The Business Court has confirmed an arbitration award in favor of a telecommunications company in a dispute with a railroad over rates the company paid the railroad for infringement on the railroad’s right-of-way.
BNSF Railway Company v. Level 3 Communications, LLC (2026 Tex. Bus. 8; February 24, 2026) arose from a dispute over the renewal of a master right-of-way agreement between the railroad and a telecommunications company. The agreement allowed Level 3 to infringe upon BNSF’s right-of-way in order to construct and install fiber optic facilities along the railroad’s segments in the US. The initial term of the agreement was 25 years, set to expire in June 2023. BNSF, however, gave Level 3 the right to extend the agreement for two renewal periods. If it decided to extend, the agreement required the parties to negotiate a “then-current” rate. If the parties couldn’t agree on the rate during a 30-day negotiation period, the agreement provided for an appraisal process to determine a mutually agreeable rate. In December 2022, Level 3 notified BNSF of its intent to renew the agreement. The parties did not reach an agreement on the rate during the 30-day period. Despite extending the negotiation period until October 31, 2023, the parties could not come to terms.
In addition to the appraisal process, the agreement also included a separate dispute resolution clause providing for arbitration of any disputes arising out of [the agreement] and not otherwise settled. That clause didn’t refer specifically to renewal rate disputes or the appraisal process. Level 3 thus filed a demand for arbitration with the AAA to determine the methodology used to calculate the renewal rate. It alleged that BNSF acted in bad faith and waived its right to enforce the appraisal process. BNSF filed a motion to dismiss with the arbitration panel, arguing that “under well-established Texas law, an agreement to negotiate in good faith in the future is unenforceable, even if the agreement calls for a ‘good faith effort’ in the negotiations. Level 3 amended its claim, asserting that the parties’ agreement to the appraisal process was premised on the parties mutual obligation to act in good faith (which BNSF allegedly didn’t do). BNSF filed a second motion to dismiss, which the arbitration panel denied. Level 3 subsequently filed an expedited motion to stay the appraisal process, which the panel granted pending its determination of the merits of Level 3’s bad faith claim. BNSF filed a counterclaim. Discovery followed. The panel ruled that BNSF failed to negotiate in good faith and thus waived any right to pursue further negotiations or the appraisal process. It ordered the parties to abide by a rate negotiated earlier in the dispute resolution process. BNSF filed an application in the business court to vacate the arbitration award.
In an opinion by Judge Bouressa, the court rejected BNSF’s application and granted Level 3’s application to confirm the arbitration award. The parties agreed that both the Federal and Texas Arbitration Acts applied, so the court looked to both statutes for the grounds on which a court may vacate an arbitration award. BNSF argued that the arbitrators exceeded their authority by allowing Level 3 to bypass the contractually-agreed-upon appraisal process. This required BNSF to show that “the arbitrators decided a matter that the agreement did not submit to their judgment.” In this case, the court wrote, the outcome of this case “turns not on what is arbitrable, but on who decides what is arbitrable.” The court determined that the agreement delegated the question of arbitrability to the arbitrators. BNSF raised an issue of “substantive arbitrability,” which, unless provided otherwise by contract, “are typically decided by the court.” But the parties’ agreement specifically provided that any arbitration must be conducted in accordance with the Commercial Rules of the AAA. Under those rules, the arbitrator has the power to determine his or her own jurisdiction, including the arbitrability of any claim or counterclaim. Because the agreement submitted the question to the AAA’s rule, therefore, the arbitrator had to decide “whether parties’ disputes must be resolved through arbitration.” TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, 667 S.W.3d 694, 708 (Tex. 2023). The arbitrators did not exceed their authority “in determining that the renewal rate dispute was arbitrable or in rendering an award that resolved that dispute.”
BNSF also argued that the appraisal process was a condition precedent to arbitration under the parties’ contract. That argument failed for the same reason because the agreement delegated that issue to the arbitrator as well (“procedural arbitrability”). The court thus confirmed the arbitration award.
