Lower Colorado River Authority v. Papalote Creek II, LLC
2017 U.S. App. LEXIS 9620
| 5th Cir. | 2017Background
- LCRA (a Texas political subdivision) contracted in 2009 to buy all power from Papalote’s Texas wind farm under a long‑term PPA that included liquidated damages for LCRA’s failure to take energy and a $60 million aggregate liability cap in § 9.3.
- The PPA’s dispute-resolution provisions (§§ 13.1–13.2) require senior‑officer negotiations and then binding AAA arbitration (baseball procedure) for disputes “with respect to either Party’s performance.”
- In 2015 LCRA sought to initiate arbitration over whether § 9.3 limits LCRA’s liability to $60 million; LCRA said it would continue performance during arbitration. Papalote refused, calling the dispute hypothetical and outside the arbitration scope.
- LCRA filed a state petition to compel arbitration; Papalote removed to federal court. The district court compelled arbitration, framing the dispute as a performance dispute (liquidated‑damages obligation = performance obligation), but declined to resolve ripeness.
- The parties arbitrated; the arbitrator ruled in LCRA’s favor that § 9.3 capped liability at $60 million. After arbitration LCRA stopped taking power. On appeal, Papalote argued the district court lacked jurisdiction because the underlying dispute was not ripe when the court compelled arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a district court must look through a §4 FAA petition and determine if the underlying dispute was ripe before compelling arbitration | LCRA largely avoided Vaden and argued ripeness/procedural arbitrability is for the arbitrator under Howsam; also argued arbitration clause did not require ripeness | Papalote: under Vaden the court must "look through" and determine whether the underlying substantive dispute was ripe for Article III jurisdiction before compelling arbitration | Court: Apply Vaden; district court must look through §4 petition and ensure the underlying dispute was ripe because ripeness is a component of subject‑matter jurisdiction |
| Whether the specific dispute (interpretation of §9.3 liability cap) was ripe when the district court compelled arbitration | LCRA: the issue was a pure legal question and immediate because LCRA faced a real decision whether to continue taking power | Papalote: dispute was hypothetical and contingent because LCRA was fully performing and had not threatened to stop taking power | Court: Not ripe at that time—no sufficient likelihood LCRA would stop taking power; declaratory relief was premature |
| Whether subsequent events (arbitrator decision and LCRA later stopping taking power) can cure lack of jurisdiction in the prior order compelling arbitration | LCRA: court may consider subsequent events when assessing ripeness and thus affirm | Papalote: later events cannot retroactively vest jurisdiction in a previously void order | Court: Subsequent events do not retroactively cure a void judgment; the prior order compelling arbitration was void for lack of subject‑matter jurisdiction |
| Remedy for a void district‑court order compelling arbitration | LCRA: (implicit) affirm order given current ripeness | Papalote: vacate the order and require the district court to consider the petition anew | Court: Vacate the district court’s judgment as void and remand for further proceedings; leave to district court whether to readdress petition now that controversy is ripe |
Key Cases Cited
- Vaden v. Discover Bank, 556 U.S. 49 (2009) (court must "look through" a §4 FAA petition to the underlying controversy to determine jurisdiction)
- Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (1998) (federal courts must satisfy themselves of subject‑matter jurisdiction)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (distinguishes arbitrability questions for courts versus arbitrators)
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) (FAA does not by itself confer federal‑court jurisdiction)
- Shields v. Norton, 289 F.3d 832 (5th Cir. 2002) (ripeness is a constitutional prerequisite to jurisdiction)
- Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891 (5th Cir. 2000) (ripeness factors: fitness of issues and hardship of withholding review; speculative claims are not ripe)
- Venator Group Specialty, Inc. v. Matthew/Muniot Family, LLC, 322 F.3d 835 (5th Cir. 2003) (declaratory judgment ripe when contingency is very likely to occur)
- United Transp. Union v. Foster, 205 F.3d 851 (5th Cir. 2000) (appellate courts must ensure lower‑court jurisdiction)
- Brumfield v. La. State Bd. of Educ., 806 F.3d 289 (5th Cir. 2015) (judgment is void if rendered without subject‑matter jurisdiction)