Petition — Grace v. Santa Fe Pacific Railroad

Office . Supreme Cor

Peon US

81-2353

sg Pg Te JUN 23 1992

No, 81-2153 A ae

Guthe Supreme Gourt of the United States

Ocroper Term, 1981

MICHAEL P. GRACE,

Petitioner,

Vv.

SANTA FE PACIFIC RAILROAD COMPANY, er At.,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

For the Tenth Circuit

PETITION FOR WRIT OF CERTIORARI

a ae =

WILLIAM B. ROGERS

Ames, Daugherty, Black,

Ashabranner, Rogers & Fowler

6440 Avondale Drive, Suite 200

Oklahoma City, Oklahoma 73116

(405) 840-2470

Counsel for Petitioner

QUESTIONS PRESENTED

1, Whether the Court of Appeals has incorrectly in-

terpreted and applied this Court's holding in Common-

wealth Coatings Corp. v. Continental Casualty Co., 393 U.S.

145 (1968), that arbitrators must disclose to the parties

any dealings that might create an impressic,: of possible

bias to the facts of this case and in conflict with other in-

terpretations and applications of the Commonwealth Coat-

ings ruling by other Courts of Appeal and U.S. District

Courts.

2. Whether Petitioner's right to due process of law

has been violated by the refusal of the U.S. District Court

and the Court of Appeals to grant Petitioner an eviden-

tiary hearing on matters relating to the conduct of the

arbitration proceeding, including the non-trivial relation-

ships between the neutral arbitrator and one of the parties

and its counsel, which were outside the arbitration record.

3. Whether the Court of Appeals erred in allowing

the District Court to interfere in subsequent arbitration

proceedings and with the right of Petitioner to seek ar-

bitration.

4. Whether the Petitioner, and persons similarly sit-

uated, should be prohibited from employing solution min-

ing to recover uranium, rather than conventional uneco-

nomical mining techniques, because of the failure of the

arbitration panel, U. S. District Court and Court of Appeals

to recognize solution mining as a method of commercial

production, contrary to the public interest at this time of

a depressed uranium industry.

~~

Michael P. Grace, Petitioner herein, Appellant before

the Court of Appeals and Defendant-Cross Defendant be-

fore the U.S. District Court.

Corrine Grace, Appellant before the Court of Appeals

and Defendant-Cross Defendant before the U.S. District

Court.

Santa Fe Pacific Railroad Company, Appellee before

the Court of Appeols and Defendant-Cross Claimant before

the U.S. District Court.

TABLE OF AUTHORITIES —————

OPINIONS BELOW ..W..

JURISDICTION

STATEMENT OF THE CASE .

ARGUMENT FOR ALLOWANCE OF THE WRIT ....

Overview

I, The Court of Appeals Has Incorrectly Inter-

pretei and Applied the Disclosure Rule De-

veloped in Commonwealth Coatings Corp. v.

Continental Casualty Co., 393 U.S. 145 (1968).

II, Petitioner's Right to Due Process of Law Has

Been Violated by the Refusal of the U.S. Dis-

trict Court and the Court of Appeals to Grant

Petitioner an Evidentiary Hearing on Matters

Relating to the Conduct of the Arbitration Pro-

ceeding and the Adequacy of Disclosure —....

Ill, The Court of Appeals Erred in Allowing the

District Court to Interfere in the Arbitration

Proceedings ;

IV. Solution Mining Is a Viable Method of Pro-

ducing Uranium-Bearing Ore in Commercial

Quantities . _

CONCLUSION

CERTIFICATE OF SERVICE follows Petition

APPENDIX A— Opinion of U.S. Court of Appeals

APPENDIX B— Denial of Petition for Rehearing

APPENDIX C — Letter noting extension of time

APPENDIX D— Opinions of U.S. District Court

10

12

15

17

—iv—

TABLE OF AUTHORITIES

Cases PAoa(s)

Adolph Coors Co, v. Commissioners, 519 F.2d 1280

(10th Cir, 1975), cert. den, 423 U.S. 1087 (1976) .. 13

Campo Machinery Co., Inc. v. Local Lodge No, 1926,

536 "890 F.2d SBD (OC Cle, 10TB) cncceccccsccsccccecscsessesesscsneseee 10

Commonwealth Coatings Corp. v. Continental Casualty

Co., 393 U.S. 145, 89 S.Ct. 848, 21 L.Ed.2d 612

(1968) ae i, 6,7, 9,10, 11

Cook Industries, Inc. v. C. Itoh & Co., 449 F.2d 106

(2d Cir, 1971) ll

Fizer v. Safeway Stores, Inc., 586 F.2d 182 (10th Cir.

1978) ..... —

Hanes Corp. v. Millard, 531 F.2d 585 (D.C. Cir, 1976). 14

National Bulk Carriers v. Princess Management, 597

F.2d 619 (2d Cir. 1979) 9

Overseas Motors, Inc. v. Import Motors, Ltd., Inc., 375

F.Supp 499 (D.C. Mich. 1974), aff'd, 519 F.2d 119

(6th Cir. 1975), cert. den, 423 U.S. 987 (1975) ......... 13-14

Overseas Private Investment Corp v. Anaconda Co.,

418 F.Supp. 107 (D.D.C, 1976) ll

Reconstruction Finance Corp. v. Harrisons and Cross-

field, 204 F.2d 366 (2d Cir. 1953), cert. den., 346 U.S.

854

14

Rummell v, Bailey, 320 P.2d 653 (Utah, 1958) ... ‘16

Sanko 8.8. Co., Ltd. v. Cook Industries, Inc., 495 F.2d

1260 (2d Cir. 1973) 9,11

Stewart v. Amerada Hess Corp., 604 P.2d 854 (1979). 16

Tamari v. Bache Halsey Stuart, Inc., 619 F.2d 1196

(7th Cir. 1980) 9

Texaco, Inc. v. Fox, 618 P.2d 644 (Kan., 1980)... 16

Other Authorities

Annotation, “Meaning of Paying Quantities in Oil and

Gas Leases”, 43 A.L.R.3d 8 16

National Gas Policy Act of 1978, 18 C.F.R. §271.204(e) 16

William & Myers Manual of Oil and Gas Terms, An-

notated (1980) - 16

No, 81-2153

In the

Supreme Court of the United States

Ocroper Term, 1981

MICHAEL P. GRACE,

Petitioner,

Vv.

SANTA FE PACIFIC RAILROAD COMPANY, et At.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

The Petitioner, Michael P. Grace respectfully prays

that a Writ of Certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the

Tenth Circuit, entered in this proceeding on January 4,

1982, and the Order Denying Petitioner's Motion for Re-

hearing entered on February 23, 1982.

The opinion of the Court of Appeals, reported at 668

F.2d 1140 (10th Cir, 1982) appears herein in Appendix A.

The Order of the Court of Appeals denying rehearing dated

February 23, 1982, appears in Appendix B. A letter from

the Clerk of the U.S. Supreme Court relating the Order

of Justice White, dated May 25, 1982, extending the time

to file a Petition for a Writ of Certiorari to and including

~~

June 23, 1982, appears in Appendix C. The opinions of

the District Court for the District of New Mexico, dated

April 1, 1980, and May 15, 1980, appear in Appendix D.

The decision of the U.S. Court of Appeals for the

Tenth Circuit was entered on January 4, 1982, and a timely

Petition for Rehearing was denied on February 23, 1982.

On May 25, 1982, Justice White extended the time within

which to petition for certiorari. This petition was filed

within such extended time. This Court’s jurisdiction is

invoked under 28 U.S.C. § 1254(1).

STATEMENT OF THE CASE

In June, 1968, Michael P. Grace, Petitioner, purchased

six options from Santa Fe Pacific Railroad (Santa Fe) on

property owned by Santa Fe believed to contain uranium-

bearing ores in the Grants, New Mexico, area. Each option

afforded Petitioner a three-year period within which ex-

ploration could be conducted, after which Petitioner had

the option to enter into a uranium mining lease with Santa

Fe. |

In 1971, Petitioner exercised his options and entered

into several uranium leases with Santa Fe. Each lease pro-

vided in part:

“Lessor agrees that if during the term of this lease

in commercial quantities from the lease

premises, Lessor will, upon written request .. . re-

otis

ee ee . upon the same

terms and conditions .

Each lease also provided:

“Any dispute between the parties under this agree-

ment shall be referred to arbitration, each party se-

lecting one arbitrator and the American Arbitration

Association designating the third arbitrator. The word

of the arbitrator shall be final and binding upon the

parties hereto.”

Petitioner discovered substantial uranium reserves lo-

cated at a depth of approximately three thousand to five

thousand feet underground. Because of the depth of the

uranium reserves, it was determined that traditional min-

ing techniques would be uneconomical for the recovery of

the uranium, and Petitioner began to solution mine the

uranium. Solution mining is a process by which chem-

icals are injected into the ground, allowed to remain in

uranium-bearing rock formations a short time, and then

pumped to the surface with the hope of recovering U3;Os

from the processing uranium suspended in the solution.

By this process, Petitioner was able to recover a uranium-

bearing solution, known as “yellow cake”, and to success-

fully effect the sale of such uranium-bearing solution.

On June 2, 1976, Ormsbee Development Company, a

drilling subcontractor, filed suit against Petitioner and his

wife, Corrine, as Lessees, and Santa Fe, as owner of the

properties, seeking to foreclose on Mechanics’ Liens which

it had filed after Petitioner had failed to pay it for drilling

and exploration work. Other subcontractors intervened or

filed companion cases, all of which were consolidated with

paw

the Ormsbee claims on diversity jurisdiction. These dis-

putes were ultimately settled and the complaint dismissed.

Santa Fe, however, filed an original, and on February

10, 1977, an Amended Cross-Claim against Petitioner seek-

ing a determination that all of his rights and interests had

terminated by reason of his failure to achieve production

of uranium-bearing ore in commercial quantities as re-

quired by the leases.

Prior to Santa Fe filing its Amended Cross-Claim, Pe-

titioner had, on July 19, 1976, filed a Demand for Arbi-

tration with the Phoenix Regional Office of the American

Arbitration Association seeking to declare his leases valid

and in full effect. After Petitioner had filed a Motion for

Stay of Proceedings with the District Court on Santa Fe's

Cross-Claim pending arbitration, the District Court, on July

5, 1977, entered an Order directing that Petitioner would

not be required to file an Answer to Santa Fe’s Cross-

Claims pending arbitration.

The arbitration process commenced with the Peti-

tioner and Santa Fe each selecting an arbitrator and the

American Association of Arbitrators (Association) select-

ing a third, neutral arbitrator, one Dr. Jack T. Mommsen

(Mommsen). An arbitration evidentiary hearing conducted

under the auspices of the Association began on April 17,

1979, and ended some two and one-half weeks later on

May 1, 1979. On June 27, 1979, the arbitrators, with one

member dissenting, entered their award, holding that the

leases had “expired under the terms and on the termina-

tion dates defined in the leases”, that the “leases are not

valid”, and that “all rights and interest of Grace in the

leases are terminated.”

ells

On July 3, 1979, Santa Fe filed a Motion to confirm the

award of the arbitrators. On September 25, 1979, Peti-

tioner filed a Motion to vacate or set aside or modify the

arbitration award.

On April 1, 1980, the District Court entered its opin-

ion confirming the arbitration award in favor of Santa Fe.

