Bounty Minerals, LLC v. Chesapeake Exploration, L.L.C. et al

Filing 22

Memorandum Opinion and Order: Plaintiff's motion to amend the complaint (Doc. No. 16 ) is granted, and defendants' amended motion to compel arbitration and to stay the proceedings (Doc. No. 8 ) is denied. Judge Sara Lioi on 12/1/2017. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

BOUNTY MINERALS, LLC,

PLAINTIFF,
vs.
CHESAPEAKE EXPLORATION, LLC, et
al.,
DEFENDANTS.

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CASE NO. 5:17cv1695

JUDGE SARA LIOI

MEMORANDUM OPINION
AND ORDER

Before the Court are two motions. First, defendants Chesapeake Energy Marketing, LLC,
Chesapeake Operating, LLC, and Chesapeake Exploration, LLC (collectively “Chesapeake”)
move to compel arbitration and to stay this federal action. (Doc. No. 8 [“Am. Mot.
Compel/Stay”].) Plaintiff Bounty Minerals, LLC (“Bounty Minerals”) opposes the motion (Doc.
No. 13 [“Am. Mot. Compel/Stay Opp’n”]), and Chesapeake replied (Doc. No. 19 [“Am. Mot.
Compel/Stay Reply”]). Second, Bounty Minerals has moved to amend the complaint. (Doc. Nos.
16/17 [“Mot. Amend”].)) Chesapeake has filed a response (Doc. No. 18 [Mot. Amend Resp.”]),
and Bounty Minerals has filed a reply. (Doc. No. 20 [“Mot. Amend Reply”].)
I. BACKGROUND
Bounty Minerals is a company that purchases oil and gas rights, including lease royalty
interests, in property located in Ohio and surrounding states. (Doc. No. 1-1 [“Compl.”] ¶ 7.)
Chesapeake is comprised of a gas company and affiliated entities that hold working interests in
oil and gas leases. (Id. ¶¶ 24-25.) On July 11, 2017, Bounty Minerals filed suit in state court
against Chesapeake to recover royalties it believes are owed to it by Chesapeake under the terms

