Chevron United Statesa., Inc. v. John Robert Bonar & John & Werner Law Offices, PLLC

• Decision Date: 14 February 2018
• Docket Number: No. 16-1213,16-1213
• Court: West Virginia Supreme Court
• Parties: CHEVRON U.S.A., INC., Defendant Below, Petitioner, v. JOHN ROBERT BONAR AND JOHN & WERNER LAW OFFICES, PLLC, Plaintiffs Below, Respondents.

CHEVRON U.S.A., INC., Defendant Below, Petitioner, v. JOHN ROBERT BONAR AND JOHN & WERNER LAW OFFICES, PLLC, Plaintiffs Below, Respondents.

No. 16-1213

STATE OF WEST VIRGINIA SUPREME COURT OF APPEALS

February 14, 2018

(Marshall County Civil ActionNo. 16-C-153)

MEMORANDUM DECISION

Petitioner, defendant below, Chevron U.S.A., Inc.("Chevron"), by counselJ. Nicholas Ranjan, appeals a circuit court order denying Chevron's motion to compel arbitration, arguing that the circuit court erred in finding Chevron had waived its right to enforce the subject arbitration agreement.Respondents, John Robert Bonar and John & Werner Law Offices, PLLC("Lessors"), by counselAnthony I. Werner and Joseph J. John, filed a timely response.

This Court has considered the parties' briefs, the appendix record designated for our review, the pertinent authorities, and oral argument.Upon our scrutiny thereof under the appropriate standard of review, the Court finds that the Circuit Court of Marshall County erred, as a matter of law, by concluding that Chevron, by virtue of its pre-litigation conduct, waived its contractual right to compel arbitration.This case satisfies the "limited circumstances" requirement of Rule 21(d) of the Rules of Appellate Procedure and is appropriate for a memorandum decision rather than an opinion.

Chevron and Lessors are current parties to an oil and gas lease ("the Lease") that was originally executed in August 2010.The original lease was executed between Grace Bonar and her son, John Robert Bonar, as lessors, and TriEnergy Holdings, LLC("TriEnergy"), as lessee.Grace Bonar ultimately transferred her rights under the lease to John Robert Bonar.John & Werner Law Offices, PLLC, acquired some of the royalty rights under the lease from John Robert Bonar.Chevron became the successor-in-interest to all of TriEnergy's rights and obligations under the Lease.

In March 2016, Chevron began deducting certain costs from the royalty payments it made to Lessors.According to Lessors, neither Chevron nor its predecessors had deducted costs from their royalty payments prior to March 2016.Lessors contend that the deduction of costs is expressly prohibited by the terms of the Lease.Chevron disagrees.

Pertinent to the instant appeal, the Lease contains the following arbitration clause:

(17) ARBITRATION - Any question concerning this lease or performance thereunder shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by the Lessor, one by the Lessee[,] and the third by the two so appointed as aforesaid, and the award of such three persons shall be final and conclusive.The cost of such arbitration will be borne equally by the parties.

Notwithstanding the arbitration clause, in August 2016, Lessors filed a declaratory judgment action in the Circuit Court of Marshall County seeking a judicial determination that Chevron had no right to deduct costs from Lessors' royalty payments, and additionally seeking reimbursement with interest of costs that previously had been deducted by Chevron.Chevron responded to the action with a motion to compel arbitration, in which Chevron also sought dismissal of the case.Lessors filed a memorandum in opposition to Chevron's motion, wherein they argued that the arbitration clause was unconscionable and, therefore, unenforceable.¹

At a hearing before the circuit court, Lessors presented the argument that Chevron had waived its right to compel arbitration through its pre-litigation conduct, i.e., by unilaterally deciding the "question" of whether certain costs could be deducted from royalties without submitting the question to arbitration pursuant to the broadly-worded arbitration clause.The circuit court agreed and, by order entered December 11, 2016, denied Chevron's motion to compel arbitration.In doing so, the circuit court expressly found that Chevron, "by its pre-litigation conduct in unilaterally commencing certain cost deductions from [Lessors'] royalties without first seeking through arbitration the authority to do so[,] has waived any contractual right to compel [Lessors] into arbitration of the question of costs."It is from this adverse ruling that Chevron appeals.

It has been established that "[a]n order denying a motion to compel arbitration is an interlocutory ruling [that] is subject to immediate appeal under the collateral order doctrine."Syl. pt. 1, Credit Acceptance Corp. v. Front, 231 W. Va. 518, 745 S.E.2d 556(2013).Moreover, our review of this matter is de novo.SeeSyl. pt. 1, West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W. Va. 465, 796 S.E.2d 574(2017)("When an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo.");Finch v. Inspectech, LLC, 229 W. Va. 147, 153, 727 S.E.2d 823, 829(2012)("'[W]e apply a de novo standard of review to [a]circuit court's interpretation of [a] contract.'"(quotingZimmerer v. Romano, 223 W. Va. 769, 777, 679 S.E.2d 601, 609(2009)(per curiam))).