Thereafter, Petitioner filed a Motion for reconsideration

of the April 1, 1980 opinion, in part on grounds that there

had been a failure by Mommsen and the law firm repre-

senting Santa Fe to disclose non-trivial relationships with

parties interested in the proceeding. It was pointed out

to the court that among Mommsen’s active clients were

General Atomic Company, which is a partnership between

Gulf Oil and Scallop Nuclear, and that the Modrall firm

which represented Santa Fe also represents Gulf Oil; that

Mommsen worked for Texas Eastern Nuclear, a subsidiary

of Texas Eastern Company, and that the Modrall firm rep-

resents Trans-Western Pipeline Company, another subsidi-

ary of Texas Eastern Company; that Mommsen was being

considered as an arbitrator on a case with Homestake Min-

ing Company, which was also represented by the Modrall

firm; that Gulf Oil had attempted to purchase the Grace

leases; that subsequent to the arbitration proceeding, Gulf

Oil acquired leases for the property involved herein and

that Mark Thompson, a partner in the Modrall law firm,

had attended a lecture given by Mommsen for General

Atomic and had met and talked with Mommsen.

On May 15, 1980, the District Court entered a Memo-

randum Opinion upholding its opinion of April 1, 1980.

Petitioner had requested before the District Court that he

be allowed to pursue discovery concerning the nondisclos-

-™

ure and evident partiality of the neutral arbitrator and

that a full evidentiary hearing be held on this matter. Such

request was denied.

On March 14, 1980, Petitioner filed a Demand for Ar-

bitration with the American Arbitration Association in Los

Angeles, California, directed to Santa Fe. Petitioner sought

to have determined the amount due him for work per-

formed and for damages not yet computed on the lease

property; and a determination of the duties owed by Santa

Fe and the neutral arbitrator to him; and whether the

breach of duties occurred and the effect on prior arbitration.

On January 30, 1981, the District Court entered an

Order prohibiting Petitioner from proceeding with the Cali-

fornia arbitration demand. The District Court further or-

dered Petitioner to dismiss his arbitration demand within

fifteen days. Petitioner filed timely appeals to the Orders

entered by the District Court with the Court of Appeals.

The Court of Appeals affirmed the decisions of the District

Court.

The case at bar affords this Court the opportunity to

examine the per se disclosure rule announced in Common-

wealth Coatings Corp. v. Continental Casualty Co., supra,

thereby resolving apparent conflict among the circuits re-

garding the interpretation of this rule. The case at bar

also presents this Court with the opportunity to provide

guidelines to the District Courts as to the circumstances

under which an evidentiary hearing is required in review-

adie

ing the adequacy of an arbitrator’s compliance with the

disclosure rule. The issues raised herein have enormous

importance both to the nuclear industry and to the full

range of commercial transactions which provide for arbi-

tration of disputes.

L

The Court of Appeals Has Incorrectly Interpreted

and Applied the Disclosure Rule Developed in Com-

monwealth Coatings Corp. v. Continental Casualty

Co., 393 U.S. 145 (1968).

In Commonwealth Coatings Corp. v. Continental Cas-

ualty Co., 393 U.S. 145, 89 S.Ct. 848, 21 L.Ed.2d 812 (1968),

this Court eld that an arbitration award would be set

aside by reason of the failure of the arbitrator to disclose

past financial dealings with a party, notwithstanding the

absence of fraud or bias. Reasoning that the integrity of

the arbitration process would be best served by full and

frank disclosure of any dealings that might impugn the

impartiality of a neutral arbitrator, the Court stated in

its opinion:

“It is true that arbitrators cannot sever all their’ ties

to decide the law as well as the facts and are not

=

The very language of this opinion underscores the

breadth of the disclosure requirement for “any” dealings

that “might” create an “impression” of “possible” bias.

Given the policy advanced by this requirement, it is clear

that the court’s review of ar. arbitration decision on grounds

of nondisclosure is subject to a standard far less stringent

than that applied in cases of alleged bias where full dis-

closure has occurred.

In the present case, the neutral arbitrator, Dr. Momm-

sen, failed to disclose at any point in the proceedings that

the arbitrator's client, General Atomic Company, was a

partnership between Gulf Oil and Scallop Nuclear. The

operations of Gulf Oil on adjacent leases became a central

point in assessing the commercial viability of the uranium

extraction method utilized by Petitioner. A memorandum

produced at the arbitration hearing itself stated:

- “Gulf would be willing to sink the shaft at their sole

cost and mine any ore at Mr. Grace’s section under

a contract arrangement.” (Arb. Rec. p. 852)

Subsequent to the arbitration proceeding, Gulf Oil ac-

quired leases for the property in question. The law firm

representing Respondent, Santa Fe, also represented Gulf

Oil. A member of that law firm submitted an affidavit

evincing knowledge of Mommsen’s work for Gulf. Momm-

sen worked for several clients of Respondent’s law firm.

Whether further nondisclosed dealings would have been

discovered upon examination before the District Court can-

not be known, for the court refused a request by Petitioner

to hold an evidentiary hearing upon this matter.

~~

The Opinion of the Court of Appeals applies to the

question of disclosure the same standard for review that

would be applied in cases of fraud or bias. The Court of

Appeals stated in its Opinion:

“Arbitrators are, of course, obligated to disclose pos-

sible bias. Sanko S.S. Co., Ltd. v. Cook Industries,

Inc,, 495 F.2d 1260 (2d Cir. 1973), citing to Common-

wealth Coatings v. Continental Casualty Co., supra.

However, it is only clear evidence of impropriety

which justifies denial of summary confirmation. Na-

tional Bulk Carriers v. Princess Management, 597 F.2d

819 (2d Cir. 1979). For an award to be set aside, the

evidence of bias or interest of an arbitrator must be

direct, definite and capable of demonstration rather

than remote, uncertain or speculative. Bamar~. .

Bache Halsey Stuart, Inc., 619 F.2d 1196 (7th Cir.

1980), Cert. denied, US...” (668 F.2d at 1146)

The decision of the Court of Appeals emasculates the

disclosure rule announced in Commonwealth Coatings v.

Continental Casualty Company, supra. No longer will it

be sufficient to show failure to disclose dealings which

might create an impression of possible bias. By the de-

cision of the Court of Appeals, the party belatedly dis-

covering the truth of the supposedly “neutral” arbitrator

must now adhere to a standard heretofore reserved for an

attack upon an award after full disclosure. Other circuits

have applied a different standard to the question of non-

disclosure. In Sanko S.S. Co., Ltd. v. Cook Industries, Inc.,

495 F.2d 1260 (2dCir. 1973), the Court of Appeals re-

manded a case for further hearing where an arbitrator

had failed to disclose all dealings with a party and its

counsel. The criterion for review of an arbitrator's dis-

—10-—-

closure of financia) dealings, according to the Second Cir-

cult, is “whether the ties are so indirect or remote that

they could not reasonably create an impression of bias.”

Clearly, resolution of this conflict is a proper subject for

action by this Court.

~.- 1g apparent conflict with the gecisions of other cjr-.

cuits, the Court of Appeals upheld the trial court's denial

of an evidentiary hearing upon the adequacy of disclosure.

The Court of Appeals concluded:

“We hold the District Court did nct err in refusing to

grant an evidentiary hearing. As set forth, supra, we

are not entitled to judge an arbitration award inde-

pendently. Campo Machinery Co., Inc., supra, The

finality of arbitration weighs heavily in its favor and

and cannot be upset absent exceptional circumstances.

Fizer v. Safeway Stores, Inc., supra. The Graces’ con-

tention simply fails to establish exceptional circum-

stances warranting the vacation of an award upon the

refusal of the District Court to hold an evidentiary

hearing.” 668 F.2d at 1152.

The need for such a hearing became more compelling

with the affidavit of a dissenting arbitrator that he had

been excluded from the deliberative process. Substantial

questions were raised as to the conduct of the hearing and

—)]j]—

the adequacy of the disclosure. The due process rights

available to petitioner dictated the right to pursue the

truth of the matter in an evidentiary hearing. In Sanko

S.S. Co., Ltd. v. Cook Industries, Inc., 495 F.2d 1260 (2d

Cir. 1973), the Second Circuit Court of Appeals held that

a corporate ship owner which had contended that an arbi-

trator had failed to make full disclosure with a party to

the arbitration and the party's counsel was entitled to an

evidentiary hearing to ascertain the full nature and extent

of the relationships at issue. It is clear that the decision

of the Second Circuit in permitting evidentiary hearings

upon the allegation of nondisclosure is the better rule.

Without evidentiary hearings as an enforcement tool, the

-—- ~ —whethies “re denied the opporiynity.todetesmipe whether

or not disclosure requisements have been met. The de-

cision of the Second Circuit is a logical extension of the

per se arbitration rule announced in Commonwealth Coat-

ings Corp. v. Continental Casualty Co., supra. In Overseas

Private Investment Corp. v. Anaconda Co., 418 F.Supp. 107

(D.D.C, 1976), the issues of disclosure and evident par-

tiality were reached only following extensive discovery.

In Cook Industries, Inc. v. C. Itoh & Co. (America), Inc.,

449 F.2d 406 (2d Cir. 1971), the court refused to order an

additional hearing only where it appeared from the record

that the parties had adequate knowledge equivalent to dis-

closure. Nevertheless, Circuit Judge Oakes dissented, con-

tending that an unresolved question of fact should be re-

solved by a trial court ugpn an evidentiary hearing.

_~s

>

—12—

IL.

The Court of Appeals Erred in Allowing the District

Court to Interfere in the Arbitration Proceeding».

The Supreme Court should take action to restrict and

prohibit the interference of the U. 8. District Court in arbi-

tration proceedings and with the right of individuals to

seek arbitration. The U.S. District Court for the District

of New Mexico played an activist role in the initia) arbi-

tration and prohibited a second arbitration from going for-

ward. Such interference with an administrative body is

contrary to the policy and purposes of Federal Courts.

The U.S. District Court correctly determined that is-

<—-.. Sues raised by Santa Fe in, its Cross-Claim filed in the

initial action filed by the various subcontractors were sub-

ject to arbitration. However, rather than dismissing the

claims for lack of jurisdiction, the court merely stayed the

proceedings before it, maintaining jurisdiction over the case

while awaiting the outcome of the arbitration.

Thereafter, the District Court entered Orders regard-

ing discovery during the arbitration process and directed

that the arbitration hearing proceed despite the illness of

Petitioner at the commencement of the arbitration hear-

ings. At one point in time, the court stated that, “You

can tell the arbitrators that I want them to, and I've sent

this thing to arbitration and that’s been forever. And I'm

about to reconsider that decision. So my immediate re-

action is just to abolish the stay order and say ‘Let's get

moving’ (transcript of findings of fact and conclusions of

law on February 1, 1979). Thus the arbitration proceeded

under the shadow of the District Court.

—13-—

The District Court also issued an Order directing that

the Petitioner dismiss a Demand for Arbitration filed in

California with Santa Fe Pacific Railroad Company. The

demand for arbitration had been accepted by the Ameri-

can Arbitration Association. The District Court asserted

that it had jurisdiction to issue the subject order “.. .

aid of jurisdiction on the appeal of the judgment of this

Court affirming the arbitration award previously entered

in favor of Santa Fe Pacific and to preserve the status quo

pending that appeal,.. .”

One of the issues presented by Petitioner in his de-

mand for arbitration with the American Arbitration Asso-

ciation was the request for the Association to determine

aman sian rei. the patel acieatee 10 the Claimant

wuuld allow the Arbitration Association to make de-

oro ei ag Pohnragserp vanenenmaesanyaeat

by one of its arbitrators.

