Opposition Brief — MSW Investments v. Chevron U.S.A. Inc.

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In THE

Supreme Court of the United States

OcTOBER TERM, 1997

MSW INVESTMENTS, A TEXAS JOINT VENTURE,

. Petitioner,

CHEVRON U.S.A. INC.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

RESPONDENT'S BRIEF IN OPPOSITION

DANIEL JOSEPH

Counsel of Record

AKIN, GUMP, STRAUSS, HAUER

& FELD, L.L.P.

1333 New Hampshire Ave., N.W.

Suite 400

Washington, D.C. 20036

(202) 887-4000

PAULA W. HINTON

THOMAS M. BEVILACQUA

AKIN, GUMP, STRAUSS, HAUER

& FELD, L.L.P.

1900 Pennzoil Place

South Tower

711 Louisiana Street

Houston, Texas 77002

(713) 220-5800

Counsel for Respondent

WILSON - Epes PRINTING Co., Inc. - 789-O096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Did the court of appeals properly affirm the award of

an arbitrator who ruled that Petitioner had failed to

Properly exercise a right of first refusal it possessed in

property owned by Respondent and that Respondent’s

refusal to sell the property was justified?

(i)

ii

PARTIES TO THE PROCEEDING

Pursuant to Rule 29.6, Respondent Chevron U.S.A.

Inc. hereby lists the corporate entities related to it. The

following is the parent company of Respondent Chevron

U.S.A. Inc.: Chevron Corporation. The following are the

non wholly-owned subsidiaries of Chevron U.S.A. Inc.:

Chevron Credit Bank, N.A.; Chevron do Brasil Ltda.;

Chevron Oil Congo S.A.R.L.; Compania Minera Chevron

Dominicana, S.A.; Felix Oil Company; Midstream Barge

Company, L.L.C.; NGC Corporation; Pembroke Capital

Company Inc.; and TBA Supply Company.

TABLE OF CONTENTS

Pag

En. i

PARTIES TO THE PROCEEDING .....................000...... i

e nee Rr iv

SLATEMENT OF THE CASE... oo. c.cccccc cc ccccec nes. 1

Nee nh wcsvntacencacs, 1

B. Proceedings Below ........... dina pibdsdaegdadighinassceubcuias case: 2

REASONS FOR DENYING THE WRIT .................. 3

I. THE FEDERAL ARBITRATION ACT ESTAB-

LISHES A FEDERAL POLICY FAVORING

ARBITRATION AND PROVIDING FOR EX-

TREMELY LIMITED JUDICIAL REVIEW

OF ARBITRATORS’ DECISIONS _..... 3

Il. IN CONFORMITY WITH THESE PRINCI-

PLES, REVIEWING COURTS HAVE ONLY

VERY RARELY VACATED ARBITRATORS’

SUI boat thc ssssiccstnivis istucichanionbcese Siteinlebincgthra les tage 6

Ill. REGARDLESS OF PRECISE TERMINOL-

OGY, COURTS OF APPEALS APPLY THE

STANDARDS OF REVIEW DICTATED BY

THE FEDERAL ARBITRATION ACT ....... 7

IV. THE ARBITRATOR’S AWARD IN THIS

CASE WAS IN ANY EVENT PROPERLY

CONFIRMED, BECAUSE IT WAS CORRECT

UNDER ANY STANDARD ........000000 200s. 11

NIN his thicket dacehiletissicchataSedlcaninlnasovssk-noicmcssdehon 12

(ili)

iv

TABLE OF AUTHORITIES

CASES CITED Page

Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir.

BD: Saeccthaia onic ch a eae ad ee 9,10

Amicizia Societa Navegazione v. Chilean Nitrate

& Iodine Sales Corp., 274 F.2d 805 (2d Cir.),

cert. denied, 363 U.S. 848 (1960) ......................... 9

Board of County Comm’rs v. L. Robert Kimball &

Assocs., 860 F.2d 683 (6th Cir. 1988), cert.

denied, 494 U.S. 1030 (1990) _.........- 5

Coast Trading Co., Inc. v. Pacific Molasses Co., 681

F.2d 1195 (9th Cir. 1982) . ‘ 6

Dean Witter Reynolds Inc. v. Byrd, 470 US. 213

fi} Saeeait aes a ec ors Mia Ne een Tones Geant eRe ae ot POON 4.5

Elier Mfa., Inc. v. Kowin Dev. Corp., 14 F.3d 1250

(7th Cir.), cert. denied, 512 U.S. 1205 (1994)_ 5

Federated Den’t Stores, Inc. v. J.V.B. Indus., Inc.,

604 F'.28 O62. (6th Cir: 1900) 8 .. 9,10

First Options of Chicago, Inc. v. Kaplan, 514 U. S.

