DocketNumber: NO. 14-15-00439-CV
Citation Numbers: 513 S.W.3d 511
Judges: Boyce, Brown, Frost
Filed Date: 12/6/2016
Status: Precedential
Modified Date: 1/12/2023
Opinion
Denbury Onshore, LLC, challenges the district court’s judgment confirming an arbitration award in favor of TexCal Energy South Texas, L.P., and Venoco, Inc. (collectively, Venoco), and denying Denbury’s motion to vácate or modify the award. Finding no error, we affirm.
I. Factual and Procedural Background
Denbury’s business focuses on enhanced oil recovery using C02 injection. Denbury owns C02 deposits near Jackson, Mississippi, in fields known as Jackson Dome. TexCal, whose parent company is Venoco, owned a majority interest in certain producing mature oil and gas fields in Galveston and Brazoria Counties, Texas, known as Hastings. Denbury planned to acquire interests in oil and gas fields, starting with Hastings, and then supply .C02 from Jackson Dome to recover oil from such fields.
Denbury and Venoco began negotiations and, in November 2006, signed an Option Agreement. Venoco granted Denbury an option to purchase Venoco’s majority interest in Hastings. Should Denbury exercise its option, Venoco would convey this inter
During the next two years, Denbury built the Green Pipeline to transport C02 from Denbury’s closest pipeline in Louisiana to Hastings and other fields in Texas at an actual cost of approximately $905 million. The Green Pipeline was designed and built to transport a capacity throughput of 800 MMcf per day. Denbury began charging its C02 Costs against Venoco’s payout account. In 2012, however, an audit revealed that Denbury was charging Veno-co more than expected.
Pursuant to an arbitration provision in the Option Agreement, Venoco brought a claim in arbitration against Denbury for declaratory judgment. After an evidentiary hearing, the three-member neutral arbitration panel unanimously declared the meaning of the disputed language of the “transportation costs” and the “commodity costs” provisions of the Option Agreement and issued an award in Venoco’s favor. The panel issued two modifications and clarifications to the award.
Denbury filed an application to modify and vacate the arbitration award in Harris County district court.
Venoco moved to confirm the arbitration award. After a hearing, the district court issued its order granting Venoco’s motion to confirm and denying Denbury’s motion to modify and vacate. Denbury appealed.
II. Analysis
Overall, Denbury challenges the district court’s grant of Venoco’s motion to confirm the arbitration award and denial of Den-bury’s motion to modify or vacate the award. In particular, in its opening brief on appeal, Denbury argues that the district court erred by applying the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., instead of the Texas General Arbitration Act (TAA), Tex. Civ. Prac. & Rem.Code Ann. § 171.001 et seq. (West 2011), to the agreement, effectively negating the parties’ clear intent to allow the trial court to review the arbitration award for reversible error, and by failing to adhere to the holding in Nafta Traders to conduct expanded judicial review. Denbury further contends that the panel’s declarations of the meaning of “commodity costs” and “transportation costs” in the award are not supported by legally or factually sufficient evidence, and the district court erred by not setting aside those portions of the award. Finally, if this court determines this matter is governed by the FAA, then Denbury maintains that the arbitration panel exceeded its powers or so imperfectly executed them that a mutual, final, and definite award was not made.
However, Denbury no longer appeals the panel’s declaration of the meaning of the “commodity costs” provision, but rather only its declaration of the meaning of the “transportation costs” provision. In its reply brief, Denbury notified this court that “[i]n light of the Supreme Court’s decision in Hoskins [v. Hoskins, 497 S.W.3d 490 (Tex. 2016) ],” Denbury is no longer challenging the trial court’s judgment based on any argument “with respect to that portion of the Panel’s Award denying Denbury recovery of its Depreciation, Depletion and Amortization (DD&A) as a cost of producing C02.”
We review de novo a trial court’s decision to confirm or vacate an arbitration award under the FAA or the TAA. D.R. Horton-Tex., Ltd. v. Bernhard, 423 S.W.3d 532, 534 (Tex. App.-Houston [14th Dist.] 2014, pet. denied) (TAA); Amoco D.T. Co. v. Occidental Petroleum Corp., 343 S.W.3d 837, 844 (Tex. App.-Houston [14th Dist.] 2011, pet. denied) (FAA). Review of an arbitration award is extraordinarily narrow. Patel v. Moin, No. 14-15-00851-CV, 2016 WL 4254016, at *2 (Tex. App.-Houston [14th Dist.] Aug. 11, 2016, pet. filed) (mem. op.) (TAA); Amoco D.T., 343 S.W.3d at 841. All reasonable preferences are indulged in favor of the award. Patel, 2016 WL 4254016, at *3; Amoco D.T., 343 S.W.3d at 841. A party seeking to vacate an award bears the burden of presenting a complete record that establishes grounds for vacatur. Patel, 2016 WL 4254016, at *2; Amoco D.T., 343 S.W.3d at 841.
