Opposition Brief — Transcontinental Gas Pipe Line Corp. v. Dakota Gasification Co.

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FILED

DEC 15 1992

— oer

No. 92-516

In the Supreme Court of the Cinited States

OCTOBER TERM, 1992

TRANSCONTINENTAL GAS PIPE LINE CORP., PETIT'ONER

DAKOTA GASIFICATION CO., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION

KENNETH W. STARR

Solicitor General

STUART M. GERSON

Assistant Attorney General

ALLEN L. LEAR

LACY R. HARWELL

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

QUESTION PRESENTED

Whether the court of appeals correctly interpreted

several contracts to entitle the Department of Energy

and its successor-in-interest, the Dakota Gasification

Company, to litigate rather than arbitrate their com-

mercial disputes with four gas pipeline companies.

TABLE OF CONTENTS

Page

Opinions below ................scccsecscseceererssssssssessssseessscesesenseeeneees 1

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a cccsceanhubnbansauneshadsnnnnsseaesssovapeceseanseonssdsthaseness 2

Argument ..............cccceccccrrcsccccccccccrscssececccsssssscccccccceccssceseoess 5

RINIIIED cncasacnccccuscvenesssecoscvectesosssenecnensssesssenscnsncsousesonseseces 17

TABLE OF AUTHORITIES

Cases:

ANR Gasification Properties Co. v. United States, 484

es IIE cca cncnnusnnsnapanessanaasionsnensonsobacosopasesessnesess 4

AT&T Technologies, Inc. v. Communications Workers,

BF FI Oe CRD ctnccsscscscsccssecccescscnecssossencscscnscensonsees 13

Ballay v. Legg Mason Wood Walker, Inc., 878 F.2d 729

IIE sss cncannnnupnnancancensccobentnsensosamnaseossasaccesees 15

Bechtel Corp. v. Local 215, Laborers’ Int'l Union, 544

F.2d 1207 (3d Cir. 1976) ................ccccceccrcrcsccsssencsrcrores 11

Bowen v. Georgetown University Hospital, 488 U.S.

I ao cas dincnsenhanesanhosesonusescepnenesesenssseavacensnennse 9

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213

IN sis aks ccedcennadndianudeserernensssenenscnnecenatecensvecnesers 6, 13, 14, 16

Gilmer v. Interstate/Johnson Lane Corp., 111 S. Ct. 1647

RE arr oh nsncnccneeachatiinsnansecsusarhsostueassenssecscoesensessssonees 16

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614 (1985) ..............ccccssccrsseccrssseereseones 7, 16

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

Corp., 460 U.S. 1 (1988) ........cccceseeeeeeeeeeeeeteeeeteeeeeeeees 6, 16

Neal v. Hardee’s Food Sys., Inc., 918 F.2d 34 (5th Cir.

UI Tris sora ss Supeletcinhapanbdeessachtenvebstnnunsebasssaccnacacepeeccsseses 15

