UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
Byron White United States Courthouse
1823 Stout Street
Denver, Colorado 80257
(303) 844-3157
Patrick J. Fisher, Jr. Jane B. Howell
Clerk Chief Deputy Clerk
June 29, 2001
TO: ALL RECIPIENTS OF THE OPINION
RE: 00-7039, Bowen v. Amoco Pipeline Co.
Filed on June 20, 2001
The court’s slip opinion filed on June 20, 2001, contained minor citation
errors. A copy of the corrected opinion is attached.
Sincerely,
Patrick Fisher, Clerk of Court
By:
Amy Frazier
Deputy Clerk
F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 20 2001
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
ERNEST BOWEN; MARY BOWEN,
Plaintiffs - Appellees,
v. No. 00-7039
AMOCO PIPELINE COMPANY,
Defendant - Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
(D. Ct. No. 98-CV-243-S)
Stephen Ward, Gardere, Wynne, Sewell, LLP, Tulsa, Oklahoma, and G. Steven
Stidham, Sneed, Lang, P.C., Tulsa, Oklahoma (Brian S. Gaskill and Steven K.
Balman, Sneed, Lang, P.C., Tulsa, Oklahoma, and Steven J. Adams, Gardere,
Wynne, Sewell, LLP, Tulsa, Oklahoma, with them on the briefs), appearing for
Appellant.
Michael L. Darrah, Durbin, Larimore & Bialick, Oklahoma City, Oklahoma (Bill
M. Roberts and Katherine T. Loy, Durbin, Larimore & Bialick, Oklahoma City,
Oklahoma, and Allan DeVore, The DeVore Law Firm, P.C., Oklahoma City,
Oklahoma, with him on the brief), appearing for Appellee.
Before TACHA, Chief Judge, GIBSON, * and LUCERO, Circuit Judges.
Honorable John R. Gibson, Senior Circuit Judge, United States Court of
*
Appeals for the Eighth Circuit, sitting by designation.
TACHA, Chief Judge.
Defendant Amoco Pipeline Company appeals from the district court’s
confirmation of an arbitration award. We exercise jurisdiction pursuant to 29
U.S.C. § 1291 and affirm.
I. Background
I. Facts
In 1993, Ernest Bowen noticed an oily sheen in Flag Branch Creek, which
is located on his property. After investigating the matter, the Oklahoma
Corporate Commission (OCC) concluded remediation of the creek would be more
detrimental than beneficial. In 1993, however, Mr. Bowen again observed a
sheen in the creek, after which he notified the Pollution Control Division of the
OCC, as well as Amoco Pipeline Company (Amoco) and Koch Gathering Systems,
Inc. (Koch). Both Amoco and Koch own oil pipelines that cross the creek; Koch
owns two idled lines and Amoco owns two idled lines and two active lines. After
being notified by Mr. Bowen, Amoco retained Geosearch Environmental to
determine the source of the sheen. Although Geosearch found hydrocarbon
contamination near the creek, it concluded the source was an upstream historic
release of oil, rather than a leak from Amoco’s pipelines. Contrary to Amoco’s
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conclusions, research conducted by Mr. Bowen’s expert, Fox Hollow Consultants,
Inc., suggested that a leak in Amoco’s lines may be the source of contamination.
Under Fox Hollow’s theory, oil had leaked from Amoco’s lines, migrated
downward to the water table about nine feet below, and then floated on the water
table to the creek.
In a memorandum dated September 1996, the OCC summarized the
information available regarding the contamination in Flag Branch Creek and
reached some conclusions. In evaluating potential sources of the contamination,
the OCC dismissed oil wells and old documented pipeline leaks. No oil well was
close enough to the creek to be the source, and the two nearby documented leaks
from Koch pipelines could not have contaminated Flag Branch Creek because
they were contained within their immediate spill areas. Because wells and
documented leaks were not the source, the OCC concluded the source of the
hydrocarbon contamination must be an undocumented leak from one of the six
pipelines. Through deductive reasoning, the OCC arrived at a theory similar to
that proposed by Fox Hollow Consultants: oil from one of the lines leaked into
the porous sandy alluvial deposits, migrated downward to the water table
approximately nine to ten feet below the surface, and floated on the water table to
the creek. In order to determine the source, the OCC recommended Koch and
Amoco uncover their lines in order to expose any visual evidence of historic or
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current leaks.
Despite Amoco’s repeated assertions of its good corporate citizenship and
willingness to follow all rules and regulations, it refused to follow the OCC’s
recommendation and uncover its pipelines, arguing uncovering the lines would be
unnecessary and jeopardize the lines’ safety. After performing some trenching
around its lines and finding no hydrocarbons, Amoco continued to deny any
responsibility for the contamination but emphasized that, were Amoco the
responsible party, it would clean up the pollution. In April 1997, Koch concluded
its investigation. The following month, the OCC sent Amoco a letter explaining
that Koch’s information indicated Amoco’s pipeline on the east side of the creek
may be the source of contamination. Despite this information, Amoco continued
its refusal to strip the lines, offering instead to do some soil borings and
recommending the Oklahoma Energy Resources Board (OERB) become involved.
Displeased with Amoco’s continued denial of any responsibility, Mr. and
Mrs. Bowen filed a lawsuit in May 1998 in federal district court, asserting a cause
of action for damages to real property, nuisance, trespass, unjust enrichment,
breach of contract, and exemplary damages. In July, Amoco asked the district
court to stay the proceeding and order the dispute to arbitration pursuant to an
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enforceable arbitration agreement. 1 In arguing their motion to compel arbitration,
Amoco contended the arbitration panel would have the power to decide all claims,
an assertion they now refute. The Bowens objected to arbitration, challenging the
arbitration agreement as unenforceable. In October 1998, the district court
granted Amoco’s motion and entered an order compelling arbitration.
