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Demchak Partners Limited Partnership v. Chesapeake Appalachia, LLC

United States District Court, M.D. Pennsylvania

September 30, 2014

DEMCHAK PARTNERS LIMITED PARTNERSHIP, et al., Plaintiffs,
v.
CHESAPEAKE APPALACHIA, LLC., Defendant.

MEMORANDUM

MALACHY E. MANNION, District Judge.

Pending before the court are the following: (1) a motion to intervene in the above-captioned matter filed by Gayle and Russell Burkett on behalf of themselves and the putative arbitration class they represent, as well as at least eighty-seven (87) other individuals, (hereinafter the Landowners)[1]; (Doc. 25); (2) a motion to intervene on behalf of Paul F. Sidorek, (Doc. 36); and (3) a motion to consolidate filed by Gayle and Russell Burkett on behalf of the Landowners, (Doc. 63).

By way of relevant background, the named plaintiffs filed a proposed class action complaint on August 30, 2013, in which they seek monetary damages and declaratory and injunctive relief based on alleged underpayment of royalties by the defendant on natural gas produced by the defendant under common oil and gas leases entered into by the named plaintiffs and others similarly situated in the Commonwealth of Pennsylvania. (Doc. 1). A motion for preliminary approval of the class action settlement was filed by the parties the same day. (Doc. 3).

An answer to the plaintiffs' complaint was filed by the defendant on September 3, 2013. (Doc. 5).

On September 12, 2013, a motion to intervene in the above-captioned matter was filed on behalf of the Landowners. (Doc. 25). A supporting memorandum of law was filed on October 2, 2013. (Doc. 40). On October 16, 2013, the named plaintiffs filed a brief in opposition to the Landowners' motion to intervene, (Doc. 50), which was followed by the defendant's opposing brief that same day, (Doc. 52). The Landowners filed a reply brief on October 30, 2013. (Doc. 56).

In the meantime, on September 25, 2013, another motion to intervene in the above-captioned matter was filed by Paul F. Sidorek[2]. (Doc. 36). Mr. Sidorek filed a supporting brief on October 15, 2013. (Doc. 49). The defendant filed a brief in opposition to Mr. Sidorek's motion to intervene on October 25, 2013, (Doc. 53), which was followed by the named plaintiffs' opposing brief that same day, (Doc. 54).

On December 20, 2013, the defendant filed an action in this court against the Burketts seeking relief in the form of an injunction enjoining the putative class arbitration proceedings for which the Burketts are the named plaintiffs. (Civil Action No. 3:13-3073). On December 30, 2013, the Landowners filed a motion to consolidate the action filed by Chesapeake against the Burketts into the above-captioned matter. (Doc. 63). A supporting brief was filed by the Landowners on January 3, 2014. (Doc. 65). On January 14, 2014, the named plaintiffs in the above-captioned matter filed a brief in opposition to the Landowners' motion to consolidate, (Doc. 66). Chesapeake filed a brief in opposition to the motion to consolidate on January 17, 2014. (Doc. 67).

1. Landowners' Motion to Intervene

There are several aspects to the Landowners' motion to intervene. The Landowners initially seek leave to intervene as a matter of right under Fed.R.Civ.P. 24(a)(2) or, in the alternative, for permissive intervention under Fed.R.Civ.P. 24(b)(1). They further move to compel class arbitration on the issues raised in the instant action, and dismiss the instant action: (1) in favor of arbitration pursuant to the Federal Arbitration Act, (FAA), 9 U.S.C. ยง1, et seq.; (2) for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1); and/or (3) for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). Furthermore, the Landowners argue that Chesapeake should be enjoined from future attempts to settle this matter in court outside the proper bounds of arbitration during the currently-pending AAA putative class arbitration. In the alternative, if the instant action is not dismissed, the Landowners seek various forms of other legal and equitable relief.

Preliminarily, the Landowners provide that Chesapeake has signed gas leases with thousands of Pennsylvania landowners, a vast majority of which require arbitration of disputes. The Landowners were aware of the arbitration provisions in the leases and filed the previously mentioned putative class arbitration against Chesapeake. Specifically, in April 2013, the Landowners initiated a suit against Chesapeake and others before the American Arbitration Association, ("AAA"), in the form of a class action demand. The claims in the arbitration action overlap those in the above-captioned matter, in that the Landowners claim that the royalty payments received from Chesapeake are insufficient due to improper calculations and deductions. A scheduling order was entered in the Landowners' case by the AAA panel and, although Chesapeake initially participated in the arbitration proceedings by filing an answer and counterclaims on April 26, 2013, it later sought to halt the arbitration proceedings on a classwide basis and stay the proceedings as to the Burketts until they decided whether to opt out of the settlement in the above-captioned matter. The AAA panel declined to halt the arbitration proceedings and continued with briefing on the issue of class arbitrability as scheduled. By order dated January 28, 2014, the AAA panel determined that it has the authority in the first instance to decide whether the arbitration can proceed as a class arbitration and set a briefing schedule on the matter. See Chesapeake Appalachia, LLC v. Burkett, Civil Action No. 3:13-3073, Doc. 25, Ex. 2.

