Roman et al v. Chesapeake Appalachia, L.L.C.
MEMORANDUM and ORDER granting 3 Motion to Compel Arbitration; Pltfs are compelled to arbitrate all claims contained in their complaint; the Clerk of Court is directed to administratrively CLOSE this case. Signed by Honorable James M. Munley on 6/7/12 (sm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LARRY E. ROMAN and
ROBERTA D. ROMAN,
CHESAPEAKE APPALACHIA, L.L.C., :
Before the court for disposition is Defendant Chesapeake Appalachia,
L.L.C.’s motion to compel arbitration or, in the alternative, to dismiss counts II
and III and the demands for punitive damages and attorneys fees. (Doc. 3).
The matter is fully briefed and ripe for disposition. For the following reasons,
the court will compel arbitration.
Plaintiffs Larry E. Roman and Roberta D. Roman (collectively “plaintiffs”)
initiated the instant action on August 29, 2011 with a three count complaint
against Defendant Chesapeake Appalachia, L.L.C. (hereinafter “defendant”).
(See Doc. 1, Compl. (hereinafter “Compl.”)). In Count I, plaintiffs seek a
declaration, pursuant to the Declaratory Judgment Act, 28 U.S.C § 2201, that
their oil and gas lease with defendant is no longer in effect. (Id. ¶¶ 29-42).
Count II is a Pennsylvania state law claim for slander of title, in which plaintiffs
seek $250,000.00 in damages. (Id. ¶¶ 43-51). Count III is a Pennsylvania
state law claim for breach of covenant of good faith and fair dealing, in which
plaintiffs demand $250,000.00 in compensatory damages and $250,000.00 in
punitive damages for defendant’s alleged bad faith. (Id. ¶¶ 52-62). The wellpleaded facts alleged in the complaint are summarized as follows.
On January 19, 2001, plaintiffs executed an “Oil and Gas Lease”
(hereinafter “the lease”) with Central Appalachian Petroleum. (Id. ¶ 7; Doc. 12, Ex. A, Oil & Gas Lease). This lease provides the lessee with exclusive
rights to “all the oil and gas and their constituents, whether hydrocarbon or
non-hydrocarbon, underlying” plaintiffs land in Ulster Township, Bradford
County, Pennsylvania. (Doc. 1-2, Ex. A, Oil & Gas Lease). The lease also
grants the lessee with the rights to drill, explore, construct roads, lay
pipelines, store natural resources and otherwise make use of its right to the oil
and natural gas on the land. (Id.) Approximately 135.88 acres of plaintiffs’
property is subject to this lease. (Id.; Compl. ¶ 10). Some time after
executing the lease, Central Appalachian Petroleum assigned its interest in
the lease to defendant. (Compl. ¶¶ 8-9).
The lease has a primary term of ten years, commencing on January 19,
2001. (Id. ¶ 12; Doc. 1-2, Ex. A, Oil & Gas Lease). The lease provides that
the primary term of ten years would be extended “for as long thereafter as
operations are conducted on the Leasehold in search of or production of oil,
gas, or their constituents, or for as long as a well capable of production is
located on the Leasehold, or for as long as extended by provision herein, or
for as long as the Leasehold is used for underground storage of gas, or for
the protection of stored gas.” (Doc. 1-2, Ex. A, Oil & Gas Lease). Plaintiffs
contend that “[n]o drilling, exploration, production, transportation or storage
operation sufficient to extend the Lease has been conducted on the plaintiffs’
leasehold by the Lessee or any successor including defendant Chesapeake”
since the lease was executed. (Compl. ¶ 14).
The lease contains two other provisions that are particularly pertinent to
this action. The first of these provisions provides that the leasehold, or a
portion of the leasehold, could be “unitized.” (Id. ¶ 15). This unitization
provision grants the lessee the “right to pool, unitize, or combine all or parts of
the Leasehold with other lands, whether contiguous or not contiguous, leased
or unleased, whether owned by Lessee or by others, at a time before or after
drilling to create drilling or production units either by contact right or pursuant
to government authorization.” (Doc. 1-2, Ex. A, Oil & Gas Lease). The lease
provides that the lessor will receive a proportional share of the royalties if the
lessor’s property is unitized. (Id.; Compl. ¶ 17). If the lessor’s property is
placed into a unit, “the drilling, operations in preparation for drilling, production
from, or payment for Royalty, Shut-in Royalty, or Delay in Marketing for a well
on such a unit shall have the same effect upon the terms of this Lease as if a
well were located on the Leasehold.” (Doc. 1-2, Ex. A, Oil & Gas Lease).
