United States: Arguments For Class Arbitration With An Agreement That Doesn't Mention It, Again Fail

The predicted demise of litigation over the availability of class arbitration has not taken place. And the new cases occur in many areas of the law. (See our November 11, 2013, March 12, 2015, September 9, 2015, and March 23, 2016, blog articles dealing with "gateway issues" and the availability of class arbitration). The most recent decision actually involves oil and gas leases rather than employment claims, but addresses the sometimes vexing issue of whether an agreement that does not even mention class arbitration can still be found to implicitly authorize it.

This was the ultimate issue addressed by district court Judge Matthew W. Brann in Chesapeake Appalachia L.L.C. v. Scout Petroleum LLC et al., Case No. 4:14-CV-0620 (M.D. Pa. April 28, 2017). In Chesapeake Appalachia, Scout Petroleum first attempted to bring a class arbitration for itself and a putative class of thousands of landowners to resolve a dispute about the calculation of royalties under the terms of the natural gas leases. Those leases contained an arbitration provision which provided:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by lessee's operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee.

Plaintiff Chesapeake Appalachia consequently filed a lawsuit in court seeking a declaration on the question of "who decides" the propriety of class arbitration, and also sought a declaratory judgment that the agreement did not authorize class arbitration – or on the "clause construction" question.

On October 16, 2014 Judge Brann granted Chesapeake's Motion and entered a declaratory judgment that the court is to interpret the contract not an arbitrator. The Third Circuit ultimately affirmed that determination leaving the interpretation of the clause to the district court. See Chesapeake Appalachia, L.L.C. v. Scott Petroleum, LLC, 809 F.3d 746 (3d Cir. 2016).

But, the district court was not writing on a clean slate. Another Judge of that court had authored Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F.Supp. 3d 912 (M.D. Pa. 2016), dealing with the "identical language from Chesapeake's leases." In Ostroski Judge John E. Jones, III found that the agreement's language did not authorize class arbitration. Judge Brann felt bound by the prior decision but also agreed with Judge Jones' "sound legal reasoning."

Judge Brann based his conclusion on a number of decisions, including Opalinski v. Robert Half Int'l Inc., 2017 U.S. App. LEXIS 1594 (3d Cir. Jan. 30, 2017) (Opalinski II). In Opalinski II, the dismissal of a collective action complaint premised on the Fair Labor Standards Act was affirmed by the Third Circuit. The appellate court analyzed whether an agreement that was "silent" as to class arbitration could nevertheless be read to "agree" to it. The Third Circuit declared:

"Even assuming arguendo that class arbitration may be permitted without express authorization in an arbitration clause, Plaintiffs have set forth nothing suggestive of implicit intent to permit class arbitration here." (Id.)

Indeed, the Third Circuit noted (and Judge Brann acknowledged): "Several other Circuits, including the Fifth, Sixth, Seventh, Eighth and Ninth, have likewise stated that 'silence' in an agreement regarding class arbitration generally indicates that it is not authorized by the agreement." Id. Those circuit opinions included: Eshagh v. Terminix Int'l Co., 588 F. App'x 703, 704 (9th Cir. 2014) (affirming the striking of class allegations, when the arbitration agreement did not mention class arbitration); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013) ("The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it."); Reed v. Fla. Metro. Univ., Inc., 681 F.3d 630, 643-44 (5th Cir. 2012) (finding that silence does not amount to consent to class arbitration, abrogated on other grounds by Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013); Dominium Austin Partners, L.L. C. v. Emerson, 248 F.3d 720, 728-29 (8th Cir. 2001) (finding that the district court did not err by compelling individual, rather than class, arbitration because the agreements were silent as to class arbitration); Champ v. Siegel Trading Co. 55 F.3d 269, 275 (7th Cir. 1995) (declaring "the FAA forbids federal judges from ordering class arbitration where the parties' arbitration agreement is silent on the matter").

Thus, another decision has cast doubt on arguments that a silent agreement can implicitly authorize class arbitration. Indeed, the district court recognized an extensive body of case law indicating that "silence" generally signals that class arbitration is not authorized. And reference to the American Arbitration Association's various arbitration rules have not proven sufficient to authorize class arbitration. See Reed Elsevier, Inc., 734 F.3d at 599.

BOTTOM LINE:

The recent Chesapeake Appalachia opinion illustrates that while controversies still arise over class arbitration, courts are sharpening their analysis and the lack of mention of class arbitration casts substantial doubt over its availability.

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