Limited Partners, Marathon Oil Reach Settlement on Foreign Taxes

J.C. WALTER, III, CAROLE WALTER LOOKE, J.C. WALTER, JR., LTD., F. FOX
BENTON, III, MORENO ENERGY, INC., WILLIAM C. OEHMIG, THE CAIN 1988
DESCENDANTS’ TRUST, MARY H. CAIN, MARY H. CAIN MARITAL TRUST,
ROBERT D. JOLLY, HOWARD CHAPMAN, RUTH B. SMALLEY, ARTHUR L.
SMALLEY, III, TOM E. SMALLEY, BARBARA BETH FRANK SHARMAN
TRUST, JANIS KAY FRANK HENRY TRUST AND MARGARET WEAVER
Plaintiffs,
v.
MARATHON E.G. LPG LIMITED AND MARATHON OIL CORPORATION
AND ALBA EQUATORIAL GUINEA PARTNERSHIP, L.P.
Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

JURY REQUESTED

JOINT MOTION FOR CONFIRMATION OF FINAL AWARD ON CONSENT

TO THE HONORABLE UNITED STATES DISTRICT COURT:

The parties request that the Court sign and enter a Final Judgment Confirming Final Award on Consent confirming the Final Award on Consent attached hereto as Exhibit 1.

I. Procedural History

1. On December 16, 2015, Plaintiffs commenced this lawsuit by filing Plaintiffs’ Original Petition in a Texas state district court. Dkt. 1, Ex. 3(a).

2. On January 8, 2016, Defendants removed the lawsuit to this Court. Dkt. 1. Thereafter, the parties announced to the Court that they had agreed to arbitrate their disputes in this case and, on January 28, 2016, the Court ordered the parties to arbitrate and stayed this case pending arbitration. Dkt. 22.

3. On April 15, 2016, Plaintiffs commenced a private arbitration proceeding against Defendants (the “Arbitration”) pursuant to an arbitration agreement that provides, in pertinent part, that the Arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. § 1-16 and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. Exhibit 2. Following consultations with the parties, the International Centre for Dispute Resolution, a division of the American Arbitration Association, appointed Stephen D. Gardner and Paula Junghans as co-arbitrators and Edna Sussman as the chair in the Arbitration (the “Arbitration Panel”). Exhibit 3.

4. The parties have settled their disputes in the Arbitration. The Arbitration Panel has signed its Final Award on Consent. Exhibit 1.

5. The parties file this motion respectfully requesting that the Court sign and enter the attached Final Judgment Confirming Final Award on Consent.

II. The Legal Standard

6. The United States Arbitration Act provides:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made. Notice of the application shall be served upon the adverse party, and thereupon the court shall have jurisdiction of such party as though he had appeared generally in the proceeding. If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court. If the adverse party shall be a nonresident, then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court.

9 U.S.C. § 9.

7. All conditions for confirmation of the award are satisfied. First, in their arbitration agreement, the parties agreed that judgment could be entered upon any award rendered by the Arbitration Panel. Second, this motion is timely because it has been filed a few days after the award was rendered. Third, because all parties are moving for confirmation of the award, it is not expected that any party will move to vacate, modify or correct the award.

8. If, as in this instance, a party timely files a motion to confirm an arbitration award and no party timely (or ever) files a motion to vacate, modify or correct the award, the Court may confirm the award and enter judgment accordingly. Because the parties have timely filed this motion and no motion to vacate, modify or correct the award has been filed or is expected to be filed, this Court has the power to confirm the award. As such, the parties jointly request that this Court confirm the Final Award on Consent attached as Exhibit 1 and sign, enter and render the attached Final Judgment Confirming Final Award on Consent.

III. Conclusion

For the foregoing reasons, Plaintiffs and Defendants respectfully request that this Court grant their Joint Motion for Confirmation of Final Award on Consent, confirm the Final Award on Consent attached as Exhibit 1 and sign, enter and render the Final Judgment Confirming Final Award on Consent attached hereto. The parties further pray for all further and additional relief to which they are entitled, at law or in equity.

Dated: September 19, 2017

Respectfully submitted,

By Counsel for Plaintiffs:

William Fred Hagans
Attorney-in-Charge
Texas Bar No. 08685500
S.D. Texas I.D. No. 2457
fhagans@hagans-law.com

Carl D. Kulhanek, Jr.
Texas Bar No. 11761850
S.D. Texas I.D. No. 15077
ckulhanek@hagans-law.com

HAGANS, MONTGOMERY, & RUSTAY, P.C.
3200 Travis Street, Fourth Floor
Houston, Texas 77006
Telephone: (712) 222-2700
Facsimile: (713) 547-4950

