Navajo Transitional Energy Co. v. BNSF Ry. Co.

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NAVAJO TRANSITIONAL ENERGY COMPANY, LLC, Plaintiff, v. BNSF RAILWAY COMPANY, Defendant.

No. CV 22-146-BLG-SPW-KLD

United States District Court, D. Montana, Billings Division

July 24, 2023

FINDINGS AND RECOMMENDATIONS

Kathleen L. DeSoto, United States Magistrate Judge

Before the Court is Defendant BNSF Railway Company's (“BNSF”) Motion to Compel Arbitration and Dismiss all claims asserted by Plaintiff Navajo Transitional Energy Company, LLC (“NTEC”) pursuant to the Federal Rules of Civil Procedure 12(b)(1) and (b)(6) and the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16. (Doc. 16). For the reasons discussed below, the Court recommends BNSF's motion to compel arbitration be granted and this matter be stayed pending arbitration pursuant to Section 3 of the FAA, 9 U.S.C. § 3.

I. Background

This dispute concerns rail transportation of sub-bituminous coal from the Spring Creek Mine (“Spring Creek”) in Big Horn County, Montana, to Westshore Terminals (“Westshore”) in Roberts Bank, British Columbia for export sale to Japan and Korea. (Doc. 1, ¶¶ 10-12).

BNSF, a Class 1 railroad and the only rail carrier capable of providing single-line, direct coal transportation service from Spring Creek to Westshore, has been the sole provider of rail transportation services from Spring Creek to Westshore since 2008. (Doc. 1, ¶¶ 3, 11-12). NTEC, a Navajo Nation-owned energy company, purchased Spring Creek out of bankruptcy in 2019. (Doc. 1, ¶¶ 2, 10). On December 19, 2022, NTEC filed this action against BNSF, alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing. (Doc. 1). In its complaint, NTEC alleges that “while BNSF transported more coal trains to Westshore for other export coal producers in 2022 than it had transported in 2021, BNSF dramatically reduced the number of movements that it made to transport NTEC's export coal in 2022,” causing NTEC to incur direct financial hardship and damage its reputation for the sale of export coal. (Doc. 1, ¶¶ 37, 43-45).

The facts underlying the dispute are as follows:

BNSF shipped 5.1 million tons of Spring Creek export coal in 2021 under two contracts. (Doc. 1, ¶¶ 11-12, 16). The first contract, Rail Transportation Agreement BNSF-C-12828 (“RTA”), which BNSF entered into with Spring Creek's former owner Cloud Peak Energy, Inc. (“Cloud Peak”) in 2018, governed the transportation of coal from Spring Creek to Westshore for sale to a single customer in Japan, JERA Trading Pte Ltd. (“JERA”) from November 1, 2019, through March 31, 2023. (Doc. 20-1, at 1). In addition to the RTA, BNSF and NTEC entered into Coal Unit Train Commitment Certificate Number BNSF 90068-0095, which commenced on January 1, 2021, and terminated on June 30, 2021, governing “100% of coal shipped to WS at Roberts Bank, BC in the first half of calendar year 2021.” (Doc. 35-1, at 1). The parties extended this second agreement through December 31, 2021, by an amendment dated June 21, 2021. (Doc. 35-1, at 5).

On December 1, 2021, NTEC and BNSF entered into Coal Unit Train Commitment Certificate Number BNSF 90068-0099 (“Certificate”) to govern “100% of coal shipped to WS at Roberts Bank, BC in calendar year 2022.” (Doc. 20-4, at 3). According to affidavit testimony from Matthew D. Babcock, former manager of international sales and logistics at Cloud Peak and current vice president of sales and marketing for NTEC, these certificate agreements, BNSF 90068-0095 and 90068-0099, were part of “a long line of principal transportation contracts between the Spring Creek Mine owners and BNSF.” (See Aff. Matthew D. Babcock, Doc. 35, ¶¶ 4-13). The RTA, Babcock asserts, is a “separate and distinct transportation arrangement” that was negotiated and entered into at JERA's request. (Doc. 35, ¶ 17). Babcock testified that the Certificate and the RTA were “mutually exclusive of each other from an operational and commercial perspective.” (Doc. 35, ¶ 20).

