Lower Colorado River Authority (LCRA), a conservation and reclamation district based in Austin, Texas, and a political subdivision of the State of Texas, entered into an agreement with Papalote, which builds and operates wind farms, in which LCRA agreed to purchase all energy generated from an 87-turbine wind farm. The agreement provided that either party could submit a dispute to binding arbitration. In June 2015, LCRA sought to initiate arbitration over how a limitation of liability clause operated in the parties' agreement. Papalote protested that there was no dispute to arbitrate and that, in any event, a dispute over the limitation of liability provision was not covered by the arbitration provision, which was limited to disputes regarding performance obligations. LCRA filed a petition to compel arbitration, which the district court granted, reasoning that, while the arbitration clause covered only performance obligations, the dispute fell within its scope. The district court did not address the ripeness question because the parties had failed to adequately brief the issue. The arbitrator ruled in favor of LCRA. Papalote then appealed, arguing that the district court erred in compelling arbitration because the issue was not ripe, and thus, the district court lacked jurisdiction to compel arbitration. The court agreed. It held that a court must "look through" the petition to compel arbitration in order to determine whether the underlying dispute presents a sufficiently ripe controversy to establish federal jurisdiction. The court rejected LCRA's argument that ripeness was a question to be resolved by the arbitrator, explaining that the district court must have jurisdiction in the first instance to compel arbitration, and a ripe controversy is a necessary component of subject matter jurisdiction. The court held that, because the issue over how the limitation of liability clause worked was not ripe at the time LCRA first sought to compel arbitration, the district court lacked jurisdiction to order the parties to arbitration.
Lower Colorado River Authority v. Papalote Creek II, LLC, 5th Circuit, No. 16-50317, 5/31/17
|June 19, 2017 at 12:00 AM
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