American Central Eastern Texas Gas Co. v. Union Pacific Resources Group Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS January 27, 2004
FOR THE FIFTH CIRCUIT
_______________________ Charles R. Fulbruge III
Clerk
No. 02-41010
_______________________
AMERICAN CENTRAL EASTERN TEXAS GAS COMPANY, Limited Partnership;
AMERICAN CENTRAL GAS COMPANIES INC.,
Plaintiffs – Appellees,
v.
UNION PACIFIC RESOURCES GROUP INC.; ET AL.,
Defendants,
DUKE ENERGY FUELS LLC; DUKE ENERGY FIELD SERVICES INC.,
Defendants – Appellants.
_______________________
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 01-CV-2208-T
_______________________
Before DeMOSS, DENNIS, and PRADO, Circuit Judges.1
EDWARD C. PRADO, Circuit Judge.
Duke Energy, et al. (Duke) brings this appeal of the
district court’s confirmation of an arbitration award in favor of
Appellee, American Central Eastern Texas, et al. (ACET). The
arbitration award at issue involved monopolization claims
asserted by ACET against Duke under § 2 of the Sherman Act. The
1
Pursuant to 5th Cir. R. 47.5, this Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5th Cir. R.
47.5.4.
1
arbitrator found that Duke had a monopoly in gas processing in
Panola County, Texas, and that Duke had violated § 2 of the
Sherman Act by refusing to grant ACET a new gas processing
contract for additional gas volume with the purpose of preventing
ACET from competing with Duke. Duke appeals the district court’s
confirmation of that award on the grounds that the arbitrator
manifestly disregarded the law in making the award, and that the
award is arbitrary and capricious, violates public policy, and is
beyond the scope of the arbitrator’s authority.
I. BACKGROUND
ACET and Duke are companies that participate in the natural
gas industry in Panola County, Texas. ACET is predominately a
“gatherer” of natural gas liquids. Gatherers contract with
“producers”—those who extract the gas from the ground—to gather
the extracted gas and then either ship it to a delivery point or
ship it to a processing plant. ACET also offers “bundled”
gathering and processing services, whereby producers may hire
ACET to gather their gas and also have it processed for
them—essentially a one-stop shop. ACET is able to offer bundled
services to its customers at a price that is still profitable
because ACET’s gathering technology is efficient and low-cost.
Duke primarily operates as a gas “processor,” although it
also performs some gathering services. In offering the bundled
services of gas gathering and processing, ACET subcontracted with
2
Duke to process the gas gathered from ACET’s customers. The
dispute in this case arises from ACET’s dealings with Duke for
its processing services, and ACET’s desire to increase its
customer base and its resulting need to acquire more processing
capacity in the Panola County market.
When this suit was filed, Duke and its predecessor, Union
Pacific Resources Group (UPR), controlled 90-95% of the
processing market in Panola County.2 ACET entered the gathering
market in Panola County in 1994, and later considered opening its
own processing plant in Panola County. ACET contended, however,
that UPR had an internal business plan to create a monopoly in
gas processing in the area, called the “Carthage Vision.”
According to ACET, UPR planned to stifle competition by
preventing construction of new processing plants. To achieve
this goal, UPR planned to enter staggered, long-term contracts
with producers, so that any would-be entrants into the processing
market would be unable to muster enough gas from producer-
customers at any one time to offset the capital expense of a new
processing plant. ACET contended that, because of the “Carthage
Vision,” it was unable to open its own plant in Panola County,
and was left with the sole option of entering one of the long-
term agreements with UPR for processing. Thus, in 1997, ACET
contracted with UPR (the “1997 contract”) for processing
2
Duke purchased UPR in 1999.
3
services.
