Chesapeake Appalachia v. Cecil L. HIckman, etc.
236 W. Va. 421
| W. Va. | 2015Background
- Plaintiff Cecil L. Hickman owns a 1/4 interest in a 143.77-acre Ohio County tract; four overlapping oil & gas leases (Dec 2005, Jul 2006, Jan 2011, Feb 2011) with arbitration clauses are disputed.
- Dec 2005 lease: signed by three siblings (not Hickman), recorded memorandum listed all four siblings and a five-year term beginning Dec 21, 2005; contained arbitration clause.
- Jul 2006 lease: signed and notarized only by Hickman (July 19, 2006); identical arbitration clause; plaintiff alleges Range Resources altered the effective date from Dec 2005 to Jul 2006.
- Jan 2011 lease: signed jointly by all four siblings with Chesapeake; included an Order of Payment promising a large up-front bonus ($179,710) conditioned on Chesapeake’s title confirmation and an arbitration clause. Chesapeake did not pay the bonus.
- Feb 2011 lease: a separate single-signature "top lease" signed by Hickman under alleged duress/misrepresentation; contained arbitration clause.
- Circuit court (Aug 7, 2014) voided the Jul 2006 and Feb 2011 leases, found the Dec 2005 lease expired Dec 2010, compelled arbitration under the Jan 2011 lease, and ordered Chesapeake to pay the up-front bonus and royalties; appeals followed and were consolidated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of Feb 2011 lease/arbitration clause | Hickman: procured by fraud, misrepresentation, mutual mistake, and duress; voidable | Chesapeake/agents: lease was a valid top lease; title problems justified actions | Feb 2011 lease void for fraud/mistake/duress; arbitration clause unenforceable (affirmed) |
| Enforceability/scope of Jan 2011 arbitration clause; entitlement to bonus | Hickman: arbitration clause unenforceable unless Chesapeake paid promised up-front bonus; seeks court ruling on bonus | Chesapeake: arbitration clause valid; threshold issues (including bonus/royalties) belong to arbitrator; alternatively, bonus discretionary under Order of Payment | Arbitration clause in Jan 2011 lease valid; court may require Chesapeake to pay the up-front bonus as consideration for the lease (affirmed as to bonus). Claims about royalties fall within arbitration and must be sent to arbitrator (royalties award reversed) |
| Compelling non-signatories (Range Resources, Capouillez, Geological Assessment) to arbitrate under Jan 2011 lease | Hickman argued interconnected claims justify binding non-signatories | Non-signatories: never signed Jan 2011 lease and did not consent; cannot be compelled absent traditional contract/agency theory | Court erred in compelling those non-signatories to arbitrate under Jan 2011 lease; reversed as to them |
| Challenge to Jul 2006 and Dec 2005 leases vs. FAA severability doctrine | Hickman: Jul 2006 void for lack of meeting of minds; Dec 2005 controlling and expired Dec 2010 | Defendants: FAA/severability require arbitration of disputes under those leases; plaintiff failed to sever arbitration clause so issues belong to arbitrator | Circuit court erred to the extent it decided substantive issues of Jul 2006 and Dec 2005 leases without first applying severability and referring arbitration-eligible questions to arbitrator; Jul 2006 arbitration clause not properly challenged, so disputes under it must go to arbitration (reversed in part) |
Key Cases Cited
- McCullough Oil, Inc. v. Rezek, 176 W.Va. 638, 346 S.E.2d 788 (W. Va. 1986) (oil & gas lease is both conveyance and contract; interpret lease to effectuate production purpose)
- Brown v. Genesis Healthcare Corp., 228 W.Va. 646, 724 S.E.2d 250 (W. Va. 2011) (FAA enforces arbitration clauses but state contract defenses like fraud, duress, unconscionability apply)
- State ex rel. Richmond American Homes of W. Va., Inc. v. Sanders, 228 W.Va. 125, 717 S.E.2d 909 (W. Va. 2011) (adopts severability doctrine; party must explicitly challenge arbitration clause to avoid arbitration)
- State ex rel. TD Ameritrade, Inc. v. Kaufman, 225 W.Va. 250, 692 S.E.2d 293 (W. Va. 2010) (trial court’s FAA role limited to whether valid arbitration agreement exists and whether claims fall within its scope)
- Jones v. Comer, 123 W.Va. 129, 13 S.E.2d 578 (W. Va. 1941) (fraud in procurement of deed or contract renders it voidable)
- Webb v. Webb, 171 W.Va. 614, 301 S.E.2d 570 (W. Va. 1983) (mistake of material fact may justify setting aside transaction in equity)
- Martin v. Ewing, 112 W.Va. 332, 164 S.E. 859 (W. Va. 1932) ("meeting of the minds" is essential to contract formation)