Cent. West Va. Energy Inc. v. Bayer Cropscience Lp

• Decision Date: 14 July 2011
• Docket Number: Nos. 10–1706,10–1934.,s. 10–1706
• Citation: 645 F.3d 267
• Parties: CENTRAL WEST VIRGINIA ENERGY, INC., Plaintiff–Appellant,v.BAYER CROPSCIENCE LP, Defendant–Appellee.Bayer Cropscience LP, Plaintiff–Appellee,v.Central West Virginia Energy, Inc., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

645 F.3d 267

CENTRAL WEST VIRGINIA ENERGY, INC., Plaintiff–Appellant,

v.BAYER CROPSCIENCE LP, Defendant–Appellee.Bayer Cropscience LP, Plaintiff–Appellee,

v.Central West Virginia Energy, Inc., Defendant–Appellant.

Nos. 10–1706

10–1934.

United States Court of Appeals, Fourth Circuit.

Argued: May 10, 2011.Decided: July 14, 2011.

ARGUED: Robert D. Luskin, Patton Boggs, LLP, Washington, D.C., for Appellant. Bruce E. Stanley, Reed Smith, LLP, Pittsburgh, Pennsylvania, for Appellee. ON BRIEF: Benjamin G. Chew, Andrew Zimmitti, Haven G. Ward, Patton Boggs, LLP, Washington, D.C., for Appellant. Colin E. Wrabley, Reed Smith, LLP, Pittsburgh, Pennsylvania; S. Miles Dumville, Reed Smith, LLP, Richmond, Virginia, for Appellee.Before GREGORY and DUNCAN, Circuit Judges, and HAMILTON, Senior Circuit Judge.Affirmed by published opinion. Judge DUNCAN wrote the opinion, in which Judge GREGORY and Senior Judge HAMILTON joined.

OPINION

DUNCAN, Circuit Judge:

In this consolidated appeal, Central West Virginia Energy (“CWVE”) appeals the judgments of the United States District Courts for the Eastern District of Virginia and the Southern District of West Virginia. CWVE challenges the determinations of both district courts that a Charleston, West Virginia arbitration panel (the “Charleston Panel”) properly considered the validity of a 2008 agreement between CWVE and Bayer Cropscience LP (“Bayer”). Applying the highly deferential standard of review due arbitration awards, we find that the Charleston Panel did not exceed its powers. Accordingly, we affirm.

I.

The relevant facts are not in dispute. This case centers on the interplay between two agreements containing competing arbitration provisions. A 1997 agreement between CWVE and Bayer mandated arbitration in West Virginia; a 2008 agreement sited it in Virginia. Some factual background provides helpful context for the parties' dispute.

A.

Bayer operates an industrial park in Kanawha County, West Virginia. In 1997, Bayer's predecessor entered into a coal supply agreement (the “1997 Agreement”) with CWVE, a subsidiary of Massey Energy Company, under which CWVE agreed to supply coal to the industrial park at a certain price for a term of two years. The 1997 Agreement provided that it could be extended for successive one-year terms if the parties agreed upon a new price. Significantly for our purposes, the 1997 Agreement also contained an arbitration clause providing that “[a]ll disputes under th[e] Agreement” would be referred to an arbitration panel in Charleston, West Virginia, and would be conducted under the rules of the American Arbitration Association (“AAA”). J.A. 47.

The parties extended the 1997 Agreement several times between 1997 and 2006. They disagree as to whether a series of emails between company representatives in 2006 effectuated a valid extension of the Agreement through the end of 2008.

In the spring of 2008, CWVE informed Bayer that it was not sure if the 2006 extension of the 1997 Agreement was valid, and a protracted debate ensued. In July 2008, in the midst of this uncertainty, a Bayer representative signed a new contract with CWVE to receive coal at an increased price through 2010 (the “2008 Agreement”). The 2008 Agreement provided for the arbitration of disputes “arising out of or relating to this contract or the breach hereof” in Richmond, Virginia. J.A. 62. It specified that the AAA's Commercial Arbitration Rules would apply and that the parties would each appoint one arbitrator, who would together select a third arbitrator. It also contained a merger clause stating that it set forth the entire agreement between the parties and “any prior agreements ... relating to such transactions [were] merged into and super[s]eded by this Agreement.” Id. at 61.

Bayer began paying CWVE the higher price specified in the 2008 Agreement, but did so under protest. Bayer maintained that the 1997 Agreement remained in effect, and that the 2008 Agreement was invalid.

B.

The parties' disagreement led to litigation and arbitration in several fora, although only some of those proceedings are relevant here. On December 5, 2008, Bayer filed a claim for arbitration in Charleston, West Virginia, under the 1997 Agreement. Bayer sought a determination that the extension of the 1997 Agreement was valid and requested damages in the amount of $12 million incurred in purchasing coal at the higher price set by the 2008 Agreement. Bayer explained that it only paid the higher price to cover its obligations because CWVE threatened to stop delivery of coal if it refused to do so.