Patten Securities Corp. v. Diamond Greyhound &

Genetics, Inc., 819 F.2d 400 (8d Cir. 1987) ............... 13, 14

Perry v. Thomas, 482 U.S. 483 (1987) .......:::ccceseeeeee 16

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

REM Me HOPED cechacedascssscnsesasnesnesssecssacssensscesssscsccessess 6-7

Cases—Continued: Page

Rodriguez de Quijas v. Shearson/American Express,

Fence, QOD UB. GET CIGD nccescevcesssnsnesnssssarssnssosssiscesinss 16

St. Paul Fire & Marine Ins. Co. v. Tennefos Constr. Co.,

306 F.2d G2S Cth Cir. 19GB) ......ccccrccrccseccccscsccsessssseseoeese 5

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) ...... 6, 16

Shearson/American Express, Inc. v. McMahon, 482

CUBE; FD CID ects cvncsncasatnsnsiincenstncenisansseasenvensnceienssdnses 16

Soutiland Corp. v. Keating, 465 U.S. 1 (1984) .......... 10, 16

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) .. 11

Travel Consultants, Inc. v. Travel Management Corp.,

967 F.Bd BBA (D.C. Car. 1966) ...0.cc0rcscccvcsccescosssscsresessess 15

United States v. Great Plains Gasification Assocs., 813

F.2d 198 (Gth Cir. 1987) ...ccccssscsccccessncccccsssccccccevcessessesess 4, 11

United States v. Great Plains Gasification Assocs., 819

Ba GRE CR CA. WSBT) on cccncceresccssvscnscccsereesscssesecssasensoes 4, 11

Volt Information Sciences, Inc. v. Board of Trustees,

I TB: Be IID navi nncccescessccceinasiecessenstanesensncsencsnsoes 6, 13, 16

Statutes and rule:

Administrative Dispute Resolution Act, Pub. L. No. 101-

552, 104 Stat. 2736 (5 U.S.C. 581 et seq.) ........cceeeeseeees 9

Eis SID avs nectasssakdcinnasancnnciesercninntennsnhansuvncassoncnsiavs 9

Federal Arbitration Act, 9 U.S.C. 1 et seq.:

RT ie I sa comniienicednscepeninhennncciisienetansehiunenspberrienstieneninn 6

USO wiccccssdsvsnentenndeiuiceadinennininsiatanciansassieensinstens 6

Miscellaneous:

32 Comp. Gen. 333 (1953) ........cccceeeeeeeeeeeeeeeees ‘nimmocinasa teas 9

83 Op. Atty. Gen. 160 (1922) ........ ce ceeeeseeeesseeesreseeeeetees 9

In the Supreme Court of the Cnited States

OCTOBER TERM, 1992

No. 92-516

TRANSCONTINENTAL GAS PIPE LINE CORP., PETITIONER

DAKOTA GASIFICATION CoO., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENTS

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A15)

is reported at 964 F.2d 732. The opinion of the district

court (Pet. App. B1-B6) is unreported.

JURISDICTION

The judgment of the court of appeals (Pet. App. Al14-

A15) was entered on May 4, 1992. A petition for rehear-

ing was denied on June 25, 1992. Pet. App. E. The peti-

tion for a writ of certiorari was filed on September 22,

1992. The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

STATEMENT

1. In the early 1980s, a partnership called Great

Plains Gasification Associates (Great Plains) built a fac-

tory in North Dakota to extract synthetic natural gas

from lignite coal. Great Plains was composed of four

pipeline companies (the Pipelines)—petitioner Trans-

continental Gas Pipe Line Corporation (Transco),

Tennessee Gas Pipeline Company (Tennessee), ANR

Pipeline Company (ANR), and Natural Gas Pipeline

Company of America (Natural)—as well as an additional

investor.’ In addition to funds provided by the partners,

construction of the plant was financed by a $1.5 billion

loan guaranteed by the Department of Energy (DOE) and

secured by a mortgage on the real and personal property

of the project. Pet. App. A2, C2.

Prior to completion of the plant, Great Plains entered

into a Gas Purchase Agreement with each Pipeline. See

Pet. App. Fi-F25. Great Plains agreed to sell, and each

Pipeline agreed to purchase, a stated percentage of the

total synthetic gas output of the gasification plant for 25

years at formula prices. Jd. at F3-F4. Kach Gas

Purchase Agreement provided that “[a]lny dispute be-

tween the parties arising out of this Agreement * * *

shall be tried by arbitration pursuant to the Rules of the

American Arbitration Association in effect at the time of

such arbitration.” Jd. at F24.