However, rather than allowing the administrative body

to proceed, the District Court directed the dismissal of the

arbitration demand.

The issues raised in the California arbitration proceed-

ing were issues that had not been raised, litigated or ac-

tually judged on the merits in the prior arbitration pro-

ceeding. In order for the doctrine of collateral estoppel

to apply, these matters must have occurred. See Adolph

Coors Company v. Commissioner, 519 F.2d 1280 (10th Cir.

1975), cert, denied, 423 U.S. 1087 (1976). !

Basically the seme test is applicable to determination

of res judicata of the issues presented in the second arbi-

tration. See Overseas Motors, Inc. v. Import Motors, Ltd.,

—14—

Inc., 375 F.Supp. 499 (D.C, Mich. 1974), aff'd, 519 F.2d 119

(6th Cir. 1975), cert. denied, 423 U.S. 987 (1975).

Therefore, Grace submits that the District Court could

not have barred the second proceeding on the grounds of

res judicata or collateral estoppel. However, in any event,

Petitioner submits that the District Court is requir d to

defer to the judgment of the second arbitration panel on

these issues.

The role of the courts where an agreement by its own

terms calls for arbitration of disputes arising thereunder

is strictly limited. The court in Reconstruction Fnance

Corp. v. Harrisons and Crossfield, 204 F.2d 368 (2d Cir.

1953), cert. denied, 346 U.S. 854 (1953), stated that:

— -“The Federal Court’ in-e-oaleesising it to compel arbi-

tration, should . . . deal with no issues except (1) the

making of an agreement to arbitrate and (2) the

failure, neglect or refusal of the other party to per-

form that agreement.” 204 F.2d at 368.

This principle of judicial deference to arbitration is

also recognized in Hanes Corp. v. Millard, 531 F.2d 585

(D.C, Cir, 1976), where the court, holding that the Statute

of Limitations issue was encompassed within the arbitra-

tion clause, stated:

“We start from an accepted premise that, after deter-

mining the existence of a valid and enforceable agree-

ment that extends to the dispute at hand, courts

should not play a broad role in denying effect to

agreements to arbitrate.” 531 F.2d at 598.

In view of these principles and the recognized policy

of the Federal Courts not to interfere with administrative

= a

bodies, it is submitted that the Supreme Court should take

action to restrict and prohibit the interference of District

Courts in arbitration proceedings.

IV.

Solution Mining Is « Viable Method of Producing

Uranium-Bearing Ore in Commercial Quantities.

In the public interest, the Court should recognize solu-

tion mining as a viable method of achieving commercial

production of uranium ore.

The principal issue before the arbitration panel was

whether or not Petitioner was entitled to 4 renewal of the

subject leases under the term of the leases providing that

“Lessor agrees that if during the term of this lease and

agreement Lessee has found and, at the expiration of the

term of this lease, is producing uranium-bearing ore in

commercial quantities from the lease premises, Lessor will

... renew this lease and agreement for an additional three

(3) year period. . .”

Rather than use conventional mining techniques, Peti-

tioner had achieved production of uranium by the use of

solution mining. However, the arbitration panel and Dis-

trict Court did not consider production by solution mining

as a method of producing uranium-bearing ore in com-

mercial quantities and thus ruled that Petitioner was not

entitled to renewal of the leases. Substantial testimony on

the solution mining technique and production in commer-

cial quantities was presented to the arbitration panel.

Apparently, there are no specific judicial interpretations

of the term “commercial quantities” in a uranium lease

—16—

situation. However, the Utah Supreme Court has stated

that a “prudent man” test would be used to determine if

a commercial quantity of uranium ore has been discovered.

In Rummell v. Bailey, 320 P.2d 653 (Utah, 1958), the court

determined that the test would be whether the party would

pursue the ore vein and expend further time, effort or

money in attempting to develop the property as a mine.

It is not necessary that production immediately pay min-

ing expenses.

Some oil and gas leases have used the term “commer-

cial quantities.” The term has been defined as “a quantity

of oil, gas or other minerals sufficient for production in

paying quantities.” See William & Meyers Manual of Oil

and Gas Terms, Annotated, p. 89 (1980), and Texaco, Inc. v.

Fox, 618 P.2d 844 (Kan. 1980). Oil and gas cases have

construed paying production to constitute revenue in ex-

cess of lifting costs. The costs of drilling and equipping

are excluded from this calculus. Annotation, “Meaning of

Paying Quantities in Oil and Gas Leases”, 43 A.L.R.3d 8;

Stewart v. Amerada Hess Corp., 604 P.2d 854 (Okla. 1979).

The Federal Energy Regulatory Commission, in inter-

preting its regulations developed under the Natural Gas

Policy Act of 1978, in 18 C.F.R. § 271.204(e), concluded that

production in commercial quantities has occurred if natural

gas has been sold and delivered from such reservoir.

It is undisputed that Petitioner made sales of uranium-

bearing ore in the form of yellow cake, or uranium solu-

tion. However, because of an apparent prejudice against

or refusal to acknowledge solution mining as a method of

production, the arbitration panel failed to find that Peti-

tioner was entitled to renewal of the subject leases.

= =

This failure on the part of the lower courts and the

arbitrators is contrary to the public interest. The energy

needs of this country are profound, and freedom to de-

velop all sources of energy is essential to the continued

success of this country. However, the uranium industry

is severely depressed today, resulting in lack of develop-

ment of this energy source and widespread unemployment

in the southwestern United States. Entrepeneurs such as

the Petitioner should not be prohibited from developing

the uranium industry by restricted court interpretations

regarding commercial production. They should be given

the freedom and opportunity to develop uranium as a na-

tural resource.

It is thus in the public’s best interest that this Court

recognize solution mining as a viable method of achieving

commercial production within the uranium industry. Fail-

ure to do so will contribute to the continued depression

of the uranium industry contrary to the public interest.

For the reasons set forth herein, Petitioner prays that

a Writ of Certiorari issue.

I hereby certify that I served the foregoing Petition

for Writ of Certiorari on other parties in this proceeding

by causing on the 23rd day of June, 1982, three (3) true

and correct copies thereof to be mailed first class, postage

prepaid, to:

Gary W. Davis

William E. Dakan

Martin, Pringle, Fair, Davis & Oliver

320 Page Court

220 West Douglas

Wichita, Kansas 67202

William Snead

Ortega and Snead, P.A.

Two Hundred One Twelfth Street, N.W.

P.O. Box 2226

Albuquerque, New Mexico 87103

John R. Cooney

Ruth M. Schifani

Peter J. Adang

Modrall Sperling Roehl Harris & Sisk, P.A.

8th Floor, Public Service Bldg.

P.O. Box 2168

Albuquerque, New Mexico 87103

William B. Rogers

APPENDICES

APPENDIX A

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

[Filed January 14, 1982]

a Wyoming corporation, )

Plaintiff, )

v. ) .

) Nos. 80-1750,

CORRINE G..sCE and MICHAEL P. ) 80-1803

GRACE, ) and

Defendants-Cross Defendants- ) 81-1161

Appellants, )

Vv. )

)

SANTA FE PACIFIC RAILROAD, )

Defendant-Cross Claimant- )

Appellee. )

Appeal From the United States District Court

For the District of New Mexico

(D.C. Nos. 76-326 HB, 77-148, 77-149 and 77-150)

Gary W. Davis (William E. Dakan with him on the brief)

of Martin, Pringle, Fair, Davis & Oliver, Wichita, Kansas

(William E. Snead of Ortega and Snead, Albuquerque, New

Mexico, with him on the brief), for Corrine Grace.

Martha Mansell Eskin, Culver City, California, and F. Kim-

ball Joyner, Jr. of Jones, Meilkejohn, Keh] & Lyons, Den-

ver, Colorado (Walter L. Reardon, Jr., Albuquerque, New

Mexico, with them on the brief), for Michael P. Grace.

2a

(APPENDIX) —

John R. Cooney and Ruth M. Schifani (Peter J. Adang with

them on the brief) of Modrall Sperling Roehl Harris & Sisk,

Albuquerque, New Mexico, for Santa Fe Pacific Railroad.

Before BARRETT, DOYLE and SEYMOUR, Circuit Judges.

BARRETT, Circuit Judge.

These consolidated appeals challenge a final judgment

of the District Court confirming an arbitration award and

an order prohibiting proceeding on an arbitration demand.

In June 1968, Michael P. Grace (Michael) purchased

six options from Santa Fe Pacific Railroad (Santa Fe) on

property owned by Santa Fe believed to contain uranium-

bearing ores in the Grants, New Mexico, area. Each option

afforded Michael a three year period within which explor-

ation work could be conducted, after which Michael had the

option to enter into a uranium mining lease with Santa Fe.

In 1971 Michael exercised his options and entered into

several uranium leases with Santa Fe. Each lease provided

in part:

Lessor agrees that if during the term of this lease

and agreement Lessee has found and at the expiration

of the term of this lease is producing uranium-bearing

ore in commercial quantities from the leased premises,

tions

[App. at P. 131).

Each lease also provided:

Lessee shall not subject Lessor or the leased premises

to any liability or lien for or on account of any work

done . . . upon said premises, and if by reason of the

failure of Lessee to pay bills or expenses incurred

by Lessee, any lien or liens shall be filed against the

3a

{APPENDIX}

leased premises . . . Lessor may also at its election

declare a forfeiture of this Lease and Agreement.

[App. at pp. 127-128].

Each } vase further provided that:

Any dispute between the parties under this agree-

ment shall be referred to arbitration, each party se-

lecting one arbitrator and the American Arbitration

Association designating the third arbitrator. The

award of the arbitrator shall be final and binding

on the parties hereto.

[App. at p. 132].

Michael thereafter embarked on an exploration and

mining program in accordance with his leases. In conjunc-

tion with his activities, substantial uranium reserves were

discovered, albeit of a relatively low grade, located 3,000

to 5,000 feet underground. Subsequently, as the expiration

date of the leases approached, Michael, in an effort to

achieve production and retain the leases, turned to “solu-

tion mining”. Solution mining is a process by which chem-

icals are injected into the ground, allowed to remain in

uranium-bearing rock formations a short time, and then

pumped to the surface with the hope of recovering U3Os

from the processing uranium suspended in the solution. By

proceeding in such a manner, Michael, was, allegedly, “suc-

cessful in producing significant quantities of uranium-bear-

ing solution from his operations.” [Appellants’ Brief at

p. 6].

On November 26, 1975, twelve days prior to the ex-

piration date of the principal term of the leases, Michael’s

operations were shut down when the Environmental Im-

provement Agency of the State of New Mexico obtained

an injunction against him for failure to obtain a permit.

Michael subsequently became involved in the renewal of

his leases and his solution mining operations were not

resumed.

4a

[APPENDIX)

On June 2, 1976, Ormsbee Development Company, a

drilling subcontractor, filed suit against Michael and his

wife, Corrine, as lessees, and Santa Fe, as owner of the

properties, seeking to foreclose on mechanics’ liens which

it had filed after Michael had failed to pay it for drilling

and exploration work. Other subcontractors intervened or

filed companion cases, all of which were consolidated with

the Ormsbee claims. These disputes were ultimately set-

tled and the complaint dismissed.

Santa Fe, however, filed an original, and, on February

10, 1977, an amended cross claim against Michael seeking

a determination that all his rights and interests “and all

rights and interests of anyone holding or claiming to hold

any interest in the leasehold estates at one time existing

in Michael P. Grace” had terminated by reason of his fail-

ure to achieve production of uranium-bearing ore in com-

mercial quantities as required by the leases. Santa Fe also

alleged a breach of the leases amounting to a forfeiture by

allowing the filing of the lien claims.

