Rain CII Carbon, LLC v. ConocoPhillips Co.

• Decision Date: 09 March 2012
• Docket Number: No. 11–30669.,11–30669.
• Citation: 674 F.3d 469
• Parties: RAIN CII CARBON, LLC, Plaintiff–Appellee, v. CONOCOPHILLIPS COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

674 F.3d 469

RAIN CII CARBON, LLC, Plaintiff–Appellee,

v.CONOCOPHILLIPS COMPANY, Defendant–Appellant.

No. 11–30669.

United States Court of Appeals, Fifth Circuit.

March 9, 2012.

James M. Garner, Darnell Bludworth, Thomas Joseph Madigan, II, Sher, Garner, Cahill, Richter, Klein & Hilbert, L.L.C., New Orleans, LA, for Plaintiff–Appellee.

Reagan William Simpson, Edward Caldwell Dawson, April L. Farris, Yetter Coleman, L.L.P., Austin, TX, Justin Paul Lemaire, Phillip A. Wittmann, Stone, Pigman, Walther, Wittmann, L.L.C., New Orleans, LA, for Defendant–Appellant.

Appeals from the United States District Court of the Eastern District of Louisiana.

Before STEWART, CLEMENT and GRAVES, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Defendant–Appellant ConocoPhillips Company (“Conoco” or “COP”) appeals the district court's judgment confirming an arbitration award favorable to Plaintiff–Appellee Rain CII Carbon, LLC (“Rain”). We AFFIRM.

I.

Conoco and Rain are parties to a long-term supply agreement, whereby Conoco agreed to sell all green anode coke produced at its Alliance refinery from August 2005 to December 2015 to Rain. The 2005 agreement includes a complex formula for capturing the market price of green coke. The agreement further provides that if a party reasonably concludes that the contract formula no longer yields market price, the party may reopen price negotiations. If such negotiations prove unfruitful, the matter would be submitted to a “baseball” arbitration, whereby each party submits a proposal and the arbitrator selects one of the two.

In 2008, Conoco reopened market price negotiations. After being unable to reach an agreement, Conoco submitted the matter to arbitration. The parties requested a “reasoned” award in their joint proposed scheduling order. An evidentiary hearing was held in September 2010, and each party submitted a price formula proposal. In December 2010, the arbitrator requested that the parties submit draft awards, which were submitted on February 3, 2011.

On March 7, 2011, the arbitrator awarded $17,702,585.33 to Rain. In the eight-page award, the arbitrator set forth the contentions of the parties before adopting Rain's price formula, which was the formula contained in the initial agreement. The award stated:

Based upon the testimony, exhibits, arguments, and submissions presented to me in this matter, I find that the price formula contained in Section 4 of the Green Anode Coke Sales Agreement dated August 23, 2005, as amended January, 2007, and July, 2008, shall remain in effect for the balance of the term as stated in the contract.

The arbitrator used Conoco's draft award as the template for his award. Two brief paragraphs from Conoco's draft award were included in the arbitrator's award:

Applying the replacement formula from April 1, 2008 until March 31, 2009 results in an increased payment by Rain CII to COP of $6,920,234.07. Offsetting the amount of the true up COP owes Rain CII results in a net payment owed by Rain CII to COP in the amount of $1,357,480.82.

and

Applying the contractual rate of interest to the outstanding amount for the number from April 1, 2009 to February 3, 2011 results in the sum of $214,984.96.

On March 25, 2011, Rain filed a motion requesting that the arbitrator correct these two inconsistencies. On April 18, 2011, the arbitrator granted Rain's motion, identified the “inadvertently included sentences” as clerical errors, and removed them from the final award.

In the district court, Conoco moved to vacate the award. On June 27, 2011, the district court denied the motion to vacate the award, and granted Rain's motion to confirm the award. This appeal followed.

II.

“In light of the strong federal policy favoring arbitration, judicial review of an arbitration award is extraordinarily narrow.” Brook v. Peak Int'l, Ltd., 294 F.3d 668, 672 (5th Cir.2002) (internal quotation marks omitted). “We review a district court's confirmation of an award de novo, but the review of the underlying award is exceedingly deferential.” Apache Bohai Corp. LDC v. Texaco China BV, 480 F.3d 397, 401 (5th Cir.2007) (internal quotation marks omitted). This court's de novo review “is intended to reinforce the strong deference due an arbitrative tribunal.” Brook, 294 F.3d at 672 (internal quotation marks omitted). “An award may not be set aside for a mere mistake of fact or law.” Apache, 480 F.3d at 401.