In 1999, ACET brought suit under §§ 1 and 2 of the Sherman
Act against UPR and Duke3 for monopolizing the gas processing
market in Panola County, and Koch Industries, Inc.4 for
conspiring with UPR in UPR’s quest for monopoly power. Duke and
UPR moved to compel arbitration on the § 2 claims against them,
leaving the § 1 claims and § 2 conspiracy claim in district
court. In 2000, former state judge Harlan Martin arbitrated the
parties’ dispute (“First Arbitration”) and found that UPR
willfully acquired and maintained monopoly power and abused that
power to overcharge ACET under the terms of the “uncompetitive”
1997 gas processing contract. UPR eventually settled with ACET
and the First Arbitration award was vacated.
By 1999, ACET required additional processing capacity,
because it was fully utilizing all of the capacity allocated to
it under the 1997 contract. However, ACET again determined that
opening its own plant was not a viable option, because too many
producers were already tied up in staggered, long-term contracts
with Duke. Therefore, ACET argued, it again had no choice but to
enter contract negotiations with Duke for additional processing
capacity.
3
Duke was added as a defendant after it purchased UPR in
1999.
4
ACET essentially contended that Koch agreed to stay out of
the gas processing market in exchange for UPR’s promise to
provide processing services to Koch on favorable terms.
4
The ensuing contract negotiations between ACET and Duke
collapsed. With antitrust claims still in the district court,
ACET added a new monopolization claim against Duke for violating
§ 2 of the Sherman Act. ACET stated that Duke had asked for the
same terms and prices for additional capacity as in the 1997
contract, which had been deemed supracompetitive in the First
Arbitration. In addition, ACET asserted that Duke intentionally
proposed terms that Duke knew were unrealistic or completely
unviable terms to ACET. Thus, ACET claimed that Duke was
refusing to deal with ACET in order to exclude ACET from
competition with Duke in the Panola County gas processing market.
Upon Duke’s request, the district court referred the new § 2
monopolization claims against Duke back to arbitration (“Second
Arbitration”) before Harlan Martin, the arbitrator from the First
Arbitration. The arbitrator found in favor of ACET. In the
Second Arbitration award, the arbitrator made the following
findings, among others: (1) that Duke possessed monopoly power
in the gas processing market in Panola County; (2) that Duke had
not negotiated in good faith; (3) that Duke had refused to
contract with ACET in order to prevent ACET from competing with
Duke or to maintain a supracompetitive price for processing
services in Panola County; (4) that ACET had suffered “antitrust
injury” in that it was denied the opportunity to process
additional volumes of gas at competitive prices; and (4) that
others had lost the opportunity to purchase processing or bundled
5
services from ACET as a result. The arbitrator ordered, by
mandatory injunction, that Duke offer ACET a new processing
contract for additional capacity, which would contain the same
terms as the 1997 contract but incorporate the reduced price
terms of a similar contract between Duke and Pennzoil (Pennzoil
contract).5
Duke moved for vacatur of the Second Arbitration award in
the district court. Duke asserted that the award was in manifest
disregard of the law, arbitrary and capricious, and violated
public policy. The district court denied Duke’s motion to
vacate, and confirmed the arbitration award. Duke timely
appealed the district court’s confirmation of the Second
Arbitration award.
II. STANDARD OF REVIEW
In reviewing a district court’s confirmation of an
arbitration award, this Court reviews questions of law de novo
and findings of fact only for clear error. See First Options of
Chicago v. Kaplan, 514 U.S. 938, 947-48 (1995); Williams v. Cigna
Fin. Advisors Inc., 197 F.3d 752, 757 (5th Cir. 1999). Where
parties have agreed to arbitrate their dispute, they may still
5
ACET asserted that the Pennzoil contract contained terms
that were more favorable to purchaser of processing capacity than
the terms Duke had offered to ACET. ACET argued that the
preferable terms of the Pennzoil contract resulted from a
temporary rise of competition, which occurred during a time when
Koch threatened to enter the Panola County market.
