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Chevron U.S.A., Inc. v. Bonar

Supreme Court of West Virginia

February 14, 2018

CHEVRON U.S.A., INC., Defendant Below, Petitioner,

         Marshall County Civil Action No. 16-C-153


         Petitioner, defendant below, Chevron U.S.A., Inc. ("Chevron"), by counsel J. Nicholas Ranjan, appeals a circuit court order denying Chevron's motion to compel arbitration, arguing that the circuit court erred in finding Chevron had waived its right to enforce the subject arbitration agreement. Respondents, John Robert Bonar and John & Werner Law Offices, PLLC ("Lessors"), by counsel Anthony I. Werner and Joseph J. John, filed a timely response.

         This Court has considered the parties' briefs, the appendix record designated for our review, the pertinent authorities, and oral argument. Upon our scrutiny thereof under the appropriate standard of review, the Court finds that the Circuit Court of Marshall County erred, as a matter of law, by concluding that Chevron, by virtue of its pre-litigation conduct, waived its contractual right to compel arbitration. This case satisfies the "limited circumstances" requirement of Rule 21(d) of the Rules of Appellate Procedure and is appropriate for a memorandum decision rather than an opinion.

         Chevron and Lessors are current parties to an oil and gas lease ("the Lease") that was originally executed in August 2010. The original lease was executed between Grace Bonar and her son, John Robert Bonar, as lessors, and TriEnergy Holdings, LLC ("TriEnergy"), as lessee. Grace Bonar ultimately transferred her rights under the lease to John Robert Bonar. John & Werner Law Offices, PLLC, acquired some of the royalty rights under the lease from John Robert Bonar. Chevron became the successor-in-interest to all of TriEnergy's rights and obligations under the Lease.

         In March 2016, Chevron began deducting certain costs from the royalty payments it made to Lessors. According to Lessors, neither Chevron nor its predecessors had deducted costs from their royalty payments prior to March 2016. Lessors contend that the deduction of costs is expressly prohibited by the terms of the Lease. Chevron disagrees.

Pertinent to the instant appeal, the Lease contains the following arbitration clause:
(17) ARBITRATION - Any question concerning this lease or performance thereunder shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by the Lessor, one by the Lessee[, ] and the third by the two so appointed as aforesaid, and the award of such three persons shall be final and conclusive. The cost of such arbitration will be borne equally by the parties.

         Notwithstanding the arbitration clause, in August 2016, Lessors filed a declaratory judgment action in the Circuit Court of Marshall County seeking a judicial determination that Chevron had no right to deduct costs from Lessors' royalty payments, and additionally seeking reimbursement with interest of costs that previously had been deducted by Chevron. Chevron responded to the action with a motion to compel arbitration, in which Chevron also sought dismissal of the case. Lessors filed a memorandum in opposition to Chevron's motion, wherein they argued that the arbitration clause was unconscionable and, therefore, unenforceable.[1]

         At a hearing before the circuit court, Lessors presented the argument that Chevron had waived its right to compel arbitration through its pre-litigation conduct, i.e., by unilaterally deciding the "question" of whether certain costs could be deducted from royalties without submitting the question to arbitration pursuant to the broadly-worded arbitration clause. The circuit court agreed and, by order entered December 11, 2016, denied Chevron's motion to compel arbitration. In doing so, the circuit court expressly found that Chevron, "by its pre-litigation conduct in unilaterally commencing certain cost deductions from [Lessors'] royalties without first seeking through arbitration the authority to do so[, ] has waived any contractual right to compel [Lessors] into arbitration of the question of costs." It is from this adverse ruling that Chevron appeals.

         It has been established that "[a]n order denying a motion to compel arbitration is an interlocutory ruling [that] is subject to immediate appeal under the collateral order doctrine." Syl. pt. 1, Credit Acceptance Corp. v. Front, 231 W.Va. 518, 745 S.E.2d 556 (2013). Moreover, our review of this matter is de novo. See Syl. pt. 1, West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc., 238 W.Va. 465, 796 S.E.2d 574 (2017) ("When an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo."); Finch v. Inspectech, LLC, 229 W.Va. 147, 153, 727 S.E.2d 823, 829 (2012) ("'[W]e apply a de novo standard of review to [a] circuit court's interpretation of [a] contract.'" (quoting Zimmerer v. Romano, 223 W.Va. 769, 777, 679 S.E.2d 601, 609 (2009) (per curiam))).

         Chevron contends that the circuit court erred, and assigned too broad a meaning to the term "question" as used in the arbitration clause, when it ruled that Chevron's pre-litigation conduct of deducting certain costs from royalty payments made to Lessors without first seeking authority to do so through arbitration was sufficient to waive its contractual right to compel arbitration.[2] Lessors argue in support of the circuit court's ruling.

         With respect to waiver of the right to compel arbitration, this Court has held that

[t]he right to arbitration, like any other contract right, can be waived. To establish waiver of a contractual right to arbitrate, the party asserting waiver must show that the waiving party knew of the right to arbitrate and either expressly waived the right, or, based on the totality of the circumstances, acted inconsistently with the right to arbitrate through acts or language. There is no requirement that the party asserting waiver show prejudice or detrimental reliance.

Syl. pt. 6, Parsons v. Halliburton Energy Servs., Inc., 237 W.Va. 138, 785 S.E.2d 844 (2016). This case turns on whether Chevron acted inconsistently with its right to arbitrate. The answer to this query requires consideration of the language utilized in the subject arbitration clause requiring that "[a]ny question concerning this lease or performance thereunder shall be ...

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