                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-2-2005

Metromedia Energy v. Enserch Energy Ser
Precedential or Non-Precedential: Precedential

Docket No. 04-1944




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                                     PRECEDENTIAL

   IN THE UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT

                 Case No: 04-1944

          METROMEDIA ENERGY, INC.

                          v.

ENSERCH ENERGY SERVICES, INC.; TXU ENERGY
             COMPANY LLC;
TXU ENERGY TRADING; TXU ENERGY SERVICES,
                  n/k/a
 TXU ENERGY RETAIL COMPANY, LP; TXU JOHN
                  DOES


TXU ENERGY SERVICES, n/k/a TXU ENERGY RETAIL
              COMPANY, LP,

             Defendants/Third-Party Plaintiffs
                         v.

           METROMEDIA COMPANY,

                  Third-Party Defendant


    Enserch Energy Services, Inc; TXU Energy Company
     LLC; TXU Energy Trading; TXU Energy Services,
            n/k/a TXU Energy Retail Company, LP,

                                Appellants


     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
        __________________________________

                 Argued March 29, 2005

  Before: ALITO, SMITH, and ROSENN, Circuit Judges

                  (Filed: June 2, 2005)


COUNSEL: Robert K. Wise, Esq. (Argued)
         Thomas F. Lillard, Esq.
         Miles B. Haberer, Esq.
         Hunton & Williams, LLP
         Energy Plaza, 30th Floor
         1601 Bryan Street
         Dallas, Texas 75201-3402

            Leda Dunn Wettre, Esq.
            Robinson & Livelli
            Two Penn Plaza East
            Newark, New Jersey 07105-2237
            Attorneys for Appellants

                            2
              Phyllis J. Kessler, Esq. (Argued)
              Richard S. Last, Esq.
              Foreht, Last, Landau & Katz
              228 East 45th Street, 17th Floor
              New York, New York 10017
              Attorneys for Appellees

                  _____________________

                 OPINION OF THE COURT
                  _____________________

SMITH, Circuit Judge.

        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.


                               3
       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.

I.     FACTUAL BACKGROUND

        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

                                4
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.”



                                5
        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 spot-
market 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

                               6
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 that the
panel’s decision concerning attorney fees “was necessarily
based on the panel’s inappropriate decision that TXU’s charges
were reasonable under [the] spot gas contract. . . .”



                                7
II.    ANALYSIS

       The District Court exercised diversity jurisdiction over
MME’s suit pursuant to 28 U.S.C. § 1332. We exercise
appellate jurisdiction over the District Court’s final order
pursuant to 28 U.S.C. § 1291.

        This appeal centers on the question of whether the
arbitration panel exceeded the scope of its authority by stating
in its written award decision that TXU’s sales of spot-market
gas to MME during the Disputed Period “were consistently
priced and properly reflected market price on the dates volumes
were requested and delivered.” MME argued before the District
Court that once the arbitration panel determined that TXU’s
spot-market sales were not governed by the pricing provision
contained in the Master Agreement, the panel lacked authority
to decide whether TXU’s prices under a separate course-of-
performance contract were reasonable and fairly reflected
market conditions. MME based its argument on the fact that the
Master Agreement’s arbitration clause covers “any
disagreement, difference or dispute among the Parties arising
under this Agreement[.]” (Emphasis added). MME argued that
since the parties had agreed only to arbitrate disputes arising
under the Master Agreement, the arbitration panel’s finding that
spot gas transactions during the Disputed Period were not
governed by the Master Agreement deprived the panel of the

                               8
authority to address the reasonableness of TXU’s prices under
an implied course-of-performance contract that lacked an
arbitration clause. The District Court agreed with MME,
holding that once the arbitration panel had determined that
TXU’s spot-market sales to MME were not subject to the
Master Agreement, the panel’s inquiry should have ceased. The
District Court reasoned that the issue of whether TXU had or
had not breached a separate course-of-performance contract was
not a dispute arising under the Master Agreement, and thus was
not subject to arbitration.