6
seek judicial review of the arbitration award; however, the
“court will set that decision aside only in very unusual
circumstances.” See First Options, 514 U.S. at 942. Generally,
an arbitration award need only have a foundation in reason or
fact. See Teamster, Chaffeurs, Warehousemen, Helpers and Food
Processers, Local Union v. Stanley Structures, Inc., 735 F.2d
903, 905 (5th Cir. 1984). Moreover, if the award is rationally
inferable from the facts before the arbitrator, it must be
affirmed. Valentine Sugars, Inc. v. Donau Corp., 981 F.2d 210,
214 (5th Cir. 1993).
There are a very limited number of grounds upon which a
district court may vacate an arbitration award. One of those
grounds for vacatur, which is asserted by the appellant, is when
the arbitrator exceeded his powers in making the award. 9 U.S.C.
§ 10(a). When examining whether an arbitrator exceeded his
powers, the reviewing court must resolve all doubts in favor of
arbitration. Executone Info. Systems, Inc. v. Davis, 26 F.3d
1314, 1320-1321 (5th Cir. 1994). If the arbitrator’s findings
are reasonable and supportable by law or custom in the field,
then the arbitrator did not exceed his authority. See Int’l
Union of Electrical, Radio & Machine Workers, AFL-CIO-CLC v.
Ingram Mfg. Co., 715 F.2d 886, 891-892 (5th Cir. 1983).
In addition, this Court has recognized certain common law
grounds warranting vacatur of an arbitration award. A district
7
court may vacate awards that are arbitrary and capricious, see
Williams, 197 F.3d at 758, or that are contrary to an explicit,
well-defined, and dominant public policy, see Prestige Ford v.
Ford Dealer Computer Servs., Inc., 324 F.3d 391, 396 (5th Cir.
2003); Exxon Corp. v. Baton Rouge Oil & Chem. Workers, 77 F.3d
850, 853 (5th Cir. 1996).
An arbitration award may also be vacated if the district
court finds that the arbitrator manifestly disregarded the law.
In Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d
391, 395 (5th Cir. 2003), this Court adopted the Second Circuit’s
interpretation of “manifest disregard”:
. . . it clearly means more than error or
misunderstanding with respect to the law. The error
must have been obvious and capable of being readily and
instantly perceived by the average person qualified to
serve as an arbitrator. Moreover, the term “disregard”
implies that the arbitrator appreciates the existence
of a clearly governing principle but decides to ignore
or pay no attention to it. Id. at 396. (Emphasis
added).
As indicated, the “manifest disregard of the law” standard is
extremely narrow and has limited applicability. Prestige Ford,
324 F.3d at 395-396. However, where federal statutory rights are
involved, the manifest disregard review must be sufficient to
ensure that the arbitrator complied with the statutory
requirements at issue. Williams, 197 F.3d at 761. This Court
set out a two-part test for applying this standard in Williams v.
Cigna. Id. The reviewing court must determine (1) whether it
8
was manifest that the arbitrator acted contrary to applicable
law; and (2) if so, whether upholding the award would result in
significant injustice. Id. at 762. In other words, even if this
Court finds manifest disregard of the law by the arbitrator, the
award must still be upheld unless doing so would produce
significant injustice. Id.
III. ANALYSIS
On appeal, Duke asserts that the district court erred in
confirming the arbitration award. In support of its argument,
Duke claims that the following findings and conclusions of the
arbitrator manifestly disregarded the law under the test set
forth in Williams, and were arbitrary and capricious: (1) that
ACET suffered antitrust injury, and therefore possessed standing
to sue under the Sherman Act; (2) that Duke possessed “monopoly
power” in the alleged market; and, (3) that Duke engaged in
exclusionary conduct necessary to create liability for
monopolization. Duke further contends that the arbitrator
exceeded his authority by mandating a contract between the
parties in the award, that the contractual award violates
antitrust principles, and that the award grants greater relief to
ACET than requested.
