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Without "clear and unmistakable language" to the contrary, the arbitrability of claims is an issue for the court and not one for the arbitrator, allowing a court to review the arbitrability of claims de novo, according to the Texas Court of Appeals.
In Burlington Resources Oil & Gas Co. LP v. San Juan Basin Royalty Trust, No. 01-06-00485-CV, 2007 WL 2332661 (Tex. Ct. App. Aug. 16, 2007), Burlington and San Juan agreed to arbitrate certain audit disputes. The agreement specifically stated that only the disputes listed in an attached exhibit would be subject to the agreement to arbitrate. After the agreement was entered and the arbitration had commenced, San Juan brought a new claim seeking recovery of a portion of certain settlement proceeds from Burlington. Burlington objected that the new claim was not listed as arbitrable in the exhibit and was therefore outside the scope of the agreement.
After the arbitration was complete, the arbitrator awarded San Juan over $6 million on two audit disputes that had an amount in dispute listed in the exhibit of approximately $375,000. In issuing the award, the arbitrator concluded that San Juan's claim for the settlement proceeds was within the scope of the agreement, because it "flowed directly" from the claims within the agreement and because there was a "nexus" between the royalty charge included in the exhibit claims and the $6 million San Juan claimed as its share of the settlement.
The arbitrator justified his disposition of the matter, holding that he had jurisdiction to hear the settlement-related claim. Specifically, the arbitrator indicated that the controlling rules allowed him to determine whether a particular claim was within the scope of the agreement. Burlington objected, and filed an application to vacate or modify the award, arguing the arbitrator exceeded his powers by arbitrating a claim outside the scope of the agreement. The trial court rejected the application and confirmed the award, from which Burlington appealed.
The Court first found that the claim brought by San Juan for a portion of Burlington's settlement was not arbitrable. In the agreement, the Court found no "clear and unmistakable" language indicating that issues of arbitrability were themselves arbitrable, making the issue one for court determination.
The use of arbitration rules giving the arbitrator the power to determine his own jurisdiction was not sufficient to expand the powers of the arbitrator as to questions of arbitrability. According to the Court, the invocation of arbitration rules giving the arbitrator the power to determine arbitrability could not defeat the clear language in the agreement that the agreement itself would control in the event of any conflict with the rules. Therefore, the Court could make its own determination of arbitrability de novo.
Then, the Court determined that San Juan's claim to a portion of Burlington's settlement proceeds was not within the scope of the agreement. The Court pointed to language indicating that the claims within the agreement's exhibit "constitute[d] the only items that will be subjected to arbitration." Specifically, the Court held that one could not reasonably conclude that a claim for $6 million on the settlement would be a "sub-issue" of an arbitrable dispute in the amount of $375,000. Furthermore, San Juan's admission that it was unaware of the facts supporting the settlement claim until arbitration commenced suggested it was not a dispute within the scope at the time of the agreement.
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