Contemporaneously with the execution of the Gas

Purchase Agreements, each Pipeline entered into a

Pipeline Affiliates Agreement with DOE. Pet. App. H1-

H10. Under the Pipeline Affiliates Agreement, which

1 Tennessee, ANR, and Natural have filed a brief in support of

Transco’s petition for certiorari. The fifth partner is not involved

in this litigation.

was a condition precedent to DOEK’s loan guarantee, each

Pipeline agreed to perform all of its material obligations

under the Gas Purchase Agreement to which it was a

party, and to reinstate its respective Gas Purchase

Agreement with the Secretary of Energy or his designee

in case Great Plains defaulted on the loan and DOK as-

sumed operation of the project. Jd. at H2. The Pipelines

agreed to submit to the jurisdiction of designated federal

courts, and to the application of federal law, in any suit

brought “to enforce the rights of the Secretary” under

the Pipeline Affiliates Agreement. /d. at H9-H10.

2. On August 1, 1985, Great Plains defaulted on its

obligation and terminated its participation in the gasifi-

cation plant. DOE honored its loan guarantee and as-

sumed operation of the project. The Secretary of Energy

was substituted for Great Plains as the Seller under the

Gas Purchase Agreements upon their reinstatement

pursuant to the Pipeline Affiliates Agreement. Pet. App.

A3-A4.

After Great Plains’s default, and in reaction to a con-

tinuing downward trend in gas prices, Natural filed suits

challenging the validity of the Gas Purchase

Agreements in Illinois state court and the United States

District Court for the District of Columbia. The United

States subsequently filed a complaint in the United

States District Court for the District of North Dakota

seeking, in part, foreclosure on its mortgage on the gasi-

fication plant and a declaration that the Gas Purchase

Agreements were valid and enforceable. The two law-

suits filed by Natural were consolidated with the gov-

ernment’s action. See Gov’t C.A. Br. 7-10.

On January 14, 1986, the district court entered sum-

mary judgment in favor of the United States, upholding

the enforceability of the Gas Purchase Agreements and

granting the United States its right to foreclose on the

mortgage. Resp. Br. in Supp. App. la-20a. The Eighth

Circuit affirmed the district court’s summary judgment

on the issue of foreclosure, United States v. Great

Plains Gasification Assocs., 813 F.2d 193 (1987), and on

the issue of the validity and enforceability of the Gas

Purchase Agreements, United States v. Great Plains

Gasification Assocs., 819 F.2d 831 (1987). This Court de-

nied the Pipelines’ petition for certiorari. ANR

Gasification Properties Co. v. United States, 484 U.S.

924 (1987).

3. On October 7, 1988, Dakota Gasification Company

(Dakota) entered into an Asset Purchase Agreement

with DOE, pursuant to which DOE transferred to

Dakota all of the real and personal property of the plant,

including DOE’s rights under the four reinstated Gas

Purchase Agreements, in exchange for $85 million in

cash, plus $1.6 billion to be generated by plant revenues

over the next 18 years. Pet. App. A4; C.A. App. 263-477.

Dakota assumed operation of the plant, and continued the

production and sale of the synthetic natural gas consis-

tent with its obligations as Seller under the four Gas

Purchase Agreements. Disputes soon arose with re-

spect to the Pipelines’ contractual obligations under the

Gas Purchase Agreements. See Pet. App. Ad.

4. Dakota filed suit in the United States District

Court for the District of North Dakota to determine,

once again, the parties’ rights and obligations under the

Gas Purchase Agreements. The United States success-

fully moved to intervene in the suit because, under the

Asset Purchase Agreement, it has a substantial finan-

cial stake in the plant’s revenues and profitability. Pet.

App. Ad n.6.

Each of the Pipelines sought arbitration of the issues

raised by Dakota’s action, and moved for dismissal on the

ground that the arbitration clauses precluded litigation

of those issues. On January 11, 1991, the district court

granted summary judgment in favor of the defendants,

concluding that the arbitration clauses in the Gas

Purchase Agreements were valid and binding. Pet. App.

B4-B5. Each Pipeline then commenced separate arbitra-

tion proceedings, subjecting Dakota to arbitration in

four different States.