Chevron contends that the circuit court erred, and assigned too broad a meaning to the term "question" as used in the arbitration clause, when it ruled that Chevron's pre-litigation conduct of deducting certain costs from royalty payments made to Lessors without first seeking authority to do so through arbitration was sufficient to waive its contractual right to compel arbitration.²Lessors argue in support of the circuit court's ruling.

With respect to waiver of the right to compel arbitration, this Court has held that

[t]he right to arbitration, like any other contract right, can be waived.To establish waiver of a contractual right to arbitrate, the party asserting waiver must show that the waiving party knew of the right to arbitrate and either expressly waived the right, or, based on the totality of the circumstances, acted inconsistently with the right to arbitrate through acts or language.There is no requirement that the party asserting waiver show prejudice or detrimental reliance.

Syl. pt. 6, Parsons v. Halliburton Energy Servs., Inc., 237 W. Va. 138, 785 S.E.2d 844(2016).This case turns on whether Chevron acted inconsistently with its right to arbitrate.The answer to this query requires consideration of the language utilized in the subject arbitration clause requiring that "[a]ny question concerning this lease or performance thereunder shall be ascertained and determined by three disinterested arbitrators[.]"(Emphasis added).

In considering the foregoing contractual provision, we are mindful that "[n]othing in the Federal Arbitration Act,9 U.S.C. § 2, overrides normal rules of contract interpretation.Generally applicable contract defenses—such as laches, estoppel, waiver, fraud, duress, or unconscionability—may be applied to invalidate an arbitration agreement."Syl. pt. 9, Brown v. Genesis Healthcare Corp., 228 W. Va. 646, 724 S.E.2d 250(2011), reversed on other grounds byMarmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530, 132 S. Ct. 1201, 182 L. Ed. 2d 42(2012)(hereinafter "Brown I").We also recognize that

"'[a] valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent.'[Syl. pt. 1,]Cotiga Development Co. v. United Fuel Gas Co., 147 W. Va. 484, 128 S.E.2d 626(1962)."Syl. pt. 1, Bennett v. Dove, 166 W. Va. 772, 277 S.E.2d 617(1981).

Dan's Carworld, LLC v. Serian, 223 W. Va. 478, 482-83, 677 S.E.2d 914, 918-19(2009).Moreover,

"[i]f the contract language is found to be unambiguous[,] then '[i]t is the safest and best mode of construction to give words, free from ambiguity, their plain and ordinary meaning'"Supervalu Operations, Inc. v. Center Design, Inc., 206 W. Va. 311, 315, 524 S.E.2d 666, 670(1999)(per curiam)(quoting Syl. pt. 3, Bennett v. Dove, 166 W. Va. 772, 277 S.E.2d 617).

Dan's Carworld at 483, 677 S.E.2d at 919.We find no ambiguity in the relevant portion of the arbitration agreement.Although the parties disagree as to the proper meaning to be afforded the phrase "any question," it has long been recognized that "a contract is not rendered ambiguous merely because the parties disagree as to its construction."Perrine v. E.I. du Pont de Nemours & Co., 225 W. Va. 482, 508, 694 S.E.2d 815, 841(2010).See alsoSyl. pt. 3, in part, Energy Dev. Corp. v. Moss, 214 W. Va. 577, 591 S.E.2d 135(2003)("The mere fact that parties do not agree to the construction of a contract does not render it ambiguous.");Syl. pt. 1, in part, Berkeley Cty. Pub. Serv. Dist. v. Vitro Corp. of Am., 152 W. Va. 252, 162 S.E.2d 189(1968)(same).

Lessors contend that the circuit court correctly read the phrase "any question" broadly to essentially mean any inquiry.Chevron, on the other hand, contends that the phrase should be afforded a narrow meaning akin to a conflict.We find it important to our resolution of this matter to note that, in ascertaining the meaning of this term as intended by the parties to the contract, we are obliged to consider the context in which it is used, i.e., an arbitration agreement.SeeBenson v. AJR, Inc., 215 W. Va. 324, 327, 599 S.E.2d 747, 750(2004)(per curiam)(recognizing that "any term that has significance in a given contract[] must bedefined based on the subject matter of the contract and the intent of the document's drafters").Considering the plain and ordinary meaning of the term "question" in the context of arbitration, which is a form of dispute resolution, we observe that its definition includes the concept of a dispute.See Webster's New World College Dictionary 1192 (5th ed. 2016)(providing definition of "question," that includes "something in controversy before a court" and "to dispute; challenge"); New Oxford American Dictionary 1431 (3d ed. 2010)(defining the term "question," in part, as "the raising of a doubt about or...