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Chesapeake Appalachia, L.L.C. v. Scout Petroleum, LLC

United States District Court, M.D. Pennsylvania

December 19, 2014

CHESAPEAKE APPALACHIA, L.L.C., Plaintiff,
v.
SCOUT PETROLEUM, LLC, and SCOUT PETROLEUM II, LP, Defendants

Page 489

For Chesapeake Appalachia, L.L.C., Plaintiff: Daniel T. Brier, LEAD ATTORNEY, Myers Brier & Kelly, LLP, Scranton, PA; Daniel T Donovan, Kate Wooler, Ragan Naresh, LEAD ATTORNEYS, Kirkland & Ellis LLP, Washington, DC.

For Scout Petroleum, LLC, Scout Petroleum II, LP, Defendants: Alessandra C Phillips, LEAD ATTORNEY, Michael Coren, Cohen, Placitella & Roth, Philadelphia, PA; Robert L. Pratter, LEAD ATTORNEY, Cohen, Placitella & Roth, Philadelphia, PA United State; Jacob A. Goldberg, Cohen Placitella & Roth, P.C., Philadelphia, PA; Stewart L. Cohen, Cohen, Placitella & Roth, PC, Philadelphia, PA.

Page 490

MEMORANDUM

Matthew W. Brann, United States District Judge.

I. BACKGROUND:

The principal basis upon which a court may support its reasoning for granting a motion for reconsideration is an intervening change in the controlling law. In this case, Defendants ask the Court do the opposite and reconsider the undersigned's application of a recent change in the controlling law, and, instead, revert to the former state of the law. The Court cannot ignore the current state of the law in this federal circuit. The motion will be denied.

Procedural History:

Plaintiff, Chesapeake Appalachia, LLC, hereinafter " Chesapeake," commenced the instant civil action on April 1, 2014, against defendants, Scout Petroleum, LLC and Scout Petroleum II, LP (hereinafter, collectively, " Scout" ). The two-count complaint was filed after Scout had initiated arbitration proceedings against Chesapeake with the American Arbitration Association (hereinafter " AAA" ). Count I is a demand for a declaratory judgment requesting that the court decide whether the court or the arbitrator is tasked to interpret the contract, commonly referred to as the " who decides" question. Count II is a demand for a declaratory judgment contending that the contract does not permit class arbitration, commonly referred to as the " clause construction" question.

On April 4, 2014, three days after the complaint was filed, Chesapeake filed a Motion for Summary Judgment on Count I of the complaint, requesting that this Court enter an Order directing that it is the Court who answers the " who decides" question. On April 29, 2014, Scout filed a Motion to Dismiss requesting, alternatively, that the Court enter an Order holding that an arbitration panel from the American Arbitration Association decide this " who decides" question.

Subsequently, on June 4, 2014, the parties contacted the Court and requested expedited handling of the respective motions. On June 10, 2014, the Court held a telephone conference call with counsel for the parties at the conclusion of which the Court agreed to a reasonably rapid resolution of the pending motions. Accordingly, the Court put to the side other motions on a very full civil docket and commenced the research necessary to resolve the question at hand.

As it happens, the " who decides" issue is an unsettled area of law in the class arbitrability arena. The United States Court of Appeals for the Third Circuit had, prior to July 30, 2014, indicated that the arbitrator should decide such a question, although it was clear that the United States Supreme Court was incrementally shifting its thinking in the direction of concluding that courts, rather than arbitrators, should decide this threshold question. This Court had a finalized Memorandum Opinion and Order, which detailed its approach to this unsettled area of law, ready to docket in early August 2014.

On July 30, 2014, however, the Third Circuit issued a decision that altered the state of the law in this circuit. See Opalinski v. Robert Half Int'l Inc., 761 F.3d 326 (3d Cir. 2014). The Third Circuit has now held that, in the absence of clear and unmistakable evidence to the contrary, the district courts decide the " who decides" issue.