        On appeal, TXU argues that the arbitration panel’s award
reflects a legitimate exercise of the panel’s authority. TXU
maintains that the submissions made by the parties during
arbitration, taken as a whole, provided a reasonable basis for the
arbitration panel to conclude that it was empowered to
incorporate into award its findings concerning the
reasonableness of TXU’s spot-market prices in connection with
sales to MME during the Disputed Period. TXU also argues that
the District Court’s decision fails to reflect the substantial
deference owed by a federal court to an arbitration panel’s
award pursuant to the FAA.

       Review of arbitration awards under the FAA is
“extremely deferential.” Dluhos v. Strasberg, 321 F.3d 365, 370
(3d Cir. 2003). Vacatur is appropriate only in “exceedingly
narrow” circumstances, such as where arbitrators are partial or
corrupt, or where an arbitration panel manifestly disregards,

                                9
rather than merely erroneously interprets, the law. See id.; Local
863 Int’l Bhd. of Teamsters v. Jersey Coast Egg Producers, Inc.,
773 F.2d 530, 533 (3d Cir. 1985) (stating that error of law is
insufficient basis for vacatur). Likewise, an arbitrator’s
“‘improvident, even silly, factfinding’ does not provide a basis
for a reviewing court to refuse to enforce the award.” See Major
League Umpires Assoc. v. American League of Professional
Baseball Clubs, 357 F.3d 272, 279-80 (3d Cir. 2004) (quoting
Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504,
509 (2001)).

        Here, MME’s challenge to the arbitration award focuses
not upon the underlying merits of the panel’s analysis, but rather
upon whether the panel exceeded its authority by resolving in its
opinion an issue the parties had not agreed to arbitrate. The
District Court adopted MME’s view, predicating its opinion on
a provision in the FAA which indicates that an arbitration award
may be vacated “if the arbitrators exceed their powers, or so
imperfectly execute them that a mutual, final and definite award
upon the subject matter submitted was not made.” 9 U.S.C. §
10(a)(4). The concerns raised by MME and the District Court
arise from the principle that arbitration is a creature of contract,
and an arbitration panel has the authority to decide only the
issues that have been submitted for arbitration by the parties.
See Matteson v. Ryder Sys. Inc., 99 F.3d 108, 114 (3d Cir.
1996).

       In Matteson, we considered the standard of review

                                10
applicable where a party seeks to vacate an arbitration award
based upon allegations that the arbitrators exceeded the scope of
their authority by purporting to resolve issues the parties had not
agreed to arbitrate. We began by explaining that in reviewing
a district court decision concerning the validity of an arbitration
award, our assessment of the arbitration panel’s actions is
governed by the same standard that governed the District
Court’s review. See Matteson, 99 F.3d at 112. Thus, we owe no
deference to the District Court’s analysis, and instead we
exercise plenary review over the District Court’s decision to
vacate the arbitration award.

        In relation to our review of the arbitration award itself,
we noted that “an arbitrator has the authority to decide only the
issues actually submitted” by the parties. See id. at 112-13
(citing United Parcel Serv., Inc. v. International Brotherhood of
Teamsters, Chauffers, Warehousemen and Helpers of America,
Local Union No. 439, 55 F.3d 138, 142 (3d Cir. 1995)). We
then stated that “[i]t is the responsibility of the arbitrator in the
first instance to interpret the scope of the parties’ submission,
but it is within the courts’ province to review an arbitrator’s
interpretation.”     Id. at 113 (citing Mobil Oil Corp. v.
Independent Oil Workers Union, 679 F.2d 299, 302 (3d Cir.
1982)). In determining the appropriate standard for our review
of the arbitrator’s interpretation of the scope of a submission, we
indicated that “there is no doubt that our review of the
interpretation of a submission is highly deferential.” Id. We
also rejected the argument that lesser deference should be

                                 11
accorded to an arbitrator’s assessment of the scope of his own
authority where such an assessment was based upon the
arbitrator’s factual determinations concerning which issues were
actually submitted by the parties. See id. at 113 n.6. However,
we cautioned that “[e]ffusively deferential language
notwithstanding, the courts are neither entitled nor encouraged
simply to ‘rubber stamp’ the interpretations and decisions of
arbitrators.” Id. at 113.

