Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co.
| Decision Date | 13 December 1990 |
| Docket Number | No. 90-1515,90-1515 |
| Citation | 918 F.2d 1215 |
| Parties | ANDERMAN/SMITH OPERATING CO., Plaintiff-Appellee, v. TENNESSEE GAS PIPELINE CO., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Ernest G. Taylor, Jr., Kathryn H. Hester, W. Whitaker Rayner, Watkins, Ludlam & Stennis, Jackson, Miss., Daniel Joseph, Randall L. Sarosdy, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for defendant-appellant.
Alan B. Cameron, Jack W. Brand, Kenneth Harmon, Gerald, Brand, Watters, Cox & Hembleben, Jackson, Miss., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Mississippi.
Before JOHNSON, SMITH, and WIENER, Circuit Judges.
Tennessee Gas Pipeline appeals from an order of the district court enforcing an arbitration award. We affirm.
Anderman/Smith Operating Company ("Anderman") is a Colorado corporation which represents various sellers of natural gas produced from wells located in northwestern Alabama. Tennessee Gas Pipeline Company ("Tennessee") operates a pipeline service which purchases natural gas from various producers, including Anderman. In April 1982 Anderman and Tennessee entered into a Gas Sales and Purchase Agreement, which, among other things, determines the price that Tennessee pays for the gas it takes from Anderman and establishes various methods by which that price can be adjusted.
In early 1988 a dispute arose as to the price Tennessee was required to pay for Anderman's gas. The dispute prompted Anderman to file an action in federal district court; Tennessee responded by invoking an arbitration provision in the parties' agreement. Accordingly, the federal action was stayed, and the dispute was submitted to a panel of arbitrators. 1 After a hearing, the panel rendered a decision in favor of Anderman. Tennessee refused to comply with the arbitrators' award, and Anderman applied for an order confirming the award from the federal district court, pursuant to the Federal Arbitration Act, 9 U.S.C. Secs. 9, 10. The district court confirmed the arbitrators' award, and Tennessee appeals.
Because the price of natural gas fluctuates, Tennessee and Anderman agreed to include in their contract various provisions allowing either or both of them to adjust the price of Anderman's gas over the life of the contract. The dispute before the arbitrators concerned the contractual provisions which establish the parties' respective rights to adjust the price. One of those provisions, Sec. 10.4 of the contract, sets forth Tennessee's right to adjust the price by a procedure called "market out." Section 10.4 provides that when, in Tennessee's sole judgment, the price it is paying for Anderman's gas is too high to allow Tennessee to remain competitive in its end use markets, Tennessee may nominate a new price for the gas. To implement this provision, the contract provides that
[Tennessee] shall give [Anderman] written notice ... setting forth the cause and details of [Tennessee's] nomination of a new price and price computation method to be effective ninety (90) days after the date of [the] notice. During the first sixty (60) days following the date of [the notice], [Anderman] may solicit bona fide offers from other purchasers for the gas....
Contract Sec. 10.4. If Anderman receives better offers for its gas from another purchaser or purchasers, Tennessee must either match those offers or release Anderman's gas from the contract. If Anderman does not receive any better offers, then the price nominated by Tennessee becomes effective.
Another provision of the contract allows Anderman to initiate an adjustment of the price of the gas. That provision establishes a process called "price redetermination" which allows Anderman, no more frequently than once every three months, to change the method for calculating the price for its gas. Anderman may choose either of two alternative methods, both of which are set out in the contract and are pegged to some market price for natural gas or fuel oil. Contract Sec. 10.2.
The primary issue before the arbitration panel was to determine what the price of the gas should be. The panel was also presented, though, with important questions concerning the relative rights of the parties to adjust the price of gas in the future. Among others, these questions included:
1) whether Anderman must first invoke its right to a "price redetermination" before Tennessee can "market out,"
2) if Tennessee markets out, whether it can do so again if Anderman has not requested a price redetermination in the meantime, and
3) whether the price paid by Tennessee has to be uncompetitive for Tennessee's end-use markets before Tennessee can market out.
The arbitrators rendered a decision and fashioned remedies which resolved all of the issues before them. First, the panel set a price for the gas, and determined that that price should remain in effect for 12 months. Second, the arbitrators decided that any future price adjustments would have to be approved by the arbitration panel before becoming effective. Finally, the arbitrators decided that while Tennessee did not need to do so in its initial "market out" price adjustment, in any later request to "market out" Tennessee would first have to establish by a preponderance of the evidence that the existing price was too high to allow Tennessee to compete in its end use markets.
Tennessee raises two principal objections to the award. First, Tennessee contends that the arbitrators ignored or deleted an express provision of the contract in deciding that before it could market out, Tennessee would have to demonstrate that the existing price was uncompetitive by a preponderance of the evidence. Second, Tennessee contends that the arbitrators' decision is invalid because it fashions a remedy--setting a price for a year, and requiring future price changes to be approved by the panel--which exceeds the arbitrators' authority. Neither of these arguments provides a sufficient basis for this Court to vacate the arbitrators' award.
The standard of review of an arbitration award is well settled. The federal courts will defer to the arbitrators' resolution of the dispute whenever possible. The Congressional policy of promoting arbitration requires that courts do not intrude unnecessarily into questions that have been settled by an arbitration process agreed to by the parties, lest the efficiency of the arbitration process be lost. Thus, "[j]udicial review of arbitration awards is extremely limited," Delta Queen Steamboat Co. v. District 2 Marine Eng'rs Ben. Ass'n, 889 F.2d 599, 602 (5th Cir.1989); "[j]udicial review of an arbitration award is extraordinarily narrow and this Court should defer to the arbitrator's decision when possible." Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410, 413 (5th Cir.1990).