In July 1998, Amoco responded to the Bowens’ interrogatories, continuing
to deny its lines were the source of hydrocarbon contamination in the creek. In
addition, Amoco explicitly denied that any leaks or spills attributable to its
pipeline operation had occurred on the Bowens’ property and even denied the
existence of pollution in the soil. The following month, Fred Hesser, a district
environmental health and safety coordinator for Amoco, stated in his deposition
that from 1995 to January 1998 he encountered no evidence indicating Amoco
might be the source of the contamination. In October, however, Amoco’s tests
confirmed the presence of hydrocarbons in the soil under its lines but found no
contamination in the groundwater.
In June and July of 1999, three years after the OCC recommended that
Amoco uncover its pipelines, Amoco exposed limited portions of its lines on the
1
In 1918, the predecessors in interest of both parties entered into a right-
of-way agreement, which contained an arbitration provision. This agreement,
which governed the grant of a pipeline easement, was ratified in 1943 by a
second agreement.
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Bowens’ property and admitted the existence of contaminants next to the lines.
Significantly, the stripping of the lines revealed a pipeline replacement in the
contaminated area. Less than two months before the arbitration hearing, the
Bowens discovered that Amoco had replaced approximately 1,000 feet of pipeline
on the east side of the creek. According to the Bowens’ expert, the 1,000 feet of
replaced pipeline corresponds almost exactly with the contaminated creek area.
Although Amoco had not explicitly disclosed the line replacement and had
repeatedly denied any link to the contamination, it claimed to have provided the
Bowens with a line sheet showing the replacement. Amoco did not, however,
explain the information contained in the line sheet, which was technical and
difficult to read, until the arbitration hearing when its employee testified that
approximately 1,000 feet of pipeline was replaced in 1950.
Other than the line sheet, Amoco claimed it could find no other records
detailing the reasons for and circumstances surrounding the 1950 line
replacement–despite some testimony that it was corporate practice to keep such
records. 2 Although Amoco’s employees and experts argued the line replacement
2
In February 1996, in preparation for the OCC pollution abatement group,
Fred Hesser circulated a memo requesting information on repairs made to the line
in 1950. The OCC’s memo, dated September 1996, however, contains no
mention of a 1950 line replacement in summarizing the information Amoco had
disclosed thus far. Based on the record, Amoco appears not to have disclosed
this information in any subsequent communication with the OCC. Although the
(continued...)
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could have been a preventative measure, they admitted a leak in the line would be
one explanation for the line replacement and for the concentration of crude oil in
the soil in that exact location. Moreover, after years of denying any connection to
the contaminated soil, Dennis Beckman, Fred Hesser’s replacement, finally
testified that the hydrocarbon-contaminated soil under the replaced pipelines was
probably from Amoco’s line. Testing by Amoco’s own expert confirmed the oil
around the replaced line–as well as the oil in the creek–was at least twenty years
old, further evidence that the more recent leaks from Koch’s pipelines were not
the source. Another Amoco employee also testified that, in 1974, Amoco
routinely left oil in the soil around a pipeline after fixing a leak. Occasionally,
Amoco would excavate the contaminated soil, replace it with clean soil, and then
spread (land farm) or deposit the contaminated somewhere else on the property.
2
(...continued)
extent and timing of Amoco’s knowledge is unclear, the lack of records and the
delay in locating even minimal information raise concerns. Other incidents in the
record also raise concerns about Amoco’s litigation tactics. In a memo
concerning a ground penetrating radar report conducted by Amoco, an Amoco
employee indicated he had contacted someone about obtaining historical
geological data but “management had ordered them to get rid of anything that
might cause someone to have any interest in the area in the future. As a result,
there was no remaining geological information.” Amoco did not produce this
report, which supports some of the Bowens’ contentions, until the arbitration
hearing was underway. Amoco argues that this memo was directed at the
geological department and therefore proves nothing regarding its record-keeping
practices in the pipeline department. We mention it here as but one example
among several that demonstrate Amoco’s less than forthcoming approach to this
entire matter.
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Given this practice, the Bowens argued a contaminated area of soil away from the
replaced line was the location where Amoco deposited excavated soil after the
1950 replacement.
Although Amoco changed its initial theory and admitted its lines might be
the source of contamination in the soil, it continued to claim no responsibility for
the hydrocarbon contamination in the creek. Admitting a small two-barrel leak
may have occurred in 1952, Amoco continued to deny any connection to the
contamination in the creek. Amoco contended that, despite the contamination in
the soil around its pipelines, the hydrocarbon levels in the groundwater did not
exceed EPA standards, and because the pollution in the soil was not reaching the
water table, it was not reaching the creek. In addition, Amoco continued to refute
the Bowens’ assertion that soil excavated from around the replaced line in 1950
was deposited in another location; although the record contains various
characterizations of this site, Amoco appears to argue it is an old drilling site or
the site of a historic pit used by others.
II. The Arbitration
The Bowens’ case was tried to a panel of three arbitrators in August 1999.
The parties agreed to use the Rules for Non-Administered Arbitration of Business
Disputes (NABD), but they also agreed to modify these rules to expand the scope
of judicial review. Specifically, the parties agreed that both would have the right
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to appeal any arbitration award to the district court within thirty days “on the
grounds that the award is not supported by the evidence.” They also agreed that
the district court’s ruling “shall be final.”
On October 18, 1999, the arbitration panel granted the following relief: (1)
$3,032,000 to be deposited in an escrow fund for the use and benefit of a special
master responsible for supervising the abatement of the contamination on the
Bowens’ property; (2) $100,000 for the diminution in property value; (3)
$1,200,000 for annoyance, inconvenience, and aggravation; (4) $1,000,000 in
punitive damages; and (5) $41,000 for the costs of investigation and mitigation.
