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Cheniere cannot foreclose on $46M paid to former partner in LNG projects

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Cheniere cannot foreclose on $46M paid to former partner in LNG projects

Cheniere Energy Inc. cannot start foreclosure proceedings against the subsidiary of a former business partner that Cheniere accused of failing to pay back a $46 million loan to develop LNG projects, according to an Aug. 13 ruling by a Texas appeals court.

The ruling affirmed a trial court's decision to block the Cheniere move while a long-running legal battle plays out.

The development was the latest wrinkle in the dispute, which is related to LNG projects in Louisiana proposed by Cheniere and Parallax Enterprises, a former business partner of Cheniere and a predecessor entity to an eventual rival of Cheniere, LNG startup Tellurian Inc. Cheniere alleged that Tellurian helped itself to natural gas liquefaction business opportunities that Cheniere had been developing with Parallax, something Tellurian and Parallax parties have denied. The litigation is ongoing in Harris County, Texas, where a trial is scheduled for February 2020.

The full Texas 14th Court of Appeals decision represented a reversal for the appellate court. In December 2018, a three-judge panel found that a Houston trial court wrongly prevented Cheniere from initiating foreclosure proceedings a year earlier against Parallax's interest in its subsidiary Live Oak LNG LLC. The panel had reversed the trial court's injunction order and sent the case back. (Texas 14th Court of Appeals docket 14-17-00982-CV)

But in March, Parallax asked the full 14th Court of Appeals to reconsider, saying the decision could "permanently deprive a plaintiff of the right to seek redress in court for the very matter pending before the trial court." Parallax has disputed that the $46 million payment was a loan.

The appellate court did not review the underlying merits of the case.

In February, Cheniere sued former Chairman and CEO Charif Souki, accusing him of "secretly hatching a scheme" with Parallax founder Martin Houston to shut down Parallax but still pursue the same type of LNG projects that Parallax had worked on with funds from Cheniere, operating through a new company that would become Tellurian. Cheniere said this happened when Souki was still a director at Cheniere. Souki was forced out as the top executive in December 2015 by billionaire activist investor Carl Icahn following disagreements over expansion plans, which included the Parallax projects. But Cheniere said Souki remained a director until February 2016. The cases were consolidated in April. (61st District Court of Harris County, Texas, docket 2017-49685)

Souki has denied Cheniere's allegations. In an Aug. 5 filing, he described Cheniere's suit against him as having "an obvious motive to retaliate against Souki, to influence his testimony as to Parallax's huge pending claims, and to slow down his new company."

Cheniere and Tellurian have said in regulatory filings that they do not anticipate the litigation to have a material impact on their financial results.

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