Prior to Santa Fe filing its amended cross claim, Mi-

chael, on July 19, 1976, filed a demand for arbitration with

the Phoenix Regiot.al Office of the American Arbitration

Association seeking to declare his leases valid and in full

effect. In March of 1977, the law firm of Kantor and Car-

mody entered its appearance for Michael and Corrine in

federal district court, and thereafter, on April 11, 1977, filed

a motion on behalf of Michael and Corrine for stay of pro-

ceedings on Santa Fe’s cress claim pending arbitration.

On July 5, 1977, the District Court herein entered an

order directing that Michael and Corrine would not be re-

quired to file an answer to Santa Fe’s cross claim pending

arbitration. On the same day, the Court also entered an

order, dismissing with prejudice, Santa Fe's motion request-

ing an injunction enjoining Michael from proceeding with

arbitration “for the reason that that question is now moot

as a result of the Court's ruling, filed herein, granting De-

5a

(APPENDIX)

fendants', Michael P. Grace II and Corrine Grace's motion

to stay proceeding pending arbitration.” [App. at p. 377].

This order bore the caption “Approved and Stipulated To

Prior To Submission To The Court” and was executed by

“Kantor and Carmody P.A.” as “Attorneys for Michael P.

Grace II and Corrine Grace.”

The arbitration process thus commenced with Michael

and Santa Fe each selecting an arbitrator and the American

Association of Arbitrators (Association) selecting a third

neutral arbitrator, one Dr. Jack T. Mommsen (Mommsen).

An arbitration evidentiary hearing conducted under the

auspices of the Association began on April 17, 1979, and

ended some two and one-half weeks later on May 1, 1979.

On June 27, 1979, the arbitrators, with one member

dissenting, entered their award, holding that the leases had

“expired under the terms and on the termination dates de-

fined in the leases”, that “the leases are not valid”, and

that “all rights and interests of Grace in the leases are

terminated.”

On July 3, 1979, Santa Fe filed a motion to confirm the

award of the arbitrators. On September 25 and 26, 1979,

Michael and Corrine, respectively, filed separate motions

to vacate or set aside or modify the arbitration award.

Within her motion, Corrine alleged, inter alia, that:

the leases were community property, and that she had a

one-half interest in them and that she therefore should

have been a named party to the arbitration; there was evi-

dent partiality on the part of the neutral arbitrator; and

that William Condren, her husband's attorney, had a con-

flict of interest which should have prohibited his firm act-

ing as counsel in the arbitration proceeding. Within his

motion, Michael alleged, as had Corrine, the issue of the

community property nature of the leasehold interests and

the evident partiality of the neutral arbitrator. Michael

also alleged that a substantial amount of relevant evidence

was improperly excluded by the arbitrators, that the de-

6a

(APPENDIX)

cision making process of the arbitrators was not proper,

and that a continuance on the hearing should have been

granted due to his health.

On April 1, 1980, the District Court entered its opinion

confirming the arbitration award in favor of Santa Fe. In

so doing the Court found/concluded, inter alia: for pur-

poses of resolving the motions, the leases are assumed to be

community property; Corrine’s attorney objected to Santa

Fe’s request that Corrine be made a formal party to the

arbitration proceeding because Corrine had not signed an

arbitration agreement; at issue is whether a single spouse

can participate in a proceeding affecting community real

property, employ counsel and direct the litigation without

the joinder of the other spouse— th.’ the question is a

management question; under the law of New Mexico, Cor-

rine is bound by the management actions of Michael; the

claim of evident partiality arose from the alleged connec-

tions between Mommsen and the Modrall law firm which

represented Santa Fe; the alleged connections included the

fact that Mommsen's active clients included General Atomic

Company, which is a partnership between Gulf Oil and

Scallop Nuclear, and that the Modrall firm which repre-

sents Santa Fe also represents Gulf Oil; the alleged con-

nections giving rise to evident partiality also included

Mommsen's work for Texas Eastern Nuclear, a subsidiary

of Texas Eastern Company and that the Modral) firm rep-

resents Transwestern Pipeline Company, another subsidiary

of Texas Eastern Company; Mommsen was being considered

as an arbitrator in a case with Homestake Mining Com-

pany, which was also represented by the Modrall firm;

Mommsen sent Grace's attorney, Dinsmore Adams a copy

of his resumé wherein he (Mommsen) related his connec-

tions with General Atomic, Texas Eastern Nuclear, and

Homestake Mining but did not mention Gulf Oil or the

Modrall firm; under Commonwealth Coatings Corp. v. Cont-

inental Casualty Co., 393 U.S. 145 (1968), an arbitrator's

failure to disclose non-trivial relationships with parties is

[APPENDIX)

&3

é

=

;

z

:

es

Fj

.

:

!

actual bias, prejudice, or unfairness; Mommsen com-

plied with his obligation under Commonwealth Coatings;

the Modrall firm would be under the same obligation of

disclosure except when, as here, there is no evidence that

the Modrall firm was made aware of the relationship at

issue and thus the occasion for its disclosure never arose;

the alleged conflicts of interest of William Condren as Mi-

chael’s attorney, even if true, would not be grounds for

tration at a time when he was necovering from surgery

and could not attend the entire arbitration hearing is com-

pletely without merit when, as here, Grace did appear dur-

ing the course of the hearings and was allowed to testify

on his own behalf.

The District Court concluded that none of the argu-

Thereafter, Corrine filed a motion, adopted and joined

in by Michael, for reconsideration of the April 1, 1980

opinion and order confirming the arbitration award. In

support of this motion Corrine filed an affidavit executed

by Mark Thompson, a partner in the Modrall law firm,

(APPENDIX)

On May 15, 1980, the District Court entered a memo-

randum opinion upholding its opinion of April 1, 1980, not-

ing that “The opinion . . . will not be amended, except as

supplemented herein .. .” Within its second opinion

not warrant reversing the Court's prior ruling on the

with it was not in violation of Commonwealth Coatings,

supra.

On May 23, 1980, the District Court entered the judg-

ment in favor of Santa Fe Pacific in accordance with its

opinions of April 1 and May 15, 1980. Within its judgment

the Court ordered that the Graces had no interest in the

Santa Fe leases; the leases terminated as of the termination

date set forth in each lease; Michael was obligated to per-

form any outstanding leasehold obligations which survived

the expiration of the leases; Michael was obligated to in-

demnify Santa Fe against any judgments against it in favor

of any lien claimants for work done for Michael on the

leases; Michael was to pay Santa Fe $2,465.32 for costs of

the arbitration proceeding; and that Santa Fe’s cross claims

against the Graces were deemed merged with the judgment

and to the extent such claims were not awarded by the

arbitrators the same were dismissed with prejudice.

On August 6, 1980, Corrine filed a motion with this

Court for certification requesting that we certify to the

9a

(APPENDIX)

Supreme Court of New Mexico the question of whether a

person's community property interest in New Mexico real

property can be terminated in an arbitration or other legal

proceeding to which such person was not made a party.

Michael joined therein pursuant to his motion for a stay

of proceedings and motion fer an extension of time to file

a docketing statement. On September 18, 1980, we denied

the motions for certification and stay but permitted the

request for certification to be renewed and presented on

appeal proper.

On March 14, 1980, Michael filed a demand for arbi-

tration with the American Arbitration Association in Los

Angeles, California, directed to Santa Fe. Within this de-

mand, Michael sought to have determined: the amount

due him for work performed and for damages not yet com-

puted; and a “determination of the duties owed by Santa

Fe and neutral arbitrator” to him and “whether the breach

of duties occurred”, and “[(the] affect on prior arbitration”.

Michael also requested leave to amend to allege further

damages when ascertained.

. After the demand for arbitration was served on Santa

Fe it filed a “Motion to Stay Arbitration and for Order to

Show Cause” in the United States District Court for the

District of New Mexico, the same court which had previ-

ously confirmed the arbitration award in favor of Santa Fe.

Within its motion, Santa Fe asserted that the issues involved

in the arbitration in California were identical to those issues

considered in the New Mexico arbitration proceedings.

_ On January 30, 1981, the District Court entered an

order prohibiting Michael from proceeding with the Cali-

fornia arbitration demand. The District Court further or-

dered Michael to dismiss his arbitration demand within

fifteen (15) days.

On appeal in No. 80-1803 Michael contends: (1) The

question of whether a person’s community property inter-

est in New Mexico real property may be terminated in an

{APPENDIX} -

arbitration proceeding to which such person was not made

a party should be certified to the Supreme Court of New

Mexico; (2) The arbitration award should be vacated in

view of the arbitrator's refusal to hear evidence on the

construction of the lease language “production of uranium-

bearing ore in commercial q'iantities”; (3) The arbitration

award should have been vacated because of the evident

partiality of the neutral arbitrator; and (4) The trial court

should have granted discovery and an evidentiary hearing

on matters relating to the conduct of the arbitration pro-

ceeding.

On appeal in No. 80-1750 Corrine contends: (1) The

issue of termination of her community property interest

should be certified to the Supreme Court of New Mexico;

(2) The District Court erroneously confirmed the arbitra-

tion award in light of the failure of the neutral arbitrator

and the law firm representing Santa Fe to disclose signifi-

cant conflicts of interest; (3) The Court erred in denying

discovery and an evidentiary hearing on the question of

conflicts of interest; and (4) Whether the award should

be vacated in view of the majority's failure to hear or con-

sider the views of the arbitrator selected by Michael and

the panel's exclusion of significant evidence.

On appeal in No. 81-1161 Michael contends: (1) The

District Court acted beyond its jurisdiction in entering the

order prohibiting him from proveeding with the California

arbitration request; (2) The issues to be arbitrated in the

California arbitration proceeding are not barred by res

judicata or collateral estoppel; and (3) The District Court

should have deferred to the California arbitration demand.

I

At the outset we deem it important to set forth the

parameters governing our review.

Once it has been established that the parties had en-

tered into a binding agreement to arbitrate, the entire con-

lla

(APPENDIX)

troversy, including the validity [and essence] of the dis-

puted contract must be referred to arbitration. Muh v.

Newberger, Loeb & Co., Inc., 540 F.2d 970 (9th Cir. 1976).

Parties who agree to submit matters to arbitration are pre-

sumed to agree that everything, both as to law and fact,

necessary to render an ultimate decision is included in the

authority of the arbitrators. Continental Materials Corpo-

ration v. Gaddis Mining Company, 306 F.2d 952 (10th Cir.

1962). Doubts are to be resolved in favor of arbitrability.

Oil, Chemical & Atomic Workers v. American Oil Company,

528 F.2d 252 (10th Cir. 1976). Once an arbitration award

is entered, the finality of arbitration weighs heavily in its

favor end cannot be upset except under exceptional circum-

stances. Fizer v. Safeway Stores, Inc., 586 F.2d 182 (10th

Cir. 1978).

A party attacking the legality of an arbitration award

provided for within a contract has the burden of sustain-

ing such an attack. Wright Lumber Company v. Herron,

199 F.2d 446 (10th Cir. 1952). Courts are, expectedly, justi-

fied in exercising great caution when asked to set aside an

arbitration award, which is the product of the theoretically

informal, speedy and inexpensive process of arbitration,

freely chosen by the parties. Andros Compania Martina v.

