Texas Court of Appeals Denies Vacatur and Confirms Arbitration Award

By Brett Goodman

The Court of Appeals of Texas in Amarillo has affirmed a lower court’s decision to deny a motion to vacate an arbitration award.

In Denver City Energy Associates, L.P. v. Golden Spread Elec. Co-op., Inc. 340 S.W.3d 538 (Tex. App.–Amarillo 2011, no pet.) Denver City Energy Associates (Denver City) appealed the decision to confirm an arbitrator’s award in favor of Golden Spread Electric Generating Cooperative, Inc. (GS Generating). The two parties were joint owners of an electric generating facility under a joint operating agreement (JOA) and a Power Purchase Agreement (PPA) presided over Golden Spread’s purchasing of electricity from the facility. Disputes arose considering the allocation of fuel costs among other issues leading to arbitration pursuant to the terms of the PPA and the JOA, which meant that within thirty days of selecting an arbitrator, a hearing over the issues was to take place, and the arbitrator would then need to inform the parties within sixty subsequent days of the hearing’s conclusion. An initial hearing was held in May of 2006, and the arbitrator decided in October of that year to award Golden Spread with the ability to use a set formula to calculate proactive and retroactive fuel costs. In November 2006, the arbitrator issued a “Corrected Arbitrator’s Award,” and in December, the arbitrator attributed a specific amount of over $5 million because the arbitrator saw it as his duty to find a specified award in the event that the November formulas could not be used to come to one.

Denver City first argued that the arbitrator lacked authority with the December award to modify that of November because both the JOA and PPA stated, “The arbitrator shall notify the Parties in writing of the decision within sixty (60) days of the conclusion of the hearing.” This language, Denver City contends, is the parties’ agreed-upon “contractual 60–day deadline,” precluding adjudication beyond that date by the arbitrator.” The court did not agree that the December award was a modification of the November entity, explaining, “The November 15 award expressed the arbitrator’s decision on issues of liability and the intended means for calculation of damages. The record was reopened for calculation and enforcement of the damage amounts, leading to completion of the arbitration. Under the facts here presented, this procedure was not inconsistent with AAA Rule R–36. Within the time allowed by Rule R–36, the arbitrator delivered the December 28 order, which made the arbitration complete.”

Denver City also took exception to the award allegedly not being “mutual, final, and definite.” Citing to a Seventh Circuit decision, the Court of Appeals of Texas defined these terms to mean “that the arbitrators must have resolved the entire dispute (to the extent arbitrable) that had been submitted to them” and “definite” means “that the award is sufficiently clear and specific to be enforced should it be confirmed by the district court and thus made judicially enforceable.” IDS Life Ins. Co. v. Royal Alliance Associates, Inc., 266 F.3d 645, 650 (7th Cir.2001). The court highlighted the fact that both parties agreed to arbitration, and the arbitrator made a determination in his best judgment, which is the ideal situation. The concern is not whether a perfect solution was found, but whether the arbitrator acted in a manner that would necessitate vacatur.

Finally, Denver City contended that the arbitrator exceeded his powers by deciding on an issue not submitted to arbitration in determining “how to price fuel used to generate electricity.” The court, however, extracted the language from the PPA and JOA that arbitration could be used to resolve “any dispute, controversy or claim arising out of, under or relating to this Agreement … unless otherwise provided in this Agreement or mutually agreed by the Parties.” Stemming from the complex nature of the issues and the language of the PPA and JOA taken together, the court could not say that the arbitrator had clearly overstepped his bounds of the submitted issues.

Thus, the court affirmed the judgment of the trial court in denying a vacatur of arbitration award to Golden Spread in favor of Denver City. The court is an important one in underscoring the deference to the decision of arbitrators in Texas and the very limited ability of a court to overrule his or her work.

Technorati Tags: law, ADR, arbitration

Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.