Gaddis Mining Co. v. Continental Materials Corp., Civ. No. 4438.

• Decision Date: 09 August 1961
• Docket Number: Civ. No. 4438.
• Citation: 196 F. Supp. 860
• Parties: GADDIS MINING COMPANY, a Colorado corporation, Plaintiff, v. CONTINENTAL MATERIALS CORPORATION, a Delaware corporation, and Continental Uranium Company of Wyoming, a Wyoming corporation, Defendants.
• Court: U.S. District Court — District of Wyoming

196 F. Supp. 860

GADDIS MINING COMPANY, a Colorado corporation, Plaintiff, v. CONTINENTAL MATERIALS CORPORATION, a Delaware corporation, and Continental Uranium Company of Wyoming, a Wyoming corporation, Defendants.

Civ. No. 4438.

United States District Court D. Wyoming.

August 9, 1961.

A. G. McClintock, Cheyenne, Wyo., Raymond J. Gengler, John David Sullivan and Fred M. Winner, Denver, Colc., and Walter C. Urbigkit, Jr., Cheyenne, Wyo., for plaintiff.

Carleton A. Lathrop, of Lathrop, Lathrop & Tilker, Cheyenne, Wyo., and Fred A. Deering, Jr., of Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., for defendants.

KERR, District Judge.

This controversy is the outgrowth of plaintiff's sale of uranium properties in Fremont County, Wyoming, to defendants, the value of the purchase price of which was not readily ascertainable. It it a diversity action brought to recover such purchase price allegedly due and owing plaintiff by defendants. By the purchase agreement the purchase price was to be calculated on the basis of the net value of the ore developed under the terms of the agreement. The arbitration award determined that the net value of the ore developed under the terms of the purchase agreement was $2,106,662.34. Prior to the trial the parties stipulated that if the award were upheld plaintiff would be entitled to $192,224.20 as of March 31, 1961. Defendants deny owing such sum. They assert that the arbitrators overestimated the net value of ore developed, and contend that the arbitration award is invalid.

To determine whether or not the arbitration award is valid this court is called upon to construe the Purchase Agreement dated July 3, 1956, the Arbitration Stipulation dated May 27, 1958, the Agreement with the E. J. Longyear Company dated May 22, 1958, but as a matter of fact not executed until after May 27, 1958, the Final Arbitration Award dated April 11, 1960, and the Mortgage dated July 3, 1956, in which Continental is the mortgagor and Gaddis is the mortgagee.

It is sufficiently clear to identify the plaintiff-seller as "Gaddis" and the defendants-buyers as "Continental". Gaddis and Continental executed the purchase agreement in Denver, Colorado, on July 3, 1956. The purchase agreement specified the exploratory program in which Continental was to engage to discover the ore reserves in the property to be purchased. It was agreed that the purchase price would be 65% of the net value of the ore developed by the drilling program. Appendices attached to and made a part of the purchase agreement describe the exploration to be conducted by Continental, and the formula for calculating the net value of the ore developed therein. Phase "A" of that program was carried out by Continental, on the basis of which certain payments were made to and accepted by Gaddis. Friction developed, however, at the close of Phase "B" of the exploratory work in which less ore was proven than had been proven in Phase "A". Pursuant to the contract Continental submitted to Gaddis its determination of the net value of the ore developed. By letter dated December 18, 1957, Gaddis protested Continental's determination of the net value of ore developed, claimed that such determination was in error, and specified the nine errors which it claimed existed in Continental's determination. Subsequently Gaddis invoked the arbitration procedure of the purchase agreement, which he had a right to do. It provided that arbitrators would make a determination of the issues in dispute and that such determination would be conclusive and binding on the parties.

On May 27, 1958, the parties executed the arbitration submission in the manner provided by Colorado law. They identified the dispute as being with respect to the determination of the net value of ore developed; they named the arbitrators and stated that the arbitration proceedings were to commence on May 26, 1958, at 11:00 a.m., in Grand Junction, Colorado. They agreed that the arbitrators would issue a tentative award to which the parties could submit their objections. Deciding any objections, the arbitrators were thereupon to issue their final award. Paragraph 4 of the Stipulation contains the following provision: "Continental and Gaddis will submit to the Arbitrators for their decision the question: `What is the "net value of ore developed" under the provisions of the Agreement'?" In paragraph 7 the parties specify what facts and information they shall submit to the Arbitrators.

The third written agreement pertaining to the arbitration of the parties' dispute is that between Gaddis and Continental and the E. J. Longyear Company dated May 22, 1958. This is a material document in view of defendants' contention that the arbitration award is invalid because the arbitrators were guilty of misconduct in depriving Continental of a fair hearing and because they improperly delegated their responsibilities. Under the provisions of this agreement the arbitrators were authorized to employ the services of the geologists or engineers from the Longyear personnel "to recalculate the ore reserves from the drilling data submitted and develop other studies of drilling data which would be pertinent to establish final interpretations of the drilling results * * *."

