PUBLISH
UNITED STATES COURT OF
APPEALS
TENTH CIRCUIT
ERNEST BOWEN; MARY
BOWEN,
Plaintiffs - Appellees,
v.
AMOCO PIPELINE COMPANY,
Defendant - Appellant.
|
No. 00-7039 |
APPEAL FROM THE UNITED
STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
(D. Ct. No. 98-CV-243-S)
June 20, 2001
Stephen Ward, Gardere, Wynne, Sewell,
LLP, Tulsa, Oklahoma, and G. Steven Stidham, Sneed, Lang, P.C.,
Tulsa, Oklahoma (Brian S. Gaskill and Steven K. Balman, Sneed,
Lang, P.C., Tulsa, Oklahoma, and Steven J. Adams, Gardere, Wynne,
Sewell, LLP, Tulsa, Oklahoma, with them on the briefs), appearing
for Appellant.
Michael L. Darrah, Durbin, Larimore
& Bialick, Oklahoma City, Oklahoma (Bill M. Roberts and Katherine
T. Loy, Durbin, Larimore & Bialick, Oklahoma City, Oklahoma,
and Allan DeVore, The DeVore Law Firm, P.C., Oklahoma City, Oklahoma,
with him on the brief), appearing for Appellee.
Before TACHA, Chief Judge,
GIBSON,(*)
and LUCERO, Circuit Judges.
TACHA,
Chief Judge.
Defendant Amoco Pipeline Company
appeals from the district court's confirmation of an arbitration
award. We exercise jurisdiction pursuant to 29 U.S.C. §
1291 and affirm.
I. Background
Facts
In 1993, Ernest Bowen noticed an
oily sheen in Flag Branch Creek, which is located on his property.
After investigating the matter, the Oklahoma Corporate Commission
(OCC) concluded remediation of the creek would be more detrimental
than beneficial. In 1993, however, Mr. Bowen again observed a
sheen in the creek, after which he notified the Pollution Control
Division of the OCC, as well as Amoco Pipeline Company (Amoco)
and Koch Gathering Systems, Inc. (Koch). Both Amoco and Koch
own oil pipelines that cross the creek; Koch owns two idled lines
and Amoco owns two idled lines and two active lines. (Aplt. 167)
After being notified by Mr. Bowen, Amoco retained Geosearch Environmental
to determine the source of the sheen. Although Geosearch found
hydrocarbon contamination near the creek, it concluded the source
was an upstream historic release of oil, rather than a leak from
Amoco's pipelines. Contrary to Amoco's conclusions, research
conducted by Mr. Bowen's expert, Fox Hollow Consultants, Inc.,
suggested that a leak in Amoco's lines may be the source of contamination.
Under Fox Hollow's theory, oil had leaked from Amoco's lines,
migrated downward to the water table about nine feet below, and
then floated on the water table to the creek.
In a memorandum dated September
1996, the OCC summarized the information available regarding
the contamination in Flag Branch Creek and reached some conclusions.
In evaluating potential sources of the contamination, the OCC
dismissed oil wells and old documented pipeline leaks. No oil
well was close enough to the creek to be the source, and the
two nearby documented leaks from Koch pipelines could not have
contaminated Flag Branch Creek because they were contained within
their immediate spill areas. (Aplt. 167) Because wells and documented
leaks were not the source, the OCC concluded the source of the
hydrocarbon contamination must be an undocumented leak from one
of the six pipelines. Through deductive reasoning, the OCC arrived
at a theory similar to that proposed by Fox Hollow Consultants:
oil from one of the lines leaked into the porous sandy alluvial
deposits, migrated downward to the water table approximately
nine to ten feet below the surface, and floated on the water
table to the creek. (Aplt. 168) In order to determine the source,
the OCC recommended Koch and Amoco uncover their lines in order
to expose any visual evidence of historic or current leaks.
Despite Amoco's repeated assertions
of its good corporate citizenship and willingness to follow all
rules and regulations, it refused to follow the OCC's recommendation
and uncover its pipelines, arguing uncovering the lines would
be unnecessary and jeopardize the lines' safety. After performing
some trenching around its lines and finding no hydrocarbons,
Amoco continued to deny any responsibility for the contamination
but emphasized that, were Amoco the responsible party, it would
clean up the pollution. (Aplt. 251-52) In April 1997, Koch concluded
its investigation. The following month, the OCC sent Amoco a
letter explaining that Koch's information indicated Amoco's pipeline
on the east side of the creek may be the source of contamination.
(Aplee 246) Despite this information, Amoco continued its refusal
to strip the lines, offering instead to do some soil borings
and recommending the Oklahoma Energy Resources Board (OERB) become
involved. (Aplt. 1228-29)
Displeased with Amoco's continued
denial of any responsibility, Mr. and Mrs. Bowen filed a lawsuit
in May 1998 in federal district court, asserting a cause of action
for damages to real property, nuisance, trespass, unjust enrichment,
breach of contract, and exemplary damages. In July, Amoco asked
the district court to stay the proceeding and order the dispute
to arbitration pursuant to an enforceable arbitration agreement.(1) In arguing
their motion to compel arbitration, Amoco contended the arbitration
panel would have the power to decide all claims, an assertion
they now refute. The Bowens objected to arbitration, challenging
the arbitration agreement as unenforceable. In October 1998,
the district court granted Amoco's motion and entered an order
compelling arbitration.
In July 1998, Amoco responded to
the Bowens' interrogatories, continuing to deny its lines were
the source of hydrocarbon contamination in the creek. In addition,
Amoco explicitly denied that any leaks or spills attributable
to its pipeline operation had occurred on the Bowens' property
and even denied the existence of pollution in the soil. (Aplt.
