Justice JAMES C. NELSON delivered the Opinion of the Court.
¶ 1 Colstrip Energy Limited Partnership (CELP) appeals an order of the District Court for the Sixteenth Judicial District Court, Rosebud County, denying CELP's motion to vacate the arbitration award in its dispute with Northwestern Corporation (Northwestern). We affirm.
¶ 2 CELP raised the following issues on appeal:
¶ 3 1. Was it permissible for the arbitrators to find the parties' contract requires the use of specific variables to calculate rates but then fail to apply those required contract variables in the two years in question to avoid awarding damages?
¶ 4 2. Did the arbitrators exceed their powers when their award relied on the "intent"
¶ 5 3. Did the arbitrators exceed their powers when they issued an award based on their sense of equity rather than enforcing the parties' contract as written?
¶ 6 4. Was the District Court's failure to vacate the arbitration award an abuse of discretion where the arbitrators exceeded their powers?
¶ 7 CELP is a Montana limited partnership which owns an electrical generating plant in Rosebud County. Northwestern is a Delaware corporation and a regulated public utility conducting business in Montana. Under federal and Montana law, utilities such as Northwestern are obligated to purchase electricity from small generating facilities such as CELP. See 16 U.S.C. § 824a-3(a)(1) (the Public Utility Regulatory Policies Act (PURPA)), 18 C.F.R. § 292.207, and Title 69, chapter 3, part 6, MCA. Rates under PURPA are based on the concept of "avoided costs"—the costs at the onset of a power purchase agreement that the utility avoids by purchasing power from a qualified facility rather than building a power plant to produce it. The Montana Public Service Commission (PSC) oversees the implementation of PURPA in Montana.
¶ 8 In 1984, CELP's predecessor, AEM Corporation (AEM), entered into a Power Purchase Agreement (the Agreement) with the Montana Power Company (MPC) for the sale of energy and capacity from the Rosebud County facility for a term of 35 years. In March 1988, following the issuance of numerous orders by the PSC implementing PURPA, AEM and MPC executed a First Amendment to the Agreement. The First Amendment altered the payment scheme under the Agreement by providing that in contract years one through fifteen, AEM would essentially receive a fixed rate for electrical generation. Beginning in the sixteenth contract year, AEM's annual rates were to be based upon a formula which adopted specific mandatory variables and methods contained in PSC Orders 5017 and 5017a issued in 1983. These rates were to be approved annually by the PSC. The rate formula adopted in the First Amendment required an annual adjustment by comparing the variables in the new contract year with the variables from the immediately preceding contract year's final approved PSC rates. CELP and Northwestern are the successors to those contracts.
¶ 9 Eventually, a dispute arose between CELP and Northwestern regarding the contractual methodology used to calculate CELP's contract rates for energy and capacity for contract years sixteen and seventeen (July 1, 2004 through June 30, 2006). These were the first years CELP's rates were subject to the formula contained in the First Amendment rather than the fixed rate.
¶ 10 Sometime in 2007, Northwestern advised CELP that it intended to deduct more than $1 million from its next payment to CELP because of alleged overpayments made by Northwestern for contract years sixteen and seventeen. In response, CELP filed this action challenging Northwestern's claimed offset on the basis that Northwestern had created its alleged overpayment by using the wrong variable to determine the rates to be paid to CELP. In its cause of action, CELP sought roughly $22 million in damages from Northwestern and alleged, among other things, breach of contract; breach of the implied covenant of good faith and fair dealing; negligent misrepresentation; violation of due process; deceit; actual fraud; constructive fraud; and abuse of process. CELP also sought judicial review of two orders of the PSC filed under the Montana Administrative Procedure Act.
¶ 11 Northwestern moved to compel arbitration of CELP's claims based on the arbitration provision in the Agreement. The District Court ordered CELP's cause of action against the PSC bifurcated from its action against Northwestern and ordered CELP and Northwestern to arbitration. Northwestern did not raise any counterclaims in the arbitration.
¶ 12 Over the course of a nearly one-year long arbitration proceeding before a panel of three arbitrators (the Panel), each party presented
¶ 13 On August 24, 2009, the Panel issued its Interim Award addressing all of CELP's counts against Northwestern, reserving for the Final Award only the question of whether either party was entitled to costs and fees as the prevailing party under § 29 of the Agreement. The Panel denied CELP's contract and tort damage claims as well as all other relief sought by CELP noting that it was troubled by the manner in which CELP shifted its arguments in an effort to manufacture a damage case. The Panel concluded that although Northwestern breached the parties' contract, CELP failed to prove that this breach caused CELP to suffer compensable damages or underpayments, or that the breach entitled CELP to any other relief.