Oe Te ie 6

Forsythe Int'l, S.A. v. Gibbs Oil Co., 915 F.2d 1017

CO Rey OES csccsiatida ka erana eanaa ak ek 7

Gilmer v. Interstate Johnson/Lane Corp., 500 U.S.

Se RR ss rekia sada atiaucmabincecie uae tans 4

Inter-City Gas Corp. v. Boise Cascade Corp., 845

me ae Re Re 6,10

Jenkins v. Prudential-Bache Securities, Inc., 847

Fon Gon Ciue Ce ieee hehe. 10, 11

Kelley v. Michaels, 59 F.3d 1050 (10th Cir. 1995). 10

LaFarge Conseils et Etudes, S.A. v. Kaiser Cement

& Gypsum Corp., 791 F.2d 1334 (9th Cir. 1986). 7

Merrill Lynch, Pierce, Fenner & Smith, Ine. v.

Bobker, 808 F.2d 930 (2d Cir. 1986) 9

Mitsubishi Motors Corn. v. Soler Crusler-Plymouth,

te., 7a Ge Oe THe 6k ie 4,5,9

Montes v. Shearson Lehman Bros., 128 F.3d 1456

CE IGS Se Det hacen te 6, 10

Moselen. Hallaarten, Estabrook & Weeden v. Ellis,

Ba} oe: 28 ety een ne a 7

<A Ae mNNeRRRER NAIF: ee

v

TABLE OF AUTHORITIES—Continued

Page

Moses H. Cone Memorial Hosp. v. Mercury Constr.

Co., 460 U.S. 1 (1988) ........ ee ERP Ot ELAS 3

National Wrecking Co. v. International Bhd. of

Teamsters, Local 731, 990 F.2d 957 (7th Cir.

BIDOPIID noacsnlidhi < wokeca tana ries ce err eee aioe a 5

Raiford v. Merrill Lynch, Pieres, Fenner & Smith,

Inc., 903 F.2d 1410 (11th Cir. 1990). 7

Remmey v. PaineWebber, Inc., 32 F.3d 143 (4th

Cir. 1994), cert. denied, 513 U.S. 1112 (1995)_.

Richmond, Fredericksburg & Potomac R.R. Co. v.

Transportation Communications Int'l Union,

973 F.2d 276 (4th Cir. 1992), cert. denied, 513

Rosai RA MEY cooisicntb el ales. 8

R.M. Perez & Assocs. v. Welch, 960 F.2d 534 (5th

Cans ED cc cas 7

Robbins v. Day, 954 F.2d 679 (11th ‘Cir.), cert.

denied sub nom. Robbins v. PaineWebber, Inc.,

506 U.S. 870 (1992) .. ae pre ae ee a

Rodriquez de Quijas v. “Shearson/ ‘American Ex-

press, Inc., 490 U.S. 477 (1989) A

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)... $.5

Service Employees Int’l Union, AFL-CIO, CLC v.

Local 1199 N.E., SEIU, AFL-CIO, CLC, 70 F.3d

ol

io 2)

Or (106 Ct: tee? ck ie ara ae ee 11

Shearson/American Express, Inc. v. McMahon,

Se Gla eee ee 3,4

Southland Corp. v. Keating, 465 U.S. 1 (1984) 3

Swift Indus., Inc. v. Botany Indus., Inc., 466 F.2d

1125 (3d Cir. 1972) ......... 10

Ultracashmere House, Ltd. v. Meyer. 664 F. od 1176

(11th Cir. 1981) . nae 5

United Panerworkers Intl Union, AFL-CIO v.

