Bettis Group Inc v. Transatlantic Petro

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

_______________________________

No. 01-20377
_______________________________

BETTIS GROUP, INC.; ROYAL HOLT BETTIS, JR.;
TARPON BENIN II, INC.; BAHAMAS W.A. LDC;
WEST AFRICA, LDC,

Plaintiffs-Counter Defendants-Appellants,

versus

TRANSATLANTIC PETROLEUM CORP.; ET AL,

Defendants,

TRANSATLANTIC PETROLEUM CORP., formerly
known as PROFCO RESOURCES, LTD.,

Defendant-Counter Claimant-Appellee.

Consolidated with

_______________________________

No. 01-20379
_______________________________

BETTIS GROUP INC.; ROYAL HOLT BETTIS, JR.;
TARPON BENIN II, INC.; BAHAMAS W.A. LDC;
WEST AFRICA LDC,

Plaintiffs-Counter Defendants-Appellants,

versus

SOGW BENIN, LTD; TIFAND, INC.;
TARPON BENIN LDC; BBFI BENIN LTD.;
CANDELA RESOURCES, LTD.,

Defendants-Counter Claimants-Appellees.

_________________________________________________
 Appeals from the United States District Court
for the Southern District of Texas
(H-00-CV-3310)
_________________________________________________
December 23, 2002
Before KING, Chief Judge, and REAVLEY and WIENER, Circuit Judges.

PER CURIAM*:

Plaintiffs/Counter-Defendants/Appellants (collectively,

“Plaintiffs”) filed the two captioned lawsuits, which are

consolidated for purposes of this appeal, seeking enforcement of

the arbitration award that they had obtained against the

Defendants/Counter-Claimants/Appellees. In the first case

(hereafter, the “Guarantor Lawsuit”), the district court sustained

the counterclaim of TransAtlantic Petroleum Corp. (“TransAtlantic”)

which asserted that, as guarantor only, it was not subject to the

arbitration provision that led to the award in question. In the

second case (hereafter the “Affiliates Lawsuit”), the district

court concluded that the arbitrator’s award to the Plaintiffs was

grounded in damages that were too speculative to support the award,

thereby constituting “manifest disregard of the law,” which the

court equated with misconduct by the arbitrator. As a result of

these rulings, the district court vacated the arbitration award in

its entirety as to all parties previously found liable by the

arbitrator (collectively, “Defendants”), whether as obligors or

guarantor, and dismissed both actions.

*
Pursuant to 5TH Cir. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH Cir. R. 47.5.4.

2
 The Plaintiffs appeal all rulings of the district court in

both suits, principal among which are (1) the court’s determination

that the arbitrator erred in finding that TransAtlantic was bound

to arbitrate, and (2) the court’s vacatur of the arbitration award

as to all Defendants. We reverse these rulings of the district

court and remand with instructions to enforce the arbitrator’s

award as rendered.

I. Facts and Proceedings

Tarpon-Benin, S.A., a company that is not a party to this

litigation, was incorporated pursuant to the laws of the West

African Republic of Benin (“Benin”) by corporate and individual

associates of one of the Plaintiffs, Bettis Group, Inc. (“Bettis

Group”).1 The initial shareholders of Tarpon-Benin were those

affiliates of Bettis Group (collectively “the Bettis Affiliates”)

but not Bettis Group itself. The government of Benin granted

Tarpon-Benin a petroleum drilling concession (the “Concession

Contract”), under which Tarpon-Benin assumed various contractual

obligations and acquired drilling rights, in particular the right

to drill offshore in an area designated as Block 2.

Presumably to obtain additional capital for exploitation of

the Concession Contract, Tarpon-Benin brought Profco Resources,

Ltd. (subsequently renamed TransAtlantic and referred to throughout

this opinion as such) into the venture through the sale of Tarpon-

1
The laws of Benin require seven shareholders, at least one
of whom must be a natural person.

3
Benin stock to individual and corporate affiliates of

TransAtlantic, but not to TransAtlantic itself. At all times

relevant to this appeal, the shareholders of Tarpon-Benin consisted

of (1) the Bettis Affiliates and (2) all captioned Defendants-

Counter Claimants-Appellees other than TransAtlantic (collectively

“the TransAtlantic Affiliates”). Together, the TransAtlantic

Affiliates owned 75% of Tarpon-Benin’s issued and outstanding

stock, controlling its board of directors and its principal

committees, and held the presidency.

The owners of all Tarpon-Benin stock signed a Shareholders

Agreement (the “Agreement”). Although not shareholders themselves,

the two primary corporate players in the venture —— Bettis Group

and TransAtlantic —— signed the Agreement to guarantee some

obligations of some of their respective affiliates that were

shareholders, as expressly set forth in the body of the Agreement.

