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Leighton v. Chesapeake Appalachia, LLC

United States District Court, Third Circuit

November 26, 2013

MICHAEL L. LEIGHTON and NANCY A. LEIGHTON Plaintiffs.
v.
CHESAPEAKE APPALACHIA, LLC, et al. Defendants.

MEMORANDUM

WILLIAM W. CALDWELL, District Judge.

I. Introduction

Plaintiffs, Michael L. Leighton and Nancy A. Leighton, filed this suit in state court, seeking damages and declaratory relief arising from Defendants' natural-gas drilling operations near Plaintiffs' property, operations commonly known as "fracking." Defendants removed the case here on the basis of diversity jurisdiction. Defendants are Chesapeake Appalachia, LLC ("Chesapeake Appalachia"); Chesapeake Energy Corporation ("Chesapeake Energy"); Nomac Drilling, LLC; and Schlumberger Technology Corporation.[1]

Plaintiffs leased their land to Chesapeake Appalachia for the purpose of extracting the natural gas, and the Lease has an arbitration clause. We are considering Defendants' motion to compel arbitration and to stay the case while the arbitration proceeds. One of the issues presented is whether defendants, Chesapeake Energy, Nomac, and Schlumberger, as nonsignatories to the Lease, can require the signatory plaintiffs to arbitrate the claims they have against these defendants.

II. Standard of Review

The parties rely on different standards of review in arguing the merits of the motion to compel. Defendants contend they can establish their right to arbitrate Plaintiffs' claims by the allegations of the complaint and the provisions of the Lease. They therefore bring their motion to compel under Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) deals with the legal sufficiency of the complaint by focusing on its factual allegations and, as relevant here, examining the Lease, because Plaintiffs' complaint contains a breach-of-contract claim based on that document. Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764, 772 (3d Cir. 2013)(on a Rule 12(b)(6) motion, the court looks at the complaint and authentic documents if the claims are based on those documents). On the other hand, Plaintiffs maintain the motion should be evaluated under Fed.R.Civ.P. 56, which deals with motions for summary judgment and allows consideration of evidence that goes beyond the pleadings and supporting documents. Id. (citing Rule 56(c)).

Guidotti tells us how to proceed. First, if the defendants can satisfy the Rule 12(b)(6) standard, then the parties should be sent to arbitration without further proceedings. Guidotti, 716 F.3d at 773-74. However, "if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, " id. at 776, the motion to compel must be denied pending development of a factual record. Id. at 774. Similarly, even if "the complaint and incorporated documents facially establish arbitrability, " id., if the plaintiff, in opposing the motion, presents evidence "sufficient to place the agreement to arbitrate in issue, " id. at 776, the motion to compel should not be granted. Id. at 774. At that point, the parties are entitled to discovery on the question of arbitrability, id. at 776, and the issue should be decided under the Rule 56 summary-judgment standard, not the motion-to-dismiss standard. Id. at 774.

We thus start with the standard of review for a Rule 12(b)(6) motion. Under Rule 12(b)(6), "[w]e accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.'" Byers v. Intuit, Inc., 600 F.3d 286, 291 (3d Cir. 2010)(quoted case omitted). As noted, this inquiry also includes examining the Lease because Plaintiffs base their breach-of-contract claim on the Lease.

With this standard in mind, we set forth the background to this litigation, as Plaintiffs allege it.

III. Background

Plaintiffs are the owners of real property located in Granville Summit, Bradford County, Pennsylvania (the "Property"). (Compl. ΒΆ 2). On August 15, 2008, they entered into an "Oil & Gas Lease" with defendant Chesapeake Appalachia so that Chesapeake Appalachia could "obtain the legal right to drill on or near Plaintiffs' Property and extract natural gas from Plaintiffs' Property." (Id. ).

The Lease was for a five-year term, beginning on August 15, 2008. (Doc. 19-1, ECF p. 3, Lease, Ex. A to Defs.' Motion). It contained the following pertinent provisions. (Each plaintiff is the "Lessor" and Chesapeake Appalachia is the "Lessee.") First, the Lease allowed Chesapeake Appalachia to search and drill for natural gas on Plaintiff's Property:

Leasing Clause. Lessor hereby leases exclusively to Lessee all the oil and gas... underlying the land herein leased, together with such exclusive rights as may be necessary or convenient for Lessor, at its election, to explore for, develop, produce, measure, and market production from the Leasehold, and from adjoining lands, using methods and techniques which are not restricted to current technology, including the right to conduct geophysical and other exploratory tests; to drill, maintain, operate, plug, abandon, and remove wells;...

( Id. ). An Addendum to the Lease required Chesapeake Appalachia to correct any damage to Plaintiffs' water supply. The Addendum's "Water Damage Clause" provided as follows:

In the event any activity carried on by Lessee pursuant to the terms of this lease damages, disturbs, or injures Lessor's potable water well or source located on these leased premises, Lessee shall at its sole cost and expense use its best efforts to correct any such damage, disturbance or injury.

( Id., ECF p. 6).

Finally, the Lease contained an arbitration clause, providing:

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 ...

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