541 F.2d 1263 (7th Cir. 1976), 75-2146, Commonwealth Edison Co. v. Gulf Oil Corp.

Docket Nº:75-2146 to 75-2148.
Citation:541 F.2d 1263
Party Name:COMMONWEALTH EDISON COMPANY, a corporation, Petitioner-Plaintiff-Appellee, v. GULF OIL CORPORATION, a corporation, et al., Respondent-Defendant-Appellants. COMMONWEALTH EDISON COMPANY, a corporation, Petitioner-Plaintiff-Appellee, v. UNITED NUCLEAR CORPORATION, a corporation, Respondent-Defendant-Appellant. COMMONWEALTH EDISON COMPANY, a corporatio
Case Date:September 20, 1976
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 1263

541 F.2d 1263 (7th Cir. 1976)

COMMONWEALTH EDISON COMPANY, a corporation,

Petitioner-Plaintiff-Appellee,

v.

GULF OIL CORPORATION, a corporation, et al.,

Respondent-Defendant-Appellants.

COMMONWEALTH EDISON COMPANY, a corporation,

Petitioner-Plaintiff-Appellee,

v.

UNITED NUCLEAR CORPORATION, a corporation,

Respondent-Defendant-Appellant.

COMMONWEALTH EDISON COMPANY, a corporation,

Petitioner-Plaintiff-Cross Appellant,

v.

GULF OIL CORPORATION, a corporation, et al.,

Respondent-Defendant-Cross Appellees.

Nos. 75-2146 to 75-2148.

United States Court of Appeals, Seventh Circuit

September 20, 1976

Argued April 20, 1976.

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Richard E. Powell, Thomas G. Ryan, Chicago, Ill., for Commonwealth edison.

James T. Otis, Robert A. Creamer, Chicago, Ill., for Gulf Oil Corp.

Alan Y. Cole, Walter H. Fleischer, Washington, D. C., Robert F. Hanley, Chicago, Ill., for United Nuclear.

Before SWYGERT, Circuit Judge, MARKEY, Chief Judge, Court of Customs and

Page 1265

Patent Appeals [*] and JAMESON, Senior District Judge. [**]

JAMESON, Senior District Judge:

Plaintiff-appellee brought this diversity action seeking an order, pursuant to Section 4 of the United States Arbitration Act, 9 U.S.C. §§ 1-14, to compel arbitration of controversies related to termination of a contract between the parties to this action and to enjoin a prior pending Illinois state court proceeding involving the same dispute. The district court ordered the defendants-appellants to submit to arbitration but refused to stay the proceeding in state court. 1 Defendants have appealed from the order directing them to submit to arbitration. Plaintiff has cross-appealed from that portion of the order refusing to stay the state court action. We affirm the decision of the district court.

Background

Parties

Commonwealth Edison Company (Edison) is an Illinois corporation engaged in the business of generating, distributing, and selling electricity in Northern Illinois. Appellant General Atomic Company (General) is a partnership of appellants Gulf Oil Corporation (Gulf), a Pennsylvania corporation, and Scallop Nuclear, Inc. (Scallop), a Delaware corporation. Appellant United Nuclear Corporation (UNC) is a Delaware corporation engaged in the business of mining and selling uranium.

The Contract

On May 25, 1971, Edison entered into a "Reload Fuel Contract" with UNC in which UNC agreed to supply certain future nuclear fuel requirements for Units 1 and 2 of a nuclear power plant under construction by Edison near Seneca, Illinois. UNC on July 1, 1971, assigned the contract to Gulf United Nuclear Fuel Corporation (GUNF) with the consent of Edison. GUNF merged with Gulf on November 30, 1973, and was operated as an unincorporated division of Gulf until its assets and liabilities were transferred to General effective January 1, 1974. As a result of the transfer, General claimed to have succeeded to the rights and obligations of GUNF under the contract. 2

The Dispute

When Edison and UNC entered into the contract in May, 1971, they anticipated that Units 1 and 2 would be placed in service during the autumns of 1975 and 1976, respectively. However, due to licensing delays by the United States Atomic Energy Commission, 3 Edison in September, 1975, did not expect Units 1 and 2 to be completed until June, 1978, and June, 1979, respectively.

By letter of October 4, 1973, Edison notified GUNF of its intent to change the scheduled delivery dates of the reload batches of nuclear fuel for Units 1 and 2 by 42 and 33 months, respectively, because of the anticipated delays in completion of the

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units. Edison's action was pursuant to section 10.3 of the contract which provided:

"At any time twelve (12) months or more in advance of the Scheduled Delivery Date set forth in this Section 10, Purchaser (Edison) shall have the right to set a new Scheduled Delivery Date provided that such new date shall not be less than twelve (12) months subsequent to notice of such change."

