Pacific Gas & Electric Co. v. Superior Court
| Citation | 19 Cal.Rptr.2d 295,15 Cal.App.4th 576 |
| Decision Date | 03 May 1993 |
| Docket Number | No. C005317,C005317 |
| Court | California Court of Appeals |
| Parties | PACIFIC GAS AND ELECTRIC COMPANY, Petitioner, v. SUPERIOR COURT of Sutter County, Respondent, ANACAPA OIL CORPORATION, et al., Real Parties in Interest. |
Howard V. Golub, David H. Fleisig, Richard L. Meiss and Pamela C. Christensen, San Francisco, for petitioner.
Hanna & Morton, Edward S. Renwick, David C. Karp, Los Angeles, Diepenbrock, Wulff, Plant & Hannegan, Forrest A. Plant, Sacramento, for real parties in interest.
This matter arises on a petition for a writ of mandate directing the superior court to overturn its order vacating a binding arbitration award. The award determines the rights and obligations of the parties to contracts for the purchase of natural gas. The superior court vacated the award for legal errors committed by the arbitrators in the construction of the contracts.
When the matter was first before us we granted the petition, determining that the scope of judicial review of an arbitration award ordinarily does not extend to such errors. The Supreme Court granted review and, after issuing Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899, remanded the matter for reconsideration in light of that opinion. Having reconsidered, we will again grant the petition.
The arbitration award resolves disputes concerning the construction of contracts for the purchase of natural gas by Pacific Gas and Electric Company (PG & E) from real parties in interest Anacapa Oil Corporation (Anacapa). The award construed the contracts to permit repricing of the gas at a market price below the ceiling price established by federal law.
The superior court vacated the award on the ground "[t]he arbitrators exceeded their powers" by misconstruing the contracts. (Code Civ.Proc., § 1286.2, subd. (d).) 1 The court construed the contracts in the light of federal law to require that the federal ceiling price be made a floor price when the market price declines below the ceiling price. It justified a traverse of the legal merits of the award on two grounds: (1) the issues submitted to arbitration were "qualified", i.e., were to be resolved pursuant to the law in the manner of a court; and (2) legal errors in the construction of the contracts appear "on the face of" the award. Anacapa concedes that under Moncharsh review cannot be justified on the latter ground. It contends the former ground remains viable.
Moncharsh held that, with limited exceptions provided by statute, an arbitrator's award is not reviewable for errors of fact or law. We will conclude that in the absence of an agreement specifying a broadened scope of review this rule applies regardless whether the issues submitted are qualified. The contracts provide for a binding determination of any question of market price and of "any other dispute ... arising ... under any provision [of the contracts] ... submitted by either party to arbitration." This rule of finality precludes judicial vacation of the award for mere error of law or fact. Anacapa also contends that the ordinary rule precluding review should not be applied to the arbitration of an adhesion contract. We reject that view.
Anacapa further contends that the award was properly vacated under a statutory exception to the general rule recognized in Moncharsh, where the "arbitrators exceeded their powers" in construing the contracts. Anacapa submits that the arbitrators exceeded their powers because their construction of the gas purchase contracts entailed their reformation. Moncharsh did not address this issue. We will conclude that finality does not immunize an arbitration award from review for error so egregious Last, Anacapa contends that in construing the contract to permit repricing at market prices below the federal ceiling prices the award compels an illegal act or an act violating public policy. Anacapa argues that the question whether some of its gas was deregulated as natural gas produced from new onshore production wells was consigned to a federal agency, and that the arbitration of the issue thereby violates public policy regarding the manner of resolution. We will conclude that the award does not compel Anacapa to perform an illegal act or deprive it of any right in derogation of public policy.
that it produces a result completely outside the expectations of the parties to a contract, i.e., where the arbitration award arbitrarily remakes the contract. We will conclude, however, that in this case the award does not remake the contracts and thus satisfies this limited standard of review.
We will issue a peremptory writ of mandate commanding the superior court to rescind its order vacating the arbitration award.
