The Third Circuit Court of Appeals recently ruled in the case of Roger Salvatora v. XTO Energy Inc., Docket No. 25-1327, allowing XTO Energy to compel arbitration in a class action lawsuit concerning royalty payments owed to landowners in Pennsylvania. This decision impacts landowners involved in the dispute, as it may alter how their claims are resolved. The ruling emphasizes the importance of arbitration clauses in lease agreements and the implications of class action certifications.
The case began when six landowners in Western Pennsylvania filed a lawsuit against XTO Energy, a subsidiary of Exxon Mobil Corporation, claiming they were underpaid for royalties on natural gas extracted from their properties. The landowners, who did not have arbitration clauses in their leases, sought to represent a class that included over 100 leaseholders, some of whom did have such clauses. Their lawsuit, filed in August 2019, sought over $5 million in damages under the Class Action Fairness Act.
As the case progressed, XTO Energy initially did not raise arbitration as a defense in its responses to the plaintiffs' claims. Instead, the focus was on class discovery, which involved depositions, document exchanges, and mediation efforts. In March 2022, the plaintiffs moved to certify two classes, including leaseholders with arbitration clauses. XTO opposed this certification, arguing that the presence of leaseholders with arbitration clauses would complicate the case.
Despite XTO's objections, a Magistrate Judge recommended the certification of a class that included leaseholders with arbitration clauses. The District Court adopted this recommendation, which led XTO to seek an interlocutory appeal of the decision. The court's ruling allowed the class to proceed, but XTO later sought to compel arbitration for those unnamed class members with arbitration clauses after the opt-out period had expired.
The court ruled that XTO had implicitly waived its right to compel arbitration by opting to litigate the case for an extended period without raising the arbitration issue. However, the Third Circuit found that the District Court erred in its ruling. The court stated, "XTO’s failure to plead arbitration as an affirmative defense in each of its three answers does not constitute an intentional relinquishment or abandonment of the right to compel arbitration with putative class members whose leases have arbitration clauses."
The Third Circuit's decision emphasized that the lack of a motion to compel arbitration before class certification does not imply a preference for litigation over arbitration. The court noted that XTO had consistently stated its intention to preserve its arbitration rights, and the timing of its motion to compel arbitration was not indicative of a waiver. The court concluded that the District Court's order denying XTO's motion to compel arbitration would be vacated and the case remanded for further proceedings.
This ruling has significant implications for future class action lawsuits involving arbitration clauses. It clarifies that defendants may still assert their arbitration rights even after prolonged litigation, provided they have not explicitly waived those rights. The decision could impact how similar cases are handled in the future, particularly in the oil and gas industry, where lease agreements often contain arbitration clauses.
Going forward, the case will return to the lower court for further proceedings consistent with the Third Circuit's ruling. This may involve re-evaluating the class definitions and determining how to address the claims of leaseholders with arbitration clauses. It remains to be seen whether the plaintiffs will seek to appeal the Third Circuit's decision or if there are related cases pending that could influence the outcome of this matter.