United States District Court, M.D. Pennsylvania
PAUL F. SIDOREK and SARA P. SIDOREK, Plaintiffs
CHESAPEAKE APPALACHIA, LLC, Defendant
MEMORANDUM AND ORDER
MALACHY E. MANNION, District Judge.
Presently before the court is the defendant's motion to compel arbitration and stay. (Doc. No. 9). Based upon the court's review of the defendant's motion and the materials related thereto, the defendant's motion will be granted.
By way of relevant background, on January 28, 2013, the plaintiffs brought the instant diversity action in an attempt to void portions of their oil and gas lease with the defendant and claiming damages for alleged breaches of contract by the defendant. (Doc. No. 1).
On March 20, 2013, the defendant filed the pending motion to compel arbitration and stay, (Doc. No. 9), along with a brief in support thereof, (Doc. No. 10). The plaintiffs filed a brief in opposition to the defendant's motion on April 2, 2013. (Doc. No. 12). On April 9, 2013, the defendant filed a reply brief. (Doc. No. 13).
In their complaint, the plaintiffs allege that, as Lessors, they signed an oil and gas lease with Southwestern Energy Production Company, ("Southwestern"), as Lessees, on November 11, 2009. Subsequent to the signing of the lease, the rights of Southwestern were transferred to Chesapeake Appalachia, LLC, and Chesapeake Operating, Inc.
The plaintiffs allege that the lease had a specific term from November 11, 2009, through November 11, 2012, which has now expired. According to an addendum to the lease, the plaintiffs allege that the defendant had a potential to extend the three year lease term for an additional two years; however, in order to do so, the defendant would be required to be engaging in production on less than 50% of the plaintiffs' property that is subject to the lease agreement and also engaged in active operations of drilling, testing or equipping any new well or wells or existing well or wells on the leased premises. The plaintiffs allege that the defendants have not met these conditions. As a result, the plaintiffs allege that the lease is null and void as to all property not already in the production unit and that the defendant stands in breach of contract by continuing to hold plaintiffs' leased premises subject to a void lease. The plaintiffs are seeking a declaratory judgment that the subject lease is expired and no longer valid as to all real property named in the subject lease, but not contained within an existing production unit.
In addition, the plaintiffs bring a claim for breach of contract alleging that beginning in August of 2012, the defendant began to pay royalty payments to the plaintiffs for the portion of their property contained within the production unit. According to the plaintiffs, the defendant is deducting costs of producing, gathering, storing, treating, dehydrating, compressing, transporting or otherwise making the oil and/or gas produced from the leased premises ready for sale or use from the royalty payments. The plaintiffs allege that the addendum to their lease specifically provides that the defendant is not permitted to reduce the royalty payments by deducting such costs. As such, the plaintiffs allege that the defendant stands in breach of contract and has been put on notice of such.
The plaintiffs further allege that the defendant has engaged in a course of conduct that has lowered the sale price of the subject gas by selling the gas obtained from the leased premises to a subsidiary of its own corporate membership at a price less than the market price. As a result, the plaintiffs allege that they are receiving reduced royalties because of the reduced sale price. The plaintiffs allege that the defendant stands in breach of contract as it is failing to obtain market value for the subject gas drawn from the leased premises.
In response to the plaintiffs' complaint, the defendant has filed the instant motion to compel arbitration and stay, arguing that the lease specifically incorporates an addendum which contains a valid arbitration clause. The defendant argues that the plaintiffs' complaint is within the scope of the arbitration cause. Therefore, the defendant seeks to have the court grant its motion to compel arbitration and to stay these proceedings pending the conclusion of the arbitration.
In considering the defendant's motion, both Federal and Pennsylvania state law strongly favor the enforcement of arbitration provisions. See Kirleis v. Dickie, McCamey & Chilcote, P.C. , 560 F.3d 156, 160 (3d Cir. 2009) ("It is well established that the FAA reflects a strong federal policy in favor of resolution of disputes through arbitration.'" (quoting Alexander v. Anthony Int'l, L.P. , 341 F.3d 256, 263 (3d Cir. 2003)); Dodds v. Pulte Home Corp. , 909 A.2d 348, 351 (Pa.Super.Ct. 2006) ("It is hornbook law that Pennsylvania favors the enforceability of agreements to arbitrate." (citing Quiles v. Fin. Exch. Co. , 897 A.2d 281, 285 (Pa.Super.Ct. 2005)). Contracts with an arbitration clause are treated with a "presumption of arbitrability in the sense that [a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible to an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.'" AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 650 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582-83 (1960)).
Applying either Federal or Pennsylvania state law, courts conduct the same two-part inquiry to determine the enforceability of arbitration provisions. First, the court must determine whether "a valid agreement to arbitrate exists, " and, second, whether "the particular dispute falls within the scope of the agreement." Kirleis , 560 F.3d at 160; see also Messa v. State Farm Ins. Co. , 641 A.2d 1167, 1168 (Pa.Super.Ct. 1994). "A party to a valid and enforceable arbitration agreement is entitled to a stay of federal court proceedings pending arbitration as well as an order compelling such arbitration." Alexander , 341 F.3d at 263-64; see also 9 U.S.C. §§3, 4.
In this case, the plaintiffs challenge the defendant's motion to compel arbitration claiming that the arbitration clause in their lease is ambiguous because it states that "[a]ny claim arising out of or relating to the terms of this lease, or the breach thereof, may be settled by arbitration..." (emphasis added). While the defendant reads the arbitration provision to be mandatory, the plaintiffs argue that arbitration is permissive. Because the provision is susceptible to more than one meaning, the plaintiffs argue that the court should consider extrinsic evidence to determine the intent of the parties in relation to the provision.
The relevant addendum to the lease between plaintiffs and defendant ...