Opinion ID: 180842
Heading Depth: 2
Heading Rank: 1

Heading: Arbitrability and the Scope of an Arbitrator's Authority

Text: In reviewing the confirmation of an arbitration award, we review the district court's factual findings for clear error and its legal determinations de novo. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir.2001). We are required nevertheless to give extreme deference to the determination of the [arbitrator]. Brown v. Coleman Co., 220 F.3d 1180, 1182 (10th Cir.2000). Once an arbitration award is entered, the finality of arbitration weighs heavily in its favor and cannot be upset except under exceptional circumstances. Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1146-47 (10th Cir.1982). An arbitration award will only be vacated for the reasons enumerated in the Federal Arbitration Act, 9 U.S.C. § 10, or for a handful of judicially created reasons. Sheldon, 269 F.3d at 1206 (observing that a district court may set aside an arbitration award based on a violation of public policy, manifest disregard of the law, or denial of a fundamentally fair hearing). As an initial matter, we must clarify the distinction between arbitrability and the scope of an arbitrator's authority, because different standards of review apply to each. An issue is arbitrable if it is subject to decision by arbitration or referable to an arbitrator or arbiter. WEBSTER'S THIRD NEW INT'L DICTIONARY, UNABRIDGED 110 (2002). Here, the arbitrable issue is whether the rate for single-line service can fall below $11.77 per ton. In contrast, the scope of authority question is whether the board, in determining whether the rate can fall below $11.77 per ton, had the authority to declare no rate floor provision existed. So long as the parties have not specifically agreed to submit the arbitrability [2] question itself to arbitration (i.e., to arbitrate arbitrability), a court will decide independently whether the merits of the parties' dispute is arbitrable. First Options of Chicago v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Thus, a party who has not agreed to arbitrate will normally have a right to a court's decision about the merits of its dispute. Id. at 942, 115 S.Ct. 1920. But once a court independently determines the parties agreed to arbitrate an issue, it should give extreme deference to an arbitrator's decision regarding the scope of that issue. See Sheldon, 269 F.3d at 1206. Other circuits have expressly held the arbitrator's interpretation of the scope of his powers is entitled to the same level of deference as his determination on the merits. See Schoenduve Corp. v. Lucent Techs., Inc., 442 F.3d 727, 733 (9th Cir.2006); Major League Umpires Ass'n v. Am. League of Prof. Baseball Clubs, 357 F.3d 272, 279 (3d Cir.2004). BNSF attempts to garner a more favorable standard of review by masquerading its scope of authority claim as an arbitrability claim. It contends it did not submit the rate floor provision to arbitration and hence it is entitled to the district court's independent review of its claims. The problem for BNSF is that the parties entered into a submission agreement in which they jointly agreed to arbitrate their disputespecifically, (1) BNSF's claim that the rate for single-line service cannot be less than $11.77 per ton (i.e., the purported rate floor), and (2) PSO's defenses to BNSF's claim, including the defense that no post-1994 rate floor existed. Accordingly, the district court correctly applied a deferential standard of review to the board's merits determinations after independently concluding BNSF agreed to arbitrate the precise issue that it now contends is outside the Board's scope of authority. Burlington, 2009 WL 2588868 at . BNSF asks us to review de novo whether the board properly construed the submission agreement to permit it to rule in PSO's favor. But the board's determination that it had the authority to declare no rate floor provision existed is entitled to the same extreme deference as its determinations on the merits. See Sheldon, 269 F.3d at 1206; Schoenduve Corp., 442 F.3d at 733. BNSF cannot escape this deference by characterizing its challenge to the board's scope of authority as an arbitrability issue. The finality of any arbitration award would be meaningless if a losing party could re-litigate its dispute in court by claiming an arbitrator exceeded his or her authority. See Dominion Video Satellite, Inc. v. Echostar Satellite LLC, 430 F.3d 1269, 1279 (10th Cir.2005). BNSF presents two additional arguments to gain an independent review of its claims. First, it contends a less deferential standard of review applies to claims that arbitrators exceeded their powers than applies to claims of fraud, corruption, or misconduct. See Aplt. Br. at 26-27 (A court reviewing an arbitrator's decision under FAA 9 U.S.C. § 10(a)(4) does not apply the same deference as required for challenges arising under FAA 9 U.S.C. § 10(a)(1) through 10(a)(3).). We have held, however, that our highly deferential standard of review applies to claims the arbitrator exceeded his power in issuing the award. DMA Int'l, Inc. v. Qwest Comm. Int'l, Inc., 585 F.3d 1341, 1345 (10th Cir.2009). Second, BNSF points to United Paperworkers Int'l Union v. Misco, Inc., a Supreme Court decision, for the proposition that a high level of deference applies only when the arbitrator is acting within the scope of his or her authority. 484 U.S. 29, 108 S.Ct. 364, 98 L.Ed.2d 286 (1978). This reliance is misguided. In fact, United Paperworkers holds, as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision. 484 U.S. at 38, 108 S.Ct. 364. Thus, United Paperworkers mandates a deferential standard of review on scope of authority claims. In sum, BNSF cannot obtain an independent review of its scope of authority claim by characterizing it as an arbitrability claim. An arbitrability issue does not arise whenever the losing party to an arbitration avers the arbitrator exceeded his or her authority. After the district court independently concluded the parties' rate dispute was arbitrable, it correctly applied a deferential standard of review to the board's determination of the scope of its authority.
