Bangor Gas Company, LLC v. H.Q. Energy Services (US) Inc.

Filing

OPINION issued by Sandra L. Lynch, Chief Appellate Judge; Juan R. Torruella, Appellate Judge and Michael Boudin, Appellate Judge. Published. [12-1386]

Case: 12-1386

Document: 00116436687

Page: 1

Date Filed: 09/26/2012

Entry ID: 5678220

United States Court of Appeals
For the First Circuit
No. 12-1386
BANGOR GAS COMPANY, LLC,
Plaintiff, Appellant,
v.
H.Q. ENERGY SERVICES (U.S.) INC,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Nancy Torresen, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Boudin, Circuit Judges.
Richard N. Selby, II with whom Dworken & Bernstein Co.,
L.P.A., Adam R. Lee and Skelton, Taintor & Abbott were on brief for
appellant.
Linda M. Glover with whom Justin B. Whitley, John B. Rudolph,
Winstead PC, Jotham D. Pierce, Jr., Nolan L. Reichl and Pierce
Atwood LLP were on brief for appellee.

September 26, 2012

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BOUDIN, Circuit Judge.

Date Filed: 09/26/2012

Entry ID: 5678220

A pipeline owner--Bangor Gas

Company, LLC ("Bangor")--and a natural gas supplier--H.Q. Energy
Services (U.S.) Inc. ("HQUS")--entered into a contract for the
transportation of HQUS' natural gas.

The parties later became

embroiled in a dispute and submitted their dispute to binding
arbitration.

After the arbitrators issued a decision largely

favorable to HQUS, Bangor sought to vacate the decision in the
district court, failed, and has now brought this appeal.
HQUS, a wholly owned American subsidiary of the Canadian
government-owned

utility

Hydro-Quebec,

sells

natural

gas

and

electricity in the United States. Bangor provides services related
to the natural gas industry in Maine.

In 1999, Bangor entered into

an agreement with HQUS (the "Agreement") to build and operate a
Bangor pipeline, later named the Bucksport Pipeline, to deliver
HQUS' natural gas from an international pipeline nine miles away
called the Maritimes Pipeline, owned and operated by Maritimes &
Northeast Pipeline, LLC ("Maritimes"), to the Bucksport Energy
Facility (an energy plant that served a paper mill).
The contract provided that HQUS' gas would be delivered
over the Bucksport Pipeline for fifteen years for a fixed annual
charge of $1,150,662, paid by HQUS in monthly installments.
However, Bangor did not connect the origin end of the Bucksport
Pipeline directly to the existing Maritimes Pipeline; instead,
Bangor contracted to have Maritimes build a 410-foot lateral

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pipeline (the "Lateral") that connected the Maritimes Pipeline to
the Bucksport Pipeline and agreed that Bangor would pay Maritimes
for the Lateral's use pursuant to a tariff filed by Maritimes with
the Federal Energy Regulatory Commission ("FERC").
Bangor's expert later explained that this was done for
technical reasons relating to proximity to electric power lines.
Nonetheless, the Lateral was not mentioned in the Agreement, and
the Agreement's

language

may

suggest

that

the

parties

to

it

contemplated that the Bucksport Pipeline would directly connect to
the Maritimes Pipeline.

It was apparently not until 2006, six

years after the Bucksport Pipeline opened, that HQUS learned of the
Lateral and that the Bucksport Pipeline did not connect directly to
the Maritimes Pipeline.
During this six-year period, HQUS paid the agreed upon
rate to Bangor; Bangor in turn compensated Maritimes for the use of
the short Lateral pipeline of whose existence HQUS was ignorant.
This harmonious state of affairs began to dissolve when Bangor was
itself acquired by a parent company which apparently concluded that
Bangor's compensation of Maritimes might be in violation of rules
or policies of the FERC, the federal agency which now regulates
much of the traffic in natural gas in the United States.
Under a FERC edict known as the "shipper-must-have-title"
rule, a shipper of natural gas must hold title to the gas it is
shipping.

The rule is not a codified regulation but was announced

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by FERC in an adjudication of a specific dispute.1

Entry ID: 5678220

The aim of the

rule is to prevent big natural gas distributors from buying up
pipeline capacity that they do not need for shipment of their own
gas and leveraging their market power by selling the capacity to
third parties at excessive prices.
Bangor concluded that, as the party who controlled the
capacity of the Lateral by virtue of its lease, it would be deemed
under FERC's nomenclature "the shipper" of gas traveling over the
Lateral.