The standard of review is thus a very deferential one. This Court must sustain arbitration awards even if it does not agree with the arbitrators' interpretation of the contract. The Supreme Court has held that as long as the arbitrator's decision "draws its essence" from the contract, the award must be confirmed. United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 36, 108 S.Ct. 364, 370, 98 L.Ed.2d 286 (1987). See also Delta Queen Steamboat Co., 889 F.2d at 602; HMC Management Corp. v. Carpenters Dist. Council of New Orleans & Vicinity, 750 F.2d 1302, 1304. 2 To draw its essence from the contract,
an [arbitrator's] award must have a basis that is at least rationally inferable, if not obviously drawn, from the letter or purpose of the ... agreement.... [T]he award must, in some logical way, be derived from the wording or purpose of the contract.
Local Union 59, Int'l Bhd. of Elec. Workers v. Green Corp., 725 F.2d 264, 268 (5th Cir.) (quoting Brotherhood of R.R. Trainmen v. Central of Georgia Ry. Co., 415 F.2d 403, 412 (5th Cir.1969)), cert. denied, 469 U.S. 833, 105 S.Ct. 124, 83 L.Ed.2d 66 (1984). Keeping this highly deferential standard of review in mind, we turn to the objections to the arbitrators' award raised by Tennessee.
There can be no question that the arbitrators' decision in this case meets the minimal standard of review applicable to arbitration awards. The award is, in every respect, "rationally inferable" from the letter and purpose of the parties' contract.
The contract initially set a price between the parties, and provided that the price would be subject to adjustment from time to time, in order to account for changes in the market price of natural gas. The parties granted each other reciprocal rights to adjust the price of the gas. Tennessee maintains that its right to market out must be read to be unlimited and absolute--exercisable in its "sole judgment."
The arbitrators disagreed. They read the contract to impose a requirement that Tennessee must demonstrate, by a preponderance of the evidence, that the existing price was so high that Tennessee could not remain competitive in its end use markets. Such a reading of the contract is certainly rationally inferable from the letter and purpose of the contract. As noted above, the contract requires that before Tennessee can market out it must give Anderman written notice of its intention to market out, and include with that notice a statement of the cause for marketing out, and the details of Tennessee's nomination of a new price. Contract Sec. 10.4. The arbitrators' decision amounts to no more than a construction of the language of Sec. 10.4 which requires Tennessee to demonstrate the truth of its statements about why it seeks to market out.
Moreover, the arbitrators decided that the interpretation of the contract offered by...
To continue reading
Request your trial
-
Advanced Micro Devices, Inc. v. Intel Corp.
...applied by federal courts reviewing commercial arbitration awards, as well as by state courts. (See, e.g., Anderman/Smith Co. v. Tenn. Gas Pipeline Co., supra, 918 F.2d at p. 1218; Pacific Reinsurance v. Ohio Reinsurance (9th Cir.1991) 935 F.2d 1019, 1024; Engis Corp. v. Engis Ltd. (N.D.Ill......
-
Halliburton Energy Services, Inc. v. Nl Industries
...whether the award, however arrived at, is rationally inferable from the contract.'" Id. (quoting Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, 1219 n. 3 (5th Cir.1990)). In Am. Laser Vision, the Fifth Circuit We will not second-guess multiple, implicit findings and ......
-
Jacada Ltd. v. Intern. Marketing Strategies
...not to apply such a provision cannot, in and of itself, mean that an award must be vacated. See Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, 1219 (5th Cir.1990) ("The arbitration panel clearly acted within the scope of its authority by reading the contract to avoid......
-
TRUSTEES OF PLMRS. & PIPFTRS. PEN. v. Mar-Len, Inc.
...whenever possible." Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276, 1282 (5th Cir.1994); Anderman/Smith Co. v. Tenn. Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir.1990), cert. denied, 501 U.S. 1206, 111 S.Ct. 2799, 115 L.Ed.2d 972 (1991). See also Chicago Truck Drivers Pension Fu......
-
GLI International Arbitration First Edition - April 2015
...Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994); Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1219 (5th Cir. 1990) ("[A]rbitrators have traditionally enjoyed broad leeway to fashion Tex. Civ. Prac. & Redm. Code § 172.144 (permitting ......
-
CHAPTER 10 THE TAKE-OR-PAY WARS: A CAUTIONARY ANALYSIS FOR THE FUTURE
...a detailed analysis of the deferential standard of review to be employed, see Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215 rehearing denied 924 F.2d 1054 (5th Cir. 1990), affirming district court confirmation of award which required pipeline, in order to exercis......
-
The Arbitrator Blew It! Now What?
...JVB Industries, 894 F.2d 862 (6th Cir. 1990)(coupled with "manifest disregard", nonetheless award affirmed); Anderman/Smith v. Tenn. Gas, 918 F.2d 1215, 1218 (5th Cir. 1990). "Essence of the agreement" basis like "manifest disregard" stems from Supreme Court dicta this time in United Steelw......
-
Expanded grounds for judicial review of employment arbitration awards.
...Corp., 981 F.2d 210, 214 (5th Cir), cert. denied, 509 U.S. 923 (1993), citing Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918 F.2d 1215, 1218 (5th Cir. 1990), cert. denied, 501 U.S. 1206 (1991). (36.) Hayford, supra note 14, at 779. (37.) W.R. Grace & Co. v. Local Union ......
-
CHAPTER 4 FUNDAMENTALS OF GAS MARKETING CONTRACTS
...these specific rules should be reviewed. [Page 5-i] --------Notes:[1] Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co. 918 F.2d 1215 (5th Cir. 1990). [2] See Medina, McKenzie & Daniel, "Take or Litigate: Enforcing the Plain Meaning of the Take-or-Pay Clause in Natural Gas Contracts," ......