex securities, hedging and stock-based compensation practice of Opportune LLP. He holds a Bachelor’s degree in Business Administration and Management from the University of Colorado, Boulder and a Graduate degree in Finance from the University of Colorado, Denver.

For the company that is outsourcing part of its business functions to a third party, reviewing existing third-party contracts for certain key terms is an important part of the outsourcing process, points out Morgan Lewis in a blog post.

Authors Barbara Murphy and Kevin P. Dermody discuss typical terms to focus on when reviewing the third-party contracts: contract expiration date/auto renewal provisions, third-party use rights and restrictions, assignment provisions, pre-paid expenses/annual fees, and termination rights/fees.

Read the article.

Nothing is more basic to private equity deal making than shielding the private equity firm and its funds from liability for the obligations of the fund’s affiliated acquisition vehicles and portfolio companies; and this certainly includes liabilities for breach of an NDA, points out Glenn D. West in the Weil, Gotshal & Manges Global Private Equity Watch blog.

The article discusses a case that distinguishes between affiliates entitled by the non-disclosure agreement that are entitled to receive confidential information and affiliates actually bound by the agreement.

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A Mississippi federal court denied a defendant’s motion for partial summary judgment in connection with a limitation-of-liability clause, according to a post on the Constructlaw blog of Pepper Hamilton.

Anthony Finzio writes that the Court also denied the defendant’s motion for reconsideration, concluding that the defendant had not carried its burden as the movant of demonstrating that the limitation-of-liability clause limited the plaintiff’s rights as a matter of law.

The case is DAK Americas Mississippi, Inc. v. Jedson Engineering, Inc. et al.

Read the article.

 The Dallas Morning News  reports that American Airlines is demanding that the mechanics’ unions pay for hundreds of flight delays and cancellations over the last two months.

“In a new court filing Tuesday, the Fort Worth-based carrier said it wants sanctions ‘sufficient to compensate American for losses caused’ from violations to a June 14 restraining order telling mechanics to cease work slowdowns to punish the company,” writes the News‘ Kyle Arnold.

U.S. District Judge John McBryde found that union maintenance workers conspired to slow down work by refusing overtime, taking more time on jobs and refusing off-site assignments. The unions have denied they slowed down work.

Read the  Morning News article.

The U.S. Bankruptcy Court for the Northern District of California held that it has exclusive jurisdiction over the rejection of wholesale power-purchase agreements, reports Holland & Hart in an article written by Risa Wolf-Smith.

The court also found that the Federal Energy Regulatory Commission has no such jurisdiction and any determinations by FERC to the contrary would be void.

“While the decision might not be surprising to most bankruptcy practitioners, the proposition that FERC has no jurisdiction over the breach or modification of a power-purchase agreement is not only shocking to energy practitioners, but contrary to well-established authority in the energy arena,” writes Wolf-Smith.

Read the article.

Dan Harris, a founder of Harris Bricken and lead writer of the China Law Blog, discusses why he sometimes has to explain to  companies why he never does “template” manufacturing agreements anywhere in the world and why they should not want such an agreement.

The blog post includes part of an email a lawyer in his firm wrote to an international manufacturer, illustrating why an off-the-shelf manufacturing cannot work and makes no sense, even in a rush situation.

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A post on the website of Mackay, Caswell & Callahan discusses the basics of drafting contracts associated with Section 1031 exchanges.

The author explains that this section in the tax code allows taxpayers to use borrowed tax money to purchase more investment or business property.

The article covers the required elements in the exchange agreement, the differences between these agreements and qualified exchange accommodation agreements, assignability, the cooperation clause and release of liability, compliance with receipt requirements, and more.

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Three court cases reveal the importance of ensuring that contracts for an enterprise resource planning software system and other digital transformations be carefully negotiated, writes Marcus Harris in Taft’s Technology Insights blog.

It’s important to remove the possibility that a lawsuit over a failure can be blocked by seemingly harmless clauses that vendors and integrators insert as a matter of routine in their template agreements, he explains.

“Never sign the vendor’s or integrator’s template contract without negotiating and redrafting key provisions – even the boilerplate ones,” Harris advises. “Failing to do so may restrict your ability to sue for damages in the event of a failure.”

Read the article.

