IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 17-50852

PAPALOTE CREEK II, L.L.C., formerly known as Papalote Creek Windfarm 

II, L.L.C., 

 Plaintiff–Appellant,

v.

LOWER COLORADO RIVER AUTHORITY, 

 Defendant–Appellee.

Appeal from the United States District Court

for the Western District of Texas

Before HIGGINBOTHAM, ELROD, and HO, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Papalote Creek II, LLC (Papalote) appeals the district court’s order 

compelling Papalote to arbitrate a dispute raised by Lower Colorado River 

Authority (LCRA)—whether their contractual agreement limits LCRA’s 

liability to $60 million. The arbitration clause requires Papalote and LCRA to 

arbitrate “any dispute [that] arises with respect to either [p]arty’s 

performance.” Because the dispute that LCRA has raised is an interpretative 

dispute—not a performance dispute—we reverse and remand. 

United States Court of Appeals

Fifth Circuit

FILED

March 15, 2019

Lyle W. Cayce

Clerk

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I.

This is the second time Papalote and LCRA have appeared before us. See 

Lower Colo. River Auth. v. Papalote Creek II, LLC, 858 F.3d 916 (5th Cir. 2017)

(Papalote I). In the previous appeal, we vacated the district court’s order 

compelling arbitration on ripeness grounds without addressing whether

LCRA’s dispute is arbitrable. Id. at 918. This case has returned to us with 

subsequent procedural development after the remand. We summarized the 

relevant facts in Papalote I: 

In December 2009, LCRA entered into a Power Purchase 

Agreement [(Agreement)] with [Papalote]. Papalote planned to 

build an 87-turbine wind farm in Texas . . . , and under the 

[Agreement], LCRA agreed to purchase all of the energy . . . at a 

fixed price for an 18-year term.

Relevant to this appeal are four sections of the [Agreement]: § 4.3, 

§ 9.3, § 13.1, and § 13.2. First, § 4.3, which is entitled “Liquidated 

Damages Due to [LCRA's] Failure to Take,” provides a formula for 

how to calculate the liquidated damages that LCRA would owe to 

Papalote in the event that LCRA failed to take all of the Project's 

energy. As noted above, LCRA is required to take all of the energy 

generated by the Project. However, should LCRA fail to do so, § 4.3 

details how to calculate Papalote's “exclusive remedy” of liquidated 

damages. This liquidated damages calculation would depend in 

part on the difference between the [Agreement’s] fixed price and 

the price that Papalote is otherwise able to obtain in selling the 

energy.

Second, § 9.3, which is entitled “Limitation on Damages for Certain 

Types of Failures,” provides the following: [Papalote's] aggregate 

liability for [its failure to construct and operate the wind farm by 

the agreed-upon date] shall be limited in the aggregate to sixty 

million dollars ($60,000,000). [LCRA's] damages for failure to 

perform its material obligations under [the Agreement] shall 

likewise be limited in the aggregate to sixty million dollars 

($60,000,000). . . .

Finally, § 13.1 and § 13.2 provide a two-step arbitration procedure. 

The first step, as dictated in § 13.1, requires, inter alia, that “[i]f 

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any dispute arises with respect to either Party's performance 

hereunder,” the senior officers of LCRA and Papalote meet in an 

attempt to resolve the dispute. Under the second step, as outlined 

in § 13.2, if the dispute is not resolved through the first step within 

a certain timeframe, either party may submit that dispute “to 

binding arbitration[.]” . . . 

Papalote completed construction of the Project in 2010, and in the 

ensuing years, LCRA complied with its obligations under the

[Agreement] by purchasing all of the energy generated by the 

Project. In April 2015, however, LCRA initiated discussions with 

Papalote regarding the [Agreement]. . . . [I]n June 2015, LCRA 

sent Papalote a letter stating that, pursuant to § 13.2, LCRA was 

“initiat[ing] the arbitration process to resolve the dispute between 

LCRA and Papalote regarding LCRA's limitation of liability under 

the [Agreement] and its impact on LCRA's performance 

obligations.” LCRA also noted that it “intends to continue to fully 

perform its obligations under the [Agreement] during this 

arbitration process.” . . . Papalote rejected LCRA’s request to 

proceed to arbitration, reasoning that “[a]n academic question 

about the damages LCRA might owe for a hypothetical breach 

simply does not constitute a ‘dispute’ that is proper for arbitration 

under the [Agreement].” Papalote also argued that a dispute over 

LCRA’s potential liability limitation was not covered by the 

arbitration provision in the PPA, which was limited to disputes 

regarding performance obligations. 

