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Abrams v. Chesapeake Energy Corp.

United States District Court, M.D. Pennsylvania

December 21, 2017

PATRICIA L. ABRAMS, Individually and as Trustee of the Gertrude E. May Irrevocable Residential/Income Only Trust, et. al, Plaintiffs.
v.
CHESAPEAKE ENERGY CORPORATION, et. al, Defendants. PAUL H. ARNOLD, Plaintiffs.
v.
CHESAPEAKE ENERGY CORPORATION, et. al, Defendants. ROBERT C. ABRAMS, JR., Plaintiffs.
v.
CHESAPEAKE ENERGY CORPORATION, et. al, Defendants. KYLIE E. AHERN, a/k/a Kylie E. Perry, Plaintiffs.
v.
CHESAPEAKE ENERGY CORPORATION, et. al., Defendants.

          MEMORANDUM OPINION

          Matthew W. Brann United States District Judge

         In the novel The Fellowship of the Ring, J.R.R. Tolkien, writes “Short cuts make long delays.” The hundreds of Plaintiffs here have attempted a short cut by moving for this Court to direct that the parties be permitted to proceed as a class before the American Arbitration Association, (“AAA”) effectively avoiding the considerable filing fees associated with that organization. This is not the state of the law in this Circuit, however, and this attempted short cut has long delayed the prosecution of this action in arbitration proceedings and has clogged the Court's docket with four actions brought by 674 plaintiffs, detailing thirty-eight counts against ten defendants resulting in eighteen pending motions. After reviewing all of the foregoing, I reach the ineluctable conclusion that much of this litigation should have been brought in arbitration proceedings initially; very little belongs in this Court.

         I. BACKGROUND

         Civil action number 4:16-CV-1343 is a two-hundred thirty (230) page, five-hundred eighty-two (582) paragraph amended complaint asserting ten (10) causes of action against eleven (11) oil and gas company defendants brought by three-hundred fifty-four (354) plaintiffs.

         Civil action number 4:16-CV-1345 is a one-hundred eighty-three (183) page, four-hundred seventy-three (473) paragraph amended complaint asserting ten (10) causes of action against eleven (11) oil and gas company defendants brought by two-hundred twelve (212) plaintiffs.

         Civil action number 4:16-CV-1346 is a one-hundred fifty-one (151) page, three-hundred seventy-seven (377) paragraph amended complaint asserting nine (9) causes of action against eleven (11) oil and gas company defendants brought by seventy-six (76) plaintiffs.

         Civil action number 4:16-CV-1347 is a one-hundred thirty-one (131) page, three-hundred forty (340) paragraph amended complaint asserting nine (9) causes of action against eleven (11) oil and gas company defendants brought by thirty-two (32) plaintiffs.

         The four actions captioned above are not consolidated actions. However, for the sake of judicial efficiency, based on the large number of Plaintiffs, with the same counsel, bringing the same claims, against the same Defendants, I am addressing all four in one Memorandum Opinion. Any factual differences between these cases have been footnoted.

         II. STANDARD OF REVIEW

         It is well established that “the standard for motions to compel arbitration depends on the circumstances.”[1] “When it is apparent, based on ‘the face of a complaint, and documents relied upon in the complaint, ' that certain of a party's claims ‘are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's delay.'”[2] “However, limited discovery and review of a renewed motion under a summary judgment standard is appropriate where the validity of the arbitration agreement is at issue.”[3]

         A court may compel arbitration only where there is “no genuine issue of fact concerning the formation of the agreement” to arbitrate and, in making this decision, a court must give “the party opposing arbitration ‘the benefit of all reasonable doubts and inferences that may arise.'”[4]

         III. ARBITRABILITY DISCUSSION

         The Federal Arbitration Act (“FAA”) “requires courts to enforce the bargain of the parties to arbitrate”[5] and “requires courts to place arbitration agreements ‘on equal footing with all other contracts.'”[6] “Consistent with [the] text [of the FAA], courts must ‘rigorously enforce' arbitration agreements according to their terms, including terms that ‘specify with whom the parties choose to arbitrate their disputes'...”[7]

         A. It is undisputed that the lease clauses at issue here require arbitration; however, I will not direct the AAA to proceed with class arbitration.