One panel member dissented, objecting to the escrow fund for abatement and
punitive damages award. Under the Federal Arbitration Act (FAA), 9 U.S.C. § 9,
the Bowens then filed a motion for confirmation of the arbitration award in
district court. Amoco responded by filing an objection to the confirmation and a
motion to vacate the award. In addition, Amoco filed a notice of appeal of the
arbitration award pursuant to the modified arbitration rules. Limiting its review
to that provided under the FAA, the district court did not apply the parties’
expanded judicial standard of review and declined to vacate the award. The court
granted the Bowens’ motion to confirm the award and affirmed the arbitrators’
order awarding the Bowens attorneys fees, costs, and arbitrators’ fees. Amoco
appeals the district court’s order, urging us to vacate the entire award and remand
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for a new arbitration, or alternatively to vacate the remediation award and remand
the case to district court for review based on the expanded standard of review.
II. Jurisdiction: Plaintiffs’ Motion to Dismiss Appeal
We must first address the Bowens’ motion to dismiss for lack of appellate
jurisdiction. The Bowens contend the parties’ agreement that the district court’s
“ruling shall be final” forecloses any appellate review. We disagree and deny the
motion.
Under § 9 of the FAA, parties must express their intentions regarding
judicial confirmation of an arbitration award in their arbitration agreements. 9
U.S.C. § 9. The statute contemplates judicial confirmation of arbitration awards
only when “the parties in their agreement have agreed that a judgment of the court
shall be entered upon the award made pursuant to the arbitration.” Id. We have
held that this requires some language manifesting the parties’ intent–“either
explicitly or implicitly”–to have judgment entered on the award. Ok. City Assocs.
v. Wal-Mart Stores, Inc., 923 F.2d 791, 795 (10th Cir. 1991); accord Smiga v.
Dean Witter Reynolds, Inc., 766 F.2d 698, 705 (2d Cir. 1985). We have also
observed that “some courts have found that a finality clause is enough to
constitute an agreement to have judgment entered by a federal court under § 9
because this would be the only way to fulfill the parties’ intent to make the award
final and binding.” Ok. City Assocs., 923 F.2d at 794. In this case, the parties’
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agreement that the district court’s ruling be final may be construed as nothing
more than a finality clause expressing their intent to have the district court enter
judgment on the arbitration award. Indeed, because the rules chosen by the
parties do not include a provision regarding judicial confirmation, the parties had
to supplement the rules to ensure judgment be entered on the award under the
FAA.
In addition, although parties to an arbitration agreement may eliminate
judicial review by contract, their intention to do so must be clear and unequivocal.
See Dep’t of Air Force v. Fed. Labor Relations Auth., 775 F.2d 727, 733 (6th Cir.
1985) (holding parties did not completely waive right to appeal when agreement
specified “further rights of appeal are hereby waived except that all articles must
be in conformance with law and Executive Order”); Aerojet-Gen. Corp. v. Am.
Arbitration Ass’n, 478 F.2d 248, 251 (9th Cir. 1973) (“While it has been held that
parties to an arbitration can agree to eliminate all court review of the proceedings,
the intention to do so must clearly appear.” (citations omitted)). The language in
the parties’ agreement does not clearly evince their intent to waive appellate
review. In fact, the very statute from which we derive our jurisdiction, 28 U.S.C.
§ 1291, grants appellate courts jurisdiction from “all final decisions of the district
courts.” Hence, by agreeing that the district court’s ruling shall be final, the
parties have merely reinforced the appellate jurisdiction conferred by § 1291. The
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Bowens’ best argument is that the word “final” is ambiguous, but courts have
long recognized the common law rule that ambiguous language be construed
against the drafter of that language. Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 62-63 (1995). Having suggested the modified language, the
Bowens may not now “claim the benefit of the doubt.” Id. at 63.
III. Standard of Review
In reviewing a district court’s decision concerning a motion to vacate an
arbitration award, we review questions of law de novo. Denver & Rio Grande W.
R.R. Co. v. Union Pac. R.R. Co., 119 F.3d 847, 849 (10th Cir. 1997); ARW
Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995). If the district
court makes any findings of fact in ruling on the motion, we review its factual
findings for clear error. Denver & Rio Grande W. R.R. Co., 119 F.3d at 849.
Our review of the arbitration panel’s decision under the FAA and the few
judicially created exceptions is, however, far more limited.
Although the FAA does not create independent federal jurisdiction, the
Supreme Court has held that the Act creates a body of substantive federal law
governing arbitration agreements within its coverage. Allied-Bruce Terminix
Cos. v. Dobson, 513 U.S. 265, 270-72 (1995); Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983); accord Foster v. Turley, 808
F.2d 38, 40 (10th Cir. 1986). Moreover, the Act creates no new rights “‘except a
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remedy to enforce an [arbitration] agreement.’” Dean Witter Reynolds, Inc. v.
Byrd, 470 U.S. 213, 220 n.7 (1985) (quoting legislative history). The Act applies
to a written arbitration clause in “a contract evidencing a transaction involving
commerce,” 9 U.S.C. § 2, a requirement broadly interpreted to correspond with
Congress’s power under the Commerce Clause. Allied-Bruce Terminix Cos., 513
U.S. at 269-70; Foster, 808 F.2d at 40. The district court ordered the arbitration
in the case before us pursuant to a right-of-way agreement, a transaction
involving pipelines for the interstate transportation of crude oil. The FAA
therefore applies to the parties’ dispute.
Our review of the arbitration panel’s decision under the FAA is strictly
limited; this highly deferential standard has been described as “among the
narrowest known to the law.” ARW Exploration Corp., 45 F.3d at 1462 (internal
quotation marks omitted). In consenting to arbitration, “‘a party trades the
procedures and opportunity for review of the courtroom for the simplicity,
informality, and expedition of arbitration.’” Brown v. Coleman Co., 220 F.3d
1180, 1182 (10th Cir. 2000) (quoting Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 31 (1991)). We employ this limited standard of review and exercise
caution in setting aside arbitration awards because one “purpose behind
arbitration agreements is to avoid the expense and delay of court proceedings.”
