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Class-Action Arbitrations in Oil and Gas Leases
On Jan. 5, the U.S. Court of Appeals for the Third Circuit issued a decision answering the question of whether language in an arbitration clause referencing “the rules of the American Arbitration Association” was sufficient to rebut the presumption that the court, not the arbitrator, decided whether a class action arbitration was agreed to by the parties, as in Chesapeake Appalachia v. Scout Petroleum, No. 14-1275, 2016 U.S. App. LEXIS 42 (3d Cir. Jan. 5, 2016).
In a thorough opinion, the Third Circuit sided with the U.S. Court of Appeals for the Sixth Circuit and expressly declined to create a circuit split, ruling that under the Federal Arbitration Act as construed by U.S. Supreme Court precedent, references to the rules of the American Arbitration Association in an arbitration clause in an oil and gas lease were insufficient to “clearly and unmistakably” delegate the issue of class arbitrability to an arbitrator.
The Third Circuit's conclusion is significant because it resolves a split in the Pennsylvania Middle District Courts (and other jurisdictions) finding on both sides of this issue. The ruling adds much-needed clarity that will impact both the oil and gas industry in Pennsylvania and beyond. As recognized in a number of decisions on this issue, class-action arbitration has the potential to undo many of the benefits of having an agreement to arbitrate in the first place: lower-cost lawsuits, streamlined procedures, higher efficiency and faster rulings. The result reached by the Third Circuit in Scout ensures that the inclusion of this common arbitration clause language in an oil and gas lease is not enough to delegate the critical class arbitrability issue to the arbitrator. Rather, this is a decision for the district courts to decide, with a more lenient standard of appellate review in the event that a party challenges the decision.
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