¶ 14 The Panel issued its Final Award on October 30, 2009, incorporating almost verbatim the text of the Interim Award. In addition, CELP had sought recovery of its legal fees and arbitration expenses from the Panel, but the Panel denied that request. Instead, the Panel determined that because the relief awarded was of a "mixed nature" in that both CELP and Northwestern gained "victories" and suffered "losses," each party should bear its own legal fees and other litigation expenses incurred in arbitration.
¶ 15 Northwestern filed a motion with the District Court seeking to confirm the arbitration award while CELP sought to have it vacated. Originally, CELP moved to modify or correct the Final Award, but at a hearing on the parties' competing motions, CELP argued that the Final Award must be vacated in its entirety because it was not "fixable in terms of modification, unless you throw out the vast majority of the arbitration award." CELP did not challenge the Panel's failure to award fees and costs.
¶ 16 The District Court confirmed the Final Award by order dated June 15, 2010. In its order, the District Court found that CELP failed to cite to any factual evidence or legal precedent showing that the Panel had disregarded clear Montana law or exceeded the authority conferred on the Panel by the parties' Agreement, the District Court's order directing the parties to arbitrate, or the scope of the questions presented to the Panel by CELP. CELP now appeals that ruling.
¶ 17 Judicial review of an arbitration award is strictly limited by statute in Montana. Dick Anderson Construction, Inc. v. Monroe Construction, 2009 MT 416, ¶ 26, 353 Mont. 534, 221 P.3d 675 (hereinafter "DAC") (citing Paulson v. Flathead Conservation Dist., 2004 MT 136, ¶ 18, 321 Mont. 364, 91 P.3d 569; Terra West v. Stu Henkel Realty, 2000 MT 43, ¶ 22, 298 Mont. 344, 996 P.2d 866; Nelson v. Livingston Rebuild Center, Inc., 1999 MT 116, ¶ 11, 294 Mont. 408, 981 P.2d 1185). Montana's Uniform Arbitration Act (Title 27, chapter 5, MCA) provides that a district court must confirm an arbitration award upon application of a party unless timely urged to vacate or modify the award. DAC, ¶ 26 (citing May v. First Nat. Pawn Brokers, Ltd., 269 Mont. 19, 22, 887 P.2d 185, 187 (1994); § 27-5-311, MCA). When a matter has been submitted to binding arbitration, courts are not permitted to review the merits of the controversy, but may only confirm, vacate, modify, or correct an arbitration award pursuant to §§ 27-5-311, -312, and -313, MCA. DAC, ¶ 26 (citing Paulson, ¶ 18; Nelson, ¶ 11). Furthermore, the party seeking to vacate, modify, or correct an arbitration award bears the burden of proving that one of the statutorily enumerated grounds exists. DAC, ¶ 26 (citing Duchscher v. Vaile, 269 Mont. 1, 6, 887 P.2d 181, 184 (1994)).
¶ 18 We review a trial court's decision to confirm an arbitration award to determine if the court abused its discretion. DAC, ¶ 19 (citing Terra West, ¶ 22). The test for an abuse of discretion is whether the trial court acted arbitrarily, without employment of conscientious judgment, or exceeded the bounds of reason resulting in substantial
¶ 19 We stated in DAC that
DAC, ¶ 38. Thus, this Court can only review whether the District Court abused its discretion in confirming the arbitration award; we cannot review the merits of the controversy. DAC, ¶¶ 19, 26. Consequently, we do not address CELP's first three issues. Instead, we conclude that the dispositive issue in this case is:
¶ 20 CELP contends on appeal that the District Court abused its discretion in failing to vacate or modify the Final Award because the conclusions the arbitrators reached and the award the arbitrators made were inconsistent with their own findings, contrary to the contract, contrary to settled Montana law on interpretation of contracts, and in excess of the scope of the arbitrator's powers. CELP further contends that the arbitrators exceeded their powers by re-writing the Agreement to achieve what they perceived as a fair result rather than employing recognized rules of contract construction to interpret the Agreement.
¶ 21 However, as already indicated, the question before this Court is not whether the Panel exceeded its authority, as that question was already answered by the District Court. Rather, the question this Court must answer is whether the District Court abused its discretion in concluding that the Panel acted within its authority.
