West Virginia Supreme Court Applies Doctrine of Severability to Enforce Lease’s Arbitration Provision, Despite Other Provisions Contemplating Litigation in Court

SWN Prod. Co., LLC v. Long, 2017 W. Va. LEXIS 892 (W. Va. Oct. 18, 2017)

Respondents Richard and Mary Long (“Respondents” or “Lessors”) brought a state court action against Petitioner SWN Production Company, LLC (“Petitioner” or “Lessee”) seeking to recover alleged payments owed pursuant to an oil and gas lease (the “Lease”) entered into between Petitioner and Respondent.

Petitioner filed a motion to compel arbitration, relying on the Lease’s arbitration provision, which reads:  “In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association.”

The lower court denied Petitioner’s motion, finding ambiguity in the Lease as to the compulsion of arbitration by the fact that two separate provisions in the Lease made reference to disputes being handled by the civil court system.  Namely, the Lease’s severability clause provided that “[i]f any provision of this Lease is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect.”  Similarly, the limitation on forfeiture provision provided that “[t]his Lease shall never be subject to a civil action or proceeding to enforce a claim of termination, cancellation, expiration or forfeiture due to any action or inaction by the Lessee[.]”

Petitioner appealed the lower court’s ruling, which the Supreme Court of West Virginia (the “Court”) reviewed de novo.  In reviewing the lower court’s decision, the Court applied the Federal Arbitration Act’s “doctrine of severability,” by which an arbitration cause is treated as if it is a separate contract from the contract containing the arbitration clause.  Under the “doctrine of severability,” arbitration clauses must be severed from the remainder of a contract, and must be tested separately under state contract law for validity and enforceability.  The doctrine does, however, permit a court to “look at other parts of the contract that relate to, support, or are otherwise entangled with the operation of the arbitration clause.”

The Court agreed with Petitioner that the severability and forfeiture clauses in the Lease did not create an ambiguity, as neither were inconsistent with the operation of the arbitration clause.  The Court ruled that the “clear and unmistakable language in the arbitration clause” rendered it unnecessary for the lower court to have considered the context of the other clauses within the Lease, including those that mentioned civil litigation, because such clauses “do not relate to or support the operation of the arbitration clause.”  Therefore, the Court reversed the lower court’s decision and referred the matter to arbitration.

In so ruling, the Court was careful to distinguish its holding from that in a prior decision, State ex rel. Richmond American Homes of West Virginia, Inc. v. Sanders, 228 W. Va. 125 (2011), in which the Court found ambiguity in a contract’s arbitration provision, and refused to compel arbitration.  Unlike the Lease’s arbitration provision, the Richmond American Homes arbitration provision contained five internal references to the possibility of the parties bringing “court action,” “civil action,” or relying upon the discretion of a “judge.”  Therefore, the Court in Richmond American Homes ruled that the repeated references to a “court action” within the arbitration provision itself “created ambiguity with regard to arbitration that should be construed against . . . the drafter[.]”

In light of the SWN Prod. Co. v. Long decision, parties seeking an enforceable arbitration provision will do well to ensure that, at the very least, the provision is devoid of any and all references to civil litigation.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

–Alex Corey

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