Bird ex rel. Similarly Situated W. Va. Citizens v. Chris Turner, Individually & of Kenyon Energy, LLC

Decision Date01 September 2015
Docket NumberCivil Action No. 5:14CV97
CourtU.S. District Court — Northern District of West Virginia
PartiesJOHN L. BIRD and JACQUELINE G. BIRD, his wife, individually and on behalf of similarly situated West Virginia citizens, Plaintiffs, v. CHRIS TURNER, individually and as an agent and/or employee of Kenyon Energy, LLC, Chesapeake Exploration, LLC, Chesapeake Appalachia, LLC, and/or CHK Utica, LLC, KENYON ENERGY, LLC, CHESAPEAKE EXPLORATION, LLC CHESAPEAKE APPALACHIA, LLC, CHK UTICA, LLC, DEUTSCHE BANK TRUST COMPANY AMERICAS, P. NATHAN BOWLES, JR., ESQ. and JOHN DOES and any John Doe individually or any entity acting in concert with these defendants, Defendants.

(STAMP)

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS CHESAPEAKE APPALACHIA, LLC AND CHK UTICA, LLC'S MOTION FOR LEAVE TO FILE EXCESS PAGES AND MOTION TO COMPEL BILATERAL ARBITRATION, DENYING PLAINTIFFS' MOTION TO STRIKE DEFENDANTS' MOTION FOR LEAVE TO FILE EXCESS PAGES AND GRANTING DEFENDANTS CHESAPEAKE EXPLORATION, LLC, DEUTSCHE BANK TRUST COMPANY AMERICAS, P. NATHAN BOWLES, JR., ESQ., CHRIS TURNER AND KENYON ENERGY, LLC'S MOTION FOR STAY PENDING ARBITRATION
I. Background

In June 2011, the plaintiffs, John L. Bird and Jacqueline G. Bird, executed a lease to defendant Chesapeake Appalachia, LLC("Chesapeake") for oil and gas rights. The lease contained an arbitration agreement. Chesapeake assigned a portion of the lease to CHK Utica, LLC ("CHK"). CHK then entered into a deed of trust using the lease as collateral to secure a loan with defendants Deutsche Bank Trust Company Americas and appointing P. Nathan Bowles, Jr., Esq. as trustee. When the plaintiffs attempted to refinance their home, their application was denied because the deed of trust constituted a lien on the property.

The plaintiffs filed this action in the Circuit Court of Hancock County, West Virginia on June 19, 2014. The plaintiffs' complaint alleges that the plaintiffs and others within West Virginia that are similarly situated were subject to fraudulent common law liens in violation of West Virginia Code § 38-16-101. The plaintiffs also alleged claims regarding the unlawful practice of law, breach of fiduciary duties, intentional misrepresentation and fraud, negligent misrepresentation, creation of a cloud on title, slander of title, and civil conspiracy.

Chesapeake and CHK (collectively "arbitration defendants") filed a motion to compel bilateral arbitration under the lease's arbitration agreement and Section 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14. Defendants Chesapeake Exploration, LLC, Deutsche Bank Trust Company Americas, P. Nathan Bowles, Jr., Esq., Chris Turner, and Kenyon Energy, LLC filed a motion to stay this action pending that arbitration. Further, the arbitrationdefendants moved to file a reply with excess pages to address the validity issues raised by the plaintiffs and a recent opinion from this Court. In response, the plaintiffs filed a motion to strike the arbitration defendants' motion to file a reply with excess pages. All of these motions are now ripe for review.

In their motion to compel bilateral arbitration, the arbitration defendants assert that the FAA applies, that the plaintiffs' claims fall within the arbitration agreement, that the arbitration agreement is enforceable under West Virginia law, and that the parties only consented to bilateral rather than class arbitration.

In response, the plaintiffs contest the arbitration defendants' claims, argue that validity and enforceability must be reviewed by this Court, and assert that there are several problems with the arbitration agreement that make it invalid.

In response to the plaintiffs' assertions that the arbitration agreement is unenforceable, the arbitration defendants moved to exceed the page limit in their reply as the arbitration defendants had not covered unconscionability in their initial motion and sought to address a recent decision in this district bearing on this case. The plaintiffs' motion to strike, they argue that this motion to exceed the page limit should be stricken.

