Unocal Pipeline Company v. BP Pipelines (Alaska) Inc., Conoco Phillips Transportation Alaska, Inc., and ExxonMobil Pipeline Co.
2016 Tex. App. LEXIS 13026
| Tex. App. | 2016Background
- In 1970 oil companies (including Unocal and the Remaining Owners) entered into the TAPS Agreement and an Operating Agreement to govern ownership, operation, transfer, and termination of the Trans‑Alaska Pipeline System (TAPS).
- The federal right‑of‑way leases for TAPS impose DR&R (dismantlement, removal, and restoration) obligations on permittees when use of the right‑of‑way ends; transfers under the federal leases require government consent and transferee assurance of ability to perform obligations.
- The TAPS Agreement (Art. III, §3.1; §7.8; §8.2; §8.3) treats owners as holding undivided interests in TAPS (including easements/rights‑of‑way) and prescribes a Net Salvage Value (NSV) mechanism and arbitration procedure to value/transfer a withdrawing owner’s interest.
- Unocal gave notice to withdraw at the end of the 2012 term; the Remaining Owners elected to continue, but disputes arose over (a) whether DR&R obligations transfer with the withdrawing interest and (b) whether Unocal must pay the Remaining Owners if NSV is negative (the “shall pay” provision).
- The trial court granted summary judgment to the Remaining Owners, holding the TAPS Agreement does not transfer the DR&R obligations from Unocal and dismissing Unocal’s declaratory claim on the “shall pay” provision as unripe. Unocal appealed.
Issues
| Issue | Plaintiff's Argument (Unocal) | Defendant's Argument (Remaining Owners) | Held |
|---|---|---|---|
| Whether DR&R obligations transfer with a withdrawing owner’s TAPS interest under §8.2(e) | DR&R are part of the withdrawing owner’s undivided TAPS interest (rights‑of‑way are included in §3.1) and thus transfer; NSV calculation accounts for DR&R | DR&R arise from separate right‑of‑way leases and must be specifically referenced in TAPS Agreement to transfer; not located within TAPS Agreement | DR&R obligations transfer with the withdrawing owner’s interest; NSV is calculated net of DR&R value |
| Whether DR&R obligations “accrue” pre‑withdrawal such that withdrawing owner remains liable after conveyance | DR&R do not accrue until TAPS ceases use of the right‑of‑way; obligations affect valuation but are not presently enforceable against withdrawing owner post‑conveyance | DR&R could be treated as separate, present burdens; transferee protection concerns if obligations shift | Court: DR&R do not yet accrue; transferees assume obligations accruing after last day of Agreement term, but DR&R impact NSV valuation |
| Ripeness of declaratory claim construing §8.2(e) “shall pay” (whether Unocal must pay if NSV is negative) | Claim is ripe because parties have real, concrete dispute preventing completion of Unocal’s withdrawal; interpretation of “shall pay” is separable from arbitration of NSV amount | Trial court: not ripe until arbitrators determine NSV; any ruling would be advisory | Court: claim on construction of “shall pay” is ripe; arbitration is limited to NSV amount, not contractual interpretation; remanded for proceedings on §8.2(e) construction |
| Whether arbitration clause (§11.1) precludes judicial interpretation of §8.2(e) “shall pay” | Arbitration governs NSV valuation only; court can decide contract interpretation questions | Arbitration should control all related disputes until NSV resolved | Court: Arbitration governs NSV amount, but not the separate legal question of how §8.2(e) operates; court may decide the contract construction issue |
Key Cases Cited
- Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184 (Tex. 2007) (standard of review for summary judgment)
- Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005) (review when both parties move for summary judgment)
- Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310 (Tex. 2005) (contract construction principles; give effect to parties’ intent and entire agreement)
- Brooks v. Northglen Ass’n, 141 S.W.3d 158 (Tex. 2004) (ripeness/justiciable controversy in declaratory‑judgment actions)
- Robinson v. Parker, 353 S.W.3d 753 (Tex. 2011) (ripeness is subject‑matter jurisdiction reviewed de novo)