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Class arbitration in oil, gas lease disputes at issue in federal case in PA, P.2

Previously, we began looking at a federal case in Pennsylvania involving the issue of class arbitrability, or the ability to pursue class arbitration of a dispute. The case we’ve been looking at involves an oil and gas lease dispute, and we mentioned that the federal court ruled that the contractual language did not allow for class arbitration, but require bilateral or individual arbitration.

One of the points the court made in its analysis is that the specific language used in arbitration agreements is important with respect to the question of whether class arbitration is permitted. In short, there must be explicit language permitting class arbitration in order for the courts to allow it. When an agreement is silent as to class arbitration, the presumption is generally going to be that it is not allowed. 

One of the important reasons behind the presumption against class arbitration is that the benefits of arbitration, the reasons why parties enter into these agreements in the first place, are less likely to be reaped in class arbitration. These benefits include the ability to swiftly, inexpensively and privately resolve disputes outside of court.

The upshot of this case is that parties need to be clear when they intend to permit class arbitration. When the language is silent on the matter, class arbitration generally won’t be allowed, so it must be there in the language of the agreement. Effectively utilizing the process of arbitration to resolve disputes should always begin with drafting a clear arbitration agreement that both parties understand and with which both parties voluntarily consent.

Also important is to select a qualified, neutral arbitrator to handle the dispute. A skilled arbitration will be able to decide cases impartially and fairly, and will have the background and knowledge necessary to do so efficiently. 

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