513 S.W.3d 511
Tex. App.2016Background
- Denbury (CO2 producer) and Venoco/TexCal negotiated an Option Agreement (2006) by which Denbury could buy Venoco’s majority interest in the Hastings oil fields; after payout Denbury would convey 25% back to Venoco. Calculation of payout depended on the contract’s definitions of “commodity costs” and “transportation costs.”
- Denbury exercised the option (2009) and built the Green Pipeline (~$905M, 800 MMcf/day capacity) to deliver CO2 to Hastings; Denbury charged CO2 Costs against Venoco’s payout account.
- Venoco arbitrated, disputing Denbury’s inclusion of certain pipeline costs (including DD&A) in transportation costs; a three‑member panel issued a written award construing the contract and adopting an amortization formula that effectively limited Denbury’s recoverable pipeline capital to one‑half of the Green Pipeline cost amortized over 20 years.
- Denbury sought vacatur/modification in district court arguing (inter alia) the parties contracted for expanded judicial review under the Texas General Arbitration Act (TAA) and that the panel exceeded its powers; the district court confirmed the award and denied vacatur/modification.
- On appeal Denbury narrowed its challenges (abandoning the commodity‑costs/DD&A challenge), argued the TAA (and Nafta Traders) required expanded review for reversible error, and alternatively alleged the panel exceeded its authority under the Federal Arbitration Act (FAA).
- The court applied the narrow standards for review of arbitration awards, examined the arbitration agreement language, and concluded there was no clear contractual agreement to expand judicial review and no basis to vacate under the FAA or TAA.
Issues
| Issue | Denbury's Argument | Venoco's Argument | Held |
|---|---|---|---|
| Which statute governs and whether parties contracted for expanded judicial review | Parties agreed to allow TAA review for reversible error (citing Nafta Traders); agreement language permits appeal "to the same extent as" Texas civil appeals | Contract invokes FAA and limits court vacatur to fraud/corruption; no clear agreement to expand review | No clear agreement to expand review; default narrow review applies (FAA/TAA); parties did not contract to allow reversible‑error review |
| Whether parties limited vacatur to fraud/corruption | Denbury: did not concede limitation; seeks broader review | Venoco: agreement expressly states awards may be vacated only for fraud or corruption | Court enforces the contractual limitation as written; Denbury did not assert fraud/corruption |
| Whether the arbitrators exceeded their authority by applying the amortization/formula (improperly halving pipeline capex) | Panel disregarded contract and dispensed its own idea of justice; award unsupported by sufficient evidence | Panel construed the contract within its broad authority and provided written findings/reasons and a formula | Arbitrators construed the contract; disagreement about correctness is merits‑based and not vacatur ground; award stands |
| Whether the award failed to comply with Exhibit P’s requirement for findings with "supporting evidentiary references" | Denbury: award lacked specific record references as required | Venoco: award contained detailed background, findings, analysis and a formula satisfying the agreement | Court finds the 13‑page unanimous award adequate; form and reasoning do not show excess of authority |
Key Cases Cited
- Hall St. Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576 (parties cannot contractually expand FAA vacatur grounds)
- Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex. 2011) (under TAA parties may, by clear agreement, contract for expanded judicial review for reversible error)
- Hoskins v. Hoskins, 497 S.W.3d 490 (Tex. 2016) (TAA vacatur limited to statutory grounds; manifest disregard not available)
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) (arbitrator exceeds authority only if award does not draw its essence from contract)
- Stolt‑Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (arbitrator error, even serious, is not a basis for vacatur absent exceeding authority)
- D.R. Horton‑Tex., Ltd. v. Bernhard, 423 S.W.3d 532 (Tex. App.) (TAA review is narrow; arbitrator exceeds authority only by dispensing own brand of justice)
- Amoco D.T. Co. v. Occidental Petroleum Corp., 343 S.W.3d 837 (Tex. App.) (standards for appellate review of FAA‑governed arbitration confirmation)