The second provision of this lease that is pertinent to this action is the
arbitration clause, which provides 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, settlement shall be by a
panel of three disinterested arbitrators. Lessor and Lessee shall
appoint and pay the fee of one each, and the two so appointed shall
appoint the third, whose fee shall be borne equally by Lessor and
Lessee. The award shall be by unanimous decision of the arbitrators
and shall be final.
(Doc. 1-2, Ex. A, Oil & Gas Lease).
On January 18, 2011, at 4:56 p.m., defendant filed a unitization
declaration with the Bradford County Recorder of Deeds. (Compl. ¶ 19; Doc.
1-3, Ex. B, Decl. & Notice of Pooled Unit). This pooled unit, named the
“Wasyl Unit,” includes a portion of plaintiffs’ leased property. (Compl. ¶¶ 1920). Plaintiffs allege that defendant was aware, or should have been aware,
that the primary term of the lease was going to expire and no “operations”
triggering an extension of the lease had been conducted. (Id. ¶ 22). Plaintiffs
contend that defendant filed the declaration of the Wasyl Unit on the eve of
the expiration of the primary term of the lease in an attempt to extend the
term. (Id. ¶¶ 21-22). Plaintiffs further posit that insufficient operations were
conducted on the leasehold property and on the Wasyl Unit to trigger an
automatic extension under the lease, that their property cannot be considered
a part of the Wasyl Unit as a matter of law and public policy, and that
defendant’s unlawfully clouded the title to plaintiffs’ property. (Id. ¶¶ 23-25).
Defendant responded to plaintiffs complaint with a motion to compel
arbitration, or, in the alternative, to dismiss plaintiffs’ Pennsylvania state law
claims for slander of title and bad faith and to strike plaintiffs’ requests for
attorney’s fees and punitive damages. (See Doc. 3). The parties fully briefed
the issues, bringing the case to its current posture.
The court has jurisdiction pursuant to the diversity statute, 28 U.S.C. §
1332. Plaintiffs Larry Roman and Roberta Roman are citizens and residents
of the Commonwealth of Pennsylvania. (Compl. ¶ 1). Defendant
Chesapeake Appalachia, L.L.C. is an Oklahoma limited liability company with
a business address in Oklahoma. (Id. ¶ 2). Because complete diversity of
citizenship exists among the parties and the amount in controversy exceeds
$75,000.00, the court has jurisdiction over the case. See 28 U.S.C. § 1332.
Because we are sitting in diversity, the substantive law of Pennsylvania shall
apply to the instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d
Cir. 2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938)).
The question in this case is whether the parties should be compelled to
arbitrate this dispute. Both Federal and Pennsylvania state law strongly favor
the enforcement of arbitration provisions.1 See Kirleis v. Dickie, McCamey &
Another court sitting in this district has held that, when it comes to oil
and gas leases, Pennsylvania law, and not the FAA, applies. See Ulmer v.
Chesapeake Appalachia, L.L.C., No. 4:08-cv-2062 (Doc. 11), slip op. at 4
(M.D. Pa. Jan. 16, 2009). Defendant disputes whether the holding in Ulmer is
applicable in the instant case. (See Doc. 5, Br. in Supp. of Def.’s Mot. to
Compel Arbitration at 5 n.2). The court need not resolve this dispute because
the FAA and the Pennsylvania Uniform Arbitration Act determine the scope of
arbitration provisions similarly. See State Farm Mut. Auto. Ins. Co. v.
Coviello, 233 F.3d 710, 713 n.1 (3d Cir. 2000) (“[T]here is no meaningful
difference between federal and Pennsylvania law when reviewing the scope of
Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009) (“It is well established that
the Federal Arbitration Act (FAA), reflects a ‘strong federal policy in favor of
resolution of disputes through arbitration.’” (quoting Alexander v. Anthony Int’l,
L.P., 341 F.3d 256, 263 (3d Cir. 2003))); Dodds v. Pulte Home Corp., 909
A.2d 348, 351 (Pa. Super. Ct. 2006) (“It is hornbook law that Pennsylvania
favors the enforceability of agreements to arbitrate.” (citing Quiles v. Fin.
Exch. Co., 897 A.2d 281, 285 (Pa. Super. Ct. 2005))). Contracts with an
arbitration clause are treated with a “presumption of arbitrability in the sense
that ‘[a]n order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration clause is not
suceptible to an interpretation that covers the asserted dispute. Doubts
should be resolved in favor of coverage.’” AT & T Techs., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643, 650 (1986) (quoting United Steelworkers of
Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).
