Municipal Energy Agency of Mississippi v. Big Rivers Elec. Corp.

• Decision Date: 17 November 1986
• Docket Number: No. 86-4479,86-4479
• Citation: 804 F.2d 338
• Parties: MUNICIPAL ENERGY AGENCY OF MISSISSIPPI, Plaintiff-Appellant, v. BIG RIVERS ELECTRIC CORPORATION, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 338

804 F.2d 338

MUNICIPAL ENERGY AGENCY OF MISSISSIPPI, Plaintiff-Appellant, v. BIG RIVERS ELECTRIC CORPORATION, Defendant-Appellee.

No. 86-4479

Summary Calendar.

United States Court of Appeals Fifth Circuit.

Nov. 17, 1986.

Hunt, Spell & Henson, David R. Hunt, Clarksdale, Miss., Gerald, Brand, Watters, Cox & Hemleben, Jack W. Brand, Scott P. Hemleben, James Kenneth Harmon, Jackson, Miss., for plaintiff-appellant.

Alex A. Alston, Jr., Jackson, Miss., Holbrook, Gary, Wible & Sullivan, Morton Joshua Holbrook, Lizabeth Ann Tully, Allen Woodrow Holbrook, Owensboro, Ky., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before CLARK, Chief Judge, GARWOOD, and HILL, Circuit Judges.

CLARK, Chief Judge:

The district court stayed the declaratory judgment action of the Municipal Energy Agency of Mississippi (MEAM) against Big Rivers Electric Corporation (Big Rivers) pending arbitration. The district court also refused to enjoin Big Rivers from proceeding in another U.S. district court with a petition to compel arbitration. MEAM appeals from the orders. We affirm.

I.

MEAM is a joint agency of the State of Mississippi formed by several Mississippi cities to provide electric power. On June 1, 1984, MEAM entered into a Power Supply Agreement with Big Rivers, a Kentucky Rural Electric Cooperative. MEAM agreed to purchase 50 megawatts of electric power from Big Rivers from June 1, 1984, through September 30, 1984, at the rate of 85 cents per kilowatt per week. For power supplied from October 1, 1984, through September 30, 1995, the rate increased to $11.55 per kilowatt per month.

Big Rivers could not supply the power directly to MEAM because the transmission systems of Big Rivers and MEAM do not interconnect. Big Rivers' system interconnects with the system of the Tennessee Valley Authority (TVA). MEAM's system interconnects with the system of Mississippi Power & Light Co. (MP & L), which interconnects with TVA's system. The Agreement therefore required MEAM to contract with MP & L and Big Rivers to contract with TVA for transmission services for the ten years beginning October 1, 1985. If the necessary transmission agreements were not reached, the Power Supply Agreement would terminate. The relevant portion of the termination provision reads as follows:

SECTION 9--CONDITIONS OF TERMINATION:

This agreement shall terminate in its entirety, unless otherwise agreed to in writing, and be without further force and effect without any liability of either party hereto to the other (except for the obligation to make payments for any power supplied prior to such termination for which payment has not been made) in the event the parties are unable through no fault of their own in completing on or before October 1, 1985, the following:

1. Firm transmission services sufficient to transmit the contracted power during the full term hereof are secured by Big Rivers and MEAM, as follows: Big Rivers will obtain the required commitment for firm transmission services from the Tennessee Valley Authority and MEAM will acquire the required transmission services from Mississippi Power and Light Company (MP & L).

The Power Supply Agreement also contained the following arbitration clause:

SECTION 4--ARBITRATION:

To the extent permitted by law applicable to MEAM and in force and effect at the time there arises any controversy, claim, counterclaim, defense, dispute, difference or misunderstanding arising out of or relating to this agreement or breach thereof, such controversy, claim, counterclaim, defense, dispute, difference or misunderstanding shall be settled by arbitration to be conducted in accordance with the following procedure. MEAM shall select one arbitrator, Big Rivers shall select one arbitrator, and the two arbitrators appointed by MEAM and Big Rivers respectively shall select a third arbitrator. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association then in effect, and judgment upon any award rendered by the arbitrators may, if permitted by law, be entered in any court having jurisdiction thereof. This provision shall survive the termination of this agreement. The parties expressly agree that this provision shall constitute a condition precedent to the institution of any proceedings in any court relating to the subject matter thereof.

MEAM and Big Rivers both entered into their respective agreements before October 1, 1985, and MEAM paid the higher rate for the electricity supplied by Big Rivers. In March 1986, however, MEAM received a copy of the transmission agreement between Big Rivers and TVA and determined that the agreement failed to satisfy the Power Supply Agreement. On March 28, 1986, MEAM notified Big Rivers that it considered the Power Supply Agreement terminated because the transmission agreement between Big Rivers and TVA allowed either party to terminate the agreement on three years notice MEAM also stopped purchasing power from Big Rivers.

