Portland Gen. Elec. Co. v. U.S. Bank Trust
| Decision Date | 02 May 2000 |
| Docket Number | D,No. 99-35189,No. 1,1,99-35189 |
| Citation | 218 F.3d 1085 |
| Parties | (9th Cir. 2000) PORTLAND GENERAL ELECTRIC COMPANY, an Oregon Corporation, Plaintiff-counter-claim defendant-Appellee, v. U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee for Trustefendantcounter-claimant-Appellant. Office of the Circuit Executive |
| Court | U.S. Court of Appeals — Ninth Circuit |
Philip Le B. Douglas, Winthrop, Stimson, Putnam & Roberts, New York, New York, for the appellant.
David B. Markowitz, Jollee Faber Patterson Markowitz Herbold, Portland, Oregon, for the appellee.
Elliott Adler, Washington, DC, for amicus Appraisal Foundation.
Jerome Schaefer, Washington, DC, for amicus American Society of Appraisers.
Appeal from the United States District Court for the District of Oregon, Ancer L. Haggerty, District Judge, Presiding; D.C. No. CV-98-01332-HA
Before: Donald P. Lay,1 A. Wallace Tashima, and M. Margaret McKeown, Circuit Judges.
Opinion by Judge MCKEOWN; Concurrence by Judge TASHIMA; Concurrence by Judge MCKEOWN.
This case requires us to address a threshold issue of controlling law. We must determine what law governs a challenge to a final appraisal decision issued pursuant to a commercial contract. Portland General Electric ("PGE") and the United States Bank Trust National Association ("the Trust") were parties to a lease agreement under which they agreed that a qualified independent appraiser would be appointed to determine the fair market value of two turbine generators. Although the appraiser's valuation was to be considered final, the Trust was dissatisfied and challenged the appraisal on multiple grounds. In response, PGE sought a court order confirming the appraisal. The district court treated the appraisal decision as an arbitration award, analyzed the case under the Federal Arbitration Act ("FAA"), and confirmed the appraisal. Our decision in this case is governed by Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579 (9th Cir. 1987), where we held that because the FAA neither defines arbitration nor spells out whether the term arbitration includes appraisal, we look to state law. The contract at issue specifies Oregon law as controlling and sets out an appraisal procedure. Oregon courts treat appraisals under common law contract principles rather than under the rubric of arbitration. We therefore hold that Oregon law, not the FAA, governs review of the appraisal decision. Accordingly, we reverse and remand this case for further proceedings.
In 1974, PGE and the Trust signed a lease agreement whereby PGE leased two turbine generators for a term of 25 years.2 Upon the expiration of the 25-year term, PGE had the option either to renew at the "fair market rental value," or purchase the turbines at their "fair market sales value." The lease set out a procedure for determining fair market value. In the event the parties were unable to reach mutual agreement on value, either party could petition the American Arbitration Association ("AAA") to appoint an "independent qualified equipment appraiser." The lease provided that"[a]ny appraiser appointed pursuant to the foregoing procedure shall be instructed to determine the fair market sales value or the fair market rental value . . . within 30 days after his appointment and his determination shall be final." The agreement was governed by Oregon law.
With the original lease set to expire on August 8, 1999, PGE contacted the Trust in October 1998 to express its interest in determining the fair market rental and sales values under the appraisal procedure. The parties were unable to agree on the values, prompting PGE to bring this declaratory judgment action. PGE requested that the district court (1) appoint an appraiser, and (2) provide the appointed appraiser with detailed instructions that included a specific instruction establishing the proper valuation method.3
Prior to filing an answer, the Trust filed a "Demand for Arbitration" and petitioned the AAA to appoint an appraiser. The AAA initially contacted Earl Thorsfeldt, a licensed casualty adjuster, but declined to appoint him because of Thorsfeldt's lack of business experience with power plants. Upon referral from Thorsfeldt, the AAA appointed Keith Olds. The Trust objected to Olds based on his qualifications and an alleged conflict of interest, but the AAA stood by Olds' appointment. Having made the requested appointment, the AAA informed PGE and the Trust that the AAA had no further authority in the matter and that all future administration of the appraisal would occur through direct contact between the parties and Olds.