When the final award of the arbitrators was issued on April 11, 1960, Gaddis filed it with the Clerk of the District Court, Mesa County, Colorado, and, pursuant to Rule 109, Rules of Civil Procedure of Colorado, judgment was entered thereon ordering defendants to pay plaintiff $1,056,058.90. At the instance of Continental the Colorado Supreme Court will, in time, review that judgment on writ of error in which the procedural aspects of and not the merits of the arbitration award are being questioned.

During the trial I challenged the diversity jurisdiction of this court and its jurisdiction over the subject matter of the controversy. Upon inquiry into the facts upon which the alleged jurisdiction has been invoked, it is my opinion that the requirements of 28 U.S.C.A. § 1332 as amended, are satisfied. Gaddis Mining Company is a Colorado corporation and the defendant corporations were organized in Delaware and in Wyoming. The fact that Continental has an office in Grand Junction, Colorado, does not defeat the diversity of citizenship of the parties as its overall corporate activity and principal place of business are in Wyoming. The particular facts indicate unequivocally that its actual business is conducted and transacted in Fremont County, Wyoming. Colorado Interstate Gas Co. v. Federal Power Commission et al., 10 Cir., 142 F.2d 943, affirmed 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206, rehearing denied 325 U.S. 891, 65 S.Ct. 1082, 89 L.Ed. 2004; Kelly et al. v. United States Steel Corporation et al., 3 Cir., 284 F.2d 850; Scot Typewriter Co., Inc. v. Underwood Corp., D.C.N.Y., 170 F. Supp. 862; Mattson et al. v. Cuyuna Ore Company, D.C.Minn., 180 F.Supp. 743; Wear-Ever Aluminum, Inc. v. Sipos, D.C. N.Y., 184 F.Supp. 364.

With respect to this court's jurisdiction over the subject matter of this controversy, it is important to note that the contracts between the parties were executed in Colorado and that the Arbitration Agreement between Gaddis and Continental properly conforms to Rule 109 of the Colorado Rules of Civil Procedure. That Rule requires that the parties agree to abide by the award of the arbitrators. It provides that "the award may be filed with the clerk of the district court, as a basis of a judgment, and that an execution may be issued for its collection".

It has been stated that an arbitration act is remedial and non-exclusive and that the right to sue to recover an arbitration award is not thereby abolished. Hartmann Coal Mining Co., Inc. v. Hoke et al., D.C.Pa., 157 F.Supp. 313. I agree with this principle, and therefore look to the law of Colorado to ascertain when and under what circumstances the courts may review an arbitration award.

The authority of a court to review the award of the arbitrators is limited to the causes set out in Rule 109 of the Rules of Civil Procedure of Colorado. People ex rel. Kimball v. Crystal River Corporation et al., 131 Colo. 163, 280 P. 2d 429. Paragraph (g) of the rule provides that an arbitration adjudication may be "impeached and set aside for fraud or other sufficient cause, the same as a judgment of a court of record", and relief may be had "on the ground of mistake, inadvertence, surprise or excusable neglect, as in the case of other judgments, orders or proceedings of the court". There is no evidence in the record of this case of any fraud practiced upon the arbitrators, nor of any accident or mistake which deceived or misled them, "so that the award did not in fact represent their judgment upon the matters submitted". Twin Lakes Reservoir & Canal Co. v. Platt Rogers, Inc., 112 Colo. 155, 147 P.2d 828, 835; Wilson v. Wilson, 18 Colo. 615, 34 P. 175.

In Colorado, an arbitration award is not subject to review in the courts merely because one of the parties is dissatisfied with it, or solely for mistake in either the law or fact. Western Oil Fields, Inc. v. Rathbun, 10 Cir., 250 F.2d 69; People ex rel. Kimball v. Crystal River Corporation, supra; Twin Lakes Reservoir & Canal Co. v. Platt Rogers, Inc., supra. Fraud or misconduct of an arbitrator are the only grounds for setting aside an arbitration award. Western Oil Fields, Inc. v. Rathbun, supra; Noffsinger v. Thompson, 98 Colo. 154, 54 P.2d 683; Empson Packing Co. v. Clawson, 43 Colo. 188, 95 P. 546. In the Western Oil Fields case the Court upheld an arbitration award and found that it was not void for uncertainty in the specific description of the property and in the terms of the warranty to be given. There is, therefore, sound precedent for my conclusion that this court has jurisdiction of the subject matter of this suit brought for the enforcement of the arbitration award. The misconduct of the arbitrators of which...