BNSF Railway v. Level 3 Communications

FILED IN
BUSINESS COURT OF TEXAS
BEVERLY CRUMLEY, CLERK
ENTERED
2/24/2026
2026 Tex. Bus. 8

The Business Court of Texas,
First Division

BNSF RAILWAY COMPANY, §
Plaintiff, §
v. § Cause No. 25-BC01A-0025
LEVEL 3 COMMUNICATIONS, §
LLC, §
Defendant. §
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Syllabus 1
═══════════════════════════════════════
Granting a motion to confirm an arbitration award and denying a motion

to vacate the same award, the Court holds: the parties’ contract and applicable

law gave the arbitration panel authority to decide both substantive and

procedural arbitrability questions. Judgment is entered confirming the award.

1
This syllabus is provided for the convenience of the reader; it is not part of the Court’s
opinion and should not be cited or relied upon as legal authority.
2026 Tex. Bus. 8

The Business Court of Texas,
First Division

BNSF RAILWAY COMPANY, §
Plaintiff, §
v. § Cause No. 25-BC01A-0025
LEVEL 3 COMMUNICATIONS, §
LLC, §
Defendant. §
═══════════════════════════════════════
Opinion and Order Entering Final Judgment
═══════════════════════════════════════
I. Case Summary

¶1 On June 15, 1998, BNSF Railway Company (“BNSF”) and Level

3 Communications, LLC (“Level 3”) executed a Master Right-of-Way

Agreement (“the MROW” or “the Agreement”) by which BNSF would allow

Level 3 to infringe upon BNSF’s right-of-way in order to construct and install

fiber optic facilities along BNSF railroad segments in the United States in

exchange for cash and other consideration. See Arbitration Demand (“Arb.

Dem.”) ¶ 11, Tr. Ex. 1B at p. 4. The initial term of the Agreement was twenty-
five years. See Arb. Dem. ¶ 17, Tr. Ex. 1B at p. 6. The Agreement was thus

anticipated to expire on June 14, 2023. See Arb. Dem. ¶ 19, Tr. Ex. 1B at p. 6.

¶2 BNSF gave Level 3 the right to extend the Agreement for two

renewal periods. See MROW § 17.a, Tr. Ex. 1B at pp. 547-48. If Level 3 elected

to extend the MROW, the MROW required the parties to negotiate a then-

current rate. See MROW § 17.a, Tr. Ex. 1B at p. 548. In the event the parties

failed to agree on a renewal rate during a 30-day negotiation period, Section

17 of the MROW purported to lay out a procedure (the appraisal process) by

which the parties were to arrive at a mutually agreeable renewal rate. See

MROW § 17, Tr. Ex. 1B at pp. 547-49.

¶3 On December 9, 2022, Level 3 notified BNSF of its intent to

renew the MROW, and the parties commenced the 30-day negotiation period.

See Pet. ¶ 21; Arb. Dem. ¶ 21, Tr. Ex. 1B at p. 7. The parties did not reach an

agreement on the then-current renewal rate, and the negotiation period was

extended several times. See Pet. ¶ 23; Arb. Dem. ¶¶ 26-27, 34, Tr. Ex. 1B at

pp. 8, 10. The extended negotiation period ended on October 31, 2023. See Pet.

¶ 39. Despite the extensions, the parties did not reach an agreement on the

then-current renewal rate. See id. ¶ 23.

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¶4 The MROW contained several provisions concerning resolution of

disputes between the parties. See MROW §§ 17-18, Tr. Ex. 1B at pp. 547-50.

Section 17 set out an appraisal process to reach a renewal rate. See MROW §

17, Tr. Ex. 1B at pp. 547-49. Separately, the MROW contained a formal

dispute resolution procedure in Section 18.b, and an arbitration clause in 18.c.

See MROW § 18, Tr. Ex. 1B at pp. 549-50. Per its terms, the parties agreed “to

submit any disputes arising out of [the MROW] and not settled pursuant to

Section 18.b. to binding arbitration.” MROW § 18.c, Tr. Ex. 1B at p. 549. The

arbitration clause did not expressly reference renewal rate disputes or the

appraisal process, either inclusively or exclusively.

