Court Opinion

ID: 2823995
Source: CourtListenerOpinion
Date Created: 2015-08-10 20:01:04.843531+00
Date Added: 2024-06-11T13:39:21.815697
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                               ________________

                                      No. 14-2739
                                   ________________

      ALDER RUN LAND, LP; ORRIN L. FRENCH, as trustee of the Schoonover
    Real Estate Trust; JEFFREY A. DALKE, as trustee of the Schoonover Real Estate
     Trust; CATHERINE G. ANDERSON, as trustee of the Catherine G. Anderson;
    DAVID K. DAHLGREN; MARJORIE DAHLGREN, husband and wife; BONNIE
           LOU DAHLGREN PETERS; TERRY PETERS, wife and husband,
                                                            Appellants

                                             v.

                       NORTHEAST NATURAL ENERGY LLC

                                   ________________

                           On Appeal from the District Court
                        for the Western District of Pennsylvania
                             (D.C. Civil No. 3-13-cv-00222)
                        District Judge: Honorable Kim R. Gibson
                                   ________________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                   January 13, 2015

       Before: MCKEE, Chief Judge, HARDIMAN, and SCIRICA, Circuit Judges

                                 (Filed: August 10, 2015)

                                   ________________

                                       OPINION*
                                   ________________

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
SCIRICA, Circuit Judge

       Appellants-Plaintiffs (collectively, “Schoonover”) brought suit against Northeast

Natural Energy LLC (“Northeast”) alleging that Northeast refused to honor its agreement

to enter into certain oil and gas leases. The District Court, finding that Northeast’s

agreement to purchase such leases arose under earlier oil and gas leases that contained

broad arbitration provisions, dismissed the claim and ordered the parties to arbitrate their

dispute. Schoonover appeals, and we will affirm.

                                             I.

       In three separate but essentially identical leases (the “2010 Leases”), Schoonover

granted East Resources, Inc., the right to produce oil and gas from approximately 1,800

acres of Schoonover’s property. The 2010 Leases indisputably contained an arbitration

provision that provided: “Any issue, item or disagreement between Lessor and Lessee

concerning this lease or performance there under shall be ascertained and determined by

three disinterested arbitrators . . . .” Shortly after the 2010 Leases were executed, SWEPI,

L.P., acquired East Resources and accordingly became the lessee thereunder. In the

spring of 2011, Northeast sought to acquire certain oil and gas interests from SWEPI,

including the 2010 Leases. But before doing so, Northeast required certain amendments

to the 2010 Leases. Negotiations between Schoonover, Northeast, and SWEPI produced

two sets of documents: the Letter Agreements, dated April 28, 2011, between

Schoonover and Northeast; and the 2010 Lease Amendments, dated May 4, 2011,

between Schoonover and SWEPI, the then-current lessee under the 2010 Leases.

                                              2
Northeast eventually acquired the 2010 Leases as amended from SWEPI.

        The Letter Agreements between Northeast and Schoonover are central to this

dispute. The Letter Agreements are three separate but nearly identical agreements which

define the 2010 Leases as the “Underlying Lease” (and refer to them as such eleven

times). Each Letter Agreement states:

        Should Northeast acquire an Assignment of . . . the Underlying Lease, then
        the parties hereto specifically agree that the Underlying Lease shall be
        subject to the following conditions:

                                            ***

        3. For a period of eighteen (18) months from the date Northeast acquires
        the East Resources Leases, Northeast agrees to lease from the Lessor any
        additional oil and gas fee interests that may be acquired or identified and
        available to be leased by the Lessor and that are part of or contiguous to
        lands covered by the East Resources Leases . . . upon the same terms and
        conditions as set forth in the Underlying Lease, with the exception that the
        delay rental for the primary lease term of five (5) years will be a one-time
        payment of $2,000 per acre.

(emphasis added). Paragraphs 1 and 2 set forth two additional conditions regarding a

potential transfer of the 2010 Leases by Northeast, and paragraphs 4-9 set out typical

contract terms such as choice of law and severability. In particular, paragraph 4 is an

integration clause stating “This Agreement constitutes the entire contract between the

parties . . . .”

        In April 2012, Northeast surrendered the 2010 Leases in accordance with their

terms. But considering the Letter Agreements to still be in effect despite the surrender,

Schoonover tendered 2,200 acres of oil and gas interests which Northeast refused to

accept. Schoonover then brought suit on September 25, 2013, claiming breach of

                                              3
paragraph 3 of the Letter Agreements. The District Court determined that “[w]ithout

reference to the 2010 Leases, the Letter Agreements are incomplete and essentially

meaningless,” and thus must be read together. Accordingly, the court ordered the case to

be resolved through arbitration and this timely appeal followed.

