Alder Run Land LP v. Northeast Natural Energy LLC

Filing

NOT PRECEDENTIAL OPINION Coram: MCKEE, Chief Judge, HARDIMAN and SCIRICA, Circuit Judges. Total Pages: 9. Judge: SCIRICA Authoring.

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Document: 003112040769

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Date Filed: 08/10/2015

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 14-2739
________________
ALDER RUN LAND, LP; ORRIN L. FRENCH, as trustee of the Schoonover
Real Estate Trust; JEFFREY A. DALKE, as trustee of the Schoonover Real Estate
Trust; CATHERINE G. ANDERSON, as trustee of the Catherine G. Anderson;
DAVID K. DAHLGREN; MARJORIE DAHLGREN, husband and wife; BONNIE
LOU DAHLGREN PETERS; TERRY PETERS, wife and husband,
Appellants
v.
NORTHEAST NATURAL ENERGY LLC
________________
On Appeal from the District Court
for the Western District of Pennsylvania
(D.C. Civil No. 3-13-cv-00222)
District Judge: Honorable Kim R. Gibson
________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
January 13, 2015
Before: MCKEE, Chief Judge, HARDIMAN, and SCIRICA, Circuit Judges
(Filed: August 10, 2015)
________________
OPINION*
________________
*

This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

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SCIRICA, Circuit Judge
Appellants-Plaintiffs (collectively, “Schoonover”) brought suit against Northeast
Natural Energy LLC (“Northeast”) alleging that Northeast refused to honor its agreement
to enter into certain oil and gas leases. The District Court, finding that Northeast’s
agreement to purchase such leases arose under earlier oil and gas leases that contained
broad arbitration provisions, dismissed the claim and ordered the parties to arbitrate their
dispute. Schoonover appeals, and we will affirm.
I.
In three separate but essentially identical leases (the “2010 Leases”), Schoonover
granted East Resources, Inc., the right to produce oil and gas from approximately 1,800
acres of Schoonover’s property. The 2010 Leases indisputably contained an arbitration
provision that provided: “Any issue, item or disagreement between Lessor and Lessee
concerning this lease or performance there under shall be ascertained and determined by
three disinterested arbitrators . . . .” Shortly after the 2010 Leases were executed, SWEPI,
L.P., acquired East Resources and accordingly became the lessee thereunder. In the
spring of 2011, Northeast sought to acquire certain oil and gas interests from SWEPI,
including the 2010 Leases. But before doing so, Northeast required certain amendments
to the 2010 Leases. Negotiations between Schoonover, Northeast, and SWEPI produced
two sets of documents: the Letter Agreements, dated April 28, 2011, between
Schoonover and Northeast; and the 2010 Lease Amendments, dated May 4, 2011,
between Schoonover and SWEPI, the then-current lessee under the 2010 Leases.
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Northeast eventually acquired the 2010 Leases as amended from SWEPI.
The Letter Agreements between Northeast and Schoonover are central to this
dispute. The Letter Agreements are three separate but nearly identical agreements which
define the 2010 Leases as the “Underlying Lease” (and refer to them as such eleven
times). Each Letter Agreement states:
Should Northeast acquire an Assignment of . . . the Underlying Lease, then
the parties hereto specifically agree that the Underlying Lease shall be
subject to the following conditions:
***
3. For a period of eighteen (18) months from the date Northeast acquires
the East Resources Leases, Northeast agrees to lease from the Lessor any
additional oil and gas fee interests that may be acquired or identified and
available to be leased by the Lessor and that are part of or contiguous to
lands covered by the East Resources Leases . . . upon the same terms and
conditions as set forth in the Underlying Lease, with the exception that the
delay rental for the primary lease term of five (5) years will be a one-time
payment of $2,000 per acre.
(emphasis added). Paragraphs 1 and 2 set forth two additional conditions regarding a
potential transfer of the 2010 Leases by Northeast, and paragraphs 4-9 set out typical
contract terms such as choice of law and severability. In particular, paragraph 4 is an
integration clause stating “This Agreement constitutes the entire contract between the
parties . . . .”
In April 2012, Northeast surrendered the 2010 Leases in accordance with their
terms. But considering the Letter Agreements to still be in effect despite the surrender,
Schoonover tendered 2,200 acres of oil and gas interests which Northeast refused to
accept. Schoonover then brought suit on September 25, 2013, claiming breach of
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paragraph 3 of the Letter Agreements. The District Court determined that “[w]ithout
reference to the 2010 Leases, the Letter Agreements are incomplete and essentially
meaningless,” and thus must be read together. Accordingly, the court ordered the case to
be resolved through arbitration and this timely appeal followed.
II.
“‘We exercise plenary review over questions regarding the validity and
enforceability of an agreement to arbitrate,’ and we are first obliged to determine which
standard should have been applied [by the District Court].” Guidotti v. Legal Helpers
Debt Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013) (quoting Puleo v. Chase Bank
USA, N.A., 605 F.3d 172, 177 (3d Cir. 2010)) (citation omitted). “Review of the district
court’s construction of a contract is . . . plenary.” Kroblin Refrigerated Xpress, Inc. v.
Pitterich, 805 F.2d 96, 102 (3d Cir. 1986).1
III.
The parties agree that arbitration is a question of contract and that Pennsylvania
law should be applied “to interpret the parties’ agreement.” Gaffer Ins. Co., Ltd. v.
Discover Reinsurance Co., 936 A.2d 1109, 1114 (Pa. Super. Ct. 2007). Though the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, “establishes a strong federal policy in
favor of compelling arbitration,” Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104 (3d
Cir. 2000), the presumption applies “only when both parties have consented to and are
bound by the arbitration clause,” Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d