Mare Rich & Co., A.G., 579 F.2d 691 (2d Cir. 1978). Fur-

thermore, arbitration awards generally need not delineate

reasons or reasoning, at least when the grounds for the

award may be gleaned from the record. Farkar Co. v. R. A.

Hanson DISC, Ltd., 604 F.2d 1 (2d Cir. 1979).

’ A court, therefore, is not entitled to judge an arbitra-

tion award independently. Campo Machinery Co. Inc. v:

Local Lodge No. 1926, 536 F.2d 330 (10th Cir. 1976). Arbi-

trators are, of course, obligated to disclose possible bias.

Sanko S.S. Co. Ltd. v. Cook Industries, Inc., 495 F.2d 1260

(2d Cir. 1973), citing to Commonwealth Coatings v. Conti-

nental Cas. Co., supra. However, it is only clear evidence

of impropriety which justifies the denial of summary con-

firmation of an arbitration award. National Bulk Carriers

12a

(APPENDIX)

v. Princess Management, 597 F.2d 819 (2d Cir. 1979). For

an award to be set aside, the evidence of bias or interest

of an arbitrator must be direct, definite and capable of

demonstration rather than remote, uncertain, or specula-

tive. Tamari v. Bache Halsey Stuart, Inc., 619 F.2d 1196

(7th Cir. 1980), cert. denied, _.. U.S. __...

Finally, we deem it important to observe that the

right to arbitration, like any other contract right, can be

waived. Reid Burton Construction Inc. v. Carpenters Dis-

trict Council, Etc., 614 F.2d 698 (10th Cir. 1980), cert. de-

nied, _ U.S. ___; Commercial Iron & Metal Co. v. Bache

Halsey Stuart, Inc., 581 F.2d 246 (10th Cir. 1978), cert.

denied, 440 U.S. 914 (1979).

Within these general guidelines, we shall now proceed

to consider and address the appellate contentions advanced

by the Graces.

Il.

Michael and Corrine, individually, within their re-

spective appellate briefs, contend that Corrine’s interest in

New Mexico real property, i.e., the leases, was improperly

terminated in the arbitration proceeding inasmuch as she

was not made a party thereto. The Graces further contend

that this Court should certify the question of whether a

person’s community property interest in New Mexico real

property may be terminated in an arbitration proceeding

or other legal proceeding to which such person was not

made a party. We hold that these contentions are without

merit. A review of the pleadings filed herein establishes

that Corrine, although not a formal, named party to the

arbitration proceedings, was definitely in fact and in law

a party thereto.

As noted, supra, this action was commenced on June 2,

1976 when Ormsbee filed suit against Michael and Corrine

and Santa Fe seeking to foreclose on certain mechanics’

liens for work performed on the subject leases. Thereafter,

13a

(APPENDIX)

on November 26, 1976, the firm of Lamb, Metzgar, Frank-

lin & Lines entered an appearance as counsel for Michaei

and Corrine. Subsequently, on March 9, 1977, the Lamb

firm withdrew as the Graces’ attorneys and the firm of

Kantor and Carmody entered its appearance as their at-

torneys.

Thereafter, the Kantor firm filed numerous pleadings

on behalf of Michael and Corrine, including: An April 11,

1977 motion for a stay of proceedings on Santa Fe’s cross-

claim alleging “that both federal and state law require a

stay of proceedings until arbitration is completed”; a July

15, 1977 motion to stay proceedings in several cases related

to the Ormsbee action, alleging, as grounds, that the court

had already stayed Santa Fe’s crossclaim “pending arbi-

tration of the issues between it [Santa Fe} and Michael P.

Grace and Corrine Grace”; a January 31, 1979 motion for

a protective order alleging, as grounds, “the pending arbi-

tration of the issues between Santa Fe Pacific Railroad

Company and Michael P. Grace II and Corrine Grace.”

Notwithstanding these motions, in which Michael and Cor-

rine requested relief pending arbitration between Santa Fe

and Michael and Corrine, Corrine’s attorney objected to

Santa Fe’s request that Corrine be made a formal party,

inasmuch as she had not signed an arbitration agreement.

The inherent inconsistency with which both Michael

and Corrine utilized the pending arbitration proceedings

“between it [Santa Fe] and Michael P. Grace and Corrine

(APPENDIX)

|

i

15a

{APPENDIX}

that “[t}he award of the arbitrator shall be final and bind-

ing on the parties hereto”; and that the arbitrators found

that the leases “expired under the terms and on the termi-

nation dates defined in the leases”. Under these uncon-

was accorded them. Thus, we will not set aside the ar-

ments made by either Corrine or Michael Grace are

April 1, 1980 Memo Opinion at p. 14.

In view of our holding that, although Corrine was not

a formally named party to the arbitration proceeding, she

was in law and fact a party thereto from its inception to

16a

[APPENDIX)

terminative of the issues before us on appeal. See N.M.

Stat. Ann. § 34-2-8 (1978). Certification is, and must

of state law. Lehman Brothers v. Schein, 416 U.S. 386

(1974); Imel v. United States, 523 F.2d 853 (10th Cir. 1975).

It is to be utilized with restraint and distinction. State of

Florida v. Exxon Corporation, 526 F.2d 266 (5th Cir. 1976),

cert. denied, 429 U.S. 929 (1976), citing to Barnes v. At-

lantic & P. Life Ins. Co., 514 F.2d 704 (5th Cir. 1975).

In light of our holding that Corrine was not deprived

of her community property interest in a proceeding to

which she was not a party, the certification argument is

not viable.

IIL.

The Graces contend the District Court erroneously con-

(APPENDIX)

In addressing this issue, the District Court observed

the arbitration process is subject to the “simple re-

quirement that arbitrators disclose to the parties any

dealings that might create an impression of possible

bias.” Commonwealth Coatings Curp. v. Continental

Casualty Co., 393 U.S. 145, 149 (1968). This has been

18a

[APPENDIX)

der Commonwealth Coatings, supra, and all rules of

the AAA.

April 1, 1980, Memo Opinion at pp. 7-8.

The District Court reached a similar conclusion in its May

15, 1980 opinion after Mark Thompson, a partner in the

Modrall firm submitted an affidavit, in which he acknow]l-

edged, inter alia, that he had attended a lecture which

Mommsen had given for General Atcmic and had become

aware that Mommsen had been selected as the neutral ar-

bitrator in the course of a conversation with an associate

of the Modrall firm. We hold that the District Court prop-

erly found that the Graces did not establish evident par-

tiality.

. As discussed, supra, only clear evidence of impropriety

justifies the denial of summary confirmation of arbitration

awards. National Bulk Carriers v. Princess Management,

supra. In order to set an award aside, the evidence of bias

or interest of an arbitrator must be direct and definite and

capable of demonstration. Tamari v. Bache Halsey Stuart,

Inc., supra.

As the District Court observed, the Supreme Court in

Commonwealth Coatings Corp. v. Continental Casualty Co.,

Supra, delineated the disclosure requirement of potential

arbitrators:

. .. Since in the case of courts this is a constitutional

principle, we can see no basis for refusing to find the

same concept in the broad statutory language that

governs arbitration proceedings and provides that an

award can be set aside on the basis of “evident par-

tiality” or the use of “undue means.” See also Rogers

v. Schering Corp., 165 F.Supp. 295, 301 (D.C. N. J.

1958). It is true that arbitrators cannot sever all

their ties with the business world, since they are not

expected to get all their income from their work de-

ciding cases, but we should, if anything, be even more

scrupulous to safeguard the impartiality of arbitrators

19a

[APPENDIX}

than judges, since the former have completely free

rein to decide the law as well as the facts and are

not subject to appellate review. We can perceive no

way in which the effectiveness of the arbitration pro-

cess will be hampered by the simple requirement that

arbitrators disclose to the parties any dealings that

might create an impression of possible bias.

393 U.S. at pp. 148-149.

The nondisclosure complained of by the Graces does

not fall within the impartiality commands of Common-

wealth, supra. The core of their complaint is that Momm-

sen and the Modrall firm had similar clients. The Graces

would apparently request that potential neutral arbitrators

“sever all their ties with the business world”. Such is not

the law. As Justice White observed in concurring with

the majority in Commonwealth, supra:

While I am glad to join my Brother BLACK’s opin-

ion in this case, I desire to make these additional

remarks. The Court does not decide today that arbi-

trators are to be held to the standards of judicial de-

corum of Article III judges, or indeed of any judges.

It is often because they are men of affairs, not apart

from but of the marketplace, that they are effective

in their adjudicatory function. Cf. United States Steel-

workers v. Warrior & Gulf Navigation Co., 363 U.S.

574 (1960). This does not mean the judiciary must

overlook outright chicanery in giving effect to their

awards; that would be an abdication of our responsi-

bility. But it does mean that arbitrators are not auto-

matically disqualified by a business relationship with

the parties before them if both parties are informed

of the relationship in advance, or if they are unaware

of the facts but the relationship is trivial. I see no

reason automatically to disqualify the best informed

and most capable potential arbitrators.

. > > *.

20a

[APPENDIX)

. .. This end is best served by establishing an atmos-

phere of frankness at the outset, through disclosure

by the arbitrator of any financial transactions which

NRG Ee eg cara deg sages

The judiciary should minimize its role in arbi-

tration as judge of the arbitrator’s impartiality. That

role is best consigned to the parties, who are the

architects of their own arbitration process, and are

far better informed of the prevailing ethical standards

and reputations within their business.

393 U.S. at pp. 150-151.

Mommsen was not financially involved with either the

Graces or Santa Fe. The fact that he and the Modrall firm

had similar clients is of no moment herein, particularly in

view of his disclosures that he had engaged in consulting

work for General Atomic.

IV.

_ The Graces contend the District Court should have

granted an evidentiary hearing on matters relating to the

conduct of the arbitration proceeding which were outside

the arbitration record. This contention reiterates the al-

leged potential prejudicial relationship between Mommsen

and the Modrall firm vis-a-vis clients common to both and

further incorporates the alleged exclusion of Michael's ar-

bitrator, George Cutler, from the decision making process.

In addressing this allegation, the District Court found:

The second ground for vacating the arbitration

- award urged by Michael Grace is his contention that

the arbitrator chosen by him, Mr. George Cutler, was

denied an opportunity to fully participate in the de-

cision making process. In support of this claim, Mi-

chael Grace has submitted the affidavit of Mr. Cutler

which states that he was

affectively [sic] denied a right to expect that

all arbitrators would participate in the deter-

21a

{APPENDIX}

mination of the award as the arbitrator selected _

by the claimant was not given a sufficient op-

portunity to express his views, argument and

reasoning behind his opinion and beliefs with

respect to the merits of the claimant's position.

He claims that when he arrived at the final meeting

of the arbitrators in San Francisco, Dr. Mommsen

immediately stated his decision, which was favorable

to the Santa Fe Pacific, and that this was then im-

mediately concurred in by Mr. Jennings, the arbi-

trator chosen by the railroad. At this point, Cutler

states that he felt “the decision-making process was,

for all intents and purposes, concluded” and that he

did not have a chance to express his views. Though

the Santa Fe Pacific has filed an affidavit from Mr.

Jennings controverting these allegations, the Court

will assume, for the purposes of resolving this issue,

that Mr. Cutler’s affidavit is true. Even in this situ-

ation the Court concludes however that there was no

misconduct warranting vacating of the arbitration

award.

In the case of Artie Shaw Presents, Inc. v. Snyder,

362 N.Y.S.2d 158 (1974), a strikingly similar claim

was made by the arbitrator chosen by the losing party.

