Energy giant’s dual legal challenges could pay off

By Robin Bravender | 01/07/2016 01:10 PM EST

After taking a blow by the Obama administration, TransCanada Corp. is launching a two-pronged legal attack on the president’s rejection of the Keystone XL pipeline that some attorneys say may pay off.

After taking a blow by the Obama administration, TransCanada Corp. is launching a two-pronged legal attack on the president’s rejection of the Keystone XL pipeline that some attorneys say may pay off.

The Canadian energy company yesterday announced plans to challenge the administration on two fronts. TransCanada said it’s seeking $15 billion in damages from the U.S. government under the North American Free Trade Agreement, claiming that the rejection of the proposed pipeline was political and deprived investors of billions of dollars sunk into the project.

The company is also suing the administration in a federal district court in Texas, alleging the president surpassed his constitutional authority by vetoing the pipeline.


Both legal challenges could take years to resolve, likely extending into the next presidential administration. But while energy and trade attorneys tracking the case said they were surprised by TransCanada’s novel legal approach, some think the company has a decent shot of victory in one or both cases.

"On the NAFTA case, my view is that it seems that TransCanada has a decent case," said Lawrence Herman, an international trade lawyer at Toronto-based Herman & Associates.

The company yesterday issued a "notice of intent," saying it plans to file a claim under NAFTA’s Chapter 11, a section that allows companies to sue governments over allegedly discriminatory decisions.

TransCanada’s notice kicks off with a quote from White House spokesman Josh Earnest saying, "I would venture to say that there’s probably no infrastructure project in the history of the United States that’s been as politicized as this one."

The complaint goes on to say that the Obama administration violated its NAFTA obligations because "the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the Administration’s own studies, and not based on the merits of Keystone’s application."

TransCanada first submitted an application to build a crude oil pipeline from Canada to the United States in 2008. President Obama rejected the pipeline in November — seven years later.

Challenges under NAFTA’s Chapter 11 go before tribunals made up of three arbitrators — one selected by each of the parties involved and a third "presiding" arbitrator agreed to by both parties or appointed.

"I think that probably it will take up to a year before the actual panel is put together," Herman said. First the formal claim must be filed, followed by the U.S. government’s response.

The hearing would likely take place in a neutral location, because both parties would want to feel like they had a level playing field, he added. Ultimately, Herman said, "I think we’re looking at two to three years in this case."

Parties could reach a settlement before the dispute gets that far. "I’d say the minority make it all the way through," Herman said of Chapter 11 claims. "Most are either settled or withdrawn."

And of the relatively few Chapter 11 cases brought against the United States by Canadian and Mexican corporations, "the United States has not lost a case yet," said James Rubin, a former Justice Department attorney who’s now a partner at Dorsey & Whitney LLP.

William Snape, senior counsel to the Center for Biological Diversity and a vocal foe of the Keystone XL pipeline, doesn’t see TransCanada succeeding in its NAFTA challenge.

"This borders on a frivolous case; I don’t think they’ve got a legal leg to stand on," he said. "The underlying law is such that it specifically gives the president of the United States discretion." He added that the challenges are "just TransCanada having a temper tantrum."

For both the NAFTA challenge and the constitutional lawsuit, TransCanada hired attorneys at the law firm Sidley Austin LLP.

Stanimir Alexandrov, co-leader of the firm’s international arbitration group, is listed as the lead attorney on the NAFTA notice. Peter Keisler, co-leader of Sidley’s Supreme Court and appellate practice, is the lead attorney on the constitutional complaint.

Constitutional challenge

In its lawsuit filed with the U.S. District Court for the Southern District of Texas, TransCanada accuses Obama of exceeding his power under the Constitution.

"This case presents the question whether the Constitution grants the President unilateral power, unsupported by any statute and contrary to the expressed wishes of Congress, to prohibit the further development of the Keystone XL Pipeline on the basis that the pipeline would cross a U.S. border and would, if permitted to proceed, undercut the President’s influence in international climate change negotiations," the lawsuit says.

In particular, the company’s attorneys are challenging Obama’s "assertion of unilateral power to prevent the domestic and international commerce" reflected in the pipeline when "the Constitution expressly commits regulation of domestic and international commerce to Congress" and when Congress has passed legislation "specifically authorizing the construction and operation of the Keystone XL Pipeline across the U.S.-Canada border."

Rubin said, "They paint a very interesting argument." He noted that judges’ opinions are hard to predict but said, "These are not throwaway arguments. They’re very carefully crafted, and they raise significant issues."

Several lawyers noted that TransCanada may have had a tougher time if it chose to argue that Obama had acted unlawfully under the Administrative Procedure Act. Instead, the company is raising "an entirely constitutional claim," Rubin said.

"They certainly aren’t going to get anywhere under the Administrative Procedure Act," said Vermont Law School professor Pat Parenteau. But the constitutional argument "is a new one," he said. "This is catching us all by surprise."

Snape said that the constitutionality arguments are "definitely a long shot" and that a congressional resolution to approve the pipeline "doesn’t change the president’s underlying authority."

Click here for the NAFTA notice of intent.

Click here for the constitutional lawsuit filed in a federal court in Texas.