The Burlington Northern v. Pub. Serv. Co. of Okla.

• Decision Date: 10 December 2010
• Docket Number: No. 09–5133.,09–5133.
• Citation: 636 F.3d 562
• Parties: The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Applicant–Appellant,v.PUBLIC SERVICE COMPANY OF OKLAHOMA, Respondent–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

636 F.3d 562

The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Applicant–Appellant,

v.PUBLIC SERVICE COMPANY OF OKLAHOMA, Respondent–Appellee.

No. 09–5133.

United States Court of Appeals, Tenth Circuit.

Dec. 10, 2010.

Harry L. DeLung, Jr., Freeborn & Peters LLP, Chicago, IL, (Paul A. Duffy, Freeborn & Peters LLP, Chicago, IL, and William P. Tunnell, Jr., Rainey Law Firm, Oklahoma City, OK, with him on the briefs, and Michael A. Smith, Freeborn & Peters LLP, Chicago, IL, with him on the Reply Brief only) for Applicant–Appellant.John H. LeSeur, Slover & Loftus LLP, Washington, DC, (Frank J. Pergolizzi, Slover & Loftus LLP, Washington, DC, and Lewis N. Carter, Doerner Saunders Daniel & Anderson, L.L.P., Tulsa, OK, with him on the brief) for Respondent–Appellee.Before BRISCOE, Chief Judge, BALDOCK, and TYMKOVICH, Circuit Judges.TYMKOVICH, Circuit Judge.

This appeal arises from an 18–year rail pricing dispute between the Burlington Northern and Santa Fe Railway Company (BNSF) and the Public Service Company of Oklahoma (PSO). The question we must consider is whether the district court erred in confirming an arbitration board's decision despite BNSF's claims that the board misconstrued the parties' agreement and exceeded its authority by deciding a non-arbitrable issue.

We AFFIRM. The arbitration clause in the agreement was enforceable and the district court did not err in deferring to the board's determinations regarding the scope of its authority and the proper construction of the agreement. We conclude moreover that PSO is entitled to attorney fees under Oklahoma law since it has prevailed in a civil action to recover payment for services rendered.

I. Background

A. The 1985 Agreement

In 1985, BNSF and PSO entered into a long-term agreement to transport coal to a PSO generating station. Because the station was served exclusively by a third-party's rail line at that time, BNSF initially was to provide “joint-line” service, using its own lines and the third-party's. The agreement called for PSO to construct a new rail line connecting the station to a BNSF line. Once this line was completed, BNSF would begin providing single-line service (which the contract termed “Single Line Direct Service”).

The agreement had a number of provisions relevant to our discussion. The prices PSO initially agreed to pay for single-line service consisted of a “Base Rate” of $14.00 per ton that was subject to annual, fixed-percentage adjustments. The Base Rate, as adjusted by §§ 4.1 and 4.2 of the agreement, produced “Effective Rates,” which were the rates PSO would pay for single-line service. R. Doc. 6 at 60.

Section 4.2 contained what the parties colloquially called a rate floor provision. It stated, “[e]xcept as provided in Section 11, the Effective Rate for Single Line Direct Service by [BNSF] will not be less than the Base Rate in effect on the date this Agreement is filed with the ICC.” Id. at 76. Section 11 granted either party the right to request renegotiation of the Effective Rate or renegotiation of the adjustment method. Id. at 105.

Section 13 specified certain disputes would be submitted to an arbitration board, including “renegotiation of the rate or escalation (Section 11).” Id. at 112–14. Section 13 also provided, “[t]he arbitration board shall have the authority to amend the rate or adjustment method if necessary to reflect the intentions of the parties as set out in this Section.” Id. at 105. Disputes regarding other matters would be resolved in any state or federal court in Oklahoma.

B. The 1994 Arbitration Award

In 1992, PSO instituted § 11 price negotiations. Because the parties could not come to an agreement, PSO invoked the § 13 arbitration procedures. The matter was then arbitrated by a three-member arbitration board in 1994.

The meaning of the rate floor provision in § 4.2 was uncontested during the 1994 arbitration. Both parties agreed that, prior to a Section 11 renegotiation, the Effective Rate could not be adjusted to rates less than the $14.00–per–ton Base Rate “except as provided in Section 11.” Id. at 614. The parties also agreed the arbitration board could set renegotiated Effective Rates below $14.00 per ton.

The arbitration board issued a decision in favor of PSO. It directed, “the Agreement rates as of July 1, 1994, should and shall be $11.77 per ton for single-line service.” R. Doc. 2 at 23. It also replaced the rate adjustment procedures with a new procedure that adjusted the new Effective Rates up or down based on changes in railroad costs, as measured by rail indices published by the Interstate Commerce Commission. The 1994 arbitration award did not mention a rate floor. But the board retained “jurisdiction to resolve any dispute that may arise between the parties over implementation of this Decision and Award.” Id. at 24.

