Earlier this month, the Third Circuit Court of Appeals reaffirmed its holding that the availability of class arbitration constitutes a question of arbitrability to be decided by courts unless the arbitration agreement “clearly and unmistakably” provides otherwise and expanded this holding to encompass situations in which the alleged delegation occurs through incorporation of American Arbitration Association (AAA) rules. The case arose out of a dispute regarding leases over oil and gas with landowners in Pennsylvania.
The lease agreements contained an arbitration provision that said that “all such disputes shall be determined by arbitration in accordance with the rules of the” AAA. The AAA rules included various subparts which, among other things, allow an arbitrator to determine if an arbitration should go forward on a class basis. A lessee filed an arbitration demand with the AAA on behalf of itself and other similarly situated, and the lessor countered by filing a declaratory judgment action seeking a declaration that a court must determine class arbitrability and that the leases at issue did not allow for this.
The trial court granted summary judgment to the lessor and vacated the arbitrators’ decision regarding class arbitrability. The Third Circuit has set out a two part test to determine whether an arbitrator may determine class arbitrability: 1) does the agreement provide that class-wide arbitration is a question of arbitrability; and, if so 2) does the agreement clearly and unmistakably provide for the arbitrator to make this determination. The Third Circuit has set this standard as an “onerous” one that simply could not be done in a case such as this where the agreement of the parties purported to incorporate rules which have various subparts, some of which allowed for an arbitrator to make this determination. For this reason, the Third Circuit affirmed the lower court’s determination. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, No. 15-1275 (3d Cir. Jan. 5, 2016).