Specifically, section 6.5 of the Agreement identifies which

obligations of which shareholders among the TransAtlantic

Associates are guaranteed by TransAtlantic:

6.5 Guaranty of SOGW Benin’s Obligations
[TransAtlantic] hereby agrees to guarantee (i)
any and all obligations of SOGW Benin to
[Tarpon-Benin] and (ii) any and all obligations
of SCL, Tifand, and LDC in their capacities as
Shareholders of [Tarpon-Benin].2

2
Section 6.7 of the Agreement mirrors section 6.5, specifying
which obligations of which shareholders among the Bettis Group
Affiliates were guaranteed by Bettis Group: “6.7 Guarantee of West
Africa’s Obligations. The Bettis Group agrees to guarantee (i) any
and all obligations of West Africa to [Tarpon-Benin] and (ii) any

4
 After Tarpon-Benin drilled a dry hole in Block 2, differences

developed between the Plaintiffs and the Defendants about the

future of the venture. The Concession Contract with Benin was

eventually lost. When the dispute between the two factions could

not be resolved amicably, the Plaintiffs invoked the arbitration

clause of the Agreement, instituting arbitration proceedings

against the Defendants for breach of the Agreement. These

proceedings, which began in Denver and were transferred to Dallas

by unanimous consent of the participants,3 culminated in an award

of $1.35 million, plus fees and interest, against the Defendants.4

To enforce their arbitration award, the Plaintiffs filed the

captioned lawsuits in federal district court in Houston.

TransAtlantic counterclaimed in the Guarantor Lawsuit, seeking (1)

reversal of the arbitrator’s preliminary ruling that TransAtlantic

was subject to arbitration and (2) vacatur of the arbitration

award. The TransAtlantic Affiliates counterclaimed in the

Affiliates Lawsuit, also seeking vacatur of that award but

contesting neither the validity of the agreement to arbitrate nor

their susceptibility to arbitration. Following the filing of the

and all obligations of Tarpon II and RHB in their capacities as
Shareholders of [Tarpon-Benin].”
3
The transfer to Dallas occurred after TransAtlantic
boycotted the proceedings, although the arbitrator stated that the
proceedings would be moved back to Denver if TransAtlantic decided
to participate and insisted on a Denver situs.
4
In its appellate brief, TransAtlantic states that the award
against it is in “the total sum of $1,848,359.32.”

5
Defendants’ cross-motions for summary judgment, the district court

entered orders in both lawsuits.

As an initial matter in the Guarantor Lawsuit, the district

court reversed the arbitrator’s preliminary ruling that

TransAtlantic was bound to arbitrate, crediting TransAtlantic’s

contention that it did not consent to arbitrate when it signed the

Agreement as guarantor of the obligations of the TransAtlantic

Affiliates, as expressly spelled out in the body of the Agreement.

The court went on to vacate the arbitration award as to

TransAtlantic.

In the Affiliates Lawsuit, the district court vacated the

arbitrator’s award, crediting the TransAtlantic Affiliates’

characterization of the arbitrator’s ruling as constituting

“manifest disregard for the law” and therefore “misconduct” by the

arbitrator. In so doing, the court rejected the Plaintiffs’

contentions that (1) the shareholders’ express waiver of appeal in

the Agreement precluded the court’s appellate review of the award,

(2) manifest disregard of the law is not a valid basis for vacating

the arbitrator’s award anyway, and (3) in fact and in law, the

arbitrator had not manifestly disregarded the law applicable to the

instant dispute. The district court was of the opinion that under

the substantive law of Texas (which is the law selected by the

parties in the Agreement), the damages were too speculative to

support an award, so that the arbitrator’s award of such damages

constituted manifest disregard for the law and thus arbitrator

6
misconduct. In the end, the district court vacated the arbitration

award in toto and dismissed both lawsuits, after which the

Plaintiffs timely filed notices of appeal.

II. Analysis

A. Standard of Review

In the Affiliates Lawsuit, we review de novo the court’s

denial of the Plaintiffs’ motion for summary judgment to enforce

their award in arbitration and the court’s grant of the

TransAtlantic Affiliates’ summary judgment motion to vacate the

arbitration award and dismiss the case. Thus, our review of each

appellate issue in the Affiliates Lawsuit is plenary.5

In the Guarantor Lawsuit, the Plaintiffs and TransAtlantic

filed cross-motions for summary judgment. The district court

denied the Plaintiffs’ motion and granted TransAtlantic’s. Again,

our review of the grant or the denial of a summary judgment is

plenary. Our standard of review of the district court’s rulings

should not, however, be confused or equated with the extremely

restricted and deferential standard to which federal courts are

held when reviewing arbitration proceedings themselves, including

the conduct of the arbitrator and the arbitration award.6

5
Six Flags Over Texas, Inc. v. Int’l Brotherhood of Elec.
Workers, Local No. 116, 143 F.3d 213, 214 (5th Cir. 1998).
6
Brook v. Peak Int’l, Ltd., 294 F.3d 668, 672 (5th Cir.
2002)(noting that the de novo standard of review is “intended to
reinforce the strong deference due an arbitrative
tribunal”)(quoting McIlroy v. Paine Webber, Inc., 989 F.2d 817, 820
(5th Cir. 1993)).