465-66) The following month, Fred Hesser, a district environmental
health and safety coordinator for Amoco, stated in his deposition
that from 1995 to January 1998 he encountered no evidence indicating
Amoco might be the source of the contamination. (Aplt 202) In
October, however, Amoco's tests confirmed the presence of hydrocarbons
in the soil under its lines but found no contamination in the
groundwater. (Aplt 315, 966)
In June and July of 1999, three
years after the OCC recommended that Amoco uncover its pipelines,
Amoco exposed limited portions of its lines on the Bowens' property
and admitted the existence of contaminants next to the lines.
Significantly, the stripping of
the lines revealed a pipeline replacement in the contaminated
area. Less than two months before the arbitration hearing, the
Bowens discovered that Amoco had replaced approximately 1,000
feet of pipeline on the east side of the creek. According to
the Bowens' expert, the 1,000 feet of replaced pipeline corresponds
almost exactly with the contaminated creek area. (Aplt 1399)
Although Amoco had not explicitly disclosed the line replacement
and had repeatedly denied any link to the contamination, it claimed
to have provided the Bowens with a line sheet showing the replacement.
Amoco did not, however, explain the information contained in
the line sheet, which was technical and difficult to read, until
the arbitration hearing when its employee testified that approximately
1,000 feet of pipeline was replaced in 1950. (Aplt 718)
Other than the line sheet, Amoco
claimed it could find no other records detailing the reasons
for and circumstances surrounding the 1950 line replacement?despite
some testimony that it was corporate practice to keep such records.(2) (Aplt 710,
763-81, 795-81) Although Amoco's employees and experts argued
the line replacement could have been a preventative measure,
they admitted a leak in the line would be one explanation for
the line replacement and for the concentration of crude oil in
the soil in that exact location. (Aplt 721-23, 795-801) Moreover,
after years of denying any connection to the contaminated soil,
Dennis Beckman, Fred Hesser's replacement, finally testified
that the hydrocarbon-contaminated soil under the replaced pipelines
was probably from Amoco's line. (Aplt 1196) Testing by Amoco's
own expert confirmed the oil around the replaced line?as well
as the oil in the creek?was at least twenty years old, further
evidence that the more recent leaks from Koch's pipelines were
not the source. (Aplt 1027) Another Amoco employee also testified
that, in 1974, Amoco routinely left oil in the soil around a
pipeline after fixing a leak. Occasionally, Amoco would excavate
the contaminated soil, replace it with clean soil, and then spread
(land farm) or deposit the contaminated somewhere else on the
property. (Aplt 706) Given this practice, the Bowens argued a
contaminated area of soil away from the replaced line was the
location where Amoco deposited excavated soil after the 1950
replacement.
Although Amoco changed its initial
theory and admitted its lines might be the source of contamination
in the soil, it continued to claim no responsibility for the
hydrocarbon contamination in the creek. Admitting a small two-barrel
leak may have occurred in 1952, Amoco continued to deny any connection
to the contamination in the creek. Amoco contended that, despite
the contamination in the soil around its pipelines, the hydrocarbon
levels in the groundwater did not exceed EPA standards, and because
the pollution in the soil was not reaching the water table, it
was not reaching the creek. (Aplt 1437) In addition, Amoco continued
to refute the Bowens' assertion that soil excavated from around
the replaced line in 1950 was deposited in another location;
although the record contains various characterizations of this
site, Amoco appears to argue it is an old drilling site or the
site of a historic pit used by others. (Aplt 1442)
The Arbitration
The Bowens' case was tried to a
panel of three arbitrators in August 1999.
The parties agreed to use the Rules
for Non-Administered Arbitration of Business Disputes (NABD),
but they also agreed to modify these rules to expand the scope
of judicial review. Specifically, the parties agreed that both
would have the right to appeal any arbitration award to the district
court within thirty days "on the grounds that the award
is not supported by the evidence." They also agreed that
the district court's ruling "shall be final."
On October 18, 1999, the arbitration
panel granted the following relief: (1) $3,032,000 to be deposited
in an escrow fund for the use and benefit of a special master
responsible for supervising the abatement of the contamination
on the Bowens' property; (2) $100,000 for the diminution in property
value; (3) $1,200,000 for annoyance, inconvenience, and aggravation;
(4) $1,000,000 in punitive damages; and (5) $41,000 for the costs
of investigation and mitigation. One panel member dissented,
objecting to the escrow fund for abatement and punitive damages
award. Under the Federal Arbitration Act (FAA), 9 U.S.C. §
9, the Bowens then filed a motion for confirmation of the arbitration
award in district court. Amoco responded by filing an objection
to the confirmation and a motion to vacate the award. In addition,
Amoco filed a notice of appeal of the arbitration award pursuant
to the modified arbitration rules. Limiting its review to that
provided under the FAA, the district court did not apply the
parties' expanded judicial standard of review and declined to
vacate the award. The court granted the Bowens' motion to confirm
the award and affirmed the arbitrators' order awarding the Bowens
attorneys fees, costs, and arbitrators' fees. Amoco appeals the
district court's order, urging us to vacate the entire award
and remand for a new arbitration, or alternatively to vacate
the remediation award and remand the case to district court for
review based on the expanded standard of review.
II. Jurisdiction: Plaintiffs'
Motion to Dismiss Appeal
We must first address the Bowens'
motion to dismiss for lack of appellate jurisdiction. The Bowens
contend the parties' agreement that the district court's "ruling
shall be final" forecloses any appellate review. We disagree
and deny the motion.
Under § 9 of the FAA, parties
must express their intentions regarding judicial confirmation
of an arbitration award in their arbitration agreements. 9 U.S.C.
