Court Opinion

ID: 8885878
Source: CourtListenerOpinion
Date Created: 2022-11-26 21:50:17.114489+00
Date Added: 2024-06-11T17:06:54.862562
License: Public Domain

TAMM, Circuit Judge,
with whom Circuit Judges McGOWAN and Mac-KINNON join (dissenting):
My views concerning the proper disposition of this case require a more complete statement of the historical background and factual context of this controversy than is contained in the majority opinion.
Prior to 1920, the development of water resources as a potential source of electric power was governed by provisions of the General Dam Acts, 34 Stat. 386 (1906), 36 Stat. 593 (1910). Under these Acts, the right to alter or amend the licenses of power projects was reserved by Congress, and no rights vested in licensees. This policy rendered investments in power projects quite speculative, thereby deterring public investors from providing the capital needed to develop the nation’s water power resources. Congress soon became aware of these shortcomings in the existing law and undertook an exploration of alternative solutions to the problem. One of these new proposals was S.1419, which ultimately became the Federal Water Power Act of 1920. In the Senate Report accompanying this bill, the existing statutory scheme was sharply criticized because it provided for- the imposition of “conditions upon which the permit may be granted that render the terms of the investment so uncertain and * * * so defeasible that those having capital can not safely and will not make investments under them.” S. Rep. No. 179, 65th Cong., 2d Sess. 3 (1917). A proponent of the Federal Water Power Act noted that the new approach taken in the 1920 Act was designed to provide a “method by which the water powers of the country * * * can be developed by public or private agencies under conditions which will give the necessary security to the capital invested and at the same time protect * * * [the] public interest.” H.R.Rep. No. 61, 66th Cong., 1st Sess. 5 (1919).
The primary method that Congress chose for safeguarding the security of investments under the Federal Water Power Act was embodied in section 28 of that legislation, which provided:
[T]he right to alter, amend, or repeal this Act is hereby expressly reserved; but no such alteration, amendment, or repeal shall affect any license theretofore issued under the provisions of this Act, or the rights of any licensee thereunder.
41 Stat. at 1077 (emphasis added). The 1920 Act also contained provisions which stated that licenses could be issued for a term of not more than fifty years, and that “when licenses are issued involving the use of * * * tribal lands * * * within Indian reservations the [Federal Power] commission shall fix a reasonable annual charge for the use thereof, and such charges shall be readjusted at the end of twenty years * * * in a manner to be described in each license. * * *” 41 Stat. at *7581069. The Commission had occasion to review the effect of these provisions and the Congressional intent underlying them in Annual Charges Prescribed for Licensees Under the Federal Power Act, 31 F.P.C. 1555,1557-58 (1964):
The legislative history of the Federal Water Power Act reveals several important efforts to include a provision enabling the Commission to adjust annual charges. Initially, Rep. Sherley of Kentucky succeeded in amending H.R. 16053, 63rd Cong., 2d Sess. (1914) to provide:
The Secretary of War may provide as a condition of such approval for the payments to the United States of reasonable annual charges for the benefits that accrue to the grantee * * * and at the end of twenty years, and every ten years thereafter, the Secretary of War may readjust the annual charges as may then be just and reasonable. [Citing 51 Cong.Rec. 12,759 (1914); (emphasis added by the Commission).]
When the House was considering H.R. 3184 which, as amended, became the Federal Water Power Act, the Sherley Amendment had its sequel in the unsuccessful Little Amendment. * * *
Representatives Small of North Carolina and McArthur of Oregon opposed the Little Amendment in [the floor] debate on the ground that it would discourage investment in the hydro-electric industry. Representatives Ferris of Oklahoma and Sims of Tennessee argued that since the Commission could provide for adjusting annual charges in the licenses, the Little Amendment was unnecessary. Representative Sims made it abundantly clear that adjustment was not possible without a license provision allowing it:
Mr. Little. But they have to do it when they issue the license or they forever forfeit any chance to adjust the charges to changing conditions.
Mr. Sims. They have to put it in the license. [Citing 58 Cong.Rec. 2223 (1919) (emphasis added).]
The .Little Amendment was rejected, and H.R. 3184 was passed and sent to the Senate.
The Senate report on the bill proposed an amendment which, while it would have confined the purposes for which annual charges could be fixed, would have permitted their periodic adjustment [by the Commission], -x- * * The Senate in approving H. R. 3184 adopted this amendment. The House being in disagreement with the Senate amendments, the bill was referred to conference committee, in which * * * the language as finally enacted in subsection 10(e) was worked out. * * *
The legislative history thus shows that Congress rejected the two proposals which would have expressly authorized the Commission to adjust annual charges, even though both proposals contained a minimum period for successive adjustments.