II. Discussion
A. Motion to File Excess Pages

The arbitration defendants moved this court, under Local Rules 7.02(a) and 7.02(b)(2), for leave to file excess pages in reply to the plaintiffs' response to the motion to compel bilateral arbitration. In support of their motion, the arbitration defendants state that the plaintiffs raised new issues regarding the arbitration agreement's validity. The defendants also seek to discuss a recent, similar opinion issued by this Court. For good cause shown, the defendants' motion for leave to file a memorandum of law in reply to the plaintiffs' response in excess of 15 pages is hereby GRANTED, and the plaintiffs' motion to strike the arbitration defendants' motion to file excess pages is DENIED.

B. Motion to Compel Bilateral Arbitration

The Federal Arbitration Act applies to "[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof . . . ." 9 U.S.C. § 2. When a party seeks enforcement of an arbitration agreement during proceedings in a district court, a party sufficiently "invoke[s] the full spectrum of remedies under the FAA." Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 710 (4th Cir. 2001).

To compel arbitration under the FAA, the law of the United States Court of Appeals for the Fourth Circuit provides that a moving party must "demonstrate (1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) failure, neglect, or refusal of the [opposing party] to arbitrate the dispute." Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir. 2002) (citing Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991)). Further, while federal law determines the arbitrability of issues, "[w]hether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation." Id. at 501 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

As the parties have a dispute and the existence of the arbitration agreement is not at issue, this Court is left to determine whether the FAA applies, whether the arbitration agreement is enforceable, and whether this dispute is arbitrable.

1. Application of the FAA

The FAA applies to any "written provision in . . . a contract evidencing a transaction involving commerce." 9 U.S.C. § 2. "[T]he term 'evidencing a transaction' requires only that the transaction in fact involved interstate commerce, not that theparties contemplated it as such at the time of the agreement." Rota-McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 697 (4th Cir. 2012) (citing Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995)). The FAA does not require the party moving to compel arbitration to present specific evidence proving the interstate nature of the transaction. Id. Moreover, this Court "need not identify any specific effect upon interstate commerce, so long as 'in the aggregate the economic activity in question would represent a general practice . . . subject to federal control.'" Id. at 697-98 (internal quotation marks omitted) (quoting Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56-57 (2003)).

By its terms, the lease provided the arbitration defendants the right to drill wells, build roads and processing facilities, construct a pipeline, and dispose of waste. See ECF No. 1 Ex. D. Moreover, the arbitration defendants note that the parties are domiciled in different states and that the lease "concerns the production of natural gas that will be necessarily transported in interstate pipelines." ECF No. 24, at 6.

The plaintiffs assert that because their lease includes a disposal provision,1 an activity not involving interstate commerce,the agreement does not evidence commerce. The plaintiffs attempt to distinguish this case from Holmes v. Chesapeake Appalachia, LLC, No. 5:11CV123, 2012 WL 3647674 (N.D. W. Va. Aug. 23, 2012), an unpublished opinion wherein this Court concluded that a nearly identical oil and gas lease evidenced commerce. Id. at *10. The plaintiffs note that the Holmes lease did not include conversion to storage or disposal provisions, while the plaintiffs' lease does. However, assuming that storage and disposal activities do not involve interstate commerce (a generous assumption), the analysis does not end there. This Court must look to the transaction as a whole, and not simply to what the parties contemplated at the time of the agreement. Rota-McLarty, 700 F.3d at 697 (citing Allied-Bruce Terminix Cos., 513 U.S. at 281). Based on the substance of the lease and the arbitration defendants' assertion that the lease was intended for the extraction of natural gas to be transported in interstate commerce, it is clear that the plaintiffs' lease "evidenc[es] a transaction involving commerce." 9 U.S.C. § 2. Therefore, this Court finds that the FAA applies to this arbitration agreement.

3. Enforceability of the Arbitration Agreement

The plaintiffs argue that the arbitration agreement is unenforceable because it is unconscionable.2 As stated above,"[w]hether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation." Adkins, 303 F.3d at 501. Thus, this Court must look to West Virginia contract law to determine whether the arbitration agreement is enforceable.

Under West Virginia law, a contract is unenforceable as unconscionable if some level of both procedural and substantive unconscionability are found, and the court must find a high degree of "inequities, improprieties, or unfairness" in both the procedure of the creation...

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