Foster, 808 F.2d at 42. A court may not, therefore, independently judge an
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arbitration award. Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1147 (10th Cir.
1982).
Mindful of the strong federal policy favoring arbitration, a court may grant
a motion to vacate an arbitration award only in the limited circumstances provided
in § 10 of the FAA, 9 U.S.C. § 10, or in accordance with a few judicially created
exceptions, Denver & Rio Grande W. R.R. Co., 119 F.3d at 849. Under the FAA,
vacation is proper in certain instances of fraud or corruption, arbitrator
misconduct, or “[w]here the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, definite award upon the subject matter
submitted was not made.” 9 U.S.C. § 10(a)(4). Although Amoco does not allege
fraud or misconduct, it does argue that the arbitrators exceeded their powers. In
addition, Amoco argues the arbitration panel’s decision is in “manifest disregard
of the law,” a judicially crafted exception to the general rule that arbitrators’
“erroneous interpretations or applications of law are not reversible.” ARW
Exploration Corp., 45 F.3d at 1463 (citing Wilko v. Swan, 346 U.S. 427, 436-37
(1953), overruled on other grounds, Quijas v. Shearson/Am. Express, Inc., 490
U.S. 477 (1989)). We have interpreted manifest disregard of the law to mean
“willful inattentiveness to the governing law.” ARW Exploration Corp., 45 F.3d
at 1463 (internal quotation marks omitted). Requiring more than error or
misunderstanding of the law, id., a finding of manifest disregard means the record
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will show the arbitrators knew the law and explicitly disregarded it, Prudential-
Bache Sec., Inc. v. Tanner, 72 F.3d 234, 240 (1st Cir. 1995). Under traditional
standards of review, we would, therefore, review Amoco’s claims to determine
whether the arbitrators exceeded their powers or rendered a decision in manifest
disregard of the law. 3
Amoco argues, however, that the parties in this case contracted for
expanded judicial review in agreeing that the arbitration award would be
appealable if “not supported by the evidence.” The district court did not apply
this expanded standard, deciding instead that parties may not alter the traditional
standards of review by contract. Emphasizing the policies behind the FAA,
Amoco argues the district court erred and we should apply the contractually
created standard. Although Amoco presents a difficult question, we conclude the
purposes behind the FAA, as well as the principles announced in various Supreme
Cases, do not support a rule allowing parties to alter the judicial process by
private contract.
The only two circuits to definitively decide this issue have, however, held
3
The public policy exception is not available in this case because it applies
specifically to contract disputes. Under this exception, a court determines
“whether the specific terms contained in [the contract] violated public policy by
creating an explicit conflict with other laws and legal precedents.” Seymour v.
Blue Cross/Blue Shield, 988 F.2d 1020, 1024 (10th Cir. 1993) (citations and
internal quotation marks omitted). Because the case before us involves tort
claims, this exception does not apply.
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that private parties may agree to expand the judicial standard of review. 4 Lapine
Tech. Corp. v. Kyocera Corp., 130 F.3d 884, 887-890 (9th Cir. 1997); Gateway
Tech., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 996-97 (5th Cir. 1995). Both
the Fifth and the Ninth Circuits were persuaded by language in Supreme Court
decisions emphasizing, in particular, the FAA’s purpose of “‘ensuring that private
agreements to arbitrate are enforced according to their terms.’” Lapine, 130 F.3d
at 888 (quoting Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468, 478-79
(1989)); accord Gateway, 64 F.3d at 996-97 (describing the FAA’s judicial review
standard as a “default standard of review”). Although, as the Ninth Circuit
acknowledged, agreeing to the judicial standard of review is not the same as
agreeing to the rules governing the scope of arbitration, the court concluded the
two are “inexorably intertwined” and could find “no sufficient reason to pay less
respect to the review provision than . . . to the myriad of other agreements which
the parties have been pleased to make.” Lapine, 130 F.3d at 889. In a splintered
decision, the court decided the opposite result would be contrary to Congress’s
intent in enacting the FAA “under the guise of deference to the arbitration
concept.” Id.
4
In an unpublished opinion, the Fourth Circuit also agreed with the Fifth
Circuit, concluding the district court should have applied the expanded standard
of review. Syncor Int’l Corp. v. McLeland, No. 96-2261, 1997 WL 452245, at
*6 (4th Cir. Aug. 11, 1997) (unpublished opinion).
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In resolving conflicts among the FAA, state law, and parties’ agreements,
the Supreme Court has repeatedly acknowledged that Congress’s intent in
enacting the FAA was to ensure judicial enforcement of private arbitration
agreements. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.
52, 57 (1995) (“[C]ourts are bound to interpret contracts in accordance with the
expressed intentions of the parties . . . .”); Volt Info. Sciences, Inc. v. Bd. of
Trustees, 489 U.S. 468, 479 (1989) (“Just as [parties] may limit by contract the
issues which they will arbitrate, so too may they specify by contract the rules
under which the arbitration will be conducted.” (citation omitted)); Dean Witter
Reynolds, Inc., 470 U.S. at 219-20 (observing the FAA’s legislative history
“makes clear that its purpose was to place an arbitration agreement upon the same
footing as other contracts, where it belongs, and to overrule the judiciary’s
longstanding refusal to enforce agreements to arbitrate” (citation and internal
quotation marks omitted)). When Congress passed the Act in 1925, it did so with
the primary goal of changing the judiciary’s refusal to enforce arbitration clauses
in private contracts. Allied-Bruce Terminix Cos., 513 U.S. at 270-71. With the
passage of the FAA, Congress intended to “make arbitration agreements as
enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood &
Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967).
Guided by the FAA’s underlying purpose and the essentially contractual
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nature of arbitration, the Court has held, for example, that parties may agree to
conduct arbitration under procedural rules different from the FAA. Volt Info.
