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Cabot Oil & Gas and Cranberry Pipeline v. Beaver Coal

Case Number: 16-0904
Cabot Oil & Gas and Cranberry Pipeline v. Beaver Coal

Type of Proceeding

Appeal from Order Staying Case and Ordering the Parties to Arbitration (Raleigh County, Judge Hutchinson)

Issues

Did the trial court err when it found that issues that had a been allegedly resolved in prior arbitration proceedings between the parties could be relitigated as a result of a change in law regarding the matters at issue, but that those matters must be the subject of arbitration proceedings under a 1929 oil and gas lease agreement?

Background

This case has a bit of a long and tortured procedural and factual history.  Beaver Coal owns about 19,000 acres of land in Raleigh County, WV.   In 1929 Cabot leased about 12,000 of those acres for oil and gas purposes.  The 1929 lease includes an arbitration clause.  The land now covered by the lease is about 17,000 acres.  Cabot had drilled 22 oil and gas wells by 2014.  The 1929 lease was the subject of an assignment from Godrey Cabot to the Cabot Corporation.  Beaver Coal was asked to provide consent to that assignment.  In 1977 Cabot and Beaver Coal entered into a separate license agreement which provided Cabot the right to operate pipelines.  The 1977 license agreement did not clearly reference or incorporate the 1929 lease nor does it have its own arbitration clause.  In 1982 Cabot Corporation sought to assign the 1929 lease to the Cabot Oil & Gas Corporation.  It did not seek or obtain consent from Beaver Coal before doing so.  In 1983 Cabot assigned the 1977 license agreement to one of its subsidiaries, Cranberry Pipeline.  In 1991 Beaver ratified the 1982 assignment and agreed that the 1929 lease remained valid.  Beaver asserts that it did not know of the Cranberry assignment of the 1977 license agreement at that time.

In 2001 Beaver Coal instituted arbitration proceeds to resolve disputes related to royalty issues.  In 2004 an arbitration panel entered a ruling that COGC could deduct post production costs from royalty payments, but that the costs that had been deducted were excessive and awarded damages.  In 2006 the WVSCA issued its ruling in Tawney v. Columbia Natural Resources, 219 W.Va. 266 which further clarified law related to the deduction of post-production costs.  Cabot was also the subject of a class action case related to royalty issues.  Beaver Coal was not a party to that class action.

The current case was initially filed in state court, removed to the Southern District Court for West Virginia before being ultimately remanded.  The case included allegations that COGC had failed to satisfy the prior arbitration award and failed to pay proper royalties, that COGC had breached the 1929 lease by wrongfully deducting costs and volumes from royalties, and by failing to obtain consent for the 1983 assignment to Cranberry.  The plaintiff alleged that Cabot breached the 1977 License agreement by failing to obtain consent, seeks forfeiture of the 1929 lease because of the 1983 assignment, asserts trespass claims, seeks ejectment and seeks declaratory judgment relief.

COGC and Cranberry filed a motion dismiss asserting that principles of res judicata prevented Beaver Coal from realleging royalty issues previously resolved by the 2004 arbitration ruling and that the statute of limitation for trespass allegations had passed since Beaver Coal learned of the Cranberry assignment by at least 2005.  Beaver Coal asserted that res judicata did not apply as a result of the change in law announced by the WVSCA in Tawney and that the trespass remains a continuing tort.  Ultimately the trial court ruled that the change of law in Tawney was an exception to the rule of res judicata and that the royalty issues could be litigated again.  The court, however, found that the 1929 arbitration clause was applicable and stayed the case for arbitration proceedings on all issues.

Positions of the Parties

Petitioner (Cabot Oil and Gas Corporation and Cranberry Pipeline)

COGC and Cranberry appeal the trial court’s ruling primarily on the ground that it was an error for the trial court to find that the principles of res judicata did not bar Beaver Coal from relitigating the royalty payment issues.  The Petitioner asserts that the standards governing the review or relitigation of arbitration decisions would not permit those issues to be reheard and the trial court adopted an exception to the principles of res judicata not previously accepted in West Virginia.  The Petitioners also argue that it was an error to submit all of the claims at issue in the case to arbitration as the 1977 pipeline license agreement did not include an arbitration clause and issues related to that agreement should not be subject to the requirements of the 1929 arbitration agreement.

Respondent (Beaver Coal)

Beaver Coal asserts that its claims for damages for underpayment of royalties after the date of the 2004 arbitration award is a new claim based on the facts and law after the award and that its claim for damages before the award meets a clear exception to the res judicata doctrine–a change in intervening law.  Beaver agrees with Cranberry that not all of the claims asserted in the case are subject to arbitration.

Probable Impact

The Supreme Court’s analysis of arbitration issues continues.  This case also touches on another recent hot button topic–oil and gas post production costs.  Whether and to what extent the 2004 arbitration ruling precludes future litigation of royalty issues is interesting and could result in significant case law, especially given the fact that the Court recently suggested that new analysis of oil and gas royalty issues could be coming in future cases.  Several of the Court’s recent decisions on these issues seem to go a little beyond the analysis that was necessary to resolve the case that was actually pending. Beyond resolving the dispute between the parties in this case, it will be interesting to see what other dicta might be included related to both the arbitration and oil and gas issues.  This case does look to provide guidance as to how to deal with arbitration awards that have already been entered.

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