ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, March 26, 2015

Fifth Circuit Reverses District Court's Order Vacating Arbitral Award

5th CircuitBNSF Railway Company (BNSF) and Alstom Transportation, Inc. (Alstom) had a Maintenance Agreement that included an arbitration clause.  BNSF notified Alstom that it was eliminating locomotives from its active fleet, which triggered a clause in the Maintenance Agreement that required discussions so that an economic adjustment could be made in Alstom's favor.  BNSF then terminated the Agreement before any such discussions took place.  

BNSF sought declaratory relief in a District Court, but the District Court granted Alstom's motion to compel arbitration.  The Arbitration Panel (Panel) found that BNSF's termination of the contract violated the contractual duty of good faith and fair dealing and awarded Alstom damages.  When Alstom sought to enforce the award in the District Court, BNSF moved to vacate.  The District Court granted the motion to vacate,  finding that the Panel had not applied Illinois law correctly.

In BNSF Railway Co. v. Alstom Trans., Inc., the Fifth Circuit vacated the District Court's order and remanded with instruction to reinstate the arbitral award.  The Fifth Circuit noted that the Supreme Court has instructed that district courts’ review of arbitrators’ awards under § 10(a)(4) is limited to the “sole question . . . [of] whether the arbitrator (even arguably) interpreted the parties’ contract.” Oxford Health, 133 S. Ct. at 2068.  After a brief review of the interpretive options, the Fifth Circuit concluded that "BNSF fails to show that the Panel could not have been interpreting the Agreement when it concluded that Illinois law imposes a limitation on the right to terminate 'without cause' based on the covenant of good faith and fair dealing."   The Panel also interpreted the Agreement in determining damages.  For the purposes of judicial review, it does not matter whether the interpretation was right or wrong.

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