The same day the board entered its 1994 award, BNSF filed a motion to vacate in Texas state court. PSO removed the state action to federal court, which then transferred the action to the Northern District of Oklahoma. After the district court confirmed the arbitration award, BNSF appealed to this court, contending the district court lacked jurisdiction and one of the arbitrators was biased. We rejected these contentions and affirmed. Pub. Serv. Co. of Okla. v. Burlington N. R.R. Co., No. 95–5017, 69 F.3d 548, 1995 WL 640375 (10th Cir. Oct.20, 1995).

C. The Fourth Agreement Amendment (1995)

After the initial round of litigation, PSO and BNSF entered into an amendment to the agreement.¹ The parties agreed, “as of October 1, 1995, the Effective Rate for Single Line Direct Service via [BNSF] ... is $12.01 per net ton.” R. Doc. 6 at 153. The amount of $12.01 was reached by applying the board-prescribed adjustment procedures to the board-prescribed rate of $11.77. The parties also amended the rate adjustment procedure in § 4.2 so the Effective Rates would move “upward or downward” by the board-prescribed rate adjustment procedure. Id. at 154.

During the negotiations of this amendment, PSO suggested the parties remove the rate floor provision in § 4.2 because the arbitration board had set new Effective Rates below $14.00 per ton. BNSF disagreed and insisted the provision remain in the agreement. In the end, the parties kept the provision in the agreement but agreed to disagree as to its meaning and effect.

D. The Parties' Rate Floor Dispute

In 1996, the rate adjustment procedure prescribed by the board and set forth in the amended agreement produced an Effective Rate of $11.67 per ton for single-line service. BNSF invoiced PSO at a rate of $11.77 per ton, arguing this was the new “rate floor” under the agreement. PSO disagreed and paid BNSF the adjusted Effective Rate of $11.67 per ton. PSO contended there was no rate floor after the 1994 award and both the 1994 award and the amended agreement require the use of the adjusted Effective Rate.

The parties' rate dispute came to a head in 2001, when PSO exercised its right to “buy out” the last year of the agreement term (2002). As provided in § 16.2, the buy-out payment was calculated in reference to the Effective Rate at the date of termination. PSO calculated the buy-out payment using the fourth quarter 2001 adjusted Effective Rate of $11.30 per ton. BNSF claimed the payment should have been calculated using a rate of $11.77 per ton.

E. The Parties' Agreement to Arbitrate the Rate Floor Dispute

After several years of wrangling, in 2005 the parties entered into a submission agreement concerning the terms under which they would arbitrate BNSF's rate floor claim. In a joint motion to the district court for the Northern District of Oklahoma, they asked the court to issue an order with the following directions:

(a) The arbitration board shall adjudicate BNSF's claim that, pursuant to the [1994 award] and the [1985 agreement], the amount of the rate for BNSF single-line service, as provided for in the Award, cannot be less than $11.77 per ton (“BNSF Claim”).

(b) The arbitration board, in adjudicating BNSF's Claim, shall address all of PSO's defenses to BNSF's Claim, including PSO's defense that BNSF's claim is time-barred, and all of BNSF's responses to such defenses.

(c) The board shall not consider any claims by BNSF and PSO other than the BNSF Claim referenced in (a) above.

Supplemental R. Doc. 3 at 41. The district court adopted this exact language in its subsequent order, and the parties proceeded to arbitration.

F. The 2006 Arbitration Award

In 2006, the arbitration board issued its final merits decision. It agreed with PSO and held that neither the 1994 award nor the amended agreement set a rate floor of $11.77 per ton. Specifically, the board determined that the rate floor provision in § 4.2 existed only until the agreement was renegotiated under § 11. Because it concluded the 1994 award produced “precisely the type of result” that the renegotiation and arbitration procedures contemplated, the board denied BNSF's request to modify the 1994 award to include a rate floor. R. Doc. 16 at 614–15.

One arbitrator dissented from the board's decision, arguing the issue before the board “is how to interpret the rate floor provision of the Agreement” and the board should have exercised its authority to “reset the rate floor at $11.77.” Id. at 620–21. The board majority rejected this position, among other things, as “contrary to the plain language of the 1985 agreement and 1994 award.” Id. at 615.

G. Post–Award Proceedings in the District Court

PSO filed a motion to confirm the 2006 award in the district court, which granted the motion and entered judgment for PSO. Later, at BNSF's request, the court vacated its judgment in order to consider BNSF's claims that (1) the board exceeded its power in determining the 1994 award and the amended agreement contained no rate floor of $11.77 per ton, and (2) the board incorrectly interpreted unambiguous agreement language.

On August 19, 2009, the district court denied BNSF's motion...