mien, fae. 434 OS BS t0ST) 5, 6

United Steelworkers of Am. v. Enterprise Wheel

& Car Corn., 868 U.S. 598 (1960) ......................... 9

Wilko v. Swan, 346 U.S. 427 (19538) ....................... 4, 5,9

STATUTES CITED

ERR OF elictsicnnilna-cahokiaeeninabniee aes 7, 8,9, 10

vi

TABLE OF AUTHORITIES—Continued

OTHER AUTHORITIES CITED Page

Brad A. Galbraith, Note, Vacatur of Commercial

Arbitration Awards in Federal Court: Contem-

plating the Use and Utility of the “Manifest Dis-

regard” of the Law Standard, 27 IND. L. REV.

RE pares cicccrsnc ator nailaanedieehared amet comcetilos: sn 6,9

Bret F. Randall, Comment, The History, Applica-

tion, and Policy of the Judicially Created Stand-

ards of Review for Arbitration Awards, 1992

Si as nis I: I a a hs ie et 11

Phillip C. Essig, U.S. Supreme Court Tackles Arbi-

tration Issues, N.Y.L.J., Feb. 14, 1995, at 1........ 4

Stephen L. Hayford & Scott B. Kerrigan, Vacatur:

The Non-Statutory Grounds for Judicial Review

of Commercial Arbitration Awards, DISPUTE

mepetwrmon J., Oct. 1996, at 22 ................. 2... 9

Stephen L. Hayford, Law in Disarray: Judicial

Standards for Vacatur of Commercial Arbitra-

tion Awards, 30 GA. L. REV. 731 (1996) ............ 6

In THE

Supreme Court of the United States

OCTOBER TERM, 1997

No. 97-2007

MSW INVESTMENTS, A TEXAS JOINT VENTURE,

Petitioner,

Vv.

CHEVRON U.S.A. INC.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

RESPONDENT'S BRIEF IN OPPOSITION

STATEMENT OF THE CASE

A. Underlying Facts

Pursuant to the terms of a 1993 Compromise and

Settlement Agreement [the “Agreement”] (R. 042) be-

tween Petitioner MSW Investments and Respondent Chev-

ron U.S.A. Inc. in unrelated litigation, Chevron purchased

an approximately one-acre parcel of land in Dallas, Texas

[the “Property”], and granted “to MSW (and not to

MSW’s partners individually) a right of first refusal-to

repurchase the property” in the event of future sale by

Chevron, on the same terms and conditions as offered

by a potential buyer and accepted by Chevron. (R. 043).

After a third party presented a written offer to Chevron

to purchase the Property which Chevron found accept-

2

able, Chevron advised MSW of the third-party offer pur-

suant to the terms of the Agreement (R. 507), and

forwarded a copy of that third-party offer. (R. 457).

Lawrence Steinberg, purporting to act on behalf of MSW

as Managing partner, attempted to exercise the right of

first refusal (R. 508), but without submitting documen-

tation that he had the authority to so bind MSW or that

MSW stil existed. (R. 510; S.R.1 0027, 0029, 0031).

The documents forwarded by Steinberg in response re-

vealed that he, in fact, was not authorized to bind the

partnership, and they also called into question whether

MSW still existed. Steinberg refused to provide the re-

quested proof of authority and other requested documen-

tation in response to further requests, even though Chev-

ron on multiple occasions extended the time during which

MSW could exercise the right of first refusal. (S.R. 0027,

0029, 0031). Instead, MSW filed a lawsuit against Chev-

ron in Texas state court, and filed a lis pendens on the

Property. (R. 008, 014).

B. Proceedings Below

Following removal by Chevron of MSW’s action against

it to the United States District Court for the Northern

District of Texas on July 27, 1995, that court, on July

24, 1996, ordered the parties to arbitrate their disputes

before an arbitrator mutually selected by the parties. On

February 21, 1997, the arbitrator entered an award that

concluded, in pertinent part, that MSW had not properly

exercised the right of first refusal it possessed relating to

the Property and that Chevron was justified in refusing

to sell the Property. (R. 446).? Following the filing of a

1“S.R.” references are to the Supplemental Record which Chevron

filed in the United States Court of Appeals for the Fifth Circuit.