And, as HQUS owned gas traveling through the Lateral,

Bangor might be deemed in violation of the shipper-must-have-title
rule.

Bangor consulted with FERC with the result that, in 2007,

FERC found that Bangor had violated the shipper-must-have-title
rule with respect to the Lateral (as well as another pipeline), and
approved a consent agreement by which Bangor paid a $1 million
fine.

Bangor Gas Co., LLC, 118 F.E.R.C. ¶ 61,186 (2007).
Beginning in 2006, Bangor sought to comply with the rule

by entering into "capacity releases" with HQUS in which HQUS would
replace Bangor as the party who held capacity rights in the
Lateral, and thus as the "shipper" on the Lateral.

In the earliest

of these capacity releases HQUS did not pay the costs of using the
Lateral; but HQUS began paying those costs in August 2009 after

1

Tex. E. Transmission Corp., 37 F.E.R.C. ¶ 61,260, at 61,685
(1986); see also Demarest, Gas Marketing by the Operator Under a
JOA--Unrecognized Regulatory Risks and Practical Solutions, 64
Okla. L. Rev. 135, 136-38 (2012).
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Bangor threatened to place its capacity rights on the Lateral up
for competitive bidding. Whether HQUS should pay became one of the
two main issues in the ensuing dispute between the two companies.
The other dispute involved the costs for heater fuel to
heat the gas at two points: at the connection between the Lateral
and the start of Bucksport Pipeline, and at the end of the
Bucksport Pipeline as the gas enters the energy plant.

The latter

satisfied a contractual obligation of Bangor to deliver the gas at
80EF or above.
heating.

The Agreement was silent on who was to pay for

Bangor had been paying for the heater fuel since the

inception of the agreement, but in 2009 Bangor asserted that HQUS
should pay those costs.
The Agreement provided that irreconcilable disputes would
be

submitted

arbitration

on

to

binding

December

arbitration,
6,

2010.

and

Each

Bangor

party

initiated

selected

one

arbitrator, and those two arbitrators chose a third arbitrator; all
three were experienced in the energy industry, and one was a former
FERC Commissioner. Bangor sought to have HQUS pay both the Lateral
costs and the heater fuel costs.

HQUS denied responsibility and

counterclaimed for a reimbursement of payments it had made for the
Lateral since 2009.2

2

The Agreement specified that Bangor was responsible for
delivering gas from the point of receipt, defined as "[t]he outlet
of the meter installed at the interconnection between the Maritimes
Pipeline and the distribution facilities of [Bangor]." The meter
is located at the connection between the Lateral and the Bucksport
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The arbitration panel reviewed briefs, written testimony
and documents submitted by the parties, and held a three-day
hearing.

On September 1, 2011, the panel issued a written award

that was largely favorable to HQUS, deciding that Bangor was
responsible for paying Maritimes for use of the Lateral.

As to

heater costs, the arbitrators placed the future cost burden for
heating at the delivery end upon HQUS but declined to order it to
pay for past heating.
On the Lateral costs issue, the arbitrators noted that
the

Agreement

contemplated

that

the

Bucksport

Pipeline

would

connect to the Maritimes Pipeline, which meant that the parties
thought that HQUS was purchasing for its original monthly payment
transportation of gas all the way from the Maritimes Pipeline to
the

energy

plant.

The

panel

inferred

from

Bangor

internal

documents that the contract rate in Bangor's bid to HQUS already
accounted for the cost of transporting gas on the 410 feet that
comprised the Lateral and the cost of the junction point meter
installed by Maritimes.

Thus, forcing HQUS to pay Maritimes in

addition to paying Bangor would unjustly require HQUS to pay twice
for the transportation and meter.
The panel acknowledged that the shipper-must-have-title
rule posed difficulties but the panel adopted a two-part solution:

Pipeline, so Bangor argued that it should not be responsible for
paying for transportation on the Lateral, which occurs before the
gas reaches the meter.
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(1) Bangor would continue to release its capacity on the Lateral to
HQUS, and HQUS would pay Maritimes for use of the Lateral, but (2)
Bangor would reimburse HQUS for the Lateral costs in the form of a
comparably reduced rate for use of the Bucksport Pipeline.

