Arguments For Class Arbitration With An Agreement That Doesn't Mention It, Again Fail


The predicted demise of litigation over the availability of class arbitration has not taken place. And the new cases occur in many areas of the law. (See our November 11, 2013, March 12, 2015, September 9, 2015, and March 23, 2016, blog articles dealing with "gateway issues" and the availability of class arbitration). The most recent decision actually involves oil and gas leases rather than employment claims, but addresses the sometimes vexing issue of whether an agreement that does not even mention class arbitration can still be found to implicitly authorize it.

This was the ultimate issue addressed by district court Judge Matthew W. Brann in Chesapeake Appalachia L.L.C. v. Scout Petroleum LLC et al., Case No. 4:14-CV-0620 (M.D. Pa. April 28, 2017). In Chesapeake Appalachia, Scout Petroleum first attempted to bring a class arbitration for itself and a putative class of thousands of landowners to resolve a dispute about the calculation of royalties under the terms of the natural gas leases. Those leases contained an arbitration provision which provided:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by lessee's operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee.

Plaintiff Chesapeake Appalachia consequently filed a lawsuit in court seeking a declaration on the question of "who decides" the propriety of class arbitration, and also sought a declaratory judgment that the agreement did not authorize class arbitration – or on the "clause construction" question.

On October 16, 2014 Judge Brann granted Chesapeake's Motion and entered a declaratory judgment that the court is to interpret the contract not an arbitrator. The Third Circuit ultimately affirmed that determination leaving the interpretation of the clause to the district court. See Chesapeake Appalachia, L.L.C. v. Scott Petroleum, LLC, 809 F.3d 746 (3d Cir. 2016).

But, the district court was not writing on a clean slate. Another Judge of that court had authored Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F.Supp. 3d 912 (M.D. Pa. 2016), dealing with the "identical language from Chesapeake's leases." In Ostroski Judge John E. Jones, III found that the agreement's language did not authorize class arbitration...

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