Chesapeake Appalachia, LLC v. Scout Petroleum, LLC
2016 U.S. App. LEXIS 42
3rd Cir.2016Background
- Chesapeake (lessee) drafted oil and gas leases containing an arbitration clause: disputes between “Lessor” and “Lessee” over “this Lease” are to be resolved "in accordance with the rules of the American Arbitration Association."
- Scout purchased several leases and filed a class arbitration demand alleging underpaid royalties; Chesapeake objected, asserting no agreement to class arbitration or to delegate the “who decides” question to arbitrators.
- Arbitrators (three retired federal judges) issued a Clause Construction Decision concluding the lease language clearly authorized them to decide class arbitrability and directed briefing on whether class arbitration is available.
- Chesapeake sued in federal court seeking a declaration that (1) courts decide the availability of class arbitration (the “who decides” question) and (2) the leases do not permit class arbitration; district court granted summary judgment for Chesapeake, vacated the arbitrators’ decision, and stayed the case for appeal under §1292(b).
- The Third Circuit reviewed whether the leases (by referring to the AAA rules) "clearly and unmistakably" delegated to arbitrators the question whether class arbitration is available, and affirmed the district court: the leases do not meet the onerous delegation standard.
Issues
| Issue | Plaintiff's Argument (Scout) | Defendant's Argument (Chesapeake) | Held |
|---|---|---|---|
| Whether availability of class arbitration is a question of arbitrability (who decides) | Scout: Parties agreed to AAA rules; incorporation delegates arbitrability questions to arbitrators, including class arbitrability | Chesapeake: Opalinski presumes courts decide class arbitrability absent clear, unmistakable delegation | Court: Availability of class arbitration is a question of arbitrability for courts absent clear, unmistakable delegation (follow Opalinski) |
| Whether referring to “the rules of the AAA” in the leases constitutes clear and unmistakable evidence delegating class-arbitrability to arbitrators | Scout: Incorporation by reference brings in Commercial and Supplementary (class) Rules, which authorize arbitrators to decide arbitrability | Chesapeake: The lease language is silent/ambiguous on class arbitration; the reference to AAA rules is a "daisy-chain" and insufficient to meet onerous standard | Court: Reference to "the rules of the AAA" does not clearly and unmistakably delegate the specific question of class arbitrability to arbitrators; leases fail the onerous burden |
| Whether the AAA Commercial Rules (e.g., Rule 7) and Supplementary Rules for Class Arbitration operate to vest arbitrators with authority over class arbitrability when incorporated indirectly | Scout: Commercial Rule 7 and Supplementary Rules together give arbitrators jurisdiction to decide class arbitrability | Chesapeake: Commercial Rules are bilateral/procedural; Supplementary Rules apply only after class asserted; chain of references is ambiguous | Court: Commercial Rules are framed for bilateral/procedural matters; Supplementary Rules do not cure the ambiguity; incorporation chain insufficient to overcome presumption favoring courts |
| Whether court properly vacated the arbitrators’ Clause Construction Decision | Scout: Arbitration award should stand absent clear and unmistakable evidence delegating arbitrability to arbitrators | Chesapeake: Vacatur appropriate because no clear delegation; courts decide arbitrability | Court: Vacatur proper; district court correctly concluded leases do not clearly and unmistakably delegate class-arbitrability and affirmed vacatur |
Key Cases Cited
- Opalinski v. Robert Half Int’l Inc., 761 F.3d 326 (3d Cir. 2014) (held availability of class arbitration is a question of arbitrability for courts absent clear delegation)
- Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013) (agreement referring to AAA rules did not clearly and unmistakably assign question of class arbitration to arbitrator)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (parties may not be compelled to submit to class arbitration absent contractual basis showing assent)
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) (arbitration of class claims requires a contractual basis; silence is not sufficient)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (class arbitration is fundamentally different from bilateral arbitration and ill-suited to arbitration’s ordinary procedures)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (threshold rule: courts decide arbitrability unless parties clearly and unmistakably provide otherwise)