Several times each year, both the RTA and the Certificate required NTEC to nominate the tonnage of coal it expected to ship under each contract. (Doc. 35, ¶ 22). NTEC entered its forecasted monthly coal shipment volumes in BNSF's coal forecasting tool in an aggregate amount, making no distinction between Spring Creek coal to be shipped to Westshore under the RTA or the Certificate. (Doc. 461, ¶ 6). Once the trains were loaded and enroute to Westshore, NTEC sent BNSF a bill of lading for each train, which stated the governing contract for the shipment (the RTA or the Certificate), and noted the train numbers, cars loaded, destination, and other pertinent information for each train. (Doc. 35, ¶ 22). When a train was governed by the RTA, NTEC would specify the bill of lading number as “JERA-BNSF-C-” and the P.O. number as “BNSF-C-12828.” (Doc. 35, ¶ 23). When a train was governed by the Certificate, those fields were left blank. (Doc. 35, ¶ 23). At argument, NTEC conceded it had the sole discretion to allocate the coal volumes shipped under each contract.

The RTA contains a “Dispute Resolution” provision, which provides in relevant part as follows:

If a question or controversy arises between the Parties concerning the observance, performance, interpretation or implementation of the terms, provisions, or conditions herein or the rights or obligations of either Party under this Agreement, such question or controversy shall in the first instance be the subject of a meeting between the Parties to negotiate a resolution of such dispute.... The Parties intend that any dispute arising out of this Agreement that cannot be resolved through negotiation as provided above must be resolved through binding arbitration as provided herein.

(Doc. 20-1, ¶ 30). Specifically, “[t]he arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the AAA.” (Doc. 20-1, ¶ 30). The Certificate neither contains an arbitration provision nor any reference to the RTA. (See Doc. 20-4).

On February 2, 2023, BNSF filed the instant motion to compel arbitration and dismiss all claims or, in the alternative, to compel arbitration and stay the proceedings. (Doc. 20). In support of its motion, BNSF argues this case must be adjudicated pursuant to binding arbitration because the parties agreed to submit any disputes arising under the RTA to arbitration and NTEC's allegations necessarily implicate the RTA and aggregate tons of Spring Creek coal moved under both contracts. (Doc. 20, at 6). Additionally, BNSF argues that because the RTA's arbitration agreement delegates arbitrability to an arbitration panel, the panel, and not the Court, should decide whether the scope of the arbitration agreement encompasses the parties' dispute. (Doc. 20, at 14). NTEC argues the dispute does not implicate the RTA because its claims arise solely under the terms of the Certificate, which does not contain an arbitration provision. (Doc. 36, at 12). The Court held oral argument on June 28, 2023. (Doc. 47).

II. Legal Standards

When considering motions to compel arbitration, the court applies the summary judgment standard of Federal Rule of Civil Procedure 56. Theis v. AFLAC Inc., 2020 WL 9172984, CV 20-11-BLG-SPW-TJC, *2 (D. Mont. Dec. 28, 2020), findings and recommendations adopted in full in 2021 WL 1040588 (D. Mont. 2021). Summary judgment is proper where the pleadings, discovery, and affidavits show there is “no genuine issue of material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The Court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in the non-moving party's favor. Anderson v. Liberty Lobby, 477 U.S. at 255; Betz v. Trainer Wortham & Co., Inc., 504 F.3d 1017, 1020-21 (9th Cir. 2007).

Courts may consider evidence outside the pleadings for purposes of a motion to compel arbitration because it is “in effect a summary disposition of the issue of whether or not there has been a meeting of the minds on the agreement to arbitrate.” In re Checking Acct. Overdraft Litig., 754 F.3d 1290, 1294 (11th Cir. 2014). The party seeking to compel arbitration has the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014).

III. Discussion

A. The Federal Arbitration Act

The FAA governs the enforceability of arbitration agreements in contracts involving commerce, “plac[ing] arbitration agreements on an equal footing with other contracts and require[ing] courts to enforce them according to their terms.” Theis, 2020 WL 9172984, at *2 (citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). Section 2, the “primary substantive provision” of the FAA, provides:

A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation contract.

Rent-A-Center, 561 U.S. at 37 (quoting 9 U.S.C. § 2). Section 4 permits a party to petition federal district court to compel arbitration “upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” 9 U.S.C. § 4.

The Ninth Circuit has explained that the court's role under the FAA “is limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). Because arbitration is “strictly a matter of consent,” Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299 (2010), co...