There it was alleged in a conclusory affidavit from the

disgruntled arbitrator that he was “deprived of any

meaningful opportunity to deliberate upon the issues

with [his] co-arbitrators.” 362 N.Y.S.2d at 159. There

was no evidence in that case, as there is none in this

case, that any arbitrator was excluded from any pro-

ceedings by the others or that all were not present

for the taking of the evidence. The only exclusion of

the complaining arbitrator in Artie Shaw, supra, was

to his own refusal to discuss the case with the other

two arbitrators on the telephone. The New York

court concluded that

22a

{APPENDIX}

. . . although it is desirable to have all of the

arbitrators meet, following final submission of

the controversy and participate in the delibera-

tions so that the parties to the dispute may have

the benefit of the effect the views and arguments

of each arbitrator might have upon the others,

the presence of all is not required.

362 N.Y.S.2d at 159.

There is no evidence in this case that any meetings

or consultation were had in secret, intentionally ex-

cluding Mr. Cutler, as was the situation in Jones v.

Bishop, 218 Ill. App. 318 (1920), relied upon by Mi-

chael Grace. Nor is there any misconduct such as

in Blin v. Hay, 2 Tyler [Vt.] 304 (1803), where two

of the arbitrators were not notified of the meeting,

let alone present. The Court can find no grounds for

setting aside the arbitration award on this issue.

April 1, 1980 Memo Opinion at pp. 11-12.

We hold the District Court did not err in refusing to

grant an evidentiary hearing. As set forth, supra, we are

not entitled to judge an arbitration award independently.

Campo Machinery Co., Inc., supra. The finality of arbitra-

tion weighs heavily in its favor and cannot be upset absent

exceptional circumstances. Fizer v. Safeway Stores, Inc.,

supra. The Graces’ contention simply fails to establish ex-

ceptional circumstances warranting the vacation of the

award upon the refusal of the District Court to hold an

evidentiary hearing.

V.

In No. 81-1161 Michael contends that the District Court

erred in prohibiting him from proceeding with his Cali-

fornia arbitration request.

As set forth, supra, within his request Michael sought

the amount due him for work performed and for damages

23a

{APPENDIX}

not yet computed, a determination of the duties owed by

Santa Fe and the neutral arbitrator, and a determination

of whether a breach of such duties occurred and their effect

on the prior arbitration. Within its motion to stay Michael’s

arbitration request, Santa Fe argued that an arbitration pro-

ceeding on the same request had already been concluded,

that the arbitration award entered was res judicata as to

Michael’s California arbitration demand, and that the court

had jurisdiction to stay the arbitration request in aid of

the appeal of the judgment on the order affirming the arbi-

tration award pending before this Court.

In its order granting Santa Fe’s motion to stay Mi-

chael’s California arbitration request, the District Court

simply observed that it was staying the request in aid of

jurisdiction on the appeal and to preserve the status quo

pending that appeal.

The District Court clearly had jurisdiction over Mi-

chael to decide matters in aid of the appeal from its judg-

ment. In Silverthorne v. Laird, 460 F.2d 1175 (5th Cir.

1972) the court held:

In short, we subscribe to the following analysis of

the rule against district court activity subsequent to

the taking of an appeal:

“In general, the district court should have full

authority to take any steps during the pendency

of the appeal that will assist the court of ap-

peals in the determination of the appeal. Re-

strictions on the power of the district court that

are grounded in nothing more than the technical

consideration that jurisdiction ‘passes’ from it

upon the filing of the notice of appeal are im-

practical and unwise. Dictum in Philadelphia

Marine Trade Ass’n v. International Longshore-

men’s Ass’n (CA3d, 1966) 365 F2d 295, rev’d

on other grounds (1967); 389 US 64, 88 SCt 201,

19 Led2d 236, to the effect that the filing of a

of fact and conclusions of law precluded

the court from entering such findings is an ex-

ample of a technical application of the general

rule which serves no useful purpose.”

9 Moore’s Federal Practice 7203.11 n. 2.

460 F.2d at pp. 1178-1179.

The same standard is applicable here.

Even were we to assume, which we do not, that the

District Court did, in fact, as Michael contends, lack juris-

diction to enter the order, the general law of arbitration

would, in and of itself, preclude Michael from going for-

ward with the California arbitration request. As discussed,

supra, the finality of arbitration weighs heavily in its favor.

Fizer, supra. Courts are not empowered to judge an arbi-

tration independently. Campo Machinery Co. Inc., supra.

Perhaps more importantly, however, is the rule that the

right to arbitration, like any other contract right, can be

waived. Reid Burton Construction, Inc., supra. In Reid

Burton we observed:

However, the right to arbitration, like any other con-

tract right, can be waived. Cornell & Copany v. Bar-

ber & Ross Company, 123 U.S.App.D.C. 378, 360 F.2d

512, 513 (D.C. Cir.), aff’g. 242 F.Supp. 825 (D.D.C.).

There is no set rule as to what constitutes a waiver

or abandonment of the arbitration agreement; the

question depends upon the facts of each case and

usually calls for a finding by the trier of the facts.

Burton-Dizie Corp. v. Timothy McCarthy Const. Co.,

436 F.2d 405, 408 (5th Cir.).

614 F.2d at p. 702.

Recognizing that there “is no set rule” as to what consti-

tutes a waiver of one’s arbitration rights, we hold that

25a

{APPENDIX}

Michael’s right to arbitrate those requests set forth within

his California arbitration demand, were waived to the ex-

tent that they were not addressed in the course of the first

arbitration proceeding, by virtue of Michael’s failure to

advance such requests. In the final analysis, Michael’s Cali-

fornia arbitration request eppears “to be yet one more

attempt” to circumvent “the consequences of an arbitra-

tion” upon which he so vigorously insisted.

VL

We have carefully considered the remaining allega-

tions of error. We hold that they are, individually and

collectively, without merit.

WE AFFIRM.

Seymour, Circuit Judge, concurs in the result.

APPENDIX B

NOVEMBER TERM — February 23, 1982

Before Honorable James E. Barrett, Honorable William

E. Doyle, and Honorable Stephanie K. Seymour, Circuit

Judges

ORMSBEE DEVELOPMENT COMPANY,

a Wyoming corporation,

Plaintiff,

Vv.

CORRINE GRACE and MICHAEL P.

GRACE,

Nos. 80-1750

80-1803

Defendants-Cross-Defendants, 81-1161

Appellants,

Vv.

SANTA FE PACIFIC RAILROAD,

Defendant-Cross-Claimant-

Appellee.

This matter comes on for consideration of appellant’s,

Michael P. Grace, petition for rehearing filed in the cap-

tioned cause.

Upon consideration whereof, the petition for rehear-

ing is denied.

ee de ee ee ee ee

APPENDIX C

OFFICE OF THE CLERK

SUPREME COURT OF THE UNITED STATES

WASHINGTON D.C. 20543

May 25, 1982

Albert J. Beveridge, III, Esq.

Beveridge and Diamond

1333 New Hampshire Avenue, NW

Washington, DC 20036

Re: Michael P. Grace v. Ormsbee

Development Company and

Santa Fe Pacific Railroad

A-1015

Dear Mr. Beveridge:

Your application for an extension of time within which

to file a petition for a writ of certiorari in the above-entitled

case has been presented to Justice White who, on May 25,

1982, signed an order extending your time to and including

June 23, 1982.

A copy of the Justice’s order is enclosed.

Very truly yours,

ALEXANDER L. STEVAS, Clerk

By

Katherine Downs

Assistant Clerk

rwk

encl.

ce (letter only): counsel of record

Howard K. Phillips, Esq.,

Clerk, US Court of Appeals

for the Tenth Circuit (Your No.

80-1750, 80-1803, 81-1161)

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO

[Filed May 15, 1980]

et al,

Plaintiffs,

vs. CIV NO. 76-326-HB

77-148

MICHAEL P. GRACE and 77-149

CORINNE GRACE, GRACE 77-150

NUCLEAR, et al.,

Defendants.

the neutral arbitrator, in violation of both the New Mexico

and federal arbitration statutes. It was argued that Dr.

(APPENDIX) =

Mommsen had done consulting work for General Atomic

Company which is represented by the Modrall firm, and

that the attorneys for Santa Fe Pacific, also from the Mod-

rall firm, had not disclosed this relationship to opposing

counsel. In denying the Motion to vacate on these grounds,

the Court stated:

. . . there is nothing in the record to indicate that

this resumé [of Dr. Mommsen’s which disclosed his

consulting work for General Atomic] was forwarded

to the Modrall firm or that they otherwise had ac-

cess to this information.

Memorandum Opinion, p. 8. Subsequent to the filing of

this Opinion, an affidavit was filed by a member of the

Modrall firm stating that in connection with his represen-

tation of General Atomic Company in litigation totally

unrelated to that involving the Santa Fe Pacific and the

Graces,

. .. I attended a lecture on the nuclear fuel industry

given by Dr. J. T. Mommsen on behalf of General

Atomic Company. It was my understanding that Dr.

Mommsen consulted with General Atomic Company

on the market for the sale of U;Os, to utility com-

panies using nuclear steam supply systems for the

generation of electric power. To my knowledge, Dr.

Mommsen has had no contact with the Modrall firm

concerning the General Atomic litigation or the nu-

clear industry in general.

4. Through a conversation with Ruth M. Schifani,

an associate of this firm working on this matter, I

became aware of the fact that Dr. Mommsen was the

neutral arbitrator in this matter at some time after

his appointment. I may have casually informed Mrs.

Schifani that I knew of Dr. Mcmmsen because of my

work on the General Atomic litigation. At no time

prior-to the Memorandum Opinion of this Court is-

sued on April 1, 1980, did I ever discuss in detail my

3d

[APPENDIX)

awareness of Dr. Mcmmsen’s relationship with Gen-

eral Atomic with any members of the firm working

on this matter.

Affidavit of Mark B. Thompson III, filed April 7, 1980. The

Motion for reconsideration filed by the Graces relies in

part on this affidavit, but also raises several other claims,

ali of which were before the Court at the time of its ruling

on April 1, 1980. The Santa Fe Pacific has responded to

the reconsideration request by claiming that the disclosures

in the affidavit should not change the Court’s resolution of

the evident partiality question and that the Court’s prior

rulings on the other issues are correct.

There is no need to restate the basis for the Court’s

findings on those issues unrelated to the evident partiality

question. The Court continues to conclude that what was

at issue in the arbitration was a community real property

management question, that joinder of both spouses 1s not

required for such under the New Mexico community prop-

erty law, and that Corinne Grace is bound by the arbitra-

tion award. To the extent that the above conclusions rely

in any way on statements made by Mr. Dinsmore Adams,

the Court finds absolutely no merit in the claim that he

did not represent Corinne Grace. The affidavit of Elvin

Kantor, who was local counsel for Mr. Adams, does not

change the situation. The file is replete with claims and

representations by Mr. Kantor and Mr. Adams that they

Court who his clients were for some 24 months or having

filed a misleading affidavit. Neither position comports with

the Code of Professional Responsibility. The Court is com-

pletely satisfied that the statements attributed to Mr. Dins-

more Adams, to the extent they are at all relevant, were

made at the time that he represented Corinne Grace, and

that the actions of Elvin Kantor, to the extent also that they

4d

(APPENDIX)

are at all relevant, were taken on behalf of both Michael

and Corinne Grace.

The Court is equally persuaded that the disclosures in

the affidavit of Mark Thompson as to his knowledge of Dr.