It would be difficult indeed to imagine a clearer or more specific expression of congressional intent to immunize license provisions, particularly those relating to readjustment, from unilateral governmental action beyond the ambit of the methods and criteria specified in the individual license.
In the same year that the Federal Water Power Act was passed by Congress, the Montana Power Company approached the Government regarding the possibility of obtaining a license to construct and operate a hydroelectric project on the Flathead Reservation. (See S.Doc.No. 153, 71st Cong., 2d Sess. 3 (1930).) The lengthy negotiations described in the majority opinion ensued, and the record of these negotiations leaves no question that the problem of finding a workable method to determine a fair rental charge for use of the Flathead site was one of the hardest issues confronting the parties. The Commission, the Army Corps of Engineers, and *759the Bureau of Indian Affairs all made various proposals during the period from January 2, 1930 to April 1, 1930; in all, “[f]our months of negotiations were consumed in discussing those various plans * * * and [the parties] were never able to reach an agreement. Several deadlocks actually developed with the breaking off of negotiations.” (J.A. 183-184.) Finally, the parties agreed upon a flat rental system because this method assured the Tribes of a stable income throughout the fifty-year term of the license. The rental was set at levels which increased at the end of the second, third, fourth, and fifth years of the project, then increased again at two intervals of five years each, and finally reached the sum of $175,000 per year “[f]or the next five years and/or until readjustment of the annual charges” required by the Federal Water Power Act after twenty years of operation. (J.A. 184-185.)
The readjustment provision ultimately incorporated into Article 30(D) of the license stated that the readjustments in the rental amount mandated by the Federal Water Power Act would be effected “by mutual agreement between the commission and the licensee, with the approval of the Secretary of the Interior. In case the licensee, the commission, and the Secretary of the Interior can not agree upon the readjustment of such charges, it is hereby agreed that the fixing of readjusted charges shall be submitted to arbitration in the manner provided for in the United States arbitration act. * * *” (J.A. 186.) This provision supplanted an earlier Commission proposal under which readjustment would have been made “upon the facts as found by the commission at such times of readjustment.” (J.A. 203; emphasis added.)
When the Federal Water Power Act was amended to become part of the Federal Power Act in 1935, section 28 of the former Act, guaranteeing the preservation of rights vested in existing licensees, was carried forward into the new legislation without any change. At the same time, section 10(e) of the 1920 Act, which had provided that readjustments were to be made “in a manner to be described in each license,” was amended to state that readjustments of the annual charges were to be made by the Commission. The amendatory language on its face is wholly prospective, and, as I read it, reflects no Congressional intent to abridge inconsistent readjustment provisions contained in outstanding licenses.1 *Both the House2 and the Senate3 ****Reports accompanying the amendments describe the changes as “minor” and “clarifying” — language that is surely a classic understatement if it is designed to convey an intent to let the Commission rewrite readjustment provisions in all existing licenses. In fact, I think it is fair to say that the available evidence indicates that Congress did not intend to affect license provisions like the one in question, and that the majority’s interpretation of the *760legislative history rests upon questionable or erroneous inferences.
On its face, section 28 of the 1920 Act is designed to protect all rights granted in licenses issued under that legislation, not just those provisions which a court or a different Congress might later deem “important”: this section uses careful disjunctive phrasing to provide that subsequent legislative action will not “affect any license theretofore issued * * * or the rights of any licensee thereunder.” The lengthy summary of the legislative history of the 1920 Act quoted above clearly indicates that the Congress which first enacted section 28 would not have believed or intended that the present result could be reached under that legislation. The majority concludes, however — by inferring Congressional intent from evidence that is admittedly equivocal — that Congress apparently meant something quite different by the language of section 28 when it reenacted this provision in 1935: now the Commission would be permitted to readjust all rental amounts even though a different method had been specified in the license.
Even if I could accept the theory that (1) after 1935 section 28 was limited to protecting only those license provisions which the Commission and the courts would deem “substantive” or “important,” and (2) rental readjustment provisions in licenses issued under the 1920 Act are not prima facie within this category by virtue of the strong legislative history of the 1920 Act and the congressional silence in 1935, I still would not be able to agree with the majority’s analysis of the interests at stake in this case.
