Chesapeake Appalachia, L.L.C. et al v. Suppa et al
Filing
46
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT, AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT: It is ORDERED that Plaintiffs' 5 Motion for Partial Summary Judgment is granted and Defendants' 36 Motion for Partial Summary Judgment is denied. The Court SCHEDULES a Status Conference for 4/27/2015 03:30 PM in Clarksburg District Judge Courtroom, 2nd Floor before District Judge Irene M. Keeley. Signed by District Judge Irene M. Keeley on 3/4/15. (cnd)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
CHESAPEAKE APPALACHIA, LLC, and
CHESAPEAKE OPERATING, LLC,
Plaintiffs,
v.
//
Civil Action No. 1:14CV159
(Judge Keeley)
DELORIS SUPPA, and
CHARLES BUNNER,
Defendants.
MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS’
MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 5] AND DENYING
DEFENDANTS’ MOTION PARTIAL SUMMARY JUDGMENT [DKT. NO. 36]
Pending before the Court are cross-motions for partial summary
judgment, in which the parties seek a ruling on whether, in this
case, class arbitrability is a question for the Court or for an
arbitrator.
For the reasons that follow, the Court GRANTS the
motion of the plaintiffs, Chesapeake Appalachia, LLC and Chesapeake
Operating, LLC (collectively, “Chesapeake”), and DENIES the motion
of the defendants, Deloris Suppa and Charles Bunner (collectively,
the “Defendants”).
I.
On June 15, 2011, each of the Defendants, who are joint owners
of the subject mineral rights, entered into separate leases with
Chesapeake that allowed Chesapeake to drill for, collect, and
produce their oil and gas.
In addition to lump sum bonus payments,
CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
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GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
the Defendants were to receive royalty payments equal to one-eighth
of Chesapeake’s gross proceeds on the gas produced, less its postproduction costs incurred between the wellhead and the point of
sale.
Importantly, the leases provided that:
In the event of a disagreement between Lessor and Lessee
concerning this Lease or the associated Order of Payment,
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. Arbitration shall
be the exclusive remedy and cover all disputes, including
but not limited to, the formation, execution, validity
and performance of the Lease and Order of Payment. All
fees and costs associated with the arbitration shall be
borne equally by Lessor and Lessee.
(Dkt. No. 36-5 at 6; Dkt. No. 36-6 at 4).
In August 2014, the Defendants brought a putative classwide
arbitration
action
against
Chesapeake,
alleging
that
it
had
artificially inflated its production costs, thereby resulting in
reduced royalty payments.
The class was defined as “All West
Virginia lessors having oil and gas leases in which Chesapeake
Appalachia, LLC was a party during the period August 3, 2010
through the present and has made deductions from the lessor’s
royalty payments.”
The Defendants asserted claims for breach of
contract, unjust enrichment, and conversion.
2
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
A
month
after
the
Defendants
initiated
the
arbitration
proceeding, Chesapeake filed an action in this Court seeking a
declaratory judgment (1) that “the Court, not arbitrator(s), is to
decide whether class arbitration is available pursuant to the
[subject leases],” and (2) that “class arbitration is not available
pursuant to the [subject leases].”
(Dkt. No. 1 at 2).
The parties
then filed cross-motions for partial summary judgment as to the
first of these issues.
review.
The motions are fully briefed and ripe for
The Court has subject matter jurisdiction over this case
pursuant to 28 U.S.C. § 1332(a).1
II.
“Class arbitration is a matter of consent: An arbitrator may
employ class procedures only if the parties have authorized them.”
Oxford Health Plans, LLC v. Sutter, __ U.S. __, __, 133 S. Ct.
2064, 2066 (2013). To be sure, Chesapeake has raised this issue in
its complaint, and much of the case law discussed below bears on
its outcome.
At this stage, however, the parties are interested
1
Each of the two Chesapeake entities has a single member –Chesapeake Energy Corporation –- which is incorporated and has its
principal place of business in Oklahoma. The Defendants are both West
Virginia citizens.
The object of the underlying litigation is the
subject leases, whose value, according to Chesapeake’s good faith
allegation, exceeds $75,000.
3
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
solely in the antecedent issue: Who decides whether they have
authorized
class
procedures
--
the
district
judge
or
the
arbitrator?
