Results tagged “Ergon” from GTH Energy & Natural Resources Law Blog

Force Majeure Matters: Split Fifth Circuit Decision Reminds Energy Contract Drafters That Such Clauses Have Serious Consequences

January 30, 2013

While attorneys frequently treat force majeure provisions as a throw-away, a recent decision from the U.S. Court of Appeals for the Fifth Circuit underscores the importance of these provisions in energy contracts and contracts in other complex industries. That decision, Ergon-West Virginia, Inc v. Dynegy Marketing & Trade, determined that Dynegy's invocation of force majeure clauses in two natural gas contracts excused it from liability for failure to deliver natural gas in the wake of Hurricances Katrina and Rita. Notably, however, both the lower court and the dissenting Fifth Circuit judge reached the opposite conclusion with respect to one of the contracts.

While hurricanes might seem an obvious case of force majeure, Ergon argued that the clauses in its contracts with Dynegy excused Dynegy's performance only if Dynegy could not remedy the force majeure event with the exercise of due diligence. Because the contracts were general supply contracts, rather than contracts for delivery of gas from a specific source, Ergon argued that Dynegy could have met its delivery obligations by purchasing replacement gas on the open market. Ergon therefore sued, seeking to recover the cost it incurred to cover gas deliveries not made by Dynegy while Dynegy claimed force majeure from the hurricanes.

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