NANCY TORRESEN, District Judge.
This case comes before the Court on Applicant Bangor Gas Co., LLC's (
Bangor Gas operates a pipeline from Orrington to Bucksport, Maine (the
In 2007, ownership of Bangor Gas changed hands and the new owners discovered that Bangor Gas's lease of the lateral line from Maritimes violated a Federal Energy Regulatory Commission (
The arbitration panel found that Bangor Gas was responsible for the cost of delivery through the Maritimes Lateral. However, to comply FERC's "shipper must have title" rule, the panel directed HQUS to pay the cost of delivery through the Maritimes Lateral going forward and directed Bangor Gas to deduct that cost from the contractual amount HQUS owes Bangor Gas for delivery. The panel found that HQUS should be responsible for the cost of heating the gas once it arrived at the facility, but it did not award Bangor Gas any retroactive payment for gas-heating costs that Bangor Gas had borne prior to entry of the Award.
Following entry of the Award, Bangor Gas wrote to FERC requesting a "no action" letter regarding Bangor Gas's obligations under the award. Bangor Gas asserted that the Award's requirement that it rebate HQUS's cost of leasing the Maritimes Lateral also violates FERC rules. It then sought clarification from the panel. In the Clarification Order, the panel stated:
Clarification Order at pp. 4-5 (Doc. # 1-4). After the Clarification Order was issued, the FERC responded to Bangor Gas's request for a no-action letter, stating that the arrangements required by the Award would violate additional FERC rules requiring any purchase of capacity in a pipeline to either be at the maximum rate for the capacity, or to be subject to a posting and bidding requirement. If HQUS paid for capacity in the Maritimes Lateral at the maximum rate, this would be considered discounted by the rebate provided to HQUS by Bangor Gas, since the net price paid by HQUS would be considered less than the maximum rate for that capacity, and, thus, posting and bidding would be required. The response to Bangor Gas's request for no action concluded:
FERC Response to Bangor Gas's Request for No-action Letter (the "
Following this letter, Bangor Gas demanded that HQUS repay $297,547.50 it had rebated on its contract with HQUS since the award was entered, and brought this action to vacate in part and confirm in part the arbitration panel's award. HQUS has filed a cross-motion to confirm the award.
Under Section 9 of the Federal Arbitration Act
Under this statute, a federal district court's review of an arbitral award is "extremely narrow and exceedingly deferential." Bull HN Information Systems, Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir.2000) (citing Wheelabrator Envirotech Operating Services Inc. v. Mass. Laborers Dist. Council Local 1144, 88 F.3d 40, 43 (1st Cir.1996)). The First Circuit has elaborated:
Id.
In the First Circuit, courts have the ability to vacate an arbitral award where it was made in "manifest disregard" of the law. See Bull HN, 229 F.3d at 330-331 (citing Advest, 914 F.2d at 8).
Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 124 (1st Cir.2008).
Bangor Gas makes three arguments in its motion to partially vacate the arbitrators' award: (1) The arbitrators impermissibly relied on evidence not presented by the parties in determining who should be responsible for the cost of transportation over the Maritimes Lateral; (2) the arbitrators' decision regarding payment for the lateral line was made in manifest disregard of the law because it violates FERC's rules and requires Bangor Gas to expose itself to further action from FERC, and (3) the arbitrators' decision not to enter a retroactive award requiring HQUS to pay for costs of heating the gas from 1999 through the present violated the parties' contractual "no compromise" clause.
Bangor Gas asserts that the arbitration panel engaged in misconduct under 9 U.S.C. § 10(a)(3) when it reached out to review certain documents relating to construction of the lateral pipeline which were not presented to the panel by the parties. Bangor Gas posits that the panel obtained these documents, which appear as attachments 1 and 2 to the Award (pp. 12-19 of Doc. # 1-3) from FERC's public records.