Although
the
Fourth
Circuit
has
question, two other circuit courts have.
not
decided
this
exact
See Opalinski v. Robert
Half Int’l, Inc., 761 F.3d 326, 330 (3d Cir. 2014); Reed Elsevier,
Inc. v. Crockett, 734 F.3d 594, 597-99 (6th Cir. 2013).
to
the
two-step
analysis
utilized
by
both
courts,
According
the
first
question is whether the availability of class arbitration falls
under the category of issues generally decided by courts rather
than arbitrators. If so, the court then must determine whether the
presumption favoring judicial determination can be overcome by the
parties’ clear and unmistakable intent to submit the question to
arbitration.
A.
Courts label issues surrounding arbitration under one of two
headings: “questions of arbitrability” or “procedural questions.”2
See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).
Questions of arbitrability involve gateway disputes about “whether
2
Some courts refer to procedural questions as
questions.” See, e.g., Reed Elsevier, 734 F.3d at 597.
4
“subsidiary
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the parties are bound by a given arbitration clause.”
Id.
They
represent the
narrow circumstance where contracting parties would
likely have expected a court to have decided the gateway
matter, where they are not likely to have thought that
they had agreed that an arbitrator would do so, and,
consequently, where reference of the gateway dispute to
the court avoids the risk of forcing the parties to
arbitrate a matter that they may well not have agreed to
arbitrate.
Id.
Importantly,
“‘the
question
of
arbitrability
undeniably an issue for judicial determination.’”
.
.
.
is
Peabody Holding
Co. v. United Mine Workers of Am., 665 F.3d 96, 102 (4th Cir. 2012)
(quoting AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S.
643, 649 (1986)). That said, parties may agree to submit questions
of arbitrability to an arbitrator, but their intent to do so must
be clear and unmistakable.
See First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 943 (1995); Peabody Holding, 665 F.3d at 102.
In contrast, procedural questions are presumptively decided by
an arbitrator. See Dockser v. Schwartzberg, 433 F.3d 421, 426 (4th
Cir. 2006).
These questions “grow out of the dispute and bear on
its final disposition.” Howsam, 537 U.S. at 83 (internal quotation
marks and citations omitted). They involve issues such as “waiver,
delay, .
.
.
notice, laches,
estoppel, and
5
other
conditions
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precedent to an obligation to arbitrate.” Id. (quotation marks and
citations omitted).
In 2003, the Supreme Court of the United States addressed
whether the question of “who decides” the availability of class
arbitration is an issue of arbitrability or procedure.
In Green
Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 448 (2003), a commercial
lender and its customers had entered into agreements, each of which
contained the following provision:
ARBITRATION –- All disputes, claims, or controversies
arising from or relating to this contract or the
relationships which result from this contract . . . shall
be resolved by binding arbitration . . . . The parties
agree and understand that the arbitrator shall have all
powers provided by the law and the contract.
These
powers shall include all legal and equitable remedies,
including, but not limited to, money damages, declaratory
relief, and injunctive relief.
When the borrowers learned that their lender had failed to provide
them with legally required forms, they filed suit in South Carolina
state court and sought to certify their claims as a class action.
Id. at 448-49.
In response, the lender-defendant sought to compel
arbitration pursuant to the agreements.
Id. at 449.
The state trial court granted both motions, certifying the
class and ordering arbitration.
Id.
The arbitrator administered
the case as a class action, and ultimately awarded damages to the
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class.
Id.
defendant
After the trial court affirmed the award, the lenderappealed
the
decision,
arguing
in
part
that
the
agreements did not provide for class arbitration proceedings.
Id.
The South Carolina Supreme Court determined that the contracts’
silence with respect to class arbitration implicitly authorized it.
Id. at 450.
The Supreme Court of the United States then granted
certiorari to consider “whether that holding is consistent with the
Federal Arbitration Act.”
Id.
The Court’s decision, however, never answered that question.
Rather, a plurality of four Justices3 joined an opinion explaining
that
the
issue
of
class
arbitration
is
not
a
question
of
arbitrability, and therefore the arbitrator, not the trial court,
should have made that determination at the outset.
Id. 451-54.
For the sole purpose of reaching a final resolution of the case,
Justice Stevens concurred in the judgment vacating the South
Carolina Supreme Court’s decision and remanding the case so that
the arbitrator could decide whether the parties had agreed to class
arbitration. Id. at 455 (Stevens, J., concurring). His reluctance
3
The plurality included Justices Breyer, Scalia, Souter, and
Ginsburg.