Following the Third Circuit's seminal decision in Opalinski, this Court began to draft a new, now revised, Memorandum Opinion and Order on the " who decides"

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issue. During this time, however, the parties, without either contacting the Court or waiting for the Court to act, proceeded before an arbitration panel on the questions of both who decides as well as the question of arbitrability. The arbitration panel decided that it, not this Court, decides the " who decides" question, and went on to decide the " clause construction" question by determining that the contract permitted class arbitration. On October 14, 2014, Scout notified the Court that the AAA arbitration panel had entered this decision

In response, also docketed October 14, 2014, Chesapeake filed two further motions - a Motion to Vacate, ECF No. 44, and a Motion to Stay/Expedite, ECF No. 46. By Order dated October 16, 2014, the Court summarily Ordered that Plaintff's Motions for Summary Judgment and to Vacate the Arbitration Panel Award be granted and Defendants' Motion to Dismiss be denied citing to the controlling precedent generated three months before in Opalinski.

On October 30, 2014 Scout filed a Motion for Reconsideration. ECF No. 50. This motion has now been fully briefed. Subsequently, on December 5, 2014, Scout filed an unexpected Motion to Vacate and for Recusal. ECF No. 55. Following oral argument conducted on December 10, 2014, the matter is now ripe for disposition. For the reasons that follow, the Defendants' motions will be denied.

II. DISCUSSION:

A. Motion for Reconsideration Standard

" The purpose of a motion for reconsideration is to correct manifest errors of law or fact or to present newly discovered evidence." Harsco v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985). A court should grant a motion for reconsideration if the party seeking reconsideration shows: " (1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court granted the motion for summary judgment; or (3) the need to correct a clear error of law or fact or to prevent manifest injustice." Max's Seafood Café ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999).

" A motion for reconsideration is not properly grounded on a request that the Court simply rethink a decision it has already made." Douris v. Schweiker, 229 F.Supp.2d 391, 408 (E.D. Pa. 2002). In such a motion, " parties are not free to relitigate issues that the Court has already decided." United States v. Jasin, 292 F.Supp.2d 670, 676 (E.D. Pa. 2003) (internal citation and quotations omitted). " The standard for granting a motion for reconsideration is a stringent one . . . . [A] mere disagreementc with the court does not translate into a clear error of law." Mpala v. Smith, CIV. 3:CV-06-841, 2007 WL 136750, *2 (M.D. Pa. Jan. 16, 2007) (Kosik, J.) aff'd, 241 F.App'x 3 (3d Cir. 2007). " Because federal courts have a strong interest in the finality of judgments, motions for reconsideration should be granted sparingly." Cont'l Cas. Co. v. Diversified Indus., Inc., 884 F.Supp. 937, 943 (E.D. Pa. 1995).

B. Allegations in the Complaint

As noted above, Plaintiff, Chesapeake Appalachia, L.L.C. (hereinafter " Chesapeake" ), filed a complaint in the Middle District of Pennsylvania on April 1, 2014. ECF No. 1. The complaint is for declaratory and injunctive relief against Defendants, Scout Petroleum L.L.C and Scout Petroleum II, L.P. (hereinafter, collectively, " Scout" ).

In 2008, Chesapeake entered into various Paid-Up Oil & Gas Leases with landowners in several northeastern Pennsylvania counties to explore for, and produce

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natural gas from, the landowners property. The leases at issue are typical natural gas leases, in which there is a basic boilerplate form contract, often together with an individually negotiated addendum. In 2013, Scout purchased the right to some of the leases from certain landowners and has been receiving royalties from Chesapeake on the gas produced by Chesapeake.

On March 17, 2014, Scout sought to commence a class arbitration against Chesapeake. Scout's attempt to pursue class arbitration is on behalf of themselves, together with a putative class of thousands of landowners. The claims deal with the calculation of royalties under the terms of the natural gas leases.

The leases contain the following arbitration provision:

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.

ECF No. 1 at 7 citing Ex. A at SCOUT I-000181.Chesapeake asserts that the above-cited lease term does not provide for, or otherwise contemplate class arbitration; instead it contemplates only individual arbitration. Chesapeake filed the instant action for equitable relief in this Court in order to have the Court declare both that the matter of class arbitration is one for the Court and not the arbitrator to decide, and that class arbitration is not available under the lease.

