Alan Marbaker v. Statoil Onshore Properties Inc ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 18-3067
_______________
ALAN MARBAKER, CAROL MARBAKER,
JERRY L. CAVALIER, FRANK K. HOLDREN,
Appellants
v.
STATOIL USA ONSHORE PROPERTIES, INC.,
FKA Statoilhydro USA Onshore Properties, Inc.
_______________
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 3:17-cv-01528)
District Judge: Honorable A. Richard Caputo
_______________
Submitted Under Third Circuit L.A.R. 34.1
on September 12, 2019
Before: HARDIMAN, GREENAWAY, JR., and BIBAS, Circuit Judges
(Filed: February 13, 2020)
_____________
OPINION*
_____________
*
This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding
precedent.
BIBAS, Circuit Judge.
A party cannot compel class arbitration without the opposing party’s affirmative
consent. A class-arbitration clause can show that consent, but a bilateral arbitration clause
cannot. Alan and Carol Marbaker (and two other landowners) allege that Statoil underpaid
them royalties on their oil and gas leases. The leases have arbitration clauses. So the
Marbakers asked the District Court to declare either (1) that Statoil had waived any right
to enforce those clauses or else (2) that those clauses allow class arbitration. Instead, the
District Court dismissed their suit, rejecting the waiver claim as unripe and the class-
arbitration claim on the merits.
We will affirm. The Marbakers may assert waiver if Statoil tries to compel arbitration.
Because Statoil has not done so yet, their waiver defense is unripe. And though the class-
arbitration claim is ripe, it lacks merit. The clauses say nothing about class arbitration. If
the parties want that, they must affirmatively agree to it.
I. BACKGROUND
In exchange for royalties, some landowners lease to energy companies the right to ex-
tract oil and gas from their land. Statoil bought a share of more than 32,000 of these leases
in the Marcellus Shale area in Pennsylvania and neighboring states. The landowners fall
into two groups: the leases of those in the first group had arbitration clauses, while the
leases of those in the second group did not. The Marbakers belonged to the first group;
Cheryl Canfield, to the second group.
In 2015, the Marbakers, on behalf of the first group of landowners, filed a class-arbi-
tration demand against Statoil to recover unpaid royalties with the American Arbitration
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Association (AAA). At the same time, they filed a complaint in federal district court, seek-
ing a declaratory judgment that their leases permit class arbitration. The parties soon agreed
to mediate. So the Marbakers voluntarily dismissed their declaratory-judgment suit and
agreed to stay arbitration pending mediation. Mediation lasted for about two years.
Meanwhile, in 2016, Canfield filed a class-action suit against Statoil, seeking royalties
on behalf of the second group of landowners. She could do so because the leases of her
class, unlike those of the Marbakers’ class, lacked arbitration clauses. Statoil moved to
dismiss the Canfield suit. The district court dismissed most of the Canfield class’s claims.
Afterwards, Canfield started negotiating a settlement of her remaining claims. Right around
then, Statoil’s mediation with the Marbakers broke down.
Fearing that the Canfield settlement could “extinguish [their] claims,” the Marbakers
reached out to Canfield’s counsel and tried to get involved in the class-settlement discus-
sion. App. 56. But counsel for Canfield declined their offer.
Ordinarily, someone with qualms about a class settlement will move to intervene or file
objections. The Marbakers did neither. Instead, in 2018, right after Canfield sought prelim-
inary approval of a class settlement, the Marbakers moved to consolidate their suit with the
Canfield suit. The District Court denied that motion.
The Marbakers also refiled their declaratory-judgment suit, adding a new claim. Their
amended complaint asked the District Court to declare either (1) that Statoil had waived its
right to enforce its arbitration clauses or (2) that those clauses permit class arbitration. In
other words, they sought either to block bilateral arbitration or to compel class-wide arbi-
tration.
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Statoil moved to dismiss both counts. The District Court granted that motion in full. It
dismissed Count One without prejudice, finding that Statoil’s alleged waiver of arbitration
rights would not be ripe until Statoil moved to compel arbitration. And it dismissed Count
Two with prejudice because we have held that nearly identical leases do not permit class
arbitration.