5. The court of appeals reversed. The court began by

observing the common-law rule that “the Gas Purchase

Agreements and the Pipeline Affiliates Agreement

‘should be read together as they represent successive

steps which were taken to accomplish a single purpose.’ ”

Pet. App. A6 (quoting St. Paul Fire & Marine Ins. Co.

v. Tennefos Constr. Co., 396 F.2d 628, 628 (8th Cir. 1968)).

Coustruing the contracts together, the court held that

“under the facts of this case, * * * if the Secretary or

its suecessor-in-interest has a dispute with the

Pipelines concerning the Gas Purchase Agreements, the

former parties can successfully demand that the dispute

be litigated in the designated federal courts.” Pet. App.

A7. Judge Magill dissented. /d. at A9-A13.

ARGUMENT

This case does not present any broad legal issues of

relevance to other cases. Instead, this case turns on the

proper construction of the terms of a contract between

petitioner and the Department of Energy. The court of

appeals correctly interpreted those terms. Its decision

does not conflict with any decision of this Court or of any

other court of appeals. Further review is therefore not

warranted.

i. Contrary to petitioner’s assertion (see, e.g., Pet. 9),

the decision below does not conflict with the “liberal fed-

eral policy favoring arbitration,” Moses H. Cone

Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1,

24 (1983), or any decision of this Court. Nothing in that

policy requires federal courts to conclude that parties

have agreed to arbitrate their disputes when the terms of

the contract provide otherwise. The Secretary did not—

and could not—agree to arbitrate any disputes with the

Pipelines.

a. The purpose of the Federal Arbitration Act is sim-

ply “to overrule the judiciary’s longstanding refusal to

enforce agreements to arbitrate,” Dean Witter

Reynolds Inc. v. Byrd, 470 U.S. 213, 219-220 (1985), and

to place such agreements “upon the same footing as

other contracts,” Scherk v. Alberto-Culver Co., 417

U.S. 506, 511 (1974). To that end, the Act declares that a

written agreement to arbitrate in any contract involving

interstate commerce “shall be valid, irrevocable, and en-

forceable, save upon such grounds as exist at law or in

equity for the revocation of any contract,” 9 U.S.C. 2,

and provides a remedy for a party seeking to compel arbi-

tration, 9 U.S.C. 4.

As this Court recently stated, however, Section 4 of

the Act “does not confer a right to compe! arbitration of

any dispute at any time; it confers only the right to ob-

tain an order directing that ‘arbitration proceed in the

manner provided for in [the parties’] agreement.’”

Volt Information Sciences, Inc. v. Board of Trustees,

489 U.S. 468, 474-475 (1989) (quoting 9 U.S.C. 4). Indeed,

the Act only “directs the federal court to order arbitra-

tion once it is satisfied that an agreement for arbitra-

tion has been made and has not been honored.” Prima

Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,

400 (1967) (emphasis added). Arbitrability is a matter of

contract, and “the first task of a court asked to compel

arbitration of a dispute is to determine whether the par-

ties agreed to arbitrate that dispute.” Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 626 (1985).

b. There are two contracts directly at issue in this

case: The Gas Purchase Agreements and the Pipeline

Affiliates Agreement. Pet. App. A5.° The court of ap-

peals correctly observed that the contracts were exe-

cuted contemporaneously and, therefore, concluded that

they should be interpreted collectively. Jd. at A6.

Indeed, petitioner concedes that the court correctly con-

strued the agreements “together as a single contractual

undertaking.” Pet. 11. Reading the two contracts in

this fashion indicates that the Pipelines contracted to

arbitrate claims under the original Gas Purchase

Agreements they negotiated with Great Plains, and to

litigate claims with the Secretary in the event Great

Plains defaulted.* It is well settled that parties may

agree to arbitrate some claims and litigate others. See,

e.g., Mitsubishi, 473 U.S. at 628. This interpretation of

“ Great Plains also entered into Synthetic Gas Transportation

Agreements with each Pipeline. See Pet. App. G1-G13. The court

of appeals did not discuss these agreements, and petitioner does not

appear to rely on them in this Court. The other Pipelines recog-

nize that the interpretation of the arbitration clauses in the

Transportation Agreements “is not relevant to this petition.”