Larry A. Campagna
Texas Bar No. 03691700
S.D. Texas I.D. No. 2982
Larry.campagna@chamberlainlaw.com
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY
1200 Smith Street, 14th Floor
Houston, Texas 77002-4310
Telephone: (713) 654-9609
Facsimile: (713) 658-2553

By Counsel for Defendants:

Charles C. Correll, Jr.
Attorney-in-Charge
Texas Bar No. 00793550
S.D. Texas I.D. No. 19371
ccorrell@kslaw.com

Tracey M. Robertson
Texas Bar No. 00792805
S.D. Texas I.D. No. 26094
trobertson@kslaw.com

KING & SPALDING LLP
1100 Louisiana, Suite 4000
Houston, Texas 77002-5219
Telephone: (713) 751-3200
Facsimile: (713) 751-3290

Abraham N.M. Shashy, Jr.
Texas Bar No. 18132950
hsashy@kslaw.com
KING & SPALDING LLP
1700 Pennsylvania Avenue, NW
Suite 200
Washington, D.C. 20006-4707
Telephone: (202) 737-0500
Facsimile: (202) 626-3737

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EXHIBIT 1

INTERNATIONAL CENTRE FOR DISPUTE RESOLUTION

International Arbitration Tribunal

J.C. WALTER, III, CAROLE WALTER LOOKE, J.C. WALTER, JR., LTD., F. FOX
BENTON, III, MORENO ENERGY, INC., WILLIAM C. OEHMIG, THE CAIN 1988
DESCENDANTS' TRUST, MARY H. CAIN, MARY H. CAIN MARITAL TRUST,
ROBERT D. JOLLY, HOWARD CHAPMAN, RUTH B. SMALLEY, ARTHUR L.
SMALLEY, III, TOM E. SMALLEY, BARBARA BETH FRANK SHARMAN
TRUST, JANIS KAY FRANK HENRY TRUST AND MARGARET WEAVER
Claimants,
v.
MARATHON E.G. LPG LIMITED, MARATHON OIL CORPORATION|
AND ALBA EQUATORIAL GUINEA PARTNERSHIP, L.P.
Respondents.

ICDR CASE NO. 01-16-0001-3367

FINAL AWARD ON CONSENT

THE UNDERSIGNED ARBITRATORS, having been duly designated in accordance with the arbitration agreement dated April 3, 2016 entered into between Claimants J.C. Walter, III, Carole Walter Looke, J.C. Walter, Jr., Ltd., F. Fox Benton, III, Moreno Energy, Inc., William C. Oehmig, The Cain 1988 Descendants' Trust, Mary H. Cain, Mary H. Cain Marital Trust, Robert D. Jolly, Howard Chapman, Ruth B. Smalley, Arthur L. Smalley, III, Tom E. Smalley, Barbara Beth Frank Sharman Trust, Janis Kay Frank Henry Trust and Margaret Weaver (collectively "Claimants") and Respondents Marathon E.G. LPG Limited ("MEGLPG"), Marathon Oil Corporation ("Marathon") and Alba Equatorial Guinea Partnership, L.P. ("AEGP") (collectively "Respondents") and having been duly sworn, and whereas Claimants and Respondents (collectively the "Parties") agree to the entry of a Consent Award on the terms set forth below in full and final settlement of this arbitration proceeding, we do hereby issue this FINAL AWARD ON CONSENT as agreed by the Parties.

JURISDICTION AND PLEADINGS

1. On December 16, 2015, Claimants filed Plaintiffs' Original Petition in a Texas state district court asserting claims for declaratory relief, breach of contract, breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Respondents.

2. On January 8, 2016, Respondents removed the above-described lawsuit to federal court. Thereafter, the Parties announced to the federal court that they had agreed to arbitrate their disputes in the case and, on January 28, 2016, the federal court ordered the Parties to arbitrate.

3. On April 15, 2016, Claimants commenced a private arbitration proceeding against Respondents (the "Arbitration"). In Claimants' First Amended Statement of Claims, Claimants asserted claims for declaratory relief, breach of contract, breach of fiduciary duty and aiding and abetting breach of fiduciary duty against Respondents. Claimants alleged that Respondents' refusal to allocate accrued foreign taxes or creditable foreign tax expenditures to Claimants so that Claimants could claim or use those foreign tax credits associated with those foreign tax expenditures breached the Agreement of Limited Partnership of Alba Equatorial Guinea Partnership, L.P. (the "AEGP Agreement"), violated the applicable Treasury Regulations and violated Respondents' fiduciary duties owed to Claimants.

4. In Claimants' First Amended Statement of Claims, Claimants sought actual damages, pre-judgment interest, and attorneys' fees with respect to Respondents' alleged breaches of the AEGP Agreement and violations of the Treasury Regulations and of their fiduciary duties owed to Claimants. Claimants also sought declaratory relief.