§ 9. The statute contemplates judicial confirmation of arbitration
awards only when "the parties in their agreement have agreed
that a judgment of the court shall be entered upon the award
made pursuant to the arbitration." Id. We have held
that this requires some language manifesting the parties' intent?"either
explicitly or implicitly"?to have judgment entered on the
award. Ok. City Assocs. v. Wal-Mart Stores, Inc., 923
F.2d 791, 795 (10th Cir. 1991); accordSmiga v. Dean Witter
Reynolds, Inc., 766 F.2d 698, 705 (2d Cir. 1985). We have
also observed that "some courts have found that a finality
clause is enough to constitute an agreement to have judgment
entered by a federal court under § 9 because this would
be the only way to fulfill the parties' intent to make the award
final and binding." Ok. City Assocs., 923 F.2d at
794. In this case, the parties' agreement that the district court's
ruling be final may be construed as nothing more than a finality
clause expressing their intent to have the district court enter
judgment on the arbitration award. Indeed, because the rules
chosen by the parties do not include a provision regarding judicial
confirmation, the parties had to supplement the rules to ensure
judgment be entered on the award under the FAA.
In addition, although parties to
an arbitration agreement may eliminate judicial review by contract,
their intention to do so must be clear and unequivocal. See
Dep't of Air Force v. Fed. Labor Relations Auth., 775
F.2d 727, 733 (6th Cir. 1985) (holding parties did not completely
waive right to appeal when agreement specified "further
rights of appeal are hereby waived except that all articles must
be in conformance with law and Executive Order"); Aerojet-Gen.
Corp. v. Am. Arbitration Ass'n, 478 F.2d 248, 251 (9th Cir.
1973) ("While it has been held that parties to an arbitration
can agree to eliminate all court review of the proceedings, the
intention to do so must clearly appear." (citations omitted)).
The language in the parties' agreement does not clearly evince
their intent to waive appellate review. In fact, the very statute
from which we derive our jurisdiction, 28 U.S.C. § 1291,
grants appellate courts jurisdiction from "all final decisions
of the district courts." Hence, by agreeing that the district
court's ruling shall be final, the parties have merely reinforced
the appellate jurisdiction conferred by § 1291. The Bowens'
best argument is that the word "final" is ambiguous,
but courts have long recognized the common law rule that ambiguous
language be construed against the drafter of that language. Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63 (1995).
Having suggested the modified language, the Bowens may not now
"claim the benefit of the doubt." Id. at 63.
III. Standard of Review
In reviewing a district court's
decision concerning a motion to vacate an arbitration award,
we review questions of law de novo. Denver & Rio Grande
W. R.R. Co. v. Union Pac. R.R. Co., 119 F.3d 847, 849 (10th
Cir. 1997); ARW Exploration Corp. v. Aguirre, 45 F.3d
1455, 1462 (10th Cir. 1995). If the district court makes any
findings of fact in ruling on the motion, we review its factual
findings for clear error. Denver & Rio Grande W. R.R.
Co., 119 F.3d at 849. Our review of the arbitration panel's
decision under the FAA and the few judicially created exceptions
is, however, far more limited.
Although the FAA does not create
independent federal jurisdiction, the Supreme Court has held
that the Act creates a body of substantive federal law governing
arbitration agreements within its coverage. Allied-Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 270-72 (1995); Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25
n.32 (1983); accord Foster v. Turley, 808 F.2d
38, 40 (10th Cir. 1986). Moreover, the Act creates no new rights
"'except a remedy to enforce an [arbitration] agreement.'"
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220
n.7 (1985) (quoting legislative history). The Act applies to
a written arbitration clause in "a contract evidencing a
transaction involving commerce," 9 U.S.C. § 2, a requirement
broadly interpreted to correspond with Congress's power under
the Commerce Clause. Allied-Bruce Terminix Cos., 513 U.S.
at 269-70; Foster, 808 F.2d at 40. The district court
ordered the arbitration in the case before us pursuant to a right-of-way
agreement, a transaction involving pipelines for the interstate
transportation of crude oil. The FAA therefore applies to the
parties' dispute.
Our review of the arbitration panel's
decision under the FAA is strictly limited; this highly deferential
standard has been described as "among the narrowest known
to the law." ARW Exploration Corp., 45 F.3d at 1462
(internal quotation marks omitted). In consenting to arbitration,
"'a party trades the procedures and opportunity for review
of the courtroom for the simplicity, informality, and expedition
of arbitration.'" Brown v. Coleman Co., 220 F.3d
1180, 1182 (10th Cir. 2000) (quoting Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 31 (1991)). We employ this limited
standard of review and exercise caution in setting aside arbitration
awards because one "purpose behind arbitration agreements
is to avoid the expense and delay of court proceedings."
Foster, 808 F.2d at 42. A court may not, therefore, independently
judge an arbitration award. Ormsbee Dev. Co. v. Grace,
668 F.2d 1140, 1147 (10th Cir. 1982).
Mindful of the strong federal policy
favoring arbitration, a court may grant a motion to vacate an
arbitration award only in the limited circumstances provided
in § 10 of the FAA, 9 U.S.C. § 10, or in accordance
with a few judicially created exceptions, Denver & Rio
Grande W. R.R. Co., 119 F.3d at 849. Under the FAA, vacation
is proper in certain instances of fraud or corruption, arbitrator
misconduct, or "[w]here the arbitrators exceeded their powers,
or so imperfectly executed them that a mutual, final, definite
award upon the subject matter submitted was not made." 9
U.S.C. § 10(a)(4). Although Amoco does not allege fraud
or misconduct, it does argue that the arbitrators exceeded their
powers. In addition, Amoco argues the arbitration panel's decision
is in "manifest disregard of the law," a judicially
crafted exception to the general rule that arbitrators' "erroneous
interpretations or applications of law are not reversible."
ARW Exploration Corp., 45 F.3d at 1463 (citing Wilko
v. Swan, 346 U.S. 427, 436-37 (1953), overruled on other
grounds, Quijas v. Shearson/Am. Express, Inc., 490
U.S. 477 (1989)). We have interpreted manifest disregard of the
law to mean "willful inattentiveness to the governing law."