Resp. Br. in Supp. 2 n.1.

% Dakota succeeded to the United States’ interests in 1988. The

court of appeals correctly concluded that because Dakota stands in

the shoes of the Secretary for purposes of these contracts, it is no

more bound by the original arbitration clauses than was the

Secretary. Pet. App. A8. Petitioner does not challenge that deter-

mination in this Court.

the agreements is firmly grounded in the text of the doc-

uments and the surrounding circumstances.

(i.) Only the Gas Purchase Agreements contained an

arbitration provision.‘ The Secretary was not a party to

those agreements, however. In contrast, the Pipeline

Affiliates Agreement—the sole contract to which the

Secretary was a party—addresses the contingency of a

relationship between the Pipelines and the United

States Department of Energy, which would become the

Seller in the event of default. This Agreement provides

for litigation, not arbitration. It would defeat the very

purpose of this contract to permit arbitration in this

case.

The Pipeline Affiliates Agreement contains several

provisions designed to protect the interests of the

United States, and was explicitly made a condition

precedent to the government’s guarantee of the $1.5 bil-

lion loan to build the gasification plant. Pet. App. H1.

This Agreement requires the Pipelines to reinstate the

Gas Purchase Agreements with the government follow-

ing default by Great Plains, and contains the Pipelines’

promise to perform their obligations under the Gas

Purchase Agreements. /d. at H2. It provides that the

Pipelines’ covenants continue until the indebtedness is

paid and states that the rights of the Secretary inure to

the benefit of successors in interest, so that DOE need

not be the long-term operator of the plant. Jd. at H8-H9.

To ensure protection of these federal interests in the

event of a default, the Agreement provides that the rela-

* Because the government had assumed operation of the project

before the commencement of this litigation, the court of appeals

did not decide whether the arbitration clauses contained in the Gas

Purchase Agreements would have been enforceable as between the

Pipelines and Great Plains had Great Plains not defaulted.

tionship between the Pipelines and the Secretary is gov-

erned by federal law and requires the Pipelines to con-

sent to the jurisdiction of specific federal courts to re-

solve disputes. /d. at H6 (“the rights and obligations of

the parties shall be governed by and construed and inter-

preted in accordance with the federal laws of the United

States”); id. at H9-H10 (“[t]he parties hereto consent to

the jurisdiction in any United States District Court

located in the District of Columbia or North Dakota, in

connection with any suit to enforce the rights of the

Secretary hereunder”).

(ii.) The conclusion that these provisions were in-

tended to require litigation of all disputes between the

Secretary (or his successor in interest) and the

Pipelines is further confirmed by the fact that the

Secretary lacked legal authority to agree to binding ar-

bitration. Absent specific statutory authority, DOE

could not, as a branch of the federal government, submit

controversies to binding arbitration or allow private par-

ties to decide disputes concerning the United States.

See, ¢.g., 32 Comp. Gen. 333 (1953); 33 Op. Atty. Gen. 160

(1922). Although the Administrative Dispute Resolution

Act, Pub. L. No. 101-552, 104 Stat. 2736, codified at 5

U.S.C. 581 et seq., generally leaves agencies free to agree

to arbitration (see 5 U.S.C. 585), it does not apply here

because the Pipeline Affiliates Agreement predates the

November 15, 1990 date of enactment. See generally

Bowen v. Georgetown University Hospital, 488 U.S. 204

(1988). Therefore, although the arbitration clause could

serve the original relationship between the Pipelines and

xreat Plains, the Secretary’s relationship with the

Pipelines could only be governed by the jurisdictional

clauses contained in the Pipeline Affiliates Agreement.