In 1971 and 1973 the parties entered into two contracts for the purchase by PG & E of gas produced from wells owned by Anacapa. Each contract employs virtually the same terms. Each contract provides for a set price for the gas unless modified in accordance with subparagraph 7(b). Subparagraph 7(b) of each contract provides in identical terms for the redetermination of the price after January 1, 1975, upon request of either party. If the parties fail to agree on a new price "the price to be paid for such gas shall be the reasonable market value of such gas, which ... shall be established by arbitration in accordance with Section 6 of the attached General Conditions."
Section 6 of each contract provides that "[t]he decision of a majority of the arbitrators, after a hearing ... shall be binding upon the parties hereto." It also provides that "[i]n addition to those disputes which are required to be arbitrated under the provisions hereof [i.e., market price], any other dispute ... arising between Buyer and Seller under any provision hereof which cannot be settled by the parties within a reasonable time may be submitted by either party to arbitration" by a panel of three arbitrators. Further, "[e]xcept as otherwise specifically provided in this Section any arbitration shall be subject to the provisions of Title 9 of Part 3 of the Code of Civil Procedure," which provides for a statement of decision in ordinary civil cases.
On November 8, 1978, the Natural Gas Policy Act of 1978 ("NGPA") went into effect. (15 U.S.C. § 3301 et seq.) It divided natural gas into various categories and provided for respective "ceiling prices," the maximum lawful price at which the gas could be sold. By letter agreements dated June 30, 1980, the parties amended their 1971 and 1973 contracts to take into consideration the ceiling prices mandated by the NGPA. Each letter agreement provides that "Effective January 1, 1982, the price ... shall be revised each month to the price equal to the highest applicable price ... under (i) Section 102 of the NGPA...." Each letter agreement further provides that "[a]t such time as ceiling prices under the Natural Gas Policy Act of 1978 ... cease to apply to all or any part of [Anacapa's] gas, then the provisions of subparagraph 7(b) shall apply to the redetermination of the price to be paid for gas delivered...." Pursuant to these provisions each subparagraph 7(b) of the 1971 and 1972 contracts was amended to provide that "[e]ffective upon deregulation of price controls under any Federal or State legislation, and not more than once in any subsequent three-year period," either party could invoke the repricing provisions of section 6 and secure a market price determination by binding arbitration. Finally, each letter agreement provides that "[a]t no time shall the price paid for gas delivered under said agreement exceed the maximum lawful price permitted by legislation On January 1, 1985, some gas subject to the NGPA was deregulated. On that date PG & E invoked subparagraph 7(b) and sought an agreement with Anacapa to value the gas produced from all of the Anacapa wells at its market price. Anacapa refused, contending that under a proper construction of the NGPA none of its gas was deregulated and that the ceiling prices continued to apply. That gave rise to the proceedings resulting in this petition.
enacted by the United States or the State of California."
On March 25, 1985, Anacapa filed a complaint in the superior court for the County of Sutter seeking a declaration that under sections 102 and 105 of the NGPA, Anacapa is entitled to be paid the ceiling price for gas produced from its wells and seeking damages in the amount of the underpayments found to be due. Anacapa also sought a declaration that PG & E had an implied obligation under the contracts to avoid causing physical harm to Anacapa's wells or harm to Anacapa's interest in obtaining gas from reservoirs tapped by neighboring producers by shutting in or failing to take enough gas from its wells.
PG & E responded with a petition to compel arbitration of the "controversies that are the subject of the lawsuit ... in the manner provided by paragraph 7(b) of the 1971 Agreement and of the 1973 Agreement and paragraph 6 of the General Conditions." Anacapa objected to arbitration principally upon the ground that submission of any controversy other than pricing to arbitration is subject to the consent of both parties. With respect to the issue of shut in, Anacapa claimed the contracts should be read as adhesion contracts. The court granted the petition and ordered arbitration 2 on the ground that doubts concerning the scope of arbitrable issues are to be resolved in favor of arbitration.
Anacapa proceeded to arbitration and proposed an agenda containing a "Statement of Issues" for resolution. These issues, labeled A., B., and C., were incorporated in the arbitrators' prehearing order as the "basic issues" of the proceeding. They are:
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