A. The Arbitrator’s Finding That ACET Suffered “Antitrust
Injury”
Duke contends that the district court’s confirmation of the
9
arbitration award was erroneous because the arbitrator’s finding
that ACET suffered antitrust injury was in manifest disregard of
the law, and was arbitrary and capricious. Specifically, the
arbitrator found that “Duke and [ACET] compete in selling gas-
gathering services and in selling gas-processing services in
Panola County, Texas,” and that
[ACET] and others have suffered and continue to suffer
antitrust injury in that [ACET] has been denied the
opportunity to process additional volumes of gas at a
competitive price; [ACET] has lost the opportunity for
additional sales of gas processing and gas gathering;
others have lost the opportunity to purchase from
[ACET], as a reseller and bundler of gas processing and
gas gathering at a competitive price
(emphasis added).
In suits brought under §§ 1 or 2 of the Sherman Act, this
Court has held that standing to sue exists only if a plaintiff
shows: (1) injury-in-fact, which is an injury to the plaintiff
proximately caused by the defendant’s conduct; (2) antitrust
injury; and (3) proper plaintiff status, meaning that other
parties are not better situated to bring suit. See Doctor's
Hosp. of Jefferson, Inc., v. Southeast Med. Alliance, Inc., 123
F.3d 301, 305 (5th Cir. 1997) (emphasis added). In Brunswick
Corp. v. Pueblo Bowl-O-Mat, Inc., the Supreme Court described
"antitrust injury" as an "injury of the type the antitrust laws
were intended to prevent and that flows from that which makes the
defendants' acts unlawful. . . . It should, in short, be the
type of loss that the claimed violations . . . would be likely to
10
cause." See 429 U.S. 477, 489 (1977).
Duke challenges only the second component of standing
recited in Doctor’s Hospital—antitrust injury to the plaintiff.
Duke argues that the arbitrator’s finding was incorrect because
Duke does not compete with ACET. Duke posits that ACET is a mere
“reseller” of Duke’s processing services, or a “middleman,”
rather than a “competitor,” and could therefore not suffer injury
of the type contemplated by the antitrust laws.
In support of its argument that ACET and Duke do not
compete, Duke relies heavily on this Court’s decision in Almeda
Mall for the proposition that ACET can not compete with Duke
because it is “a mere reseller” of Duke’s services. Almeda Mall,
Inc. v. Houston Lighting & Power Co., Westwood Mall, Inc. v.
Houston Lighting & Power Co., 615 F.2d 343 (5th Cir. 1980). In
Almeda Mall, several shopping malls sued their utility company
under the Sherman Act for refusing to allow the malls to install
a single electricity meter and then resell the electricity to its
tenants. The malls claimed that the utility was denying them
their rights to compete in the market by refusing to sell them
electricity for resale. Id. at 348. This Court found that the
malls lacked the antitrust injury necessary to sue under the
Sherman Act. We noted that “the Malls generate no electricity.
They transmit none.” Id. at 353. Further, “the activity sought
by the appellants is more akin to mere ‘substitution’ than to
11
competition. . . . [A]ppellants will merely be plugging
themselves into the flow of electricity and reaping profits as a
non-competitive middleman.” Id. at 353-354.
Duke also contends that, if not a reseller, ACET is similar
to a distributor of Duke’s processing services, and distributors
do not compete with suppliers. Duke asserts that “[w]hen a
manufacturer elects to market its goods through distributors, the
latter are not, in an economic sense, competitors of the
producer, even though the producer also markets some of its goods
itself.” Red Diamond Supply, Inc. v. Liquid Carbonic Corp., 637
F.2d 1001, 1005 (5th Cir. 1981).
Notwithstanding these arguments, it is not manifest to this
Court that the arbitrator disregarded the applicable law in
finding that ACET suffered antitrust injury. The Sherman Act
allows “any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust laws”
to bring suit. 15 U.S.C. § 15(a). Competitor status is not
requisite to establish standing. See Almeda Mall, 615 F.2d at
354 (the antitrust laws were intended to protect competition, not
necessarily competitors) (emphasis added). Relief for antitrust
claims is not confined “to consumers, or to purchasers, or to
competitors, or to sellers . . . The Act is comprehensive in its
terms and coverage, protecting all who are made victims of the
forbidden practices.” Blue Shield of Virginia v. McCready, 457
12
U.S. 465, 472 (1982).