of several oil and gas leases, all of which “have substantially similar royalty clauses[.]” (Id. ¶
31.) It is Bounty Minerals’ theory that Chesapeake violated the terms of these royalty provisions
by paying royalties on net (instead of gross) proceeds, remitting untimely payments, and failing
to pay the required interest owed under the contracts. The original complaint raises two claims
for breach of contract and a separate claim for declaratory relief.
Only one of the leases identified in the complaint—CAM-Ohio Lease—contains an
arbitration clause. That provision requires that “[a]ny questions concerning [the] Lease or
performance thereunder . . . be ascertained and determined by three disinterested arbitrators[.]”
(Doc. No. 1-1, Ex. 1 (CAM-Ohio Lease), Art. VII, § 1 at 48.1) On August 14, 2017, Chesapeake
removed the action to federal court. Shortly thereafter, Chesapeake moved to compel arbitration
on the CAM-Ohio Lease under the terms of the lease’s arbitration provision. As part of the
motion, Chesapeake sought a stay of the remainder of the case while the parties pursue private
arbitration under the CAM-Ohio Lease. (Am. Mot. Compel/Stay at 560-62.2)
The parties’ procedural chess game continued. “To partially moot the relief sought in the”
motion to compel, Bounty Minerals moved to amend the complaint to remove the CAM-Ohio
Lease from the litigation. (Mot. Amend at 1049-50.) In its motion, Bounty Minerals explains
that, rather than contest “the propriety or enforceability of the identified arbitration clause in the
‘CAM-Ohio Lease,’” Bounty Minerals proposes to simply remove the issue of arbitrability from
the litigation by not seeking to recover on that particular lease in this federal lawsuit. (Id. at
All page number references are to the page identification number generated by the Court’s electronic docketing
system.
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Chesapeake moved to compel arbitration and to stay the proceedings on August 21, 2017. (Doc. No. 7 (Motion to
Compel Arbitration and to Stay).) On August 23, 2017, Chesapeake filed an amended motion to correct a
typographical error that misidentified one of the defendants in this action. (See Am. Mot. Compel/Stay at 551, n.1.)
Accordingly, Chesapeake’s motion to compel arbitration and to stay is moot.
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1051.) Should the Court grant its motion to amend, Bounty Minerals suggests that the only issue
left for the Court to resolve will be “whether [Chesapeake’s] request to stay this case is
appropriate.” (Id.)
Once again, Chesapeake counter-moved. On September 18, 2017 (ten days after Bounty
Minerals moved to amend), Chesapeake filed a demand for arbitration with the American
Arbitration Association (“AAA”). (Doc. No. 19-1 [“Arb. Demand”], beginning at 1064.) In
support of the demand, Chesapeake filed with the AAA a request for declaratory relief. (Doc.
No. 19-1 [“Decl. Demand”], beginning at 1066.) By these filings, Chesapeake formally seeks to
arbitrate the dispute regarding the royalties owed under the CAM-Ohio Lease. Although Bounty
Minerals has challenged the propriety of Chesapeake’s arbitration demand by filing a motion to
dismiss, by letter dated November 15, 2017, the AAA determined that the matter will proceed to
assignment of an arbitration panel, and the motion to dismiss will be a matter for the panel to
decide. (Doc. No. 21-1.)
II. BOUNTY MINERALS’ MOTION TO AMEND
Because the Court’s ruling on the motion to amend impacts the motion to compel and to
stay, the Court begins with Bounty Minerals’ motion. As set forth above, Bounty Minerals’
motion to amend is limited to removing the CAM-Ohio Lease from the litigation. Rule 15 of the
Federal Rules of Civil Procedure governs requests to amend. Rule 15(a) provides for leave as a
matter of course within 21 days of filing the initial pleading or, if a response is required, within
21 days after the filing of a response or a motion under Fed. R. Civ. P. 12(b), (e), or (f). Fed. R.
Civ. P. 15(a)(1). In all other cases, leave must be granted by the court, and a court is directed to
extend such leave “freely” when “justice so requires.” Fed. R. Civ. P. 15(a)(2).
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Where leave is required, the decision whether to permit the amendment is committed to
the discretion of the trial court. See Estes v. Ky. Util. Co., 636 F.2d 1131, 1133 (6th Cir. 1980)
(citation omitted); see generally Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321,
330-32, 91 S. Ct. 795, 28 L. Ed. 2d 77 (1971) (citations omitted). The trial court’s discretion,
however, is “limited by Fed. R. Civ. P. 15(a)’s liberal policy of permitting amendments to ensure
the determination of claims on the merits.” Marks v. Shell Oil Co., 830 F.2d 68, 69 (6th Cir.
1987) (citation omitted).
“Leave to amend may be denied when it would result in undue delay, prejudice to the
opposing party, or repeated failure to cure deficiencies in the complaint.” Phelps v. McClellan,
30 F.3d 658, 662 (6th Cir. 1994) (citing Forman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L.
Ed. 2d 222 (1962); Duchon v. Cajon Co., 791 F.2d 43, 48 (6th Cir. 1986)). When a party has
delayed in seeking amendment, the court weighs the cause shown for the delay against the
resulting prejudice to the opposing party. Head v. Timken Roller Bearing Co., 486 F.2d 870,
873-74 (6th Cir. 1973) (citations omitted). “In determining what constitutes prejudice, the court
considers whether the assertion of the new claim or defense would: require the opponent to
expend significant additional resources to conduct discovery and prepare for trial; significantly
delay the resolution of the dispute; or prevent the plaintiff from bringing a timely action in
another jurisdiction.” Phelps, 30 F.3d at 662-63 (citation omitted). The longer the period of
unexplained delay, the less prejudice the adverse party will be required to show to defeat the
motion. Id. at 662 (citation omitted).
Here, Chesapeake does not oppose Bounty Minerals’ motion, to the extent that it seeks
to remove the CAM-Ohio Lease from the litigation. Moreover, the Court finds no evidence of
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significant prejudice to the opposing party, a likelihood of substantial delay in the proceedings,
or a repeated failure to cure deficiencies in the pleadings. The proposed amended complaint and
the motion to amend were filed early in the proceedings. Additionally, the present motion
represents Bounty Minerals’ first request to amend, and Bounty Minerals has not demonstrated a
repeated failure to cure deficiencies in the pleadings. Finally, while the impetus for the motion
may have been to frustrate Chesapeake’s efforts to stay these proceedings, the Court cannot find
that the motion is made in bad faith.
In light of the mandate of Rule 15(a) that leave should be “freely” given, and inasmuch as
Chesapeake does not oppose the amendment, the Court rules that “justice so requires” that the