7
B. The Affiliates Lawsuit

The TransAtlantic Affiliates participated fully in the

arbitration proceedings, never objecting to their being subject to

arbitration or to any other aspect of the proceedings except for

the results reached by the arbitrator in making his award, which,

on appeal, the TransAtlantic Affiliates, like the district court,

label as manifest disregard for the law by the arbitrator. On

appeal to us, the Plaintiffs assert two independent and alternative

bases for reversing the district court: (1) the parties’ waiver of

the right to appeal the legal rulings and award of an arbitrator;

and (2) the district court’s legal error in (a) applying an

impermissible standard to justify reviewing the substance of the

dispute and the arbitrator’s award, and, alternatively, (b) the

district court’s holding that the arbitrator manifestly disregarded

the law of Texas governing contractual damages and that this

constitutes arbitrator misconduct.7

1. Waiver of Appeal

As a preliminary contention, the Plaintiffs insist that the

TransAtlantic Affiliates violated an express provision of the

Agreement when they filed a counterclaim seeking vacatur of the

award, and that the district court erred reversibly by entertaining

7
FAA § 16 authorizes our review of the district court’s order
vacating the arbitration award. See 9 U.S.C. § 16(a)(1)(E);
Atlantic Aviation, Inc. v. EBM Group, Inc. 11 F.3d 1276, 1280 (5th
Cir. 1994); Bull HN Info. Sys., Inc. v. Hutson, 229 F.3d 321, 327
(1st Cir. 2000); Jays Foods, L.L.C. v. Chem. & Allied Prod. Workers
Union, 208 F.3d 610, 613 (7th Cir. 2000).

8
that counterclaim which unquestionably constitutes an appeal of the

arbitration proceedings and the arbitrator’s award. The Plaintiffs

rely on the fifth paragraph of § 17.2.2, which contains the

arbitration provision of the Agreement:

The decision of the arbitrator shall be final
and binding on all Shareholders and shall be
enforceable in any court of competent
jurisdiction. The Shareholders agree to
exclude any right of application or appeal to
the courts of any jurisdiction in connection
with any question of law arising in the course
of arbitration or with respect to any award
made, except for enforcement purposes as stated
above. (emphasis added)

In their district court counterclaim, the TransAtlantic Affiliates

do not assert any vice in the making of the Agreement or their

joinder therein; neither do they contest the general applicability

of the above-quoted waiver of appeal. Rather, they take the

position that, despite its unambiguous and unconditional wording,

the contractual waiver of the right to appeal in any court anywhere

regarding any question of law or any award is inapplicable to an

appeal based on a claim that an award was made in manifest

disregard for the law. This is so, they argue, because that

constitutes “misconduct” by the arbitrator. We perceive this

argument as advocating a policy that a general waiver of appeal

that does not expressly state that the waiver applies even to the

four grounds listed in § 10(a) of the FAA, does not preclude the

seeking of vacatur on one or more of those grounds.

Even assuming arguendo that the Agreement’s broad and

9
unconditional waiver of judicial appeal would not prohibit an

appeal grounded in one or more of § 10(a)’s grounds, the

TransAtlantic Affiliates were not entitled to appeal the

arbitrator’s award here by asserting manifest disregard for the

law. First, we have never reversed our rejection of the “manifest

disregard for the law” standard of review of arbitration awards in

commercial contract cases. We must, therefore, reject the

TransAtlantic Affiliates position (which was successful in the

district court) equating manifest disregard for the law with

“misconduct by the arbitrator,” the latter being one of the four

exclusive grounds listed in § 10(a) of the FAA for vacating an

arbitration award. Consequently, even when we assume without

granting that the TransAtlantic Affiliates’ waiver of appeal does

not apply to a claim of arbitrator misconduct, such an appeal

cannot be based on manifest disregard of the law as a proxy for

such misconduct.

As signatories to the Agreement, which contains the

arbitration clause that includes the quoted waiver of appeal, the

TransAtlantic Affiliates are held to knowledge of the law of

arbitration, including the extremely narrow and chary approach of

the federal courts to an appeal of the merits of an arbitration

award, especially when appeal has been waived unconditionally in

the contract. This deemed knowledge includes, inter alia, that the

list of grounds for review contained in § 10(a) of the FAA is

exclusive and, more importantly, that in this circuit manifest

10
disregard for the law is not equated with arbitrator’s misconduct.

Thus, the district court erred as a matter of law in hearing the

appeal, which the TransAtlantic Affiliates dressed in the garb of

a counterclaim, grounded in manifest disregard of the law.