2In terms of measuring the extent of the controversy between

the parties, it bears mention that the arbitrater concluded that the

right of first refusal was not extinguished as a result of the improp-

erly attempted exercise. Rather, the right retained its vilelity in

the event Chevron should subsequently receive an offer on the

property which it desired to accept.

3

Motion to Confirm by Chevron (R. 440) and a Motion

to Vacate by MSW (R. 485), the district court confirmed

the award, and entered a Judgment on May 19, 1987.

(R. 724). MSW appealed to the Fifth Circuit, arguing

in its November 18, 1997 brief that the arbitral award

Should be vacated on the basis of the “essence” test and

that the arbitrator manifestly disregarded the law. Finding

such standards impermissible on a motion to vacate, the

Fifth Circuit affirmed in a brief per curiam opinion.

REASONS FOR DENYING THE WRIT

The arbitrator’s decision here under review was a work-

aday interpretation of a contract between MSW and

Chevron. There is, moreover, no substantive disagree-

ment among the courts of appeals as to when they may

vacate an arbitrator’s award. Virtually all of the assert-

edy conflicting language cited by Petitioner is dictum.

The results reached by the courts of appeals are all in

harmony, and neither the court below nor any other court

decision cited in the Petition, has departed from the

standard of review set by the Federal Arbitration Act

itself. There is, therefore, nothing deserving this Court’s

attention.

I. THE FEDERAL ARBITRATION ACT ESTAB-

LISHES A FEDERAL POLICY FAVORTNG ARP?-

TRATION AND PROVIDING FOR EXTREMELY

LIMITED JUDICIAL REVIEW OF ARBITRATOR’

DECISIONS.

The Federal Arbitration Act established a “federal

policy favoring arbitration,” Moses H. Cone Memorial

Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24 (1983);

Southland Corp. v. Keating, 465 U.S. 1. 10 (1984), and

“was intended to ‘revers[e] centuries of judicial hostility

to arbitration agreements,’ ” Shearson/American Express,

Inc. v. McMahon, 482 U.S. 220, 225 (1987) (quoting

Scherk v. Alberto-Culver Co., 417 U.S. 506. 510 (1974));

4

Gilmer v. Interstate Johnson/ Lane Corp., 500 U.S. 20, 24

(1991). This Court has instructed that the judiciary must

respect parties’ conscious choice for the ease and conveni-

ence of arbitration over formal, full-scale, costly litigation.

In Mitsuibishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 626-27 (1985), for example, this

Court observed that “we are well past the time when

judicial suspicion of the desirability of arbitration and of

the competence of arbitral tribunals inhibited the develop-

ment of arbitration as an alterantive means of dispute

resolution.” See also Gilmer, 500 U.S. at 34 n.5. And

the Court’s decision in Shearson/ American Express, Inc.

v. McMahon, 482 U.S. 220 (1987), has been character-

ized as “an unequivocal rejection of the belief that a

judicial forum is needed to protect the substantive rights

of parties and a clear statement that judicial hostility

to arbitration would no longer be countenanced.” Phillip

C. Essig, U.S. Supreme Court Tackles Arbitration Issues,

N.Y.L.J., Feb. 14, 1995, at 1; see also Rodriguez de

Quijas v. Shearson/ American Express, Inc., 490 U.S. 477,

481 (1989) (“To the extent that Wilko [v. Swan, 346

U.S. 427 (1953)] rested on suspicion of arbitration as a

method of weakening the protections afforded in the

substantive law to would-be complainants, it has fallen

far out of step with our current strong endorsement

of the federal statutes favoring this method of resolving

disputes.”’) .*

The primary concern of Congress in passing the Fed-

eral Arbitration Act “was to enforce private agreements

into which parties had entered.” Dean Witter Reynolds

Inc. v. Byrd, 470 U.S. 213, 221 (1985); see also Shear-

son/ American Express, Inc., 482 U.S. at 225-26. Con-

gress further recognized the additional potential benefit

3In view of this criticism of Wilko, the Petitioner misplaces its

extensive reliance on that case as the purported source of authoriza-

tion of broad judicial review. See Petition, at 5, 8.

5

to parties of resolving disputes quickly and more cheaply.