In

addition, the panel ordered Bangor to reimburse HQUS for costs that
HQUS (under threat) had already paid to Maritimes.
On the heater fuel issue, the panel decided that HQUS
should pay for the fuel for the heater at the site of the energy
plant, later making clear that Bangor would pay for heating at the
origin

end.

The

panel

stated

that

under

standard

industry

practice, the customer ordinarily paid for the heater fuel required
to meet a customer-specific need and it viewed this to be the basis
for the heating at the delivery point.
The panel decided to make the award as to the heater fuel
prospective and not retroactive, citing a number of equitable
factors: (1) that the issue is "a close question that is not
directly addressed in the Agreement"; (2) that Bangor's history of
paying for the fuel led HQUS to legitimately expect continued
payment; and (3) that documenting and calculating past heater fuel
costs would be "difficult and contentious."

HQUS ultimately

accepted this disposition of the heating cost issue; Bangor did
not.
After

the

award,

both

sides

sought

clarification.

Pertinently, Bangor expressed concern that the panel's capacity

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and

reimbursement

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solution

Date Filed: 09/26/2012

could

still

Entry ID: 5678220

violate

FERC

regulations, and that Bangor could end up paying further large
penalties.

Bangor asked the panel to stay the award until it

received a response to a letter Bangor had sent to FERC staff
seeking assurance against a FERC enforcement action.

The panel

denied the request, stating that it was "not at all likely" that
FERC would find the arrangement illegal.

However, the panel

direct[ed] that HQUS promptly provide to
Bangor written confirmation that it will
return any reimbursement amounts it receives
from Bangor, and will repay any capacity
release payment amounts it credits against
payments otherwise due under the Bangor/HQUS
service agreement, to the extent necessary to
comply with any finding by the FERC that the
reimbursement and crediting arrangements are
not consistent with FERC policy.
HQUS subsequently provided Bangor with the written commitment.
On November 10, 2011, FERC's General Counsel and Director
of the Office of Enforcement denied Bangor's request that FERC
staff issue a "No-Action Letter" promising that enforcement actions
would not be brought against Bangor for implementing the panel's
reimbursement remedy.

Instead, the staff expressed its view that

"[t]he Panel's remedy . . . would violate the Commission's posting
and bidding regulations," which state that a capacity release must
be posted for competitive bidding, unless it is done at the maximum
applicable rate under the pipeline's tariff filed with FERC.
C.F.R. § 284.8(c)-(e), (h)(1) (2012).

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Although Bangor's release of capacity on the Lateral to
HQUS in terms required HQUS to pay the maximum rate, the FERC staff
stated that the reduced Bucksport Pipeline charges accepted by
Bangor

amounted

to

a

discount

on

the

Lateral

triggered the competitive bidding requirements.

payments

that

The staff noted

that "this response only expresses Staff's position on enforcement
action and does not express any legal conclusions on the questions
presented," and that it "is not binding on the Commission."

In a

subsequent letter to HQUS, the same FERC staff reiterated that its
previous letter was not binding, stating that if "HQ Energy or
Bangor wants a definitive answer from the Commission, it may file
for a declaratory order, as the Commission speaks through its
orders."
On November 30, 2011, Bangor Gas filed a motion with the
district court under the Federal Arbitration Act ("FAA"), 9 U.S.C.
§§

1-16

(2006),

to

arbitration award.

vacate

in

part

and

confirm

in

part

the

The request to vacate aimed at the panel's

imposition of Lateral costs on Bangor and at the panel's refusal to
require repayment by HQUS of past destination-end heater costs
incurred by Bangor.

Bangor also argued that the FERC staff letter

triggered HQUS' commitment to refund past Lateral reimbursements to
Bangor.

Ultimately, the district court denied Bangor's motion and

granted HQUS' motion to confirm the award.

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We review the district court's decision de novo, but our
review of the arbitration award itself is "extremely narrow and
exceedingly deferential."

Bull HN Info. Sys., Inc. v. Hutson, 229

F.3d 321, 330 (1st Cir. 2000) (quoting Wheelabrator Envirotech
Operating Servs. Inc. v. Mass. Laborers Dist. Council Local 1144,
88 F.3d 40, 43 (1st Cir. 1996)).
policy

favoring

arbitration,"

The FAA "embodies a national

Buckeye

Check

Cashing,

Inc.

v.