        We noted in Matteson that our efforts to apply this
standard of review were hampered by the parties’ failure during
the course of the arbitration jointly to prepare a single document
listing the precise issues they wished to submit to the arbitration
panel. See id. at 114. Under such circumstances, we held that
“absent a formal, written submission, we must look to the
parties’ conduct as a whole.” Id. We stated that “[t]o determine
the intent of the parties given the circumstances in this case . .
. we cannot limit ourselves to simply one or a few documents.”
Id. We also stated that we would not focus upon isolated
statements within the documents submitted by the parties, but
would instead “examine the documents with an eye towards
arranging each of them to create a complete picture.” Id.

       To summarize, Matteson indicates that the arbitrators
have the authority in the first instance to interpret the scope of
the parties’ submissions in order to identify the issues that the
parties intended to arbitrate. When confronted with an
allegation that the arbitrators exceeded their authority by

                                12
resolving an issue the parties did not intend to submit, we will
review the arbitrator’s interpretation of the parties’ intentions
under a “highly deferential” standard. Nonetheless, this
deference is not a rubber stamp, and our review must focus upon
the record as a whole in determining whether the arbitrators
manifestly exceeded their authority in interpreting the scope of
the parties’ submissions.

        MME argues that the arbitration panel’s written opinion
in support of the arbitration award reveals that the panel
exceeded its authority. Where an allegation that an arbitration
panel has exceeded its authority is based upon the language of
the written opinion in support of the panel’s award, our decision
in Roadway Package System, Inc. v. Kayser, 257 F.3d 287 (3d
Cir. 2001), provides additional guidance concerning our inquiry.
In Roadway Package, after surveying earlier authority
addressing such issues, we distilled three basic principles that
must guide our review: “(1) a reviewing court should presume
that an arbitrator acted within the scope of his or her authority;
(2) this presumption may not be rebutted by an ambiguity in a
written opinion; but (3) a court may conclude that an arbitrator
exceeded his or her authority when it is obvious from the written
opinion.” 257 F.3d at 301.

       With these principles in mind, we turn to MME’s
challenge to the arbitration panel’s award. We must question at
the outset the manner in which MME and the District Court
have interpreted the panel’s written opinion supporting its

                               13
award. The District Court apparently adopted the view that the
arbitration panel had first determined that TXU’s spot-market
sales to MME during the Disputed Period were governed by a
course-of-performance contract, and had then, as a separate
inquiry, determined that TXU charged reasonable, market-based
prices under this course-of-performance contract. We do not
believe the arbitration panel necessarily compartmentalized its
analysis in this manner. An alternative reading of the panel’s
written opinion is that the panel assessed the evidence
concerning the prices charged by TXU for spot-gas transactions,
found that these prices accurately reflected market conditions at
the time, determined that these market-based prices met the
expectations of both parties at the time of TXU’s spot gas sales
to MME, and then held, based on the mutual satisfaction of the
parties’ contemporaneous expectations, that spot-gas
transactions were governed by an implied course-of-
performance contract rather than by the pricing structure set
forth in the 1998 Master Agreement.

