Phillips Petroleum Co. v. Marathon Oil Co.
| Decision Date | 23 July 1986 |
| Docket Number | No. 85-1623,85-1623 |
| Citation | 794 F.2d 1080 |
| Parties | PHILLIPS PETROLEUM COMPANY, Plaintiff-Appellant, v. MARATHON OIL COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Michael V. Powell, Rain, Harrell, Emery, Young & Doke, Morris Harrell, Dallas, Tex., Don Jemison, Bartlesville, Okl., for plaintiff-appellant.
Robert M. Roller, Graves, Dougherty, Hearon & Moody, Austin, Tex., Daniel J. Sullenbarger, Cypress, Tex., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before BROWN, REAVLEY and JONES, Circuit Judges.
The issue on appeal is whether a dispute that has arisen between Phillips Petroleum Company and Marathon Oil Company comes within the arbitration clause contained in their contract. Because we find that the dispute is arbitrable, we affirm the order of the district court staying proceedings pending arbitration.
Phillips owns an undivided one-half interest in a contract under which it purchases casinghead gas produced by Marathon from wells in Andrews County, Texas. The contract, entered into in 1944 by predecessors-in-interest of the parties, contains an arbitration clause which provides: "In the event of any dispute or controversy between the parties hereto involving the operations under this contract same shall be settled by arbitration." The parties disagree over (1) whether other contracts that Phillips has entered into have triggered the two "favored nations" clauses in the contract in question, thus entitling Marathon to substantial additional payments for casinghead gas, and (2) whether the proceeds Phillips receives from the sale of sulphur removed from casinghead gas must be included in calculating the price that Marathon receives for casinghead gas, again resulting in additional payment to Marathon. Phillips, after rejecting Marathon's demand for the additional compensation, filed an action seeking a declaration of its rights and obligations under the contract. Marathon thereupon moved to stay proceedings pending arbitration. The district court's granting of the stay, although interlocutory, is appealable, pursuant to 28 U.S.C. Sec. 1292(a)(1). See Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 418 (5th Cir.1985); Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 336-37 (5th Cir.1984).
The Federal Arbitration Act, 9 U.S.C. Secs. 1-14, establishes a strong national policy favoring arbitration whenever the parties choose that method of resolving their contractual differences. Consonant with that directive, where a contract contains an arbitration clause, there exists a strong presumption that arbitration should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Houston General Ins. Co. v. Realex Group, N.V., 776 F.2d 514, 516 (5th Cir.1985) (quoting Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979)). See AT & T Technology, Inc. v. Communications Workers of America, --- U.S. ----, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648 (1986).
Phillips contends that the arbitration provision does not encompass the issues in dispute because they are pricing matters, which turn on contract interpretation, whereas the arbitration clause is limited to disputes "involving the operations under the contract." "Operations," as explained by Phillips, refers solely to those physical activities, in the gas plant or on the oil and gas leases, involved in producing casinghead gas. In support of this definition, Phillips points out that "operations" or a form of the word is used elsewhere in the contract only in connection with such physical activities and not in reference to the means or method of setting gas prices. Marathon responds that Phillips' proffered construction artificially restricts the meaning of the term as it is used in the arbitration provision. We agree. "Operations," standing...
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