The majority asserts that the arbitration clause is “remedial,” which renders it procedural and hence defeasible, absent some exceptions which will be discussed below. I believe that this characterization misconceives the function of the arbitration clause in Montana Power’s license. Clearly, such an inquiry into the purpose' and functional role of the provision is necessary here; for, as Judge (later Justice) Cardozo said in Berkovitz v. Arbib & Houlberg, Inc., 230 N.Y. 261, 271, 130 N.E. 288, 290 (1921):
The word “remedy” itself conceals at times an ambiguity, since changes of the form are often closely bound up with changes of the substance. * * * The problem does not permit us to ignore gradations of importance and other differences of degree. In the end, it is in considerations of good sense and justice that the solution must be found.
See also Guaranty Trust Co. v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 1469, 89 L.Ed. 2079 (1945): “Neither ‘substance’ nor ‘procedure’ represents the same invariants. Each implies different variables depending upon the particular problem for which it is used.”
At the outset, it is clear from the Erie doctrine eases and the majority opinion that even where arbitration is clearly being used as a remedial device — most familiarly, in resolving disputes over the construction or performance of contracts by recourse to an impartial third party —it “substantially affects the cause of action” and “may make a radical difference in ultimate result.” Bernhardt v. Polygraphic Co. of America, Inc., 350 U.S. 198, 203, 76 S.Ct. 273, 100 L.Ed. 199 (1956); see also Byrd v. Blue Ridge Rural Elec. Cooperative, Inc., 356 U.S. 525, 539, 78 S.Ct. 893, 2 L.Ed.2d 953 (1959). Thus, even under the majority’s analysis, it is clear that the company may well be forced to pay substantially greater rentals for thirty years out of the fifty-year term of the license than it would be if the arbitration clause were given effect. This fact, standing alone, should make us extremely wary of the Commission’s facile attempts to dismiss the clause as merely “procedural.”
However, I think it is perfectly clear that the arbitration clause in Montana Power’s license is different in fact and function from the majority’s characterization of it. Unlike the typical arbitration clause that is used to resolve contract disputes, this provision is not trig*761gered by one party’s claim of breach; rather, it is used as a method of defining a key term in the license at a specified future time, as mandated by the Federal Water Power Act of 1920. The Supreme Court has observed the validity of a similar distinction, while not making it determinative, in cases involving alleged impairments of the obligations of contracts:
The provisions [of the contract] dealing with forfeiture, which is one of the State’s remedies in case of breach, and reinstatement, which is the purchaser’s remedy to cure his breach, both operate on the rights of a party after breach and thus concern the enforcement of the contract. In this sense they are remedial and the statute of repose challenged here is an alteration of remedy rather than obligation.
City of El Paso v. Simmons, 379 U.S. 497, 506 n. 9, 85 S.Ct. 577, 582, 13 L. Ed.2d 446 (1965) (emphasis added). As a term-fixing mechanism, the arbitration provision was not intended to be used only for extraordinary contingencies such as a claim of breach, but rather was designed to be employed during the normal course of performance in the not-unlikely event that the parties were unable to agree upon an adjusted rental amount. One need look no further than the hornbooks to be reminded that this is a familiar practice in contract law:
In the process of negotiating an agreement, a term that is most frequently left indefinite and to be settled by future agreement, or by some other specified method, is the price in money. * * * If the parties provide a practicable, objective method for determining this price or compensation, not leaving it to the future will of the parties themselves, there is no such indefiniteness or uncertainty as will prevent the agreement from being an enforceable contract.
******
It is sufficient if the agreement provides that the price shall be the amount that arbitrators or that X, a specific third person, shall fix as a fair price.
1 Corbin on Contracts 423-425, 435-436 (1963). Additionally, the inquiry which would be made pursuant to Montana Power’s arbitration clause is significantly different from having an arbitrator determine how a disputed contract term should be interpreted or what damages should be assessed for breach. In the latter situation, there is typically a relatively narrow question, and a relatively large body of principle to guide the decision. Here, although the majority leaves intact the license provision stating that readjusted rentals are to be based upon “the commercial value of the tribal lands involved, for the most profitable purpose for which suitable,” it is clear that valuation problems for hydroelectric projects of this kind are extremely vague and complex and that the foregoing standard offers little help in resolving them. This is amply demonstrated by the nature and volume of the arguments which the parties have addressed to the merits of the Commission’s rental readjustment, and, unfortunately, I suspect that it will also be reflected in any opinion rendered by the division of this court which is assigned to pass upon the merits. Because of this lack of readily ascertainable standards guiding the inquiry, the qualities and characteristics of the tribunal making the decision become pro tanto more important to the parties; and in this regard it must be remembered that the Commission was a party to the original agreement, albeit in somewhat different form.