Dean Witter Reynolds Inc., 470 U.S. at 221; Alberto-

Culver Co., 417 U.S. at 510-11; Wilko v. Swan, 346

U.S. 427, 431, 438 (1953).* By freely agreeing to arbi-

trate potential claims, parties “trade[] the procedures and

opportunity for review of the courtroom for the simplicity,

informality, and expedition of arbitration.” Mitsubishi

Motors Corp., 473 U.S. at 628. One consequence of that

decision is that the parties to an arbitration agreement

have consented to accept the facts and the law as the

arbitrator or arbitrators find them; like the courts, the

parties are equally bound to respect those arbitral deter-

minations. Were parties guaranteed significant substan-

tive judicial review upon receipt of an unfavorable arbi-

tral award, much of the FAA’s supporting logic would be

lost. Misco, 484 U.S. at 38. “[A]rbitrators do not act as

junior varsity trial courts where subsequent appellate

review is readily available to the losing party.” National

Wrecking Co. v. International Bhd. of Teamsters, Local

731, 990 F.2d 957, 960 (7th Cir. 1993); Remmey v.

PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994),

cert. denied, 513 U.S. 1112 (1995).

To effectuate this policy, courts must accept arbitrators’

findings of fact and conclusions of law in nearly all cases.

United Paperworkers Int'l Union, AFL-CIO v. Misco,

Inc., 484 U.S. 29, 37-38 (1987); see also, e.g., Eljer

Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1254

(7th Cir.), cert. denied, 512 U.S. 1205 (1994); Board

of County Comm'rs v. L. Robert Kimball & Assocs.,

860 F.2d 683, 685 (6th Cir. 1988), cert. denied, 494

U.S. 1030 (1990). “[C]Jourts are not authorized to re-

consider the merits of an award even though the parties

4There are additional reasons for a uniform national policy

favoring arbitration. E.g., Ultracashmere House, Ltd. v. Meyer,

664 F.2d 1176, 1170-80 (llth Cir. 1981) (reduction in congestion

in courts to the benefit of othe: litigants).

6

may allege that the award rests on errors of fact or on

misinterpretation of the contract.” Misco, 484 U.S. at 36;

see also id. at 37-38. Courts may set aside arbitral rulings

“only in very unusual circumstances.” First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 940, 942 (1995).

II. IN CONFORMITY WITH THESE PRINCIPLES, RE-

VIEWING COURTS HAVE ONLY VERY RARELY

VACATED ARBITRATORS’ DECISIONS.

Despite all of the Petitioner’s attempts to find incon-

sistency in discussion in the case law and the secondary

literature, it is exceptionally rare that a reviewing court

vacates the decision of an arbitrator under the Federal

Arbitration Act. In fact. as the numerous opinions cited

in MSW’s Petition and additional research readily reveal,

in only a handful of cases have commercial arbitration

awards ultimately been vacatea at the appellate level.

See, e.g., Inter-City Gas Corp. v. Boise Cascade Corp.,

845 F.2d 184 (8th Cir. 1988): Cuoast Trading Co., Inc. v.

Pacific Molasses Co., 681 F.2d 1195 (9th Cir. 1982).

Standards such as the “essence of the contract” test and

“manifest disregard” of the law do not betoken any sub-

stantive difference in the scope of the review provided

but remain, in the words of one commentator, “theoretical

construct[s].”* The fact is that the courts of appeals apply

a narrow standard of judicial review entirely consistently.®

5 Stephen L. Hayford, Laew-in Disarray: Judicial Standarcs for

roy

Vacatur of Commercial Arbitration Awards, 30 Ga. L. REv. 7

776 (1996).

6 To illustrate, of the numerous cases cited by Petitioner, in

only one was a commercial arbitration award on the merits ulti-

1

mately vacated by a circuit court of appeals on the basis of ‘mani

fest disregard” of the law. Montes v. Shearson Lehman Bros., 128

F.3d 1456 (11th Cir. 1997). As recently as 1996, one comment

noted that no commercial arbitration had even been vacated on ‘

basis of “manifest disregard” of the law. Havyford, supre, at CG

777; see also Brad A. Galbraith, Note, Vaectur of Commercicl

7

Ill. REGARDLESS OF PRECISE TERMINOLOGY,

COURTS OF APPEALS APPLY THE STANDARDS

OF REVIEW DICTATED BY THE FEDERAL ARBI-

TRATION ACT.