5. In Respondents' Response to Claimants' First Amended Statement of Claims, Respondents asserted various defenses to Claimants' claims and a breach of contract counterclaim.

PROCEDURAL BACKGROUND

6. Following consultations with the Parties, the International Centre for Dispute Resolution, a division of the American Arbitration Association ("ICDR'), appointed Stephen D. Gardner and Paula Junghans as co-arbitrators and Edna Sussman as the chair in this Arbitration.

7. As reflected in Preliminary Hearing Order No. 1, dated October 11, 2016, the Parties stipulated that the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on October 1, 2013 as supplemented by the Procedures for Large, Complex Commercial Disputes and the International Commercial Arbitration Supplementary Procedures as amended and in effect April 1, 1999 (the "AAA Rules").

8. The Parties were represented by counsel throughout the proceedings. Claimants were represented by HAGANS MONTGOMERY & RUSTAY, P.C. and CHAMBERLAIN HRDLICKA, WHITE, WILLIAMS & AUGHTRY, and Respondents were represented by KING & SPALDING, LLP.

9. The Parties engaged in a pre-hearing exchange of information and the exchange of expert reports.

10. The Parties have informed the Arbitration Panel (the "Panel") that the Parties have reached an agreement settling their disputes in this Arbitration. Based upon the facts developed during discovery and the agreement of the Parties, the Parties jointly request that the Panel sign this Final A ward on Consent in accordance with Rule 48 of the AAA Rules. The Panel hereby GRANTS the Parties' request and signs the following Final Award on Consent. The statements and terms of the Final Award on Consent below are as agreed between the Parties.

FINAL AWARD

11. The Parties agree, and based upon the Parties' agreement the Panel finds, that Claimants and MEGLPG made material modifications to the AEGP Agreement after January 1, 2007. The Parties also agree, and based upon the Parties' agreement the Panel also finds, that there were changes in ownership of AEGP that occurred after January 1, 2007 for purposes of Treasury Regulation § 1.704-1(b)(4)(viii).

12. Claimants represent, the Parties agree, and based upon the Parties' agreement the Panel finds that, at all times from January 1, 2011 to the present, Claimants have owned the following Class 2 Limited Partner Interests in AEGP:

Class 2 Limited Partner Name	Class 2 Limited Partner Interest Percentage
J.C. Walter, III	16.179100%
Carole Walter Looke	9.916220%
J.C. Walter, Jr., Ltd.	26.095320%
F. Fox Benton, III	0.814250%
Moreno Energy, Inc.	22.367410%
William C. Oehmig	1.962055%
Cain 1988 Descendants' Trust	9.810270%
Mary H. Cain	4.905135%
The Mary H. Cain Marital Trust	4.905135%
Robeti D. Jolly	0.270760%
Howard Chapman	0.270760%
Ruth B. Smalley (Ruth B. Smalley has a life Estate in the Class 2 Limited Partner Interests of Arthur L. Smalley, III and Tom E. Smalley)	0%
Arthur L. Smalley (subject to Ruth B. Smalley life estate)	0.135380%
Tom E. Smalley (subject to Ruth B. Smalley life estate)	0.135380%
Barbara Beth Frank Sharman Trust	0.135380%
Janis Kay Frank Henry Trust	0.135380%
Margaret Weaver	1.962055%
	99.99999%

13. The Parties agree, and based upon the Parties' agreement the Panel finds, that Claimants are Class 2 Limited Partners in AEGP for U.S. federal income tax purposes.

14. The Parties engaged in discovery during the Arbitration. The Parties agree that, during discovery, the Parties discovered facts supporting Claimants' position that AEGP should have allocated certain creditable foreign tax expenditures ("CFTEs") to Claimants. The Parties agree, and based upon the Parties' agreement the Panel finds, that such factual information also supports application of the Treasury Regulation § 1.704-1(b)(4)(viii) issued in 2006, as subsequently amended from time to time, to AEGP and to the allocations to Claimants of the CFTEs for the years 2011 and forward.

15. The Parties agree, and based upon the Parties' agreement the Panel finds, that the amounts of CFTEs that should be allocated to Claimants collectively for the following years are as follows:

2011:	$8,774,879
2012:	$8,939,296
2013:	$8,412,289
2014:	$6,207,183
2015:	$813,023

16. The Parties agree, and based upon the Parties' agreement the Panel finds, that Treasury Regulation § 1.704-1(b)(4)(viii) issued in 2006, as subsequently amended from time to time, applied to AEGP and to the allocations to Claimants of the CFTEs for the years 2011 forward.