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to
do
so,
however,
and
his
divergence
from
the
plurality’s
reasoning, were evident:
The Supreme Court of South Carolina has held as a matter
of state law that class-action arbitrations are
permissible if not prohibited by the applicable
arbitration agreement, and that the agreement between
these parties is silent on the issue. There is nothing
in the Federal Arbitration Act that precludes either of
these determinations by the Supreme Court of South
Carolina.
Arguably the interpretation of the parties’ agreement
should have been made in the first instance by the
arbitrator, rather than the court. Because the decision
to conduct a class-action arbitration was correct as a
matter of law, and because petitioner has merely
challenged the merits of that decision without claiming
that it was made by the wrong decisionmaker, there is no
need to remand the case to correct that possible error.
Accordingly, I would simply affirm the judgment of the
Supreme Court of South Carolina. Were I to adhere to my
preferred disposition of the case, however, there would
be no controlling judgment of the Court. In order to
avoid that outcome, . . . I concur in the judgment.
Id.
at
454-55
(Stevens,
J.,
concurring)
(internal
citations
omitted).
For several years, the Fourth Circuit, and district courts
within our circuit, relied on Bazzle’s plurality opinion for the
proposition that class arbitrability is a procedural question, and
that “an arbitrator, rather than a judge, should determine whether
an
arbitration
agreement
allowed
8
for
class-action
arbitration
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proceedings.”
Dockser, 433 F.3d at 426; see also Davis v. ECPI
Coll. of Tech., LC, 227 Fed. App’x 250, 253 (4th Cir. 2007);
Pritchard Elec. Co. v. Int’l Bhd. of Elec. Workers, Local 317, 306
F. Supp. 2d 603, 610 n.7 (S.D.W. Va. 2004).
the issue in the same light.
Other circuits viewed
See, e.g., Marie v. Allied Home
Mortg. Corp., 402 F.3d 1, 10 (1st Cir. 2005) (“In [Bazzle], the
Court held that whether an arbitration agreement allowed for class
arbitration was likewise an issue of contract interpretation for
the arbitrator rather than the judge.”).
Then, in 2010, the Supreme Court granted certiorari on the
question it did not reach in Bazzle, namely, “whether imposing
class arbitration on parties whose arbitration clauses are ‘silent’
on that issue is consistent with the Federal Arbitration Act.”
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 666
(2010).
Again, however, the Court declined to address the “who
decides” class arbitrability question because the parties had
assigned that issue to the arbitrator.
Id. at 680.
Despite this,
in dicta, it limited the reach of the plurality opinion in Bazzle:
When Bazzle reached this Court, no single rationale
commanded a majority. . . .
The plurality opinion
decided only the [“who decides” question], concluding
that the arbitrator and not a court should decide whether
the contracts were indeed “silent” on the issue of class
arbitration.
The plurality noted that, “[i]n certain
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limited circumstances,” involving “gateway matters, such
as whether the parties have a valid arbitration agreement
at all or whether a concededly binding arbitration clause
applies to a certain type of controversy,” it is assumed
“that the parties intended courts, not arbitrators,” to
make the decision. But the plurality opined that the
question whether a contract with an arbitration clause
forbids class arbitration “does not fall into this narrow
exception.” . . .
Justice Stevens concurred in the
judgment vacating and remanding because otherwise there
would have been “no controlling judgment of the Court,”
but he did not endorse the plurality’s rationale. He did
not take a definitive position on the first question,
stating only that “[a]rguably the interpretation of the
parties’ agreement should have been made in the first
instance by the arbitrator.” . . .
Accordingly, his
analysis bypassed the [“who decides” question] noted
above and rested instead on his resolution of the second
and third questions [of the appropriate standard to be
applied in determining class arbitration, and whether the
holding below was correct]. Thus, Bazzle did not yield
a majority decision on any of the three questions.
Id. at 678-79 (emphasis in original) (internal citations omitted).
It observed that the decision in Bazzle had “baffled” the parties,
given their
belief
that
“the
judgment
in
Bazzle
requires
an
arbitrator, not a court, to decide whether a contract permits class
arbitration.”
Id. at 680.
“In fact,” the Court emphasized, “only
the plurality decided that question.”
Beyond
clarifying
Bazzle’s
Id.
plurality
opinion,
in
Stolt-
Nielsen, the Court also provided important guidance concerning its
view of the fundamental differences between bilateral and class
arbitration.
Id. at 685-87.
For example, it observed that, in a
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class proceeding, “[a]n arbitrator chosen according to an agreedupon 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.”
Id. at 686.
This, it noted, could potentially “frustrat[e] the
parties’ assumptions when they agreed to arbitrate.”