Our long-standing rejection of that ground for vacatur in

commercial contract cases pretermits its being considered under the

aegis of any of the four grounds under § 10(a) even if appeals

based on § 10(a) are not prohibited by the waiver of appeal in the

Agreement. We must, therefore, reverse the district court’s

vacatur of the arbitration award as it applies to the TransAtlantic

Affiliates.

2. Alternative Ground for Reversal: Merits of Appeal

Furthermore, even if we assume without granting that the

waiver of appeal is inapplicable here, and assume further that, in

this commercial contract case governed by Texas substantive law,

manifest disregard of the law could somehow constitute misconduct

by the arbitrator, our review of the district court’s vacatur of

the award vis-à-vis the TransAtlantic Affiliates on those grounds

ultimately leads to reversal.

a. Governing Law; the Arbitration Provision

Article XVII of the Agreement contains § 17.2, which is styled

Governing Law and Dispute Resolution. Subsection 17.2.1 specifies

that the “Agreement shall be governed and interpreted according to

the substantive law of the State of Texas.” That is followed by

subsection 17.2.2, which is the six-paragraph arbitration provision

11
of the Agreement. The first sentence of the first paragraph of

17.2.2 states:

Any and all disputes or differences relating
to, arising out of or in connection with this
Agreement which cannot be settled amicably
shall be finally settled by arbitration
pursuant to this Section 17.2.2. (emphasis
added).
....

The second paragraph of 17.2.2 then reiterates:

The substantive law of Texas shall be applied
without reference or regard to any rules and
procedures regarding conflicts of law which
would refer the matter to the laws of another
jurisdiction.

b. The Dispute

At this juncture, the details of the controversy underlying

the dispute between the two shareholder groups and their respective

guarantors are not important. It is sufficient unto this appeal

that the controversy involved accusations by the Plaintiffs that

the Defendants breached the Agreement in such a manner as to cause

the Concession Contract to be lost, thereby damaging Tarpon-Benin

and its shareholders. The dispute is a stereotypical breach of

contract controversy, and the Plaintiffs instigated arbitration in

an effort to resolve their breach of contract claims.

At the end of the day, the arbitrator ruled in favor of the

Plaintiffs, concluding that the Defendants had breached their

obligations under the Agreement, causing Tarpon-Benin to violate

express obligations under the Concession Contract following the

initial drilling of a dry hole in Block 2, including specifically

12
the obligations to provide a training program for the citizens of

Benin and to conduct extensive geophysical operations. This,

according to the arbitrator, resulted in the corporation’s loss of

the Concession Contract. In the arbitration proceedings, the

Plaintiffs asserted that the loss of the Concession Contract was

caused at least in part by TransAtlantic’s unilateral notification

to the government of Benin that TransAtlantic was “relinquishing”

its interest in Tarpon-Benin —— a step that the Plaintiffs insisted

neither TransAtlantic nor its affiliates had the legal right to

take. This in turn prompted the Plaintiffs to refuse to accept

TransAtlantic’s “declarations of transfer.” Based on all oral and

written submissions, the arbitrator concluded that the

TransAtlantic Affiliates had breached the Agreement, causing the

Plaintiffs to suffer damage of $1.35 million, plus fees and

interest.8

c. Vacatur of Arbitration Award to Affiliates

In the Affiliates’ Lawsuit, the district court ignored the

waiver of appeal, ignored our long-standing rejection of manifest

disregard of the law as grounds for vacatur in commercial contract

cases, and proceeded to consider the merits of the arbitration

award against the TransAtlantic Affiliates under the manifest error

doctrine, ultimately reversing the arbitration ruling and vacating

the award. It is anything but clear, however, that we have ever

8
See supra n.3.

13
accepted the manifest error doctrine as a ground for vacating

arbitration awards in commercial contract cases in which the

substantive law of Texas is applicable under the Federal

Arbitration Act (“FAA”). Indeed, we expressly rejected that

doctrine in McIlroy v. PaineWebber, Inc.9 and R.M. Perez &

Associates., Inc. v. Welch.10 Those precedents not only recognize

the exclusivity of the list of four grounds for vacatur expressly

set forth in § 10 of the FAA, to wit, (1) The award was procured by

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

partiality or corruption among the arbitrators; (3) the arbitrators

were guilty of misconduct which prejudiced the rights of one of the

parties; or (4) the arbitrators exceeded their powers.11 They also

eschew manifest disregard as either an additional ground for

vacatur or a manifestation of arbitrator misconduct.

We acknowledge that the subsequent statement in Williams v.

Cigna Financial Advisers, Inc.,12 to the effect that “clear approval

of the ‘manifest disregard’ of the law standard in the review of

arbitration awards under the FAA” was signified by the Supreme

9
989 F.2d 817, 820 n.2 (5th Cir. 1993)(noting this circuit’s
refusal to adopt manifest disregard for the law as a ground for
vacatur).
10
960 F.2d 534, 539 (5th Cir. 1992)(“[T]his circuit never has
employed a ‘manifest disregard of the law’ standard in reviewing
arbitration awards”).
11
See id. at 540 (quoting Forsyth Int’l, S.A. v. Gibbs Oil Co.
of Texas, 915 F.2d 1017, 1020 (5th Cir. 1990)).
12
197 F.3d 752, 759 (5th Cir. 1999).

