Cabot Oil & Gas and Cranberry Pipeline v. Beaver Coal Co., 16-0904 & 16-0905

Background

Beaver Coal leased ~12,000 acres to Godfrey L. Cabot in 1929 (the 1929 Lease), later amended and ratified; Cabot assigned lease rights to Cabot Oil & Gas and pipeline operations to Cranberry Pipeline. A separate 1977 Agreement licensed a pipeline across Beaver property and contains a narrow arbitration clause only for stumpage pricing.
The 1929 Lease contains a broad, final-and-conclusive arbitration clause for disputes arising under the lease; the Federal Arbitration Act applies.
Beaver initiated arbitration in 2001 over royalty calculations and post-production cost deductions; an arbitration panel issued a 2004 award requiring Cabot to refund unreasonable gathering charges. Cabot subsequently paid checks which Beaver cashed.
In 2006 this Court decided Estate of Tawney v. Columbia Natural Resources, which limited or disallowed post-production cost deductions under certain lease language, altering the law Shackled used by parties earlier.
Beaver sued in 2008 in state court (after federal remand), alleging breach of the 1929 Lease, enforcement of the 2004 award, trespass/ejectment related to pipeline assignments, and seeking forfeiture; the circuit court (2010) denied defendants’ motion to dismiss, finding Tawney constituted an intervening change in law. In 2016 the circuit court ordered arbitration of all claims and instructed arbitrators to follow Tawney over Wellman.

Issues

Issue	Plaintiff's Argument (Beaver)	Defendant's Argument (Cabot/Cranberry)	Held
Whether defendants waived the right to arbitrate	Defendants delayed and litigated for years in court, prejudicing Beaver; waiver should be found	Defendants repeatedly invoked arbitration and never expressly waived it; strong policy favors arbitration	No waiver: court implicitly found arbitration not waived; defendants did not relinquish the right under the totality of circumstances
Whether an intervening change in law (Tawney) defeats res judicata effect of 2004 arbitration award	Tawney changed governing law on post-production deductions, so res judicata should not bar Beaver’s royalty claim	The 2004 arbitration award was final and binding; West Virginia has not recognized an intervening-law exception to res judicata	Reversed circuit court: West Virginia has not adopted an intervening-law exception to res judicata; the arbitration award’s finality controls
Scope of arbitration: which claims are arbitrable	Many claims arise under the 1929 Lease and must be arbitrated; others relate to 1977 Agreement	1977 Agreement lacks a general arbitration clause; those claims are not arbitrable	Mixed: Claims arising solely under the 1977 Agreement (Count III and VII) and related trespass/ejectment aspects tied only to the 1977 license are not subject to arbitration; counts tied to the 1929 Lease are arbitrable
Whether the circuit court could direct arbitrators to apply Tawney and follow the court’s rulings	Court should ensure arbitrators apply current law (Tawney) and follow its rulings	Trial court exceeded authority by directing substantive law and rulings to arbitrators; arbitrators decide merits within arbitration scope	Court overstepped: reversed the portions directing arbitrators on law and requiring them to follow the court’s rulings; trial court may decide threshold arbitrability but not merits or mandate legal rulings in arbitration

Key Cases Cited

Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (W. Va. 2001) (governing precedent on post-production cost deductions considered by earlier tribunal)
Estate of Tawney v. Columbia Natural Resources, Inc., 219 W.Va. 266, 633 S.E.2d 22 (W. Va. 2006) (later decision limiting deduction of post-production costs under certain lease language)
Parsons v. Halliburton Energy Serv. Inc., 237 W.Va. 138, 785 S.E.2d 844 (W. Va. 2016) (standards for proving waiver of arbitration rights)
State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (W. Va. 2010) (trial court limited to deciding threshold arbitrability; cannot decide merits or direct arbitrators on law)
Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394 (U.S. 1981) (strong public policy favoring finality and res judicata principles)