A post by Material Handling & Logistics offers 12 tips for a company to reduce legal risk while building a foundation for a long-term relationship with a new transportation provider.

Authors Martin Robins and Lauren Pittelli explain that “the contract is the beginning of your relationship with a transportation provider. A collaborative contracting process with shared goals and understandings, clear expectations and mutual obligations will reduce your company’s legal risk while building a foundation for a long-term relationship.”

The tips cover such topics as due diligence, enforcement practicalities, insurance, performance requirements, and more.

Read the article.

The United States Supreme Court has agreed to resolve a key issue in international arbitration agreements: whether the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards permits a non-signatory to an arbitration agreement to compel arbitration against a signatory to arbitration based on the doctrine of equitable estoppel.

A post on the Harris Bricken China Law Blog points out that the question has split the circuit courts, meaning that now the answer to the question depends on where in the United States the dispute is being litigated.

Read the article.

Image by Mitch Barrie

Gun manufacturer Remington Arms asked the U.S. Supreme Court on Thursday to overturn a ruling from Connecticut’s high court allowing the company to be sued by one survivor and the families of nine victims killed in the 2012 massacre at Sandy Hook Elementary School, reports Courthouse News Service.

The North Carolina-based company argued in a petition for a writ of certiorari that the 2005 federal Protection of Lawful Commerce in Arms Act shields firearm makers from liability in every circumstance when their products are used in acts of violence, reports Courthouse News’ Christine Stuart.

The Connecticut Supreme Court in May refused to strike arguments regarding the marketing of the XM15-E2S weapon, a type of AR-15 semiautomatic gun that killed 20 first graders and six educators in 264 seconds.

Read the Courthouse News article.

Thompson & Knight LLP advised the Conflicts Committee of American Midstream Partners, LP in its merger with an affiliate of ArcLight Energy Partners Fund V, L.P.

The partnership has announced the closing of the transactions contemplated by that certain Agreement and Plan of Merger, dated March 17, 2019, by and among the partnership, American Midstream GP, LLC, and affiliates of ArcLight, pursuant to which an affiliate of ArcLight has taken the Partnership private by acquiring all of the outstanding common units of the partnership not already held by affiliates of ArcLight, at a price of $5.25 per common unit.

The firm’s cross-practice deal team was led by the corporate team of Alan P. Baden, Jeremiah M. Mayfield, and Stephen W. Grant Jr., with assistance from J. Dean Hinderliter, Dasha K. Hodge, Timothy J. Johnston, Catharine A. Hansard, Tonya Maksimenko, and Nicolas Adrian McTyre.

The Blockchain & Financial Services Blog of Frost Brown Todd features a discussion in which a court ruled that where a contract between a credit card processor and its sale agent had conflicting clauses, the clause should be read in favor of the sales agent, resulting in the credit card processor being liable for withholding residual payments.

Courtney Rogers Perrin writes about Infinity Capital LLC v. Francis David Corp., from the Northern District of Ohio.

The ruling offers a lesson in contract drafting and the need for clear, non-contradictory provisions, as well as enforceable damages clauses, according to Perrin.

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In its Contract Corner feature, Morgan Lewis highlights considerations for drafting sublicense provisions in the context of an intellectual property license.

“A sublicense in the context of an IP license is any agreement where the licensee grants a third party rights to any of the licensed IP,” the article explains. “This provision is often overly broad, but can be tailored to include standard exceptions (e.g., ordinary course agreements with End Users, distributors, etc.) in order to avoid an overly broad definition and to make sure that the royalty calculations are clear.”

Authors Emily R. Lowe and Morgan Oksana Dudkewitz discuss sublicensing approval, compensation, termination, flow down, document control, and licensor-imposed sublicensing.

Read the article.

Two years after a major data breach exposed the personal information of around 147 million Americans, the credit bureau Equifax has agreed to pay at least $650 million to resolve consumer claims and multiple state and federal investigations stemming from the episode, according to The New York Times.

At least $300 million of that amount will go to consumers, with an additional $125 million available if the initial fund is exhausted.

Times reporter David Yaffe-Bellany writes that individual victims may be able to claim as much as $20,000 in compensation for losses resulting from the breach if they can prove they were harmed.

Read the NY Times article.