Id.
Also,
under the rules of the American Arbitration Association (“AAA”),
the
“presumption
of
privacy
and
confidentiality”
afforded
to
litigants in a bilateral proceeding “shall not apply” in class
proceedings.
Id.
Moreover, the “commercial stakes” of class
proceedings are substantially higher than in bilateral proceedings.
Id.
Ultimately, “the differences between bilateral and class-
action arbitration are too great for arbitrators to presume . . .
that the
parties’
mere
silence
on
the issue
of
class-action
arbitration constitutes consent to resolve their disputes in class
proceedings.”
Id. at 687.
In Cent. W. Va. Energy, Inc. v. Bayer Cropscience, LP, 645
F.3d 267 (4th Cir. 2011), a case questioning whether an arbitration
panel had the authority to rule on the validity of a coal supply
agreement, the Fourth Circuit interpreted Stolt-Nielsen to hold
that “the question of consent to class arbitration . . . was not a
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procedural question.”
Id. at 274 (italics added); see also AT&T
Mobility LLC v. Fisher, No. 11-2245, 2011 WL 5169349, at *3 n.4 (D.
Md. Oct. 28,
2011)
(“[T]he
question
of
whether
an
agreement
encompasses class-based arbitration is generally not considered
merely procedural.”) (citing Bayer Cropscience, 645 F.3d at 27475).
It further noted that “[Stolt-Nielsen] found consent to
class-arbitration not to be a procedural matter because the classaction construct wreaks ‘fundamental changes’ on the ‘nature of
arbitration.’”
Id. at 274-75 (citation omitted).
The decision in Bayer Cropscience is significant because
earlier, in Dockser, 433 F.3d at 426-27, the Fourth Circuit had
analogized
the
question
of
the
number
of
arbitrators
to
the
question of class arbitrability addressed in Bazzle, and the
question of a time-bar to arbitrability addressed in Howsam. Those
comparisons had provided a basis for the court in Dockser to apply
“the presumption favoring arbitrability,” and to conclude that “the
question of the proper number of arbitrators is for arbitral rather
than judicial decision.”
Dockser, 433 F.3d at 427.
In Bayer Cropscience the Fourth Circuit stated that “StoltNielsen did not directly contradict Dockser,” 645 F.3d at 275 n.7;
nevertheless,
it
made
a
noticeable
12
effort
not
to
draw
any
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comparison to Bazzle.
Rather, it relied exclusively on Howsam to
support its conclusion that the question presented was “procedural
in nature.”4
645 F.3d at 273.
In 2013, in Oxford Health Plans, 133 S. Ct. at 2068 n.2., the
Supreme Court reiterated that Bazzle had not determined who decides
class arbitrability. The question presented in Oxford Health Plans
was whether the arbitrator had exceeded his powers under the
Federal Arbitration Act in finding that the parties’ contract
provided for class arbitration.
Stolt-Nielsen,
the
parties
had
Id. at 2066.
agreed
to
let
However, as in
the
arbitrator
determine who decides class arbitrability; thus, the Court had no
reason to address that issue.
Id. at 2068 n.2.
Even so, it took
the opportunity to explain that
[w]e would face a different issue if Oxford had argued
below that the availability of class arbitration is a socalled “question of arbitrability.” Those questions –which “include certain gateway matters, such as whether
parties have a valid arbitration agreement at all or
whether a concededly binding arbitration clause applies
4
The decision in Bayer Cropscience also recognized that class
arbitration is a “fundamentally different process” from bilateral
arbitration.
645 F.3d at 275.
Those fundamental differences would
eventually become the supporting rationale for the Sixth Circuit’s
decision in Reed Elsevier, 734 F.3d at 598, and the Third Circuit’s
decision in Opalinski, 761 F.3d at 334, both of which held that the
availability of class arbitration is a question of arbitrability for
judicial determination.
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to a certain type of controversy” –- are presumptively
for courts to decide. A court may therefore review an
arbitrator’s determination of such a matter de novo
absent “clear[] and unmistakabl[e]” evidence that the
parties wanted an arbitrator to resolve the dispute.
Stolt-Nielsen made clear that this Court has not yet
decided whether the availability of class arbitration is
a question of arbitrability. But this case gives us no
opportunity to do so because Oxford agreed that the
arbitrator should determine whether its contract with
Sutter authorized class procedures.
Indeed, Oxford
submitted that issue to the arbitrator not once, but
twice –- and the second time after Stolt-Nielsen flagged
that it might be a question of arbitrability.