Courts applying either Federal and Pennsylvania state law conduct the
same two part inquiry to determine the enforceability of arbitration provisions.
First, the court must determine whether “a valid agreement to arbitrate exists,”
and, second, whether “the particular dispute falls within the scope of the
agreement.” Kirleis, 560 F.3d at 160; see also Messa v. State Farm Ins. Co.,
641 A.2d 1167, 1168 (Pa. Super. Ct. 1994). “A party to a valid and
enforceable arbitration agreement is entitled to a stay of federal court
an arbitration clause.”).
proceedings pending arbitration as well as an order compelling such
arbitration.” Alexander, 341 F.3d at 263-64; see also 9 U.S.C. §§ 3, 4.
The parties to the instant dispute agree that a valid agreement to
arbitrate exists, thus satisfying the first step of the two-step process described
in Kireleis v. Dickies, McCamey & Chikote, P.C. and Messa v. State Farm
Insurance Company. (See Doc. 5, Br. in Supp. of Def.’s Mot. to Compel
Arbitration at 6; Doc. 7, Br. in Opp’n to Def.’s Mot. to Compel Arbitration at 3).
The parties dispute the second prong, whether the particular dispute falls
within the scope of the arbitration agreement.
First, plaintiffs argue that the issue of arbitration is moot because the
primary lease term expired on January 18, 2011 and because “plaintiffs’
claims relate to conduct independent of the lease . . . .” (Doc. 7, Br. in Opp’n
to Def.’s Mot. to Compel Arbitration at 3). Plaintiffs do not support this
argument with case law. In fact, plaintiffs temper their contention that the
expiration of the lease term voids the arbitration clause by recognizing
precedent from this district in direct contrast with their position. See Beinlich
v. Chesapeake Appalachia LLC, No. 3:11-cv-566 (Doc. 13) (M.D. Pa. May 31,
2011) (order granting motion to compel arbitration). Like the court in Beinlich,
we find that the agreement to arbitrate does not expire with the alleged
termination of the lease term. The court further agrees that “it makes no
sense to allow a plaintiff (sic) to avoid arbitration by arguing that the lease has
expired when the very issue of the litigation is whether the lease remains in
effect.” (Doc. 9, Reply Br. in Supp. of Def.’s Mot. to Compel Arbitration at 2).
Second, plaintiffs contend that the arbitration clause at issue does not
cover their tort claims. Plaintiffs essentially concede that their claim for
declaratory judgment should be compelled to arbitration; plaintiffs instead
focus on characterizing their tort claims as falling outside the scope of the
arbitration clause. (Doc. 7, Br. in Opp’n to Def.’s Mot. to Compel Arbitration at
4). Defendant counters plaintiffs’ argument by pointing to the broad language
of the arbitration provision, which requires arbitration of any disagreement
“concerning this lease, performance thereunder, or damages caused by
Lessee’s operations . . . .” (Doc. 1-2, Ex. A, Oil & Gas Lease). Defendant
maintains that courts have broadly interpreted arbitration clauses covering
claims “relating to” or “concerning” the agreement and that tort claims, such
as the ones plaintiffs allege, fit under these broad arbitration claims. See U.S.
Claims, Inc. v. Saffren & Weinberg, LLP, No. 07-0543, 2007 WL 4225536, at
*7 (E.D. Pa. Nov. 29, 2007) (“It is well-established that where separate tort
claims arise out of the same facts as the breach of contract claim, a broadly
worded arbitration provision covers such claims.”); Hearon v. AstraZeneca LP,
No. 02-3189, 2003 WL 21250640, at *5 (E.D. Pa. Mar. 24, 2003) (finding that
“the breadth of the language of the arbitration clause establishes that it was
intended to apply to all disputes related to Plaintiff's termination” and not
merely disputes concerning the specific provisions of her employment
The court agrees with defendant that all of plaintiffs’ claims in the
complaint should be compelled to arbitration. The language of the arbitration
provision, which requires the arbitration of “disagreement[s] between Lessor
and Lessee concerning this lease, performance thereunder, or damages
caused by Lessee’s operations,” is broad. (See Doc. 1-2, Ex. A, Oil & Gas
Lease). The arbitration clause does not exclude tort claims or claims
concerning the lease from compulsory arbitration. It is settled that courts in
Pennsylvania compel tort claims to arbitrate if the arbitration clause at issue is
broad enough. See Muhlenberg Twp. Sch. Dist. Auth. v. Pa. Fortunato
Constr. Co., 333 A.2d 184, 186 (Pa. 1975). The cases plaintiffs rely on for
support involve tort claims unrelated to the underlying contract and arbitration
provisions that are narrower than the instant arbitration clause. Compare
(Doc. 1-2, Ex. A, Oil & Gas Lease) (stating that “concerning this lease,
performance thereunder, or damages caused by Lessee’s operations” are to
be compelled to arbitration), with Hazleton Area Sch. Dist. v. Bosak, 671 A.2d
277, 279, 282 (Pa. Commw. Ct. 1996) (holding that an arbitration provision
providing that the parties will arbitrate disputes “arising out of or relating to
this Agreement or breach thereof” is not inclusive of negligence claims for
defects in a structure), and Edelstein v. Martin, No. 1849, slip op. (Pa. Ct.