         “Courts presume that the parties intend courts, not arbitrators, to decide what we have called disputes about ‘arbitrability.'”[8] “These include questions such as ‘whether the parties are bound by a given arbitration clause, ' or ‘whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.'”[9] “Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”[10]

         “The interpretation of a contract is ordinarily a matter of state law to which we defer.”[11] “After Arthur Anderson[12], courts deciding motions to compel arbitration may still look to federal decisions applying the substantive law of the applicable state court.”[13] The Supreme Court of Pennsylvania has explained,

The principles that guide this inquiry are well-settled. The fundamental rule in contract interpretation is to ascertain the intent of the contracting parties. Robert F. Felte, Inc. v. White, 451 Pa. 137, 302 A.2d 347, 351 (1973). In cases of a written contract, the intent of the parties is the writing itself. Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124, 145 A.2d 672 (1958). Under ordinary principles of contract interpretation, the agreement is to be construed against its drafter. See Shovel Transfer & Storage, Inc. v. PLCB, 559 Pa. 56, 739 A.2d 133, 139 (1999). When the terms of a contract are clear and unambiguous, the intent of the parties is to be ascertained from the document itself. Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986).[14]

         There are multiple lease clauses, all of which Plaintiffs have designated titles. The first was titled both “Mandatory Arbitration Provision' and ‘Mandatory Arbitration Provision 1' and reads as follows:

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.[15]

         “Some of”[16] the leases that contain ‘Mandatory Arbitration Provision 1' also contain ‘Supplemental Provision 1:'

Arbitration: Any questions concerning this lease or performance there under [sic] shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by Lessor, one by the Lessee, and the third by the two so appointed as aforesaid and the award of such collective group shall be final and conclusive. Arbitration proceedings hereunder shall be conducted at the county seat or [sic] the county where the lease or action occurred which is cause for arbitration, or such other place as the parties to such arbitration shall all mutually agree upon. The Cost of such arbitrators will be borne equally by the parties.[17]

         Alternatively, ‘certain other of the leases' that contain ‘Mandatory Arbitration Provision 1' contain a different supplement, known as ‘Supplemental Provision 2:'

If arbitration of any breach or perceived breach of this Oil and Gas Lease occurs requiring arbitration, said arbitration shall be conducted in a mutually agreeable location that does not constitute a financial hardship on Lessors. If practicable and agreeable to both Parties, said location for arbitration shall be at the county seat where the lease or the action occurred constituting the necessity for arbitration.[18]

         The remainder of the leases contain ‘Mandatory Arbitration Provision 2, ' which states:

(a) Any controversy or claim arising out of or relating to this Lease, or the breach thereof, shall be resolved by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules including the Optional Rules for Emergency Measures of Protection, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
(b) Arbitration shall take place within One hundred (100) miles of the leased premises and this agreement shall be governed by and interpreted in accordance with the laws of the State of Pennsylvania. The parties acknowledge that this agreement evidences a transaction involving interstate commerce. The United States Arbitration Act shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration clause in this agreement.
(c) Either party may apply to the arbitrator seeking injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either party also may, without waiving any remedy under this agreement seek from any court having jurisdiction any interim or provisional relief that is necessary to protect the rights or property of that party, pending the establishment of the arbitral tribunal (or Pending the arbitral tribunal's determination of the merits of the controversy).[19]

         A third lease clause, Plaintiffs' titled ‘Mandatory Arbitration Provision, ' which I will retitle ‘Mandatory Arbitration Provision 3, ' states:

Arbitration. Any question concerning this lease or performance there under shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by Lessor, one by the Lessee and third by the two so appointed as aforesaid and the award of such collective group shall be final and conclusive. Arbitration proceedings hereunder shall be conducted at the county seat or [sic] the county where the Lease is filed or such other place as the parties to such arbitration shall all mutually agree upon. Each party will pay its own arbitrator and shares costs of the third arbitrator equally.[20]

         Sensibly, in Pennsylvania “unambiguous contracts are interpreted by the court as a matter of law.”[21] All the lease clauses here are unambiguous. They provide for arbitration of the claims asserted here; they do not require class arbitration.