Following Papalote’s refusal to arbitrate, LCRA filed a petition to 

compel arbitration in Texas state court on June 30, 2015. Papalote 

timely removed the petition to federal district court on the basis of 

diversity jurisdiction. . . . In February 2016, the district court 

granted LCRA's petition to compel arbitration. . . . [T]he district 

court framed the question as “whether the dispute LCRA seeks to 

arbitrate—whether or not LCRA's liability would be capped at $60 

million in the event it elected to purchase from Papalote less than 

the total amount of energy it contracted to buy—qualifies as a 

dispute ‘with respect to either Party's performance’ under the 

[Agreement].” In answering that question, the district court 

recognized that, “in a certain sense, one could understand 

‘performance’ to concern only those promises which were the 

essence of the [Agreement]—the sale and production of wind 

energy—and conceptualize the buyer’s obligation to pay for failing 

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to take as compensation for its failure to perform, rather than as 

an independent performance obligation.” The district court 

reasoned, however, that ‘the better view here . . . is that LCRA’s 

bargained-for-obligation to pay Papalote a specified sum if LCRA 

takes less than all of the energy produced is itself a performance 

obligation under the [Agreement].” 

Id. at 919–20. 

Although Papalote appealed the order compelling arbitration, the 

district court denied a stay of arbitration pending appeal. Id. at 921 n.2. 

Papalote, however, did not appeal the denial of a stay pending appeal; instead,

on June 1, 2016, Papalote and LCRA submitted to us a “Joint Motion to Abate 

Appeal Without Prejudice to Automatic Reinstatement” to allow the parties to 

fully arbitrate. After we stayed the appeal, the parties arbitrated their 

dispute, and on June 28, 2016, the arbitrator issued a decision in LCRA’s favor, 

stating that § 9.3 of the Agreement limits LCRA’s liability to $60 million. After 

the arbitrator’s adverse decision, Papalote moved to reinstate the appeal, 

which we granted. In addition to seeking the reinstatement of the appeal, 

Papalote also initiated a separate suit in the district court by filing a motion to 

vacate the arbitration award. The district court stayed the proceedings for 

Papalote’s motion to vacate the arbitration award pending the appeal of the 

initial order compelling arbitration. While the appeal was pending, “[o]n 

October 10, 2016, LCRA notified Papalote that it would cease taking energy 

under the [Agreement] beginning on October 12, 2016, and that its resulting 

liquidated damages would be capped at $60 million per § 9.3.” Id. 

In the previous appeal, Papalote argued that LCRA’s dispute: (1) was 

not ripe when the district court compelled arbitration; and (2) was outside the 

scope of the arbitration clause. We agreed with Papalote that the dispute was 

not ripe because LCRA was still taking energy from Papalote when the district 

court compelled arbitration. Id. at 927. In holding so, we concluded that 

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LCRA’s subsequent decision to cease taking energy after the district court 

compelled arbitration could not “retroactively cure the void order compelling 

Papalote to an arbitration that it should not have been forced to attend at the 

time.” Id. Accordingly, we vacated the order compelling arbitration and 

remanded without addressing the arbitrability issue. Id. n.6. 

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.

II.

A.

We review de novo whether the district court properly compelled

arbitration. Hays v. HCA Holdings, Inc., 838 F.3d 605, 608 (5th Cir. 2016). 

We begin with “the proper framework for deciding when disputes are 

arbitrable.” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 297 

(2010). “Under that framework, a court may order arbitration of a particular 

dispute only where the court is satisfied that the parties agreed to arbitrate 

that dispute.” Id.; see also id. at 304 n.11 (“The test for arbitrability remains 

whether the parties consented to arbitrate the dispute in question.”). This

framework “involves two questions: ‘(1) whether there is a valid agreement to 

arbitrate between the parties; and (2) whether the dispute in question falls 

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within the scope of that arbitration agreement.’ ” Gross v. GGNSC Southaven, 

LLC, 817 F.3d 169, 176 (5th Cir. 2016) (quoting Tittle v. Enron Corp., 463 F.3d 

410, 418 (5th Cir. 2006)). Because neither Papalote nor LCRA disputes the 

validity of the Agreement’s arbitration clause, this appeal concerns only 

whether LCRA’s dispute falls within the scope of that arbitration clause. 