¶5 On October 31, 2023, Level 3 filed a demand for arbitration with

the American Arbitration Association (“AAA”). See Pet. ¶ 39; see generally

Arb. Dem., Tr. Ex. 1B at pp. 1-21. The arbitration demand centered on the

renewal rate dispute, specifically the methodology to be used to calculate the

rate. See Arb. Dem. ¶ 67, Tr. Ex. 1B at p. 18. Level 3 claimed that “by failing

to act in good faith and approve a rate consistent with the terms in the

[MROW], BNSF waived its rights under the [MROW] including the right to

enforce the appraisal process set forth in Section 17.a. . . ..” Arb. Dem. ¶ 73,

Tr. Ex. 1B at p. 19.

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¶6 BNSF filed a Motion to Dismiss Claimant’s Demand for

Arbitration and Request for Relief, 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.” Mtn.

to Dismiss at p. 2, Tr. Ex. 1B at p. 135. BNSF thus asked the arbitration panel

(“the Panel”) to dismiss the arbitration demand and to allow the negotiations

to proceed to the appraisal process. See Mtn. to Dismiss at p. 5, Tr. Ex. 1B at

p. 138.

¶7 Before the motion was adjudicated, Level 3 filed a First Amended

Statement of Claims and Request for Relief. See generally 1st Am. St., Tr. Ex.

1B at pp. 200-27. In it, Level 3 argued, inter alia, that the parties’ agreement

to the appraisal process was premised on the parties’ mutual obligation to act

in good faith. See 1st Am. St. ¶ 62, Tr. Ex. 1B at p. 218. Because BNSF had

failed to act in good faith, Level 3 argued, BNSF had waived its right to enforce

the appraisal process. See 1st Am. St. ¶ 65(i), Tr. Ex. 1B at p. 220.

¶8 On March 12, 2024, BNSF filed a second motion to dismiss. See

generally Mtn. to Dismiss II, Tr. Ex. 1B at pp. 324-39. BNSF again asked the

Panel to dismiss the arbitration demand and to allow the parties to proceed to

appraisal. See Mtn. to Dismiss II at p. 12, Tr. Ex. 1B at p. 335. Level 3

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demurred, challenging every argument raised by BNSF in its motion. See

generally Mtn. to Dismiss II Resp. at pp. 5-29, Tr. Ex. 1B at pp. 380-404. On

April 5, 2024, the Panel denied BNSF’s motion to dismiss, concluding that

“the arbitration should proceed to a hearing on the merits of Level 3’s

complaint.” Order on Mtn. to Dismiss II at p. 2, Tr. Ex. 1B at p. 429.

¶9 On May 1, 2024, Level 3 filed an Expedited Motion to Stay

Appraisal Process and Request for Interim Award, noting BNSF’s “refus[al] to

agree to postpone the appraisal process” despite the Panel’s denial of BNSF’s

motion to dismiss. Mtn. to Stay at p. 2, Tr. Ex. 1B at p. 439. In its response,

BNSF argued that “the appraisal process must come before any other

adjudication related to the Agreement.” Mtn. to Stay Resp. at p. 2, Tr. Ex. 1B

at p. 467 (emphasis in original). On June 3, 2024, the Panel stayed the

appraisal process. See Order on Mtn. to Stay at pp. 1-2, Tr. Ex. 1B at pp. 497-

98.

¶10 BNSF then filed a counterclaim. See generally Countercl., Tr. Ex.

1B at pp. 514-26. BNSF asked the Panel to, among other things, “order[] Level

3 to participate in the agreed upon Appraisal Process.” Countercl. at p. 10, Tr.

Ex. 1B at p. 523.