MEAM filed the present declaratory judgment action on April 2, 1986, in the United States District Court for the Northern District of Mississippi. Jurisdiction was based on diversity of citizenship. 28 U.S.C. Sec. 1332. MEAM sought a declaratory judgment that the Power Supply Agreement had terminated and sought repayment of amounts it paid to Big Rivers after October 1, 1985 in excess of 85 cents per kilowatt per week. On April 17, 1986, Big Rivers filed in the United States District Court for the Western District of Kentucky a petition to compel arbitration against MEAM pursuant to 9 U.S.C. Sec. 4. On April 18, 1986, Big Rivers filed a motion to dismiss in the Mississippi action under Federal Rule of Civil Procedure 12(b)(6). In the alternative, Big Rivers moved the Mississippi court to stay the proceedings pending arbitration pursuant to 9 U.S.C. Sec. 3. MEAM then sought to have the Mississippi district court enjoin Big Rivers from proceeding in the Kentucky action by motion dated June 5, 1986, on the ground that the issues in the two actions were the same and the Mississippi action was filed earlier. In its June 5 motion MEAM also asked the district court to expedite hearing on all motions then pending.

On June 6, 1986, the Mississippi district court concluded that "the issue of contract termination falls within the scope of the arbitration clause of the parties' contract, and is, thus, referable to arbitration." It granted Big Rivers' motion to stay pending arbitration and denied MEAM's motion to enjoin Big Rivers from proceeding in the Kentucky action. MEAM appeals.

II.

Big Rivers initially challenges the jurisdiction of this court to hear MEAM's appeal. An order granting a stay pending arbitration is not a final order, so it is not appealable under 28 U.S.C. Sec. 1291. See Jackson Brewing Co. v. Clarke, 303 F.2d 844, 845 (5th Cir.), cert. denied, 371 U.S. 891, 83 S.Ct. 190, 9 L.Ed.2d 124 (1962). The order may be appealable under 28 U.S.C. Sec. 1292(a)(1) as an interlocutory order granting or refusing an injunction, but

only if (A) the action in which the order was made is an action which, before the fusion of law and equity, was by its nature an action at law; and (B) the stay was sought to permit the prior determination of some equitable defense or counterclaim.

Jackson Brewing Co., 303 F.2d at 845 (emphasis and footnote omitted).

Big Rivers' motion based on the existence of a contractual agreement to arbitrate clearly raises an equitable defense. Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 293 U.S. 449, 452, 55 S.Ct. 313, 314-15, 79 L.Ed. 583 (1935). However, the dispute here is whether MEAM's cause of action is legal or equitable. We must look behind the declaratory judgment action to determine the form that the action would have taken if the Declaratory Judgment Act were not in existence. See American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821, 824 (2d Cir.1968). Big Rivers characterizes MEAM's suit as seeking "damages based on a reformation of the contract price," and points out that contract reformation is an equitable claim, Mar-Len of Louisiana, Inc. v. Parsons-Gilbane, 732 F.2d 444, 445 (5th Cir.1984). MEAM characterizes its action as a suit for breach of contract to recover money damages, which is an action at law, Coastal Industries, Inc. v. Automatic Steam Products Corp., 654 F.2d 375, 377 n. 1 (5th Cir.1981) (Unit B).

In this case, however, we do not need to "resort to archaic distinctions between law and equity," Mar-Len, 732 F.2d at 446 (Rubin, J., dissenting), because here there is an alternative basis of appellate jurisdiction. MEAM appeals not only the stay but also the district court's denial of its motion to enjoin Big Rivers from proceeding in the Kentucky action. This order is appealable under 28 U.S.C. Sec. 1292(a)(1). Cf. A. & E. Plastik Pak Co. v. Monsanto Co., 396 F.2d 710, 713 (9th Cir.1968) (denial of motion to enjoin arbitration is appealable); Petroleum Helicopters, Inc. v. Boeing-Vertol Co., 606 F.2d 114, 114 (5th Cir.1979). Since this denial properly brings the order before us, we can also review the order staying the proceedings pending arbitration. Mercury Motor Express, Inc. v. Brinke, 475 F.2d 1086, 1091 (5th Cir.1973). This court has jurisdiction over this appeal.

III.

A.

MEAM's first contention is that it is not obligated to arbitrate the dispute because the arbitration clause terminated along with the rest of the Power Supply Agreement when Big Rivers failed to reach a satisfactory agreement with TVA. MEAM argues that the contractual requirement that Big Rivers enter a long-term agreement with TVA was a condition precedent to the "secondary" ten-year term of the contract, and contends that the termination clause should override the arbitration clause because the termination clause goes "to the heart and substance of the contract." As a result, MEAM concludes, the district...