Fifth Circuit Once Again Reverses Order Compelling Arbitration in Wind Energy Dispute

Originally published by Beth Graham.

The United States Court of Appeals for the Fifth Circuit has once again overturned a district court’s order compelling arbitration in a Texas wind energy case.  In Papalote Creek II, L.L.C. v. Lower Colorado River Authority, No. 17-50852 (5th Cir., March 15, 2019), the Lower Colorado River Authority (“LCRA”) entered into an agreement to purchase wind energy from Papalote Creek (“Papalote”).  The parties’ agreement limited the LCRA’s aggregate liability for failure to purchase the wind energy to $60 million and also contained a broad binding arbitration clause.

As described in another Disputing blog post, a disagreement regarding the $60 million damages cap arose and LCRA filed a demand for arbitration.  After LCRA’s demand was ignored by Papalote, LCRA filed a motion to compel arbitration with the Western District of Texas in Austin. Papalote opposed the motion because the parties’ dispute related to interpretation of the contract terms and no breach of the parties’ agreement actually existed.

The Austin federal court ordered the case to arbitration and the Fifth Circuit Court of Appeals reversed.  After concluding the Western District of Texas lacked jurisdiction to compel arbitration, the appellate court vacated the lower court’s order and remanded the case.  The LCRA then sought review by the U.S. Supreme Court.  The nation’s highest court denied the LCRA’s petition without additional comment and the case was sent back to the Western District of Texas.  Additional information regarding the Supreme Court case is available in an earlier Disputing blog post.

Still, the Supreme Court’s rebuff did not stop LCRA from pursuing arbitration:

On remand, the district court dismissed LCRA’s initial suit concerning its petition to compel arbitration. In Papalote’s separate suit to vacate the arbitration award, the district court lifted the stay, and LCRA filed a crossmotion to affirm the arbitration award and, alternatively, to compel another arbitration. Consistent with this court’s judgment in Papalote I, the district court vacated the arbitration award as it was the fruit of an order that the district court had entered without subject matter jurisdiction. However, holding that the dispute was now ripe and again concluding that the dispute fell within the scope of the arbitration clause, the district court once again compelled arbitration. Papalote appeals, contending that LCRA’s dispute is outside of the scope of the arbitration clause.

On appeal for the second time, the Fifth Circuit held the parties’ current dispute was beyond the scope of the binding arbitration clause.  The court stated:

Here, Papalote and LCRA agreed to submit to binding arbitration “[i]f any dispute arises with respect to either Party’s performance.” This clause clearly signifies the parties’ intent to limit arbitration to performance-related disputes only, and the arbitration clause neither requires nor authorizes arbitration of disputes that are not performance-related disputes, such as disputes related to the interpretation of the Agreement.

The appellate court continued:

Because the Agreement limits arbitration to “any dispute [that] arises with respect to either Party’s performance,” LCRA’s dispute—whether the Agreement limits LCRA’s liability to $60 million—is arbitrable only if it constitutes a dispute with respect to either LCRA’s or Papalote’s performance. We hold that LCRA’s dispute is a dispute related to the interpretation of the Agreement, not a performance-related dispute, and thus does not fall within the scope of the Agreement’s arbitration clause.

Yet again, the United States Court of Appeals for the Fifth Circuit reversed and remanded the parties’ dispute back to the Western District of Texas in Austin.

Photo by: Gustavo Quepón on Unsplash

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