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¶11 “Disputatious” discovery proceeded in due course. Final Award ¶

6, Tr. Ex. 1B at p. 3201. The final hearing on the merits began on March 10,

2025, in Dallas. See Final Award ¶ 8, Tr. Ex. 1B at p. 3201. At the conclusion

of Level 3’s case-in-chief, BNSF renewed its motion to dismiss as a motion for

directed verdict. See Final Award ¶ 9, Tr. Ex. 1B at p. 3202. The Panel carried

the motion to the conclusion of the hearing, and it was ultimately denied as

part of the Final Award. See Final Award ¶ 6, Tr. Ex. 1B at p. 3201.

¶12 In issuing an award in favor of Level 3, the Panel found that BNSF

had failed to negotiate in good faith, rendering further negotiations and the

appraisal process futile or impossible. See Final Award ¶ 42, Tr. Ex. 1B at p.

3215. Consequently, the Panel determined that BNSF had “waived any right

to pursue” either further negotiations or the appraisal process. Id. It thus

“order[ed] the parties to abide by” a rate negotiated between the parties’ lead

negotiators earlier in the dispute resolution process. Final Award at p. 1, Tr.

Ex. 1B at p. 3199.

¶13 On June 20, 2025, BNSF filed an application to vacate the

arbitration award in this Court because—in BNSF’s view—the Panel exceeded

its authority when it replaced a contractually-mandated appraisal process with

arbitration. See Pet. at pp. 1-2. Level 3 counterclaimed with an application to

Page 6
confirm the arbitration award. See Countercl. at p. 1. The Court entered an

agreed scheduling order on September 19, 2025, which outlined briefing

deadlines for both parties. See Scheduling Order at p. 4. A bench trial was held

in this Court on January 12, 2026.

II. Applicable Law

¶14 The arbitration clause in the MROW does not specify whether the

Federal Arbitration Act (“FAA”) or the arbitration law of the state (here, the

Texas Arbitration Act (“TAA”)) applies. However, the MROW does contain a

Texas choice of law provision. See Pet. ¶ 53. The parties agree that the MROW

is governed by both the FAA and TAA “[b]ecause the agreement does not

specifically exclude the application of federal law.” Moody Nat’l Grapevine

MT, LP v. TIC Grapevine 2, LP, 651 S.W.3d 450, 455 (Tex. App.—Houston

[14th Dist.] 2022, pet. denied); see Pet. ¶ 53 (citing Moody, 651 S.W.3d at

455); Countercl. ¶ 43 (quoting same).

¶15 Under both the TAA and the FAA, a court must—on application

of a party—confirm an arbitration award “[u]nless grounds are offered for

vacating, modifying, or correcting an award.” TEX. CIV. PRAC. & REM. CODE §

171.087; see also 9 U.S.C. § 9. Section 171.088 of the TAA and Section 10 of

the FAA enumerate the grounds under which a court may vacate an arbitration

Page 7
award. See TEX. CIV. PRAC. & REM. CODE § 171.088; 9 U.S.C. § 10. Of

relevance to this case, those grounds include a showing that the arbitrators

exceeded their authority. See TEX. CIV. PRAC. & REM. CODE §

171.088(a)(3)(A); 9 U.S.C. § 10(a)(4).

¶16 “In determining whether an arbitrator has exceeded his authority,

the proper inquiry is not whether the arbitrator decided an issue correctly, but

rather, whether he had the authority to decide the issue at all.” Forest Oil Corp.

v. El Rucio Land & Cattle Co., Inc., 518 S.W.3d 422, 431 (Tex. 2017). Because

arbitration is the byproduct of the parties’ agreement, vacatur on the ground

that the arbitrators exceeded their authority requires a showing that the

arbitrators decided a matter that the agreement did not submit to their

judgment.

¶17 In examining the scope of the arbitrators’ authority in this case,

the key issue is arbitrability. The Texas Supreme Court (like the United States

Supreme Court) recognizes a distinction between questions of substantive

arbitrability and procedural arbitrability. See G.T. Leach Builders, LLC v.

Sapphire V.P., LP, 458 S.W.3d 502, 520 (Tex. 2015) (citing BG Grp., PLC v.