Sciences, Inc., 489 U.S. at 478-79. The Court has also held district courts must
compel arbitration even if arbitrable and nonarbitrable claims are pleaded in the
same complaint despite the potential negative effects on efficient dispute
resolution. Dean Witter Reynolds, Inc., 470 U.S. at 223-24. Parties may even
agree to submit questions concerning arbitrability to the arbitrators. First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-43 (1995). The contractual nature
of arbitration is, therefore, well established. Parties are free to structure their
arbitration agreements as they wish, and our decision today must further the
FAA’s primary policy ensuring judicial enforcement of private agreements to
arbitrate.
We disagree, however, with the Fifth and Ninth Circuits’ conclusion that
the Supreme Court precedent emphasizing the FAA’s primary purpose compels
enforcement of contractual modifications of judicial review. Although the Court
has emphasized that parties may “specify by contract the rules under which [ ]
arbitration will be conducted,” Volt Info. Sciences, Inc., 489 U.S. at 479, it has
never said parties are free to interfere with the judicial process. As both the
concurring and dissenting opinions in Lapine acknowledge, parties may determine
by contract what issues to arbitrate and what rules will govern arbitration, but no
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authority clearly allows private parties to determine how federal courts review
arbitration awards. 130 F.3d at 891 (Kozinski, J., concurring and Mayer, J.,
dissenting). To the contrary, through the FAA Congress has provided explicit
guidance regarding judicial standards of review of arbitration awards. Prima
Paint Corp., 388 U.S. at 405. Moreover, if parties desire broader appellate
review, “they can contract for an appellate arbitration panel to review the
arbitrator’s award.” Chicago Typographical Union v. Chicago Sun-Times, Inc.,
935 F.2d 1501, 1504-05 (7th Cir. 1991). The decisions directing courts to honor
parties’ agreements and to resolve close questions in favor of arbitration simply
do not dictate that courts submit to varying standards of review imposed by
private contract.
Even Volt, the case often cited in support of contractually created standards
of review, does not dictate this result. In determining whether the FAA pre-
empted a state procedural rule, to which the parties had agreed by contract, the
Court focused on whether the state rule conflicted with the federal policies and
objectives of the FAA. 489 U.S. at 477-78. The Court held parties may agree
that procedural rules outside the FAA will govern arbitration proceedings because
the federal policy favoring arbitration does not favor arbitration under a particular
set of procedural rules. Id. at 478-79. Enforcing the parties’ contract therefore
“[gave] effect to the contractual rights and expectations of the parties without
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doing violence to the policies behind . . . the FAA.” Id. at 479 (emphasis added).
Conversely, the FAA pre-empts state rules that contravene the policies behind the
FAA. See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (holding FAA
pre-empts state laws that “require a judicial forum for the resolution of claims
which the contracting parties agreed to resolve by arbitration”). The Court’s
analysis therefore suggests that the FAA is more than a collection of default rules,
which parties may alter with complete discretion. The key question is whether the
alternate rule conflicts with federal policies furthered by the FAA.
Unlike the contract clause at issue in Volt, the contract clause in this case
threatens to undermine the policies behind the FAA. We would reach an illogical
result if we concluded that the FAA’s policy of ensuring judicial enforcement of
arbitration agreements is well served by allowing for expansive judicial review
after the matter is arbitrated. The FAA’s limited review ensures judicial respect
for the arbitration process and prevents courts from enforcing parties’ agreements
to arbitrate only to refuse to respect the results of the arbitration. These limited
standards manifest a legislative intent to further the federal policy favoring
arbitration by preserving the independence of the arbitration process. Unlike § 4
of the FAA, which allows parties to petition a federal court for an order
compelling arbitration “in the manner provided for in [the] agreement,” the
provisions governing judicial review of awards, 9 U.S.C. §§ 10-11, contain no
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language requiring district courts to follow parties’ agreements.
Not surprisingly, the FAA’s narrow standards reflect the Supreme Court’s
well-established view of the relationship between arbitration and judicial review:
“[B]y agreeing to arbitrate, a party ‘trades the procedures and opportunity for
review of the courtroom for the simplicity, informality, and expedition of
arbitration.’” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991)
(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
628 (1985)); see also First Options of Chicago, 514 U.S. at 942 (noting parties
have the right to a judicial decision on the merits but “where the party has agreed
to arbitrate, he or she, in effect, has relinquished much of that right’s practical
value”). 5 Contractually expanded standards, particularly those that allow for
factual review, clearly threaten to undermine the independence of the arbitration
process and dilute the finality of arbitration awards because, in order for
5
In considering issues involving arbitration of collective bargaining
agreements, the Court has often cautioned that courts should not second-guess an
arbitrator’s decision. See, e.g., W.R. Grace & Co. v. Local Union 759, 461 U.S.
757, 764 (1983). Although these disputes are governed by the labor statutes
rather than the FAA, the Court’s explanation for such limited judicial review in
this context is applicable to arbitration in general: “Because the parties have
contracted to have disputes settled by an arbitrator chosen by them rather than by
a judge, it is the arbitrators’ view of the facts and of the meaning of the contract
that they have agreed to accept. Courts thus do not sit to hear claims of factual
or legal error by an arbitrator as an appellate court does in reviewing decisions of
lower courts.” United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484
U.S. 29, 37-38 (1987).
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arbitration awards to be effective, courts must not only enforce the agreements to
arbitrate but also enforce the resulting arbitration awards.