        Support for this reading flows from the sequence in
which the arbitration panel set forth its factual findings on the
second and third pages of its opinion. The panel cited testimony
from TXU witnesses indicating that TXU intended all spot-gas
sales during the Disputed Period to be “at then-current market
prices otherwise available for sale and purchase at the specific
delivery points[.]” The panel noted that these same witnesses
testified that TXU’s calculation of the market price for these
transactions was based upon information drawn from the spot-

                               14
gas market indices contained in the industry publications “Inside
FERC” and “Gas Daily.”            The panel also noted that
documentation sent by TXU to MME in connection with these
transactions indicated that the prices for spot-gas sales were
different than the prices for purchases governed by written
confirmations executed pursuant to the Master Agreement. The
panel’s opinion then discusses the testimony of MME witness
Lawrence Morris, who apparently testified that “he recognized
that the price for spot gas was not commensurate with the
confirmed transaction price for each LDC, but that as long as the
price was close to the Gas Daily index price for that period, he
raised no objection and ultimately paid the price specified.”
After describing Morris’s testimony in this manner, the
arbitration panel’s opinion states: “Thus, agreement as to price
for spot sales was independent of the Master Purchase
Agreement and determined on a month-to-month basis.”

        When viewed in context, we believe this opening portion
of the arbitration panel’s written opinion highlights the fact that
the panel’s findings concerning the market-based nature of
TXU’s prices were not made as part of an independent inquiry,
separate and apart from the finding that a course-of-performance
contract rather than the Master Agreement governed TXU’s
spot-market sales to MME. Instead, these findings were part of
the panel’s rationale for why it believed a course-of-
performance contract existed in the first place. The panel
reviewed the evidence in the record, found that TXU had
charged market-based prices, found that these market-based

                                15
prices satisfied MME’s expectations, found that MME was
aware that these market-based prices differed from the prices
that would have arisen under the Master Agreement’s pricing
provisions, found that MME raised no contemporaneous
objection to these prices, and concluded based on these findings
that the parties had intended to calculate the price for spot-gas
sales on a month-to-month basis, independent of the pricing
structure contained in the Master Agreement. In this context,
there is no support for the District Court’s view that the
arbitration panel somehow exceeded its authority by following
this chain of reasoning in the course of rejecting MME’s breach
of contract claim and concluding that TXU had not breached the
Master Agreement.

        We recognize, of course, that both MME and the District
Court may have interpreted the arbitration panel’s opinion as
having first found that a course-of-performance contract existed,
and only then having moved on to address the reasonableness of
TXU’s prices under this separate contract. This interpretation
does not entirely make sense, because it seems more logical to
believe that the arbitration panel first made its findings
concerning what the parties’ course of performance actually
was, and then considered whether this course of performance
reflected mutually-held expectations such that it could be said to
constitute a separate contractual arrangement independent of the
Master Agreement. It is not possible for us to say with complete
certainty which interpretation most accurately captures the
actual intentions of the arbitration panel. However, we find that

                               16
the interpretation discussed at length above is a reasonable
reading of the arbitration panel’s written opinion. Given this
fact, the District Court was wrong to seize on a contrary reading
and to invoke that reading as a basis for concluding that the
arbitration panel exceeded its authority. The District Court’s
approach runs afoul of the core principles identified in Roadway
Package, which held that “a reviewing court should presume
that an arbitrator acted within the scope of his or her authority”
and that “this presumption may not be rebutted by an ambiguity
in a written opinion.” See Roadway Package System, Inc., 257
F.3d at 301.

        Moreover, even if we were to adopt the District Court’s
interpretation of the arbitration panel’s written opinion, we
would still uphold the panel’s award. Here, as in Matteson, the
parties failed to submit to the arbitrators a single comprehensive
document listing the precise issues that the arbitrators were
being asked to resolve. Thus, if we were to assume that the
arbitration panel’s findings concerning the reasonable, market-
based nature of TXU’s spot-market prices were not simply part
of the panel’s rationale for rejecting MME’s claim that the
Master Agreement applied to spot-market transactions, we
would review the record as a whole to determine whether the
arbitration panel reasonably believed the parties had submitted
to it the issue of whether TXU’s spot-market prices reasonably
reflected prevailing market conditions. See Matteson, 99 F.3d
at 114. While our review of such issues cannot be a “rubber
stamp,” it is clear that we must take a “highly deferential”

                               17
approach in considering whether an arbitration panel has
reasonably interpreted the scope of the parties’ submissions. See
id. at 113.