To determine whether a particular dispute falls within the scope of an agreement's arbitration clause, we follow the three-part inquiry enunciated in Cummings v. FedEx: First, recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow. Next, if reviewing a narrow clause, the court must determine whether the dispute is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause. Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. Where the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicates issues of contract construction or the parties' rights and obligations under it. 404 F.3d 1258, 1261 (10th Cir.2005) (quoting Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir.2001) (emphasis, internal citations, and quotations omitted)). As an initial matter, we reiterate our finding that BNSF expressly agreed to allow the arbitration board to consider the rate floor issue. Even if it had not, our case law provides no support for BNSF's argument. BNSF first contends the arbitrator board exceeded the scope of its authority because a determination that the rate floor was temporal (i.e., not intended to apply after a § 11 renegotiation) and therefore is a collateral matter beyond the purview of the agreement's narrow arbitration clause. Aplt. Br. at 33. To support this argument, BNSF cites two cases Cummings and Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc., 567 F.3d 1191, 1196 (10th Cir. 2009). Both these cases can be distinguished easily on the facts. In Cummings, the arbitration provision was limited to disputes regarding the termination of operating agreements (essentially, employment contracts) between FedEx and package delivery contractors. 404 F.3d at 1260. But FedEx sought to compel arbitration on claims of breach of implied contract and breach of the implied duty of good faith and fair dealing arising out of an implied contract. Id. at 1262. Because the plaintiffs did not actually or constructively terminate the operating agreements, which according to the unambiguous provision are the only disputes subject to arbitration, we held that these claims were collateral matters. Id. Similarly, this court in Chelsea held a claim of unfair business practices was collateral to an arbitration clause that was limited to disputes arising out of or relating to payments to [Chelsea] by Medco (and not the other way around). 567 F.3d at 1194. In contrast, we held Chelsea's first claim, alleging inadequate reimbursement, related to payment and thus must be arbitrated. Id. We reiterated, If the allegations underlying the claims touch matters covered by the parties' [arbitration agreement], then those claims must be arbitrated, whatever the legal labels attached to them. Id. at 1198 (quotations omitted). Both Cummings and Chelsea involved matters distant to the narrow scope of the relevant arbitration provisions. In contrast, the question of whether the 1994 award and the amended agreement contain a rate floor of $11.77 per ton squarely touches on the submitted issue of the 2006 arbitrationnamely, BNSF's claim it was entitled to payments on the basis of a rate floor. [3] It is also directly related to renegotiations of the rate or escalation in § 11 (governing renegotiation), as outlined in § 13.1 (governing arbitration) of the agreement, since [i]t was the parties' renegotiation of the Effective Rate that led to the dispute over whether a rate floor remained inherent in the Agreement. Burlington, 2009 WL 2588868 at . In sum, the board's determination regarding the existence of a base floor is within the purview of the agreement's arbitration clause and falls squarely within the issues presented to the board by the parties' joint submission agreement. As a result, the district court did not err in concluding the board did not exceed the scope of its authority.