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Class arbitration in oil, gas lease disputes at issue in federal case in PA

Arbitration can be a useful tool for resolving disputes in a variety of contexts, but it is important for parties who enter into arbitration agreements to always be thorough and clear in addressing matters that could be disputed down the road. One such issue is the arbitrability of class action cases.

While arbitration is ordinarily bilateral—involving two specified parties—there is also the possibility of class action arbitration. Arbitrating a class on behalf of a class can allow members of the class who don’t have the resources to pursue arbitration to benefit from the proceedings. One issue that can come up when a party attempts class action arbitration under an arbitration agreement, though, is whether the dispute may be resolve that way.

Right now, the class arbitrability of oil and gas lease disputes is an important issue in the federal courts. One case that is working its way through the federal court system in Pennsylvania involves two companies disputing whether class action arbitration is available under the lease agreements at issue. The leases struck were apparently standard oil and gas leases with landowners, which allowed one company to search for and produce natural gas.

Sometime later, another company purchased the right to some of these leases from landowners and began receiving royalties from the first company for gas production. The latter company, along with a class of landowners numbering in the thousands, later tried to file a class action case arbitration case against the first company for improperly calculating royalties. That issue later went to court, where it was decided that the leases didn’t allow for class arbitration, but required individual arbitration.

In our next post, we’ll continue looking at this case, and at the issue of class arbitration in general. 

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