SWN Production Company v. Richard A. and Mary D. Long , 807 S.E.2d 249 ( 2017 )

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2017 Term
_______________ FILED
November 7, 2017
No. 16-1131
released at 3:00 p.m.
EDYTHE NASH GAISER, CLERK
_______________ SUPREME COURT OF APPEALS
OF WEST VIRGINIA
SWN PRODUCTION COMPANY, LLC,
Defendant Below, Petitioner
v.
RICHARD E. LONG and MARY D. LONG,
Plaintiffs Below, Respondents
____________________________________________________________
Appeal from the Circuit Court of Marshall County
The Honorable David Hummel, Judge
Civil Action No. 16-C-67
REVERSED AND REMANDED
____________________________________________________________
Submitted: October 18, 2017
Filed: November 7, 2017
Ancil G. Ramey, Esq. James G Bordas, Jr., Esq.
Steptoe & Johnson PLLC Jeremy M. McGraw, Esq.
Huntington, West Virginia James B. Stoneking, Esq.
Bordas & Bordas, PLLC
Kristen Andrews Wilson, Esq. Wheeling, West Virginia
Steptoe & Johnson PLLC Counsel for the Respondents
Wheeling, West Virginia
Allison J. Farrell, Esq.
Steptoe & Johnson PLLC
Bridgeport, West Virginia
Counsel for the Petitioner
JUSTICE WALKER delivered the Opinion of the Court.
SYLLABUS BY THE COURT
1. “An order denying a motion to compel arbitration is an interlocutory
ruling which is subject to immediate appeal under the collateral order doctrine.” Syllabus
Point 1, Credit Acceptance Corp. v. Front, 231 W. Va. 518, 745 S.E.2d 556 (2013).
2. “When an appeal from an order denying a motion to dismiss and to
compel arbitration is properly before this Court, our review is de novo.” Syllabus Point 1,
West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W. Va. 465, 796
S.E.2d 574 (2017).
3. “Under the Federal Arbitration Act, 9 U.S.C. § 2, parties are only
bound to arbitrate those issues that by clear and unmistakable writing they have agreed to
arbitrate. An agreement to arbitrate will not be extended by construction or implication.”
Syllabus Point 10, Brown v. Genesis Healthcare Corp., 228 W. Va. 646, 724 S.E.2d 250(2011), overruled on other grounds by Marmet Health Care Ctr., Inc v. Brown, 565 U.S.
530 (2012).
4. “Under the Federal Arbitration Act, 9 U.S.C. § 2, and the doctrine of
severability, only if a party to a contract explicitly challenges the enforceability of an
arbitration clause within the contract, as opposed to generally challenging the contract as
a whole, is a trial court permitted to consider the challenge to the arbitration clause.
i
However, the trial court may rely on general principles of state contract law in
determining the enforceability of the arbitration clause. If necessary, the trial court may
consider the context of the arbitration clause within the four corners of the contract, or
consider any extrinsic evidence detailing the formation and use of the contract.” Syllabus
Point 4, State ex rel. Richmond American Homes of West Virginia, Inc. v. Sanders, 228
W. Va. 125, 717 S.E.2d 909 (2011).
5. “The mere fact that parties do not agree to the construction of a
contract does not render it ambiguous. The question as to whether a contract is
ambiguous is a question of law to be determined by the court.” Syllabus Point 1, Berkeley
Co. Pub. Serv. Dist. v. Vitro Corp., 152 W. Va. 252, 162 S.E.2d 189 (1968).
ii
WALKER, Justice:
Petitioner SWN Production Company, LLC and Respondents Richard and
Mary Long are parties to an oil and gas lease that includes an arbitration provision.
When Respondents sued Petitioner to recover payments to which they claim to be entitled
under the lease and various other damages, Petitioner urged the circuit court to dismiss
the case and compel arbitration. Respondents countered that references in other parts of
the lease to “any court of competent jurisdiction” or “a civil action” invalidated the
arbitration provision. The circuit court agreed. However, we find that the arbitration
provision is clear and unambiguous and thus reverse the circuit court’s order and remand
with directions that the case be dismissed and referred to arbitration.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case involves a dispute between the parties regarding Respondents’
mineral interests underlying real property located in Marshall County, West Virginia.