“Section 10 of the Federal Arbitration Act, 9 U.S.C. §§ 1–16 (‘FAA’), provides ‘the only grounds upon which a reviewing court may vacate an arbitrative award.’ ” Brook, 294 F.3d at 672 (quoting McIlroy v. PaineWebber, Inc., 989 F.2d 817, 820 (5th Cir.1993)). “Section 10 allows vacatur, inter alia, ‘[w]here the arbitrators exceeded their powers ....’ ” Id. (quoting 9 U.S.C. § 10(a)(4)).

“Arbitration is a matter of contract.” Id. “Where arbitrators act ‘contrary to express contractual provisions,’ they have exceeded their powers.” Apache, 480 F.3d at 401 (quoting Delta Queen Steamboat Co. v. AFL–CIO, 889 F.2d 599, 604 (5th Cir.1989)). “If the contract creates a plain limitation on the authority of an arbitrator, we will vacate an award that ignores the limitation.” Id. “[L]imitations on an arbitrator's authority must be plain and unambiguous ....” Id. at 404. “A reviewing court examining whether arbitrators exceeded their powers must resolve all doubts in favor of arbitration.” Brook, 294 F.3d at 672.

III.

In this case, Conoco asserts that the arbitrator exceeded his powers in two ways: failing to select only one proposal, per the parties' baseball arbitration agreement; and failing to render a reasoned award. These matters will be addressed in turn.

A.

The parties' “Green Anode Coke Sales Agreement” provided that if a dispute arose regarding the proper formula to yield market price for green coke, the dispute would be resolved by baseball arbitration:

[U]pon declaration of an impasse by either party, the matter shall be submitted to arbitration as provided in section 19, provided that each party shall submit to the arbitrator one replacement mechanism for determining the price of Green Anode Coke to be supplied under this Agreement and the arbitrator shall be required to select from the two proposed mechanisms that one which, in the judgment of the arbitrator, is more likely to yield a market level price for Green Anode Coke to be supplied under this Agreement for the balance of the term then in effect.

Section 19 of the agreement clarified the arbitration procedure:

Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules in effect at the time such arbitration is commenced, and judgment on the Award rendered by the arbitration may be entered in any court having jurisdiction thereof.

Conoco asserts that the arbitrator exceeded his powers by using parts of both proposals in his award, rather than selecting only one proposed mechanism as required by the contract. As evidenced above, the AAA Commercial Rules were incorporated into the 2005 agreement. Commercial Arbitration Rule 46 provides: “Within 20 days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.” AAA Commercial Arbitration Rule 46, available at http:// www. adr. org/ sp. asp? id= 22440.

In the instant case, the arbitrator, upon motion by Rain, removed the two provisions derived from Conoco's proposed draft award from his final award, identifying the inadvertently included sentences as clerical errors. However, despite the arbitrator's correction and reason given, Conoco insists that the arbitrator did not choose one proposal as required by the contract, and that the inclusion of the paragraphs was not a clerical error. Conoco has cited to no case holding that an arbitrator's correction of an award for clerical errors was not genuine or credible. Given the considerable deference afforded arbitration awards, Conoco's argument that the arbitrator exceeded his powers by failing to select only one proposal, which relies on paragraphs stricken from the final award in accordance with the Commercial Rules, must fail.

B.

Conoco disputes that the award rendered by the arbitrator was a “reasoned” award. The only description of a reasoned award in this circuit was rendered in a footnote. See Sarofim v. Trust Co. of the W., 440 F.3d 213, 215 n. 1 (5th Cir.2006) (“ ‘[A] reasoned award is something short of findings and conclusions but more than a simple result.’ ” (quoting Holden v. Deloitte & Touche LLP, 390 F.Supp.2d 752, 780 (N.D.Ill.2005))).

In Cat Charter, LLC v. Schurtenberger, 646 F.3d 836 (11th Cir.2011), the Eleventh Circuit reversed a district court's vacatur of an arbitration award on the ground that the award was not reasoned. The court acknowledged that courts have generally been reluctant to vacate awards challenged on the grounds that their form was improper. Cat Charter, 646 F.3d at 842 n. 12. The court reasoned:

Generally, an arbitrator need not explain her decision; thus, in a typical arbitration where no specific form of award is requested, arbitrators may provide a “standard award” and simply announce a result .... At the other end of the...