(iii.) The court of appeals therefore correctly con-

cluded that the arbitration provisions in the original Gas

Purchase Agreements were superseded by the federal

litigation clauses in the Pipeline Affiliates Agreement

after the default.” When Great Plains defaulted on its

obligations, the original Gas Purchase Agreements ter-

minated. After the government exercised its rights un-

der the mortgage, the Gas Purchase Agreements were

reinstated pursuant to and subject to the terms of the

Pipeline Affiliates Agreement. By incorporating the ba-

sic production, pricing and delivery terms of the original

Gas Purchase Agreements into the provisions of the

Pipeline Affiliates Agreement, the parties were bound by

a modified contractual arrangement.®

The different dispute resolution procedures thus re-

flected the new commercial relationship resulting from

the accession of the United States Government to the

5 The Pipelines supporting petitioner criticize the court of ap-

peals for reversing the district court’s contrary interpretation of

the contracts. Resp. Br. in Supp. 3 n.2. It is well settled, however,

that the interpretation of contracts is a question of law reviewed

de novo by the appellate court. See, e.g., Southland Corp. v.

Keating, 465 U.S. 1, 15 n.7 (1984) (undertaking independent evalu-

ation of scope of arbitration clause).

6 The argument (Resp. Br. in Supp. 7 (emphasis omitted)) that

the arbitration clause remains in effect because the Gas Purchase

Agreements were to be reinstated “on the same terms,” and

arbitration is a “term,” ignores the context of the cited provision.

The contract provides that each Pipeline “will continue to take or

pay for gas as provided [in the Gas Purchase Agreements] on the

same terms as were in effect prior to such termination and

reinstatement.” Pet. App. H2 (emphasis added). The clear

import is that the complex pricing, measurement, and delivery

provisions of the Gas Purchase Agreements (see id. at F3-F18)

would remain in effect following reinstatement.

aeneneniaaia

position formerly held by Great Plains. In light of the

pivotal role played by DOE in financing the plant, and the

concessions made by the Pipelines in the Pipeline

Affiliates Agreement, the court of appeals correctly

found that the parties intended to provide the Secretary

the prerogative to litigate disputes in federal court upon

the default of Great Plains. Pet. App. A8. The jurisdic-

tional provisions of the Pipeline Affiliates Agreement

were bargained over and agreed to by the Pipelines, and

form substantive terms of the contract to which the

courts must give effect. See generally The Bremen vy.

Zapata Off-Shore Co., 407 U.S. 1 (1972) (recognizing im-

portance of bargained-for forum selection clauses).

Because they evidence the intention of the parties to

provide the Secretary with the right to litigate disputes

in federal court, they replaced inconsistent terms in the

Gas Purchase Agreements, including the arbitration

clauses. See Bechtel Corp. v. Local 215, Laborers’ Int’l

Union, 544 F.2d 1207, 1213 (8d Cir. 1976) (language of

second contract containing an inconsistent dispute reso-

lution clause prevails over clause in earlier agreement).

c. Petitioner concedes (Pet. 12) that the Secretary

could bring an action in federal court to enforce the

Pipelines’ promise to reinstate the Gas Purchase

Agreements, but maintains that this particular dispute

falls outside the bounds of the jurisdictional clauses.

Petitioner’s construction is not supported by the parties’

course of dealing or the language of the contract.

Following Great Plains’s default, the Pipelines litigated

the enforceability of the Gas Purchase Agreements in a

suit brought by the United States pursuant to the juris-

dictional clauses in the Pipeline Affiliates Agreement.

United States v. Great Plains Gasification Assocs.,

supra. No claim was made that the dispute was not prop-

erly in federal court, reflecting the parties’ mutual un-

derstanding that disputes with DOE under the rein-

stated Gas Purchase Agreements were to be litigated

rather than arbitrated. Like disputes over reinstate-

ment and enforceability, disputes over performance are

properly litigated when the Secretary is a party.

Indeed, petitioner concedes that “the Secretary has

the right to litigate in the specified federal courts those

claims arising from the Pipelines’ breach of any

covenant * * * contained in the Pipeline Affiliates

Agreement.” Pet. 12 (emphasis added) (quoting Pet. App.

