In PennEnergy Res., LLC v. Winfield Res., LLC,[1] the Superior Court of Pennsylvania weighed in on the enforceability of competing arbitration clauses within multiple agreements.
In 2012, PennEnergy Res., LLC (“PennEnergy”) entered into a Joint Development Agreement and a Joint Operating Agreement to develop oil and gas leases in Butler and Armstrong Counties with Winfield Res., LLC (“Winfield”).[2] Pine Run Midstream, LLC (“Pine Run”) later joined PennEnergy and Winfield as the gas gatherer of the group, entering into a Gas Gathering Agreement with both parties.[3] Included in all three agreements were provisions to arbitrate any disputes arising from or relating to said agreement.[4]
In 2018, Winfield elected to separately market or dispose of their share of the gas or, take it in kind.[5] Per the original agreement, PennEnergy, even with the change on Winfield’s part, was still required to submit Winfield’s daily nominations on their behalf.[6] Shortly after Winfield elected to take its gas in kind, PennEnergy changed the nominations submitted by Winfield causing Winfield to incur additional costs.[7] Soon thereafter, Winfield filed for arbitration against both PennEnergy and Pine Run in an attempt to resolve the dispute.[8]
The trial court relied on the reasoning of School Dist. of Phila. v. Livingston-Rosenwinkel, P.C.,[9] and held that the incompatibility of the provisions between agreements would frustrate arbitration’s purpose because the arbitration would not be economical, nor swiftly resolved.[10] The trial court also found persuasive Ragab v. Howard,[11] wherein the court found that “conflicting details in the multiple arbitration provisions indicate that there was no meeting of the minds with respect to arbitration.”[12] The trial court entered a judgment staying the arbitrations and taking over the merits of Winfield’s claim.[13]
On appeal, the Superior Court of Pennsylvania reversed the trial court’s decision and remanded the case to lift all stays on arbitration to allow Winfield’s claims to proceed through arbitration.[14]
In this case, the Superior Court of Pennsylvania employed the two-part test enumerated in Davis v. Ctr. Mgmt. Grp., LLC,[15] to determine whether the trial court erred and should have compelled arbitration. The first inquiry in these two steps asks whether the agreement to arbitrate was valid.[16] The Court determined both PennEnergy and Pine Run in their respective agreements had a valid agreement to arbitrate.[17] The second inquiry asks whether the dispute falls within the scope of the agreement.[18] This question is determined on the factual underpinning of the case rather than legal theory.[19] Looking at the facts, the Court held that both of the agreements were sufficiently broad because they both included encompassing language without exclusions for particular grievances, thus satisfying the second inquiry of the Davis test.[20]
Finishing their analysis, the Court distinguishes the case at hand from School Dist. of Phila. and Ragab.[21] In School Dist. of Phila., a party involved in the suit was not a party to any arbitration provision whereas, here, all parties involved in the present case had been tied to an arbitration provision.[22] The Court distinguished Ragab through Tower Loan of Miss., L.L.C. v. Willis (In re Willis),[23] which embodies the reasoning of Justice (then-Judge) Gorsuch’s dissent on Ragab. The reasoning there was that the intent of the parties would be better effectuated through arbitration, even though there were different views on the procedural details surrounding the arbitration.[24] Thus, even if there are differing terms procedurally, the terms indicating that the parties would like their disputes to go through arbitration is still the intention.
As this case demonstrates, there is a strong presumption in favor of enforcing arbitration agreements. Thus, it is critical for parties to be conscious of the implications of broad arbitration provisions in their agreements without explicitly excluding particular grievances.
Authored by Ryan Stewart and Matthew Gibson
[1] 2023 Pa. Super. LEXIS 177.
[2] Id. at 2.
[3] Id. at 3.
[4] Id.
[5] Id.
[6] Id.
[7] Id. at 4.
[8] Id.
[9] 690 A.2d 1321 (Pa. Commw. Ct. 1997).
[10] PennEnergy, at 8.
[11] 841 F.3d 1134 (10th Cir. 2016).
[12] Id. at 1138.
[13] PennEnergy, at 7.
[14] Id. at 33.
[15] 192 A.3d 173 (Pa. Super. Ct. 2018).
[16] Id at 180 (citing Washburn v. Northern Health Facilities, Inc., 121 A.3d 1008 (Pa. Super. Ct. 2015)).
[17] PennEnergy, at 16-21.
[18] Davis, 192 A.3d at 180.
[19] PennEnergy, at 15 (citing Saltzman v. Thomas Jefferson Univ. Hosps., Inc. 166 A.3d 465 (Pa. Super Ct. 2017)).
[20] Id. at 23.
[21] Id. at 25-33.
[22] Id. at 28.
[23] 944 F.3d 577 (5th Cir. 2019).
[24] PennEnergy, at 31.
Ryan represents clients in connection with transactional matters, due diligence, complex mineral titles, lease analysis, surface use issues and title curative. In addition, Ryan has extensive experience in the drafting and review of original drilling title opinions, as well as supplemental drilling title opinions and limited acquisition title opinions. He also assists in litigation and regulatory matters, including unitizations.