Furthermore, the facts in Almeda Mall are distinguishable
from those in the instant case. In Almeda Mall, the malls’
proposed contract offered no real advantage to the consumer–the
malls added nothing to the market and would not be able to offer
consumers a better price for the electricity. See 615 F.2d at
353. While ACET does not process gas itself, just as the malls
did not produce electricity, the bundled package of services
offered by ACET adds to the market a different product than that
offered by Duke. Moreover, consumers may benefit from purchasing
processing in a package with their gathering services, and ACET
is able to offer both services on terms that are profitable to
ACET as well as economically valuable to the consumer.
A review of the arbitration record, including the pleadings
and exhibits submitted to the arbitrator, transcripts, and the
arbitrator’s award and findings, indicates that the arbitrator
was fully apprised of both parties’ arguments, the applicable
law, and that he developed an extensive familiarity with the
case. The Court concludes that the arbitrator’s finding that
ACET competes with Duke in the processing market and that ACET
suffered antitrust injury is not obviously erroneous, arbitrary,
or capricious; nor is it evident to this Court that the
arbitrator purposely ignored the applicable law in making the
13
award.6 Accordingly, the district court correctly confirmed the
arbitration award on this issue.
B. The Arbitrator’s Finding That Duke Possesses Monopoly Power
in Panola County
Duke also contends that the arbitrator manifestly
disregarded the law in finding that Duke possesses monopoly power
in the gas processing market in Panola County, and that this
finding is arbitrary and capricious. Duke asserts that the
arbitrator fundamentally misunderstood “monopoly power” and the
appropriate market for determining the existence of such power.
The record shows, however, that arbitrator in this case was
particularly familiar with the applicable antitrust law, the
parties, and the historical, procedural, and factual context of
the matters in dispute, because he also served as the arbitrator
in the First Arbitration involving antitrust claims by ACET
against Duke. Furthermore, it was Duke that requested that the
instant dispute be referred to arbitration, even after Duke had
been found to be a monopolist in Panola County in a previous
arbitration before this very arbitrator. Thus, the Court finds
6
See Prestige Ford, 324 F.3d at 396. We do not address the
second step of the manifest disregard analysis, namely whether
the award will result in significant injustice, because that step
is undertaken only when it is first manifest that the arbitrator
acted contrary to the applicable law. We likewise will not
proceed to the “significant injustice” analysis in the following
discussion if it is not warranted by an initial finding of
manifest disregard of the law by the arbitrator.
14
unconvincing Duke’s argument that the arbitrator misunderstood
the meaning of monopoly power.
Moreover, the record indicates that Duke controls
approximately 90-95% of all gas processing in Panola County.
While high market share, in the absence of significant entry
barriers, can “overestimate a firm’s market power,” see Colorado
Interstate Gas Co. v. Natural Gas Pipeline Co. of Am., 885 F.2d
683, 695-696 (10th Cir. 1989), the Supreme Court has held that it
is frequently indicative of monopoly power, see United States v.
Grinnell Corp., 384 U.S. 563, 571 (1966) (“[t]he existence of
such [monopoly] power ordinarily may be inferred form the
predominant share of the market”). Duke contends there are no
barriers to entry into the Panola County market, and that Duke’s
market power did not prevent ACET from opening its own plant in
Panola County. However, ACET presented extensive evidence to the
arbitrator in support of its arguments that: the real barrier to
entry into the Panola County market was lack of sufficient gas
volume to offset the capital expense of a new plant, which ACET
argued was a result of Duke’s continuation of UPR’s “Carthage
Vision” contracts; and, that Duke’s contract negotiations with
ACET illustrated Duke’s power to “control prices or exclude
competition.” See United States v. E.I. duPont de Nemours & Co.,
351 U.S. 377, 391 (1956) (defining “monopoly power” as “the power
15
to control prices or exclude competition”).7
The Court concludes that it is not manifest that the
arbitrator disregarded the law in finding that Duke retained
monopoly power in Panola County, and that this finding was not
irrational, arbitrary, or capricious. Accordingly, the district
court did not err in its confirmation of the arbitration award on
this basis.