Cardegna, 546 U.S. 440, 443 (2006), and provides only a narrow set
of statutory grounds for a federal court to vacate an award:
(1)
where
the
award
was
procured
corruption, fraud, or undue means;

by

(2) where there was evident partiality or
corruption in the arbitrators, or either of
them;
(3) where the arbitrators were guilty of
misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent and
material to the controversy; or of any other
misbehavior by which the rights of any party
have been prejudiced; or
(4) where the arbitrators exceeded their
powers, or so imperfectly executed them that a
mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S.C. § 10(a).
In addition, this court in the past recognized a common
law ground for vacating arbitration awards that are in "manifest
disregard of the law," McCarthy v. Citigroup Global Mkts. Inc., 463
F.3d 87, 91 (1st Cir. 2006) (quoting Wonderland Greyhound Park,

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Inc. v. Autotote Sys., Inc., 274 F.3d 34, 35 (1st Cir. 2001), while
limiting this notion primarily to cases where the award conflicts
with the plain language of the contract or where "the arbitrator
recognized the applicable law, but ignored it."

Gupta v. Cisco

Sys., Inc., 274 F.3d 1, 3 (1st Cir. 2001).
The manifest-disregard doctrine has been thrown into
doubt by Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S.
576 (2008), where the Supreme Court "h[e]ld that [9 U.S.C. § 10] .
. . provide[s] the FAA's exclusive grounds for expedited vacatur."
Id. at 584 (emphasis added).

This has caused a circuit split,3

with this court saying (albeit in dicta) that "manifest disregard
of the law is not a valid ground for vacating or modifying an
arbitral award in cases brought under the Federal Arbitration Act,"
Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st
Cir. 2008).
Even if the manifest-disregard doctrine were assumed to
survive and were applied in this case, the award neither conflicts

3

Compare Wachovia Secs., LLC v. Brand, 671 F.3d 472, 480 (4th
Cir. 2012) (recognizing continuing validity of manifest disregard
doctrine), Johnson v. Wells Fargo Home Mortgage, Inc., 635 F.3d
401, 415 n.11 (9th Cir. 2011) (same), Stolt-Nielsen SA v.
AnimalFeeds Int'l Corp., 548 F.3d 85, 94 (2d Cir. 2008), rev'd on
other grounds, 130 S. Ct. 1758 (2010) (same), and Coffee Beanery,
Ltd. v. WW, L.L.C., 300 Fed. App'x 415, 418 (6th Cir. 2008)
(unpublished opinion) (same), with Frazier v. CitiFinancial Corp.,
604 F.3d 1313, 1324 (11th Cir. 2010) (rejecting manifest disregard
doctrine as invalid), Citigroup Global Mkts., Inc. v. Bacon, 562
F.3d 349, 350 (5th Cir. 2009) (same), and Crawford Grp., Inc. v.
Holekamp, 543 F.3d 971, 976 (8th Cir. 2008) (same).
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with the plain language of the Agreement nor did the arbitrators
recognize the applicable law but ignore it.

The panel resolved

what is at best an argument about how a contract of questionable
meaning should be read and harmonized with a FERC doctrine on
leasing capacity.

Under settled precedent, an FAA award cannot be

overturned based on mere disagreement by the court with the panel
on a debatable issue, Advest, Inc. v. McCarthy, 914 F.2d 6, 9 (1st
Cir. 1990); and in this instance the panel's decision is in our
view entirely reasonable.
The Lateral Issue.

Bangor argues that the panel's

decision to make Bangor pay for the Lateral costs was in manifest
disregard of the law on two grounds: that the panel's ruling
contravenes the clear language of the Agreement by making Bangor
responsible for Maritimes' charges for the Lateral's use, and that
the panel's remedy results in a violation of FERC regulations (and
by extension, a principle of Maine contract law that disfavors the
enforcement of illegal contracts).

Both claims are that the panel

ignored the law, but in two quite different ways.
The

first

claim,

Agreement, is hopeless.

resting

on

interpretation

of

the

The better reading of the Agreement is

that HQUS' ongoing monthly payments to Bangor already compensate
Bangor for moving the gas from Maritimes' main line to HQUS'
customer; indeed, Bangor seemingly calculated the monthly charge on
that assumption.