The Fifth Circuit and other courts have looked exclu-

sively to the literal terms of the review provisions found

in 9 U.S.C. § 10(a) in resolving motions to confirm or

vacate arbitral awards. The statement of the Fifth Circuit

in Forsythe Int'l, S.A. v. Gibbs Oil Co. is typical:

judicial review of a commercial arbitration award is

limited to Sections 10 and 11 of the Federal Arbitra-

tion Act. 9 U.S.C. § 1 et seg. Accordingly, a dis-

trict court has no authority to vacate an arbitration

award unless: (1) the award was procured by cor-

ruption, fraud, or undue means; (2) there is evidence

partiality or corruption among the arbitrators; (3)

the arbitrators were guilty of misconduct which prej-

udiced the rights of one of the parties; or (4) the arbi-

trators exceeded their powers. 9 U.S.C. § 10(a)-(d).

915 F.2d 1017, 1020 (Sth Cir. 1990) (citation omitted);

see also, e.g., Raiford v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 903 F.2d 1410, 1412 (11th Cir. 1990)

(“[T he Supreme Court has held that the grounds for

vacating an arbitrator’s award are limited to [the]

statutory categories [contained in 9 U.S.C. § 10].”).?

By their very terms, the four grounds set forth in the

Federal Arbitration Act all relate to the conduct of the

Arbitration Awards in Federal Court; Contemplating the Use and

Utility of the “Manifest Disregard” of the Law Standard, 27 IND.

L. Pry. 241, 252 (1993). Independent research by Respondent re-

veals no court of appeals decision other than Montes in the period

from 1996 to 1998 in which a commercial arbitration award was

vacated for “manifest disregard” of the law.

7 See also, c.g., R.M. Perez & Assocs. v. Welch, 960 F.2d 534 (5th

Cir. 1992): Moseley, Hallgarten, Estabrook & Weeden v. Ellis. 849

F.2d 264 (7th Cir. 1988); LaFarge Conseils et Etudes, S.A. v.

Kaiser Cement & Gypsum Cor. 791 F.2d 1334 (9th Cir. 1986).

8

arbitrator during the arbitral process, or to the rendering

of an award which is outside the scope of the matter sub-

mitted to the arbitrator. They do not relate to the merits

of arbitral determinations of fact or law, unless those

determinations evidence misconduct on the part of the

arbitral decision maker. Remmey v. PaineWebber, Inc.,

32 F.3d 143, 146 (4th Cir. 1994), cert. denied, 513 U.S.

1112 (1995).8

In the Petition, MSW suggests that two formulations

of the standard of review mentioned by some courts—

“manifest disregard of the law” and the “essence test”—

are distinct from the standard oi review set forth in the

Federal Arbitration Act and that they, accordingly, sub-

stantively supplement the Federal Arbitration Act.

First, as stressed above, however, the Petitioner does

not and cannot point to any change in the outcome of a

case based upon application of the “manifest disregard”

standard. Moreover, that standard, even as a theoretical

construct, does not express a standard of review any differ-

ent from the statute. Although the Petition (at 4, 5 n.1)

refers to the “manifest disregard” standard as “judicially

created” and “non-statutory,” several courts have found it

to be based on 9 U.S.C. § 10(a)(4), which allows a court

to overturn decisions of arbitrators that “exceed[! their

powers.” ® This is consistent with this Court’s dictum

8 As stated by the Fourth Circuit, “in reviewing arbitral awards,

a district or appellate court is limited to determining ‘whetKer the

arbitrators did the job they were told to do not whether they did

it well, or correctly, or reasonably, but simply whether they did it.’ ”

Remmey v. PaineWebber, Inc., 32 F.3d 148, 146 (4th Cir. 1994)

(quoting Richmond, Fredericksburg & Potomac R.R. Co. v. Trane-

portation Communications Int’l Union, 973 F.2d 276. 281 (At

1992) (internal quotation omitted)), cert. denied, 513 U.S. 1112

(1995).

h Cir.

