Background
Six Western Pennsylvania landowners sued XTO Energy, alleging that it underpaid royalties owed under their oil and gas leases. None of the named plaintiffs had an arbitration clause, but the proposed Rule 23(b)(3) classes included hundreds of leaseholders, approximately 15 or 16 of whom had leases containing arbitration clauses.
XTO did not plead arbitration in its answers, and it participated in class discovery, mediation, and litigation over certification. But while opposing certification, XTO expressly stated that it would not waive its arbitration rights. After the classes were certified and the opt-out period ended, XTO moved to compel arbitration as to unnamed class members with arbitration clauses. The District Court denied the motion, finding that XTO’s conduct during 55 months of litigation impliedly waived arbitration.
The Court’s Holding
The Third Circuit vacated the order denying XTO’s motion to compel arbitration. Applying its intervening decision in Valli v. Avis Budget Group, Inc., the court held that XTO’s failure to move before class certification did not show a preference for litigation because unnamed members of a proposed class are not yet parties, and none of the named plaintiffs had arbitrable claims.
The court also concluded that XTO’s other conduct—omitting arbitration from its answers, participating in class discovery and presumptively required mediation, opposing certification, and waiting until the opt-out period ended—did not individually or collectively establish intentional abandonment of its arbitration rights. XTO repeatedly reserved those rights, sought to keep arbitration-bound leaseholders out of the litigation, followed the certification court’s contemplated timetable, and moved within five weeks after class membership was finalized. The court remanded for further proceedings without retaining jurisdiction.
Key Takeaways
- When no named plaintiff is subject to arbitration, a defendant’s failure to seek arbitration against putative class members before certification does not itself support waiver.
- Precertification pleadings, class discovery, mediation, and opposition to certification did not establish waiver here because unnamed class members were not yet parties and XTO expressly preserved its arbitration rights.
- A motion filed after the opt-out period may be reasonably prompt when the certification ruling contemplates resolving arbitration after class membership becomes final.
Why It Matters
The decision limits when courts may infer arbitration waiver from a defendant’s conduct before a class is certified. In class actions where only unnamed members have arbitration agreements, ordinary participation in precertification proceedings will not necessarily forfeit the right to compel those members to arbitrate.
The opinion also underscores the importance of expressly reserving arbitration rights and moving promptly once the arbitration-bound class members become identifiable parties.