Respondents allege that pursuant to the provisions of an oil and gas lease (Lease) with
Petitioner’s predecessor in interest executed on December 15, 2008, they are entitled to
an up-front bonus payment of $113,710.00 ($1,000 per acre) in consideration for
execution of the Lease but only received $44,544.00.1 Respondents’ complaint seeks (1)
1
Petitioner represents in its brief that ALL Resources assigned its rights under the
Lease to Chesapeake Appalachia, LLC (“Chesapeake”), who subsequently assigned all of
(continued . . .)
1
a declaration that the Lease is invalid as a result of Petitioner’s failure to pay the full
bonus amount; (2) rescission of the Lease and damages for unjust enrichment; (3)
damages for trespass and conversion; (4) damages for intentional infliction of emotional
distress; (5) an injunction to prohibit any re-entry onto their property; and (6) punitive
damages. Petitioner filed a motion to compel arbitration and to dismiss Respondents’
complaint, relying on the following arbitration provision in the Lease:
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.
In its order denying Petitioner’s motion to compel arbitration, the circuit
court found ambiguity in the Lease’s arbitration provision, explaining:
18. Upon review of the lease language . . . the Court has
determined that the lease language regarding arbitration is
indeed ambiguous.
19. To be clear, the Plaintiffs have not argued that the entire
lease is invalid, therefore the arbitration clause is invalid.
The Plaintiffs’ underlying case may make that allegation, but
the challenge to the arbitration clause does not. The
challenge to the arbitration provision is limited to the issues
of ambiguity and assent.
its interests to Petitioner. Thus, Petitioner is now the party in interest with respect to the
subject Lease.
2
20. The references to “courts of competent jurisdiction” and
“civil actions” demonstrate ambiguity as to the ability to
proceed with disputes in the civil court system as opposed to
arbitration.2
2
Specifically, the two provisions of the Lease relied upon by the circuit court state
as follows:
SEVERABILITY. This Lease is intended to be in conformity
with all laws, rules, regulations and orders and interpreted as
such. If any provision of this Lease is held invalid or
unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force
and effect. Any provision of this agreement held invalid or
unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.
(B) LIMITATION ON FORFEITURE. This Lease shall
never be subject to a civil action or proceeding to enforce a
claim of termination, cancellation, expiration or forfeiture due
to any action or inaction by the Lessee, including but not
limited to making any prescribed payments, unless the Lessee
has received written notice of Lessor’s demand and thereafter
fails or refuses to satisfy or provide justification responding to
Lessor’s demand within 60 days from the receipt of such
notice. If Lessee timely responds to Lessor’s demand but in
good faith disagrees with Lessor’s position and sets forth the
reasons therefore, such a response shall be deemed to satisfy
this provision, this Lease shall continue in full force and
effect and no further damages (or other claims for relief) will
accrue in Lessor’s favor during the pendency of the dispute,
other than claims for payments that may be due under the
terms of this Lease.
(Emphasis added).
3
Finding that ambiguous contract provisions must be construed against the drafter, the
circuit court held that “[t]he ambiguous contract language at issue here much like the
ambiguous language in [State ex rel.] Richmond American Homes [of West Virginia, Inc.
v. Sanders, 228 W. Va. 125, 717 S.E.2d 909 (2011)] demonstrates a failure of clear and
unmistakable assent as to the issue of arbitration.” On this basis, the circuit court denied
Petitioner’s motion to compel arbitration.
II. STANDARD OF REVIEW
“An order denying a motion to compel arbitration is an interlocutory ruling
which is subject to immediate appeal under the collateral order doctrine.”3 With respect
to the applicable standard of review, this Court has held that “[w]hen an appeal from an
order denying a motion to dismiss and to compel arbitration is properly before this Court,
our review is de novo.”4 Additionally, with respect to our review of contractual issues,
this Court has stated, “we apply a de novo standard of review to [a] circuit court’s
3
Syl. Pt. 1, Credit Acceptance Corp. v. Front, 231 W. Va. 518, 745 S.E.2d 556(2013).