                                               II.

       “‘We exercise plenary review over questions regarding the validity and

enforceability of an agreement to arbitrate,’ and we are first obliged to determine which

standard should have been applied [by the District Court].” Guidotti v. Legal Helpers

Debt Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013) (quoting Puleo v. Chase Bank

USA, N.A., 605 F.3d 172, 177 (3d Cir. 2010)) (citation omitted). “Review of the district

court’s construction of a contract is . . . plenary.” Kroblin Refrigerated Xpress, Inc. v.

Pitterich, 805 F.2d 96, 102 (3d Cir. 1986).1

                                             III.

       The parties agree that arbitration is a question of contract and that Pennsylvania

law should be applied “to interpret the parties’ agreement.” Gaffer Ins. Co., Ltd. v.

Discover Reinsurance Co., 936 A.2d 1109, 1114 (Pa. Super. Ct. 2007). Though the

Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, “establishes a strong federal policy in

favor of compelling arbitration,” Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104 (3d

Cir. 2000), the presumption applies “only when both parties have consented to and are

bound by the arbitration clause,” Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d

1
 The District Court had jurisdiction under 28 U.S.C. § 1332(a). We have jurisdiction
under 28 U.S.C. § 1291.
                                               4
Cir. 2014). Here, the question of whether there is a valid agreement to arbitrate comes

down to one issue: So long as the Letter Agreements have a separate existence, without

being merged into the 2010 Leases, Schoonover’s claims fall outside the scope of the

arbitration clause in the 2010 Leases. But if the Letter Agreements and the 2010 Leases

are all part of one transaction, as the District Court found, then the dispute must be

arbitrated.

                                             A.

       We must first determine what standard should have been applied. The District

Court applied a motion to dismiss standard, and Schoonover contends this was error.

Schoonover is correct that in certain circumstances a District Court should apply a

summary judgment standard to the question of whether a valid agreement to arbitrate

exists. But this is not a default rule. As we explained in Guidotti, “when it is apparent,

based on ‘the face of a complaint, and documents relied upon in the complaint,’ that

certain of a party’s claims ‘are subject to an enforceable arbitration clause, a motion to

compel arbitration should be considered under a Rule 12(b)(6) standard without

discovery’s delay.’” Guidotti, 716 F.3d at 776 (quoting Somerset Consulting, LLC v.

United Capital Lenders, LLC, 832 F. Supp. 2d 474, 482 (E.D. Pa. 2011)). Because all of

the pertinent documents are attached to the complaint, a motion to dismiss standard was

appropriate unless “the plaintiff has responded to a motion to compel arbitration with

additional facts sufficient to place the agreement to arbitrate in issue.” Guidotti, 716 F.3d

at 776. Schoonover produced no additional facts that required either discovery or the

burden shifting of a summary judgment standard. Their argument is simply that the 2010

                                              5
Leases and the Letter Agreements should be read as independent documents—a legal

question based entirely on documents attached to their initial complaint.2 Accordingly

the District Court correctly applied a motion to dismiss standard, as we will in our

review.

                                             B.

       “When a written contract is clear and unequivocal, its meaning must be

determined by its contents alone. In construing a contract, we must determine the intent

of the parties and give effect to all of the provisions therein.” Gaffer, 936 A.2d at 1113

(quoting Capek v. Devito, 767 A.2d 1047, 1050 (Pa. 2001)). The District Court found that

“[t]he only reasonable interpretation of [the Letter Agreements] is that, once Northeast

acquired the 2010 [L]eases, the provisions of the Letter Agreements modified those

leases.” We agree. First, the Letter Agreements define the 2010 Leases as the

“Underlying Lease.” Next, the Letter Agreements state that, upon Northeast’s acquisition

of the 2010 Leases, those leases would become “subject to the following conditions.”

And of most interest to this case, the paragraph that Schoonover claims was breached by

Northeast, paragraph 3, states that any new leases would be “upon the same terms and

2
  Discovery had already begun in this case before the District Court ruled on the motion
to dismiss, and Northeast turned over to Schoonover earlier versions of the Letter
Agreements that Schoonover contends support the conclusion that the Letter Agreements
were stand-alone documents. Even if these drafts were admissible, see Yocca v.
Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) and discussion, infra, they
do not raise the type of factual dispute regarding the existence of an agreement to
arbitrate that would require a summary judgment standard. Cf. Kirleis v. Dickie,
McCamey & Chilcote, P.C., 560 F.3d 156, 159 (3d Cir. 2009) (applying a summary
judgment standard when plaintiff submitted an affidavit swearing she had never seen the
bylaws which included the contested arbitration provision and thus could not be bound
thereby).
                                              6
conditions as set forth in the Underlying Lease.” One such term is that any dispute

arising under the leases would be subject to arbitration, as this one must be. Like the

District Court, we find no other plausible reading of the Letter Agreements.

