Duquesne Light Co. v. New Warwick Min. Co.

• Decision Date: 12 June 1995
• Citation: 443 Pa.Super. 53,660 A.2d 1341
• Parties: DUQUESNE LIGHT COMPANY, Appellant, v. NEW WARWICK MINING COMPANY.
• Court: Pennsylvania Superior Court

Page 1341

660 A.2d 1341

443 Pa.Super. 53

DUQUESNE LIGHT COMPANY, Appellant, v. NEW WARWICK MINING COMPANY.

Superior Court of Pennsylvania.

Argued Feb. 9, 1995.

Filed June 12, 1995.

Edmund M. Carney, Pittsburgh, for appellant.

Raymond G. McLaughlin, Pittsburgh, for appellee.

Before CAVANAUGH, JOHNSON and SAYLOR, JJ.

CAVANAUGH, Judge:

This is an appeal from a judgment entered in favor of appellee New Warwick Mining Company ("New Warwick") and against appellant Duquesne Light Company ("Duquesne"), following the trial court's denial of Duquesne's petition to vacate or modify an arbitration award. After careful review, and for the reasons which follow, we affirm.

In 1990, the parties entered into two agreements which required New Warwick to supply coal to Duquesne. Both of these agreements provided for arbitration of any disputes arising between the parties. Subsequently, a dispute arose over Duquesne's obligation to purchase in excess of 700,000 tons of coal from New Warwick during 1993, and the matter was submitted to arbitration. On February 16, 1994, a panel of three arbitrators rendered a decision and award, finding, inter alia, that Duquesne is obligated, under the agreements between the parties, to accept and pay for 737,000 tons of coal annually from New Warwick; and that Duquesne owed New Warwick $302,290 for Duquesne's breach in accepting less than 737,000 tons of coal during 1993. Duquesne then filed a petition to vacate or modify the arbitration award. In response, New Warwick filed both an answer and preliminary objections to Duquesne's petition. The trial court subsequently denied Duquesne's petition to vacate and overruled New Warwick's preliminary objections. Judgment was entered. This appeal followed.

Before examining the merits of this appeal, we will first address the preliminary question of whether the present dispute is governed by the provisions of the Federal Arbitration Act, ¹ or by Pennsylvania law. ² This question was not decided by the arbitration panel. The trial court also did not decide this question. The court simply concluded, in disposing of Duquesne's motion to vacate, that under either federal or state law, Duquesne was not entitled to relief. Duquesne contends that federal law applies because the transactions between the parties involve interstate commerce. New Warwick, however, maintains that the record does not support the conclusion that the transactions between the parties involve interstate commerce, and that, in any event, this Court may not, in the first instance, make the determination of whether or not federal law is applicable in this case.

In order for the provisions of the Federal Arbitration Act to apply, the contract at issue must evidence a transaction in or relating to interstate commerce. Emlenton Area Mun. Authority v. Miles, 378 Pa.Super. 303, 306 n. 2, 548 A.2d 623, 625 n. 2 (1988). This inquiry involves a factual determination. Id. Where the factfinder makes no such findings, and otherwise fails to indicate whether it is applying federal or state law to the arbitration issue, an appellate court is prohibited from determining the applicability of federal law. Id. In the present case, the arbitration panel did not decide this issue, and it appears from the record that it was not even presented to or considered by the panel. In these circumstances, we could remand for a specific finding of fact on this point. See Emlenton, supra. However, because we agree with the trial court that Duquesne is not entitled to relief under either federal or state law, remand for such a finding is unnecessary. Id. We will thus undertake an examination of Duquesne's claims in light of both federal and state law.

We begin by examining Duquesne's argument under federal law. The Federal Arbitration Act presumes that reviewing courts will confirm arbitration awards and that a court's review of the arbitration process will be severely limited. Robbins v. Day, 954 F.2d 679 (11th Cir.1992). Under the Act, a reviewing court may vacate the arbitrators' award "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4). An award will not, however, be vacated under § 10 solely on the basis of an error of law or interpretation; but rather, requires something more, such as misconduct, on the part of the arbitrators or the parties, which pertains to the proceedings. Robbins, supra.