Id. (italics and alterations in original) (internal citations
omitted) (emphasis added).
Following the Supreme Court’s decisions in Stolt-Nielsen and
Oxford Health Plans, both the Sixth and Third Circuits addressed
the “who decides” question and held that it is one of arbitrability
presumptively for judicial determination.
In Reed Elsevier, a
lawyer filed a putative class arbitration action against his legal
database provider, LexisNexis.
734 F.3d at 596.
In response,
LexisNexis sued the lawyer in federal district court, seeking a
declaration that the contract between the parties did not authorize
class
arbitration.
Id.
After
the
district
court
awarded
LexisNexis summary judgment on its declaratory claim, the lawyer
appealed the judgment to the Sixth Circuit, arguing in part that
“an arbitrator, rather than the district court, should have decided
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whether the [contract’s] arbitration clause authorizes classwide
arbitration.”
Id. at 596-97.
In addressing that argument, the Sixth Circuit explained that,
“[a]lthough the Supreme Court’s puzzle of cases on this issue is
not yet complete, the Court has sorted the border pieces and filled
in much of the background.”
Id. at 597-98.
Citing Stolt-Nielsen
and Oxford Health Plans, it stated that “the issue before us –whether classwide arbitrability is presumptively for an arbitrator
to decide, or presumptively for a judge –- remains an open one.”
Id.
at
598.
indication,
Further,
short
of
“the
an
[Supreme]
outright
Court
holding,
has
given
that
every
classwide
arbitrability is a gateway question rather than a subsidiary one.”
Id.
Ultimately, the Sixth Circuit determined the issue of class
arbitrability
was
too
“subsidiary question.”
consequential
to
Id. at 598-99.
be
classified
as
a
“Indeed, for several
reasons, the [Supreme] Court has characterized the differences
between bilateral and classwide arbitration as ‘fundamental.’” Id.
at 598 (citations omitted).
First, arbitration’s putative benefits –- lower costs,
greater efficiency and speed, et cetera –- are much less
assured with respect to classwide arbitration, giving
reason to doubt the parties’ mutual consent to that
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procedure.
Second, confidentiality becomes more
difficult in classwide arbitrations –- thus potentially
frustrating the parties’ assumptions when they agreed to
arbitration.
Third, the commercial stakes of classaction arbitration are comparable to those of classaction litigation . . . . And then there are the dueprocess concerns: once an arbitration is expanded
classwide, the arbitrator’s award no longer purports to
bind just the parties to a single arbitration agreement,
but adjudicates the rights of absent parties as well.
Id. (internal quotation marks, citations, and alterations omitted).
Based on these considerations, it held that “the question whether
an arbitration agreement permits classwide arbitration is a gateway
matter, which is reserved for judicial determination unless the
parties clearly and unmistakably provide otherwise.”
Id. at 599
(internal quotation marks and citation omitted).
In Opalinski, the Third Circuit addressed “whether a district
court, rather than an arbitrator, should decide if an agreement to
arbitrate disputes between the parties to that agreement also
authorizes classwide arbitration.”
761 F.3d at 329.
There, two
employees had filed a putative class action against their employer
in federal district court for alleged violations of the Fair Labor
Standards
Act.
Id.
Pursuant
to
the
relevant
employment
agreements, the employer moved the court to compel arbitration on
an individual basis.
Id.
The court granted the motion to compel,
but reserved the decision of bilateral versus classwide arbitration
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for the arbitrator.
Id.
The arbitrator determined that classwide
arbitration was available under the employment agreements, and
issued a partial award.
Id.
The employer then filed a motion in
district court seeking to vacate the arbitrator’s partial award,
which the court denied.
Id.
On appeal of that denial, the crux of the employer’s argument
before the Third Circuit was that the district court, not the
arbitrator, should have decided whether classwide arbitration was
available.
Id.
In addressing the question, the Third Circuit
observed that “[t]he Supreme Court has not yet decided whether the
availability
of
arbitrability.’”
class
arbitration
Id. at 331.
is
a
‘question
of
Then, taking note of the plurality
opinion in Bazzle, it observed that “[s]ubsequent Supreme Court
decisions . . . cast doubt on the Bazzle plurality’s decision.”
Id. (citing Oxford Health Plans, 133 S. Ct. at 2069 n.2; StoltNielsen, 559 U.S. at 680).