Moreover, expanded judicial review places federal courts in the awkward
position of reviewing proceedings conducted under potentially unfamiliar rules
and procedures. 6 Under either expanded legal or expanded factual standards, the
reviewing court would be engaging in work different from what it would do if it
had simply heard the case itself. Lapine, 130 F.3d at 891 (Kozinski, J.,
concurring). The Eighth Circuit has also recognized this potential problem: “We
have served notice that where arbitration is contemplated the courts are not
equipped to provide the same judicial review given to structured judgments
defined by procedural rules and legal principles. Parties should be aware that
they get what they bargain for and that arbitration is far different from
adjudication.” UHC Mgmt. Co. v. Computer Sciences Corp., 148 F.3d 992, 998
(8th Cir. 1998) (internal quotation marks omitted). Because parties may not force
reviewing courts to apply unfamiliar rules and procedures, see Agfa-Gevaert,
A.G. v. A.B. Dick Co., 879 F.2d 1518, 1525 (7th Cir. 1989), expanded judicial
6
We recognize, of course, that even under expanded standards of review,
arbitration reduces the burden on district courts. Without an independent basis
for federal court jurisdiction, the parties could not petition the district court to
compel arbitration or to enter judgment on an award. See Lapine, 130 F.3d at
889-90. Reviewing an arbitration award is certainly less work than hearing the
entire case pursuant to diversity or federal question jurisdiction.
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review would threaten the independence of arbitration and weaken the distinction
between arbitration and adjudication. Arbitrators are chosen for their specialized
experience and knowledge, which enable them to fashion creative remedies and
solutions that courts may be less likely to endorse. 7 Expanded judicial review
therefore places a court in the position of reviewing that which it would not do
and reduces arbitrators’ willingness to create particularized solutions for fear the
decision will be vacated by a reviewing court. See Hans Smit, Contractual
Modification of the Scope of Judicial Review of Arbitral Awards, 8 Am. Rev.
Int’l Arb. 147, 151-52 (1997).
Although we are the first circuit to hold that parties may not contract for an
expanded standard of review, two circuits have indicated they too would reject
contractually expanded standards. In dicta, both the Seventh and Eighth Circuits
have expressed disapproval of contractually expanded standards of review,
acknowledging the independence of the arbitration process and noting parties may
7
In addition, expanded judicial review would require arbitrators to issue
written opinions with conclusions of law and findings of fact, further sacrificing
the simplicity, expediency, and cost-effectiveness of arbitration. Rather than
providing a single instance of dispute resolution with limited review, arbitration
would become yet another step on the ladder of litigation. The drafters of the
Revised Uniform Arbitration Act (RUAA) recognized these concerns, noting that
expanded judicial review would allow parties a “‘second bite at the apple’ on the
merits [which] effectively eviscerates arbitration as a true alternative to
traditional litigation.” RUAA § 23, cmt. B.1. Given these concerns, as well as
others, the drafters chose not to adopt a provision for “opt-in review,” which
would permit parties to agree by contract for expanded judicial review.
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contract for an appellate arbitration panel should they desire more review. 8 UHC
Mgmt. Co., 148 F.3d at 997-98; Chicago Typographical Union, 935 F.2d at 1504-
05. We agree and hold that parties may not contract for expanded judicial review
of arbitration awards. We therefore proceed to review the arbitration award in the
case before us under the FAA and “manifest disregard of justice” standards.
IV. Arbitration Panel’s Jurisdiction to Order Abatement
Under Oklahoma statutes, the Oklahoma Corporation Commission (OCC)
is vested with “exclusive jurisdiction” over many activities and properties
affected by oil and gas, including “construction and operation of pipelines and
associated rights-of-way” and related site remediation. Okla. Stat. Ann. tit. 17, §
52(A)(1)(h) & (A)(2); Okla. Stat. Ann. tit. 52, § 139(B)(2). Amoco argues that
this statute abrogates the arbitration panel’s jurisdiction over the Bowens’
equitable request for abatement of the hydrocarbon contamination. Amoco
argues that, because the arbitration panel did not have jurisdiction to order
8
The Seventh Circuit suggested parties may not contract for expanded
judicial standards of review because “federal jurisdiction cannot be created by
contract.” Chicago Typographical Union, 935 F.2d at 1505. The argument that
expanded standards of review create federal jurisdiction recognizes the problem
that, under contractually created standards, courts would vacate awards they
would not otherwise vacate and rely on grounds not available under the FAA or
federal common law. Because we hold that, in the absence of clear authority to
the contrary, parties may not interfere with the judicial process by dictating how
the federal courts operate, we need not decide whether contractually created
standards impermissibly attempt to create federal jurisdiction.
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cleanup, they exceeded their powers and acted in manifest disregard of the law.
We have recognized the well-settled rule that any doubt about the
arbitrability of an issue should be resolved in favor of arbitration and that
arbitrators have broad authority in fashioning remedies: “Parties who agree to
submit matters to arbitration are presumed to agree that everything, both as to law
and fact, necessary to render an ultimate decision is included in the authority of
the arbitrators.” Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1146 (10th Cir.
1982); see also Continental Materials Corp. v. Gaddis Mining Co., 306 F.2d 952,
954 (10th Cir. 1962) (“[T]he jurisdiction to make [arbitration] awards is derived
from the agreement of submission . . . .”) . The arbitrators’ power to award
equitable relief is also well established. Gilmer, 500 U.S. at 32; accord Brown v.
Coleman Co., 220 F.3d 1180, 1183-84 (10th Cir. 2000). In response to the
Bowens’ objection to Amoco’s motion to compel arbitration of all issues, Amoco
argued–and the district court agreed–that the arbitration panel could grant
injunctive relief and remediation, a position Amoco advocated throughout the
arbitration and only now wishes to abandon.
Furthermore, what “exclusive jurisdiction” means under the Oklahoma
statutes is not entirely clear. The language is the product of several 1993
amendments and no post-amendment case squarely addresses its meaning. The
Bowens argue that “exclusive jurisdiction” only refers to the OCC’s jurisdiction
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relative to other agencies, not courts. Case law prior to 1993 provides some
support for this argument. Prior to 1993, the Oklahoma Supreme Court held that
the OCC’s exclusive jurisdiction over certain oil and gas activities was implicit
in the statute and precluded other agency review. Matador Pipelines, Inc. v.