An arbitration award governed by the FAA or the TAA must be confirmed unless it is vacated, modified, or corrected under certain limited grounds. See 9 U.S.C. § 9; Tex. Civ. Prac. & Rem. Code Ann. § 171.087. An arbitration award shall be vacated under the FAA upon application only when the award was procured by corruption, fraud, or undue means; there was evident partiality or corruption in the arbitrators; the arbitrators were guilty of misconduct in refusing to postpone the hearing for sufficient cause, in refusing to hear pertinent and material evidence, or any other misbehavior which prejudiced
An arbitration award shall be vacated under the TAA upon application only when the award was obtained by corruption, fraud, or undue means; the rights of a party were prejudiced by evident partiality by an arbitrator appointed as a neutral arbitrator, corruption in an arbitrator, or misconduct or willful misbehavior by an arbitrator; the arbitrators exceeded their powers, refused to postpone the hearing after a showing of sufficient cause for postponement, refused to hear material evidence, or conducted the hearing in a manner that was contrary to one of five sections of the TAA and that substantially prejudiced the rights of a party; or there was no agreement to arbitrate, the issue was not adversely determined in a proceeding to compel or stay arbitration, and the party did not participate in the arbitration hearing without raising the objection. Tex. Civ. Prac. & Rem. Code Ann. § 171.088(a); Hoskins, 497 S.W.3d at 494.
A. The parties’ arbitration agreement
In section 19.12, “Mediation and Arbitration,” the Option Agreement states:
The Parties stipulate and agree that any and all claims and/or controversies arising between [them] which relate to and arise out of this Agreement shall be resolved in accordance with the mediation and arbitration procedures set forth in Exhibit “P.” The prevailing party in any legal proceeding or arbitration may be entitled to recover all arbitration costs and reasonable attorneys’ fees from the non-prevailing party, as determined by the arbitrators in accordance with the procedures set forth in Exhibit «p ??
In relevant part, Exhibit “P” provides:
The matter shall be decided by two (2) arbitrators (or three if required below) chosen in the manner set forth below, who shall be a licensed attorney at law in the State of Texas (in good standing with the State Bar of Texas) and knowledgeable about the subject matter of the dispute. Except to the extent inconsistent with the provisions hereof, the arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1, et seq.; provided, however, that the arbitrators shall issue a joint, written decision which shall include a list of findings, with supporting evidentiary references, and reasons, upon which the arbitrators have relied in making their decision. The place of arbitration shall be Houston, Texas, unless otherwise agreed to by the Parties.
Exhibit “P” also provides:
Notwithstanding anything herein and regardless of any procedures or rules of International Institute for Conflict Prevention and Resolution (“CPR”), it is expressly agreed that the following shall apply and control over any other provision in this Exhibit:
[[Image here]]
(h) The decision, made in writing and signed by the two (2) arbitrators if only two (2) are appointed or signed by any two of the three (3) arbitrators if a third arbitrator is appointed pursuant to the terms hereof, shall determine such dispute. Such decision shall be made, signed, and delivered to the Parties as promptly as possible. The final decision of the arbitrators shall be binding and non-appealable, except as provided herein. A Judgment conferring [sic] the award of the arbitrators may be rendered in the appropri*517 ate court of competent jurisdiction. The parties agree that an award made by the Panel may be vacated by a court only if the award has been procured by or through fraud, or corruption. An appeal from an order or judgment of the Panel shall be taken in the manner and to the same extent as from orders or judgment in civil cases under Texas law.
B. No clear agreement to expand judicial review
Denbury argues that both the FAA and TAA apply to the arbitration agreement, and that under the TAA the parties contracted to expand judicial review of the arbitration award for reversible error under standards applicable in a conventional appeal from a final judgment rendered after trial. Venoco contends the arbitration agreement’s express language demonstrates that (1) only the FAA applies; and (2) judicial review is permitted only for complaints that the arbitration award was procured by fraud or corruption.