Comm. Pls. Phila. Co. Mar. 18, 2008) (finding that the “wrongful act” torts
alleged against a former partner are not subject to compulsory arbitration
because these torts did not fall under the arbitration agreement, which covers
disputes that “arise out of” or “relate to” the partnership agreement).
With respect to plaintiffs’ first tort claim, slander of title, the court finds
that this claim falls under this arbitration clause. Plaintiffs themselves
describe this claim as “rest[ing] on allegations regarding defendant’s bad faith
recording of a declaration of unitization on January 18, 2011, only hours
before the ten-year primary term of plaintiff’s (sic) lease was to expire, and on
defendant’s failure, within the primary term of the lease, to conduct operations
on the leasehold or the unitized lands sufficient to extend the lease past the
primary term.” (Doc. 7, Br. in Opp’n to Def.’s Mot. to Compel Arbitration at 6).
Thus, plaintiffs’ own description of this claim explains that it concerns the
unitization provision of the lease and whether the lease was validly extended.
Plaintiffs’ second tort claim for breach of the covenant of good faith and
fair dealing similarly falls under the arbitration clause and will be compelled to
arbitration. Plaintiffs point to the “terms of the parties’ lease in the instant
case” to support their contention that defendant undertook the unitization of
plaintiffs’ property in bad faith. (Doc. 7, Br. in Opp’n to Def.’s Mot. to Compel
Arbitration at 13). Furthermore, when it comes to this tort claim, plaintiffs
explained that their “grievance is . . . with the bad faith recording of the
declaration in light of defendant’s failure and inability to develop the leasehold
or the unit prior to the expiration of plaintiff’s (sic) lease.” (Id.) Therefore,
plaintiffs’ summary of this claim establishes that the bad faith claim concerns
the terms of the lease and whether the unitization was a valid exercise of
defendant’s rights under the lease.2
For the reasons stated above, the court will compel arbitration in this
case. In light of the court’s ruling compelling arbitration, it is not necessary to
address defendant’s argument in the alternative. An appropriate Order
Our decision to compel all of plaintiffs’ claims to arbitration is
consistent with recent precedent in this district in which another court
compelled nearly identical claims to arbitration pursuant to a nearly identical
arbitration clause. See generally Vosburg v. Chesapeake Appalachia, L.L.C.,
No. 3:11-cv-1615 (Doc. 10), slip op. (M.D. Pa. Nov. 16, 2011). The plaintiffs
in Vosburg and the instant case are represented by the same attorney, who
raised the same arguments in opposition to compelled arbitration. The court
in Vosburg rejected plaintiffs’ arguments against compelled arbitration and
noted that this case is similar to other cases in which separate tort claims
were compelled to arbitration. See id. at 9 (quoting U.S. Claims, Inc., 2007
WL 4225536, at *7). Therefore, like the court in Vosburg, we will compel this
case to arbitration.
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LARRY E. ROMAN and
ROBERTA D. ROMAN,
CHESAPEAKE APPALACHIA, L.L.C., :
AND NOW, to wit, this 7th day of June 2012, it is hereby ORDERED that:
1. Defendant Chesapeake Appalachia, L.L.C.’s motion to compel
arbitration or, in the alternative, to dismiss counts II and III and the
demands for punitive damages and attorney’s fees (Doc. 3) is
2. Plaintiffs are COMPELLED TO ARBITRATE all claims contained in
their complaint (Doc. 1); and
3. The Clerk of Court is directed to ADMINISTRATIVELY CLOSE this
BY THE COURT:
s/ James M. Munley
JUDGE JAMES M. MUNLEY
United States District Court
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