4
Syl. Pt. 1, West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238
W. Va. 465, 796 S.E.2d 574 (2017).
4
interpretation of [a] contract.”5 With these standards in mind, we proceed to consider the
parties’ arguments.
III. ANALYSIS
The issue before us is whether the arbitration clause contained in the Lease
is enforceable. This Court has stated,
The [Federal Arbitration Act, 9 U.S.C. § 2 (FAA)]
recognizes that an agreement to arbitrate is a contract. The
rights and liabilities of the parties are controlled by the state
law of contracts. If the parties have entered into a contract
(which is valid under state law) to arbitrate a dispute, then the
FAA requires courts to honor parties’ expectations and
compel arbitration.6
However, “[u]nder the [“FAA”], . . . parties are only bound to arbitrate those issues that
by clear and unmistakable writing they have agreed to arbitrate. An agreement to
arbitrate will not be extended by construction or implication.”7 In determining whether a
motion to compel arbitration should be granted, courts are required under the FAA to
5
Id. at 469, 796 S.E.2d at 578 (quoting Finch v. Inspectech, LLC, 229 W. Va.
147, 153, 727 S.E.2d 823, 829 (2012)).
6
Schumacher Homes of Circleville, Inc. v. Spencer, 237 W. Va. 379, 387, 787
S.E.2d 650, 658 (2016) (“Schumacher Homes II”).
7
Syl. Pt. 10, Brown v. Genesis Healthcare Corp., 228 W. Va. 646, 724 S.E.2d 250(2011), overruled on other grounds by Marmet Health Care Ctr., Inc v. Brown, 565 U.S.
530 (2012).
5
apply the doctrine of “severability” or “separability,” which this Court has explained as
follows:
The gist of the doctrine is that an arbitration clause in a
larger contract must be carved out, severed from the larger
contract, and examined separately. The doctrine “treats the
arbitration clause as if it is a separate contract from the
contract containing the arbitration clause, that is, the
‘container contract.’” Under the doctrine, arbitration clauses
must be severed from the remainder of a contract, and must
be tested separately under state contract law for validity and
enforceability.8
Regarding the application of this doctrine, we have held:
Under the Federal Arbitration Act, 9 U.S.C. § 2, and
the doctrine of severability, only if a party to a contract
explicitly challenges the enforceability of an arbitration
clause within the contract, as opposed to generally
challenging the contract as a whole, is a trial court permitted
to consider the challenge to the arbitration clause. However,
the trial court may rely on general principles of state contract
law in determining the enforceability of the arbitration clause.
If necessary, the trial court may consider the context of the
arbitration clause within the four corners of the contract, or
consider any extrinsic evidence detailing the formation and
use of the contract.9
In determining if the severed arbitration clause is enforceable under generic principles of
contract law, this Court has further explained that “the trial court can look at other parts
8
Schumacher Homes II, 237 W. Va. at 387-88, 787 S.E.2d at 658-59.
9
Syl. Pt. 4, Richmond American Homes, 228 W. Va. 124, 717 S.E.2d 909(Emphasis added).
6
of the contract that relate to, support, or are otherwise entangled with the operation of
the arbitration clause.”10
Petitioner asserts that the circuit court erred by going outside the arbitration
provision itself to find ambiguity; specifically, Petitioner challenges the holding that
references to “any court of competent jurisdiction” in an unrelated severability clause and
“a civil action” in an unrelated forfeiture clause created an ambiguity invalidating a clear
and unambiguous arbitration provision. Petitioner distinguishes our decision in
Richmond American Homes on the basis that the arbitration clause at issue in that case
contained five references within the clause itself to plaintiff’s ability to bring suit in a
court of law to resolve disputes. Petitioner maintains that, in this case, the severability
and forfeiture clauses in the Lease do not create an ambiguity, as neither are inconsistent
with the operation of the arbitration clause. Petitioner also maintains that the severability
clause applies to an effort to have any provision of the Lease held invalid or
unenforceable. However, the action filed in this case involves payment under the Lease,
an issue Petitioner contends is clearly covered by the arbitration clause. Petitioner
likewise contends that none of Respondents’ claims seek a forfeiture.
