BNSF Railway Company v. Alstom Transportation, Inc
2015 U.S. App. LEXIS 1869
| 5th Cir. | 2015Background
- BNSF contracted Alstom to implement and manage a locomotive maintenance program governed by a Maintenance Agreement that contained an arbitration clause.
- The parties amended the Agreement to allow BNSF to terminate “at any time, without cause.”
- BNSF planned to remove many locomotives from service (reducing payments tied to fleet size); the Agreement required the parties to confer about a reasonable economic adjustment before termination.
- BNSF terminated the Agreement before conferring; an arbitration Panel found BNSF breached the covenant of good faith and the duty to confer and awarded Alstom out-of-pocket damages (excluding consequential/lost-profit damages).
- The district court vacated part of the Panel’s award (holding no breach of good faith and that some damages were forbidden); Alstom appealed and sought confirmation; this court reviews de novo whether arbitrators “even arguably” interpreted the contract under the FAA.
Issues
| Issue | Plaintiff's Argument (Alstom) | Defendant's Argument (BNSF) | Held |
|---|---|---|---|
| Whether the arbitrators even arguably interpreted the Agreement when finding BNSF breached the covenant of good faith by terminating “without cause” | Panel interpreted the termination clause and applied Illinois law to find a limitation based on good-faith duties | Panel exceeded its authority and misapplied Illinois law; termination was absolute | Court: Arbitrators at least arguably interpreted the Agreement and could reference Illinois law; vacatur for that reason was improper — reverse district court |
| Whether the Panel’s damages award exceeded its authority (i.e., awarded prohibited lost profits) | Award was limited to out-of-pocket/reliance damages allowed by the Agreement’s remedial provision | Panel effectively awarded lost profits or fashioned an improper remedy beyond the Agreement | Court: Award appears to be for out-of-pocket damages and was at least arguably grounded in the Agreement/Illinois law; BNSF failed to show arbitrators exceeded powers |
| Whether state arbitration statutes (TAA/IAA) should govern review instead of FAA | FAA governs absent clear contractual reference to state schemes; parties did not invoke TAA/IAA | State acts (TAA/IAA) apply and permit different review | Court: FAA is the default; no clear contractual adoption of state schemes, so FAA standard controls |
| Whether BNSF may challenge arbitrability/gateway issues on appeal without cross-appeal | Alstom: not applicable | BNSF argues parties did not agree to arbitrate gateway questions | Court: BNSF failed to cross-appeal district court’s partial vacatur and cannot now seek broader relief; argument not considered |
Key Cases Cited
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) (arbitral construction stands if arbitrator even arguably interpreted the contract)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (courts assess whether arbitrators could have been guided by parties’ intent)
- Brook v. Peak Int’l, Ltd., 294 F.3d 668 (5th Cir. 2002) (arbitration power derives from contract; doubts resolved in favor of arbitration)
- Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337 (5th Cir. 2004) (FAA is default standard of review absent express contractual reference to state arbitration law)
- Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (parties may contract for expanded judicial review but must do so expressly)
- Hill v. Norfolk & W. Ry. Co., 814 F.2d 1192 (7th Cir. 1987) (courts should not set aside awards simply because arbitrator erred in contract interpretation)
- Amigo Broadcasting, LP v. Spanish Broadcasting Sys., Inc., 521 F.3d 472 (5th Cir. 2008) (discusses characterization of damage types under state law)