Baker & O'Brien, Inc.

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A Safety Net for Fast-Track Due Diligence Leads to Arbitration

Arbitration, United States

April 1, 2015

A major energy company entered into an agreement to purchase certain natural gas gathering and processing assets.  Because of the desire of both parties to close the transaction quickly, there was reliance on the seller’s representations regarding the quality and condition of the assets—including their sufficiency to meet the obligations of several long-term contracts with area producers.  Recognizing the limited opportunity for due diligence, the parties agreed to reserve a portion of the purchase price in an escrow account.  The escrow account would then be used if needed to settle costs related to correcting any deficiencies that might be discovered after the transaction.

Upon taking over the operation, the buyer alleged numerous deficiencies and made claims to the seller for compensation under the escrow agreement.  Baker & O’Brien investigated the basis for the buyer’s claims and developed opinions as to whether the facilities complied with applicable law, conformed with recognized and accepted engineering practice, and were designed and operated to support the technical requirements of contractual obligations to producers. 

Our consultants visited the processing plant site to assess the physical condition of the facilities, interview key management and operations personnel, and examine relevant operational, safety, and engineering design information.  We submitted an expert report as evidence to the arbitration panel that summarized our findings and opinions and supplemented our consultants’ oral testimony.