Okla. Water Res. Bd., 742 P.2d 15, 17 (Okla. 1987). In addition, the state
appellate court has concluded that a district court’s exercise of jurisdiction over a
nuisance claim “does not prevent the [OCC] from proceeding to abate existing
contamination.” Union Texas Petroleum Corp. v. Jackson, 909 P.2d 131, 139
(Okla. Ct. App. 1995) (emphasis added) (under pre-1993 statutes).
But Oklahoma courts have not yet decided that a district court lacks all
jurisdiction to order a cleanup when the OCC has not yet exercised its
jurisdiction. The case cited by Amoco, Schneberger v. Apache Corp., 890 P.2d
847 (Okla. 1995), does not support the conclusion that courts lack jurisdiction;
the Schneberger court merely mentioned in recounting the facts of the case that
the OCC had “exercised its exclusive jurisdiction on pollution matters and
ordered a cleanup.” Id. at 849. Such a passing reference is not a statement that
Oklahoma courts would conclude the statutory language forecloses their
jurisdiction.
Furthermore, the Oklahoma Supreme Court has applied the public-rights
doctrine as articulated by the U.S. Supreme Court in determining how to
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apportion jurisdiction between the OCC and the district courts. Tenneco Oil Co.
v. El Paso Natural Gas Co., 687 P.2d 1049, 1053-54 (Okla. 1984). Under the
doctrine, Congress may commit “‘matters arising between the Government and
persons subject to its authority’” to nonjudicial executive bodies but “‘[p]rivate-
rights disputes . . . lie at the core of the historically recognized judicial power.’”
Id. (quoting Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S.
50, 67, 70 (1982)). In Tenneco, the Oklahoma court recognized that “the liability
of one individual to another under the law” is a private right and held that
Tenneco sought equitable relief for a private right, which was “not an attack
upon the public rights function of the [OCC] i.e. to regulate and administer the
conservational laws and policies of the sovereign state.” Id.
Citing Tenneco, we have held that an action under Oklahoma law to
recover damages to property and water caused by the drilling of an oil well is a
private rights dispute properly within the jurisdiction of the district court.
Marshall v. El Paso Natural Gas Co., 874 F.2d 1373, 1378 (10th Cir. 1989)
(analyzing the question of “primary jurisdiction”). Although these cases do not
consider the 1993 amendment to the Oklahoma statute, they are persuasive
evidence that the meaning of the OCC’s “exclusive jurisdiction” is far from clear.
Furthermore, the rules under which the arbitration was conducted clearly provide
that the arbitrators have the power to decide challenges to their jurisdiction.
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NABD, R. 8. Despite this provision, Amoco chose not to challenge their
jurisdiction to order abatement before or during arbitration. We therefore hold
the arbitration panel did not exceed its powers or act in manifest disregard of the
law in ordering cleanup of the Bowens’ property.
IV. Double Recovery: Damages and Abatement
Even if the arbitration panel had jurisdiction to grant injunctive relief,
Amoco argues the three-million-dollar escrow fund is in manifest disregard of
Oklahoma law, which prohibits double recovery for the same injury and limits
monetary damages to the diminished value of the land. See Schneberger, 890
P.2d at 849-52. Although a nuisance action may include claims for both
permanent and temporary damages, double recovery for the same damage is not
allowed. Houck v. Hold Oil Corp., 867 P.2d 451, 461 (Okla. 1993) (tort action
for recovery of damage caused by drilling oil wells); Briscoe v. Harper Oil Co.,
702 P.2d 33, 36-37 (Okla. 1985) (private nuisance action). If a plaintiff alleges
both kinds of damage, “a defendant can in no event be held liable for more than
the total diminution in reasonable market value assuming the temporary injuries
were left standing or unrestored.” Houck, 867 P.2d at 461 .
In addition to awarding $100,000 in damages for the diminished value of
the Bowens’ land, the arbitrators also set up a three-million-dollar escrow fund
for the abatement of the nuisance. Amoco argues that the two awards constitute
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double recovery in manifest disregard of state law. Conversely, the Bowens
argue the escrow fund is an equitable remedy facilitating cleanup rather than an
award of damages constituting double recovery under Oklahoma law. We agree
that the escrow fund is an equitable remedy, rather than a legal award of
damages. The arbitration panel appointed a special master to administer the
funds and oversee the abatement plan, which must be submitted to the OCC for
approval. Should the abatement cost less than expected, Amoco will receive any
remaining funds. Because Oklahoma cases precluding double recovery do not
explicitly address equitable remedies, the arbitration panel did not act in manifest
disregard of state law. 9
Although Amoco’s legal arguments are not without merit, the written order
for the arbitration award does not reveal that the arbitrators deliberately
disregarded Oklahoma law. Short of some evidence of “willful inattentiveness to
the governing law,” we may not question their conclusions. ARW Exploration
9
The dissenting arbitrator raised yet another issue regarding the escrow
fund. He argued the escrow fund is not what it appears. Although the majority
set up the fund in order to “abate” the nuisance, the dissenter argued no present
nuisance exists so the fund is really a damages award for cleanup of a historic
pipeline leak. But although some Oklahoma precedent supports the dissenting
arbitrator’s position, contrary precedent also supports the majority arbitrators’
approach. Compare Atchison T. & S.F. Ry. Co. v. Kelley, 266 P. 775, 776 (Okla.
1928) (holding the injury itself is not the nuisance, even if it can be cleaned up,
because only the cause of the damage constitutes a nuisance), with Briscoe, 702
P.2d at 36 (“Temporary damages in the context of an oil and gas nuisance are by
definition abatable.”).
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Corp. v. Aguirre, 45 F.3d 1455, 1463 (10th Cir. 1995). Our limited standard of
review requires more than error or misunderstanding in legal reasoning. Id.