The Marbakers now appeal the District Court’s dismissal of both counts of their declar-
atory-judgment suit. They also appeal its denial of their motion to consolidate that suit with
the Canfield suit. The District Court had diversity jurisdiction under 28 U.S.C. § 1332, and
we have jurisdiction under § 1291. We review its dismissal de novo. Allen v. DeBello, 861
F.3d 433, 437–38 (3d Cir. 2017). We review its denial of the motion to consolidate for
abuse of discretion. Lehman Bros. Holdings, Inc. v. Gateway Funding Diversified Mortg.
Servs., L.P., 785 F.3d 96, 100 (3d Cir. 2015).
II. THE DISTRICT COURT PROPERLY DISMISSED THE
MARBAKERS’ WAIVER CLAIM AS UNRIPE
Count One of the declaratory-judgment suit, alleging that Statoil waived its right to
enforce its arbitration clauses, is not ripe. To decide whether a declaratory-judgment claim
is ripe, we analyze three factors: (1) whether the parties’ interests are adverse, (2) whether
a declaratory judgment would be conclusive, and (3) whether that judgment would be use-
ful or practically helpful. Step-Saver Data Sys., Inc. v. Wyse Tech., The Software Link, Inc.,
912 F.2d 643, 647–50 (3d Cir. 1990). The first factor is dispositive here. Id. at 648. Because
the parties’ legal interests are not yet adverse, there is no justiciable controversy on Count
One.
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The Marbakers’ interest in proving waiver is not adverse to Statoil’s until Statoil moves
to compel arbitration. And Statoil may petition to compel arbitration if the Marbakers file
their royalty claims in court someday or otherwise evade Statoil’s attempts to arbitrate that
dispute. See 9 U.S.C. § 4. As in Step-Saver, Count One collapses at the word “if.” 912 F.2d
at 647. It is only if the Marbakers evade arbitration and if Statoil then moves to compel
arbitration that the Marbakers may then raise waiver as a defense. But a request to declare
valid a defense that the Marbakers might raise in a future proceeding that Statoil might
bring is not ripe. See Armstrong World Indus., Inc. v. Adams, 961 F.2d 405, 411–13, 415
(3d Cir. 1992) (holding declaratory claims unripe because they hinged on actions a defend-
ant had not yet taken); Plains All Am. Pipeline L.P. v. Cook, 866 F.3d 534, 541 (3d Cir.
2017) (applying Armstrong World Indus., Inc.).
The District Court dismissed Count One without prejudice. If the Marbakers evade ar-
bitration and Statoil petitions to compel bilateral arbitration, the Marbakers may renew
their claim then. Until then, the parties’ interests are not adverse. So we will affirm the
District Court’s dismissal of Count One.
III. THE DISTRICT COURT PROPERLY REACHED AND DISMISSED
THE MARBAKERS’ CLASS-ARBITRATION CLAIM
Count Two of the declaratory-judgment suit asked the District Court to declare that the
Marbakers’ leases allow class arbitration. The Marbakers argue that once the District Court
found Count One unripe, it should not have reached the merits of Count Two. They also
contest the merits, arguing that their leases do allow class arbitration. Both objections fail.
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A. The Marbakers’ class-arbitration claim is ripe
Unlike Count One, Count Two asks the District Court to resolve a ripe contract-inter-
pretation dispute: whether their leases allow class arbitration. To see why, we must again
apply our three-factor ripeness test. Step-Saver, 912 F.2d at 647.
First, the parties’ interests are adverse. The Marbakers’ interest in the meaning of their
arbitration clauses became adverse to Statoil’s when they took opposing positions in their
ongoing arbitration. See Pittsburgh Mack Sales & Serv., Inc. v. Int’l Union of Operating
Eng’rs, Local Union No. 66, 580 F.3d 185, 188, 190–92 (3d Cir. 2009) (finding adversity
because the parties were disputing whether an indemnity clause covered an action, even
before the liability was paid). The dispute here is not contingent, but active and ongoing.