14
Court in First Options,13 sent a somewhat conflicting signal by

referring to dicta included in the parenthetical citation to an

earlier case. The above-quoted statement from Williams is likewise

dicta, as the controversy there involved employment discrimination,

to which a different standard might apply. Furthermore, the

arbitration award in that case was affirmed, not vacated. But even

if the subject pronouncement in Williams were not dicta and no

distinction could be drawn on the basis of that being an employment

case, we would remain bound to follow the pronouncements in Perez

and McIlroy as earlier precedents,14 in the absence of an

unequivocal and unambiguous reversal by the Supreme Court —— and,

we cannot read First Options to qualify as such for issues such as

those under consideration here.

It is no longer necessary to repeat the jurisprudential

authority for the universally recognized proposition that

arbitration is favored. When it comes to an order of the district

court that vacates an arbitration award, our review is plenary.15

And, in conducting our plenary review, we defer to the arbitrator’s

13
First Options of Chicago, Inc. v. Kaplan, 517 U.S. 938, 942
(1995).
14
See Smith v. Penrod Drilling Corp., 960 F.2d 456, 459 n. 2
(5th Cir. 1992)(acknowledging that the earlier of prior conflicting
panel decisions control).
15
Forsythe Int’l, S.A. v. Gibbs Oil Co. of Texas, 915 F.2d
1017, 1020-21 (5th Cir. 1990).

15
resolution of the dispute whenever possible.16 But even if we were

to assume arguendo that the district court did not err in applying

the manifest error standard (or that we could affirm for other

reasons by applying, de novo, one of the four standards of § 10 of

the FAA), we would reverse that court’s vacatur in the Affiliates

Lawsuit.

As noted, the Agreement specifies that the substantive law of

Texas is controlling. Without reiterating the extensive case law

cited by the parties in their respective appellate briefs, we are

convinced that the arbitrator’s award against the TransAtlantic

Affiliates cannot be reversed and vacated on the basis of manifest

disregard of Texas law. If we were authorized to review the

substance of the arbitrator’s award under a less deferential

standard, we, like the district court, might find the damages too

speculative; but we have no such authority and neither did the

district court. Furthermore, even if we were to conclude that,

under the evidence here, the damages awarded by the arbitrator were

indeed speculative, we would not view this putative error as rising

to the level of manifest disregard of the law. A difference of

opinion between courts as to the degree of speculation required to

cross that line does not even approach the level of egregiousness

required to constitute manifest disregard; it amounts to nothing

more than a difference of opinion among jurists of reason.

16
Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co.,
918 F.2d 1215, 1218 (5th Cir. 1990).

16
 But the boundaries of federal courts’ latitude in this respect

are far too narrow to permit such a review and ruling by a court

that is considering enforcement of an arbitrator’s award under

circumstances such as these. Moreover, there is a surfeit of Texas

common law to the effect that majority shareholders may owe a

fiduciary-like duty to minority shareholders, casting significant

doubt on the clarity and certainty of the Texas law applicable to

this issue.17 As Texas law is, at a minimum, unclear on the

underlying contractual cause of action asserted by the Plaintiffs

in the instant arbitration proceedings, neither we nor the district

court are legally positioned to say that the arbitrator was guilty

of prejudicial misconduct, exceeded his powers, or otherwise opened

his award to the possibility of reversal by the court. We repeat

for emphasis that, even though we might disagree with the

arbitrator’s analysis and even though we might judge the damages to

be speculative, the acts of the arbitrator in this case fall well

short of the kind of misconduct required to constitute grounds for

vacatur. There is no hint of arbitrariness, caprice, or reckless

disregard for the provisions of Texas law governing this matter.

As such, the district court erred as a matter of law in vacating

the arbitration award against the TransAtlantic Affiliates on

grounds of arbitrator misconduct.

17
See, e.g., Patton v. Nicholas, 279 S.W.2d 848 (Tex. 1955);
Davis v. Sheerin, 754 S.W.2d 375 (Tex. App.——Houston [ISD Dist.]
1988, writ denied); Duncan v. Lichtenberger, 671 S.W.2d 948 (Tex.
App.——Fort Worth 1984, writ ref’d n.r.e.).

17
 In summary, on the basis of the parties’ waiver of the right

to appeal any aspect of an arbitration award and, alternatively, on

the basis of the court’s legal errors, first in applying the

manifest-disregard-of-the-law standard and then in misapplying it

to the instant facts, we reverse the court’s vacatur, reinstate the

award to the Bettis Affiliates, and remand for enforcement by the

court after conducting any ministerial proceedings, consistent

herewith, that might be needed to effectuate enforcement of the

award.

