RICHMOND, Va. -- A federal appeals court on Thursday determined that a Charleston arbitration panel properly considered the validity of a 2008 agreement between Central West Virginia Energy and Bayer Cropscience LP.
The U.S. Court of Appeals for the Fourth Circuit, in its 18-page decision, said the panel did not exceed its powers.
At issue are two agreements containing competing arbitration provisions. A 1997 agreement between Central West Virginia Energy, a subsidiary of Massey Energy Co., and Bayer mandated arbitration in West Virginia; a 2008 agreement called for arbitration in Virginia.
Bayer operates an industrial park in Institute, W.Va. In 1997, its predecessor entered into a coal supply agreement with CWVE, under which CWVE agreed to supply coal to the park at a certain price for a term of two years.
The 1997 agreement provided that it could be extended for successive one-year terms if the parties agreed on a new price. That agreement also contained an arbitration clause providing that "(a)ll disputes under th(e) agreement" would be referred to an arbitration panel in Charleston, and would be conducted under the rules of the American Arbitration Association.
The parties extended the 1997 agreement several times between 1997 and 2006. However, they disagree as to whether a series of emails between company representatives in 2006 brought about a valid extension of the agreement through the end of 2008.
In 2008, CWVE informed Bayer that it was not sure if the 2006 extension of the 1997 agreement was valid. A protracted debate ensued.
In July 2008 -- in the midst of the debate -- a Bayer representative signed a new contract with CWVE to receive coal at an increased price through 2010. The 2008 agreement provided for the arbitration of disputes "arising out of or relating to this contract or the breach hereof" in Richmond, Va.
Bayer began paying CWVE the higher price specified in the 2008 agreement, but did so under protest. Bayer maintained that the 1997 agreement remained in effect, and that the 2008 agreement was invalid.
The parties' disagreement led to litigation and arbitration.
On Dec. 5, 2008, Bayer filed a claim for arbitration in Charleston, under the 1997 agreement. The company sought a determination that the extension of the 1997 agreement was valid and requested damages in the amount of $12 million incurred in purchasing coal at the higher price set by the 2008 agreement.
On March 30, 2009, CWVE filed a demand for arbitration before a panel in Richmond under the 2008 agreement. It also moved that the Charleston panel dismiss its arbitration proceedings, arguing that Richmond was the proper venue because the 2008 agreement governed the dispute.
The Charleston panel denied this motion on the ground that "adequate facts ha(d) been alleged... to support a viable claim under the terms of the 1997 agreement."
On Feb. 11, 2010, the panel issued a reasoned award, concluding that the parties had extended the 1997 agreement through 2008.
It found that the 2008 agreement "operated as a glaring breach" of the 1997 agreement's extension, was formed under a mutual mistake of fact, and failed to meet the Uniform Commercial Code's requirements of good faith and fair dealing.
Accordingly, the Charleston panel deemed the 2008 agreement void and awarded Bayer stipulated damages in the amount of $10,540,885.07 plus fees.
On Feb. 16, 2010, CWVE filed a petition in district court in Virginia seeking to vacate a portion of the Charleston panel's award. In response, Bayer filed a motion to dismiss.
Then, on March 17, 2010, Bayer filed an action in district court in West Virginia to enforce the panel award. CWVE moved to dismiss or stay the West Virginia action pending resolution of the related Virginia case.
The Virginia district court disagreed with CWVE. It held that the issue of which arbitration panel should consider the 2008 agreement was a procedural question for the Charleston panel to resolve. It granted Bayer's motion to dismiss the petition on June 2, 2010 and CWVE appealed.
As a result of the Virginia district court's ruling, the district court in West Virginia denied as moot CWVE's motion to dismiss or stay Bayer's action pending resolution of the Virginia action. As to the parties' cross-motions for summary judgment, the court agreed with its Virginia counterpart that the Charleston panel did not exceed its powers by adjudicating the validity of the 2008 agreement.
The West Virginia court granted summary judgment to Bayer, and the consolidated appeal followed.
Judge Allyson K. Duncan wrote the Fourth Circuit's opinion.
In it, she points to CWVE's argument that the dispute involves the jurisdiction of the panels.
This argument is "unavailing" because, as the appeals court explains, a dispute implicating the overlapping jurisdiction of two arbitration panels is not a matter of arbitrability that necessitates resolution by a court.
"CWVE's contention is far more akin to a venue dispute than a question of arbitrability, and, as such, it is appropriate for arbitral resolution," it wrote.
The Fourth Circuit affirmed the Virginia district court's ruling and found that the Charleston panel did not exceed its powers, upholding the award in favor of Bayer.
"Because we do not believe the Charleston panel 'irrationally disregarded the terms of the contract,' it is not our role 'to review the correctness of the arbitrator's reasoning,'" the appeals court concluded.