In commissioning the Lateral, Bangor chose to

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hand off part of its obligation to Maritimes, and is now trying to
make HQUS shoulder the cost a second time over.

Nothing in the

Agreement mentions the Lateral, let alone obliges HQUS to pay
separately for its use.
Admittedly, the Agreement requires Bangor to start paying
at the "Point of Receipt," which is defined as the meter that is
located at the origin end of the Lateral; but it was Bangor's own
undisclosed choice to make the connection with Maritimes--and thus
to locate the junction meter--at a point 400 feet away from where
HQUS reasonably expected it to be.
contemplated

a

pipeline

"between

Pipeline and the Energy Plant."

The Agreement, by contrast,
the

Maritimes

and

Northeast

Bangor's claim based on the

Agreement is plainly wrong.
More difficult is Bangor's argument that the panel's
remedy of capacity releases and reimbursements places Bangor in
violation of FERC requirements.

There is, it should be stressed,

no basis for claiming the Agreement itself violated the FERC's
governing statute or its pertinent rules or regulations: had Bangor
built its Bucksport Pipeline to run from Maritimes' main line as
was contemplated, no Lateral line would have been required.
Bangor's difficulties with FERC ensued afterwards and from Bangor's
unilateral action in commissioning the Lateral.
But FERC rules and regulations are, so far as they are
valid, in the nature of sovereign commands representing a public

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purpose; and we will assume (arguendo but with some confidence)
that an arbitration award would be vulnerable to the extent that it
directed one or both of the parties clearly to violate a such a
mandate.

Yet there is nothing clear-cut about FERC's actual

intentions, ample reason to think a reasonable agency would stay
its hand, and fair precautions adopted by the panel if FERC acts
otherwise.
Here, the panel considered FERC rules and regulations and
structured its award in a way that it "believe[d] . . . [would be]
fully consistent with FERC policy."

In its initial decision, the

panel sought to accommodate the shipper-must-have-title rule by
having Bangor release its capacity to HQUS, which would thereby
become the shipper as well as the owner of the gas.

Thus, as a

formal matter, HQUS would become responsible to pay Maritimes for
the capacity,

albeit

compensated

by

a

reduced

charge

on

the

Bucksport Pipeline, the monthly payment for which already covered
the transportation of gas from Maritimes' main pipeline onward.4

4

Under the panel's arrangement, HQUS acquired usage rights to
the Lateral capacity and thus became "the shipper"; and, as it was
also the owner of the gas, the shipper-must-have-title was
satisfied--as it had not been when Bangor held the usage rights and
was heavily fined by FERC in the earlier consent order. The FERC
staff's problem with the panel's remedy does not concern the
shipper-must-have-title rule; rather, it concerns the separate
regulation dictating that capacity releases (such as Bangor's
release to HQUS on the Lateral) must be posted for competitive
bidding unless they are at the maximum FERC tariff rate. See 18
C.F.R. § 284.8(c)-(e), (h)(1).
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True enough, the FERC staff thereafter said that the
release of capacity by Bangor without competitive bidding could be
viewed as charging the required "maximum rate" in form, while in
substance reducing that price through the reimbursements Bangor
paid HQUS for transportation on the Bucksport Pipeline.

But, as

the staff admitted, FERC is not obliged to take this view.
Alternatively, FERC could accept the staff position but (in our
view) reasonably waive its maximum-rate regulations in the peculiar
circumstances of this case.
The shipper-must-have-title rule was designed to deal
with a problem perceived by FERC as the agency sought to create a
competitive market in pipeline capacity as part of a long-term
effort to (in some measure) deregulate the industry.

Pipelines

potentially possess market power over gas transportation, but the
agency provided incentives and later mandates for the pipelines to
make

capacity

available

on

a

market

basis

to

competing

intermediaries; the aim to create and maintain that competitive
market in transportation capacity is the premise of the rules and
regulations of concern here.5

5

Order No. 436, Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, 50 Fed. Reg. 42,408, 42,413, 42,424
(Fed. Energy Regulatory Comm'n Oct. 18, 1985) (providing incentives
for pipelines to offer unbundled transportation services); Order
No. 636, Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, 57 Fed.
Reg. 13,267, 13,270 (Fed. Energy Regulatory Comm'n Apr. 16, 1992)
(mandating that pipelines offer unbundled transportation services
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But maintaining a competitive market in pipeline capacity
transfers is primarily important in large capacity pipes that might
be used by multiple shippers and often for multiple destinations;
in that situation, if one "customer" or a small group were able to
buy up capacity beyond their own needs, they might forestall
competition by charging excessive prices for re-releases to others
or

impose

discriminatory

competitors.

policies

that

disadvantage

smaller

This is the expressed explanation for both the

shipper-must-have-title rule and the bidding regulation.

