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Magnum Gas Pipeline, LLC v. Silver Oak Operating, LLC

United States District Court, W.D. Louisiana, Shreveport Division

April 24, 2015

MAGNUM GAS PIPELINE, LLC
v.
SILVER OAK OPERATING, LLC, ET AL

MEMORANDUM RULING

ELIZABETH ERNY FOOTE, District Judge.

Before the Court are three separate motions concerning the awards and findings of an arbitration proceeding. After the arbitrators issued their decision, Silver Oak Operating, LLC ("Silver Oak"), a Defendant, filed its Motion To Confirm Arbitration Award [Record Document 49], which was soon followed by two other motions: a Motion To Vacate or, Alternatively, Modify Arbitration Award [Record Document 57] from Defendant Chesapeake Louisiana, LP ("Chesapeake"), and a Motion To Correct Computational Error in Arbitration Award and Otherwise Enter Judgment on Arbitration Award [Record Document 58] from Magnum Gas Pipeline, LLC ("Magnum"), the Plaintiff. Given the interrelated nature of these motions, the Court will address each in this ruling. For the reasons below, the motions filed by Chesapeake and Magnum are hereby DENIED, and Silver Oak's motion is hereby GRANTED.

I. Background

On December 1, 2000, Silver Oak entered into a Gas Purchase and Gathering Agreement ("2000 Agreement") with Magnum Gas Pipeline, Inc., which was the predecessor of the current Plaintiff, Magnum. Record Document 1, Ex. A, pp. 3-4. In the 2000 Agreement, Silver Oak committed to deliver to Magnum for transportation all of the natural gas it produced from particular leases and wells, including two leases in DeSoto Parish, Louisiana. Id.[1] The parties' obligations were binding on the parties' successors and assigns under the 2000 Agreement, and an assignor was not relieved of its duties unless it received the other party's consent. Record Document 12, Ex. 2, p. 16. Later, on September 27, 2002, Silver Oak and Red Rock Energy Partners, LTD, another Defendant, entered into the Gas Gathering Agreement ("2002 Agreement") that, inter alia, dedicated to Magnum for transportation in its pipeline all of the natural gas produced at specific wells in DeSoto Parish. See Record Document 49, Ex. A.[2] Like the previous agreement, the obligations set forth in the 2002 Agreement were binding upon any successor or assign of the parties. Id. at p. 9.

The present dispute arose from a petition in Louisiana state court in which Magnum claimed that Silver Oak, along with the other Defendants, conveyed to Chesapeake in December 2008 certain natural gas interests subject to the 2000 and 2002 Agreements without requiring Chesapeake to honor the provisions in those agreements that were in favor of Magnum. Record Document 1, Ex. A, pp. 4-5. Magnum alleged that Chesapeake was "aware of the existence of the gas gathering contracts at issue here, and of the specific requirements that any assignee of the defendants would be bound by the dedication provisions thereof, " yet the Defendants "intentionally negotiated and entered into assignments which violated these terms." Id. at p. 5. As such, besides claiming that the other Defendants breached their contractual duties, Magnum sought both to enforce the dedication provisions of the agreements directly against Chesapeake and to recover the lost profits that it would have earned from transporting the natural gas from the dedicated leases and wells. Id.

On September 15, 2011, after the case had been removed to federal court, this Court stayed the proceedings and ordered that the parties, including Chesapeake, submit to alterative dispute resolution, as required by the 2000 and 2002 Agreements. Record Document 28, pp. 8-9. Then, on January 6, 2015, the arbitration panel ("panel") issued the Award of the Arbitrators ("Award") that was "in full settlement of all claims, cross claims and counterclaims submitted" to it by the parties. Record Document 49, Ex. B, p. 3. The Award made several factual findings, which are discussed more fully below, and provided both damages to Magnum and attorney fees and costs to Magnum and Silver Oak. Id. at pp. 2-3.

Given the panel's decision, Silver Oak filed its Motion To Confirm Arbitration Award based on the provision in the 2002 Agreement that permits a judgment on an arbitration award to be entered in a court of competent jurisdiction. Record Document 49, p. 3. This motion was subsequently followed by both Chesapeake's Motion To Vacate or, Alternatively, Modify Arbitration Award and Magnum's Motion To Correct Computational Error in Arbitration Award and Otherwise Enter Judgment on Arbitration Award. Record Documents 57 and 58.

II. The Federal Arbitration Act

Under the Federal Arbitration Act ("FAA"), district courts play a very limited and deferential role in reviewing an arbitration panel's award. Any review is "extraordinarily narrow, " and "federal courts will defer to the arbitrators' resolution of the dispute whenever possible." Anderman/Smith Operating Co. v. Tenn. Gas Pipeline Co. , 918 F.2d 1215, 1218 (5th Cir. 1990) (quoting Antwine v. Prudential Bache Sec., Inc. , 899 F.2d 410, 413 (5th Cir. 1990)). The FAA states:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.

9 U.S.C. § 9 (emphasis added). The Supreme Court explains that courts should view the FAA, and particularly 9 U.S.C. §§ 9-11, as evidence of a clear national policy favoring arbitration and that "[a]ny other reading opens the door to the full-bore legal and evidentiary appeals that can rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process.'" Hall Street Assocs., LLC v. Mattel, Inc. , 552 U.S. 576, 588 (2008) (quoting Kyocera Corp. v. Prudential-Bache Trade Servs., Inc. , 341 F.3d 987, 998 (9th Cir. 2003)).

As such, mere errors by arbitrators with respect to the law will not subject an award to vacatur or modification. Woods v. P.A.M. Transp. Inc., 440 F.Appx. 265, 269 (5th Cir. 2011). Rather, an award should be affirmed, even if a court disagrees "with the arbitrator's interpretation of the underlying contract as long as the arbitrator's decision draws its essence' from the contract. In other words, [courts] must affirm the arbitrator's decision if it is rationally inferable from the letter or the purpose of the underlying agreement." Timegate Studios, Inc. v. Southpeak Interactive, LLC , 713 F.3d 797, 802 (5th Cir. 2013) (quoting Anderman/Smith Operating Co. , 918 F.2d at 1218).

III. Law and Analysis

A. Chesapeake's Motion To Vacate or, Alternatively, Modify ...


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