Elaborating on this, the court stated:
[W]e read the Supreme Court as characterizing the
permissibility of classwide arbitration not solely as a
question of procedure or contract interpretation but as
a substantive gateway dispute qualitatively separate from
deciding an individual quarrel. Traditional individual
arbitration and class arbitration are so distinct that a
choice between the two goes, we believe, to the very type
of controversy to be resolved. . . .
The [Supreme]
Court’s line of post-Bazzle opinions [] indicates that,
because of the fundamental differences between classwide
17
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MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
and bilateral arbitration, and the consequences of
proceeding with one rather than the other, the
availability of classwide arbitrability is a substantive
gateway question rather than a procedural one. We thus
join the Sixth Circuit Court of Appeals [Reed Elsevier,
734 F.3d at 599] in holding that the availability of
class arbitration is a “question of arbitrability.”
Id. at 334-35.
As both the Sixth and Third Circuits have acknowledged, the
Supreme Court’s post-Bazzle decisions have gone beyond merely
asserting that the “who decides” question remains unresolved.
Moreover, the plurality in Bazzle did not discuss the fundamental
differences
between
bilateral
and
classwide
addressed by the Court in Stolt-Nielsen.
arbitration
later
These differences, which
the Fourth Circuit has considered in Bayer Cropscience, 645 F.3d at
275, form the foundation for the holdings in Reed Elsevier and
Opalinski that the availability of class arbitration is a question
of arbitrability.
In this Court’s view, class arbitration raises numerous and
significant
arbitration.
absent
issues
that
are
of
lesser
concern
in
bilateral
These include matters of due process with regard to
parties,
lack
of
procedural
efficiency,
commercial stakes, and issues of confidentiality.
are too acute to be labeled merely “procedural.”
18
heightened
These concerns
Rather, the law
CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
1:14CV159
MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
protects parties by presuming that a decision implicating such
consequential matters should be litigated through the judicial
process instead of through arbitration.
See Stolt-Nielsen, 559
U.S. at 685.
B.
Notwithstanding the presumption of judicial determination, the
law permits
a
party
to
rebut that presumption
by presenting
evidence that the disputed agreement clearly and unmistakably
contemplated
arbitrated.
that
the
issue
of
class
arbitrability
would
be
See AT&T Technologies, 475 U.S. at 649 (“Unless the
parties clearly and unmistakably provide otherwise, the question of
whether the parties agreed to arbitrate is to be decided by the
court, not the arbitrator.”).
The Defendants contend that the
arbitration clause in the relevant leases clearly and unmistakably
evinces the
parties’
intent
to
submit
the
question
of class
arbitration to an arbitrator.
The clause at issue provides that “[a]rbitration shall be the
exclusive remedy and cover all disputes,” and that “the resolution
of
all
such
disputes
shall
be
determined
by
arbitration
in
accordance with the rules of the American Arbitration Association.”
Importantly, the rules of the AAA include Supplementary Rules for
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MEMORANDUM OPINION AND ORDER
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
Class Arbitrations, which, in turn, provide that “the arbitrator
shall determine as a threshold matter . . . whether the applicable
arbitration clause permits the arbitration to proceed on behalf of
or against a class.”
Supp. R. 3.
The Defendants urge that the
sweeping language of the arbitration clause, and its incorporation
of the AAA rules, provides clear and unmistakable evidence of the
parties’ intent to arbitrate the availability of class arbitration.
In Opalinski, 761 F.3d at 335, the arbitration clause provided
for arbitration of “any dispute or claim arising out of or relating
to [the plaintiffs’] employment.”
this
case,
however,
arbitration.
it
was
Like the arbitration clause in
silent
with
respect
to
class
Based on that silence, the Third Circuit concluded:
“Nothing else in the agreements or record suggests that the parties
agreed to submit questions of arbitrability to the arbitrator.
Thus,
the
strong
presumption
favoring
judicial
resolution
of
questions of arbitrability is not undone, and the District Court
had
to
decide
whether
classwide arbitration.”
the
arbitration
agreements
permitted
Id.
Similarly, in Reed Elsevier, 734 F.3d at 599, the arbitration
clause provided that “any controversy, claim or counterclaim . . .
arising out of or in connection with this Order . . ., will be
20
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MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
resolved by binding arbitration under this section and the thencurrent Commercial
Rules
and
supervision
of
the [AAA].”
In
rejecting the argument that the language of the clause swept up
class arbitration, the Sixth Circuit explained:
This language does not clearly and unmistakably assign to
an arbitrator the question whether the agreement permits
classwide arbitration.