9 See, e.g., Robbins v. Day, 954 F.2d 679, 683 (11th Cir.), cert.

denied sub nom. Robbins v. PainWebber, Inc., 506 U.S. 870 (1992) :

9

regarding “manifest disregard” in Wilko, the opinion to

which the appellate courts have invariably pointed as the

genesis of the manifest disregard of the law theory. This

Court’s discussion in Wilko commences, “Power to vacate

an award is limited.” Adjoined to this statement is a foot-

note which quotes 9 U.S.C. § 10 without further comment,

and the immediately following remarks in the main text

set forth the “manifest disregard” language. Wilko, 346

U.S. at 436-37 & 436 n.22.

The other basis for vacatur which Petitioner MSW

asserted at the court of appeals is the so-called “essence

test.” 1° The essence test stems from several labor arbitra-

tion decisions of this Court, most notably United Steel-

workers of Am. v. Enterprise Wheel & Car C orp., 363

Federated Dep't Stores, Inc. v. J.V.B. Indus., Inc., 894 F.2d 862,

866 (6th Cir. 1990); Amicizia Societa Nave gazione v. Chilean

Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir.), cert.

denied, 363 U.S. 843 (1960): see also Soler Chrysler-Plymouth,

473 U.S. at 656 (Stevens, J.. dissenting) (“Arbitration awards are

only reviewable for manifest disregard of the law, 9 U.S.C. § 10.”).

Several prominent commentators have also concluded that this test

is an illustration of § 10(a), not an additional ground for vacatur

independent of the FAA. Brad A. Galbraith, Note, Vacatur of

Commercial Arbitration Awards in Federal Court: Contemplating

the Use ond Utility of the “Manifest Disregard” of the Law Stand-

ard, 27 IND. L. REV. 241, 257-58 (1993) (illustration of § 10(a)(4))

Stephen L. Hayford & Scott B. Kerrigan, Vaectur: The Non-

Statutory Grounds for Judicial Review of Commercial Arbitration

Awards, DISPUTE RESOLUTION J., Oct. 1996, at 22, 80-81 (most

plausible reading of the Wilko dictum “is one whereby its oblique

reference to ‘manifest disregard’ is viewed as identifying a type of

arbitral misconduct or misbehavior of the nature addressed in

§ 10(a)(3) of the FAA which can trigger vacatur under that pro-

vision”). Compare Advest, Inc. v. McCarthy, 914 F.2d 6, 9 n.5 (1st

Cir. 1990), and Merrill Lynch, Pierce, Fenner & Smith, Ine. v.

Bobker, 808 F.2d 930, 933 (2d Cir. 1986) (manifest disregard ave-

nue of review is judicially-created and not derived from 9 U.S.C.

§ 10).

10 This ground was not presented in Petitioner’s district court

Motion to Vacate the Arbitration Award (R. 485).

10

U.S. 593, 597 (1960). Of-course those decisions are

not precedent for commercial arbitration, which (unlike

labor arbitration) is governed by the Federal Arbitration

Act. As applied in the commercial arbitration context,

the standard has been properly understood to be derived

from 9 U.S.C. §$ 10(a)(4). Robbins v. Day, 954 F.2d

679, 683 (11th Cir.), cert. denied sub nom. Robbins v.

PaineWebber, Inc., 506 U.S. 870 (1992); Swift Indus.,

Inc. v. Botany Indus., Inc., 466 F.2d 1125, 1130 n.11

(3d Cir. 1972); see Kelley v. Michaels, 59 F.3d 1050,

1053 (10th Cir. 1995); Federated Dep’t. Stores, Inc. v.

J.V.B. Indus., Inc., 894 F.2d 862, 866 (6th Cir. 1990);

Inter-City Gas Corp. v. Boise Cascade Corp., 845 F.2d

184, 187 (8th Cir. 1988). Otherwise there is no warrant

for its application.

In sum, there exist a number of shorthand terms of art

that some courts employ to denominate the tests and

standards they are applying in determining motions to

vacate arbitral awards. But as Petitioner essentially con-

cedes (Petition, at 5 n.1), there is no difference in the

review standard set forth in these various formulations.

