Chesapeake Appalachia, L.L.C. v. Scout Petroleum, LLC, 4:14-CV-0620

• Decision Date: 28 April 2017
• Docket Number: 4:14-CV-0620
• Parties: CHESAPEAKE APPALACHIA, L.L.C., Plaintiff, v. SCOUT PETROLEUM, LLC, and SCOUT PETROLEUM II, LP, Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

CHESAPEAKE APPALACHIA, L.L.C., Plaintiff,
v.
SCOUT PETROLEUM, LLC,
and SCOUT PETROLEUM II, LP, Defendants.

4:14-CV-0620

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

APRIL 28, 2017

(Judge Brann)

MEMORANDUM

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

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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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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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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:

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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

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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...