Chesapeake Appalachia, L.L.C. v. Scout Petroleum et al

Filing 99

MEMORANDUM (Order to follow as separate docket entry) re 85 MOTION for Summary Judgment on Count II filed by Chesapeake Appalachia, L.L.C., and 83 MOTION to Dismiss Count II of the Complaint filed by Scout Petroleum II, Scout Petroleum. Signed by Honorable Matthew W. Brann on 4/28/2017. (jn)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
CHESAPEAKE APPALACHIA,
L.L.C.,
Plaintiff,
v.
SCOUT PETROLEUM, LLC, and
SCOUT PETROLEUM II, LP,
Defendants.

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4:14-CV-0620

(Judge Brann)

MEMORANDUM
APRIL 28, 2017
I. BACKGROUND:
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 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 it 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
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judgment contending that the contract does not permit class arbitration, commonly
referred to as the “clause construction” question.
On October 16, 2014, I granted Chesapeake’s motion for partial summary
judgment on Count I and entered a declaratory judgment to the effect that the
Court is to interpret the contract. Thereafter, I heard oral argument on Scout’s
motion for reconsideration, which I denied on December 19, 2014, and then
certified that decision for interlocutory appeal. On January 27, 2016, the United
States Court of Appeals for the Third Circuit affirmed my determination that a
court, not an arbitrator, is charged with interpreting the clause at issue.
The parties are now before the Court for resolution of Count II, the “clause
construction” question. Chesapeake moves for partial summary judgment
requesting that the Court enter a declaratory judgment that the various contracts at
issue do not permit class arbitration, only what is called individual or bilateral
arbitration. Scout moves to dismiss the complaint arguing that Pennsylvania
contract law permits class arbitration. Scout again requested oral argument on the
motions and the parties were heard on April 5, 2017.
For the reasons that follow, Scout’s motion will be denied, Chesapeake’s
motion will be granted, and final judgment will be entered in favor of Chesapeake.

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II. DISCUSSION:
A. Standard of Review
Summary judgment is appropriate where “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.”1 A fact is “material” where it “might affect the outcome of the suit
under the governing law.”2 A dispute is “genuine” where “the evidence is such
that a reasonable jury,” giving credence to the evidence favoring the nonmovant
and making all inferences in the nonmovant’s favor, “could return a verdict for the
nonmoving party.”3
The burden of establishing the nonexistence of a “genuine issue” is on the
party moving for summary judgment.4 The moving party may satisfy this burden
by either (I) submitting affirmative evidence that negates an essential element of
the nonmoving party’s claim; or (ii) demonstrating to the court that the nonmoving
party’s evidence is insufficient to establish an essential element of the nonmoving
party’s case.5

1

Fed. R. Civ. P. 56(a).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
3
Id.
4
In re Bressman, 327 F.3d 229, 237 (3d Cir. 2003) (quoting Celotex Corp. v. Catrett, 477 U.S.
317, 331 (1986) (Brennan, J., dissenting)).
5
Id. at 331.
2

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Where the moving party’s motion is properly supported, the nonmoving
party, to avoid summary judgment in his opponent’s favor, must answer by setting
forth “genuine factual issues that properly can be resolved only by a finder of fact
because they may reasonably be resolved in favor of either party.”6 For movants
and nonmovants alike, the assertion “that a fact cannot be or is genuinely disputed
must” be supported by “materials in the record” that go beyond mere allegations,
or by “showing that the materials cited do not establish the absence or presence of
a genuine dispute, or that an adverse party cannot produce admissible evidence to
support the fact.”7
“When opposing summary judgment, the non-movant may not rest upon
mere allegations, but rather must ‘identify those facts of record which would
contradict the facts identified by the movant.’”8 Furthermore, “[i]f a party fails to
properly support an assertion of fact or fails to properly address another party’s
assertion of fact as required by Rule 56©, the court may . . . consider the fact
undisputed for purposes of the motion.”9
In deciding the merits of a party’s motion for summary judgment, the
court’s role is not to evaluate the evidence and decide the truth of the matter, but
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7
8
9