In Hall Street Associates, the United States Supreme Court considered the text of the FAA and held that sections 10 and 11
In Nafta Traders, however, the Texas Supreme Court considered the analogous sections of the TAA, sections 171.088 and 171.091,
Recently, the Supreme Court of Texas in Hoskins held that, under the TAA, a
If Venoco and Denbury agreed that the FAA governs their arbitration agreement, then the FAA, not the TAA, would apply. See Nafta Traders, 339 S.W.3d at 97 & n.64 (concluding that FAA and TAA both may apply to arbitration agreement but that only one statute applies if parties choose one of the statutes in their agreement); In re Choice Homes, Inc., 174 S.W.3d 408, 412 (Tex. App.-Houston [14th Dist.] 2005, orig. proceeding) (concluding FAA governs arbitration agreement if parties so agree). If the FAA applies and the TAA does not, the parties cannot obtain review of the arbitration award for reversible error under standards applicable in a conventional appeal from a final judgment rendered after trial. See Hall Street, 552 U.S. at 592, 128 S.Ct. 1396; Nafta Traders, 339 S.W.3d at 91. Denbury and Venoco agreed that “[e]xcept to the extent inconsistent with the provisions hereof, the arbitration shall be governed by the [FAA]; provided, however, that the arbitrators shall issue a joint, written decision which shall include a list of findings, with supporting evidentiary references, and reasons, upon which the arbitrators have relied in making their decision.” (Emphasis added). We presume for the sake of argument that both the FAA and the TAA apply to the parties’ arbitration agreement.
Even assuming that both statutes apply, however, the parties did not clearly agree to expand judicial review of the arbitration award. In arguing that the parties expanded judicial review, Denbury relies on the following statement in the agreement: “An appeal from an order or judgment of the Panel shall be taken in the manner and to the same extent as from orders or judgment in civil cases under Texas law.” It is not clear what the parties intended by this sentence. The parties refer to the arbitration panel’s “judgment”; but the arbitration panel issues an award—it does not render a judgment. See Tex. Civ. Prac. & Rem. Code Ann. § 171.081 (providing that “[t]he making of an agreement described by Section 171.001 that provides for or authorizes an arbitration in this state and to which that section applies confers jurisdiction on the court to ... render judgment on an award under this chapter”); id. § 171.092 (providing that “[o]n granting an order that confirms, modifies, or corrects an award, the court shall enter a judgment or decree conforming to the order”). Though the parties refer to an “appeal” of the arbitration panel’s “judgment,” the legislature has not provided for an appeal from an arbitration award to a Texas court; instead, parties file an application to a court for confirmation, vacatur, modification, or correction of the award. See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.081-171.098. The parties
Whatever the exact meaning of this sentence, we reject Denbury’s contention because the language upon which it relies does not clearly expand judicial review of an arbitration award to encompass reversible error under standards applicable in a conventional appeal from a final judgment rendered after trial.
Unlike the arbitration agreement at issue in Nafta Traders, subsection (h) of Exhibit “P” contains no statement, much less a “clear agreement,” that expressly restricts the panel’s authority to reach a decision based on reversible error. See Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58, 87 (Tex. App.-Houston [1st Dist.] 2014, pet. denied) (“Conspicuously absent from the arbitration provision is the language present in Nafta Traders, stating that the arbitrator was without authority to render a decision containing a reversible error of law.” (citing Nafta Traders, 339 S.W.3d at 101)).
C. Limiting vacatur grounds to fraud and corruption
Instead of contractually expanding the scope of judicial review, the parties expressly agreed in the arbitration agreement to restrict the available grounds for vacatur to only fraud and corruption: “The final decision of the arbitrators shall be binding and non-appealable, except as provided herein. ... The parties agree that an award made by the Panel may be vacated by a court only if the award has been procured by or through fraud, or corruption.” Neither the FAA or Hall Street, nor the TAA, Nafta Traders, or Hoskins explicitly addresses, much less forecloses, the ability of sophisticated parties to exercise their freedom of contract to further narrow review to a subset of the statutory grounds for vacatur.