17. The Parties have adopted amendments to Section 8 of the AEGP Agreement that they agree clarify their intent to allocate certain CFTEs to Claimants. The Parties agree that, as part of the Second Amendment to Agreement of Limited Partnership of Alba Equatorial Guinea Partnership, L.P., and the Parties' Settlement Agreement and Release, and on the terms more fully set forth therein, they have agreed that the AEGP income tax returns from January 1, 2011 through the remaining term of the AEGP Agreement (currently through 2035) will allocate to Claimants half of the CFTEs that are taken into account in determining Alba Net Cash Flow After Payout, and a corresponding allocation to Claimants of an additional amount of gross income equal to the amount of CFTEs so allocated to them.

18. The Parties agree, and based upon the Parties' agreement the Panel finds, that Claimants are successors in interest to Walter International, Inc. ("Walter") and its wholly-owned subsidiary, Walter International Equatorial Guinea, Inc. ("WIEG"), which made capital contributions and previously owned the Class 2 Limited Partnership interests in AEGP.

19. The Parties have executed a Settlement Agreement and Release that they agree resolves the disputes in the Arbitration. The Parties agree that, in the Settlement Agreement and Release, on the terms more fully set forth therein, they have agreed, among other things, that the proper reporting entity will (1) amend MEGLPG's tax returns and AEGP's U.S. Return of Partnership Income (Form 1065) for years 2011 through 2014; (2) file Form 1065 for AEGP for tax years 2015 through 2035; (3) amend Form 1099-MISC for 2015 for each Class 2 Limited Partner to reduce Claimants' Miscellaneous Income by the amounts of income included on the Form 1065 for AEGP for 2015; (4) allocate the CFTEs listed in Paragraph 15 above to Claimants for all of those years; (5) for 2016 and subsequent years, and pursuant to the Second Amendment to Partnership Agreement, allocate to Claimants half of the CFTEs that are taken into account in determining Alba Net Cash Flow After Payout, matched by an allocation to Claimants of an additional amount of gross income equal to the amount of CFTEs so allocated to them; and (6) amend such other tax returns and information statements as may be necessary to conform to the foregoing changes.

20. Any and all claims asserted by the Parties are herein dismissed by consent, and this award and the Parties' above-referenced Settlement Agreement and Release are in full settlement of all claims submitted to this Arbitration.

21. Each party shall bear its own attorneys' fees and costs incurred in connection with these arbitration proceedings.

22. The administrative fees and expenses of the International Centre for Dispute Resolution, totaling $40,529.21 and the compensation and expenses of the Arbitrators, totaling $368,527.98, shall be borne equally by the Parties. The Parties agree that Claimants shall reimburse Respondents the sum of $1,100 for fees and expenses previously incurred by Respondents.

23. This Final Award on Consent may be signed in counterparts and issued in several duplicate originals, all of which taken together will constitute one and the same Final Award on Consent.

We hereby certify that, for purposes of Article I of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award on Consent was made in Houston Texas, United States of America.

Signed this 11^th day of September 2017.

Edna Sussman, CHAIR

Stephen D. Gardner, ARBITRATOR

Paula Junghans, ARBITRATOR

State of

County of

On this ______ day of ____________, 2017, before me personally came and appeared Stephen D. Gardner, to me known and known to me to be the individual described in and who executed the foregoing instrument and he acknowledged to me that he executed the same.

Notary Public

State of

County of

On this ______ day of ____________, 2017, before me personally came and appeared Paula Junghans, to me known and known to me to be the individual described in and who executed the foregoing instrument and she acknowledged to me that she executed the same.

Notary Public

State of New York

County of Westchester

On this 11^th day of Sept., 2017, before me personally came and appeared Edna Sussman, to me known and known to me to be the individual described in and who executed the foregoing instrument and she acknowledged to me that she executed the same.

Notary Public

AGREED AND APPROVED:

HAGANS MONTGOMERY & RUSTAY, P.C.

By: Fred Hagans
fhagans@hagans.law
State Bar No. 08685500
Jennifer Rustay
jrustay@hagans.law
State Bar No. 24002124
Carl D. Kulhanek, Jr.
ckulhanek@hagans.law
Facsimile: (713) 337-8841
State Bar No. 11761850

3200 Travis Street, Fourth Floor
Houston, Texas 77006
Telephone: (713) 222-2700
Facsimile: (713) 547-4950
Attorneys for Claimants

KING & SPALDING, LLP

By: Charles C. Correll, Jr.
ccorrell@kslaw.com
State Bar No. 00790629
Tracey M. Robertson
trobertson@kslaw.com

1100 Louisiana, Suite 4000
Houston, Texas 77002
Telephone: (713) 751-3200
Facsimile: (713) 751-3290

Abraham N.M. Shashy, Jr.
Texas Bar No. 18132950
hsashy@kslaw.com
KING & SPALDING LLP
1700 Pennsylvania Avenue, NW
Suite 200
Washington, D.C. 20006-4707
Telephone: (202) 737-0500
Facsimile: (202) 626-3737
Attorneys for Respondents