Anderson, 477 U.S. at 250.
Fed. R. Civ. P. 56(c)(1); see also Anderson, 477 U.S. at 248–50.
Port Auth. of N.Y. and N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 233 (3d Cir. 2003).
Fed. R. Civ. P. 56(e)(2).
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instead to determine whether there is a genuine issue for trial.10 Credibility
determinations are the province of the factfinder, not the district court.11 Although
the court may consider any materials in the record, it need only consider those
materials cited.12
B. Facts
In 2008, Chesapeake entered into various paid-up oil & gas leases with
landowners in several northeastern Pennsylvania counties to explore for, and
produce natural gas from, the landowners’ property. The leases at issue are
standard natural gas leases, which consist of a basic boilerplate form contract,
often together with an individually negotiated addendum. In 2013, Scout
purchased the right to certain of the leases from certain landowners and has
received royalties from Chesapeake on the gas produced from these mineral
estates.
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.

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12

Anderson, 477 U.S. at 249.
BWM, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).
Fed. R. Civ. P. 56(c)(3).
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The leases at issue contain the following pertinent 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.13
Chesapeake asserts that the above-cited lease term does not provide for, or
otherwise contemplate, class arbitration; instead it envisions only individual
arbitration. Chesapeake filed the instant action and motion for equitable relief
seeking to have the Court declare that class arbitration is not available under the
leases.
C. Analysis
As it turns out, this exact issue was recently decided based on identical
language from Chesapeake’s leases. The Honorable John E. Jones III, of this
Court, held in Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F. Supp. 3d 912
(M.D. Pa. 2016), that the lease language at issue does not permit class arbitration.
In Ostroski, Judge Jones granted summary judgment in Chesapeake’s favor and
declared that the lease with identical language to the leases in the matter at hand
does not permit class arbitration. In doing so, Judge Jones stated:

13

ECF No. 1 at 7 citing Ex. A at SCOUT I-000181.
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It is undisputed that the arbitration clause of the Lease does not mention
class arbitration.
*****
Our analysis on this point is necessarily abbreviated because the
jurisprudence is abundantly clear. Because the plain language of the
arbitration clause in the Lease is silent as to class arbitration, we find
that the Lease does not allow Defendants to compel it.14
With that conclusion in mind, then, I turn my attention to the law of the case
doctrine. “The law-of-the-case doctrine rests on a simple premise: ‘the same issue
presented a second time in the same case in the same court should lead to the same
result.’”15 While I certainly acknowledge that the matter before this Court is not
precisely the matter litigated before my colleague in Ostroski, it’s close. It would
be extraordinary indeed for me to hold differently than did Judge Jones when
presented with the same lease language, from the same Plaintiff, in the same
Court. Moreover, and perhaps more importantly I agree with Judge Jones’s
holding and sound legal reasoning.
Considering the matter more broadly, I am also cognizant that the United
States Supreme Court stated in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. that
“a party may not be compelled under the FAA to submit to class arbitration unless
14

Chesapeake Appalachia, L.L.C., 199 F. Supp. 3d at 916- 917.
Kimberlin v. Quinlan, 199 F.3d 496, 500 (D.C. Cir. 1999) citing LaShawn A. v. Barry, 87 F.3d
1389, 1393 (D.C. Cir. 1996) (en banc).
15

