H & T Fair Hills, Ltd. v. Alliance Pipeline L.P.

Background

The plaintiffs are a class of agricultural landowners whose property interests involve land crossed by Alliance’s natural-gas pipeline. They allege that Alliance breached obligations in individual easements and Agricultural Impact Mitigation Agreements by ending its Crop Yield Program in 2015 and refusing to pay crop-damage claims. They also seek a declaration that Alliance must continue paying crop-yield losses during the pipeline’s operation.

About 73% of the easements reportedly contain provisions requiring arbitration if crop-damage disputes cannot be mutually resolved. Alliance moved to compel arbitration and dismiss or stay the claims of class members subject to those provisions. The court had already certified classes for the breach-of-contract and declaratory-judgment claims, but class notice was not complete. The court therefore reserved decisions on the parties’ summary-judgment and other pending motions.

Arbitration agreements and their scope

Applying the Federal Arbitration Act, the court held that the relevant easements contain valid arbitration agreements. The provisions expressly state that disputed crop damages will be determined by arbitration, often before three experienced, disinterested persons. The court rejected the plaintiffs’ argument that the provisions were appraisal clauses rather than arbitration clauses.

The court also held that the arbitration provisions cover disputes about whether crop damage occurred and the amount or value of that damage. Some provisions also cover Alliance’s responsibility for the damage. The court concluded that the provisions apply to these disputes even when the claims are based on the Agricultural Impact Mitigation Agreements, because those agreements and the easements address compensation for the same crop damages.

The plaintiffs were third-party beneficiaries of the Agricultural Impact Mitigation Agreements and therefore could enforce them. But the court found that those agreements did not prohibit Alliance from entering easements that required arbitration. The court also rejected the plaintiffs’ arguments that federal regulatory commitments or Alliance’s promises to pay compensation prevented arbitration. Arbitration would change the forum for resolving the dispute, not eliminate any substantive right to compensation.

Waiver and relief

The court rejected the plaintiffs’ argument that Alliance waived or defaulted on its arbitration rights. Alliance identified arbitration as a potential defense early in the litigation, continued litigating claims brought by named plaintiffs who were not subject to arbitration provisions, and filed its motion 15 days after class certification. The court also found no adequate showing of prejudice from discovery.

The court determined that only some issues were arbitrable. The class-wide questions about whether Alliance’s program termination breached the easements or Agricultural Impact Mitigation Agreements, whether causation must be shown, and whether declaratory relief is appropriate were not necessarily resolved by arbitration. Because a complete stay would delay the case and reduce the benefits of class treatment, the court declined to stay those non-arbitrable issues.

Judge Joan N. Ericksen ordered that Alliance’s motion to compel arbitration and dismiss arbitrable claims was granted in part and denied in part. Claims concerning tracts subject to arbitration easements are stayed only as to whether pipeline-related crop damages have occurred or will occur and the amount or value of those damages. Litigation on all other issues shall proceed. The court did not dismiss the arbitrable claims.