On July 22, 1974, General, as successor in interest to GUNF, sent a letter to Edison asserting its right to terminate the contract pursuant to section 13 (the force majeure clause) of the contract because of the delivery delays. This section provided in relevant part:

"In the event that an excusable delay occurs with respect to Unit 1 or Unit 2 or both, and it is reasonably foreseeable that such excusable delay will delay Purchaser's ability to use the fuel or UNC's ability to deliver it by more than 30 months, the party not suffering the force majeure may terminate and neither party shall have further obligation to the other with respect to fuel not yet delivered."

General also based its asserted right to terminate on the belief that the unforeseen delays made the Reload Fuel Contract commercially impracticable within the meaning of § 2-615 of the Uniform Commercial Code.

Contesting General's right to terminate the contract, 4 Edison on October 29, 1974, demanded that General, Gulf, and UNC arbitrate the dispute under the Commercial Arbitration Rules of the American Arbitration Association pursuant to the arbitration clause of the contract. That clause provided in pertinent part:

"Any dispute arising from this Contract, including any failure to agree upon any matter where this Contract provides for future agreement of the parties, shall be submitted to arbitration on request of either party."

In its demand for arbitration Edison sought a declaration of the continued existence and enforceability of the contract or, alternatively, a declaration that General, Gulf, and UNC were in breach of their obligations under the contract and liable to Edison for any resulting damages.

Court Proceedings

On November 13, 1974, General, by its partners Gulf and Scallop, 5 filed an action in the Circuit Court of LaSalle County, Illinois, seeking a declaratory judgment that there was no agreement to arbitrate the dispute over termination of the contract and for an order staying arbitration. 6 In seeking this determination General and its partners relied on § 22.5 of the contract which provided:

"The validity, interpretation, and performance of this Contract and each of its provisions shall be determined and governed by the law of the State of Illinois."

General and its partners argued that termination of the contract pursuant to the force majeure clause terminated the entire agreement, including the arbitration clause. It was further argued that, in any case, disputes over termination were not within the scope of the arbitration clause. Edison filed motions to dismiss and to compel arbitration. 7 Following a hearing on June 13, 1975, the Circuit Court dismissed the complaint

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and ordered General and its partners to submit to arbitration. On appeal, the Illinois Appellate Court for the Third District affirmed the judgment of the Circuit Court, finding that the dispute was within the scope of the arbitration clause and therefore arbitrable. 8 That decision is presently on appeal to the Illinois Supreme Court.

On January 15, 1975, Edison filed this action against General, its partners Gulf and Scallop, and UNC. On September 30, 1975, the district court ordered the defendants to submit the contract dispute to arbitration, but denied Edison's request to stay the state court action. On January 27, 1976, the court granted General's motion to stay its order pending the outcome of this appeal.

Issues

With this background we proceed to a consideration of the issues presented:

(1) Did the district court err in refusing to dismiss this suit in light of the parties' agreement that Illinois law should govern all aspects of the contract?

(a) Does the inclusion of a choice of law clause in the contract alter the allocation of functions between a court and an arbitrator from that specified in the Federal Arbitration Act?

(b) If not, does the Act require that the issue of termination be decided by arbitration?

(2) Did the district court err in this diversity suit by refusing to apply an Illinois law which would have required dismissal?

(3) Does the contract contain terms sufficient to bind the parties to an arbitration award?

(4) Did the district court err in refusing to stay the state court proceeding?

I. Was Refusal to Dismiss Error?

  1. The Federal Arbitration Act

    The United States Arbitration Act was enacted in 1925. "(R)eversing centuries of judicial hostility to arbitration agreements, (the Act) was designed to allow parties to avoid 'the costliness and delays of litigation,' and to place arbitration agreements 'upon the same footing as other contracts . . . .' " Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-511, 94 S.Ct. 2449, 2453, 41 L.Ed.2d 270 (1974), citing H.R.Rep.No.96, 68th Cong., 1st Sess., 1, 2 (1924); see also S.Rep.No.536, 68th Cong., 1st Sess. (1924). In accordance with this legislative intent, federal courts have liberally construed arbitration clauses, Galt v. Libbey-Owens-Ford Glass Co., 376 F.2d 711, 714 (7 Cir. 1967), generally resolving doubts in favor of arbitration, Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382, 385 (2 Cir. 1961).

    The key provisions of the Act are found in §§ 2, 3, and 4. Section 2 provides that:

    "A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, of an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

    "Commerce", as employed in § 2, is defined in § 1 of the Act to mean in part "commerce among the several states"....

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