1

The District Court had jurisdiction under 28 U.S.C. § 1332(a). We have jurisdiction
under 28 U.S.C. § 1291.
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Cir. 2014). Here, the question of whether there is a valid agreement to arbitrate comes
down to one issue: So long as the Letter Agreements have a separate existence, without
being merged into the 2010 Leases, Schoonover’s claims fall outside the scope of the
arbitration clause in the 2010 Leases. But if the Letter Agreements and the 2010 Leases
are all part of one transaction, as the District Court found, then the dispute must be
arbitrated.
A.
We must first determine what standard should have been applied. The District
Court applied a motion to dismiss standard, and Schoonover contends this was error.
Schoonover is correct that in certain circumstances a District Court should apply a
summary judgment standard to the question of whether a valid agreement to arbitrate
exists. But this is not a default rule. As we explained in Guidotti, “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.’” Guidotti, 716 F.3d at 776 (quoting Somerset Consulting, LLC v.
United Capital Lenders, LLC, 832 F. Supp. 2d 474, 482 (E.D. Pa. 2011)). Because all of
the pertinent documents are attached to the complaint, a motion to dismiss standard was
appropriate unless “the plaintiff has responded to a motion to compel arbitration with
additional facts sufficient to place the agreement to arbitrate in issue.” Guidotti, 716 F.3d
at 776. Schoonover produced no additional facts that required either discovery or the
burden shifting of a summary judgment standard. Their argument is simply that the 2010
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Leases and the Letter Agreements should be read as independent documents—a legal
question based entirely on documents attached to their initial complaint.2 Accordingly
the District Court correctly applied a motion to dismiss standard, as we will in our
review.
B.
“When a written contract is clear and unequivocal, its meaning must be
determined by its contents alone. In construing a contract, we must determine the intent
of the parties and give effect to all of the provisions therein.” Gaffer, 936 A.2d at 1113
(quoting Capek v. Devito, 767 A.2d 1047, 1050 (Pa. 2001)). The District Court found that
“[t]he only reasonable interpretation of [the Letter Agreements] is that, once Northeast
acquired the 2010 [L]eases, the provisions of the Letter Agreements modified those
leases.” We agree. First, the Letter Agreements define the 2010 Leases as the
“Underlying Lease.” Next, the Letter Agreements state that, upon Northeast’s acquisition
of the 2010 Leases, those leases would become “subject to the following conditions.”
And of most interest to this case, the paragraph that Schoonover claims was breached by
Northeast, paragraph 3, states that any new leases would be “upon the same terms and
2

