MALACHY E. MANNION, District Judge.
Pending before the court are the following: (1) a motion to intervene in the above-captioned matter filed by Gayle and Russell Burkett on behalf of themselves and the putative arbitration class they represent, as well as at least eighty-seven (87) other individuals, (hereinafter the Landowners)
By way of relevant background, the named plaintiffs filed a proposed class action complaint on August 30, 2013, in which they seek monetary damages and declaratory and injunctive relief based on alleged underpayment of royalties by the defendant on natural gas produced by the defendant under common oil and gas leases entered into by the named plaintiffs and others similarly situated in the Commonwealth of Pennsylvania. (Doc.
An answer to the plaintiffs' complaint was filed by the defendant on September 3, 2013. (Doc.
On September 12, 2013, a motion to intervene in the above-captioned matter was filed on behalf of the Landowners. (Doc.
In the meantime, on September 25, 2013, another motion to intervene in the above-captioned matter was filed by Paul F. Sidorek
On December 20, 2013, the defendant filed an action in this court against the Burketts seeking relief in the form of an injunction enjoining the putative class arbitration proceedings for which the Burketts are the named plaintiffs. (Civil Action No. 3:13-3073). On December 30, 2013, the Landowners filed a motion to consolidate the action filed by Chesapeake against the Burketts into the above-captioned matter. (Doc.
There are several aspects to the Landowners' motion to intervene. The Landowners initially seek leave to intervene as a matter of right under
Preliminarily, the Landowners provide that Chesapeake has signed gas leases with thousands of Pennsylvania landowners, a vast majority of which require arbitration of disputes. The Landowners were aware of the arbitration provisions in the leases and filed the previously mentioned putative class arbitration against Chesapeake. Specifically, in April 2013, the Landowners initiated a suit against Chesapeake and others before the American Arbitration Association, ("AAA"), in the form of a class action demand. The claims in the arbitration action overlap those in the above-captioned matter, in that the Landowners claim that the royalty payments received from Chesapeake are insufficient due to improper calculations and deductions. A scheduling order was entered in the Landowners' case by the AAA panel and, although Chesapeake initially participated in the arbitration proceedings by filing an answer and counterclaims on April 26, 2013, it later sought to halt the arbitration proceedings on a classwide basis and stay the proceedings as to the Burketts until they decided whether to opt out of the settlement in the above-captioned matter. The AAA panel declined to halt the arbitration proceedings and continued with briefing on the issue of class arbitrability as scheduled. By order dated January 28, 2014, the AAA panel determined that it has the authority in the first instance to decide whether the arbitration can proceed as a class arbitration and set a briefing schedule on the matter.
On July 30, 2014, Third Circuit issued its precedential opinion in
Subsequently, on September 11, 2014, the AAA panel issued a "Partial Final Clause Construction Award" in the Burketts' case. (Doc. 73). In its decision, the AAA panel reconsidered whether it has the authority to determine class arbitrability in the first instance in the wake of
The Landowners charge in their motion to intervene that Chesapeake chose to enter into settlement with the named plaintiffs' counsel in the above-captioned matter, as opposed to the Landowners' counsel, due to the former's willingness to settle for what the Landowners deem an inadequate recovery (only a fraction of the past wrongful royalty deductions), whereas the Landowners' counsel believes that the Landowners are entitled to 100% of the wrongful royalty deductions and are prepared to pursue full recovery in arbitration
The Landowners argue that Chesapeake signed leases with thousands of landowners, a majority of which require arbitration — it then breached the "no deductions" clause of the leases. The cases, which turn on this one provision in the leases, are suitable for class adjudication, according to the Landowners, and they argue that Chesapeake, having consented to the arbitrators' jurisdiction, participated in selecting arbitrators and filed a responsive pleading, should now be bound by the rules of class arbitration, including settlement.
With the above in mind, the Landowners first argue that the court should grant their motion to intervene by way of right. Pursuant to
In the absence of a federal statute which confers a right to intervene, and there is no such statute in this case, Rule 24 authorizes a party to intervene as of right if the movant can establish: (1) a timely application for leave to intervene has been filed; (2) a sufficient interest in the underlying litigation; (3) a threat that the interest will be impaired or affected by the disposition of the underlying action, and (4) that the existing parties to the action do not adequately represent the prospective intervenor's interests.
In opposing the Landowners' motion to intervene, neither the existing named plaintiffs nor Chesapeake argues that the motion to intervene is untimely or that the intervenors do not have a sufficient interest in the underlying litigation. Instead, their main contention is that the proposed intervenors have not established a threat that their interests will be impaired or affected by the disposition of the underlying action. As to this third factor in the Rule 24(a)(2) analysis, the inquiry is whether, absent intervention, the suit will foreclose the ability of the proposed intervenors to protect their interests. In deciding this factor, courts look to, among other things, whether there are other proceedings and fora in which the proposed intervenors can protect their interests.
Here, there are other proceedings through which the proposed intervenors can protect their interests. If the court grants preliminary approval of the class action settlement in the above-captioned matter, and if the proposed intervenors choose not to be bound by the terms of the settlement, they can opt out of the settlement class and reserve all of their rights to proceed with arbitration.
