Colstrip Energy Ltd. P'ship v. Nw. Corp..

• Decision Date: 10 May 2011
• Docket Number: No. DA 10–0346.,DA 10–0346.
• Citation: 360 Mont. 298,253 P.3d 870,2011 MT 99
• Parties: COLSTRIP ENERGY LIMITED PARTNERSHIP, a Montana limited partnership, Plaintiff and Appellant,v.NORTHWESTERN CORPORATION, a Delaware corporation, Defendant and Appellee.
• Court: Montana Supreme Court

360 Mont. 298

253 P.3d 870

2011 MT 99

COLSTRIP ENERGY LIMITED PARTNERSHIP, a Montana limited partnership, Plaintiff and Appellant,

v.NORTHWESTERN CORPORATION, a Delaware corporation, Defendant and Appellee.

No. DA 10–0346.

Supreme Court of Montana.

Submitted on Briefs Feb. 16, 2011.Decided May 10, 2011.

For Appellant: Ward E. Taleff, Taleff Law Office, P.C., Great Falls, Montana.For Appellee: Charles E. Hansberry, Stephen R. Brown, Garlington, Lohn & Robinson, PLLP, Missoula, Montana, Michael R. Engleman, Leon B. Kellner, Dickstein Shapiro, LLP, Washington, DC.Justice JAMES C. NELSON delivered the Opinion of the Court.

[360 Mont. 299] ¶ 1 Colstrip Energy Limited Partnership (CELP) appeals an order of the District Court for the Sixteenth Judicial District Court, Rosebud County, denying CELP's motion to vacate the arbitration award in its dispute with Northwestern Corporation (Northwestern). We affirm.

¶ 2 CELP raised the following issues on appeal:

¶ 3 1. Was it permissible for the arbitrators to find the parties' contract requires the use of specific variables to calculate rates but then fail to apply those required contract variables in the two years in question to avoid awarding damages?

¶ 4 2. Did the arbitrators exceed their powers when their award relied on the “intent” of sophisticated parties to an unambiguous contract instead of interpreting the contract as written?

¶ 5 3. Did the arbitrators exceed their powers when they issued an award based on their sense of equity rather than enforcing the parties' contract as written?

¶ 6 4. Was the District Court's failure to vacate the arbitration award an abuse of discretion where the arbitrators exceeded their powers?

Factual and Procedural Background

¶ 7 CELP is a Montana limited partnership which owns an electrical generating plant in Rosebud County. Northwestern is a Delaware corporation and a regulated public utility conducting business in Montana. Under federal and Montana law, utilities such as Northwestern are obligated to purchase electricity from small generating facilities such as CELP. See 16 U.S.C. § 824a–3(a)(1) (the Public Utility Regulatory Policies Act (PURPA)), 18 C.F.R. § 292.207, and Title 69, chapter 3, part 6, MCA. Rates under PURPA are based on the concept of “avoided costs”—the costs at the onset of a power purchase agreement that the utility avoids by purchasing power from a qualified facility rather than building a power plant to produce it. The Montana Public Service Commission (PSC) oversees the implementation of PURPA in Montana.

¶ 8 In 1984, CELP's predecessor, AEM Corporation (AEM), entered into a Power Purchase Agreement (the Agreement) with the Montana Power Company (MPC) for the sale of energy and capacity from the Rosebud County facility for a term of 35 years. In March 1988, following the issuance of numerous orders by the PSC implementing PURPA, AEM and MPC executed a First Amendment to the Agreement. The First Amendment altered the payment scheme under the Agreement by providing that in contract years one through fifteen, AEM would essentially receive a fixed rate for electrical generation. Beginning in the sixteenth contract year, AEM's annual rates were to be based upon a formula which adopted specific mandatory variables and methods contained in PSC Orders 5017 and 5017a issued in 1983. These rates were to be approved annually by the PSC. The rate formula adopted in the First Amendment required an annual adjustment by comparing the variables in the new contract year with the variables from the immediately preceding contract year's final approved PSC rates. CELP and Northwestern are the successors to those contracts.

¶ 9 Eventually, a dispute arose between CELP and Northwestern regarding the contractual methodology used to calculate CELP's contract rates for energy and capacity for contract years sixteen and seventeen (July 1, 2004 through June 30, 2006). These were the first years CELP's rates were subject to the formula contained in the First Amendment rather than the fixed rate.

¶ 10 Sometime in 2007, Northwestern advised CELP that it intended to deduct more than $1 million from its next payment to CELP because of alleged overpayments made by Northwestern for contract years sixteen and seventeen. In response, CELP filed this action challenging Northwestern's claimed offset on the basis that Northwestern had created its alleged overpayment by using the wrong variable to determine the rates to be paid to CELP. In its cause of action, CELP sought roughly $22 million in damages from Northwestern and alleged, among other things, breach of contract; breach of the implied covenant of good faith and fair dealing; negligent misrepresentation; violation of due process; deceit; actual fraud; constructive fraud; and abuse of process. CELP also sought judicial review of two orders of the PSC filed under the Montana Administrative Procedure Act.