In addition to § 10, the federal courts have recognized several limited instances where an arbitration award will be vacated. Fine v. Bear, Stearns & Co., Inc., 765 F.Supp. 824, 827 (S.D.N.Y.1991). There is not uniform agreement, however, among the federal circuits on these various standards for vacatur, or on how they are to be applied. Robbins, supra, 954 F.2d 679. Here, Duquesne contends that the arbitrators either exceeded or improperly exercised their powers in violation of § 10(a)(4); and also that their decision was in manifest disregard of the law and was fundamentally irrational.

Under federal caselaw, an award may be vacated or modified if it was rendered in manifest disregard of the law, Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1958), or if the award is fundamentally irrational, Swift Industries, Inc. v. Botany Industries, Inc., 466 F.2d 1125 (3d Cir.1972). In order to vacate the award due to alleged "manifest disregard of the law" it must be shown that the law alleged to have been disregarded is well-defined, explicit and clearly applicable, such that the error is capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. Fine, supra, at 765 F.Supp. 824. To demonstrate that the award was "fundamentally irrational" it must be shown that the award was based on reasoning so palpably faulty that no judge could ever conceivably have made such a ruling. Local 1466, International Brotherhood of Electrical Workers, AFL-CIO v. Columbus & Southern Ohio Electric Co., 455 F.Supp. 471, 474 (S.D.Ohio 1978), aff'd., 627 F.2d 1091 (6th Cir.1980).

Although we are presented with several standards of review, a single argument underlies Duquesne's contentions. Under the agreements between Duquesne and New Warwick, Duquesne was to receive a discount in the price of the coal when an amount in excess of 737,000 tons was supplied by New Warwick. Duquesne maintains that it had the absolute right to order between 737,000 and 775,000 tons of coal per year, and that the arbitrators should have based their damage calculations on Duquesne's right to order tonnage in this range, because the law of damages requires consideration of non-breaching alternatives which are available and which would limit the damages caused by a party's breach. ³ According to Duquesne, however, the arbitrators failed to consider Duquesne's right to order in upper range and consequently failed to consider the corresponding discount. This omission by the arbitrators, Duquesne maintains, resulted in a fundamentally erroneous award, which should now be vacated.

Under the arbitration provision of the agreements between the parties, any disputes were to be submitted to a panel of three arbitrators. Each party had the right to choose one of the arbitrators, and the two arbitrators chosen by the parties would then choose the third. The arbitration panel which heard the present controversy, resolved the dispute in favor of New Warwick, with the arbitrator appointed by Duquesne dissenting from the majority's award. The majority did not issue an opinion explaining its rationale for the award. See Robbins, supra, 954 F.2d 679 (arbitrators are not required to explain award, and silence cannot be used as grounds for vacating the award). Duquesne, however, points to language in the brief decision issued by the majority, which it contends supports its position that it had the absolute right to purchase coal in the upper tonnage range. Duquesne contends that the majority improperly failed to consider both this right, and the corresponding discount Duquesne would receive for an order in the upper range, when the majority calculated the damage award. The language in the majority's decision which Duquesne relies on states the following:

Duquesne Light Company is not obligated to accept and pay for tonnage between 737,000 and 775,000 from New Warwick Mining Company under the contracts. New Warwick Mining Company does not have the right under the contracts to sell annual tonnage from 737,000 to 775,000 to Duquesne Light Company.

To further support this position, Duquesne points to the dissent, prepared at its request, by the arbitrator which it chose for the panel. This statement provides, in pertinent part, as follows:

The Chairman apparently did not apply these basic principles of the law of damages because, he thought that the Panel was not asked the question concerning Duquesne's rights in the higher range of tonnage. But, of course, we were. Duquesne's and New Warwick's statements of the issue and answer both address the entire range. Secondly, the Majority has already ruled on New Warwick's rights and Duquesne's obligations concerning the 737,000 to 775,000 range. Only Duquesne's rights in that range remain unstated in the Majority's award, but, as stated, those rights are present as the Chairman himself so said to the other members of the Panel on two separate occasions.

After reviewing the record in this case, we find Duquesne's assertion to be fundamentally flawed. While we agree that the issue of the upper range discount was before the arbitrators, we do not agree that the majority believed that Duquesne had an absolute right to purchase coal in the upper range. From a fair reading of the majority's decision it is clear that it concluded that New Warwick did not have an absolute right to deliver coal in the upper range which Duquesne was then obligated to...