       Schoonover raises several arguments why this reading of the Letter Agreements is

erroneous. First, they urge the presence of an integration clause “creates an ambiguity

about the meaning of the writing” and the court should look to the earlier drafts of the

Letter Agreements as evidence the parties intended the Letter Agreements to be separate

and distinct from the 2010 Leases. But under Pennsylvania law,

       Where the parties, without any fraud or mistake, have deliberately put their
       engagements in writing, the law declares the writing to be not only the best,
       but the only, evidence of their agreement. All preliminary negotiations,
       conversations and verbal agreements are merged in and superseded by the
       subsequent written contract . . . and unless fraud, accident or mistake be
       averred, the writing constitutes the agreement between the parties, and its
       terms and agreements cannot be added to nor subtracted from by parol
       evidence.

Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) (citation omitted).

This is particularly true when a writing contains an integration clause, as the Letter

Agreements did. It is also true “that this general rule does not apply where the agreement

is ambiguous.” Daset Min. Corp. v. Indus. Fuels Corp., 473 A.2d 584, 592 (Pa. Super.

Ct. 1984). But this agreement is not ambiguous; there are no terms that need explanation.

Id. (citing Carter v. Edwin J. Schoettle Co., 134 A.2d 908 (Pa. 1957)) (“[E]vidence of

prior negotiations is inadmissible to show an intent at variance with the language of the

written agreement, but is admissible to show local usage, which would give a particular

meaning to the language.”). Schoonover attempts to use the past draft to show an intent

                                              7
different from what is evident from the face of the document. The District Court did not

err in declining to consider the earlier drafts.

       Schoonover next contends the “commitment in Paragraph 3 to lease additional oil

and gas interests had no relationship to the 2010 [Leases].” Although initially contending

we should disregard the integration clause and consider the prior drafts as evidence, now

Schoonover employs the integration clause to support its theory that we cannot look to

the 2010 Leases for necessary terms of the agreement to lease additional oil and gas

interests. They also contend that, because the parties later amended the 2010 Leases and

made no reference to the Letter Agreements, it is clear the Letter Agreements were meant

to be entirely separate contracts. But it is well established that, “[w]here several

instruments are made as part of one transaction they will be read together, and each will

be construed with reference to the other; and this is so although the instruments may have

been executed at different times and do not in terms refer to each other.” Neville v. Scott,

127 A.2d 755, 757 (Pa. Super. Ct. 1956). This is true even if the later instrument has an

integration clause. Id. (citing Int’l Milling Co. v. Hachmeister, Inc., 110 A.2d 186, 191

(Pa. 1955)).

       Here, the Letter Agreements were part of one business transaction—Northeast’s

acquisition of the 2010 Leases from SWEPI—that amended the 2010 Leases, and the

Letter Agreements and the 2010 Leases do “in terms refer to each other.” This is no less

true because the 2010 Lease Amendments do not refer to the Letter Agreements, nor

because the Letter Agreements are not titled “amendments.” Paragraph 3 states that any

new leases would be “upon the same terms and conditions as set forth in the Underlying

                                               8
Lease.” Thus “both agreements were inexorably associated with the same transaction,”

Kroblin, 805 F.2d at 108, and the District Court was correct to read them together.

       Finally, Schoonover cites to two cases, E.I. DuPont de Nemours & Co. v. Rhone

Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir. 2001) and Industrial

Electronics Corp. of Wisconsin v. iPower Distribution Group, Inc., 215 F.3d 677 (7th

Cir. 2000), in which third party non-signatories to a contract with an arbitration provision

were not required to arbitrate their dispute arising out of a later, related transaction with a

signatory. But these cases are inapposite because both Schoonover and Northeast (by

assignment) are signatories to both the 2010 Leases and the Letter Agreements. In sum,

we, like the District Court, are unpersuaded by Schoonover’s attempts to separate the

Letter Agreements from the 2010 Leases. Schoonover must arbitrate this dispute with

Northeast as it agreed to do.

                                              IV.

       For the foregoing reasons, the judgment of the District Court will be affirmed.

                                               9