Therefore, I believe that it is clear on the face of the license and the legislative history that the arbitration clause is “important” enough, even under a narrow reading of section 28, to survive the 1935 amendments; and I think that this conclusion is supported, rather than controverted, by the record of license negotiations. Before examining this question in detail, however, I think it should be emphasized that the preliminary negotiations provide a much less reliable *762indicator of the substantive importance of a license provision than an appraisal of the provision’s functional role in the license. Experience teaches that parties frequently agree upon some of the most important terms of contracts without a lot of bickering or negotiation; and fairness dictates that Montana Power should not be penalized for agreeing too readily to the proffer of arbitration as a term-fixing mechanism. Moreover, it should be remembered that the published records of the license negotiations are not by any means verbatim transcripts; rather, they are summaries prepared for the use of the Government in its capacity as potential negotiator of similar licenses in the future. Thus, relying upon these records is a rather speculative enterprise, particularly when making the kind of implication from silence that the majority is asserting on this' point. However, to the extent that the history of negotiations may be useful to elucidate the present inquiry, I think it points as strongly to the conclusion that the arbitration clause was considered substantively important and indefeasible.
As the majority points out, the parties to this license, particularly the Government, approached the task of negotiation and drafting with acute awareness that their acts would have great precedential significance; the Scattergood Report states that “it would seem unusually appropriate that special care be taken to develop the factors for regulation under the Federal water power act * * * and for the preparation of a model lease.” (J.A. 137.) This care by the parties extended to the task of making sure that the precise instances and scope of future governmental regulation would be specified in the license, in accord with the usages of the 1920 Act. This was done with many sections of the license, both in the negotiations (see S. Doc. No. 153, 71st Cong., 2d Sess. 7-9 (1930)) and in the license itself (see J. A. 237-258); yet, provision for possible government regulation is notably absent from the readjustment section contained in the license. Moreover, as noted above, the arbitration clause was allowed to become part of Montana Power’s license only after the company had rejected the government’s proposal to have rentals readjusted “upon the facts as found by the commission.” (J.A. 203.) Finally, when the license was renegotiated shortly after the passage of the 1935 amendments, the parties themselves provided a practical construction of the license which showed that they believed the arbitration clause to be important enough to remain fully effective. During these renegotiations, the Tribes and the Commission were in a very advantageous bargaining position — and Montana Power was in a very poor one — by virtue of the company’s default on its construction obligations; however, the parties included language in the amended license which reflects their belief that the arbitration clause remained in full effect. In the Schedule of Annual Charges contained in Amendment No. 2, the parties stipulated that the rental for the year 1954 would be $205,000, and that “[t] hereafter, until adjustment of the annual charges payable hereunder shall have been effected pursuant to the provisions of paragraph (D) of this Article SO [the arbitration clause],” the annual rental amount would be $175,000. (J.A. 271; emphasis added.)
Against this background, I find the majority’s analysis of the negotiations extremely artificial. The majority concedes — as it must — that there was initially a period of hard bargaining over the price term of the lease. When arbitration entered the picture, however, these negotiations apparently underwent some strange variety of legal mitosis: suddenly, the first twenty-year period of the price term’s effectiveness became “bargained for,” while the remaining thirty years of the price term became, not “bargained for” but rather an “open-end agreement” or an “on-going agreement” — phrases which apparently have no legal significance, and scant relationship to what I perceive as the thrust of the negotiations. Suffice it to *763say that, in contrast to the relatively simple and expeditious processes of arbitration, this readjustment proceeding certainly has proved to be “open-ended”; there is not even an end to litigation in sight. Other problems remain in the majority opinion, but none seems substantial enough to warrant extending these already lengthy opinions any further, or delaying their issuance any longer. I would require that this controversy be submitted to arbitration forthwith.

. Section 10 of the Act, which is now codified in 16 U.S.C. § 803 (1964), states:
All licenses issued under * * * this title shall he on the following conditions :
ífí * Jfr * #
(e) * * * [W]hen licenses are issued involving * * * tribal lands embraced within Indian reservations the Commission shall * * * fix a reasonable annual charge for the use thereof, and such charges may * * * be readjusted by the Commission * * * upon notice and opportunity for hearing * * * * (Emphasis added.)
See also 16 U.S.C. § 799 (1964) :
Licenses under * * * this title shall be issued for a period not exceeding fifty years. Each such license shall be conditioned upon acceptance by the licensee of all of the terms and conditions of this chapter and such further conditions, if any, as the Commission shall prescribe in conformity with this chapter. * * * *

. H.R.Rep. No. 1318, 74th Cong., 1st Sess. 7, 24 (1935).

. S.Rep. No. 621, 74th Cong., 1st Sess. 17, 45 (1935).