motion to amend be granted. See Fed. R. Civ. P. 15(a). The Court, therefore, grants Bounty
Minerals’ motion for leave to file an amended complaint. Bounty Minerals shall file the
proposed amended complaint (Doc. No. 16-1) as its first amended complaint within 3 business
days of the date of this Memorandum Opinion and Order.
III. CHESAPEAKE’S MOTION TO COMPEL ARBITRATION AND MOTION TO STAY
In support of the motion to stay, Chesapeake relies heavily upon the unreported decision
in Hope Christian Fellowship v. Chesapeake Energy Corp., No. 4:15CV02275, 2016 WL
5661607 (N.D. Ohio Sept. 29, 2016). There, under somewhat analogous facts, lease owners
sought to recover against Chesapeake for alleged unpaid gas and oil royalties, and some but not
all of the leases at issue in the class action contained arbitration agreements. Chesapeake sought
to compel arbitration on the leases that contained such agreements, and further sought to stay the
remainder of the case pending the completion of the arbitration process. The court granted the
motion. In staying the case as to the royalty owners whose leases contained arbitration
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agreements, the court observed that § 3 of the Federal Arbitration Act (“FAA”) required the
court to stay the trial of the action for all issues that are referable to arbitration. Hope Christian
Fellowship, 2016 WL 5661607, at *10 (citing 9 U.S.C. § 3; Arthur Anderson LLP v. Carlisle,
556 U.S. 624, 625, 129 S. Ct. 1896, 173 L. Ed. 2d 832 (2009)).
The court also elected to invoke its inherent authority to stay consideration of the leases
that did not include arbitration clauses, finding significant overlap as to the facts, parties, and
counsel. Id. (citing F.T.C. v. E.M.A. Nationwide, Inc., 767 F.3d 611, 626-27 (6th Cir. 2014)
(further citation omitted)). Further, the court observed that it was “not persuaded” that the
arbitrations would not “affect” the disposition of the remaining cases. Id.
While recognizing that the Court cannot compel the parties to arbitrate if the CAM-Ohio
Lease is no longer in the case, Chesapeake urges the Court to rely on its inherent power to stay
the case while that particular lease is arbitrated. “[T]he power to stay proceedings is incidental to
the power inherent in every court to control the disposition of the causes on its docket with
economy of time and effort for itself, for counsel, and for litigants. How this can best be done
calls for the exercise of judgment, which must weigh competing interests and maintain an even
balance.” Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S. Ct. 163, 81 L. Ed. 153 (1936)
(citations omitted); see also Hill v. Mitchell, 30 F. Supp. 2d 997, 1000 (S.D. Ohio 1998) (“[T]he
Court has the inherent power to stay proceedings pending the resolution of the same or related
issues in another forum.”) In determining whether it is appropriate to stay litigation, the Court
should consider the following factors: “[1] the potentiality of another case having a dispositive
effect on the case to be stayed, [2] the judicial economy to be saved by waiting on a dispositive
decision, [3] the public welfare, and [4] the hardship/prejudice to the party opposing the stay,
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given its duration.” Michael v. Ghee, 325 F. Supp. 2d 829, 831 (N.D. Ohio 2004) (citing Landis,
299 U.S. at 255). When exercising this inherent power, a court “must tread carefully in granting
a stay of proceedings, since a party has a right to a determination of its rights and liabilities
without undue delay.” Ohio Envtl. Council v. U.S. Dist. Ct., 565 F.2d 393, 396 (6th Cir. 1977)
(citing Landis, 299 U.S. at 254-55).
Notwithstanding the stay issued in Hope Christian Fellowship, the Court finds that a
consideration of the relevant factors, coupled with differences in how arbitration has been
pursued in the present case, counsels against staying this action while the parties arbitrate the
terms of a lease that is no longer a part of the lawsuit. As to the first factor, an arbitrator’s ruling
on the CAM-Ohio Lease would not be binding on this Court and Chesapeake does not argue
otherwise. Several of the cases cited by Chesapeake where stays were granted under the court’s
inherent power involved situations where the courts were awaiting potentially dispositive rulings
from other forums. See, e.g., Schartel v. OneSource Tech., LLC, No. 1:15 CV 1434, 2015 WL
7430056, at *1-2 (N.D. Ohio Nov. 17, 2015) (stay pending Supreme Court decisions on issues
germane to the case); Canter v. Calderhead, Lockemeyer & Peschke Law Office, No. 1:13-cv514, 2014 WL 64155, at *3 (S.D. Ohio Jan. 8, 2014) (stay issued pending ruling in state court
that could “resolve many, if not all, of the legal and factual issues raised by plaintiff’s
complaint”). Still, Chesapeake surmises that, “after the arbitration is complete, the parties will
likely resolve the remaining disputes regarding the additional leases[.]” (Am. Mot. Compel/Stay
Reply at 1060.) The Court does not share Chesapeake’s optimism, as there is nothing to prevent
the loser in arbitration from advocating for a different result in federal court. Even though the
leases involve “substantially similar royalty clauses,” the effect of any ruling is not dispositive
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on this Court and, therefore, the first factor weighs against a stay.3
As to the second factor—judicial economy—the Court finds that there is some limited
economy to be gained by permitting a stay. There is clear overlap in the parties and the issues
that will be raised, and it is likely that proceeding simultaneously in two forums may result in
duplication of certain discovery efforts. Still, this lawsuit involves leases that are separate from
the lease that will be arbitrated before the AAA. Regardless of the outcome in arbitration as to
that lease, individualized discovery will have to be conducted as to each separate lease still at
issue before questions can be answered relating to the proper royalty payments that may be due
under each lease. This factor weighs slightly in favor of a stay.
The third factor is neutral. The leases at issue involve contractual agreements between
private parties. There are no matters of public policy or questions of important public interests
for the Court to resolve. Instead, the Court will be asked to interpret the terms of a private
contact that was negotiated at arms-length between corporations presumably with equal
bargaining positions.
The fourth and final factor contemplates the hardship or prejudice to the non-moving
party. Bounty Minerals has challenged Chesapeake’s arbitration demand, suggesting that the
demand suffers from several technical defects. The Court has neither the authority nor the
inclination to pass on the propriety of the arbitration demand. Nonetheless, the controversy
surrounding the private arbitration demonstrates that a final arbitration decision in the near future