C. The Guarantor Lawsuit

1. Amenability of TransAtlantic to Arbitration Under the
Agreement

After the Plaintiffs invoked the arbitration clause of the

Agreement and commenced proceedings, TransAtlantic asserted that,

as a non-shareholder, guarantor-only, signatory to the Agreement,

it was not bound by the arbitration provisions of the Agreement.

TransAtlantic formalized this contention in its Statement of

Objections filed early in the arbitration proceedings. The

arbitrator rendered a preliminary decision, holding that both

TransAtlantic and Bettis Group were proper parties to the

arbitration, regardless of the fact that they had signed the

Agreement as guarantors only. Thereafter, however, TransAtlantic

refused to participate in the arbitration proceedings.

When, following completion of arbitration, the Guarantor

Lawsuit was instituted by the Plaintiffs to enforce their award,

18
TransAtlantic repeated its contention that it was not subject to

the binding arbitration provision of the Agreement. TransAtlantic

advanced this position in the district court by filing a

counterclaim in which it reiterated the contention that the

arbitrator had rejected in his preliminary ruling, i.e., that

TransAtlantic was not subject to arbitration.

a. Waiver

As an initial contention, the Plaintiffs insist that

TransAtlantic waived any right it might have had to challenge the

arbitrator’s preliminary ruling that TransAtlantic is subject to

the instant arbitration. They ground this waiver claim not in the

wording of the Agreement but in Tex. Civ. Prac. & Rem. § 172.082(f)

(hereafter “82(f)”), which states:

If the arbitration tribunal rules as a
preliminary question that it has jurisdiction,
a party waives objection to the ruling unless
the party, not later than the 30th day after
the date the party receives notice of that
ruling, requests the district court of the
county in which the place of arbitration is
located to decide the matter.

Keeping in mind that this enforcement action was instituted in

federal court and that TransAtlantic filed its counterclaim there,

asserting that it is not subject to arbitration, we must examine

the applicability of 82(f) in the framework of the FAA and the

International Rules of the AAA, as well as the Agreement’s clauses

addressing arbitration and the choice of Texas substantive law.

First, the FAA contains no mechanism for a party in

19
TransAtlantic’s position to bring an interlocutory appeal of an

arbitrator’s ruling that such party is subject to arbitration.

Under the FAA, a party seeking to compel arbitration can seek court

relief under § 4; a successful party can seek enforcement of the

arbitration award under § 9; a party against which an award is made

can seek to vacate such an award under § 10 by filing a motion

pursuant to § 12 within three months after the award is rendered.

But we have been referred to nothing in the FAA or in the AAA’s

International Rules (and have found nothing on our own) that

authorizes a party to seek an interlocutory federal court review of

a preliminary ruling by the arbitrator to the effect that the party

is subject to arbitration.

It follows, then, that if we were to view 82(f) as being

substantive in nature, parties situated like TransAtlantic would

have no remedy in federal court: They could not bring

interlocutory appeals to the district courts under the FAA; and

attempts to bring post-award petitions to vacate arbitration awards

would be thwarted as time-barred by 82(f). We conclude for two

reasons, therefore, that 82(f) does not block judicial

consideration of TransAtlantic’s challenge to its susceptibility to

arbitration on the basis of waiver.

First, we are satisfied that this provision of the Texas Civil

Practice and Remedies Code is procedural rather than substantive;

and, second, that even if it were substantive, 82(f) would be

preempted because it would be in direct conflict with the FAA. We

20
conclude, therefore, that TransAtlantic did not waive its right to

challenge the arbitrator’s preliminary determination that it was

subject to arbitration in this case. (Neither did TransAtlantic

waive or forfeit its right to contest the preliminary ruling by

filing objections with the arbitrator: Such limited appearances to

contest jurisdiction are not general appearances that have the

effect of submitting to the jurisdiction of the tribunal.)