C. Arbitrator’s Finding That Duke Engaged in “Exclusionary
Conduct”
A finding of monopolization requires proof of exclusionary,
anticompetitive conduct. Duke argues that the arbitrator’s
finding of fact that Duke engaged in exclusionary conduct was in
manifest disregard of antitrust law. Duke contends that it did
not refuse to deal with ACET, that any purported refusal to deal
was based on a lawful business purpose, and that ACET’s true
complaint was that Duke simply demanded too high a price.
A refusal to deal does not, in itself, constitute an
antitrust violation, see United States v. Colgate & Co., 250 U.S.
7
Duke suggests that ACET failed to prove that Duke possessed
monopoly power in the relevant market, because ACET did not
submit evidence on this issue and relied completely, as did the
arbitrator, on the finding in the First Arbitration that Duke
held monopoly power. Further, Duke correctly asserts that it
retained the right to any preclusive effect the prior arbitration
award might have afforded. However, the Court observes that the
district court, in its order referring the instant claims to
arbitration, specifically permitted the arbitrator to consider
the record of the First Arbitration and the trial record.
16
300, 307 (1919). In Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., the Supreme Court held that even monopolists are free to
choose with whom they do business, but that businesses may not
refuse to deal with the purpose of creating or maintaining a
monopoly. 472 U.S. 585, 602 (1985); Aladdin Oil Co. v. Texaco,
Inc., 603 F.2d 1107, 1115 (5th Cir. 1979).
In the recent case of Verizon Communications, Inc. v. Law
Offices of Curtis V. Trinko, L.L.P., No. 02-682, 2004 WL 51011,
at *7 (Jan. 13, 2004), the Supreme Court warned that courts must
be careful in determining that a business’s refusal to deal is
based on anticompetitive motives versus a valid business
strategy. In Verizon, the Court determined that Verizon’s
refusal to offer certain communications services was not
anticompetitive. However, in coming to this conclusion, the
Court observed that Verizon’s challenged conduct did little to
support a suspicion of anticompetitiveness. For example, unlike
the defendant in Aspen Skiing, 472 U.S. 585 (1985), Verizon had
no prior course of dealing with its rival that it unilaterally
terminated. Verizon, No. 02-682, 2004 WL 51011, at *7. Further,
the Court emphasized that the presence of a regulatory structure,
which monitors and enforces fair dealing in the industry, was of
particular importance in determining that there was no
anticompetitive harm to Verizon’s rival. Id., at *8. The Court
stated that when there is not a built-in regulatory scheme that
17
performs an antitrust function, the benefits of enforcing the
antitrust laws are worth its disadvantages. Id.
In the present case, the arbitrator found that Duke had
engaged in exclusionary conduct, stating that Duke had refused to
“negotiate fairly and in good faith” with ACET “in order to
prevent [ACET] from competing with Duke . . . and in order to
maintain a supra competitive price for gas processing in Panola
County,” and that this refusal to deal represented a “willful
maintenance of Duke’s monopoly power in the relevant market and a
violation of the Sherman Antitrust Act,” without any “lawful
business justification.” See Taylor Publ’g Co. v. Jostens, Inc.,
216 F.3d 465, 475 (5th Cir. 2000) (the conduct of a business must
have a “rational business purpose other than its adverse effects
on competitors,” or it will be deemed exclusionary). The record
shows that ACET presented considerable evidence to the arbitrator
that Duke refused to deal with ACET for anticompetitive reasons.