Mommsen’s activities for General Atomic do not mandate

a reversal of the Court’s prior ruling on the evident par-

tiality question, or even an evidentiary hearing. It is im-

portant to note exactly what relationship was known to

the affiant and is at issue here. Dr. Mommsen, who is in

the business of consulting for the uranium industry, con-

ducted a seminar on behalf of General Atomic on a topic

completely unrelated to this case. General Atomic is rep-

resented in litigation, again completely unrelated to this

case, by the Modrall firm. The Modrall firm represented

the Santa Fe Pacific in the arbitration in this case where

Dr. Mcommsen was the neutral arbitrator. At the time of

the Court’s Opinion confirming the arbitration award there

was no evidence in the record that the Modrall firm had

had any knowledge of the connection between Mommsen

and General Atomic prior to their receipt of the Motion

of the Graces to vacate the arbitration award. It now ap-

pears from the affidavit of one member of the firm that

he knew the nature of Mommsen’s work for General Atomic

but was not involved in the Santa Fe Pacific - Grace arbi-

tration and that one attorney in the firm who was involved

in the latter knew that the other member of the firm had

encountered Dr. Mommsen in some unrelated work for

General Atomic. It also appears that Dr. Mcmmsen may

have some continuing contact with General Atomic as a

consultant.

The attorneys for the Graces argue that this case is con-

trolled by Commonwealth Coatings Corp. v. Continental

Casualty Co., 393 U.S. 145 (1968). While this is clearly the

leading Supreme Court case on the question, it is not all

encompassing and did not present to the Court the situ-

ation in the Grace arbitration. In Commonwealth Coatings,

supra, the neutral arbitrator had been a consulting engi-

5d

[APPENDIX)

neer for the prime contractor who was a party to the arbi-

tration, and had done work for the prime contractor on the

very project out of which the arbitration arose. Clearly

the relationship there should have been disclosed as it in-

volved a direct link between the arbitrator and one of the

parties and the project in dispute. Such is not the situation

in this case.

Nor is this case similar to the situation in Sanko S.S.

Co., Ltd. v. Cook Industries, Inc., 495 F.2d 1260 (2nd Cir.

1973), where the neutral arbitrator was president of a com-

pany which not only had been represented in an unrelated

matter by the same attorneys who were representing one

of the parties in the arbitration but additionally had deal-

ings through his parent corporation with one of the parties.

The contact in the present case is in no way comparable to

Sanko.

The present case involves consulting work for another

client of the law firm representing the Santa Fe Pacific.

There is nothing to indicate that Dr. Mommsen had any

direct dealings with the attorneys or that he had any reason

to not be completely fair and honest in his deliberations

due to his consulting work on an unrelated topic for Gen-

eral Atomic, which consulting work he had revealed to the

Graces. The casual contact between the Modrall firm and

Dr. Mommsen seems to be a classic case of what Justice

White referred to in his concurring opinion in Common-

wealth Coatings, supra, as a “trivial” relationship that need

not be disclosed. Though the willingness of the Modrall

firm to proceed with great caution in this matter is ad-

mirable, this is not a kind of relationship the firm was

required to disclose, and which would be grounds for set-

ting aside the arbitration award.

Accordingly, the Opinion of the Court entered on April

1, 1980 will not be amended,, :cept as supplemented herein,

nor will there be any further proceedings in this matter.

Counsel for the Santa Fe Pacific may prepare the judgment

6d

[APPENDIX)

and forward it to opposing counsel and the Court for sig-

natures, within seven (7) days of this date.

(s) Howard Bratton

UNITED STATES DISTRICT JUDGE

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO

[Filed April 1, 1980)

ORMSBEE DEVELOPMENT COMPANY,

et al.,

Plaintiffs,

vs. CIV NO. 76-326-HB

77-148

MICHAEL P. GRACE and 77-149

CORINNE GRACE, GRACE 77-150

NUCLEAR, et al.,

Defendants.

MEMORANDUM OPINION

This matter comes on for consideration upon the Mo-

tion of the Santa Fe Pacific Railroad Company (hereinafter

Santa Fe Pacific) to confirm an arbitration award and the

separate Motions of Michael and Corinne Grace to vacate,

modify or set aside the same arbitration award. The Court

has considered the numerous briefs filed by all sides, to-

gether with the record of the arbitration proceeding, the

oral arguments of counsel and the entire file in this cause,

and concludes that the Motion of the Santa Fe Pacific to

confirm the arbitration award should be granted and all

other Motions denied.

7d

{APPENDIX}

The history of this case is one of the more tedious

stories this Court has heard, though such is not to say that

the issues being litigated are not important to all parties.

The story can be said to have begun in 1971 when Michael

Grace entered into several mineral leases with the Santa Fe

Pacific. In carrying out his obligations under the leases,

Grace employed various subcontractors. The subcontrac-

tors filed suit in 1976 against Michael and Corinne Grace,

as lessees and the Santa Fe Pacific as owner of the prop-

erties, seeking to foreclose on mechanics’ liens which they

had filed after Grace had allegedly failed to pay them for

their drilling and exploration work. This dispute was ul-

timately settled and the complaint dismissed.

However, the Santa Fe Pacific had cross-claimed against

the Graces seeking a declaration that these same mineral

leases had expired in 1975 because there had been no pro-

duction of uranium-bearing ore in commercial quantities,

as required by their terms. To resolve this dispute, the

Graces, both Michael and Corinne, requested a stay of these

court proceedings pending submission of the dispute which

was the subject of the cross-claim to arbitration. The Santa

Fe Pacific objected strenuously, but the Court found that

the parties had indeed agreed to arbitrate their disputes

under the leases, including those raised in the cross-claim,

and thus ordered that these proceedings be stayed pending

the arbitration. This was in June 1977.

The arbitration finally took place between April 17 and

May 1, 1979 in Albuquerque, New Mexico. The delay of

almost two years was occasioned in large part by the slow-

ness in choosing a neutral arbitrator due to objections by

the Graces, problems during discovery in deposing certain

people because of objections by the Graces and the firing

of the Grace attorneys only a month before the scheduled

arbitration itself. The final award of the arbitrators was

made on June 27, 1979 and held in favor of the Santa Fe

Pacific finding that the subject leases expired in 1975 and

ordering Grace to perform any outstanding obligations un-

8d

[APPENDIX)

der them. The Santa Fe Pacific filed a Motion to confirm

the arbitration award on July 6, 1979 pursuant to §44-7-11,

N.M. Stat. Ann. (1978).

Within the 90 days allowed by the statute, both Mi-

chael and Corinne Grace objected to the confirmation by

filing Motions to vacate or set aside or modify the award,

though each did so separately and for distinct reasons. The

Court will consider each objection individually below, but

would note that Corinne Grace objects to the award on

the grounds that the leases were community property, that

she had a one half interest in them and therefore that she

should have been a named party to the arbitration. Addi-

tionally, she claims that there was evident partiality on

the part of the neutral arbitrator, Dr. Mommsen, and that

the attorney for her husband, Mr. William Condren, had

a conflict of interest which should have prohibited him

from acting as counsel in the arbitration proceeding. Mi-

chael Grace joins in the first two grounds for vacation

urged by Corinne Grace and further asserts that a sub-

stantial amount of relevant evidence was improperly ex-

cluded by the arbitrators, that the decision making process

of the arbitrators was not proper, and that a continuance

on the hearing should have been granted due to his health.

Corinne Grace’s Motion

The first claim made by Corinne Grace is that the

leases were community real property, that she had a one

half interest in them and that therefore she was a neces-

sary party to the arbitration. She claims that her absence

from the proceeding requires either vacating the award

entirely or modifying it so that it does not affect her com-

munity property interest in the leases. It is undisputed that

Corinne was not a named party to the arbitration and that

she was not present at the arbitration proceeding. How-

ever the Santa Fe Pacific claims that she is nonetheless

bound by the award by virtue of her husband’s actions.

9d

(APPENDIX)

Two facts should be noted here. The first is that the

arbitration agreement. The arbitrators then ruled that she

The Community Property Act of 1973, Laws 1973, Chap.

320 was passed in order to bring New Mexico property laws

Except for purchase-money mortgages and except as

otherwise provided in “iis subsection, the spouses

must join in all transfers, conveyances, or mortgages

or contracts to transfer, convey or mortgage any in-

terest in community real property . . . The spouses

must join in all leases and in the management of

community real property.

(emphasis added). Laws 1973, Chap. 320, § 8. In 1975 the

Legislature amended the above section, deleting that por-

tion of the statute requiring joinder of spouses in the man-

agement of community real property. § 40-3-13, N. M. Stat.

Ann. (1978). Thus the current statute requires joinder as

stated above, but is completely silent on the question of

management.

Corinne Grace claims that the arbitration involved a

“transfer,” “conveyance” or “lease” of community real prop-

10d

LAPPENDIX)

erty, and that joinder was required under the statute. The

Santa Fe Pacific on the other hand claims that the arbitra-

tion was a “management” action, and that in the absence

of any specific statutory provision, either spouse has the

power to manage community real property. The Court

concludes that what is at issue here is the power to man-

age community real property. The question is not whether

Michael Grace could transfer or convey the real property

to anyone in the arbitration proceeding, for if any such

transfer or conveyance resulted, it was automatic and pur-

suant to the terms of the original lease. What is at issue

is whether a single spouse can participate in a proceeding

affecting community real property, employ counsel and

direct the litigation without the joinder of the other spouse.

That is the question in this case and it is a management

question.

Given this, the Court concludes that under New Mexico

law both spouses have equal rights in the property giving

either spouse the right to manage and deal with the com-

munity real property, except in those instances where the

statute requires joinder. This is the only possible conclu-

sion that can be drawn from the amendment of the 1973

statute, the passage of the Equal Rights Amendment, and

the abolition of sole control in the husband. The parties

argue as to the significance of the case of Cocper v. Texas

Gulf Industries, 513 S.W.2d 200 (Tex. 1974) which held

that litigation involving one spouse was not binding on the

other spouse in a subsequent action and that the doctrine

of virtual representation had been abolished. The Court

finds that case inapposite in that its holding was entirely

controlled by the Texas family code which defined the sub-

ject property as “joint management property,” 513 S.W.2d

at 202. The reliance by the New Mexico Court of Appeals

on the Cooper case, supra, in Amador v. Lara, 603 P.2d 310

(N.M. 1979) has no effect cn the present question as the

latter involved community personal property and manage-

ment of such property is explicitly governed by statute.

lld

{[APPENDIX)

See § 40-3-14, N.M. Stat. Ann. (1978). The other case

strenuously argued by both counsel, Mundy & Mundy, Inc.

v. Adams, 602 P.2d 1021 (N.M. 1979), holds that settlement

and compromise of a claim by one spouse will bar relitiga-

tion of the underlying issue in a subsequent suit by the

other spouse, and that the non-party spouse will be bound

by the actions in the first suit. It is not clear that this case

involving adverse possession is particularly relevant in light

of the current New Mexico community property statute,

but nothing in it dictates against the Court’s conclusion

that Corinne Grace is bound by the management actions

of Michael Grace.

The Court having found that Corinne is bound by the

arbitration award, the next question is whether the award

should be set aside pursuant to § 44-7-12a(2), N.M. Stat.