The First Circuit has not directly addressed the issue of whether relying on evidence not in the record may constitute misconduct sufficient to vacate an arbitration award. However, Teamsters Local 312 v. Matlock, Inc., 118 F.3d 985, 995 (3rd Cir.1997), cited by Bangor Gas in support of this proposition, recites a general standard in its discussion of the issue that has been adopted by the First Circuit. Under this standard, procedural irregularities may be grounds for vacating an award only if the result "so affects the rights of a party that it may be said that he was deprived of a fair hearing." Hoteles Condado Beach, La Concha and Convention Center v. Union De Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir.1985), see also OneBeacon America Ins. Co. v. Swiss Reinsurance America Corp., 2010 WL 5395069, *7 (D.Mass., Dec. 23, 2010).
In Hoteles Condado, an arbitrator awarded compensation and reinstatement to a former hotel employee
Id. at 40. By contrast, in OneBeacon, an arbitration panel's decision to limit discovery sought by one side regarding an alleged industry custom and practice and to limit the testimony of certain witnesses at the arbitration hearing did not constitute misconduct. 2010 WL 5395069 at *3-5. The federal district court for the District of Massachusetts noted that, while the hotel in Hoteles Condado was "precluded ... from presenting any evidence at all ...", "OneBeacon ... had plentiful opportunities to present evidence, and what limitations the Panel did place on witness testimony were entirely within the bounds of its discretion." Id.
The limitation or exclusion of evidence from the record is different than the consideration of evidence not presented by the parties. There are often legitimate reasons for excluding or limiting evidence, but there are only limited legitimate grounds
The panel evidently found the information contained in Exhibits 1 and 2 to the Award helpful to their interpretation of the parties' contract. However, the record does not support a conclusion that these attachments were central and decisive evidence in the case. Bangor Gas's assertion that the language of the contract unambiguously places responsibility for the Maritimes Lateral with HQUS in the absence of Exhibits 1 and 2 is undermined by the facts that the Maritimes Lateral is never mentioned in the contract, and that Bangor Gas paid for the Maritimes Lateral for the first several years of the contract without dispute. The panel considered the attachments to resolve an existing ambiguity in the contract.
Bangor Gas was also not deprived of the opportunity to present its side of the case. It was well aware of this central issue of contract interpretation, and, although it did not have an opportunity to address Attachments 1 and 2 in particular at the hearing, it was not otherwise prevented from presenting its best evidence and arguments to the panel in support of its interpretation of the contract.
Moreover, Bangor Gas has failed to point to any real prejudice arising from the panel's consideration of these documents. Bangor Gas makes no argument that the panel misconstrued Attachments 1 and 2 in a way that resulted in the panel's misinterpretation of the contract, nor did Bangor Gas raise this issue in its request to the panel for clarification of the Award. Absent a demonstration of prejudice, the panel's procedural irregularity in relying on evidence outside of the record is insufficient grounds for vacating the Award. See 9 U.S.C. § 10(a)(3) (requiring misconduct that prejudices the rights of the party to vacate an arbitral award.)
An arbitration award may be vacated under the "manifest disregard of the law" standard only "where an award is contrary to the plain language of the [contract]" or "where it is clear from the record that the arbitrator recognized the applicable law — and then ignored it." Bull HN, 229 F.3d at 330-331. As reviewed above, the language of the parties' contract is ambiguous with regard to who should bear the cost of leasing the Maritimes Lateral. Accordingly, the panel did not disregard the plain language of the contract.
There is also no indication that the panel ignored applicable law. To the contrary, the panel structured its original order in an effort to comply with FERC's "shipper must have title" regulations. The panel then modified the Award to require HQUS to repay Bangor Gas "to the extent necessary to comply with any finding by the FERC that the reimbursement and crediting arrangements are not consistent with FERC policy." Clarification Order at p. 4 (Doc. # 1-4). The panel's Award and Clarification Order together display a good faith effort to recognize and comply with applicable law.
In a somewhat separate claim, Bangor Gas requests that the Court "confirm" the Clarification Order by requiring HQUS to reimburse it at this time. Bangor Gas asserts that this letter constitutes a "finding" by the FERC that the Award's arrangements are not in compliance with FERC rules. Bangor Gas argues that the phrase "any finding" in the Clarification Order refers not only to orders on declaratory judgment but also to no-action letters. It points out that the panel implied in the Clarification Order that a no-action letter from the FERC would constitute a "finding."