Instead it does not mention
classwide arbitration at all. It is true that the clause
provides the “any controversy . . . arising out of or in
connection with this Order” shall be resolved by binding
arbitration; and one might argue that the question
whether
an
arbitrator
should
decide
classwide
arbitrability is a “controversy . . . arising . . . in
connection with” Crockett’s order. . . . But given the
total absence of any reference to classwide arbitration
in this clause, the agreement here can just as easily be
read to speak only to issues related to bilateral
arbitration. Thus, at best, the agreement is silent or
ambiguous as to whether an arbitrator should determine
the question of classwide arbitrability; and that is not
enough to wrest that decision from the courts. StoltNielsen, 559 U.S. at 684-85. We therefore agree with the
district court that the question whether [the parties]
agreed to arbitrate must “be decided by the court, not
the arbitrator.” AT&T Technologies, 475 U.S. at 649. .
. . 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.
Id. at 599-600.
Notably, the Sixth Circuit also rejected the same argument the
Defendants
raise
here
concerning
21
the
arbitration
clause’s
CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
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MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
incorporation of the AAA rules.
It explained that Supplementary
Rule 3 instructs arbitrators not to consider the existence of the
rules “to be a factor either in favor of or against permitting the
arbitration to proceed on a class basis.”
Id. at 599-600.
It is worth noting that, in the wake of Reed Elsevier and
Opalinski, Chesapeake has filed complaints in two federal district
courts in the Middle District of Pennsylvania seeking the same
relief it seeks here.
See Chesapeake Appalachia, LLC v. Scout
Petroleum, LLC, No. 4:14CV0620, 2014 WL 7335045 (M.D. Pa. Dec. 19,
2014); Chesapeake Appalachia, LLC v. Burkett, No. 3:13-3073, 2014
WL 5312829 (M.D. Pa. Oct. 17, 2014).
In Burkett, the district
court agreed with the lessor-defendants that “it is not necessary
for there to be an exact reference to or mention of the specific
words ‘class arbitrability’ in order for the court to find that the
parties agreed to have the arbitrators decide the issue of class
arbitrability.”
2014 WL 5312829 at *7.
Rather, the court was
persuaded that “incorporation of the AAA rules into the lease . .
. vested arbitrators with the authority in this case to decide
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
issues of arbitrability, including the issue of ‘who decides’ class
arbitrability.”5
Id. at *8.
The decision in Scout Petroleum, 2014 WL 7335045 at *12-13,
wholly
rejected
observed
that
that
Burkett
conclusion.
“completely
There,
the
ignore[d]”
district
the
court
fundamental
differences between bilateral and classwide arbitration, and was
based on “erroneous analysis.”
Id.
It therefore declined to
follow Burkett, stating it would not “take a contract that clearly
and unmistakably provides for bilateral arbitration and the rules
that
will
govern
bilateral
arbitration,
5
and
extrapolate
that
See also Price v. NCR Corp., 908 F. Supp. 2d 935, 945 (N.D.
Ill. 2012) (“By adopting AAA Supplementary Rule 3 in their
Agreement, the parties agreed that an arbitrator, and not this
Court, would determine whether the Agreement authorizes class
arbitration.”); Bergman v. Spruce Peak Realty, LLC, No. 2:11CV127,
2011 WL 5523329, at *4 (D. Vt. Nov. 14, 2011) (referring the
question of class arbitrability to the arbitrator because the
parties’ arbitration clause incorporated the AAA rules); S.
Commc’ns Svcs., Inc. v. Thomas, 829 F. Supp. 2d 1324, 1337-38 (N.D.
Ga. 2011) (finding that the parties’ incorporation of the AAA
Supplementary Rules for Class Arbitrations “gave the arbitrator the
power to decide whether the Arbitration Clause implicitly
authorized class proceedings”); Yahoo!, Inc. v. Iversen, 836 F.
Supp. 2d 1007, 1012 (N.D. Cal. 2011) (“The Court agrees with
Iversen that the incorporation by reference of the AAA
Supplementary Rules . . . constitutes ‘clear[] and unmistakabl[e]’
agreement to have the arbitrator decide questions regarding the
arbitrability of class-wide claims.”).
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CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
evidence
to
arbitration.”6
‘clearly
and
unmistakably
provide’
for
class
Id.
Arguably, Burkett misjudged the high hurdle presented by the
“clear and unmistakable” standard crafted by the Supreme Court as
a safeguard to ensure that lower courts do not “force unwilling
parties to arbitrate a matter they reasonably would have thought a
judge, not an arbitrator, would decide.”