Ann. (1978), on the grounds of evident partiality on the

part of the neutral arbitrator as urged by both Corinne

and Michael Grace. It was Corinne Grace who raised this

issue initially and briefed it, leading to its discussion at

this point; but it was Michael Grace who pursued the ques-

tion at the oral arguments in this case. As outlined in

Corinne Grace’s briefs and as originally presented to the

Court the argument was that Dr. Mommsen, the neutral ar-

bitrator, had done consulting work for several firms whose

parent or affiliated companies were allegedly represented

by the law firm of Modrall, Sperling, Roehl, Harris and

Sisk, which is the firm that represented Santa Fe Pacific

in these arbitration proceedings. Corinne Grace originally

argued that Dr. Mommsen should have disclosed these con-

nections and that his failure to do so was grounds for

vacating the arbitration award. At the hearing, Michael

Grace, in adopting this argument, shifted his position and

argued that it was the Modrall firm’s failure to disclose

these connections with Dr. Mommsen that was fatal to the

arbitration award.

The undisputed facts appear to indicate that the actual

appointment of arbitrators for this case began in July 1977.

12d

[APPENDIX)

The American Arbitration Association (AAA) requested

that each party nominate an arbitrator. This was appar-

ently accomplished by the end of October 1977, at which

The claim of evident partiality arises from the alleged

connections between Dr. Mommsen and the Modrall law

firm, including the fact that Dr. Mommsen had done con-

sulting work in the past and had as an active client at the

time of his selection the General Atomic Company, which

is a partnership between Gulf Oil and Scallop Nuclear,

and that the Modrall firm represents Gulf Oil. Further it

is claimed that Dr. Mommsen did work for Texas Eastern

Nuclear, a subsidiary of Texas Eastern Company and that

the Modrall firm represents Transwestern Pipeline Com-

pany, another subsidiary of Texas Eastern Company. Fin-

ally it is claimed that there was evident partiality in that

Dr. Mommsen was being considered as an arbitrator in

a case involving Homestake Mining Company, which com-

pany is represented by the Modrall firm.

It is undisputed that Dr. Mommsen sent Mr. Adams

a copy of his resumé, which states all of the above con-

13d

{APPENDIX}

nections with General Atomic Company, Texas Eastern

Nuclear and Homestake Mining Company. It is also true

that it does not mention Gulf Oil or the Modrall firm at

any point. However, there is nothing in the record to in-

dicate that this resumé was forwarded to the Modrall firm

or that they otherwise had access to this information.

The United States Supreme Court has stated that the

arbitration process is subject to the “simple requirement

that arbitrators disclose to the parties any dealings that

might create an impression of possible bias.” Common-

wealth Coatings Corp. v. Continental Casualty Co., 393 U.S.

145, 149 (1968). This has been found to be a per se rule

in that failure to disclose non-trivial relationships with

parties will be grounds for vacating an arbitration award

regardless of any actual bias, prejudice, unfairness or lack

of the same in the hearing. In this case it is perfectly clear

that Dr. Mommsen fully complied with his obligation under

Commonwealth Coatings, supra, and all rules of the AAA.

While this same obligation would apply to counsel in the

arbitration proceedings, there is absolutely no evidence

that the Modrall firm was ever made aware of the rela-

tionships at issue, and thus the occasion for its disclosure

never arose. For this reason the Court finds no basis in

fact for setting aside the arbitration award on the grounds

of evident partiality.

The final argument raised by Corinne Grace in her

motion, though not pursued at oral arguments, was that

the attorney who actually represented Michael Grace in

the arbitration proceeding, Mr. William Condren, had a

conflict of interest in the proceeding in that he is a “dealer

of U.S. railroad companies’ securities including Santa Fe

Industries” and that he is “very close to Gulf Oil Com-

pany” through his business dealings and that he “does busi-

ness with Santa Fe Pacific Railroad Co.” These claims are

presented in an affidavit from Corinne Grace and allegedly

based on “information [I received] which was confirmed

by a reputable lawyer in New York City.”

14d

[LAPPENDIX)

The Court assumes that this argument has been aban-

doned as it was not presented in any manner at the oral

arguments. However, even if counsel intended to pursue

it and even if the alleged conflict were found to exist, the

Court finds that it is not grounds for vacating the arbitra-

tion award. The statute governing vacation of an arbitra-

tion award provides for such in several enumerated situ-

ations, none of which include the above claim. See § 44-7-

12A, N.M. Stat. Ann. (1978). Consistent with this, the

Court finds that if any conflict existed, the remedy for

Corinne Grace would lie in a direct action against the

attorney.

Accordingly, the Court finds that none of the grounds

alleged by Corinne Grace for vacation of the arbitration

award are well taken, and thus denies her motion.

Michael Grace’s Motion

Michael Grace has filed a separate Motion to vacate

the arbitration award against him. The Motion first claims

that the arbitrators refused to hear “significant amounts”

hottest ety ie empeg Se eens eae

of the Santa Fe Pacific. He claims the proffered evidence

was relevant particularly on the question of interpretation

of the terms of the leases he held.

Specifically, the leases in question provided for auto-

matic renewal upon application by the lessee to the Santa

Fe Pacific within thirty days prior to the lease’s expiration,

provided that the lease was producing “uranium-bearing

ore in commercial quantities.” When Grace applied for

renewal, his application was denied. At the arbitration

he attempted to introduce any number of cther leases held

by the Santa Fe Pacific in the same geographic area as his

to show that he was treated differently from all other

leaseholders in terms of how the Santa Fe Pacific inter-

preted the term “commercial quantities.” The arbitrators

ruled that they would consider any evidence of other leases

15d

{APPENDIX}

if Michael Grace could show that the leases were auto-

matic renewal situations, as opposed to instances where the

parties renegotiated the terms of the lease or entered into

entirely new contracts.

The Court has reviewed the transcript of the arbitra-

tion proceeding filed by the parties and it reveals that the

arbitrators were shown and did consider all the leases that

Michael Grace and Mr. Condren wanted to tender, and that

only lease that Michael Grace has tendered to the Court

for consideration is what is known as the KSN lease, which

was discussed at length by the arbitrators and reviewed

by them during the hearing. There is nothing else specific-

ally tendered as having been improperly excluded so the

Court is unable to evaluate whether other items might

have been relevant.

The scope of review of a district court upon a Motion

to confirm or vacate an arbitration award is extremely

limited, Campo Machining Co. v. Local Lodge No. 1926, 536

F.2d 330 (10th Cir. 1976); Office of Supply, Government of

the Republic of Korea v. New York Navigation Company,

Inc., 469 F.2d 377 (2nd Cir. 1972), and the Court will not

lightly set aside an arbitration award. There is nothing in

the record to indicate that the distinction between renewal

grounds is not well taken.

16d

{APPENDIX}

process. In support of this claim, Michael Grace has sub-

mitted the affidavit of Mr. Cutler which states that he was

affectively denied a right to expect that all arbitrators

would participate in the determination of the award

as the arbitrator selected by the claimant was not

given a sufficient opportunity to express his views,

argument and reasoning behind his opinion and be-

liefs with respect to the merits cf the claimant’s po-

sition. |

He claims that when he arrived at the final meeting of the

arbitrators in San Francisco, Dr. Mommsen immediately

stated his decision, which was favorable to the Santa Fe

Pacific, and that this was then immediately concurred in

by Mr. Jennings, the arbitrator chosen by the railroad. At

this point, Cutler states that he felt “the decision-making

process was, for all intents and purposes, concluded” and

that he did not have a chance to express his views. Though

the Santa Fe Pacific has filed an affidavit from Mr. Jen-

nings controverting these allegations, the Court will as-

sume, for the purposes of resolving this issue, that Mr.

Cutler’s affidavit is true. Even in this situation the Court

concludes however that there was no misconduct warrant-

ing vacation of the arbitration award.

In the case of Artie Shaw Presents, Inc. v. Snyder, 362

N.Y.S.2d 158 (1974), a strikingly similar claim was made

by the arbitrator chosen by the losing party. There it was

alleged in a conclusory affidavit from the disgruntled ar-

bitrator that he was “deprived of any meaningful oppor-

tunity to deliberate upon the issues with [his] co-arbi-

trators.” 362 N.Y.S.2d at 159. There was no evidence in

that case, as there is none in this case, that any arbitrator

was excluded from any procedings by the others or that

all were not present for the taking of the evidence. The

only exclusion of the complaining arbitrator in Artie Shaw,

supra, was due to his own refusal to discuss the case with

the other two arbitrators on the telephone. The New York

Court concluded that

17d

{APPENDIX}

. . . although it is desirable io have all of the arbi-

trators meet, following final submission of the con-

troversy and participate in the deliberations so that

the parties to the dispute may have the benefit of

the effect the views and arguments of each arbitrator

might have upon the others, the presence of all is not

required.

362 N.Y.S.2d at 159.

There is no evidence in this case that any meetings or

consultation were had in secret, intentionally excluding Mr.

Cutler, as was the situation in Jones v. Bishop, 218 Ill. App.

318 (1920), relied upon by Michael Grace. Nor is there any

misconduct such as in Blin v. Hay, 2 Tyler [Vt.] 304 (1802),

where two of the arbitrators were not notified of the meet-

ing, let alone present. The Court can find no grounds for

setting aside the arbitration award on this issue.

The final argument against the arbitration award was

made by counsel for Michael Grace for the first time at the

oral arguments in this case. Michael Grace is now claim-

ing that the arbitration award should be set aside on the

grounds that he was forced to go to arbitration at a time

when he was recovering from surgery and could not be

present for the entire proceeding. The background to this

claim is that when Michael Grace changed attorneys just

prior to the arbitration, a continuance was granted in

order for the new attorney to prepare the case, but only

upon the promise of counsel for Michael Grace that no

more continuances would be sought. The Court finds that

demand by the arbitrators completely reasonable for there

had been nearly a two year lapse since this Court had

stayed proceedings pending arbitration and nearly three

years since the first arbitration demand had been made.

Subsequently, Michael Grace learned that he needed surg-

ery. No demand for relief from his prior promise or for a

continuance was made by counsel. The arbitration began as

scheduled and though Michael Grace was not there for the

18d

{APPENDIX}

first five days of the hearing, which essentially amounted

to the presentation of his own case, he did appear to testify

on his own behalf and was present throughout the presen-

tation of evidence by the Santa Fe Pacific. Michael Grace

now claims however, that the arbitration should not have

proceeded and that the arbitrators should have rescheduled

the hearing at a time when he could assist his attorney

more fully.

The Court finds this argument to be completely with-

out merit. The Court deals with scheduling problems on

its own docket every day and can fully appreciate the need

to hold dilatory counsel and parties to their agreements

and to the calendars. This is particularly true where no

demand for relief was ever presented to the arbitration

panel. Despite the fact that it was the Graces, and not

the Santa Fe Pacific, who wanted to go to arbitration, the

Graces have fought any forward movement in this matter

at all stages. It is understandable that the arbitrators would

eventually tire of this, and demand that they proceed. In

light of this, and the fact that there is nothing in the record

that would indicate that Michael Grace was prejudiced in

any way as a result of his absence for a few days from the

hearing, the Court will deny the Motion to vacate on these

In conclusion the Court finds that none of the argu-

ments made by either Corinne or Michael Grace are well

taken. They appear to be yet one more attempt to avoid

the consequences of an arbitration upon which they in-

sisted. Perhaps arbitration seems less attractive now, but

that dees not entitle them to a second chance. The record

discloses no grounds for vacating the award, and accord-

ingly the Court will grant the Motion of the Santa Fe Pa-

to confirm the arbitration award. A separate Order

will be entered in accordance herewith.

(s) Howard Bratton

UNITED STATES DISTRICT JUDGE