¶ 22 The Panel determined that Northwestern breached the Agreement and the First Amendment to the Agreement by failing to use in its annual compliance filings submitted to the PSC two criteria from which CELP's contract rates are determined: (1) the Handy-Whitman Index, which the Panel concluded was the contract approved inflation index that must be applied to annually adjust certain variables used to calculate the contractual rate inputs, and (2) an annually determined incremental cost of capital (ICC), which is similarly used to adjust certain contractual rate inputs. Notwithstanding that finding, the Panel denied all of CELP's claims on the basis that CELP failed to prove that Northwestern's breaches of the Agreement caused CELP to suffer compensable damages or underpayments, or that those breaches entitled CELP to any relief.
¶ 23 In making this determination, the Panel referred to certain requirements specified in the First Amendment and CELP's failure to comply with those requirements in asserting that it had suffered damages as a result of Northwestern's breach. Thus, the Panel made the following Findings of Fact in its Final Award:
And, in its Conclusions of Law, the Panel stated the following:
¶ 24 In its June 15, 2010 order confirming the Final Award, the District Court explained that this interpretation and result advanced by the Panel "is, at a minimum, a 'plausible' interpretation of [the Agreement] and First Amendment, and is entitled to due deference by this Court."
¶ 25 The District Court pointed out that in CELP's brief in support of its motion to vacate, CELP stated that it did "not seek to vacate the Final Award, but only to modify and correct it in order to eliminate the inconsistencies within the award and amend it where it disregards clear Montana Law." The court also pointed out that at the April 9, 2010 hearing on the parties' motions, CELP changed its position when it urged the court to vacate the entire Final Award asserting that the Final Award is not "fixable in terms of modification, unless you throw out the vast majority of the arbitration award." Nevertheless, the District Court determined that CELP failed to meet its burden to establish any of the statutory grounds for either vacating or modifying the Final Award; thus, the court concluded that confirmation of the Final Award was appropriate.
¶ 26 We conclude that the District Court did not abuse its discretion in denying CELP's motion to vacate, modify or correct the Final Award. First, as to CELP's contention that the District Court should have amended the Final Award, Montana's Uniform Arbitration Act does not permit a court to vacate an arbitration award in part. DAC, ¶ 34 ("there is no provision in the arbitration statutes for vacating a portion of an arbitration award").
¶ 27 Second, Montana law is clear that a non-breaching party is still required to prove its damages. Knucklehead Land Co. v. Accutitle, Inc., 2007 MT 301, ¶ 31, 340 Mont. 62, 172 P.3d 116. Even CELP conceded in its brief on appeal that "[i]t is well within the authority of the trier of fact to find that a defendant had a duty, breached it, and caused injury to the plaintiff, and yet
¶ 28 Third, as to CELP's motion to modify or correct the Final Award, the grounds for modifying or correcting an arbitration award are set forth in § 27-5-313, MCA:
¶ 29 The District Court correctly noted in its order confirming the Final Award that the legal precedent on which CELP relies for its request to modify or correct the Final Award—that the Panel exceeded its authority—applies only to motions to vacate an award. Under § 27-5-313, MCA, modification is restricted to matters that do not affect the merits of the controversy and efforts to overturn an arbitrator's damage findings are beyond the scope of modification. In this case, the Panel's findings regarding CELP's damages are material to the Final Award and relate to the merits of the Panel's findings with respect to CELP's claims against Northwestern because CELP included those damage claims within the scope of its arbitration demand. Hence, the District Court correctly denied CELP's motion to modify or correct the Final Award.
¶ 30 Fourth, as to CELP's motion to vacate the Final Award, the grounds for vacating an arbitration award are set forth in § 27-5-312, MCA:
¶ 31 In this case, CELP alleged that the Panel exceeded its authority by re-writing the Agreement to achieve what the Panel perceived as a fair result rather than employing recognized rules of contract construction to interpret the Agreement. However, the District Court noted that in making this argument, CELP did not cite to any evidence in the record that the Panel manifestly disregarded Montana law. Citing Geissler v. Sanem, 285 Mont. 411, 417-18, 949 P.2d 234, 239 (1997), the court explained that the challenging party must demonstrate through evidence in the record that the "arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it." The court determined that there was "no evidence in the record to support the argument that the Panel was aware of a clearly governing principle of law and nevertheless ignored it in reaching its decision." The court also stated that "CELP has failed to show that the Panel's rulings exceeded the authority vested in them by the
¶ 32 Accordingly, we hold that the District Court's confirmation of the Final Award was proper and well within its discretion.
¶ 33 Affirmed.
We Concur: MIKE McGRATH, C.J., MICHAEL E. WHEAT, BRIAN MORRIS, PATRICIA COTTER, JJ.