Following an extensive discussion of the “various hues and

colorations” of the formulations of the standard of judicial

review of an arbitration, the First Circuit concluded that

the standard of review undergirding these various

formulations [is] identical, no matter how pleochroic

their shadings and what “terms of art have been

employed to ensure that the arbitrator’s decision relies

on his interpretation of the contract as contrasted

with his own beliefs of fairness and justice.” Jenkins

v. Prudential-Bache Securities, Inc., 847 F.2d 631,

634 (10th Cir. 1988). However nattily wrapped, the

packages are fungible.

Advest, Inc. v. McCarthy, 914 F.2d 6, 9 (1st Cir. 1990)

(emphasis added)."' Nor, as urged above, is there any

11 See also Montes v. Shearson Lehman Bros., 128 F.3d 1456.

1459 n.5 (11th Cir. 1997) (noting that each of the three rubrics

11

substantive difference in the review available under the

Federal Arbitration Act and the review sought by Peti-

tioner under the “tests” urged.

IV. THE ARBITRATOR’S AWARD IN THIS CASE WAS

IN ANY EVENT PROPERLY CONFIRMED, BE-

CAUSE IT WAS CORRECT UNDER ANY STAND-

ARD.

The point urged by Petitioner is that it made a valid

acceptance when presented the opportunity pursuant to

the contractual right of first refusal contained in the Agree-

ment. This contention is incorrect. The right of first

refusal was expressly granted only to MSW, and it ex-

plicitly stated that it did not apply to MSW’s individual

partners. (R. 0430). Chevron accordingly requested a

copy of the MSW partnership agreement, evidence of

MSW’s continuing existence, and evidence of Steinberg’s

authority. Even though Chevron extended the time on

several occasions, ultimately the documents which were

forwarded reinforced concerns about whether MSW con-

tinued to exist and about whether Steinberg possessed the

requisite authority. (S.R. 0004-05). For example, MSW’s

Joint Venture Agreement required that Steinberg, as man-

of review of arbitral awards there at issue “could conceivably be

encompassed in the other’’); Jenkins v. Prudential Bache Sec., Inc.

847 F.2d 631, 634 (10th Cir. 1988) (suggesting that the various

principles for review of arbitration awards embody “a sort of

‘abuse of discretion’ standard”); Service Employees Int'l Union,

AFL-CIO, CLC v. Local 1199 N.E., SEIU, AFL-CIO. CLC. 70 F.2d

647, 651 (1st Cir. 1995) (reiterating the principle of Advest that

the dierent articulations of the standard of review of an arbitral

award are “in essence ‘identical’”); Bret F. Randall, Comment,

The History, Apnlication, and Policy of the Judicielly Created

Standards of Review for Arbitration Awards. 1992 B.Y1'. L. Rev.

759, 752-63 (“The lower courts have developed numerous variations

of the essence of the contract standard. These variations sct aside

*n award if it is ‘completely irrational,’ ‘unfounded in reason and

‘arbitrary and capricious,’ ‘palpably faulty,’ not ‘plausible,’

.

Cnt 9

n

:

or in ‘[mlanifect disregard of the law.’ Whatever label applied,

the vast majority of disputed arbitration awards are affirmed under

the essence of the contract standard.” (footnotes omitted) ).

12

ager of venture property, obtain written authorization for

any action beyond those limited ministerial duties of the

manager of venture property set forth therein. (S.R.

0005). On these facts, it cannot be suggested that the

arbitrator disregarded the law in concluding that MSW

did not properly exercise the right of first refusal and

that Chevron’s refusal to sell the property was justified.

CONCLUSION

For all of the reasons given above, the Petition should

be denied.

Respectfully submitted,

DANIEL JOSEPH

Counsel of Record

AKIN, GUMP, STRAUSS, HAUER

& FELD, L.L.P.

1333 New Hampshire Ave., N.W.

Suite 400

Washington, D.C. 20036

(202) 887-4000

PAULA W. HINTON

THOMAS M. BEVILACQUA

AKIN, GUMP, STRAUSS, HAUER

& FELD, L.L.P.

1900 Pennzoil Place

South Tower

711 Louisiana Street

Houston, Texas 77002

(713) 220-5800

Counsel for Respondent