Determining the scope of an arbitration clause is a matter of contract. 

Hebbronville Lone Star Rentals, LLC v. Sunbelt Rentals Indus. Servs., LLC, 

898 F.3d 629, 632 (5th Cir. 2018); see also First Options of Chi., Inc. v. Kaplan, 

514 U.S. 938, 943 (1995) (observing that arbitration is “simply a matter of 

contract” and “a way to resolve those disputes—but only those disputes—that 

the parties have agreed to submit to arbitration”). Under Texas law, the 

primary object of contract interpretation “is to ascertain and give effect to the 

intent of the parties as that intent is expressed in the contract.” Seagull 

Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006). 

Although both federal law and Texas law create a presumption in favor of 

arbitrability, “unambiguous language controls when the question is the scope 

of an arbitrator’s power,” and the “policy that favors resolving doubts in favor 

of arbitration ‘cannot serve to stretch a contractual clause beyond the scope 

intended by the parties.’ ” Hebbronville Lone Star Rentals, 898 F.3d at 632–33

(quoting Smith v. Transp. Workers Union of Am., AFL-CIO Air Transp. Local 

556, 374 F.3d 372, 375 (5th Cir. 2004)); see also G.T. Leach Builders, LLC v. 

Sapphire V.P., L.P., 458 S.W.3d 502, 521 (Tex. 2015) (discussing presumption 

of arbitrability under Texas law). 

The parties may agree upon a broad language in the arbitration clause 

either by incorporating “[t]he standard broad arbitration provision 

recommended by the American Arbitration Association” or by creating their 

own broad provision. United Offshore Co. v. So. Deepwater Pipeline Co., 899 

F.2d 405, 409 (5th Cir. 1990). These standard arbitration provisions typically 

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require arbitration of “[a]ny controversy or claim arising out of or relating to 

[the] contract” or “any dispute . . . with respect to the interpretation or 

performance.” Id. at 409–10 (emphasis added) (quoting Mar-Len of La., Inc. v. 

Parsons-Gilbane, 773 F.2d 633, 634 (5th Cir. 1985)). “[W]hen parties choose 

such broad language, only . . . ‘the most forceful evidence of a purpose to 

exclude the claim from arbitration’ would render the dispute non-arbitrable.” 

Id. (quoting Mar-Len, 773 F.2d at 636). 

Alternatively, the parties may agree upon a narrow language in the 

arbitration clause by deviating from the broad standard provisions and by 

limiting arbitration only to a subset of disputes that may arise out of the 

contract. See United Offshore, 374 F.3d at 410; see also Texaco, Inc. v. Am. 

Trading Transp. Co., 644 F.2d 1152, 1154 (5th Cir. 1981) (relying on “more 

restrictive language limiting arbitration” in declining to compel arbitration). 

For example, the parties may limit arbitration to either interpretation-related 

disputes or performance-based disputes at the exclusion of other categories of 

disputes. Negrin v. Kalina, No. 09-Civ-6234, 2010 WL 2816809, at *5 (S.D.N.Y. 

July 15, 2010) (“The parties’ use of precise language in the arbitration clause 

suggests an intent to limit arbitration to a particular subset of disputes.”); see 

also Taylor v. Inv’rs Assocs., Inc., 29 F.3d 211, 215 (5th Cir. 1994) (applying 

expressio unius est exclusio alterius to limit the arbitration clause’s application 

to a subset of parties).

We have previously observed that if an arbitration clause “restricts [the 

arbitrator’s] power to an interpretation of the contract, it leaves the arbitrator 

powerless to decide matters on which the agreement is silent.” United 

Offshore, 899 F.3d at 410. In Beckham v. William Bayley Co., a contract for 

delivery of “standard” insect screens required arbitration of “[a]ny 

disagreement . . . as to the intent of [the] contract”—i.e., interpretation of the 

contract. 655 F. Supp. 288, 291 (N.D. Tex. 1987). “Had the parties disputed 

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whether the screens, as delivered, were in fact ‘standard’ screens, the 

arbitration clause would have required that the intent as to the meaning of the 

term ‘standard’ be resolved by arbitration.” Id. But the parties agreed on what

“standard” insect screens meant, and the dispute was simply over whether the 

delivered insect screens were damaged. Id. Because such a dispute concerned 

performance, the court held that the dispute fell outside the scope of the 

arbitration clause. Id. 

