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Commonwealth Edison Co. v. Gulf Oil Corp.

decided: September 20, 1976.

COMMONWEALTH EDISON COMPANY, A CORPORATION, PETITIONER-PLAINTIFF-APPELLEE,
v.
GULF OIL CORPORATION, A CORPORATION; SCALLOP NUCLEAR, INC., A CORPORATION; AND GENERAL ATOMIC COMPANY, A PARTNERSHIP, RESPONDENT-DEFENDANT-APPELLANTS. COMMONWEALTH EDISON COMPANY, A CORPORATION, PETITIONER-PLAINTIFF-APPELLEE, V. UNITED NUCLEAR CORPORATION, A CORPORATION, RESPONDENT-DEFENDANT-APPELLANT. COMMONWEALTH EDISON COMPANY, A CORPORATION, PETITIONER-PLAINTIFF-CROSS APPELLANT, V. GULF OIL CORPORATION, A CORPORATION; SCALLOP NUCLEAR, INC., A CORPORATION; GENERAL ATOMIC COMPANY, A PARTNERSHIP; UNITED NUCLEAR CORPORATION, A CORPORATION, RESPONDENT-DEFENDANT-CROSS APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division No. 75-C-153 Richard B. Austin, and Frank J. McGarr, Judges.

Swygert, Circuit Judge, Howard T. Markey, Chief Judge, Court of Customs and Patent Appeals*fn* and William J. Jameson, Senior District Judge.*fn**

Author: Jameson

Jameson, Senior District Judge:

Plaintiff-appellee brought this diversity action seeking an order, pursuant to Section 4 of the United States Arbitration Act, 9 U.S.C. §§ 1-14, to compel arbitration of controversies related to termination of a contract between the parties to this action and to enjoin a prior pending Illinois state court proceeding involving the same dispute. The district court ordered the defendants-appellants to submit to arbitration but refused to stay the proceeding in state court.*fn1 Defendants have appealed from the order directing them to submit to arbitration. Plaintiff has cross-appealed from that portion of the order refusing to stay the state court action. We affirm the decision of the district court.

Background

Parties

Commonwealth Edison Company (Edison) is an Illinois corporation engaged in the business of generating, distributing, and selling electricity in Northern Illinois. Appellant General Atomic Company (General) is a partnership of appellants Gulf Oil Corporation (Gulf), a Pennsylvania corporation, and Scallop Nuclear, Inc. (Scallop), a Delaware corporation. Appellant United Nuclear Corporation (UNC) is a Delaware corporation engaged in the business of mining and selling uranium.

The Contract

On May 25, 1971, Edison entered into a "Reload Fuel Contract" with UNC in which UNC agreed to supply certain future nuclear fuel requirements for Units 1 and 2 of a nuclear power plant under construction by Edison near Seneca, Illinois. UNC on July 1, 1971, assigned the contract to Gulf United Nuclear Fuel Corporation (GUNF) with the consent of Edison. GUNF merged with Gulf on November 30, 1973, and was operated as an unincorporated division of Gulf until its assets and liabilities were transferred to General effective January 1, 1974. As a result of the transfer, General claimed to have succeeded to the rights and obligations of GUNF under the contract.*fn2

The Dispute

When Edison and UNC entered into the contract in May, 1971, they anticipated that Units 1 and 2 would be placed in service during the autumns of 1975 and 1976, respectively. However, due to licensing delays by the United States Atomic Energy Commission,*fn3 Edison in September, 1975, did not expect Units 1 and 2 to be completed until June, 1978, and June, 1979, respectively.

By letter of October 4, 1973, Edison notified GUNF of its intent to change the scheduled delivery dates of the reload batches of nuclear fuel for Units 1 and 2 by 42 and 33 months, respectively, because of the anticipated delays in completion of the units. Edison's action was pursuant to section 10.3 of the contract which provided:

"At any time twelve (12) months or more in advance of the Scheduled Delivery Date set forth in this Section 10, Purchaser [Edison] shall have the right to set a new Scheduled Delivery Date provided that such new date shall not be less than twelve (12) months subsequent to notice of such change."

On July 22, 1974, General, as successor in interest to GUNF, sent a letter to Edison asserting its right to terminate the contract pursuant to section 13 (the force majeure clause) of the contract because of the delivery delays. This section provided in relevant part:

"In the event that an excusable delay occurs with respect to Unit 1 or Unit 2 or both, and it is reasonably foreseeable that such excusable delay will delay Purchaser's ability to use the fuel or UNC's ability to deliver it by more than 30 months, the party not suffering the force majeure may terminate and neither party shall have further obligation to the other with respect to fuel not yet delivered."

General also based its asserted right to terminate on the belief that the unforeseen delays made the Reload Fuel Contract commercially impracticable within the meaning of § 2-615 of the Uniform Commercial Code.

Contesting General's right to terminate the contract,*fn4 Edison on October 29, 1974, demanded that General, Gulf, and UNC arbitrate the dispute under the Commercial Arbitration Rules of the American Arbitration Association pursuant to the arbitration clause of the contract. That clause provided in pertinent part:

"Any dispute arising from this Contract, including any failure to agree upon any matter where this Contract provides for future agreement of the parties, shall be submitted to arbitration on request of either party."

In its demand for arbitration Edison sought a declaration of the continued existence and enforceability of the contract, or, alternatively, a declaration that General, Gulf, and UNC were in breach of their obligations under the contract and liable to Edison for any resulting damages.

Court Proceedings

On November 13, 1974, General, by its partners Gulf and Scallop,*fn5 filed an action in the Circuit Court of LaSalle County, Illinois, seeking a declaratory judgment that there was no agreement to arbitrate the dispute over termination of the contract and for an order staying arbitration.*fn6 In seeking this determination General and its partners relied on § 22.5 of the contract which provided:

"The validity, interpretation, and performance of this Contract and each of its provisions shall be determined and governed by the law of the State of Illinois."

General and its partners argued that termination of the contract pursuant to the force majeure clause terminated the entire agreement, including the arbitration clause. It was further argued that, in any case, disputes over termination were not within the scope of the arbitration clause. Edison filed motions to dismiss and to compel arbitration.*fn7 Following a hearing on June 13, 1975, the Circuit Court dismissed the complaint and ordered General and its partners to submit to arbitration. On appeal, the Illinois Appellate Court for the Third District affirmed the judgment of the Circuit Court, finding that the dispute was within the scope of the arbitration clause and therefore arbitrable.*fn8 That decision is presently on appeal to the Illinois Supreme Court.

On January 15, 1975, Edison filed this action against General, its partners Gulf and Scallop, and UNC. On September 30, 1975, the district court ordered the defendants to submit the contract dispute to arbitration, but denied Edison's request to stay the state court action. On January 27, 1976, the court granted General's motion to stay its order pending the outcome of this appeal.

Issues

With this background we proceed to a consideration of the ...


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