A10 (Magill, J., dissenting)). In the Pipeline Affiliates

Agreement, each Pipeline “covenant[ed]” to “perform all

of its material obligations under the Gas Purchase

Agreement to which it is a party.” Jd. at H2. The pre-

sent litigation is nothing more than a dispute over the

Pipelines’ performance of their obligations under the

Gas Purchase Agreements. /d. at A5 n.7 (“In its com-

plaint, Dakota sought a ruling outlining the Pipelines’

purchase obligations under the Gas Purchase

Agreements.”). The court of appeals therefore correctly

determined that “under the Pipeline Affiliates

Agreement, the Secretary contracted for the prerogative

to litigate disputes affecting its rights (which includes

the Gas Purchase Agreement obligations of the

Pipelines) in designated federal courts.” Jd. at A8.'

7 Petitioner’s complaint (Pet. 15; see also Resp. Br. in Supp. 4-7)

that the court’s ruling will disrupt arbitration proceedings cur-

rently proceeding pursuant to an order of a district court in Texas

is misplaced. Even under the narrow. reading of the Pipeline

Affiliates Agreement urged by petitioner, the only courts with ju-

risdiction over an action to compel arbitration would be the district

courts of North Dakota and the District of Columbia.

d. Where, as here, the contracts reveal that the party

seeking to compel arbitration “had no such right in the

first place,” Voit, 489 U.S. at 475, such a finding does not

offend the Act’s objectives. See id. at 479 (“Arbitration

under the Act is a matter of consent, not coercion.”);

AT&T Technologies, Inc. v. Communications Workers,

475 U.S. 643, 648 (1986) (“arbitration is a matter of con-

tract and a party cannot be required to submit to arbitra-

tion any dispute which he has not agreed so to submit”).

While courts must “rigorously enforce agreements to

arbitrate,” Dean Witter, 470 U.S. at 221, there must be

such an agreement before it can be enforced. By enforc-

ing the parties’ agreement here according to its terms,

the court of appeals merely “recognized that the [Act]

does not require parties to arbitrate when they have not

agreed to do so.” Volt, 489 U.S. at 478.

2. Contrary to petitioner’s assertion (Pet. 10-11), the

decision in this case does not conflict with Patten

Securities Corp. v. Diamond Greyhound & Genetics,

Inc., 819 F.2d 400 (8d Cir. 1987).

In Patten Securities, the Third Circuit was faced with

a conflict between a forum selection clause in a securi-

ties underwriting agreement and a contemporaneous

obligation imposed by the National Association of

Securities Dealers (NASD) upon its members to submit

all their disputes with customers to arbitration. See 819

F.2d at 406 (“Patten is compelled by its NASD member-

ship to submit even absent a specific contractual arbi-

tration undertaking.”) (emphasis added). The starting

point of the Third Circuit’s analysis was that “absent a

waiver Patten must submit to Diamond’s arbitration de-

mand.” Jbid. The court merely held that an ambiguous

forum-selection clause did not serve to waive the cus-

tomer’s preexisting right to arbitration, because the fed-

eral preference for arbitration resolves the ambiguity.

Far from being “analytically indistinguishable” (Pet.

10), this case presents exactly the opposite situation.

The Secretary had no preexisting obligation to arbitrate

any dispute. Moreover, the Secretary never agreed—in-

deed, could not have agreed (see pages 9-10, supra)—to

arbitration; on the contrary, the Pipelines agreed to liti-

gate disputes with the Secretary. The “tiebreaker”

function of the Act never comes into play here.* In con-

trast to the situation presented in Patten Securities,

there is no need to reconcile a forum selection clause

with an arbitration obligation because here there is no

obligation to arbitrate. See Dean Witter, 470 U.S. at 219

(“The Act * * * does not mandate the arbitration of all

claims, but merely the enforcement—upon the motion of

one of the parties—of privately negotiated arbitration

agreements.”).