Among this evidence was testimony that Duke was concerned that
ACET’s increased presence in the Panola County market would
inject added competition into the market. In addition, ACET
submitted evidence to the arbitrator that Duke intentionally
excluded ACET from the market, not only by demanding a high price
for additional capacity, but also by proposing an array of
contract terms that Duke knew were completely unviable to ACET.
Courts admittedly must be cautious in finding exception to
18
the right to refuse to deal. See Verizon, No. 02-682, 2004 WL
51011, at *6. However, the Court notes that Duke refused to deal
in the context of a prior course of dealing with ACET. Further,
there was no regulatory regime in this case to ensure Duke’s
actions were competitive. See id., at *8. Having willingly
submitted its case to arbitration, Duke left it to the arbitrator
to determine whether the protection of the antitrust laws was
warranted in this case. The arbitrator made the initial factual
findings that Duke was a monopoly, that it refused to deal with
ACET by acting in bad faith and offering contract terms that were
anticompetitive, and that Duke had no valid business
justification for refusing to deal with ACET. Finally, based on
the sizable amount of evidence proffered by ACET, the arbitrator
found that Duke’s exclusionary conduct was illegal under the
Sherman Act.
This Court observes that the arbitrator, in coming to its
finding, was well-versed in the legal elements that constituted
exclusionary, anticompetitive conduct, as well as the facts of
the case. The Court concludes that a reasonable arbitrator could
have found that Duke’s conduct was anticompetitive and in
furtherance of its monopoly power under the exception noted in
Aspen Skiing. Accordingly, this Court determines that the
arbitrator’s factual finding of exclusionary conduct was not
clearly erroneous, nor was it in manifest disregard of the law.
19
The district court was correct in its confirmation of the
arbitration award with regard to this finding.
D. The Arbitrator’s Award of a Contractual Remedy
1. Public Policy
Duke further claims that the district court erred in
confirming the arbitration award, because the remedy fashioned by
the arbitrator violates public policy. The award ordered Duke,
by mandatory injunction, to offer ACET a new processing contract
for additional capacity under the same terms as the 1997 contract
between ACET and UPR, but which incorporated the more competitive
prices of the Pennzoil contract cited by ACET in the arbitration
proceedings. Duke contends that this contract erects market-
entry barriers “through arbitrator-created price controls,
effectively thwarting the introduction of competition into the
market.” In making this argument, Duke principally relies on a
legal treatise, which discusses an injunction that required a gas
pipeline monopoly to grant capacity to a plaintiff at judicially-
determined prices:
Such a solution is nothing less than price regulation
of the kind undertaken by regulatory agencies—something
for which both the federal courts and the antitrust
litigation process are extremely ill-suited and which
is, in any event, inconsistent with the antitrust’s
fundamental “market” orientation to problems of lack of
competition. The second problem . . . is that the
order either removes or reduces the plaintiff’s
incentive to develop its own independent capacity for
transporting gas to the market.
3A AREEDA & HOVENKAMP, ANTITRUST LAW (2d ed. 2002).
20
As we have previously noted, this Court does not find error
in the findings of the arbitrator that Duke possessed monopoly
power, that Duke’s contract negotiations with ACET were in bad
faith and with the intent “to prevent [ACET] from competing with
Duke . . . and in order to maintain a supra competitive price for
gas processing in Panola County.” Thus, the arbitrator found
that ACET was unable “to develop its own independent capacity for
transporting gas into the market” due to Duke’s exclusionary
conduct, see id., and that Duke’s contract terms and negotiations
were actually harming or decreasing competition in Panola County.
Rather than thwarting the introduction of competition into the
market, as asserted by Duke, the contract set out in the award
was created to “restore competition in the market.” See Pac.
Coast Agric. Export Assoc. v. Sunkist Growers, Inc., 526 F.2d
1196, 1208 (9th Cir. 1975) (injunction, which prevented a
producer from refusing to sell to qualified exporters, and
directing that price be determined by court-devised formula, was
well within the court’s broad remedial discretion). Further,
“[i]njunctive remedies under § 16 of the Clayton Act may be as
broad as necessary to ensure that the ‘threatened loss or damage’
does not materialize or that prior violations do not recur.”