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there is a contractual basis for concluding that the party agreed to do so.”16 “This
is so because class-action arbitration changes the nature of arbitration to such a
degree that it cannot be presumed the parties consented to it by simply agreeing to
submit their disputes to an arbitrator.”17 “In bilateral arbitration, parties forgo the
procedural rigor and appellate review of the courts in order to realize the benefits
of private dispute resolution: lower costs, greater efficiency and speed, and the
ability to choose expert adjudicators to resolve specialized disputes.”18 “But the
relative benefits of class-action arbitration are much less assured, giving reason to
doubt the parties' mutual consent to resolve disputes through class-wide
arbitration.”19
The Supreme Court declined to allow class arbitration in Stolt-Nielsen
where the contract referred explicitly to bilateral arbitration but was silent as to
class arbitration. “An arbitrator chosen according to an agreed-upon procedure no
longer resolves a single dispute between the parties to a single agreement, but
instead resolves many disputes between hundreds or perhaps even thousands of
parties.”20 “Under the Class Rules [of the American Arbitration Association], ‘the
16

Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 684, 130 S. Ct. 1758, 1775, 176
L. Ed. 2d 605 (2010)
17
Id.
18
Id.
19
Id. at 685-686.
20
Id. at 686.
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presumption of privacy and confidentiality’ that applies in many bilateral
arbitrations ‘shall not apply in class arbitrations.’”21
Moreover, the United States Court of Appeals for the Sixth Circuit in Reed
Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett found that the clause22 at issue in
that case did “not mention classwide arbitration at all.”23 The Sixth Circuit stated:
The principal reason to conclude that this arbitration clause does not
authorize classwide arbitration is that the clause nowhere mentions it. A
second reason, as the district court correctly observed, is that the clause
limits its scope to claims “arising from or in connection with this
Order,” as opposed to other customers’ orders. Crockett responds that
the arbitration clause refers to the AAA’s Commercial Rules, which
themselves incorporate the AAA’s Supplemental Rules for Class
Arbitration. But the Supplemental Rules expressly state that one should
“not consider the existence of these Supplementary Rules, or any other
AAA rules, to be a factor either in favor of or against permitting the
arbitration to proceed on a class basis.” Crockett also responds that the
agreement does not expressly exclude the possibility of classwide
arbitration, which is true enough. But the agreement does not include it
either, which is what the agreement needs to do in order for us to force
that momentous consequence upon the parties here.
The Supreme Court has made clear that “[a]n implicit agreement to
authorize class-action arbitration” should not be inferred “solely from
the fact of the parties' agreement to arbitrate.” Stolt–Nielsen, 559 U.S.
21

Id.
That clause stated:
Except as provided below, any controversy, claim or counterclaim (whether characterized as
permissive or compulsory) arising out of or in connection with this Order (including any amendment
or addenda thereto), whether based on contract, tort, statute, or other legal theory (including but not
limited to any claim of fraud or misrepresentation) will be resolved by binding arbitration under this
section and the then-current Commercial Rules and supervision of the American Arbitration
Association (“AAA”).
23
Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013).
22

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at 685, 130 S.Ct. 1758. That, at bottom, is the inference that Crockett
asks us to make here. The agreement in this case does not provide for
classwide arbitration.24
This reasoning is also, to my mind, persuasive.
Scout in contrast attempts to construct its arguments on two cases, both
inapposite. The first case hails from the Third Circuit, Opalinski v. Robert Half
Int’l Inc., and known as Opalinski II.25 Scout contends that although class
arbitration was not explicitly mentioned in the clause in the case at bar, it is
implicitly assumed. Scout tries to make the same unpersuasive argument that the
Opalinski II plaintiffs made, which was rejected by the Third Circuit. “Several
other Circuits, including the Fifth, Sixth, Seventh, Eighth, and Ninth, have
likewise stated that “silence” in an agreement regarding class arbitration generally
indicates that it is not authorized by the agreement.”26

