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February 02, 2016 Practice Points

TransCanada Takes Two Separate Legal Actions after Keystone XL Rejection

The company has filed a lawsuit against the U.S. government, and signaled its intent to petition for arbitration against the State Department under NAFTA.

By Courtney Scobie – February 2, 2016

In response to President Obama’s rejection of the Keystone XL pipeline, TransCanada has filed a lawsuit against the U.S. government, and signaled its intent to petition for arbitration against the State Department under Chapter 11 of the North American Free Trade Agreement (NAFTA).

The lawsuit was filed in federal court in Houston against Secretary of State John Kerry, Attorney General Loretta Lynch, Homeland Security Secretary Jeh Johnson, and Interior Secretary Sally Jewell. TransCanada claims that the executive branch violated the Constitution by rejecting the pipeline, and seeks various declarations that the executive branch’s decision prohibiting TransCanada from extending the pipeline into Canada is without legal effect. It also seeks an injunction preventing the executive branch from enforcing President Obama’s decision. TransCanada argues that the Constitution grants Congress the exclusive power to regulate domestic and international commerce and President Obama violated the Constitution by unilaterally rejecting the pipeline despite Congress’s expression of support for it. TransCanada also argues that the president’s rejection of the pipeline exceeded prior exercises of executive authority over cross-border commercial facilities and that he acted without statutory authority. The complaint also chastises President Obama for rejecting the pipeline so he can have more credibility negotiating international climate-change agreements on behalf of the U.S., calling it a “novel assertion of power” that is potentially boundless in scope.

The proposed arbitration would be brought to recoup TransCanada’s expenses related to the pipeline. Although TransCanada has not formally filed its NAFTA arbitration, it has informed the State Department that it intends to do so. The arbitration would be brought under Chapter 11 of NAFTA, the investment provisions that govern the treatment of the member states, including granting each party most-favored-nation treatment. It would seek to recoup TransCanada’s investment in the Keystone XL pipeline before the Obama administration rejected the application. Federal regulation requires companies who receive permits to build oil and gas pipelines to complete their projects within five years of application approval. TransCanada claims that due to this regulation, it had to complete a significant amount of preparatory work on the pipeline while waiting for the application to be approved due to how time-consuming the construction of a pipeline is. TransCanada argues that the government unjustifiably delayed processing the pipeline’s application for a presidential permit, that its rejection of the application was unjustified, and that it discriminated against the pipeline. TransCanada says that the executive branch had previously concluded that the pipeline did not significantly increase carbon emissions and that the government had approved permits for other pipelines during the same time period, yet still rejected Keystone XL. TransCanada seeks over $15 billion in damages in the arbitration.

Keywords: energy litigation, Keystone XL, TransCanada, North American Free Trade Agreement, NAFTA


Courtney Scobie is with Ajamie LLP in Houston, Texas.

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