In addition, we have observed that “courts favor the arbitrator’s exercise of
[ ] broad discretion in fashioning remedies.” Campo Machining Co. v. Local
Lodge No. 1926, 536 F.2d 330, 334 (10th Cir. 1976). We have also
acknowledged that arbitrators have broad equity powers provided the rules
governing the arbitration allow equitable relief. Brown v. Coleman Co., 220
F.3d 1180, 1183 (10th Cir. 2000); accord Willoughby Roofing & Supply Co. v.
Kajima Int’l, Inc., 776 F.2d 269, 270 (11th Cir. 1985) (noting doubts regarding
the authority to award certain remedies should be resolved in favor of the
arbitrator). Both parties, as well as the district court judge, concluded the
arbitration panel had the power to order injunctive relief and remediation. We
will not second-guess their judgment.
V. Punitive Damages
Amoco also contends the arbitration panel lacked the authority to award
punitive damages and, alternatively, awarded punitive damages in manifest
disregard of Oklahoma law. In addition, Amoco argues the limited judicial
review of the punitive damages awarded by the arbitration panel violates due
process. We disagree with all three arguments.
The first argument, that the panel exceeded its powers in awarding
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punitive damages, is without merit in light of the Supreme Court’s decision in
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). In
Mastrobuono, the Court resolved a conflict between state law preventing
arbitrators from awarding punitive damages and the parties’ arbitration
agreement, which adopted arbitration rules allowing arbitrators to award
“damages and other relief.” Id. at 61. Noting the federal policy favoring
arbitration, the Court concluded the arbitration agreement and rules contemplated
punitive damages as a remedy and the award should be enforced despite contrary
state law. Id. at 61-62. In the case before us, the parties agreed to be governed
by rules that authorize “any remedy or relief which the Tribunal deems just and
equitable and within the scope of the agreement of the parties.” NABD, R. 13.1.
Given the broad scope of this rule, the arbitrators did not exceed their powers in
awarding punitive damages. Indeed, the language “any remedy or relief” is even
broader than the language interpreted by the Supreme Court and clearly
contemplates punitive damages. See Raytheon Co. v. Automated Bus. Sys., Inc.,
882 F.2d 6, 9-12 (1st Cir. 1989) (holding rule similar to NABD rule was broad
enough to include punitive damages); accord Lee v. Chica, 983 F.2d 883, 887-89
(8th Cir. 1993); see also Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704,
710 (7th Cir. 1994) (“In arbitrations governed by [the FAA], arbitrators are
authorized to award punitive damages unless the parties have withdrawn that
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power . . . .”).
Amoco’s contention that the arbitrators acted in manifest disregard of
Oklahoma law in awarding punitive damages is also without merit. First, state
statutory law provides limitations on exemplary damages awarded by a jury and
does not clearly address arbitration awards. Okla. Stat. Ann. tit. 23, § 9.1.
Second, one subsection of the statute allows a jury to award exemplary damages
beyond the limitations provided in other subsections when the jury concludes the
“defendant has acted intentionally and with malice toward others.” Id. §
9.1(D)(1). As the panel’s written order reflects, the arbitrators awarded punitive
damages based on several factors, including Amoco’s egregious conduct prior to
and after the discovery of contamination, Amoco’s awareness and blatant
disregard of the pollution, and Amoco’s concealment of the pollution from the
Bowens and the OCC. In light of these findings, we conclude the arbitration
panel did not act in manifest disregard of the law in awarding punitive damages. 10
Finally, we disagree with Amoco’s contention that the limited judicial
10
In addition, the Oklahoma statute provides for punitive damages in the
amount of actual damages when the jury concludes the defendant acted
recklessly. Okla. Stat. Ann. tit. 23, § 9.1(B)(2). The panel’s award of
$1,000,000 in punitive damages falls short of the $1,200,000 awarded for
annoyance, inconvenience, and aggravation, which constitutes “a separate and
distinct element of damage” under Oklahoma law. Thompson v. Andover Oil
Co., 691 P.2d 77, 83 (Okla. Ct. App. 1984). The arbitrators’ written findings
clearly support the conclusion that Amoco acted recklessly.
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review of punitive damage awards by arbitrators violates due process. As we
have already discussed at length, Amoco not only voluntarily entered into
arbitration, but also petitioned the district court to compel arbitration. Before
asking the district court to compel arbitration, Amoco was aware that the Bowens’
cause of action included a claim for exemplary damages. In addition, Amoco
agreed to be governed by the broad language in the arbitration rules authorizing
the granting of “any remedy or relief.” Amoco may not now oppose the very
process it advocated and to which it voluntarily submitted. See Todd Shipyards
Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1063-64 (9th Cir. 1991). Because we
conclude that Amoco is essentially foreclosed from arguing a due process
violation, we need not decide whether arbitration constitutes state action. See
Davis v. Prudential Sec. Inc., 59 F.3d 1186, 1190-92 (11th Cir. 1995) (holding
arbitration is a private, voluntary proceeding that does not constitute state action).
We recognize, of course, that this case presents the unique situation in
which the parties contracted for an expanded judicial standard of review, which
was later invalidated. When the parties agreed to arbitrate all claims, including
the punitive damages claim, they also agreed to the added security of a broader
scope of judicial review. Our response to this concern is twofold. First, Amoco
petitioned the district court to compel all claims to arbitration before agreeing to
an expanded judicial standard of review; the Bowens’ claim for exemplary
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damages did not therefore deter Amoco from arguing the entire matter should be
submitted to arbitration. Second, because the arbitration rules adopted by the
parties required the arbitration panel to detail the reasoning behind the award,
NABD R. 13.2, even our limited review has produced ample evidence in support
of the panel’s award of punitive damages.
We therefore AFFIRM the district court’s confirmation of the arbitration
award.
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