C. Analysis

1. Plaintiff's Partial Motion for Summary Judgment and Defendants' Motion to Dismiss

The rocky path the issue of class arbitrability has traversed over the years began eleven years ago with the United States Supreme Court's plurality decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003). Green Tree Financial Corporation was a commercial lender operating in South Carolina. Id. at 447. Green Tree had contracted with the Bazzles (and others[1]) for a residential loan. Id. at 447-449. The contract contained an arbitration clause which stated, in salient part, that " All disputes, claims, or controversies arising from or relating to this contract or the relationships which result from this contract...shall be resolved by binding arbitration by one arbitrator selected by us with consent of you." Id. at 448. A dispute arose, and the Bazzles filed an action in a South Carolina state court asking the court to certify their claims and a class action. Id. at 449. Green Tree asked the court to compel arbitration. Id. The court granted both requests and the matter proceeded to class arbitration. Id. After a loss at arbitration, Green Tree appealed the arbitrator's decision. Id. The South Carolina Supreme Court held that the contracts were silent as to class arbitration, and that the contract consequently authorized class arbitration. Id. At 450.

A plurality of the United States Supreme Court (Justices Breyer, Scalia, Souter and Ginsburg) held that the issue of whether or not the contracts were silent as to class arbitration was a matter for the

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arbitrator to decide, not the courts. Bazzle, 539 U.S. at 447. The plurality described it as a " preliminary question." Id. at 450. The Court stated that " [u]nder the terms of the parties' contracts, the question - whether the agreement forbids class arbitration - is for the arbitrator to decide." Id. at 451. The Court found that the parties had agreed that an arbitrator would answer the question of whether a class was authorized under the contract because in the contract the parties agreed that " all disputes, claims, or controversies arising from or relating to this contract or the relationships which result from this contract." Id. The plurality interpreted the contract to mean that the interpretation of the contract was a task intended for the arbitrator, not the courts. As a policy matter, the plurality added that " if there is doubt about that matter - about the " scope of arbitrable issues' - we should resolve that doubt " in favor of arbitration." Id. at 452 citing Mitsubishi Mothers Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).

The Bazzle plurality went on to explain the " certain limited circumstances" in which the courts will assume that the parties intended the court, and not an arbitrator, " to decide a particular arbitration-related matter." Bazzle, 539 U.S. at 452. These circumstances being " gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy." Id.

The Bazzle court stated that whether or not the contract forbids class arbitration did not fall into that narrow exception. Bazzle, 539 U.S. at 452. The plurality also stated that the question presented was the " kind of arbitration proceeding the parties agreed to," which was a question of contract interpretation -- a matter for the arbitrator, not the courts, to decide. Id. at 453.

In order to have a controlling judgment of the court, Justice Stevens concurred in the plurality's decision. Bazzle, 539 U.S. at 455. In his three paragraph concurrence, Justice Stevens stated that the arbitrator, not the South Carolina court, should have interpreted the agreement in the first instance. Id. Because his view was in agreement with the plurality decision stating that the arbitrator should have performed the contractual interpretation, he concurred in the judgment in order to have a controlling judgment of the court, although his preferred outcome would be to simply affirm the judgment of the Supreme Court of South Carolina, as he believed that the decision was correct as a matter of law. Id.

Chief Justice Rehnquist, together with Justices O'Connor and Kennedy dissented stating that the determination " that arbitration under the contracts could proceed as a class action [sic] even though the contracts do not by their terms permit class-action arbitration...is one for the courts, not for the arbitrator." Bazzle, 539 U.S. at 455-6. The dissenters went on to write that " the decision of what to submit to the arbitrator is a matter of contractual agreement by the parties, and the interpretation of that contract is for the court, not for the arbitrator." Id. The dissenting opinion in Bazzle would interpret the contract's lack of a clear statement of intent to submit to class arbitration as an agreement not to submit to class arbitration, but only an agreement to submit to bilateral arbitration; the dissent would not coerce the parties to engage in class arbitration.

Justice Thomas, separately dissenting, would have left the decision of the Supreme Court of ...


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