b. Guarantors’ Agreement to Arbitrate

TransAtlantic insists that, by signing the Agreement “for the

sole purpose of guaranteeing certain obligations” of the

TransAtlantic Affiliates as shareholders, and then only “to the

extent specifically provided in this Agreement,” neither it nor

Bettis Group agreed to arbitrate, irrespective of the commitment to

arbitrate of those other signatories whose obligations under the

Agreement they guarantee. We note at the outset that, despite the

expressly limited substantive purpose of TransAtlantic’s joinder in

the Agreement, i.e., as guarantor only, its position is different

from a purely non-signatory guarantor (one who signs a separate

guaranty) seeking to avoid arbitration. Generally, a non-signatory

guarantor to an agreement containing an arbitration provision is

not bound by that provision; the opposite is frequently true for

signatory guarantors.18

We also note that the posture of this case —— a signatory’s

18
See Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 595 (6th
Cir. 1995).

21
unilateral refusal to participate in an arbitration proceeding that

eventually produces an award against such signatory, followed by a

suit to enforce the award, in which suit the signatory counters by

asserting an affirmative defense of not having been subject to a

broad form arbitration clause —— differs significantly from the

more common posture of a guarantor (1) asserting such an

affirmative defense in a suit to compel arbitration or (2) seeking

a declaratory judgment that it is not subject to such an

arbitration clause. Here, the district court’s standard of review

of a ruling by the arbitrator that a signatory party is subject to

arbitration under a broad form arbitration provision is decidedly

more limited in scope and deferential to the arbitrator than in

either of the more familiar settings of a suit to compel

arbitration or a declaratory action, in either of which the

district court, rather than the arbitrator, would have the first

bite at the apple and the arbitrator basically would have none.

Irrespective of context, however, the law is settled that, to

answer the question whether a signatory party has agreed to

arbitrate a dispute, two considerations must be addressed:

(1) Whether there is a valid agreement to
arbitrate between the parties; and (2) whether
the dispute in question falls within the scope
of that arbitration agreement. When deciding
whether the parties agreed to arbitrate the
dispute in question, “courts generally
...should apply ordinary state-law principles
that govern the formation of contracts.” In
applying state law, however, “due regard must
be given to the federal policy favoring
arbitration, and ambiguities as to the scope of

22
 the arbitration clause itself must be resolved
in favor of arbitration.” The second step is
to determine “whether legal constraints
external to the parties’ agreement foreclosed
the arbitration of those claims.”19

It is axiomatic that, unless an arbitration agreement

expressly provides otherwise, the arbitrator is empowered to rule

on his own jurisdiction.20 This includes subject matter

jurisdiction, i.e., which issues are subject to arbitration and

which are outside its scope; and personal jurisdiction, i.e., who

is or is not bound to arbitrate. Here, none challenge the

jurisdiction of the arbitrator to decide the basic contractual

issues submitted by the Plaintiffs, but the Defendants continue to

challenge the arbitrator’s jurisdiction to decide the liability of

Bettis Group and TransAtlantic as guarantors of any award against

those whose obligations they have guaranteed under the Agreement.

Likewise, none challenge the existence or validity of the Agreement

or the arbitration provisions in it, but do challenge the

susceptibility of the two guarantors to mandatory arbitration,

relying on the express limitations of their joinder in the

Agreement to eschew amenability to arbitration.

The Agreement contains no express statement that the

19
Webb v. Investacorp., Inc., 89 F.3d 252, 257-58 (5th Cir.
1996)(internal citations omitted).
20
See American Arbitration Association, International
Arbitration Rules art. 15 (“The tribunal shall have the power to
rule on its own jurisdiction, including any objections with respect
to the existence, scope or validity of the arbitration
agreement.”); see also Tex. Civ. Prac. & Rem. § 172.082(a).

23
guarantors are bound to arbitrate; but neither does it contain an

express statement that the guarantors are exempt from arbitration.

Thus, in applying the rules and maxims of contract interpretation,

the arbitrator was bound to consider all facially applicable

provisions in the context of the Agreement as a whole when

determining whether subject matter jurisdiction included the power

to decide personal jurisdiction over the guarantors and subject

matter jurisdiction over their liability as guarantors to the

claimants on any amount awarded against those whose obligations are

guaranteed. In this case, the arbitrator went the extra mile by

looking beyond the four corners of the Agreement and hearing

extrinsic evidence affecting the jurisdictional issues.

Our examination of the Agreement as a whole, the preliminary

ruling by the arbitrator and his award, and other matters in the

record, satisfies us that the arbitrator was empowered to determine

his own jurisdiction (including jurisdiction over the guarantors),

that he exercised discretion in making those determinations, and

that his determinations are supported by the Agreement as a whole

and the circumstances of its execution.21

We have already noted that TransAtlantic and Bettis Group are

signatories to the Agreement, and that they expressly guarantee the

21
The instant situation is significantly different from that
in Grundstad v. Ritt, 106 F.3d 201 (7th Cir. 1997), in which
neither the guarantee nor the guarantor was mentioned in the
agreement and the arbitration clause expressly referred to the two
principals.

24
obligations undertaken by other parties to the Agreement, which

parties and objections are indisputably subject to arbitration.

Structurally, Article XVII of the Agreement addressing applicable

law and dispute resolution, first designates substantive law of

Texas as applicable and then, in the first sentence of § 17.2.2,

states unequivocally and unconditionally that “[a]ny and all

disputes or differences relating to, arising out of or in

connection with this Agreement...shall be finally settled by

arbitration pursuant to this Section 17.2.2” (emphasis added).