D. Exceeding authority under the FAA or the TAA
Even assuming that the parties’ agreement to limit the available grounds for vacatur to instances of fraud or corruption were not enforceable, Denbury has not met its heavy burden to demonstrate un
The instant arbitration agreement states that the parties “agree that any and all claims and/or controversies arising between [the parties] which relate to and arise out of this [Option] Agreement shall be resolved in accordance with the ... arbitration procedures set forth in Exhibit ip,»» ¾⅛ language reflects a broad arbitration clause and evidences the parties’ intent to be inclusive rather than exclusive. Patel, 2016 WL 4254016, at *5; Branch Law Firm L.L.P. v. Osborn, — S.W.3d —,—, 2016 WL 444867, at *12 (Tex. App.-Houston [14th Dist.] Feb. 4, 2016, pet. denied). There is no dispute that Ven-oco’s declaratory-judgment claim relates to and arises out of the Option Agreement.
“Because the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision even arguably construing or applying the contract must stand, regardless of a court’s view of its (de)merits.” Oxford Health, 133 S.Ct. at 2070 (internal quotation marks omitted). Section 10(a)(4) of the FAA “permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly.” Id.; Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (“It is not enough for petitioners to show that the [arbitration] panel committed an error—or even a serious error.”). An arbitrator who exceeds his authority issues an award that simply reflects his own notions of economic justice instead of drawing its essence from the contract. Oxford Health, 133 S.Ct. at 2070.
Similarly, under the TAA, an arbitrator exceeds his authority only “when he disregards the contract and dispenses his own idea of justice.” D.R. Horton-Tex., 423 S.W.3d at 534. Contentions that the arbitrator’s reasoning was legally erroneous or internally inconsistent, or that the arbitrator misinterpreted the contract or misapplied the law do not provide a basis for vacating an award. Patel, 2016 WL 4254016, at *3, 5. Committing mistakes of fact or law is not a proper ground for vacating an award; instead, a party must show that the arbitrator decided a matter not properly before him at all. Id. at *3, 5-6; D.R. Horton-Tex., 423 S.W.3d at 534.
We first address, and overrule, Denbury’s contention that the panel exceeded its authority because in its award it failed to provide “evidentiary references” based on specific record references, as provided in the parties’ post-hearing briefs and proposed findings of fact and conclusions of law. The agreement required more than the panel’s mere announcement of its decision—not just a “standard award.”
Here, the panel issued a unanimous, 13-page written award, which provided almost four pages of background facts, including details of the parties’ negotiation of the Option Agreement and the exact language of the “Co2 Costs” provision. The award contained the panel’s findings with regard to the meaning of both “commodity costs” and “transportation costs,” with five pages of analysis detailing reasons for its findings. The panel’s arbitration award was not so irrational or devoid of authority that the panel was merely dispensing its own idea of justice. See D.R. Horton-Tex., 423 S.W.3d at 536. We cannot conclude that the panel exceeded its powers based on the form of its award.
Next, we consider whether “the panel exceeded its authority in determining that Denbury should be limited to a recovery that amortized only one-half the cost of the pipeline delivering C02 for Ven-oco’s benefit.” In its award, the panel found and declared:
[T]he most reasonable construction of [the transportation costs] provision that is consistent with the parties’ intent expressed by their chosen language is that transportation costs (before and after payout) shall be calculated based on a fraction of the chargeable actual construction cost of the line from Donald-sonville[, Louisiana] to Hastings; and, the fraction of chargeable cost per mef used in the calculation shall be ½ (400 divided by 800 MMef[/]d) of the Green Pipeline’s actual cost, amortized over a twenty (20) year period.
The panel further declared the formula to calculate the transportation fee.
Denbury assails the panel’s decision to adopt the amortization formula as “advanced and explained by Venoco” rather than the formula based on Denbury’s interpretation.
III. Conclusion
Accordingly, we conclude that the district court did not err in confirming the arbitration panel’s award. We affirm the district court’s judgment.
. The Option Agreement further defines "transportation costs” and "commodity costs”:
(i) transportation costs (before and after Payout) shall be (x) the actual costs on a per mcf basis charged by unaffiliated third party transporters, or (y) in the event [Den-bury] owns the pipeline transporting C02 to the Assets, a per mcf fee not to exceed the amount necessary to amortize the actual cost of constructing and operating that portion of the line on which the C02 is transported to the Assets, based on a capacity throughput of 400 MMcPd over a twenty (20) year period, at a discount rate of six hundred fifty basis points over the one year LIBOR (if the one year LIBOR is five and one-half percent (5.5%) the discount rate used to amortize tile pipeline would be 12%), but in no event shall the discount rate be less than 12%.