The Court disagrees. The panel clearly thought that the FERC would give Bangor Gas the "no-action" assurances that it sought. The panel stated: "a decision by the FERC that the above-referenced reimbursement and crediting arrangements are not consistent with FERC policy [ ] is not at all likely to occur." A no-action letter would have allowed the Award's rebate arrangement to survive. However, the failure to issue "no action" assurances does not equate to a "finding" by the FERC on the legal question posed. The FERC Letter states as much.
The FERC Letter does not state that the FERC will sanction Bangor Gas, it merely states that it is unable to ensure that the FERC will not take action against Bangor Gas. Bangor Gas must either seek a declaratory judgment from the FERC or await an enforcement action by the FERC. In either event, HQUS's repayment obligation is triggered only by a FERC order that finds the Award's reimbursement and crediting arrangements are inconsistent with FERC policy.
Article XIII.2.c of the parties' agreement states:
(Doc. # 1-2.) Bangor Gas asserts that the panel's determination that HQUS should be responsible for the cost of heating its gas to 80 degrees Fahrenheit at the point of delivery required the panel to award retroactive payments to Bangor Gas under this "no compromise" language.
Interpretation of this language as part of the parties' contract is the province of the arbitration panel. The panel was aware of this paragraph, which it called the "baseball arbitration" clause, and it interpreted it as requiring only that the panel not adjust or compromise the amount of the heater fuel charges during any particular period. See Award at p. 10, n. 4 (Doc. 1-3). In the panel's estimation, this clause did not require it to apply its interpretation of the contract language both retroactively as well as prospectively.
The Panel, however, distinguished retroactive payments from prospective responsibility for the cost of heating the fuel on two interrelated grounds. First, unlike responsibility going forward, retroactive payments would require difficult and contentious documentation and confirmation of past heater fuel costs, and second, Bangor Gas had up to the present dispute been supplying the heater fuel for HQUS. Thus, while the panel did determine that Bangor Gas should no longer be responsible for this cost, it found the question of whether it was entitled to retroactive payments qualitatively different than the question of whether it should be relieved of this cost in the future. Now that Bangor Gas had raised the issue of who pays for heating the gas, HQUS no longer had the same expectation of continued payment by Bangor Gas that it used to have. In the panel's estimation, it was not "compromising" one allocation, it was making a decision as to the allocation of payment on two separate questions: past payments and future payments. Whether the Court agrees with this determination is immaterial. It is not contrary to the plain language of the contract and is therefore confirmed.
Both parties cross move for confirmation of the Award, at least in part. HQUS requests that the Court confirm the Award in its entirety, and Bangor Gas requests that the Court confirm that portion of the Award (as stated in the Clarification Order) requiring HQUS to reimburse amounts Bangor Gas credited to HQUS prior to the FERC Letter. The Court has already determined that Bangor Gas has not obtained a finding from the FERC that the Award is inconsistent with FERC policy, and so denies Bangor Gas's motion to confirm in part the Award and Clarification Order. The Court grants HQUS's motion to confirm the arbitration award, also for the reasons stated above.
Both sides also request attorneys' fees for their efforts in bringing their petitions to the Court.
Article XIII.2.i of the parties' agreement states:
(Doc. # 1-2.) For its part, the FAA states:
9 U.S.C. § 9. These provisions of the contract and the FAA together indicate that the Court's role in confirming the award is not in itself "enforcement" of the award. Absent very limited grounds for vacating, modifying, or correcting the Award, the Court is required to confirm the Award once it is "filed". This requisite act on the Court's part merely creates an enforceable judgment. Even if the parties dispute the Award as part of the process of requesting confirmation, as they have in this case, such a dispute concerns the viability of the Award, and is in that sense not about "enforcement" of it. By tying attorneys' fees to "enforcement", the parties indicated that attorneys' fees were contemplated, not for arguments about the merits of their claims or of the Award. Rather, the parties agreed that attorneys' fees are only merited if one party is non-compliant with a confirmed Award and the other party is required to resort to post-judgment remedies see e.g. Fed.R.Civ.P. 69 (stating procedures for execution on judgments). Accordingly, the Court awards no attorney's fees in this proceeding.
SO ORDERED.