On appeal from the United States District Court for the District of New Jersey District Court No.: 03-cv-01561 District Judge: The Honorable Stanley R. Chesler
The opinion of the court was delivered by: Smith, Circuit Judge
Before: ALITO, SMITH, and ROSENN, Circuit Judges
In this case, we are called upon to review an arbitration award arising out of a dispute between TXU Energy Retail, LP ("TXU") and Metromedia Energy Services, Inc. ("MME") concerning a series of natural gas sales by TXU to MME. The March 3, 2003 arbitration award found that TXU had not overcharged MME for sales of natural gas that took place between November 2000 and February 2001. On April 10, 2003, MME responded to the arbitration award by filing suit against TXU in the District Court for the District of New Jersey. MME sought to vacate the award on the ground that the arbitration panel had exceeded its authority by addressing the reasonableness of TXU's prices for the disputed natural gas sales, after having first found that these sales were not subject to the pricing structure set forth in a 1998 Master Agreement between TXU and MME.
The District Court granted summary judgment in favor of MME, holding that the arbitration panel had exceeded its authority by addressing the reasonableness of the prices charged by TXU for sales not governed by the 1998 Master Agreement. The District Court also vacated the arbitration panel's award of attorneys fees, finding that the panel's decision concerning attorney fees "was necessarily based on the panel's inappropriate decision" concerning the reasonableness of TXU's prices. TXU appeals, arguing that the District Court's decision does not reflect the deference due the arbitration panel's award under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. We agree, and accordingly will reverse the judgment of the District Court and remand with instructions to enter judgment in favor of TXU.
MME is a natural gas retailer that sells natural gas to end users in the northeastern United States. In October 1998, MME entered into a Master Agreement with appellant TXU, another natural gas retailer that undertook to obtain natural gas through a wholesale trading affiliate for delivery to MME. Under this Master Agreement, MME agreed to purchase gas from TXU pursuant to written confirmations that would specify the term, volume, and price for particular purchases. For a period of approximately two years after the signing of the Master Agreement, MME made purchases under the Agreement using written confirmations. MME also, on various occasions, made purchases of additional quantities of gas, the terms of which were negotiated by telephone with TXU representatives. These telephone transactions related to what the parties refer to as "spot-market" purchases. Spot-market transactions were transactions wherein a specified volume of gas would be ordered by MME for a one-month period only, and the price per dekatherm of such gas would not be provided by TXU until after the gas had been delivered. It also appears from the record that the telephonic spot-market transactions between the parties typically involved shorter lead times between order and delivery when compared to the purchases made by MME from TXU pursuant to the written confirmation process set forth in the Master Agreement.
Article XIV of the Master Agreement contained an arbitration provision indicating that "any disagreement, difference or dispute among the Parties arising under this Agreement shall be resolved pursuant to arbitration according to the procedures set forth in this Article XIV." This arbitration clause called for each party to select one arbitrator, with the two initial arbitrators thus selected jointly selecting a third. The arbitration provision further provided that "[t]he arbitrator shall settle all disputes in accordance with the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association, to the extent that such rules do not conflict with the terms of such Act or the provisions of this Agreement."
In October 2001, MME initiated arbitration proceedings against TXU pursuant to the arbitration clause contained in the Master Agreement. MME claimed that TXU had breached the Master Agreement by overcharging MME for various purchases of natural gas between November 2000 and February 2001. MME's initial statement of claims indicated that the telephonic spot-market purchases referenced above were among the purchases for which MME had allegedly been overcharged. In setting forth its cause of action for breach of contract, MME's statement of claims alleged that "TXU has further violated the Agreement by supplying gas to MME for spot purchases made between November 2000 and February 2001 and subsequently overcharging MME for said purchases." (The parties refer to the period between November 2000 and February 2001 as the "Disputed Period").
TXU responded to MME's claims by arguing that spotmarket transactions between the two parties were not governed by the pricing provisions contained in Section 7.1 of the Master Agreement. Instead, TXU argued (in its Second Amended Response) that either (a) the prices for spot-market purchases were established under a separate course-of-dealing contract between TXU and MME; or (b) the course of dealing between TXU and MME had operated to modify the pricing provisions of the Master Agreement insofar as spot-market purchases were concerned.
The parties proceeded to arbitration, which resulted in a March 3, 2003 award in favor of TXU. The arbitration panel found that the spot-market purchases were not governed by the Master Agreement, and were instead subject to a separate "course of performance" contract. The latter arose from the parties' actual dealings, in which, according to the arbitration panel, TXU had charged prices that reasonably reflected market conditions at the time of each spot-market purchase by MME. The arbitration panel also awarded TXU one-third of its attorneys' fees, finding that TXU was the "prevailing party" in the arbitration and thus was the "non-defaulting party" under the attorney fee provision contained in the Master Agreement.
MME responded to the arbitration award by filing suit in District Court. MME sought to vacate the arbitration award on the ground that the arbitration panel, once having determined that spot-market purchases during the Disputed Period were governed by a separate course-of-performance contract, had exceeded its authority by also stating that TXU's prices under that contract were reasonable and accurately reflective of prevailing market conditions. The District Court agreed, holding that the arbitration panel had exceeded its authority by determining the reasonableness of TXU's prices under the course-of-performance contract. The District Court also vacated the arbitration panel's award of attorneys' fees, finding ...