ARW Exploration Corp., 45 F.3d at 1463 (internal quotation
marks omitted). Requiring more than error or misunderstanding
of the law, id., a finding of manifest disregard means
the record will show the arbitrators knew the law and explicitly
disregarded it, Prudential-Bache Sec., Inc. v. Tanner,
72 F.3d 234, 240 (1st Cir. 1995). Under traditional standards
of review, we would, therefore, review Amoco's claims to determine
whether the arbitrators exceeded their powers or rendered a decision
in manifest disregard of the law.(3)
Amoco argues, however, that the
parties in this case contracted for expanded judicial review
in agreeing that the arbitration award would be appealable if
"not supported by the evidence." The district court
did not apply this expanded standard, deciding instead that parties
may not alter the traditional standards of review by contract.
Emphasizing the policies behind the FAA, Amoco argues the district
court erred and we should apply the contractually created standard.
Although Amoco presents a difficult question, we conclude the
purposes behind the FAA, as well as the principles announced
in various Supreme Cases, do not support a rule allowing parties
to alter the judicial process by private contract.
The only two circuits to definitively
decide this issue have, however, held that private parties may
agree to expand the judicial standard of review.(4) Lapine Tech. Corp. v. Kyocera
Corp., 130 F.3d 884, 887-890 (9th Cir. 1997); Gateway
Tech., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 996-97
(5th Cir. 1995). Both the Fifth and the Ninth Circuits were persuaded
by language in Supreme Court decisions emphasizing, in particular,
the FAA's purpose of "'ensuring that private agreements
to arbitrate are enforced according to their terms.'" Lapine,
130 F.3d at 888 (quoting Volt Info. Sciences v. Bd. of Trustees,
489 U.S. 468, 478-79 (1989)); accord Gateway, 64
F.3d at 996-97 (describing the FAA's judicial review standard
as a "default standard of review"). Although, as the
Ninth Circuit acknowledged, agreeing to the judicial standard
of review is not the same as agreeing to the rules governing
the scope of arbitration, the court concluded the two are "inexorably
intertwined" and could find "no sufficient reason to
pay less respect to the review provision than . . . to the myriad
of other agreements which the parties have been pleased to make."
Lapine, 130 F.3d at 889. In a splintered decision, the
court decided the opposite result would be contrary to Congress's
intent in enacting the FAA "under the guise of deference
to the arbitration concept." Id.
In resolving conflicts among the
FAA, state law, and parties' agreements, the Supreme Court has
repeatedly acknowledged that Congress's intent in enacting the
FAA was to ensure judicial enforcement of private arbitration
agreements. See, e.g., Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52, 57 (1995) ("[C]ourts are
bound to interpret contracts in accordance with the expressed
intentions of the parties . . . ."); Volt Info. Sciences,
Inc. v. Bd. of Trustees, 489 U.S. 468, 479 (1989) ("Just
as [parties] may limit by contract the issues which they will
arbitrate, so too may they specify by contract the rules under
which the arbitration will be conducted." (citation omitted));
Dean Witter Reynolds, Inc., 470 U.S. at 219-20 (observing
the FAA's legislative history "makes clear that its purpose
was to place an arbitration agreement upon the same footing as
other contracts, where it belongs, and to overrule the judiciary's
longstanding refusal to enforce agreements to arbitrate"
(citation and internal quotation marks omitted)). When Congress
passed the Act in 1925, it did so with the primary goal of changing
the judiciary's refusal to enforce arbitration clauses in private
contracts. Allied-Bruce Terminix Cos., 513 U.S. at 270-71.
With the passage of the FAA, Congress intended to "make
arbitration agreements as enforceable as other contracts, but
not more so." Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 404 n.12 (1967).
Guided by the FAA's underlying purpose
and the essentially contractual nature of arbitration, the Court
has held, for example, that parties may agree to conduct arbitration
under procedural rules different from the FAA. Volt Info.
Sciences, Inc., 489 U.S. at 478-79. The Court has also held
district courts must compel arbitration even if arbitrable and
nonarbitrable claims are pleaded in the same complaint despite
the potential negative effects on efficient dispute resolution.
Dean Witter Reynolds, Inc., 470 U.S. at 223-24. Parties
may even agree to submit questions concerning arbitrability to
the arbitrators. First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 942-43 (1995). The contractual nature of arbitration
is, therefore, well established. Parties are free to structure
their arbitration agreements as they wish, and our decision today
must further the FAA's primary policy ensuring judicial enforcement
of private agreements to arbitrate.
We disagree, however, with the Fifth
and Ninth Circuits' conclusion that the Supreme Court precedent
emphasizing the FAA's primary purpose compels enforcement of
contractual modifications of judicial review. Although the Court
has emphasized that parties may "specify by contract the
rules under which [ ] arbitration will be conducted," Volt
Info. Sciences, Inc., 489 U.S. at 479, it has never said
parties are free to interfere with the judicial process. As both
the concurring and dissenting opinions in Lapine acknowledge,
parties may determine by contract what issues to arbitrate and
what rules will govern arbitration, but no authority clearly
allows private parties to determine how federal courts review
arbitration awards. 130 F.3d at 891 (Kozinski, J., concurring
and Mayer, J., dissenting). To the contrary, through the FAA
Congress has provided explicit guidance regarding judicial standards
of review of arbitration awards. Prima Paint Corp., 388
U.S. at 405. Moreover, if parties desire broader appellate review,
"they can contract for an appellate arbitration panel to
review the arbitrator's award." Chicago Typographical
Union v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1504-05
(7th Cir. 1991). The decisions directing courts to honor parties'
agreements and to resolve close questions in favor of arbitration
simply do not dictate that courts submit to varying standards
of review imposed by private contract.
Even Volt, the case often
cited in support of contractually created standards of review,
does not dictate this result. In determining whether the FAA
pre-empted a state procedural rule, to which the parties had
agreed by contract, the Court focused on whether the state rule
conflicted with the federal policies and objectives of the FAA.
489 U.S. at 477-78. The Court held parties may agree that procedural
rules outside the FAA will govern arbitration proceedings because
the federal policy favoring arbitration does not favor arbitration
under a particular set of procedural rules. Id. at 478-79.