Republic of Arg., 572 U.S. 25, 33 (2014); Howsam v. Dean Witter Reynolds,

Inc., 537 U.S. 79, 81 (2002)). Whether a particular dispute is arbitrable—“a

Page 8
gateway dispute”—is a question of substantive arbitrability. Howsam, 537

U.S. at 84. Satisfaction (or not) of a condition precedent to arbitration, and

similar matters not at issue here, present questions of procedural arbitrability.

G.T. Leach Builders, 458 S.W.3d at 520. The outcome of the case at hand turns

not on what is arbitrable, but on who decides what is arbitrable.

III. Discussion

¶18 In its Original Petition and Application to Vacate Arbitration

Award, BNSF identified TAA Section 171.088(a)(3)(A) and 9 U.S.C. §

10(a)(4) as its bases for vacatur. See Pet. ¶ 54; see also TEX. CIV. PRAC. & REM.

CODE § 171.088(a)(3)(A); 9 U.S.C. § 10(a)(4). Specifically, BNSF argued that

the Panel exceeded its authority in two ways. See Pet. ¶¶ 72-74. First, BNSF

argues the Panel exceeded its authority “by ignoring [a] clear contractual

mandate and permitting Level 3 to replace the required appraisal process for

the renewal-rate determination with arbitration. 1 BNSF Supp. at p. 27

(emphases in original); see Pet. ¶ 68. Second, BNSF argues (in the alternative)

that the Panel exceeded its authority by allowing arbitration prior to the

1
In a variation of this argument, BNSF also argued that appraisal was “at a
minimum” a condition precedent to arbitration, and as such, should be
completed prior to arbitration. Pet. ¶ 62; see BNSF Supp. at p. 25.
Page 9
parties’ completion of a condition precedent to arbitration, including the

formal settlement process described in Section 18.b of the MROW. See BNSF

Supp. at p. 28; Pet. ¶ 73.

¶19 The key issue in this case is arbitrability: did the Panel have the

authority to determine whether the renewal rate dispute was subject to

arbitration, and thereafter, to enter an award resolving that dispute? For the

reasons that follow, the Court finds that it did.

¶20 BNSF’s primary argument—that the Panel exceeded its authority

by adjudicating the renewal rate dispute despite contractual provisions

requiring resolution of that issue by other means—raises a question of

substantive arbitrability. In the absence of contractual provisions to the

contrary, questions of substantive arbitrability are typically decided by the

court. See G.T. Leach Builders, 458 S.W.3d at 520. Here, however, the parties

agreed—in the MROW’s arbitration clause—that “[a]ny arbitration under this

Agreement shall be conducted in accordance with the Commercial Rules of the

American Arbitration Association.” MROW § 18.c, Tr. Ex. 1B at p. 549.

¶21 Rule 7 of the AAA Commercial Rules grants to the arbitrator the

“power to rule on his or her own jurisdiction, including any objections with

respect to the existence, scope, or validity of the arbitration agreement or to

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the arbitrability of any claim or counterclaim without any need to refer such

matters first to a court.” AAA Comm. R. 7. “[A]s a general rule, an agreement

to arbitrate in accordance with the AAA or similar rules constitutes a clear and

unmistakable agreement that the arbitrator must decide whether the parties’

disputes must be resolved through arbitration.” TotalEnergies E&P USA, Inc.

v. MP Gulf of Mex., LLC, 667 S.W.3d 694, 708 (Tex. 2023); see Petrofac, Inc.

v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.

2012) (“[T]he express adoption of [the AAA rules] presents clear and

unmistakable evidence that the parties agreed to arbitrate arbitrability.”).

¶22 The parties’ agreement to arbitrate “in accordance with” the AAA

Commercial Rules (see MROW § 18.e, Tr. Ex. 1B at p. 549) bound the parties

to those rules, absent conflict between the arbitration agreement and the rules.