Second, the District Court provided a conclusive judgment. The District Court held that
the Marbakers’ leases do not allow class arbitration. That ruling clarifies “the legal status
of the parties.” See id. at 192 (quoting Step-Saver, 912 F.2d at 648). Both sides now know
that the Marbakers may not seek class-wide relief in arbitration.
Finally, the judgment is useful. The District Court’s ruling settled an issue that the par-
ties could not have resolved in any other way. When an arbitration clause is silent about
class arbitration, a court—not an arbitrator—must decide whether the contract allows class
arbitration. Opalinski v. Robert Half Int’l Inc., 761 F.3d 326, 335–36 (3d Cir. 2014). The
Marbakers’ leases do not mention class arbitration. So only a court could have resolved
this issue. By taking class arbitration off the table, the District Court freed both parties to
seek other ways to resolve their dispute.
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In sum, the Marbakers’ class-arbitration request satisfies all three prongs of our ripeness
test. Count Two was thus ripe for review. On to the merits.
B. The District Court correctly found that the Marbakers’ arbitration clauses do
not authorize class arbitration
The Marbakers’ leases do not allow class-wide arbitration. Courts may not force parties
to arbitrate unless they have consented to it. Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662, 682–84 (2010). The terms of the parties’ contract govern who must arbitrate
what, with whom, when, and how. Id. at 682–83. Class arbitration is one of those important
terms, because it differs greatly from bilateral arbitration. It aggregates many more dis-
putes, handles much higher stakes, compromises confidentiality, and binds absent parties.
Id. at 686–87. Thus, courts will not force parties “to submit to class arbitration unless there
is a contractual basis for concluding that the party agreed to do so.” Id. at 684. Contractual
silence is not enough. Id. at 685. Nor is contractual ambiguity. Lamps Plus, Inc. v. Varela,
139 S. Ct. 1407, 1416 (2019). We will not infer consent. See id. at 1416. Rather, there must
be an “affirmative ‘contractual basis’ ” for finding that the parties consented specifically to
class arbitration. Id. at 1416 (quoting Stolt-Nielsen, 559 U.S. at 684).
The Marbakers’ leases fall well short of that standard. Indeed, they do not even mention
class arbitration. While the phrase “class arbitration” is not essential, its absence makes it
harder to show that the parties consented to it. Chesapeake Appalachia, LLC v. Scout Pet-
rol., LLC, 809 F.3d 746, 758–59 (3d Cir. 2016).
And the five leases here use bilateral language to describe the disputing parties. Each
arbitration clause sets out a process for resolving disputes about “this Lease,” singular.
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Ohio App. 76, 83, 90, 108, 130. Each lease is signed by a “Lessor” and a “Lessee,” singular.
App. 74, 82, 89, 94, 119. And three of the arbitration clauses explicitly govern “disagree-
ment[s] between Lessor and Lessee,” referring to those two individual parties. App. 76, 83,
90; cf. App. 108, 130 (the other two arbitration clauses cover “[a]ny controversy or claim
arising out of or relating to this Lease”). True, each lease’s assignability provision lets more
than one person or company qualify as “Lessor” and “Lessee.” App. 76, 83, 90, 101, 125.
But that does not show any intent to resolve disputes across multiple leases as a class. The
textual cues are all bilateral, contemplating disputes between just two parties.
To overcome this contractual omission, the Marbakers try to inject extrinsic evidence
to show that the parties “contemplated class arbitration.” Appellants’ Br. 43. They note that
some landowners negotiated their lease terms together, that Statoil paid them royalties
based on their fractions of a shared oil and gas pool, that Statoil holds fractional commer-
cial interests in other companies’ leases, and that at least one energy company settled a
previous dispute by class settlement.
But this extrinsic evidence proves nothing. Statoil signed the leases one by one with
individual landowners and paid them royalties individually. Its co-ownership does not mat-
ter. Another company’s litigation strategy is irrelevant. And none of this shows a course of
performance after the parties entered the contract.
In any event, extrinsic evidence cannot add to the terms of the leases themselves. Be-
cause we sit in diversity, we apply the substantive law of the forum state—here, Pennsyl-
vania. See Collins v. Mary Kay, Inc., 874 F.3d 176, 182 (3d Cir. 2017). Under Pennsylvania
law, “[w]hen the terms of a contract are clear and unambiguous, the intent of the parties is
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to be ascertained from the document itself.” Zuber v. Boscov’s, 871 F.3d 255, 258 (3d Cir.
