Ex parte Warrior Basin Gas Co.

• Citation: 512 So.2d 1364
• Decision Date: 07 August 1987
• Docket Number: TRE-J
• Parties: Ex parte WARRIOR BASIN GAS COMPANY. (In reEXPLORATION, INC. v. WARRIOR BASIN GAS COMPANY, a Corp., and Tennessee Gas Pipeline Company, a Division of Tenneco, Inc.) Ex parte TENNESSEE GAS PIPELINE COMPANY, A DIVISION OF TENNECO, INC. (In reEXPLORATION, INC. v. WARRIOR BASIN GAS COMPANY, a Corp., and Tennessee Gas Pipeline Company, a Division of Tenneco, Inc.) 85-1569, 86-1.
• Court: Supreme Court of Alabama

Page 1364

512 So.2d 1364

Ex parte WARRIOR BASIN GAS COMPANY.

(In re TRE-J EXPLORATION, INC. v. WARRIOR BASIN GAS COMPANY, a Corp., and Tennessee Gas Pipeline Company, a Division of Tenneco, Inc.)

Ex parte TENNESSEE GAS PIPELINE COMPANY, A DIVISION OF TENNECO, INC.

(In re TRE-J EXPLORATION, INC. v. WARRIOR BASIN GAS COMPANY, a Corp., and Tennessee Gas Pipeline Company, a Division of Tenneco, Inc.)

85-1569, 86-1.

Supreme Court of Alabama.

Aug. 7, 1987.

Lee H. Zell of Berkowitz, Lefkovits, Isom & Kushner, Birmingham, for petitioner Warrior Basin Gas Co.

Thomas A. Carraway, Birmingham and Mark D. Murr, Houston, Tex., for petitioner Tennessee Gas Pipeline Co.

Andrew P. Campbell and Jack W. Selden of Leitman, Siegal & Payne, Birmingham, for respondent Tre-J Exploration, Inc.

MADDOX, Justice.

These causes are here on petitions for writ of mandamus. The petitioners seek a writ of mandamus compelling the trial court to stay the pending litigation and to submit the parties' dispute to arbitration.

Petitioner Tennessee Gas Pipeline Company entered into a long-term "Master Agreement" with respondent, Tre-J, in which Tennessee Gas agreed to purchase natural gas from Tre-J's Blue Gut field, and Tre-J agreed to dedicate all of the reserves in that field to Tennessee Gas. The agreement was drafted by Tennessee Gas and contains an extensive arbitration clause.

In connection with the Master Agreement, Tennessee Gas agreed to allow petitioner Warrior Basin Gas Company to purchase the gas from Tre-J for a two-year period. This led to an agreement (the "Gas Purchase Contract") between Tre-J and Warrior Basin; it is that agreement that is in issue here. That agreement also was drafted by Tennessee Gas, and it also contains an arbitration clause. That clause reads as follows:

"ARBITRATION --In the event of any dispute or controversy between the parties hereto involving the operations under this Contract, same shall be settled by arbitration. Each of the parties shall appoint an arbitrator, and the two appointed shall select a third. The award of any two arbitrators shall be conclusive upon the parties and shall be made within thirty (30) days after the appointment of the first arbitrator." (Emphasis added.)

The subject contract also provided for the quantity of gas to be purchased:

"9. QUANTITY --Buyer agrees to purchase and Seller agrees to deliver to Buyer, subject to the capability of Seller's well(s), up to ten thousand (10,000) MMBtu of gas per day during the term hereof. If during any calendar quarter Buyer purchases a total quantity of gas less than seventy-five percent (75%) of the gas made available by Seller to Buyer hereunder, Seller shall have the right to terminate this Contract upon thirty (30) days written notice to Buyer with respect to the gas not purchased by Buyer. In the event Buyer nominates a quantity of gas in excess of ten thousand (10,000) MMBtu, Seller shall have the right, but not the obligation to sell such excess gas to Buyer."

The gas purchase agreement further provided that the price paid would be $2.65/MMBtu for the first six months, and it also provided for price adjustments every six months thereafter based on a Labor Department index.

Under the terms of the agreement, Tre-J would drill the wells and deliver the gas to a pipeline leading to the Tennessee Gas line. Tre-J was to be responsible for the testing and purification of its gas, with title to vest in Tennessee Gas only upon its entry into Tennessee Gas's pipeline.

Approximately ten months after Tre-J and Warrior Basin contracted, Warrior Basin requested that the price be lowered from $2.65 to $1.91/MMBtu. Tre-J refused to agree to that request. At a later date, Warrior Basin, by letter, demanded an immediate reduction to the desired price which Tre-J again refused. No arbitration was initiated at that time. Instead, Warrior Basin notified Tre-J that it would thenceforth accept no more than 1,400 MMBtu per day.