¶ 11 Northwestern moved to compel arbitration of CELP's claims based on the arbitration provision in the Agreement. The District Court ordered CELP's cause of action against the PSC bifurcated from its action against Northwestern and ordered CELP and Northwestern to arbitration. Northwestern did not raise any counterclaims in the arbitration.

¶ 12 Over the course of a nearly one-year long arbitration proceeding before a panel of three arbitrators (the Panel), each party presented its case regarding the proper interpretation of both the Agreement and the First Amendment. The arbitration proceedings included a five-day arbitration hearing in San Francisco with testimony from several expert witnesses and significant questioning by the Panel. It also included extensive pre- and post-hearing briefing.

¶ 13 On August 24, 2009, the Panel issued its Interim Award addressing all of CELP's counts against Northwestern, reserving for the Final Award only the question of whether either party was entitled to costs and fees as the prevailing party under § 29 of the Agreement. The Panel denied CELP's contract and tort damage claims as well as all other relief sought by CELP noting that it was troubled by the manner in which CELP shifted its arguments in an effort to manufacture a damage case. The Panel concluded that although Northwestern breached the parties' contract, CELP failed to prove that this breach caused CELP to suffer compensable damages or underpayments, or that the breach entitled CELP to any other relief.

¶ 14 The Panel issued its Final Award on October 30, 2009, incorporating almost verbatim the text of the Interim Award. In addition, CELP had sought recovery of its legal fees and arbitration expenses from the Panel, but the Panel denied that request. Instead, the Panel determined that because the relief awarded was of a “mixed nature” in that both CELP and Northwestern gained “victories” and suffered “losses,” each party should bear its own legal fees and other litigation expenses incurred in arbitration.

¶ 15 Northwestern filed a motion with the District Court seeking to confirm the arbitration award while CELP sought to have it vacated. Originally, CELP moved to modify or correct the Final Award, but at a hearing on the parties' competing motions, CELP argued that the Final Award must be vacated in its entirety because it was not “fixable in terms of modification, unless you throw out the vast majority of the arbitration award.” CELP did not challenge the Panel's failure to award fees and costs.

¶ 16 The District Court confirmed the Final Award by order dated June 15, 2010. In its order, the District Court found that CELP failed to cite to any factual evidence or legal precedent showing that the Panel had disregarded clear Montana law or exceeded the authority conferred on the Panel by the parties' Agreement, the District Court's order directing the parties to arbitrate, or the scope of the questions presented to the Panel by CELP. CELP now appeals that ruling.

Discussion

¶ 17 Judicial review of an arbitration award is strictly limited by statute in Montana. Dick Anderson Construction, Inc. v. Monroe Construction, 2009 MT 416, ¶ 26, 353 Mont. 534, 221 P.3d 675 (hereinafter “ DAC ”) (citing Paulson v. Flathead Conservation Dist., 2004 MT 136, ¶ 18, 321 Mont. 364, 91 P.3d 569; Terra West v. Stu Henkel Realty, 2000 MT 43, ¶ 22, 298 Mont. 344, 996 P.2d 866; Nelson v. Livingston Rebuild Center, Inc., 1999 MT 116, ¶ 11, 294 Mont. 408, 981 P.2d 1185). Montana's Uniform Arbitration Act (Title 27, chapter 5, MCA) provides that a district court must confirm an arbitration award upon application of a party unless timely urged to vacate or modify the award. DAC, ¶ 26 (citing May v. First Nat. Pawn Brokers, Ltd., 269 Mont. 19, 22, 887 P.2d 185, 187 (1994); § 27–5–311, MCA). When a matter has been submitted to binding arbitration, courts are not permitted to review the merits of the controversy, but may only confirm, vacate, modify, or correct an arbitration award pursuant to §§ 27–5–311, –312, and –313, MCA. DAC, ¶ 26 (citing Paulson, ¶ 18; Nelson, ¶ 11). Furthermore, the party seeking to vacate, modify, or correct an arbitration award bears the burden of proving that one of the statutorily enumerated grounds exists. DAC, ¶ 26 (citing Duchscher v. Vaile, 269 Mont. 1, 6, 887 P.2d 181, 184 (1994)).

¶ 18 We review a trial court's decision to confirm an arbitration award to determine if the court abused its discretion. DAC, ¶ 19 (citing Terra West, ¶ 22). The test for an abuse of discretion is whether the trial court acted arbitrarily, without employment of conscientious judgment, or exceeded the bounds of reason resulting in substantial injustice. DAC, ¶ 19 (internal quotation marks omitted) (citing In re Custody and Parental Rights of C.J.K., 2005 MT 67, ¶ 13, 326 Mont. 289, 109 P.3d 232; In re KCH, 2003 MT 125, ¶ 11, 316 Mont. 13, 68 P.3d 788).

¶ 19 We stated in DAC that

[a]rbitration allows parties to engage decision-makers who are technically skilled or trained in the...