Although it is true, as strenuously insisted by TransAtlantic, that

the subsequent sentences of that paragraph and the remaining

paragraphs of Section 17.2.2 contain multiple references to “the

Shareholders” and none to the guarantors, the above-quoted first

sentence contains no limitation —— no reference to shareholders, or

to guarantors, or to anything other than unqualified applicability

to any and all disputes. Indeed, rather than supporting the

inference that the commitment to settle “any and all disputes or

differences relating to, arising out of or in connection with” the

Agreement should not apply to the guarantors, the omission of the

limiting reference to shareholders from the initial sentence of

Section 17.2.2 provides support for the arbitrator’s determination

that the guarantors are subject to arbitration: Inclusio unius est

exclusio alterius. And, like the position of the guarantors as

signatories to the Agreement, the statement appearing on page 2,

immediately preceding “RECITALS,” confirms that the guarantors “are

25
entering into this Agreement,” albeit for the limited purpose of

guaranteeing certain obligations.

Irrespective, then, of our standard of review —— whether,

pursuant to FAA, one that is extremely deferential to the

arbitrator, or completely de novo,22 or somewhere in between (such

as abuse of discretion) —— we ultimately agree with the

arbitrator’s conclusion that (1) he has the power to determine his

own jurisdiction, including the substantive question of the

responsibility of the guarantor for any award in arbitration

against those whose commitments were guaranteed, and the in

personam amenability of the guarantors to arbitration; (2) that,

when the Agreement is read as a whole, both guarantors are bound to

arbitrate; and (3) as guarantor, TransAtlantic is bound jointly and

severally with those shareholders of Tarpon-Benin against whom the

award in arbitration was rendered. These conclusions comport with

the frequently repeated maxims that (1) “[W]here the parties

include a broad arbitration provision in an agreement that is

‘essential’ to the overall transaction, we will presume that they

intended the clause to reach all aspects of the transaction”23 and

22
See generally First Options, 514 U.S. 938 (1995); Kona Tech.
Corp. v. S. Pac. Transp. Co., 225 F.3d 595 (5th Cir. 2000).
23
See Personal Security & Safety Systems Inc. v. Motorola
Inc., 297 F.3d 388, 394 (5th Cir. 2002); see also Neal v. Hardee’s
Sys., Inc., 918 F.2d 34, 38 (5th Cir. 1990)(“We hold that when the
parties included a broad arbitration clause in the essential
[contracts] covering ‘any and all disputes,’ they intended the
clause to reach all aspects of the parties’ relationship....”).

26
(2) that arbitration clauses are to be liberally read to implement

congressional policy expressed in the Federal Arbitration Act.24

Given the totally broad form arbitration provision of the

Agreement, the recognition of the guarantors as parties to the

Agreement for the limited purpose of guaranteeing obligations

created in the Agreement, and the joinder of the guarantors as

signatories to the Agreement, we are convinced that the arbitrator

had and correctly exercised the power to determine his jurisdiction

over TransAtlantic as guarantor and over the extent of

TransAtlantic’s obligation as guarantor. But even if our review is

de novo, we would agree with the arbitrator’s jurisdictional

ruling. The fact that TransAtlantic boycotted the arbitration

proceedings after the arbitrator ruled preliminarily that

TransAtlantic was subject to arbitration is of no moment. The

arbitrator restricted his award vis-à-vis TransAtlantic to its role

as guarantor, so TransAtlantic has no basis for complaining that

the arbitrator exceeded his authority in that regard. And,

inasmuch as we have concluded earlier that the district court’s

vacatur of the arbitrator’s award against the TransAtlantic

Affiliates must be reversed and the award enforced, our conclusion

that the arbitrator was correct in holding TransAtlantic subject to

arbitration not only requires reversal of the district court’s

jurisdictional ruling to the contrary, but also requires reversal

24
See, e.g., Penzoil Exploration and Prod. Co. v. Ramco Energy
Ltd., 139 F.3d 1061, 1068 (5th Cir. 1998).

27
of that court’s vacatur of the award against TransAtlantic as

guarantor.

III. Recap

For the foregoing reasons, we reverse the district court’s

vacatur of the arbitrator’s award as having been granted in

manifest disregard of Texas law governing contractual damages,

thereby constituting misconduct by the arbitrator. And although we

agree that TransAtlantic did not waive its right to challenge the

arbitrator’s preliminary ruling on jurisdiction, we also reverse

the court’s reversal of the arbitrator’s ruling that TransAtlantic

is subject to arbitration. We reverse as well the court’s vacatur

of the arbitrator’s award against TransAtlantic as guarantor. We

therefore reinstate the award of the arbitrator in all respects and

remand this case to the district court with instructions to enforce

the award of the arbitrator in favor of the Plaintiffs in both of

the cases that are consolidated in this appeal, doing so against

the several Defendants-Appellees in the Affiliates Lawsuit, No. 01-

20379, and jointly and severally against TransAtlantic Petroleum

Corp., Defendant-Appellee in the Guarantor Lawsuit, No. 01-20377.

REVERSED and REMANDED with instructions.

28