Third Circuit in Chesapeake Appalachia: Incorporating AAA Rules Not Enough to Satisfy the Onerous Burden of Overcoming Presumption in Favor of Judicial Resolution of Class Arbitrability

In Chesapeake Appalachia, L.L.C. v. Scout Petroleum, L.L.C., the Third Circuit picked up where it left off after Opalinski v. Robert Half International Inc. Click here for our prior blog on Opalinski. In Opalinski, the Circuit held, for the first time, that “the availability of class arbitration constitutes a ‘question of arbitrability’ to be decided by the courts—and not the arbitrators—unless the parties’ arbitration agreement ‘clearly and unmistakably’ provides otherwise.”

In another published decision, the court in Chesapeake Appalachia addressed the question left open in Opalinski: what must be established to “satisfy the onerous burden of overcoming the presumption in favoring of judicial resolution of the question of class arbitrability.” Chesapeake Appalachia rejected the argument that an arbitration agreement “clearly and unmistakably” provided for the arbitrator to decide this question by incorporating the Rules of the American Arbitration Association (“AAA”). The Court held that simply incorporating the AAA Rules, or the Supplementary Rules, was “not enough” to establish that the agreement “clearly and unmistakably delegate[d] the question of class arbitrability to the arbitrators.”

Chesapeake Appalachia involved oil and gas leases which provided that, “in the event of a disagreement between ‘Lessor’ and ‘Lessee’ concerning “this lease,” performance “‘thereunder,’ or damages caused by ‘Lessee’s’ operations, ‘all such disputes’ shall be resolved by arbitration ‘in accordance with the rules of the American Arbitration Association.'” The lessors sought class arbitration claiming that the AAA’s Supplementary Rules, among others, clearly provided for class arbitration, and that the arbitrator should decide whether the arbitration clause permits class arbitration. The lessee filed a declaratory judgment action seeking a declaration that the district court, and not the arbitrator, must decide and that the leases did not provide for class arbitration. Summary judgment was granted in favor of the lessee and that decision was appealed to the Third Circuit.

In a thorough opinion which rehashed much of Opalinski, the court in Chesapeake Appalachia, considered the language of the arbitration clause, the AAA Rules, and existing case law, and affirmed the district court’s holding “that the Leases are ‘far from the ‘clear and unmistakable’ allowance needed for’ the arbitrators to decide the question of class arbitrability.”

Accordingly, it is not enough for [the Lessor] to establish that the AAA rules provide for the arbitrators to decide, inter alia, the question of class arbitrability, and that, in turn, these rules are incorporated by reference pursuant to state law. It instead must present “clear and unmistakable evidence” of an agreement to arbitrate this specific question. As we explained in Opalinski, the onerous burden of overcoming the presumption requires express contractual language unambiguously delegating the question—not mere silence or ambiguous contractual language.

Chesapeake Appalachia thus demonstrates the truly “onerous” burden of overcoming the presumption that a court will decide this key class arbitrability issue, and again, counsels strongly in favor of having explicit terms in arbitration agreements.

Michael R. McDonald is a Director in the Gibbons Business & Commercial Litigation Department.
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