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With respect, the Court believes that the court in Hope Christian Fellowship misapplied this first factor by finding
that arbitration could potentially have an effect upon the federal litigation. The pertinent question is whether the
outcome in another forum would be dispositive as to one or more issues in the federal litigation. See Michael, 325 F.
Supp. 2d at 833 (noting that “[i]t makes little sense to undertake the herculean task of plodding through the motions
when one decision by the Supreme Court could invalidate the entire case[]”). While an arbitrator’s decision could be
helpful, it would not be dispositive.
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is unlikely. In contrast to the situation in Hope Christian Fellowship, here, the Court cannot rely
on its authority to compel the parties to arbitrate to be assured that the arbitration will survive the
motion to dismiss. Because a swift decision in arbitration is far from a guarantee, the Court finds
that the potential hardship to Bounty Minerals in having to wait to litigate the leases still at issue
in this case weighs against the stay. See, e.g., In re GOE Lima, LLC, Bankr. No. 08-35508, 2012
WL 930324, at *4 (Bankr. N.D. Ohio Mar. 19, 2012) (finding that fact that the arbitration
proceedings had not progressed in two years to the point of addressing substantive issues
weighed against a stay of proceedings in bankruptcy court).
Having weighed the relevant factors, the Court finds that the competing interests do not
favor a stay of the present litigation. Accordingly, the Court denies Chesapeake’s amended
motion to compel arbitration and to stay the case.
IV. CONCLUSION
For all of the foregoing reasons, Bounty Minerals’ motion to amend the complaint is
granted, and Chesapeake’s amended motion to compel arbitration and to stay the proceedings is
denied.
IT IS SO ORDERED.

Dated: December 1, 2017
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

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