See note

4, above.
But the present 410-foot Lateral was designed simply to
serve the Bucksport Pipeline, which was itself aimed to send gas a
mere nine miles from the main Maritimes Pipeline to a single
customer, and Bangor had already committed the Bucksport Pipeline
to carry HQUS gas to the energy plant at the far end.

In these

circumstances, the rationale for the shipper-must-have-title rule
and maximum-tariff-rate regulations seems minimal; and imposed
bidding for the Lateral capacity would be of benefit only to a
spoiler who might aim to hold up Bangor and HQUS alike.
Further, while Bangor might perhaps have been properly
sanctioned for a naked (albeit seemingly harmless) violation of the

on nondiscriminatory terms); see also U.S. Gen. Accounting Office,
GAO/RCED-87-133BR, Natural Gas Regulation: Pipeline Transportation
Under FERC Order 436, at 13-14 (1987); McGrew, FERC 118-19 (2d ed.
2009).
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shipper-must-have-title rule by its original decision to outsource
its obligations, forbidding the panel remedy would merely give
Bangor

an

unjustified

(and

probably

temporary)

advantage

by

transferring costs to HQUS--the innocent party--for which Bangor
was contractually responsible and for no obvious public end.
Assuming a court would permit FERC to so act, it is hard to see why
FERC would care to do so.
It is hardly surprising that the staff felt unable to
provide assurance against such a risk or that it felt compelled to
point out the formal danger posed by the panel's remedy; this
follows both from bureaucratic imperatives familiar to anyone who
has served in government and from a due regard for the comparative
authority of the staff vis-à-vis the commissioners.

But the staff

itself pointed out that the ultimate decision as to the meaning of
its requirements belonged to the commissioners (as does the power
to waive regulations).
Bangor claims that the staff's statement that "[t]he
Panel's remedy . . . would violate the Commission's posting and
bidding regulations" itself triggers HQUS' commitment to pay a
refund of $297,547.50 to Bangor; this is supposedly based on the
written assurance HQUS gave that it would return any reimbursements
it received from Bangor for the Lateral costs "to the extent
necessary to comply with any finding by FERC that the reimbursement
and crediting arrangements are not consistent with FERC policy."

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But

the

Page: 18

statements

by

Date Filed: 09/26/2012

FERC

officials

are

Entry ID: 5678220

not

FERC

findings. On the contrary, the FERC staff made abundantly clear in
two letters that their statements were not definitive and were not
binding on FERC.

FERC itself has warned that parties cannot rely

on non-binding opinions from FERC staff because "[t]he Commission
speaks through its orders."

Indianapolis Power & Light Co., 48

F.E.R.C. ¶ 61,040, at 61,203 (1989).

Finally, FERC has the

authority to grant waivers from its shipper-must-have-title rule
and its capacity release regulations.

See Atlanta Gas Light Co.,

85 F.E.R.C. ¶ 61,102 (1998).
In sum, there is no clear indication that FERC will seek
to undo the reimbursement remedy crafted by the panel which has
been tailored to

avoid any direct affront to FERC rules or

regulations, requirements whose underlying purpose seems hardly
implicated by the peculiar circumstances of this case: a 410-foot
pipeline dedicated to connect to a single-customer spur pipeline.
And, if

the

premise that

FERC

will

tolerate

this

reasonable

improvisation proves false, the panel has made provision for this
contingency as well.
Heater Fuel Cost Retroactivity.