Woolen v. Surtran Taxicabs, Inc., 801 F.2d 159, 167 (5th Cir.
1986).
The Court also notes that Dukes’s blanket assertion that,
21
“assuming monopolization of a relevant market, any arbitrator-
imposed remedy would impact the future of that market for all
consumers,” is contradicted by Duke’s specific request of a
contractual remedy (emphasis added). In the pleadings submitted
to the arbitrator, Duke explicitly requests that, should the
arbitrator grant injunctive relief, that he structure a “new
processing contract that contains appropriate and reasonable
terms that will remedy the alleged antitrust injury.” Duke
proposed that the arbitrator appoint a consultant knowledgeable
in the gas market to assist him in determining reasonable
contract terms. The arbitrator, however, ultimately decided the
appointment of a consultant would result in undue delay and “add
nothing to the resolution of the issue.” As this arbitrator
possessed an intense familiarity with the parties, facts, and
particular market at issue, his decision to devise the award
without the assistance of a consultant was proper.
Consequently, the Court concludes that the arbitrator heeded
the principles of antitrust law in fashioning the contractual
award, and that the award does not violate public policy. The
district court did not err in confirming the award on these
grounds.
2. Arbitrator’s Authority
Finally, Duke claims that the district court should have
vacated the award because the arbitrator exceeded his authority
22
by granting ACET more relief than it requested. Duke asserts
that throughout this dispute, ACET asked for a contract that
would be exactly like the one UPR granted to Pennzoil. However,
the arbitrator ordered a contract containing the lower price of
the Pennzoil contract, but having the same terms as the UPR-ACET
1997 contract. Duke argues that the combination of the ACET
contract terms with the Pennzoil contract prices made for a
contract that is actually more favorable to ACET than the
Pennzoil-type contract requested by ACET.
An arbitrator does not exceed his authority as long as his
findings are reasonable and supportable by law or custom in the
field. See Int’l Union of Elec., Radio & Machine Workers, AFL-
CIO-CLC v. Ingram Mfg. Co., 715 F.2d 886, 891-892 (5th Cir.
1983); see also 9 U.S.C. § 10(a). With regard to relief in
antitrust cases, this Court recognizes that injunctive relief may
be as broad as necessary to correct or prevent antitrust
violations. See Woolen, 801 F.2d at 167.
At the close of arbitration, neither Duke nor ACET got
everything they petitioned for. ACET did not obtain a long-term
contract as it requested and which is customary in the gas
industry. Duke requested a contractual remedy, and even
suggested that an informed party set out contract terms. The
mere fact that the arbitrator did not accept the particular
contract terms proposed by Duke, and that ACET, as the victim of
23
monopolist conduct, benefitted from the contract set out in the
award, does not signify that the contract terms were unreasonable
or that arbitrator overstepped his authority.8 Conversely, the
Court finds that the arbitrator merely tailored the contractual
award to rectify anticompetitive conduct by Duke in the Panola
County market. Accordingly, the Court concludes that the
district court properly confirmed the arbitration award with
regard to the injunctive relief granted by the arbitrator.
IV. CONCLUSION
Based on the foregoing analysis, the Court concludes that
the district court did not err in confirming the arbitration
award. The arbitrator was mindful of and adhered to the
applicable law, and did not exceed his authority. The
arbitrator’s findings at issue on appeal were neither arbitrary
or capricious, nor violated public policy. As a result, this
Court AFFIRMS the district court’s confirmation of the
arbitration award.
AFFIRMED.
8
But see Totem Marine Tug & Barge, Inc. v. North Am. Towing,
Inc., 607 F.2d 649, 652 (5th Cir. 1979) (award of arbitration
panel of an unrequested amount of damages that was three times
larger than any item claimed was improper).
24