10
Schumacher Homes II, 237 W. Va. at 388, 787 S.E.2d at 659 (Emphasis added).
7
Conversely, Respondents allege that the contract language is ambiguous
because the terms are inconsistent. They assert that because the Lease fails to define the
term “arbitration,” it is reasonable for an unsophisticated party to believe that court action
is not foreclosed when other provisions in the Lease reference “any court of competent
jurisdiction” and “civil action.” They contend that the arbitration clause, while severed
for analysis, cannot be examined in a vacuum, but rather must be interpreted in light of
the greater context of the entire Lease pursuant to our decision in Richmond American
Homes and its progeny. We find Respondents’ arguments unconvincing and conclude
that the circuit court’s denial of Petitioner’s motion to compel arbitration was erroneous.
In Richmond American Homes, a contractor sought to compel arbitration of
claims made by various homeowners seeking damages for improper construction. This
Court evaluated an arbitration provision that contained a subsection on mediation that the
contractor argued was “part and parcel” of the arbitration provision.11 In five places
within the arbitration provision itself, the mediation provision made reference to the
possibility of the parties bringing “court action,” “civil action,” or relying upon the
discretion of a “judge.”12 The circuit court found, and we agreed, that these repeated
references to “court action” within the arbitration provision suggested that the plaintiffs
11
228 W. Va. at 131, 717 S.E.2d at 915.
12
Id.8
“retain the ability to vindicate their claims in court,” and created an ambiguity with
regard to arbitration that should be construed against the contractor, the drafter of the
adhesion contract.13
In this case, however, the arbitration provision at issue is clear:
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.
(Emphasis added). Given this clear and unmistakable language in the arbitration clause,
it was unnecessary for the circuit court to consider the context of the clause within the
four corners of the contract or consider any extrinsic evidence detailing the formation and
use of the contract.14 Furthermore, as Petitioner aptly notes, the references within the
severability and forfeiture clauses “do not relate to or support the operation of the
arbitration clause, nor are they otherwise entangled with its operation.”15 Thus,
Respondents’ reliance on Richmond American Homes is misplaced.
13
Id.14
Syl. Pt. 4, Richmond American Homes.
15
Schumacher Homes II, 237 W. Va. at 388, 787 S.E.2d at 659.
(continued . . .)
9
In Dytko v. Chesapeake Appalachia, LLC, No. 5:13CV150, 2014 WL
2440496 (N.D.W.Va. May 31, 2014), the United States District Court for the Northern
District of West Virginia addressed this very same argument involving the same lease
provisions and found that the severability clause and forfeiture clause did not render the
arbitration clause ambiguous.16 With respect to the arbitration clause itself, the District
Court determined that “[the] directive is clear and leaves no doubt concerning the setting
of such disputes or the types of disputes that must be arbitrated.”17
Furthermore, with respect to the references made to “court of competent
jurisdiction” and “civil action” in the severability and forfeiture clauses, the District
Court determined that the language in these clauses did not alter its finding that the lease
was clear and unambiguous concerning the parties duty to arbitrate.18 The District Court
reasoned:
. . . [T]he arbitration clause makes clear that the
parties’ disputes concerning the lease are subject to
arbitration and, therefore, must be brought in that forum. The
16
Although Respondents’ counsel also represented the plaintiffs in Dytko,
Respondents failed to advise the circuit court of the District Court’s decision in that case.
17
2014 WL 2440496 at *3.
18
Id.10
severability clause does not provide any rights to either party
concerning the forum in which they may bring their disputes.
As such, the mere reference to a court of competent
jurisdiction does not render the arbitration clause’s directive
that disputes must be decided in arbitration susceptible to any
different meaning.