(ii) commodity costs (before and after Payout) shall be the lower of (x) the average direct cost of C02 in [Denbury's] or third party’s pipeline from which C02 is acquired for the Assets and (y) the lowest price charged for C02 by [Denbury] in sales to third party users or consumers in Texas. In no event shall the average cost per mcf of C02 delivered to the Assets exceed one percent (1%) of the average NYMEX oil closing price per barrel during the month of delivery; provided the foregoing cap on C02 prices shall never be less than $.30 per mcf. A "mcf” of C02 shall be 1000 cubic feet of C02 at standard conditions. [Denbury] shall deliver C02 to the Assets at a pipeline pressure of not less than 1100 psi.
. In the jurisdiction section of its application, Denbury invoked subchapter D of the Texas General Arbitration Act (TAA), Tex. Civ. Prac. & Rem. Code §§ 171.081-171.098. See, e.g., Tex. Civ. Prac. & Rem. Code Ann. § 171.082(a) (West 2011) (providing that "[t]he filing with the clerk of the court of an application for an order under this chapter, including a judgment or decree, invokes the jurisdiction of the court”).
. 9 U.S.C. § 11 (listing grounds for modification or correction of awards).
. Tex. Civ. Prac. & Rem. Code Ann. § 171.091(a) (listing grounds for modification or correction of awards).
. Despite Denbury’s attempt at oral argument to invoke common law, in the district court Denbury alleged jurisdiction pursuant to and application of the TAA. Nor did Denbury allege (and the arbitration agreement does not otherwise reflect) a type of claim or agreement excluded under the TAA. See Tex. Civ. Prac. & Rem. Code Ann. § 171.002(a),
. In the context of an appeal from a final judgment of disbarment, we have indicated that public policy does not prohibit enforcing a parties' waiver of the statutory right to appeal a trial court’s judgment confirming an arbitration award altogether. See Bennett v. Comm’n for Lawyer Discipline, 489 S.W.3d 58, 69-70 & n.1 (Tex. App.-Houston [14th Dist.] 2016, no pet.) (rejecting interpretation that reference to TAA in agreement incorporated section 171.098(a)(3) where agreement plainly stated arbitration was "binding, conclusive and non-appealable”).
. Generally, under the FAA, "an arbitrator need not explain her decision; thus, in a typical arbitration where no specific form of award is requested, arbitrators may provide a 'standard award’ and simply announce a result.” Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 844 (11th Cir. 2011) (citing United Steelworkers v. Enter. Wheel & Car Corp., 363 U.S. 593, 598, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960)).
. Unlike in Stage Stores, Inc. v. Gunnerson, 477 S.W.3d 848, 863 (Tex. App.-Houston [1st Dist.] 2015, no pet.), where our sister court reversed the confirmation of an award on an employment agreement and remanded for the district court to request a determination by the arbitrator of one of the employer’s key defenses that the award failed to identify and address, Denbury does not argue the panel failed to identify or address any key issue.
. The panel provided the following formula:
$CapEx X 400
12% X _800 X 1.1220 + $OpEx
1,1220 - 1
400 MMcf/day X 365
. See n.1.
. Denbuiy’s proposed formula is identical to that declared by the panel except the capital-expense figure is not halved but instead is reduced by $ 113 million.
. Denbury relies on City of Arlington v. Kovacs, 508 S.W.3d 472, 478-80, 2015 WL 4776100, at *5-6 (Tex. App.-Fort Worth Aug. 13, 2015, pet. denied), where the Fort Worth court of appeals concluded that an arbitrator exceeded his authority under a municipal personnel manual where he improperly considered post-termination evidence in determining whether a former police officer violated the personnel rules as charged. Unlike in Ko-vacs, Denbury has not shown that the panel “improperly pursued an inquiry beyond the scope” of the Option Agreement. See id. at *6.
Dennis R. Cahill v. Shirley A. Jones-Cahill ( 2021 )
Spears Construction Management, LLC v. Physical Therapy ... ( 2023 )
Natin Paul WC 1st and Trinity, LP WC 1st and Trinity, GP, ... ( 2023 )
Nerium Biotechnology, Inc. and Nerium Skincare, Inc. v. ... ( 2023 )
Victor H. Sanchez and SM3 Investments, Ltd. v. Doctor's ... ( 2021 )