         The law in this circuit is clear on both the “who decides” and “clause construction” questions. Both are matters for the Court, despite Plaintiffs protestations to the contrary. Curiously, Plaintiffs cite to Green Tree Fin. Corp. v. Bazzle, [22] a plurality decision that has been all but overruled. As this Court stated previously,

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 Bazzle…A plural majority decision certainly makes the task of the lower courts more difficult. In the area of class arbitrability, the waters were muddied even further as the Supreme Court issued subsequent decisions that eroded the already tenuous pronouncement in Bazzle. .. The Third Circuit held that the “availability of class arbitration is a “question of arbitrability” that is a gateway question for “a court to decide unless the parties unmistakably provide otherwise.”…[When a] contract is silent or ambiguous as to class arbitrations..a court…not an arbitrator…turn[s] to the clause construction question.[23]

         “The question of class arbitration belongs with the courts as a substantive question of arbitrability.”[24] “The risks incurred by defendants in class arbitration (bet-the-company stakes without effective judicial review, loss of confidentiality) and the difficulties presented by class arbitration (due process rights of absent class members, loss of speed and efficiency, increase in costs) all demand a more particular delegation of the issue than we may otherwise deem sufficient in bilateral disputes.”[25]

         “When dealing with class arbitration, we seek clear and unmistakable evidence of an agreement to arbitrate the particular question of class arbitration.”[26]“Incorporation of AAA Rules by reference is insufficient evidence that the parties intended for an arbitrator to decide the substantive question of class arbitration.”[27]

         Here, Plaintiffs move for this Court to Order class arbitration. That action, however, would be in contravention of the clear law in this Circuit. Earlier this year, in a case I will reference as Opalinski II, [28] the United States Court of Appeals for the Third Circuit held, as have several other Circuit Courts of Appeals, that “silence regarding class arbitration generally indicates a prohibition.”[29]

         The District Courts in this Circuit have followed suit. Consistent with the foregoing, combined with the reasoning set forth in my prior holding in Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, [30] and that of the Honorable John E. Jones III, of this Court, in Chesapeake Appalachia, L.L.C. v. Ostroski, [31] I hold that the leases in the instant cases are silent as to class arbitration. Therefore, although arbitration is required in this action by contract, the arbitration permitted here is bilateral, not class arbitration.

         I note that Plaintiffs have failed to cite to either Opalinski II, or either of this Court's Chesapeake Appalachia opinions noted above. Perhaps that is because the three opinions hold the opposite of the relief sought.

         That said, nothing in today's holding precludes the parties from consenting to a combined proceeding before the AAA, or from the AAA permitting a combined proceeding. Plaintiff asserts that the AAA has a “one contract, one case” guideline.[32] One reason Plaintiffs want this Court to enter a declaratory judgment stating that Plaintiffs can bring their claims as a class arbitration is because the AAA has high filing fees. After that filing fee has been paid for each contract, however, (here 674 separate filing fees), then the AAA will permit the Plaintiff to “then raise the issue of consolidation or joinder with the arbitrator(s) once he or she is appointed.”

         I recognize that it is seemingly unfair for Plaintiffs that each may be required to pay such an arbitration filing fee, yet still end up in a class proceeding by consent of the Defendants and the appointed arbitrator. Despite the costs and perceived unfairness, the Court cannot circumvent the terms of the contract, ...


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