The opposite is also true: If the arbitration clause limits arbitration to 

performance-related disputes, then the arbitrator cannot decide other matters, 

such as interpretative disputes. Cf. Negrin, 2010 WL 2816809, at *6 (holding 

that “[t]he arbitration clause cover[ing] disputes relating to ‘nonperformance’ ” did not apply when there was no allegation that “[d]efendants 

failed to discharge . . . any obligation under the [contract]”). The Seventh 

Circuit has illustrated this distinction: 

We can imagine a case in which both parties agree that for example 

some form of notice is a condition precedent to performance, and 

the only dispute is over whether the notice was given. That 

dispute would be arbitrable if the arbitration clause included 

performance disputes, not if it did not. 

Selcke v. New England Ins. Co., 995 F.2d 688, 690 (7th Cir. 1993). Thus, the

parties may decide what disputes they wish to submit to an arbitrator. If they 

limit arbitration to a specific category of disputes, at the exclusion of other 

categories of disputes, then the arbitrator’s power is limited to those disputes 

to which the parties expressly consented. See First Options, 514 U.S. at 943. 

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 

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arbitration of disputes that are not performance-related disputes, such as 

disputes related to the interpretation of the Agreement. 

B.

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. 

Interpretative disputes arise when the parties disagree over a text’s 

meaning. See Interpretation, Black’s Law Dictionary (10th ed. 2014) (“The 

ascertainment of a text’s meaning[.]”). Here, LCRA’s own demand letter to 

Papalote frames LCRA’s dispute as an interpretative dispute: The letter states 

that “[t]he dispute is whether LCRA’s liability is limited to $60,000,000 under 

the [Agreement’s § 9.3].” And even LCRA’s brief on appeal observes that this 

dispute is “about the meaning of the [Agreement’s] liability limitation.” 

LCRA’s Br. at 35 (emphasis added). 

As Papalote points out, one needs only to examine the Agreement to 

determine what the Agreement says and means, and what LCRA and Papalote 

had intended while drafting the Agreement. See Selcke, 995 F.2d at 690. The 

issue in this case can be answered without any reference to factual allegations 

of failure to perform. See Negrin, 2010 WL 2816809, at *6. Accordingly, 

LCRA’s dispute is squarely in the realm of interpretation.1 See also Papalote 

 

1 We are not alone in making this observation. The previous panel of this court has 

made similar observations—albeit in dictum—that this dispute revolved around 

interpretation. See Papalote I, 858 F.3d at 924. So did the district court. Although the 

district court ultimately concluded that this interpretative dispute related to performance, 

thus constituting a performance-based dispute—a conclusion that we reject today—it could 

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I, 858 F.3d at 924 (noting in dicta that “the underlying claim that LCRA sought 

to arbitrate is effectively one for a declaratory judgment [by an arbitrator] that 

its interpretation of § 9.3 is correct.”). Here, although Papalote and LCRA 

contractually committed “to have someone—other than a judge—decide” 

performance-related disputes, they did not agree to have an arbitrator decide 

matters of contract interpretation. In re M.W.M., Jr., 523 S.W.3d 203, 207 

(Tex. App.—Dallas 2017). 

In resisting this conclusion, LCRA heavily relies on the phrase “with 

respect to,” which, it contends, means “relating to.” LCRA argues that, because 

the interpretative dispute “relat[es] to LCRA’s ongoing and future performance 

under the [Agreement],” the interpretative dispute is a dispute “with respect 

to” performance. However, § 9.3 is a damages provision, not a provision about 

performance, and LCRA’s interpretative dispute is with respect to damages, 

not performance. Therefore, even if we agree with LCRA’s broad reading of 

the phrase “with respect to,” LCRA cannot prevail. Because LCRA’s 

interpretative dispute is outside the scope of the arbitration clause, the district 

court erred in compelling Papalote to arbitrate. 

III.

For the foregoing reasons, we REVERSE the district court’s order 

compelling arbitration and REMAND for further proceedings consistent with 

this opinion.

 

not avoid observing that LCRA’s dispute “concerns the proper interpretation of a clause in 

the [Agreement].” Thus, even though LCRA may contend that it has raised a performancerelated dispute, those who have examined its dispute have unavoidably characterized this as 

an interpretative one. See Tidelands Marine Serv. v. Patterson, 719 F.2d 126, 128 n.3 (5th 

Cir. 1983) (“That which looks like a duck, walks like a duck, and quacks like a duck will be 

treated as a duck even though some would insist upon calling it a chicken.”). 

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