Enforcing the parties' contract therefore "[gave] effect
to the contractual rights and expectations of the parties without
doing violence to the policies behind . . . the FAA."
Id. at 479 (emphasis added). Conversely, the FAA pre-empts
state rules that contravene the policies behind the FAA. See,
e.g., Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)
(holding FAA pre-empts state laws that "require a judicial
forum for the resolution of claims which the contracting parties
agreed to resolve by arbitration"). The Court's analysis
therefore suggests that the FAA is more than a collection of
default rules, which parties may alter with complete discretion.
The key question is whether the alternate rule conflicts with
federal policies furthered by the FAA.
Unlike the contract clause at issue
in Volt, the contract clause in this case threatens to
undermine the policies behind the FAA. We would reach an illogical
result if we concluded that the FAA's policy of ensuring judicial
enforcement of arbitration agreements is well served by allowing
for expansive judicial review after the matter is arbitrated.
The FAA's limited review ensures judicial respect for the arbitration
process and prevents courts from enforcing parties' agreements
to arbitrate only to refuse to respect the results of the arbitration.
These limited standards manifest a legislative intent to further
the federal policy favoring arbitration by preserving the independence
of the arbitration process. Unlike § 4 of the FAA, which
allows parties to petition a federal court for an order compelling
arbitration "in the manner provided for in [the] agreement,"
the provisions governing judicial review of awards, 9 U.S.C.
§§ 10-11, contain no language requiring district courts
to follow parties' agreements.
Not surprisingly, the FAA's narrow
standards reflect the Supreme Court's well-established view of
the relationship between arbitration and judicial review: "[B]y
agreeing to arbitrate, a party 'trades the procedures and opportunity
for review of the courtroom for the simplicity, informality,
and expedition of arbitration.'" Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 31 (1991) (quoting Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
628 (1985)); see also First Options of Chicago,
514 U.S. at 942 (noting parties have the right to a judicial
decision on the merits but "where the party has agreed to
arbitrate, he or she, in effect, has relinquished much of that
right's practical value").(5) Contractually expanded standards,
particularly those that allow for factual review, clearly threaten
to undermine the independence of the arbitration process and
dilute the finality of arbitration awards because, in order for
arbitration awards to be effective, courts must not only enforce
the agreements to arbitrate but also enforce the resulting arbitration
awards.
Moreover, expanded judicial review
places federal courts in the awkward position of reviewing proceedings
conducted under potentially unfamiliar rules and procedures.(6) Under either
expanded legal or expanded factual standards, the reviewing court
would be engaging in work different from what it would do if
it had simply heard the case itself. Lapine, 130 F.3d
at 891 (Kozinski, J., concurring). The Eighth Circuit has also
recognized this potential problem: "We have served notice
that where arbitration is contemplated the courts are not equipped
to provide the same judicial review given to structured judgments
defined by procedural rules and legal principles. Parties should
be aware that they get what they bargain for and that arbitration
is far different from adjudication." UHC Mgmt. Co. v.
Computer Sciences Corp., 148 F.3d 992, 998 (8th Cir. 1998)
(internal quotation marks omitted). Because parties may not force
reviewing courts to apply unfamiliar rules and procedures, see
Agfa-Gevaert, A.G. v. A.B. Dick Co., 879 F.2d 1518, 1525
(7th Cir. 1989), expanded judicial review would threaten the
independence of arbitration and weaken the distinction between
arbitration and adjudication. Arbitrators are chosen for their
specialized experience and knowledge, which enable them to fashion
creative remedies and solutions that courts may be less likely
to endorse.(7)
Expanded judicial review therefore places a court in the position
of reviewing that which it would not do and reduces arbitrators'
willingness to create particularized solutions for fear the decision
will be vacated by a reviewing court. See Hans Smit, Contractual
Modification of the Scope of Judicial Review of Arbitral Awards,
8 Am. Rev. Int'l Arb. 147, 151-52 (1997).
Although we are the first circuit
to hold that parties may not contract for an expanded standard
of review, two circuits have indicated they too would reject
contractually expanded standards. In dicta, both the Seventh
and Eighth Circuits have expressed disapproval of contractually
expanded standards of review, acknowledging the independence
of the arbitration process and noting parties may contract for
an appellate arbitration panel should they desire more review.(8) UHC Mgmt.
Co., 148 F.3d at 997-98; Chicago Typographical Union,
935 F.2d at 1504-05. We agree and hold that parties may not contract
for expanded judicial review of arbitration awards. We therefore
proceed to review the arbitration award in the case before us
under the FAA and "manifest disregard of justice" standards.
IV. Arbitration Panel's
Jurisdiction to Order
Abatement
Under Oklahoma statutes, the Oklahoma
Corporation Commission (OCC) is vested with "exclusive jurisdiction"
over many activities and properties affected by oil and gas,
including "construction and operation of pipelines and associated
rights-of-way" and related site remediation. Okla. Stat.
Ann. tit. 17, § 52(A)(1)(h) & (A)(2); Okla. Stat. Ann.
tit. 52, § 139(B)(2). Amoco argues that this statute abrogates
the arbitration panel's jurisdiction over the Bowens' equitable
request for abatement of the hydrocarbon contamination. Amoco
argues that, because the arbitration panel did not have jurisdiction
to order cleanup, they exceeded their powers and acted in manifest
disregard of the law.
We have recognized the well-settled
rule that any doubt about the arbitrability of an issue should
be resolved in favor of arbitration and that arbitrators have
broad authority in fashioning remedies: "Parties who agree
to submit matters to arbitration are presumed to agree that everything,
both as to law and fact, necessary to render an ultimate decision
is included in the authority of the arbitrators." Ormsbee
Dev. Co. v. Grace, 668 F.2d 1140, 1146 (10th Cir. 1982);
see also Continental Materials Corp. v. Gaddis Mining
Co., 306 F.2d 952, 954 (10th Cir. 1962) ("[T]he jurisdiction
to make [arbitration] awards is derived from the agreement of
submission . . . ."). The arbitrators' power to award equitable
relief is also well established. Gilmer, 500 U.S. at 32;
accordBrown v. Coleman Co., 220 F.3d 1180, 1183-84 (10th
Cir. 2000). In response to the Bowens' objection to Amoco's motion
to compel arbitration of all issues, Amoco argued?and the district
court agreed?that the arbitration panel could grant injunctive
relief and remediation, a position Amoco advocated throughout
the arbitration and only now wishes to abandon.