First Options, 514 U.S.
at 945; AT&T Technologies, 475 U.S. at 649.
characterized
that
standard
contractual language.”
as
The Third Circuit has
“onerous,”
requiring
“express
Opalinski, 761 F.3d at 335.
Following a careful weighing of the matter, the Court is
unpersuaded that the broad language of the arbitration clause in
the subject leases, or even the reference to the AAA rules, clearly
and unmistakably evinces the parties’ intent to arbitrate the
availability of classwide arbitration.
6
There is little doubt that
See also Chassen v. Fidelity Nat’l Fin., Inc., No. 09-291, 2014
WL 202763, at *6 (D.N.J. Jan. 17, 2014) (internal quotation marks and
citations omitted) (“The arbitration clauses are silent or ambiguous as
to whether an arbitrator should determine the question of class-wide
arbitrability; and that is not enough to wrest that decision from the
courts. In the opinion of this Court, there must be an actual showing
of consent in order to refer a matter to class-wide arbitration.”); Chico
v. Hilton Worldwide, Inc., No. CV 14-5750, 2014 WL 5088240, at *11-12
(C.D. Cal. Oct. 7, 2014) (concluding that the court rather than the
arbitrator should decide class arbitrability based on a lack of evidence
in the contract that the parties agreed to arbitrate the issue).
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CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
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MEMORANDUM OPINION AND ORDER
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DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
Chesapeake
intended
to
individual “Lessor.”
arbitrate
all
disagreements
with
each
(Dkt. No. 36-5 at 6; Dkt. No. 36-6 at 4).
Nevertheless, the “who decides” question involves a putative class
of “Lessors,” a group never mentioned in the subject leases. Thus,
the sweeping language covering “all such disputes” and making
arbitration the “exclusive remedy” has no bearing on the gateway
matter concerning the availability of class arbitration.
The Defendants’ argument concerning the AAA rules fares no
better.
Undoubtedly, there is a benefit to identifying in a
contract a set of rules to govern arbitrable disputes.
parties have
identified
the
AAA
rules.
Because
Here, the
those
rules
instruct arbitrators to decide the class arbitrability question,
the Defendants maintain that Chesapeake agreed to submit the
question to arbitration.
Under such a construction, however,
parties could not agree that the AAA rules would govern only
bilateral
arbitration
unless
they
specifically
Supplementary Rules for Class Arbitrations.
the
presumption
favoring
arbitrability on its head.
judicial
excluded
the
This argument turns
determination
of
classwide
The entire point of the presumption is
that an arbitration clause need not expressly exclude questions of
arbitrability as outside its scope –- silence is simply the fact
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CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
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MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
that triggers the presumption.
See Dockser, 433 F.3d at 427
(applying the same logic with respect to the presumption favoring
arbitration).
Finally, in the Court’s view, the Supreme Court’s recognition
of
the
fundamental
differences
arbitration is significant.
between
bilateral
and
class
Based on those differences, the Court
prohibited decisionmakers from “presum[ing] . . . that the parties’
mere silence on the issue of class-action arbitration constitutes
consent to resolve their disputes in class proceedings.”
Nielsen, 559 U.S. at 687.
Stolt-
It follows that the parties’ silence on
the question of “who decides” class arbitrability should not be
read
as
implicitly
arbitrator.
consenting
to
submit
the
question
to
an
The weighty consequences of class arbitration are no
less implicated by the “who decides” question than by the “is it
available”
question.
Therefore,
the
Court
concludes
that
Chesapeake and the Defendants did not clearly and unmistakably
agree to arbitrate the issue of class arbitrability.
IV.
For the reasons discussed, the Court concludes that it, not an
arbitrator, will decide whether the parties agreed to classwide
arbitration
in
the
subject
leases.
26
Accordingly,
it
GRANTS
CHESAPEAKE APPALACHIA, LLC, ET AL. v. SUPPA, ET AL.
1:14CV159
MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT, AND
DENYING DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
Chesapeake’s motion for partial summary judgment, and DENIES the
Defendants’ motion for partial summary judgment. Additionally, the
Court SCHEDULES a status conference for April 27, 2015 at 3:30 p.m.
to take up the matter of further proceedings in this case.
It is so ORDERED.
The
Court
directs
the
Clerk
to transmit
copies
of
Memorandum Opinion and Order to counsel of record.
DATED: March 4, 2015.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
27
this
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