        We believe the record as a whole provided an adequate
basis upon which the arbitration panel could conclude that it was
empowered to address the reasonableness of TXU’s spot-gas
prices in the event that a course-of-performance contract rather
than the Master Agreement governed the parties’ spot-gas
transactions. The “Causes of Action” section in MME’s initial
Statement of Claims alleged that “TXU has further violated the
[Master] Agreement by supplying gas to MME for spot
purchases made between November 2000 and February 2001
and subsequently overcharging MME for said purchases.” This
section does not reference Appendix I of the Master Agreement,
which defines the “Contract Price” for purposes of sales
governed by the Agreement. Thus, both TXU and the
arbitration panel may reasonably have believed that MME’s
overcharge allegations were predicated upon multiple factors
depending upon the specific sales in question. Certainly, it is
clear from the record that TXU believed that the issue of
whether its spot-gas prices reasonably reflected market
conditions was implicated by MME’s claims, and thus was
before the arbitrators. For example, TXU’s pre-arbitration brief
described the testimony TXU intended to elicit during the
arbitration hearing. Among other things, TXU stated that its
testimony would establish that “as is customary in the natural
gas industry, TXU Energy often purchased this spot gas on the

                               18
open market, delivered the gas to MME and charged MME a
market-based price for the gas.” (Emphasis added). A later
subheading near the conclusion of the same brief asserted that
“[t]he price charged by TXU Energy for spot gas was both
market-based and consistent with the parties’ course-of-
performance.” In support of this assertion, TXU indicated that
“testimony will amply show that the price charged by TXU
Energy to MME for spot gas during the relevant time period was
based on the parties’ course-of-performance and was well within
the market price ranges published in both Inside FERC and Gas
Daily.”

        Consistent with its pre-hearing brief, TXU apparently
introduced testimony during the course of the arbitration
concerning the extent to which the prices for its spot-market
sales to MME were consistent with prevailing market conditions
as reflected in the leading industry pricing indices during the
Disputed Period. TXU discussed this testimony in its post-
hearing briefing, focusing primarily upon testimony provided by
one of TXU’s expert witnesses, and arguing based on this
testimony that “there is almost always a range of reasonableness
and not just a single number that can be reasonable,” and that
the prices for TXU’s spot-market sales to MME fell within this
range. TXU’s post-hearing brief also discussed documentary
evidence in the form of letters sent by MME to various MME
customers during 2001, in which MME defended its recent price
increases by noting that market prices for natural gas had risen
substantially during the prior months. TXU argued that these

                              19
MME letters established three key facts: “(1) [that] MME, and
not just TXU Energy, was justifying its spot gas prices based on
the Gas Daily index range, which reflects the market; (2) [that]
the market had spiked dramatically due to weather; and (3) [that]
the $23.00 price was within the market range and therefore
reasonable.”

        Based on the excerpts and testimony discussed above, it
appears that TXU believed throughout the arbitration
proceedings that MME’s claims might implicate the question of
whether TXU had charged reasonable, market-based prices for
its spot-market sales to MME during the Disputed Period.
Notably, at no point during the arbitration proceedings did MME
raise the jurisdictional concerns that it now invokes. For
example, MME never argued that TXU’s repeated references in
its opening brief to the market-based nature of its spot-market
prices were irrelevant, on the ground that resolving that issue
was beyond the scope of the arbitration panel’s authority. Nor
does MME appear to have objected to the evidence introduced
by TXU at the arbitration hearing with respect to the correlation
between TXU’s spot-market prices and the market-based range
of acceptable prices established by the leading industry pricing
indices during the Disputed Period. Even when TXU’s post-
hearing brief made it crystal clear that TXU believed the
arbitrators were empowered to address the reasonableness of its
spot-market prices during the Disputed Period, MME chose not
to send a letter or seek leave to file a reply challenging TXU’s
submission of an issue that MME had (supposedly) not agreed

                               20
to arbitrate.