Furthermore, what "exclusive
jurisdiction" means under the Oklahoma statutes is not entirely
clear. The language is the product of several 1993 amendments
and no post-amendment case squarely addresses its meaning. The
Bowens argue that "exclusive jurisdiction" only refers
to the OCC's jurisdiction relative to other agencies, not courts.
Case law prior to 1993 provides some support for this argument.
Prior to 1993, the Oklahoma Supreme Court held that the OCC's
exclusive jurisdiction over certain oil and gas activities was
implicit in the statute and precluded other agency review.
Matador Pipelines, Inc. v. Okla. Water Res. Bd., 742 P.2d
15, 17 (Okla. 1987). In addition, the state appellate court has
concluded that a district court's exercise of jurisdiction over
a nuisance claim "does not prevent the [OCC] from proceeding
to abate existing contamination." Union Texas Petroleum
Corp. v. Jackson, 909 P.2d 131, 139 (Okla. Ct. App. 1995)
(emphasis added) (under pre-1993 statutes).
But Oklahoma courts have not yet
decided that a district court lacks all jurisdiction to order
a cleanup when the OCC has not yet exercised its jurisdiction.
The case cited by Amoco, Schneberger v. Apache Corp.,
890 P.2d 847 (Okla. 1995), does not support the conclusion that
courts lack jurisdiction; the Schneberger court merely
mentioned in recounting the facts of the case that the OCC had
"exercised its exclusive jurisdiction on pollution matters
and ordered a cleanup." Id. at 849. Such a passing
reference is not a statement that Oklahoma courts would conclude
the statutory language forecloses their jurisdiction.
Furthermore, the Oklahoma Supreme
Court has applied the public-rights doctrine as articulated by
the U.S. Supreme Court in determining how to apportion jurisdiction
between the OCC and the district courts. Tenneco Oil Co. v.
El Paso Natural Gas Co., 687 P.2d 1049, 1053-54 (Okla. 1984).
Under the doctrine, Congress may commit "'matters arising
between the Government and persons subject to its authority'"
to nonjudicial executive bodies but "'[p]rivate-rights disputes
. . . lie at the core of the historically recognized judicial
power.'" Id. (quoting Northern Pipeline Constr.
Co. v. Marathon Pipe Line Co., 458 U.S. 50, 67, 70 (1982)).
In Tenneco, the Oklahoma court recognized that "the
liability of one individual to another under the law" is
a private right and held that Tenneco sought equitable relief
for a private right, which was "not an attack upon the public
rights function of the [OCC] i.e. to regulate and administer
the conservational laws and policies of the sovereign state."
Id.
Citing Tenneco, we have held
that an action under Oklahoma law to recover damages to property
and water caused by the drilling of an oil well is a private
rights dispute properly within the jurisdiction of the district
court. Marshall v. El Paso Natural Gas Co., 874 F.2d 1373,
1378 (10th Cir. 1989) (analyzing the question of "primary
jurisdiction"). Although these cases do not consider the
1993 amendment to the Oklahoma statute, they are persuasive evidence
that the meaning of the OCC's "exclusive jurisdiction"
is far from clear. Furthermore, the rules under which the arbitration
was conducted clearly provide that the arbitrators have the power
to decide challenges to their jurisdiction. NABD, R. 8. Despite
this provision, Amoco chose not to challenge their jurisdiction
to order abatement before or during arbitration. We therefore
hold the arbitration panel did not exceed its powers or act in
manifest disregard of the law in ordering cleanup of the Bowens'
property.
IV. Double Recovery:
Damages and Abatement
Even if the arbitration panel had
jurisdiction to grant injunctive relief, Amoco argues the three-million-dollar
escrow fund is in manifest disregard of Oklahoma law, which prohibits
double recovery for the same injury and limits monetary damages
to the diminished value of the land. See Schneberger,
890 P.2d at 849-52. Although a nuisance action may include claims
for both permanent and temporary damages, double recovery for
the same damage is not allowed. Houck v. Hold Oil Corp.,
867 P.2d 451, 461 (Okla. 1993) (tort action for recovery of damage
caused by drilling oil wells); Briscoe v. Harper Oil Co.,
702 P.2d 33, 36-37 (Okla. 1985) (private nuisance action). If
a plaintiff alleges both kinds of damage, "a defendant can
in no event be held liable for more than the total diminution
in reasonable market value assuming the temporary injuries were
left standing or unrestored." Houck, 867 P.2d at
461.
In addition to awarding $100,000
in damages for the diminished value of the Bowens' land, the
arbitrators also set up a three-million-dollar escrow fund for
the abatement of the nuisance. Amoco argues that the two awards
constitute double recovery in manifest disregard of state law.
Conversely, the Bowens argue the escrow fund is an equitable
remedy facilitating cleanup rather than an award of damages constituting
double recovery under Oklahoma law. We agree that the escrow
fund is an equitable remedy, rather than a legal award of damages.
The arbitration panel appointed a special master to administer
the funds and oversee the abatement plan, which must be submitted
to the OCC for approval. Should the abatement cost less than
expected, Amoco will receive any remaining funds. Because Oklahoma
cases precluding double recovery do not explicitly address equitable
remedies, the arbitration panel did not act in manifest disregard
of state law.(9)
Although Amoco's legal arguments
are not without merit, the written order for the arbitration
award does not reveal that the arbitrators deliberately disregarded
Oklahoma law. Short of some evidence of "willful inattentiveness
to the governing law," we may not question their conclusions.
ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1463 (10th
Cir. 1995). Our limited standard of review requires more than
error or misunderstanding in legal reasoning. Id.
In addition, we have observed that
"courts favor the arbitrator's exercise of [ ] broad discretion
in fashioning remedies." Campo Machining Co. v.
Local Lodge No. 1926, 536 F.2d 330, 334 (10th Cir. 1976).
We have also acknowledged that arbitrators have broad equity
powers provided the rules governing the arbitration allow equitable
relief. Brown v. Coleman Co., 220 F.3d 1180, 1183 (10th
Cir. 2000); accord Willoughby Roofing & Supply
Co. v. Kajima Int'l, Inc., 776 F.2d 269, 270 (11th Cir. 1985)
(noting doubts regarding the authority to award certain remedies
should be resolved in favor of the arbitrator). Both parties,
as well as the district court judge, concluded the arbitration
panel had the power to order injunctive relief and remediation.
We will not second-guess their judgment.
V. Punitive Damages
Amoco also contends the arbitration
panel lacked the authority to award punitive damages and, alternatively,
awarded punitive damages in manifest disregard of Oklahoma law.
In addition, Amoco argues the limited judicial review of the
punitive damages awarded by the arbitration panel violates due
process. We disagree with all three arguments.
The first argument, that the panel
exceeded its powers in awarding punitive damages, is without
merit in light of the Supreme Court's decision in Mastrobuono
v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). In Mastrobuono,
the Court resolved a conflict between state law preventing arbitrators
from awarding punitive damages and the parties' arbitration agreement,
which adopted arbitration rules allowing arbitrators to award
"damages and other relief." Id. at 61. Noting
the federal policy favoring arbitration, the Court concluded
the arbitration agreement and rules contemplated punitive damages
as a remedy and the award should be enforced despite contrary
state law. Id. at 61-62. In the case before us, the parties
agreed to be governed by rules that authorize "any remedy
or relief which the Tribunal deems just and equitable and within
the scope of the agreement of the parties." NABD, R. 13.1.
Given the broad scope of this rule, the arbitrators did not exceed
their powers in awarding punitive damages. Indeed, the language
"any remedy or relief" is even broader than the language
interpreted by the Supreme Court and clearly contemplates punitive
damages. See Raytheon Co. v. Automated Bus. Sys., Inc.,
882 F.2d 6, 9-12 (1st Cir. 1989) (holding rule similar to NABD
rule was broad enough to include punitive damages); accord
Lee v. Chica, 983 F.2d 883, 887-89 (8th Cir. 1993); see
also Baravati v. Josephthal, Lyon & Ross, Inc.,
28 F.3d 704, 710 (7th Cir. 1994) ("In arbitrations governed
by [the FAA], arbitrators are authorized to award punitive damages
unless the parties have withdrawn that power . . . .").
Amoco's contention that the arbitrators
acted in manifest disregard of Oklahoma law in awarding punitive
damages is also without merit. First, state statutory law provides
limitations on exemplary damages awarded by a jury and
does not clearly address arbitration awards. Okla. Stat. Ann.
tit. 23, § 9.1. Second, one subsection of the statute allows
a jury to award exemplary damages beyond the limitations provided
in other subsections when the jury concludes the "defendant
has acted intentionally and with malice toward others."
Id. § 9.1(D)(1). As the panel's written order reflects,
the arbitrators awarded punitive damages based on several factors,
including Amoco's egregious conduct prior to and after the discovery
of contamination, Amoco's awareness and blatant disregard of
the pollution, and Amoco's concealment of the pollution
from the Bowens and the OCC. In light of these findings, we conclude
the arbitration panel did not act in manifest disregard of the
law in awarding punitive damages.(10)
Finally, we disagree with Amoco's
contention that the limited judicial review of punitive damage
awards by arbitrators violates due process. As we have already
discussed at length, Amoco not only voluntarily entered into
arbitration, but also petitioned the district court to compel
arbitration. Before asking the district court to compel arbitration,
Amoco was aware that the Bowens' cause of action included a claim
for exemplary damages. In addition, Amoco agreed to be governed
by the broad language in the arbitration rules authorizing the
granting of "any remedy or relief." Amoco may not now
oppose the very process it advocated and to which it voluntarily
submitted. See Todd Shipyards Corp. v. Cunard Line,
Ltd., 943 F.2d 1056, 1063-64 (9th Cir. 1991). Because we
conclude that Amoco is essentially foreclosed from arguing a
due process violation, we need not decide whether arbitration
constitutes state action. See Davis v. Prudential Sec.
Inc., 59 F.3d 1186, 1190-92 (11th Cir. 1995) (holding arbitration
is a private, voluntary proceeding that does not constitute state
action).
We recognize, of course, that this
case presents the unique situation in which the parties contracted
for an expanded judicial standard of review, which was later
invalidated. When the parties agreed to arbitrate all claims,
including the punitive damages claim, they also agreed to the
added security of a broader scope of judicial review. Our response
to this concern is twofold. First, Amoco petitioned the district
court to compel all claims to arbitration before agreeing
to an expanded judicial standard of review; the Bowens' claim
for exemplary damages did not therefore deter Amoco from arguing
the entire matter should be submitted to arbitration. Second,
because the arbitration rules adopted by the parties required
the arbitration panel to detail the reasoning behind the award,
NABD R. 13.2, even our limited review has produced ample evidence
in support of the panel's award of punitive damages.
We therefore AFFIRM the
district court's confirmation of the arbitration award.
*.Honorable
John R. Gibson, Senior Circuit Judge, United States Court of
Appeals for the Eighth Circuit, sitting by designation.
1.
In 1918, the predecessors in interest of both parties entered
into a right-of-way agreement, which contained an arbitration
provision. This agreement, which governed the grant of a pipeline
easement, was ratified in 1943 by a second agreement.
