Did the trial court err in denying the defendants' motions to compel arbitration based on what it believed to be ambiguous contract language "as to the ability to proceed with disputes in the civil court system as opposed to arbitration"?
FULL DISCLOSURE: The law firm of Bordas & Bordas represents Respondents, Richard and Mary Long.
This case involves a "paid up oil and gas lease" covering property located in Marshall County, West Virginia. In the underlying case the Plaintiffs alleged that they did not receive the consideration which they agreed to for executing the lease. This appeal, however, relates to whether these claims must be resolved in arbitration proceedings rather than the civil court system. The Defendants filed a motion to compel arbitration citing arbitration language contained in the lease agreement. The issues related to the motion to compel were briefed and a hearing was held. The trial court determined that 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. Thus, the trial court denied the motion to compel arbitration. Under current law, an order denying a motion to compel arbitration is immediately appealable. The underlying case has been stayed at the circuit court level pending this appeal.
Position of the Parties:
Petitioner (SWN Production):
The Petitioner argues that the trial court improperly refused to compel arbitration. The Petitioner argues that the arbitration clause at issue in the case is itself clear and unambiguous as to the requirement that â€œall such disputes shall be determined by arbitration[.] The Petitioner argues that the order violated the requirement that arbitration provisions must be "severed from the remainder of the contract" and "tested separately under state contract law for validity and enforceability." Instead, the trial court improperly relied "upon contract provisions outside the arbitration provisions that did not compel or permit civil litigation, but merely referenced "civil actions" and "courts of competent jurisdiction." The Petitioner argues that the clear and unambiguous language of the arbitration provision is the only provision of the lease that the court could consider when determining whether arbitration was required and that a simple reading of that language requires the case to be submitted for arbitration.
The Respondents stated that they specifically challenged the enforceability of the arbitration language under existing principles of contract law. Two separate provisions of the oil and gas lease agreement involved in the case include language referencing "any court of competent jurisdiction" and "civil actions." They argue that the FAA policy favoring the application of arbitration agreements only exists when there is valid and enforceable arbitration agreement. In this case, the Respondents assert that the lease is ambiguous as it relates to the arbitration provisions and ambiguity is a contract-based defense. The FAA only requires arbitration when there is a "clear and unmistakable writing" binding the parties to arbitrate. The references to a court of competent jurisdiction and a civil action demonstrate that there is, indeed, ambiguity as it relates to the requirement to arbitrate. The Respondents believe that the trial court was entitled to look at those other provisions of the lease which "relate to, support, or are otherwise entangled with the operation of the arbitration clause." The Respondents believe that the court properly determined the issues and that the decision should be affirmed.
This case is another in a recent string of arbitration-related decisions to be taken up by the Supreme Court. Even while upholding rulings requiring arbitration, the Court has adhered to the principle that state contract law based defenses to arbitration provisions are appropriate and can defeat arbitration requirements. This case is set on the Rule 19 docket so it looks to further clarify the existing law on these issues. This case will give those facing arbitration-related issues further guidance as to what the Court believes to be appropriate in this ever growing area of the law.