***
This Court further finds that the language of the
limitation of forfeiture clause also does not render the
arbitration clause ambiguous. . . . The entirety of the phrase in
the limitation of forfeiture clause referencing a possible civil
action states “civil action or proceeding[.]” Therefore, it
clearly references the possibility of a proceeding rather than a
civil action and never states that a civil action would be the
correct forum. The arbitration clause itself makes it clear
what the correct forum would be for any possible action
concerning forfeiture. Thus, after reading all of the clauses in
conjunction with one another, this Court finds that the
arbitration clause is not rendered ambiguous based on either
the limitation of forfeiture provision or the severability
provision.19
The District Court also rejected the same argument made by Respondents
here regarding the applicability of our decision in Richmond American Homes. The
District Court found that “in this action, the severability and forfeiture clause is separate
and distinct from the arbitration provision. Further, neither clause at issue directs the
plaintiffs that they have a right to file a civil action.”20 Accordingly, the District Court
19
Id.20
2014 WL 2440496 at *4.
(continued . . .)
11
found that the contract at issue in Richmond American was distinguishable from the lease
under its consideration, and, thus, the finding in Richmond American was not
applicable.21
Respondents attempt to distinguish the District Court’s holding in Dytko,
contending that the plaintiff in that case was actively engaged in negotiating the terms of
the lease with Chesapeake Appalachia. They also argue that the District Court’s analysis
in Dytko was flawed. However, we find their attempt to distinguish Dytko unpersuasive;
Dytko’s holdings are instructive with respect to the issue before us in this case.
“The mere fact that parties do not agree to the construction of a contract
does not render it ambiguous. The question as to whether a contract is ambiguous is a
question of law to be determined by the court.”22 As this Court recently stated:
“[c]ontract language is considered ambiguous where an
agreement’s terms are inconsistent on their face or where the
phraseology can support reasonable differences of opinion as
to the meaning of words employed and obligations
undertaken.” Syl. pt. 6, State ex rel. Frazier & Oxley, L.C. v.
Cummings, 212 W. Va. 275, 569 S.E.2d 796 (2002). Also,
“[t]he term ‘ambiguity’ is defined as language reasonably
21
Id.22
Syl. Pt. 1, Berkeley Co. Pub. Serv. Dist. v. Vitro Corp., 152 W. Va. 252, 162
S.E.2d 189 (1968).
12
susceptible of two different meanings or language of such
doubtful meaning that reasonable minds might be uncertain or
disagree as to its meaning.” Syl. pt. 4, Estate of Tawney v.
Columbia Nat. Res., 219 W. Va. 266, 633 S.E.2d 22 (2006).23
Having found that the parties’ agreement to arbitrate in this case was clear
and unmistakable, we reiterate that
[i]n determining whether the language of an agreement to
arbitrate covers a particular controversy, the federal policy
favoring arbitration of disputes requires that a court construe
liberally the arbitration clauses to find that they cover
disputes reasonably contemplated by the language and to
resolve doubts in favor of arbitration.24
In this case, there is no question that the severability clause and forfeiture
clause “do not relate to or support the operation of the arbitration clause, nor are they
otherwise entangled with its operation.” Accordingly, it was improper for the circuit
court to go outside of the provisions of the arbitration clause to find language to create an
ambiguity. As Petitioner properly contends, “because the two references to civil action in
the Lease . . . are not located within the same provision as the arbitration agreement” and
neither clause directs Respondents that they have a right to file a civil action, the
23
Salem International University, LLC v. Bates, 238 W. Va. 229, 235, 793 S.E.2d
879, 885 (2016).
24
State ex rel. City Holding Co. v. Kaufman, 216 W. Va. 594, 598, 609 S.E.2d
855, 859 (2004) (citations omitted).
13
arbitration provision is not ambiguous and therefore should be enforced. For these
reasons, we reverse the circuit court’s order denying Petitioner’s motion to compel
arbitration and remand the case to the circuit court for entry of an order compelling
arbitration and dismissing the civil action.
IV. CONCLUSION
For these reasons, we reverse the October 31, 2016 order of the circuit court
and remand this case with directions that it be dismissed and referred to arbitration.
Reversed and remanded.
14