On March 30, 2009, CWVE filed a demand for arbitration before a panel convened in Richmond, Virginia (the “Richmond Panel”) under the 2008 Agreement. It also moved the Charleston Panel to dismiss its arbitration proceedings, arguing that Richmond was the proper venue because the 2008 Agreement governed the dispute. ¹ The Charleston Panel denied this motion on the ground that “adequate facts ha[d] been alleged ... to support a viable claim under the terms of the 1997 Agreement.” J.A. 107.

During an arbitration hearing held in Charleston on November 9 through 12, 2009, CWVE continued to challenge the jurisdiction of the Charleston Panel to consider the 2008 Agreement. Alternatively, CWVE argued that if the Charleston Panel found that the 1997 Agreement had been extended through 2008, it was nevertheless terminated by the 2008 Agreement, which “superseded all prior agreements by virtue of its merger clause.” J.A. 196.

On February 11, 2010, the Charleston Panel issued a Reasoned Award concluding that the parties had extended the 1997 Agreement through 2008. In rejecting CWVE's argument that the Charleston Panel should await and defer to the Richmond Panel's interpretation of the 2008 Agreement, the Charleston Panel explained that the validity of the 2008 Agreement was squarely before it:

Nowhere in CWVE's extensive and impressive briefing in this case does it deal with its ambivalent, if not contrary, positions that it has directly interposed the July 2008 Agreement as a bar to any recovery by [Bayer] under the [1997 Agreement's] extension, yet [simultaneously] suggest[s] that the Panel cannot consider its validity or enforceability. The short answer to this argument is that CWVE has clearly ple[d] and argued the validity of the July 2008 Agreement throughout this proceeding. By doing so, it has placed that issue squarely before the Panel for a decision as to whether it bars enforcement of the [1997 Agreement's] extension, and it has waived its right to withdraw that aspect of the case from the jurisdiction of the Panel.

J.A. 303 (footnote omitted).

The Charleston Panel found that the 2008 Agreement “operated as a glaring breach” of the 1997 Agreement's extension, was formed under a mutual mistake of fact, and failed to meet the Uniform Commercial Code's requirements of good faith and fair dealing. J.A. 310–12. Accordingly, the Panel deemed the 2008 Agreement void and awarded Bayer stipulated damages in the amount of $10,540,885.07 plus fees.

The following month, on March 19, 2010, the Richmond Panel issued an order staying its proceedings “in light of the Reasoned Award dated February 11, 2010, of the Charleston Panel and the disposition made therein of issues common to this Arbitration now pending between the same parties involving the same transactions....” J.A. 402. The parties reported at oral argument that proceedings in front of the Richmond Panel remain stayed pending resolution of this appeal.

C.

The dispute between the parties continued along dual tracks. On February 16, 2010, CWVE filed a petition in district court in Virginia seeking to vacate a portion of the Charleston Panel's award.² In response, Bayer filed a motion to dismiss in that forum. On March 17, 2010, Bayer filed an action in district court in West Virginia to enforce the panel award. CWVE moved to dismiss or stay the West Virginia action pending resolution of the related Virginia case.

In Virginia, CWVE asked the district court to vacate that portion of the Charleston Panel's arbitration award addressing the 2008 Agreement, renewing its argument that the 2008 Agreement's validity could be determined only by the Richmond Panel. The Virginia district court disagreed. It held that the issue of which arbitration panel should consider the 2008 Agreement was a procedural question for the Charleston Panel to resolve. It therefore granted Bayer's motion to dismiss the petition on June 2, 2010, and CWVE appealed.

As a result of the Virginia district court's ruling, the district court in West Virginia denied as moot CWVE's motion to dismiss or stay Bayer's action pending resolution of the Virginia action. It then turned to the parties' cross-motions for summary judgment. The West Virginia district court agreed with its Virginia counterpart that the Charleston Panel did not exceed its powers by adjudicating the validity of the 2008 Agreement. The West Virginia district court found that “the dispute was properly submitted to arbitration under the terms of the [1997] Agreement,” and that “determining the validity of the 2008 Agreement was necessary to the adjudication of the contract dispute.” J.A. 444. It granted summary judgment to Bayer, and this consolidated appeal followed.

II.

CWVE argues that both the Virginia and West Virginia district courts erred in finding that the Charleston Panel did not exceed its powers under the Federal Arbitration Act (“FAA”) by adjudicating the validity of the 2008 Agreement. CWVE contends that the Virginia district court erroneously held that the Charleston Panel's jurisdiction over the 2008 agreement was a “procedural” issue properly left to the panel's discretion. It further argues that the West Virginia district court erred in upholding the Charleston Panel's rationale for exercising jurisdiction over the 2008 agreement. We review these legal challenges, brought under § 10(a)(4) of the FAA, 9 U.S.C. § 10...