See TotalEnergies, 667 S.W.3d at 709. And once “the parties have

contractually agreed to delegate arbitrability issues to the arbitrator, courts

must enforce that agreement.” Id. at 702. Accordingly, the parties’ adoption

of the AAA Commercial Rules removed questions of substantive arbitrability

from the hands of the court and placed it squarely in the hands of the

arbitrators.

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¶23 Because substantive arbitrability was contractually entrusted to

the arbitrators, the Court cannot hold, as BNSF urges, that the arbitrators

exceeded their authority in determining that the renewal rate dispute was

arbitrable or in rendering an award resolving that dispute. On this basis, the

Court rejects BNSF’s motion to vacate the award. In so holding, the Court

does not reach Level 3’s claims that “BNSF did not raise a timely objection to

arbitrability.” Level 3 Opening Br. at p. 25.

¶24 BNSF’s alternative argument—that the Panel exceeded its

authority by allowing arbitration prior to the completion of a condition

precedent—raises a question of procedural arbitrability. In this regard, Texas

law is clear: the arbitrators—not the court—have the authority to determine

procedural arbitrability. See G.T. Leach Builders, 458 S.W.3d at 520. To the

extent BNSF argues that Section 17’s appraisal process and Section 18.b’s

formal settlement process were conditions precedent to arbitration, the

enforceability or satisfaction of such conditions were matters for the Panel to

decide. Nothing in the parties’ agreement operates to shift such questions into

the court’s hands.

¶25 In sum, an arbitration panel only exceeds its power when it

“exceeds [its] contractual authority.” Clendening v. Blucora, Inc., No. 05-22-

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01190-CV, 2024 WL 980359, at *2 (Tex. App.—Dallas Mar. 7, 2024, no pet.)

(mem. op.). Here, the Panel had authority to decide both substantive and

procedural arbitrability issues by virtue of the contract language and

applicable law. Thus, the Panel—per the terms of the MROW—had the power

to decide whether the renewal rate dispute was subject to arbitration, whether

any condition precedent to arbitration was enforceable or satisfied, and

ultimately, how to resolve the renewal rate dispute.

¶26 “[J]udicial review of an arbitration award is extraordinarily

narrow” and “focuses on the integrity of the process, not the propriety of the

result.” Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58,

75 (Tex. App.—Houston [1st Dist.] 2014), aff’d, 518 S.W.3d at 432. “Review

of an arbitration award is so limited that even a mistake of fact or law by the

arbitrator is not a proper ground for vacating an award.” Id.; see also Ancor

Holdings, LLC v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826 (Tex.

App.—Dallas 2009, no pet.). BNSF urges the Court to hold that the renewal

rate dispute should not have been arbitrated. But under the parties’ contract

and applicable law, the Panel—and not this Court—was entrusted to make

that determination. Accordingly, BNSF’s arguments for vacatur must be

rejected and the Court must confirm the arbitration award.

Page 13
¶27 Finally, insofar as Level 3 has pleaded for recovery of fees and

costs (see Level3 Opening Br. at p. 40), the Court notes that no evidence of

fees or costs was presented at trial. As the party bearing the burden of proof,

it was incumbent upon Level 3 to present such evidence at the time of trial.

See Yowell v. Granite Operating Co., 620 S.W.3d 335, 354 (Tex. 2020). In the

absence of the same, Level 3’s claim for fees and costs must be denied

regardless of the merits of the parties’ arguments concerning recoverability.

IV. Conclusion and Final Judgment

¶28 IT IS THEREFORE ORDERED that BNSF’s Application to

Vacate Arbitration Award is DENIED and Level 3’s Counter-Application for

Confirmation of Arbitration Award is GRANTED. Level 3’s request for

additional attorneys’ fees is DENIED. Judgment is RENDERED that the

Final Award entered by the Panel on June 2, 2025, is CONFIRMED. All relief

requested and not granted herein is DENIED.

_______________________
ANDREA K. BOURESSA
Judge of the Texas Business Court,
First Division

SIGNED ON: February 24, 2026.
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