24

Id. at 599-600.
Opalinski v. Robert Half Int’l Inc., 2017 U.S. App. LEXIS 1594 (3d Cir. N.J. Jan. 30, 2017).
26
Id. citing Eshagh v. Terminix Int’l Co., 588 F. App’x 703, 704 (9th Cir. 2014) (affirming the
district court’s grant of a motion to strike class allegations, where the arbitration agreement did
not mention class arbitration); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d
594, 599 (6th Cir. 2013) (“The principal reason to conclude that this arbitration clause does not
authorize classwide arbitration is that the clause nowhere mentions it.”); Reed v. Fla. Metro.
Univ., Inc., 681 F.3d 630, 643-44 (5th Cir. 2012) (finding that silence in an agreement does not
“constitute[ ] consent to class arbitration” (internal quotation marks omitted)), abrogated on other
grounds by Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 186 L. Ed. 2d 113 (2013);
Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 728-29 (8th Cir. 2001) (holding
that the district court [*8] did not err by compelling individual, rather than class, arbitration
because the relevant agreements were silent as to class arbitration); Champ v. Siegel Trading Co.,
55 F.3d 269, 275 (7th Cir. 1995) (stating “the FAA forbids federal judges from ordering class
arbitration where the parties’ arbitration agreement is silent on the matter”).
25

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Scout also cites to a Pennsylvania Superior Court decision, Dickler v.
Shearson Lehman Hutton, Inc., 408 Pa. Super. 286, 299, 596 A.2d 860, 866
(1991) to support its argument. Dickler is incongruent for two reasons.
First, Dickler was decided in 1991, twelve years before the United States
Supreme Court commenced its analysis in this area of law. As I noted in my
Order of December 19, 2014, “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).” The Supreme Court next decided StoltNeilsen in 2010. The Sixth Circuit later decided Reed-Elsiver in 2013. This Court
then decided Ostroski in 2016.
Second, the Dickler contract clause language is distinguishable from the
clause at issue while the Ostroski contract clause is identical. I can discern no
plausible legal basis for this Court to rely on Dickler when decisions, contrary to
it, have been made in this Court, various Courts of Appeals and by the United
States Supreme Court. Even if I accept Scout’s argument that I should find an
implicit reference to class arbitration and therefore apply Pennsylvania contract
law, including Dickler, I would still not find that the plain language of the contract
permits class arbitration. “The fundamental rule in contract interpretation is to
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ascertain the intent of the contracting parties.”27 “In cases of a written contract,
the intent of the parties is the writing itself.”28 “The task of interpreting a contract
is [an issue of law decided] by a court.”29
Dickler is compelling in one limited way, however. It stated “the Court has
consistently reiterated this policy of respecting arbitration agreements.”30 That is
precisely what I do in the instant matter.
The contracts at issue here clearly allow for arbitration; but what the plain
language of the leases allow is individual or bilateral arbitration, not a class
arbitration. The language in this matter is written in the singular, which indicates
individual or bilateral arbitration, i.e.: “in the event of a disagreement between
lessor and lessee concerning this lease.”
The clause at issue in Dickler was drafted plurally, and states: “any
controversy arising out of or relating to my accounts, to transactions with you,
your officers, directors agents and/or employees for me...shall be settled by
arbitration.” This is what distinguishes Dickler - the actual language utilized in
the contract.

27

Ins. Adjustment Bureau, Inc. v. Allstate Ins. Cos., 588 Pa. 470, 480, 905 A.2d 462, 468 (2006)
citing Robert F. Felte, Inc. v. White, 451 Pa. 137, 302 A.2d 347, 351 (1973).
28
Id. citing . Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124, 145 A.2d 672 (1958).
29
Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983).
30
Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d 860, 862 (Pa. Super. 1991)
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The Dickler Court also wrote “we find that the broad agreement [ ] signed
by the parties encompasses all controversies ...which may continue through
arbitration on a class-wide basis.”31 Therefore, even applying Dickler, I still find
that judgment should be entered in Chesapeake’s favor.
III. CONCLUSION:
For all of the foregoing reasons, Chesapeake’s motion will be granted.
A separate Order will issue granting Plaintiff’s motion for summary
judgment on Count II and denying Defendants’ motion to dismiss Count II. Final
judgment will be entered in favor of Plaintiff and against Defendants and this case
is dismissed.

BY THE COURT:

s/Matthew W. Brann
Matthew W. Brann
United States District Judge

31

Dickler at 288.
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