On July 30, 2014, Third Circuit issued its precedential opinion in Opalinski v. Robert Half Intern. Inc., ___ F.3d ___, 2014 WL 3733685 (D.N.J. July 30, 2014), in which it held that, absent clear and unmistakable evidence to the contrary, it is the court that decides the issue of class arbitrability.

Subsequently, on September 11, 2014, the AAA panel issued a "Partial Final Clause Construction Award" in the Burketts' case. (Doc. 73). In its decision, the AAA panel reconsidered whether it has the authority to determine class arbitrability in the first instance in the wake of Opalinski and, if it does, whether the arbitration clause in the Burketts' case permits the arbitration to proceed on a class basis. As to the first issue, the AAA panel reaffirmed its initial decision concluding that it has the authority to decide class arbitrability and finding the Third Circuit's opinion in Opalinski to be fully distinguishable. As to the second issue, the AAA panel concluded that the parties' arbitration agreement did not preclude class treatment. Under Rule 3 of the Supplementary Rules for Class Actions of the American Arbitration Association, the AAA panel stayed its award for thirty days to permit judicial review.

The Landowners charge in their motion to intervene that Chesapeake chose to enter into settlement with the named plaintiffs' counsel in the above-captioned matter, as opposed to the Landowners' counsel, due to the former's willingness to settle for what the Landowners deem an inadequate recovery (only a fraction of the past wrongful royalty deductions), whereas the Landowners' counsel believes that the Landowners are entitled to 100% of the wrongful royalty deductions and are prepared to pursue full recovery in arbitration[3].

The Landowners argue that Chesapeake signed leases with thousands of landowners, a majority of which require arbitration - it then breached the "no deductions" clause of the leases. The cases, which turn on this one provision in the leases, are suitable for class adjudication, according to the Landowners, and they argue that Chesapeake, having consented to the arbitrators' jurisdiction, participated in selecting arbitrators and filed a responsive pleading, should now be bound by the rules of class arbitration, including settlement.

With the above in mind, the Landowners first argue that the court should grant their motion to intervene by way of right. Pursuant to Fed.R.Civ.P. 24(a)(2), "[o]n timely motion, the court must permit anyone to intervene who... claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest."

In the absence of a federal statute which confers a right to intervene, and there is no such statute in this case, Rule 24 authorizes a party to intervene as of right if the movant can establish: (1) a timely application for leave to intervene has been filed; (2) a sufficient interest in the underlying litigation; (3) a threat that the interest will be impaired or affected by the disposition of the underlying action, and (4) that the existing parties to the action do not adequately represent the prospective intervenor's interests. Liberty Mut. Ins. Co. v. Treesdale, Inc. , 419 F.3d 216, 220 (3d Cir. 2005) (citation omitted). The movant's failure to establish any factor is fatal. Id.

In opposing the Landowners' motion to intervene, neither the existing named plaintiffs nor Chesapeake argues that the motion to intervene is untimely or that the intervenors do not have a sufficient interest in the underlying litigation. Instead, their main contention is that the proposed intervenors have not established a threat that their interests will be impaired or affected by the disposition of the underlying action. As to this third factor in the Rule 24(a)(2) analysis, the inquiry is whether, absent intervention, the suit will foreclose the ability of the proposed intervenors to protect their interests. In deciding this factor, courts look to, among other things, whether there are other proceedings and fora in which the proposed intervenors can protect their interests.

Here, there are other proceedings through which the proposed intervenors can protect their interests. If the court grants preliminary approval of the class action settlement in the above-captioned matter, and if the proposed intervenors choose not to be bound by the terms of the settlement, they can opt out of the settlement class and reserve all of their rights to proceed with arbitration.

Although the proposed intervenors argue that any suggestion that they opt out of the settlement class would leave a settlement class in this case of zero, this is not necessarily the case. There are several named plaintiffs who, at the current time, apparently wish to settle their claims rather than proceed through the arbitration process with Chesapeake. By the proposed intervenors' account, there are thousands of individuals with whom Chesapeake signed leases. It is not known how many of these other individuals would choose to accept the terms of the proposed settlement with Chesapeake as well. While the proposed intervenors' numbers allegedly exceed 100[4], there is certainly no indication that every single one of the claimed thousands of lease holders would wish to opt out of the proposed settlement in favor of arbitration.

Because the court finds that the proposed intervenors can protect their interests by means other than intervention, the proposed intervenors have not established the third factor for intervention as a matter of right. As the proposed intervenors' failure on the third factor is fatal to their motion to intervene as a matter of right, the court need not ...


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