2017) (quoting Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004)). We see no ambiguity in
the leases, let alone the affirmative consent required to authorize class arbitration. Lamps
Plus, 139 S. Ct. at 1416.
Finally, the Marbakers note that the parties agreed to follow the AAA’s rules. By agree-
ing to follow those rules, they arguably agreed to follow the AAA’s Supplementary Rules
too. See AAA, Supplementary Rules for Class Arbitrations (2003) (“AAA Suppl. R.”). The
Supplementary Rules sometimes allow class arbitration. See Id. R. 1(a). But the Associa-
tion buries the Supplementary Rules in “a daisy-chain of cross-references—going from the
Leases themselves to the rules of the American Arbitration Association to the Commercial
Rules and, at last, to the Supplementary Rules.” Scout Petrol., 809 F.3d at 761 (internal
quotation marks omitted). In Scout Petroleum, we suggested that a short, general reference
to the AAA’s rules does not “incorporate[ ] a panoply of collective and class action rules.”
Id. at 762.
Although Scout Petroleum resolved a different question (whether the parties agreed to
let an arbitrator decide class arbitrability), its reasoning applies here too. There, we noted
that the AAA’s general Commercial Rules use bilateral language and anticipate bilateral
conflict. Scout Petrol., 809 F.3d at 759–60, 762–63. And those rules do not mention the
Supplementary Rules. Id. at 763. We thus held that a general reference to the AAA’s rules
did not manifest the parties’ consent to class arbitration. Id. at 765–66. So too here.
Even if the parties had directly mentioned the Supplementary Rules, we still would not
infer consent. Those rules say that when “construing the applicable arbitration clause,” the
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reviewer “shall not consider the existence of these Supplementary Rules” in deciding
whether the clause allows class arbitration. AAA Suppl. R. 3 (emphasis added). So at the
clause construction stage, we cannot hold that the Supplementary Rules show that the par-
ties agreed to class arbitration. See Reed Elsevier, Inc. ex. rel. LexisNexis Div. v. Crockett,
734 F.3d 594, 599–600 (6th Cir. 2013).
In sum, the Marbakers’ leases do not affirmatively authorize class arbitration. We will
thus affirm the District Court’s dismissal of Count Two on the merits.
IV. THE DISTRICT COURT PROPERLY DENIED THE MOTION TO CONSOLIDATE
Because both claims fail, the motion to consolidate does not matter. In any event, the
District Court properly denied it. The two actions that the Marbakers sought to consolidate
presented different questions: the Marbakers’ declaratory-judgment suit was about a
threshold procedural issue (the meaning of their arbitration clause), while the Canfield suit
was about the merits (whether Statoil had underpaid royalties). Neither the operative facts
nor the legal standards overlapped, particularly since the two sets of leases had different
royalty terms. The District Court refused to let the Marbakers “convert a run-of-the-mill
consolidation motion into a substantive attack on a potential class settlement.” Marbaker
v. Statoil USA Onshore Props., Inc., No. 3:17-cv-01528, 2018 WL 2981341, at *3 n.4
(M.D. Pa. June 14, 2018). That ruling was reasonable, not an abuse of discretion. The Mar-
bakers did not have to use a motion to consolidate as a back door into the Canfield suit.
They could have easily protected their interests in that case by following the ordinary
course: moving to intervene and objecting to the proposed settlement. See Fed. R. Civ. P.
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24. Or they could just opt out of the settlement, retaining their rights. See Fed. R. Civ. P.
23(c)(2)(B)(v). Their fear of having their rights extinguished was groundless.
* * * * *
Though the Marbakers might regret their agreement to arbitrate bilaterally, they cannot
turn it into a right to arbitrate class-wide. Their effort to block bilateral arbitration will not
be ripe until Statoil tries to compel arbitration. And their effort to compel class arbitration
fails on the merits, because their arbitration clauses say nothing about it and address only
bilateral disputes. We will thus affirm.
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