* In his dissent below, Judge Magill found that the interpreta-

tion of the two contracts was ambiguous, and would have resolved

the ambiguity in favor of the Pipelines. Pet. App. Al2-A13. The

majority, however, found the particular contracts involved here

unambiguously to grant the Secretary the right to litigate. Jd. at

A8. The court’s interpretation of the unusual agreements in this

case rests squarely upon the conditions imposed by the federal

government for its guarantee of the $1.5 billion loan to build the

gasification plant, a unique and complex commercial venture. See

ibid. (rejecting Pipelines’ arguments because they “ignore the

conditions under which the Secretary of Energy agreed to

guarantee the financing for the gasification plant”). Given the

peculiar facts of this case, further review of the contracts by this

Court is not warranted. For the same reason, petitioner errs in

asserting that the decision below “will have important and

unfortunate consequences for arbitration as an alternative means

of dispute resolution.” Pet. 16.

ccna ia iia

The facts of the two cases are also very different.

Patten Securities involved a relatively simple securities

transaction and the resulting dispute between an under-

writer and its customer. The Third Circuit did not con-

front the introduction of important federal interests into

a commercial transaction as a result of default under

massive federal financing. The court of appeals in this

case held that in order to protect those interests, and as

a condition to the issuance of the loan guarantee, DOE

demanded and received the right to litigate its disputes

in federal court in the event of a default. Pet. App. A7.

Patten Securities does not undermine or conflict with

that holding in any way; indeed, the Third Circuit could

have no quarrel with the decision below because it

merely enforced the parties’ agreements according to

their terms. See, e.g., Ballay v. Legg Mason Wood

Walker, Inc., 878 F.2d 729, 733-734 (3d Cir. 1989)

(affirming order denying motion to compel arbitration

where contract evidenced intention not to be bound by

arbitration clause).°

3. There is no merit to petitioner’s claim that

“because of the well-established precedents of this Court

* Two other cases cited by petitioner (Pet. 11) as conflicting “in

principle” with the decision below are inapposite. In Neal v.

Hardee’s Food Sys., Inc., 918 F.2d 34 (5th Cir. 1990), and Travel

Consultants, Inc. v. Travel Management Corp., 367 F.2d 334

(D.C. Cir. 1966), the courts did, as petitioner asserts, hold that

“contracting parties must arbitrate all disputes arising under

agreements in which covenants to arbitrate appear, even if other

related and simultaneously executed agreements contain no such

covenants.” Pet. 11. The parties in those cases, however, unlike

the Secretary here, were parties to the contracts containing the

arbitration clauses; thus the courts reasonably held that they were

bound to arbitrate disputes arising under them. The Secretary,

not having agreed to arbitration, has no such obligation.

regarding the presumption of enforceability of arbitra-

tion agreements under the Act, this case is ripe for

summary reversal.” Pet. 4. Petitioner cites ten deci-

sions of this Court in support of its argument that the

decision below conflicts with the strong federal policy

favoring arbitration. See Pet. iv. In every one of those

cases, however, the parties had entered into a contract

containing an arbitration clause; the question was the

enforceability of the agreement or the arbitrability of a

specific dispute.'” Here, the Secretary simply was not a

party to any contract containing an arbitration clause.

As demonstrated above, the court correctly construed

the contracts in this case to give the Secretary the right

to litigate in federal court. “[T]he [Act] does not require

parties to arbitrate when they have not agreed to do so.”

Volt, 489 U.S. at 478.

10 See Gilmer v. Interstate/Johnson Lane Corp., 111 S. Ct.

1647, 1650-1651 (1991); Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477, 478 (1989); Volt, 489 U.S. at 470;

Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 223

(1987); Mitsubishi, 473 U.S. at 617; Dean Witter, 470 U.S. at 215;

Southland Corp., 465 U.S. at 4; Moses H. Cone, 460 U.S. at 4-5;

Scherk, 417 U.S. at 508; ef. Perry v. Thomas, 482 U.S. 483, 492

(1987) (leaving this “straightforward issue of contract interpreta-

tion” to the lower court on remand).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.