Tre-J filed suit for specific performance and for preliminary and permanent injunctive relief, and sought a declaration that the contract required Warrior Basin to accept Tre-J's entire production, up to 10,000 MMBtu per day. Warrior Basin and Tennessee Gas promptly moved to compel arbitration under the terms of the gas purchase contract. The trial court found that, while the Federal Arbitration Act, 9 U.S.C. § 1, et seq., would apply, because interstate commerce was involved, the intent of the parties was that the arbitration clause did not apply to this type of dispute. Because we disagree with the conclusion reached by the trial court, we grant the writ.

The parties disagree on the controlling cases and the standard of review to be applied by this Court. In support of their petitions, Warrior Basin and Tennessee Gas rely on the language of the contract, and on the strong federal policy in favor of arbitration. Petitioners cite a number of federal cases in support of their position, including AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Nursing Home & Hospital Union No. 434 AFL-CIO-LDIU v. Sky Vue Terrace, Inc., 759 F.2d 1094 (3d Cir.1985); Wick v. Atlantic Marine, Inc., 605 F.2d 166 (5th Cir.1979); RPJ Energy Fund Management, Inc. v. Collins, 552 F.Supp. 946 (D.Minn.1982). Petitioners' cases amply support their contention that arbitration clauses are to be liberally construed in favor of arbitration, Mitsubishi, supra; Moses H. Cone, supra, and that an order to arbitrate a particular matter should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of interpretation that it covers the asserted dispute. AT & T Technologies, supra; Wick, supra.

In opposition to the petitions, Tre-J argues that, at its root, the dispute between the parties is merely a matter of contract interpretation and that it is to be governed strictly by contract principles; Tre-J, therefore, contends that the federal arbitration policy of requiring arbitration does not come into play until it is determined that the parties intended the arbitration clause to govern the particular issue in dispute. Tre-J contends that the parties did not intend this type of dispute to be the subject of arbitration. Further, Tre-J argues that, construing the contract against the drafter, Rivers v. Oakwood College, 442 So.2d 74 (Ala.1983), the trial court correctly concluded that the parties intended only a narrow arbitration clause, one applying only to disputes over physical operations, i.e., drilling, pumping, and pipeline operations. On a factual issue of this sort, Tre-J argues, the decision of the trial court must be affirmed unless it is shown to be clearly erroneous. For these propositions, Tre-J cites AT & T Technologies, supra; Mitsubishi, supra; John F. Harkins Co. v. Waldinger Corp., 796 F.2d 657 (3d Cir.1986), cert. denied, 479 U.S. 1059, 107 S.Ct. 939, 93 L.Ed.2d 989 (1987); Twin City Monorail, Inc. v. Robbins & Myers, Inc., 728 F.2d 1069 (8th Cir.1984); Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir.1983); and Seaboard Coast Line R.R. v. Trailer Train Co., 690 F.2d 1343 (11th Cir.1982).

In support of its argument that the trial court correctly construed the language of the arbitration agreement, Tre-J introduced the text of the 15-year Master Agreement drafted by Tennessee Gas. That agreement read, in pertinent part, as follows:

"7-A.1 Any controversy arising between the Parties with respect to subsections 5.5 or 10.2.3 of this Agreement not resolved by agreement shall be determined by a board of arbitration...."

Sections 5.5 and 10.2.3 provide as follows:

"5.5 If the first determination of Proved Recoverable Dry Gas Reserves or any subsequent determination of same is not agreed upon within thirty (30) days after written request therefor or prior to initial deliveries under this agreement, then the first determination or such subsequent determination shall be made by arbitration upon written demand by Buyer or Seller. Buyer shall be released from any obligation to pay for gas not taken hereunder until such first determination has been made."

_____

"10.2.3 In the event a Party selects the pricing method set forth in paragraph (c) of subsection 10.1.1 or paragraph (b) of subsection 10.2.2, above, and the prices for Fuel Oil No. 6 specified therein cease to be published in the manner or with the frequency contemplated therein, Buyer and Seller shall, within ninety (90) days following such cessation of publication, mutually agree in writing as to a substitute publication from which the highest and lowest daily prices of Fuel Oil No. 6 may be obtained. In the event that a substitute publication is not available, Buyer and Seller shall mutually agree in writing as to an alternative manner in which to compute the price payable for gas pursuant to paragraph (c) of subsection 10.1.1 or paragraph (b) of subsection 10.2.2. If Buyer and Seller are unable to mutually agree on a substitute publication, or an alternate price computation method as the case may be, such matter shall be determined by arbitration as provided in Section 7-A of Exhibit 'A' hereto."

Tre-J cites this Master Agreement as an example of a broad arbitration agreement used by Tennessee Gas when it intends for arbitration to apply to all disputes over a particular provision.

The question of the effect of arbitration clauses in contracts involving interstate commerce has been to this Court frequently, of late, and the record indicates that both sides were aware that the scope of the arbitration clause in the present case would ultimately reach this Court. Even the trial judge anticipated that if he ruled as he...