2.
In February 1996, in preparation for the OCC pollution abatement
group, Fred Hesser circulated a memo requesting information on
repairs made to the line in 1950. (Aplt 1043) The OCC's memo,
dated September 1996, however, contains no mention of a 1950
line replacement in summarizing the information Amoco had disclosed
thus far. Based on the record, Amoco appears not to have disclosed
this information in any subsequent communication with the OCC.
Although the extent and timing of Amoco's knowledge is unclear,
the lack of records and the delay in locating even minimal information
raise concerns. Other incidents in the record also raise concerns
about Amoco's litigation tactics. In a memo concerning a ground
penetrating radar report conducted by Amoco, an Amoco employee
indicated he had contacted someone about obtaining historical
geological data but "management had ordered them to get
rid of anything that might cause someone to have any interest
in the area in the future. As a result, there was no remaining
geological information." (Aplt 1212) Amoco did not produce
this report, which supports some of the Bowens' contentions,
until the arbitration hearing was underway. Amoco argues that
this memo was directed at the geological department and therefore
proves nothing regarding its record-keeping practices in the
pipeline department. We mention it here as but one example among
several that demonstrate Amoco's less than forthcoming approach
to this entire matter.
3.
The public policy exception is not available in this case because
it applies specifically to contract disputes. Under this exception,
a court determines "whether the specific terms contained
in [the contract] violated public policy by creating an explicit
conflict with other laws and legal precedents." Seymour
v. Blue Cross/Blue Shield, 988 F.2d 1020, 1024 (10th Cir.
1993) (citations and internal quotation marks omitted). Because
the case before us involves tort claims, this exception does
not apply.
4.
In an unpublished opinion, the Fourth Circuit also agreed with
the Fifth Circuit, concluding the district court should have
applied the expanded standard of review. Syncor Int'l Corp.
v. McLeland, No. 96-2261, 1997 WL 452245, at *6 (4th Cir.
Aug. 11, 1997) (unpublished opinion).
5.
In considering issues involving arbitration of collective bargaining
agreements, the Court has often cautioned that courts should
not second-guess an arbitrator's decision. See, e.g.,
W.R. Grace & Co. v. Local Union 759, 461 U.S. 757,
764 (1983). Although these disputes are governed by the labor
statutes rather than the FAA, the Court's explanation for such
limited judicial review in this context is applicable to arbitration
in general: "Because the parties have contracted to have
disputes settled by an arbitrator chosen by them rather than
by a judge, it is the arbitrators' view of the facts and of the
meaning of the contract that they have agreed to accept. Courts
thus do not sit to hear claims of factual or legal error by an
arbitrator as an appellate court does in reviewing decisions
of lower courts." United Paperworkers Int'l Union, AFL-CIO
v. Misco, Inc., 484 U.S. 29, 37-38 (1987).
6.
We recognize, of course, that even under expanded standards of
review, arbitration reduces the burden on district courts. Without
an independent basis for federal court jurisdiction, the parties
could not petition the district court to compel arbitration or
to enter judgment on an award. See Lapine, 130
F.3d at 889-90. Reviewing an arbitration award is certainly less
work than hearing the entire case pursuant to diversity or federal
question jurisdiction.
7.
In addition, expanded judicial review would require arbitrators
to issue written opinions with conclusions of law and findings
of fact, further sacrificing the simplicity, expediency, and
cost-effectiveness of arbitration. Rather than providing a single
instance of dispute resolution with limited review, arbitration
would become yet another step on the ladder of litigation. The
drafters of the Revised Uniform Arbitration Act (RUAA) recognized
these concerns, noting that expanded judicial review would allow
parties a "'second bite at the apple' on the merits [which]
effectively eviscerates arbitration as a true alternative to
traditional litigation." RUAA § 23, cmt. B.1. Given
these concerns, as well as others, the drafters chose not to
adopt a provision for "opt-in review," which would
permit parties to agree by contract for expanded judicial review.
8.
The Seventh Circuit suggested parties may not contract for expanded
judicial standards of review because "federal jurisdiction
cannot be created by contract." Chicago Typographical
Union, 935 F.2d at 1505. The argument that expanded standards
of review create federal jurisdiction recognizes the problem
that, under contractually created standards, courts would vacate
awards they would not otherwise vacate and rely on grounds not
available under the FAA or federal common law. Because we hold
that, in the absence of clear authority to the contrary, parties
may not interfere with the judicial process by dictating how
the federal courts operate, we need not decide whether contractually
created standards impermissibly attempt to create federal jurisdiction.
9.
The dissenting arbitrator raised yet another issue regarding
the escrow fund. He argued the escrow fund is not what it appears.
Although the majority set up the fund in order to "abate"
the nuisance, the dissenter argued no present nuisance exists
so the fund is really a damages award for cleanup of a historic
pipeline leak. But although some Oklahoma precedent supports
the dissenting arbitrator's position, contrary precedent also
supports the majority arbitrators' approach. Compare Atchison
T. & S.F. Ry. Co. v. Kelley, 266 P. 775, 776 (Okla. 1928)
(holding the injury itself is not the nuisance, even if it can
be cleaned up, because only the cause of the damage constitutes
a nuisance), with Briscoe, 702 P.2d at 36 ("Temporary
damages in the context of an oil and gas nuisance are by definition
abatable.").
10.
In addition, the Oklahoma statute provides for punitive damages
in the amount of actual damages when the jury concludes the defendant
acted recklessly. Okla. Stat. Ann. tit. 23, § 9.1(B)(2).
The panel's award of $1,000,000 in punitive damages falls short
of the $1,200,000 awarded for annoyance, inconvenience, and aggravation,
which constitutes "a separate and distinct element of damage"
under Oklahoma law. Thompson v. Andover Oil Co., 691 P.2d
77, 83 (Okla. Ct. App. 1984). The arbitrators' written findings
clearly support the conclusion that Amoco acted recklessly.
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