As already explained,

the panel imposed destination-end heating costs on HQUS for the
future but declined to make this ruling retroactive, and Bangor
terms this refusal a "compromise" that violated the Agreement's "no
compromise" clause. Bangor says that the panel called the heating-

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cost issue a "close question" and, by imposing only the going
forward costs on HQUS, must have been compromising the matter.
This is a misreading of the "no compromise" clause, which states:
In the event that the arbitration requires a
decision (I) as to the allocation or payment
of any monetary amounts or valuations to be
reduced to monetary amounts, or (ii) the
methodology or accuracy of any calculation
related thereto, the arbitrators shall select
the
position
of
that Party
which
the
arbitrator believes most appropriate under the
circumstances. No "compromise" determination
or alternate calculations shall be made by the
arbitrator who is bound to adopt the position
of one Party to the exclusion of the other on
such matters.
This provision, governing a class of amount-related
controversies that might arise in arbitrated disputes, requires the
panel to pick the better position as between the conflicting ones
offered by each side on how to read or implement the Agreement on
each particular point, rather than merely adopt some intermediate
compromise position and thereby split the difference.

But the

panel in this case was deciding two different issues and each was,
in substance, decided on the merits.
The first question was whether to impose liability for
the disputed costs on HQUS or Bangor: the contract did not address
the

question;

Bangor

had

itself

apparently

assumed

it

was

responsible for six years which is hardly surprising since the
Agreement required it to deliver the gas at the specified minimum
temperature; but industry practice allegedly favored imposing the

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cost on HQUS so the panel adopted Bangor's position.

Entry ID: 5678220

It did not

say, as a compromise might, that each side should pay half the
cost.
The panel then faced the second question whether HQUS
should now compensate Bangor for past costs it had voluntarily
borne since the start of the contract.

The Agreement was equally

silent on this issue; and the panel cited prudential considerations
in rejecting backward-looking compensation, deciding for HQUS on
the issue.

That the panel decides one issue on the merits for one

side and another on the merits for the other, giving reasons for
each, is hardly what the no compromise clause aimed to forbid.
Bangor assumes that by some principle the forward-looking
solution invincibly entails a remedy that tries to make the past
conform to the future but this is mistaken.

In fact, courts,

usually having less freedom than we associate with arbitration,
regularly treat issues of retroactivity as distinct from rules
crafted to meet the future.

See, e.g., Johnson v. New Jersey, 384

U.S. 719, 726-32 (1966) (declining to apply the rule of Miranda v.
Arizona retroactively).
Disputed Exhibits.

Bangor's final argument is that the

arbitrators committed "misconduct," justifying vacating the award
under section 10(a)(3) of the FAA, by considering in its decision
two documents (Attachments 1 and 2) among the three that the panel
attached to its written decision.

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Two of these had not been

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submitted by the parties but were taken from filings that Maritimes
had submitted in public FERC filings.
Attachment 1 contained budgetary figures for Maritimes'
provision of the Lateral, which revealed that over ninety percent
of the cost arose from the meter facility, and less than ten
percent arose from the pipeline itself.

Attachment 2 was an

excerpt from a general statement of Maritimes' policies, revealing
that Maritimes requires customers to pay for connecting pipelines
and

associated

Maritimes.

facilities

(such

as

meters)

constructed

by

Attachment 3 (submitted by both sides and plainly part

of the record), indicated that Bangor's bid included the cost for
the meter.
Considering these documents together, the panel concluded
that Bangor's fixed charge to HQUS specified in the Agreement at
the outset already accounted for the meter, which formed the vast
majority of the cost of the Lateral.

Such a fact was unhelpful to

Bangor's overall attempt to now shift the Lateral's costs to HQUS;
but given that the agreed charge was all that HQUS had ever agreed
to pay for what Bangor appeared to have promised, showing that
Bangor had built in these costs to the monthly charge was mere
frosting.
So even if we were to assume dubitante that consideration
of these two additional documents was "misconduct" under the FAA,
it could not have been prejudicial, a requirement for vacating an

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award under section 10(a)(3).

Date Filed: 09/26/2012

Entry ID: 5678220

Hoteles Condado Beach, La Concha &

Convention Ctr. v. Union de Tronquistas Local 901, 763 F.2d 34, 40
(1st Cir. 1985).

Bangor says that it was unjustly deprived of the

opportunity to respond to the documents and the arbitrators'
assumptions but does not explain what it would have said if allowed
to do so.
The judgment of the district court is affirmed. HQUS has
asked that we order Bangor to pay double HQUS' costs and attorneys'
fees for filing a frivolous appeal, Fed. R. App. P. 38; although we
find Bangor's appeal to fail on the merits, its positions are not
so weak as to be deemed frivolous, and HQUS' request for sanctions
is denied, although it is entitled to the usual costs of the
appeal.
So ordered.

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