Discovery had already begun in this case before the District Court ruled on the motion
to dismiss, and Northeast turned over to Schoonover earlier versions of the Letter
Agreements that Schoonover contends support the conclusion that the Letter Agreements
were stand-alone documents. Even if these drafts were admissible, see Yocca v.
Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) and discussion, infra, they
do not raise the type of factual dispute regarding the existence of an agreement to
arbitrate that would require a summary judgment standard. Cf. Kirleis v. Dickie,
McCamey & Chilcote, P.C., 560 F.3d 156, 159 (3d Cir. 2009) (applying a summary
judgment standard when plaintiff submitted an affidavit swearing she had never seen the
bylaws which included the contested arbitration provision and thus could not be bound
thereby).
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conditions as set forth in the Underlying Lease.” One such term is that any dispute
arising under the leases would be subject to arbitration, as this one must be. Like the
District Court, we find no other plausible reading of the Letter Agreements.
Schoonover raises several arguments why this reading of the Letter Agreements is
erroneous. First, they urge the presence of an integration clause “creates an ambiguity
about the meaning of the writing” and the court should look to the earlier drafts of the
Letter Agreements as evidence the parties intended the Letter Agreements to be separate
and distinct from the 2010 Leases. But under Pennsylvania law,
Where the parties, without any fraud or mistake, have deliberately put their
engagements in writing, the law declares the writing to be not only the best,
but the only, evidence of their agreement. All preliminary negotiations,
conversations and verbal agreements are merged in and superseded by the
subsequent written contract . . . and unless fraud, accident or mistake be
averred, the writing constitutes the agreement between the parties, and its
terms and agreements cannot be added to nor subtracted from by parol
evidence.
Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) (citation omitted).
This is particularly true when a writing contains an integration clause, as the Letter
Agreements did. It is also true “that this general rule does not apply where the agreement
is ambiguous.” Daset Min. Corp. v. Indus. Fuels Corp., 473 A.2d 584, 592 (Pa. Super.
Ct. 1984). But this agreement is not ambiguous; there are no terms that need explanation.
Id. (citing Carter v. Edwin J. Schoettle Co., 134 A.2d 908 (Pa. 1957)) (“[E]vidence of
prior negotiations is inadmissible to show an intent at variance with the language of the
written agreement, but is admissible to show local usage, which would give a particular
meaning to the language.”). Schoonover attempts to use the past draft to show an intent
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different from what is evident from the face of the document. The District Court did not
err in declining to consider the earlier drafts.
Schoonover next contends the “commitment in Paragraph 3 to lease additional oil
and gas interests had no relationship to the 2010 [Leases].” Although initially contending
we should disregard the integration clause and consider the prior drafts as evidence, now
Schoonover employs the integration clause to support its theory that we cannot look to
the 2010 Leases for necessary terms of the agreement to lease additional oil and gas
interests. They also contend that, because the parties later amended the 2010 Leases and
made no reference to the Letter Agreements, it is clear the Letter Agreements were meant
to be entirely separate contracts. But it is well established that, “[w]here several
instruments are made as part of one transaction they will be read together, and each will
be construed with reference to the other; and this is so although the instruments may have
been executed at different times and do not in terms refer to each other.” Neville v. Scott,
127 A.2d 755, 757 (Pa. Super. Ct. 1956). This is true even if the later instrument has an
integration clause. Id. (citing Int’l Milling Co. v. Hachmeister, Inc., 110 A.2d 186, 191
(Pa. 1955)).
Here, the Letter Agreements were part of one business transaction—Northeast’s
acquisition of the 2010 Leases from SWEPI—that amended the 2010 Leases, and the
Letter Agreements and the 2010 Leases do “in terms refer to each other.” This is no less
true because the 2010 Lease Amendments do not refer to the Letter Agreements, nor
because the Letter Agreements are not titled “amendments.” Paragraph 3 states that any
new leases would be “upon the same terms and conditions as set forth in the Underlying
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Lease.” Thus “both agreements were inexorably associated with the same transaction,”
Kroblin, 805 F.2d at 108, and the District Court was correct to read them together.
Finally, Schoonover cites to two cases, E.I. DuPont de Nemours & Co. v. Rhone
Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir. 2001) and Industrial
Electronics Corp. of Wisconsin v. iPower Distribution Group, Inc., 215 F.3d 677 (7th
Cir. 2000), in which third party non-signatories to a contract with an arbitration provision
were not required to arbitrate their dispute arising out of a later, related transaction with a
signatory. But these cases are inapposite because both Schoonover and Northeast (by
assignment) are signatories to both the 2010 Leases and the Letter Agreements. In sum,
we, like the District Court, are unpersuaded by Schoonover’s attempts to separate the
Letter Agreements from the 2010 Leases. Schoonover must arbitrate this dispute with
Northeast as it agreed to do.
IV.
For the foregoing reasons, the judgment of the District Court will be affirmed.

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