        Thus, at the time the arbitration panel crafted its written
opinion in support of its award, it was faced with a record in
which one party had repeatedly presented evidence and
arguments concerning the reasonableness of its spot-market
prices under a course-of-performance contract during the
Disputed Period, and the other party had never objected to these
arguments on the ground that this issue was beyond the scope of
the panel’s authority. Accordingly, even if we were to adopt the
District Court’s interpretation of the arbitration panel’s written
opinion, we would hold that TXU’s briefs and hearing
testimony, combined with MME’s acquiescence to TXU’s
presentation of the issue, provided the arbitration panel with a
reasonable basis to conclude that it was empowered to address
whether TXU’s spot-market prices under the course-of-
performance contract accurately reflected market conditions at
the time of the spot-market sales to MME. Therefore, in light of
the highly deferential standard of review that we must apply in
assessing MME’s challenge to the arbitration panel’s
interpretation of the scope of the parties’ submissions, we
believe the District Court erred in determining that the
arbitration panel lacked the authority to address the
reasonableness of TXU’s spot-market prices.

       Having found that the arbitration panel did not exceed its
authority, we also hold that the District Court erred in vacating
the panel’s award of attorneys’ fees to TXU. The arbitration

                                21
panel found 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 mounts a broad challenge to this fee award, arguing that
even if we reverse the District Court’s opinion vacating the
substance of the arbitration panel’s award decision, we
nonetheless should affirm the District Court’s vacatur of the fee
award. MME argues that the arbitration panel’s fee award,
pursuant to the Master Agreement’s attorney fee provision, “is
inconsistent with [the panel’s] conclusion that the Agreement
did not apply to the parties’ dispute.”

        This argument makes little sense.           The Master
Agreement’s fee provision indicated that “[t]he defaulting Party
shall pay all reasonable costs and expenses (including attorney’s
fees) incurred by the non-defaulting party in the enforcement of
its rights under this Agreement, whether incurred through legal
action or otherwise.” MME initiated arbitration against TXU,
and asserted largely unsuccessful claims that TXU had breached
the Master Agreement. TXU, in response to MME’s initiation
of arbitration, filed counterclaims against MME, and recovered
$1,830,866.19 in settlement of these counterclaims prior to
completion of the arbitration proceedings. Based on these facts,
the arbitration panel reasoned that because TXU had
successfully defeated the bulk of MME’s overcharge claims
under the Master Agreement, and had recovered a substantial
sum in settlement of its counterclaims filed in connection with
the arbitration proceedings, TXU was the “non-defaulting party”

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under the Master Agreement’s fee provision, and thus was
entitled to recover its reasonable costs and expenses. Contrary
to MME’s assertion, the arbitration panel’s reliance on the
existence of a separate course-of-performance contract, as part
of its basis for rejecting MME’s overcharge claims under the
Master Agreement, is in no way inconsistent with the panel’s
finding that TXU was the “non-defaulting party” under the
Master Agreement’s fee provision. Moreover, our review of
arbitration awards is “extremely deferential,” see Dhulos, 321
F.3d at 370, and we must uphold the arbitration panel’s award
so long as it “draws its essence” from or “arguably construes or
applies” the parties’ contract, a standard that we are confident is
satisfied by the panel’s decision here. See News Am. Pub. v.
Network Typographical Union, 918 F.2d 21, 24 (3d Cir. 1990).



        For the foregoing reasons, the decision of the District
Court is reversed, and the case is remanded with instructions to
enter judgment in favor of TXU.




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