Although the proposed intervenors argue that any suggestion that they opt out of the settlement class would leave a settlement class in this case of zero, this is not necessarily the case. There are several named plaintiffs who, at the current time, apparently wish to settle their claims rather than proceed through the arbitration process with Chesapeake. By the proposed intervenors' account, there are thousands of individuals with whom Chesapeake signed leases. It is not known how many of these other individuals would choose to accept the terms of the proposed settlement with Chesapeake as well. While the proposed intervenors' numbers allegedly exceed 100
Because the court finds that the proposed intervenors can protect their interests by means other than intervention, the proposed intervenors have not established the third factor for intervention as a matter of right. As the proposed intervenors' failure on the third factor is fatal to their motion to intervene as a matter of right, the court need not consider the final factor. The proposed intervenors' motion to intervene as of right will be denied.
As to the proposed intervenors' motion for permissive intervention, pursuant to
In this case, the proposed intervenors argue that, at the least, permissive intervention is warranted because common claims, defenses and questions of law are pending in their case before the AAA. The named plaintiffs and Chesapeake argue that permissive intervention is not warranted because granting the proposed intervenors' motion will unduly delay this action and prejudice the parties who have engaged in protracted negotiations in order to arrive at the proposed settlement pending before the court.
The court will not grant the proposed intervenors' motion under Rule 24(b). Initially, granting the motion to intervene has the potential to cause significant delay for the named plaintiffs in the instant action. Specifically, the defendant's materials provide that the named plaintiffs, including the Demchaks, began discussing claims related to their leases with Chesapeake as early as October of 2012. The named plaintiffs engaged Chesapeake in discussions and proceeded to a mediation with Chesapeake before the Honorable Edward N. Cahn, the former Chief Judge of the United States District Court for the Eastern District of Pennsylvania. Approximately one year later, with a proposed settlement having been agreed upon, the named plaintiffs brought the instant action and sought preliminary approval of their settlement agreement. The Burketts and the other proposed intervenors, who chose to proceed by way of an arbitration filed in April 2013, now seek to intervene in the instant action, compel the parties who have come to an agreement to go to arbitration and dismiss the instant action. Were this to happen, the named plaintiffs would be subject to a delay of an unknown period of time when they have determined that they are ready to resolve their claims now. Were the intervenors' motion to be granted, it would certainly prejudice the adjudication of the rights of the original parties, all of whom seek to settle the instant litigation rather than have it proceed to arbitration. Allowing the proposed intervenors to enter the action at this stage would add unnecessary complexities that would cause undue delay in the resolution of this case. Any substantive challenges raised by the intervenors can be addressed, if they so choose, as objections to the settlement.
The proposed intervenors also seek to compel the named plaintiffs and Chesapeake to proceed with arbitration and to have the instant action dismissed
Initially, "[t]he right to compel arbitration derives from a contractual right. . ."
Moreover, it is well settled that parties can waive their contractual right to arbitration like any other contractual provision.
Further, because the Landowners have been denied the right to intervene and they are not parties to these proceedings, they lack standing to file and pursue a motion to dismiss the instant action.
In the event that the instant action is not dismissed, the movants seek several forms of alternative relief, including:
▪ an order granting Landowners' Class Counsel document discovery regarding (1) the settlement; (2) all leases comprising the class (not limited to the named plaintiffs); (3) royalty calculations, including affiliate sale information; and (4) royalty deductions;
Initially, the Landowners' counsel argue, generally, that in light of their claims that the settlement reflects an inadequate recovery, excessive legal fees, overbroad release, potential reverse auction and/or collusion; and nondisclosure to the court of the pending Burkett arbitration, it is imperative that discovery be allowed. Specifically, the Landowners' counsel seek discovery related to the "unwarranted assumption that class arbitration is highly unlikely," which they argue appears to be a significant factor in the low recovery proposed by the settlement. To this extent, the Landowners' counsel seek to investigate Settlement Counsel's assertion that class arbitration is highly unlikely, as well as the mediator's opinion that class arbitration is "extremely unlikely if not impossible." According to counsel, discovery into these matters will enable the court to "intelligently make an appraisal of the settlement." In addition, they request discovery into the Settlement counsels' legal fees underlying the settlement, which they argue is higher than their own agreement with their clients. This discovery, as set forth above, involves interviewing the mediator who helped negotiate the settlement at hand, noticing depositions, and granting documentary discovery related to the settlement and its negotiations.
With respect to the Landowners' request for discovery, an objector may be entitled to discovery which is relevant to the determination of whether the proposed settlement is fair, adequate and reasonable.
However, "[d]iscovery of evidence pertaining to settlement negotiations is appropriate only in rare circumstances."
