Third Circuit Holds That Courts – Not Arbitrators – Must Determine Whether Arbitration Clauses Permit Class Action Arbitration

The United States Court of Appeals for the Third Circuit, in a precedential opinion, recently held that courts, not arbitrators, must decide whether a class action dispute should be governed by arbitration unless the arbitration clause "clearly and unmistakably" delegates the decision to the arbitrator. The Third Circuit rejected the argument that the incorporation of American Arbitration Association ("AAA") rules into an arbitration provision required that an arbitrator determine the question of arbitrability.

In 2008, Chesapeake Appalachia, L.L.C. ("Chesapeake") entered into oil and gas leases (the "Leases") with defendant Scout Petroleum L.L.C.'s ("Scout") predecessor. The Leases included the following arbitration provision:

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 2014, Scout filed an arbitration demand against Chesapeake on behalf of itself and similarly situated lessors, alleging that Chesapeake paid insufficient royalties. Chesapeake objected to class arbitration, and filed an action in federal court seeking a declaratory judgment that (1) the District Court—and not the arbitrators—must decide whether class arbitration is available, and (2) the Leases do not permit class arbitration.

The District Court entered an order granting summary judgment to Chesapeake, finding that "[t]he contract here is silent or ambiguous as to class arbitration, far from the 'clear and unmistakable' allowance needed for an arbitrator, and not a court, to turn to the clause construction question." Chesapeake Appalachia, L.L.C. v. Scout Petroleum, L.L.C., 73 F. Supp. 3d 488, 501 (M.D. Pa. 2014). In support of its decision, the district court relied on a recent decision issued by the Third Circuit, Opalinski v. Robert Half International Inc., 761 F.3d 326 (3d Cir. 2014), which held that the availability of class arbitration constitutes a "question of arbitrability" to be decided by the courts unless the parties' arbitration agreement "clearly and unmistakably" provides otherwise.

In this case, the Third Circuit first noted that the availability of class arbitration implicates two inquiries: "(1) the 'who...