Western District of Texas Refuses to Stay Arbitration Proceedings in Wind Energy Dispute

The Western District of Texas has refused to stay arbitration proceedings in a dispute between a wind energy company, Papalote Creek, and the Lower Colorado River Authority (“LCRA”).  In Lower Colorado River Authority v. Papalote Creek II, LLC, No. 1:15-CV-00656, the LCRA entered into an agreement to purchase wind energy from Papalote Creek.  The parties’ Power Purchase Agreement (“PPA”) stated LCRA may owe Papalote Creek damages if the LCRA fails to purchase all of the wind energy produced by the company at a specific location.  Despite this, the terms of the PPA limited the LCRA’s aggregate liability to $60 million.  In addition, the PPA included a broad binding arbitration clause.

In response to a disagreement regarding the damages cap included in the parties’ contract, the LCRA filed a written demand for binding arbitration over the interpretation of the terms of the PPA.  Papalote Creek refused to acknowledge the LCRA’s demand and the LCRA filed a motion to compel arbitration with the Western District of Texas in Austin.  In response, Papalote Creek argued arbitral proceedings were not warranted because neither party was in breach of the PPA.

After examining the language of the PPA, the federal court concluded:

LCRA and Papalote have a dispute that clearly falls within the scope of Section 13.2. Contrary to Papalote’s position, a breach is not required to submit this dispute to arbitration and Papalote’s interpretation of the arbitration provision would, if accepted, effectively require the Court to rewrite the PPA. Given the strong federal policy in favor of arbitration, and Section 13.2’s broad and inclusive language, the Court should submit the dispute between LCRA and Papalote to binding arbitration.

Papalote Creek next filed an appeal with the nation’s Fifth Circuit Court of Appeals.  In addition, the wind energy company asked the Western District of Texas to stay arbitral proceedings pending the appellate court’s decision.  In the energy company’s request, Papalote Creek again argued the parties’ dispute was not ripe for arbitration due to the lack of a breach.  The business also argued it would suffer irreparable harm if forced to arbitrate before the Fifth Circuit addressed its appeal.

The Austin Division first stated:

First, as the Court noted in its order granting the motion to compel arbitration, the parties are free to raise the ripeness issue before the arbitrator. Ripeness may be determined at the threshold in that forum, just as it would be determined at the threshold in this forum. Thus, a stay of the arbitration pending appeal would merely result in delaying the resolution of the ripeness question.

In addition, the court found “Papalote has not shown it is likely to succeed on the merits of its claim.”

Finally, the Western District of Texas, Austin Division denied Papalote Creek’s request for a stay of its judgment compelling to the parties to arbitration.

Stay tuned to Disputing for future developments in this case!

Photo credit: nosha via Foter.com / CC BY-SA