Here, the Landowners have requested broad discovery in relation to the adequacy of the proposed settlement at hand, as well as into the Settlement counsels' legal fees underlying the settlement. However, the Landowners have failed to lay a proper foundation relying on outside sources evidencing that the proposed settlement is collusive. While the Landowners' counsel have speculated that Settlement counsel and Chesapeake may have engaged in collusion by "perhaps" conducted a reverse auction and failing to notify the court of the pending arbitration or Landowners' counsel of the instant action, which they claim resulted in an inadequate proposed recovery and overbroad release, no outside evidence has been presented to the court in this regard. In fact, a declaration from the Honorable Edward N. Cahn, the former Chief United States District Judge for the Eastern District of Pennsylvania, who served as the mediator in connection with the proposed settlement, repeatedly noted the arm's-length bargaining of the parties' counsel and further provides in part:
(Doc.
Other than his part as a neutral mediator for the parties, Judge Cahn has no interest in the matter at hand. The Landowners, for their part, have failed to present sufficient evidence to refute the information provided in Judge Cahn's declaration.
With respect to the Landowners' request for discovery concerning Settlement counsels' fees,
For the above reasons, the Landowners' request for discovery will be denied in its entirety. Since the court will be denying the Landowners' request for discovery, their request for a stay pending discovery will be dismissed as moot.
Next, as discussed above, the court has determined that the Burketts' request to intervene in this action will be denied. Having determined that the Burketts are not entitled to intervene in the instant action, the court will not name the Burketts as the sole plaintiffs in this action, nor will it name their counsel as lead class counsel
As to the Landowners' final request to inform prospective class members as to the pending arbitration proceedings and provide them with a summary of the merits of the claims as to both the arbitration and the instant action, both the arbitration filed by the Burketts and the instant action are matters of public record. Thus, the court sees no reason to issue an order allowing the Landowners' counsel to inform prospective class members as to the pendency of the arbitration. Moreover, the court sees no reason to issue an order allowing the Landowners' counsel to discuss with prospective class members the merits of either action. Further, along this line, there has been no determination as to whether the arbitration filed by the Burketts will, in fact, proceed on a class basis. If it is decided that the Burketts' arbitration cannot proceed on a class basis, discussion of the arbitration with the prospective class members would be of no matter. Finally, as to this request, the Federal Rules of Civil Procedure require that class members must be noticed of the terms of the proposed settlement, and that the court may only approve a settlement which binds class members after a hearing and upon a finding that it is fair, reasonable and adequate. As such, the court finds it unnecessary to issue an order which allows the Landowners' counsel to publish all settlement materials so that prospective class members may fairly evaluate them.
Also pending before the court is a motion to intervene on behalf of Paul F. Sidorek. (Doc.
(Civil Action No. 3:13-0208, Doc.
In response to the Sidoreks' complaint, Chesapeake sought to compel arbitration and stay the federal action. (
In the meantime, prior to the court ruling on Chesapeake's motion to compel arbitration, Paul Sidorek filed a motion to intervene in the above-captioned matter
With respect to Mr. Sidorek's intervention as a matter of right pursuant to
As for his request for permissive intervention, as did the Landowners, Mr. Sidorek argues that this is warranted because common claims, defenses, and questions of law are pending before the AAA. In its discretion, the court has found permissive intervention unwarranted as the delay and prejudice to the existing parties weigh against intervention. Moreover, Mr. Sidorek has legal claims which fall outside of those poised for settlement in the instant action, namely that his lease has expired. Where intervention would add claims, the court in its discretion may deny intervention.
On the basis of the foregoing, Mr. Sidorek's motion to intervene will be denied.
On December 20, 2013, Chesapeake filed a separate action against the Burketts seeking to enjoin their class arbitration, ("Burkett action").
Rule 42(a) . . . confers upon a district court broad power, whether at the request of a party or upon its own initiative, to consolidate causes for trial as may facilitate the administration of justice."
Here, despite the movants' claim that both the instant action and the declaratory action filed by Chesapeake against the Burketts involve Chesapeake's attempt to enjoin the putative class arbitration filed by the Burketts, such is not the case. In fact, the actions which the Landowners seek to consolidate are too distinct to say that consolidating them would promote the administration of justice. Specifically, the instant action is a proposed settlement class action on the claim of underpayment of royalties by the defendant. In the Burkett action, which is a declaratory judgment action filed by Chesapeake, the only relief sought is a declaratory judgment that whether the Burketts may proceed with their arbitration on a class basis is a question for the court, not an arbitrator and, that the circumstances of the Burketts' case do not allow for class arbitrability. Thus, the issues presented in the actions are distinct and separate — one seeks settlement on the merits of the plaintiffs' claims while the other seeks to have the court determine how the plaintiffs may proceed with their claim.
Moreover, the procedural position of each of the cases does not warrant consolidation. The instant action requires resolution of the distinct class settlement issues raised herein. In the Burkett action, Chesapeake's motion for summary judgment raises the issue of who decides class arbitrability and whether the circumstances of the Burketts' case allow for class arbitrability. Briefing on the latter issue has yet to begin.
Based on the above, consolidation of the instant action with the declaratory judgment action filed by Chesapeake against the Burketts will not promote judicial economy. Hence, the Landowners' motion to consolidate will be denied.
In light of the foregoing, an appropriate order shall issue.
Moreover, it has not gone unnoticed by the court that the Landowners' counsel seek to be appointed lead counsel for a class which was created for settlement purposes, which settlement the Landowners oppose and which they seek to have dismissed in favor of arbitration.