The AAA's appointment of Olds rendered moot PGE's request that the district court appoint an appraiser but not PGE's request that the court issue appraisal instructions. PGE asked the district court to issue the requested instructions and the Trust responded by moving to dismiss or stay the action pending completion of the appraisal. The district court, relying on our decision in Raytheon Co. v. Rheem Mfg. Co., 322 F.2d 173 (9th Cir. 1963), declined to issue the instructions on the ground that the lease vested all decisions regarding the valuation method and the appraisal in general with the appraiser, not with the court. The court stayed the action pending completion of the appraisal.
A formal appraisal for the Trust's two turbine units was timely issued. The appraisal applied the "in use " valuation method favored by PGE. Notably, the appraisal was drafted on the letterhead of Thorsfeldt's company, "Commercial Equipment Appraiser," and listed Thorsfeldt as the "appointed appraiser" and Olds as the "appointed associate consultant with the firm of Commercial Equipment Appraisers, Inc."
Shortly after receiving the appraisal, the Trust filed a supplemental answer setting forth four counterclaims for declaratory and injunctive relief. The claims essentially sought to vacate the appraisal on grounds that in contravention of the lease, the appraisal was not performed by the appointed appraiser and that the appraiser acted fraudulently or engaged in other misconduct in rendering the appraisal. Along with the supplemental answer, the Trust served extensive discovery requests on the appraisers, their associates, PGE, PGE's parent company, and PGE's counsel in this matter, seeking any and all information relating to the appraisal. PGE responded by moving to dismiss the counterclaims for failure to state a claim, for a protective order or alternatively a stay of discovery under Fed. R. Civ. P. 26(c), for confirmation of the appraisal decision under the FAA, and for a declaration that the appraisal was binding upon the parties pursuant to the terms of the lease.
After an oral hearing, the district court stayed discovery but permitted the Trust to conduct one-hour depositions of both Olds and Thorsfeldt on "the limited question of their roles in conducting the appraisal." This limited discovery revealed that around the time Olds was appointed by the AAA, he and Thorsfeldt entered into a "joint venture" agreement pursuant to which they agreed to share responsibilities for the appraisal and split any fees and expenses 50/50.4 Olds testified that his role in the appraisal was primarily to gather information and that Thorsfeldt's role was to bring to the appraisal his expertise as an appraiser. Thorsfeldt similarly described their respective roles: "The expertise and the fact data was primarily produced by Mr. Olds, because he had the expertise in the power company business, I did not . . . but I had the expertise to guide according to the rules of arbitration when you're doing an appraisal." Olds claimed that Thorsfeldt signed and was listed as "the appointed appraiser" because Olds, who was not a licensed appraiser, was concerned about legal liability stemming from the appraisal. In opposing the confirmation request, the Trust argued that Olds' delegation of authority over the appraisal to Thorsfeldt was impermissible and violated the contract. The Trust also claimed that the appraisers acted fraudulently and engaged in misconduct, including letting PGE ghostwrite a significant portion of the appraisal.
After considering the information elicited during the depositions of Olds and Thorsfeldt, the district court analyzed the pending motions under the FAA and concluded that the Trust had not demonstrated clear evidence of impropriety. Having determined that the FAA governed and that the only grounds upon which the Trust could challenge the merits of the appraisal were under the limited grounds set forth in the FAA, the district court confirmed the appraisal and dismissed the Trust's counterclaims for failure to state a claim upon which relief could be granted. Reasoning that the strict rules of the FAA limit discovery, the court also granted PGE's motion for a protective order as to the Trust's discovery requests.
The Trust argues on appeal that the district court erred in confirming the appraisal under the FAA, dismissing its counterclaims, and granting a protective order ending further discovery. The Trust urges this Court to vacate the appraisal or, in the alternative, to reverse and remand for additional discovery relevant to its counterclaims. We review de novo a dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6). Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir. 1998). We review the grant of a protective order for an abuse of discretion. Zimmerman v. Bishop, 25 F.3d 784, 789 (9th Cir. 1994). Confirmation of an arbitration award is reviewed de novo. First Options, Inc. v. Kaplan, 514 U.S. 938, 948 (1995).
Although the parties concentrate their arguments on whether the appraisal should be vacated for the various reasons advanced by the Trust, the primary issue we must address is determining the governing law.5 The district court treated the...
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