Arbitration Means Arbitration: Golden Eagle Resources II v. Willow Run Energy

(by Mychal Sommer Schulz)

The West Virginia Supreme Court of Appeals recently signaled that it would treat arbitration issues under the West Virginia Revised Uniform Arbitration Act, W. Va. Code § 55-10-8, et. al. (the “Act”), exactly the same as arbitration issues that arise under the Federal Arbitration Act (FAA).

In Golden Eagle Resources II, L.L.C. v. Willow Run Energy, L.L.C., No. 19-0384 (Nov. 19, 2019), the Court addressed a written contract by which Willow Run conveyed mineral interests in property to Golden Eagle. The written contract contained an arbitration provision by which the parties agreed that any “disagreement between the Parties concerning this Agreement or performance thereunder” would be submitted to arbitration. A dispute arose about whether a cloud on title existed on the mineral interests conveyed, which led Golden Eagle to withhold payment for those interests, after which Willow Run filed a breach of contract civil action in the Circuit Court of Pleasants County.

Golden Eagle sought to dismiss the civil action and have the dispute referred to arbitration. After the circuit court agreed to allow Willow Run to amend its complaint to include a declaratory judgment claim against additional defendants who allegedly may have created the cloud on title, the circuit court refused to refer Golden Eagle’s claims to arbitration because it found that (1) W. Va. Code § 51-2-2(d) (2017) grants circuit courts jurisdiction “to remove any cloud on the title to real property, or any part of the cloud, or any estate, right or interest in the real property[,]” and (2) the additional parties in the amended complaint, who were not signatories to the arbitration agreement, were necessary parties to the dispute as they allegedly may have cause the cloud on the title to the mineral interests conveyed to Golden Eagle.

The Court reversed the circuit court and found that disputes concerning clouds of title to any real estate, right, or interest in real property were subject to arbitration under the Act because § 51-2-2(d) does not grant exclusive jurisdiction over such disputes to a circuit court. More importantly, the Court rejected the circuit court’s reasoning that, “[a]s a matter of public policy, property rights are not subject to arbitration.” Golden Eagle at 13. Instead, the Court emphasized that the Act allows “any existing or subsequent controversy arising between the parties” to be submitted to arbitration. Golden Eagle at 14 (emphasis in original). The Court concluded that the West Virginia Legislature’s “use of the word ‘any’ . . . is not superfluous language, but was intended to mean that parties may craft binding arbitration agreements to cover disputes of whatever kind they may choose.”  Golden Eagle at 14.

The Court also determined that the presence of non-signatories to the arbitration agreement in the civil action did not defeat the validity or application of the arbitration agreement between Golden Eagle and Willow Run. The Court recognized that sending the dispute between Golden Eagle and Willow Run to arbitration, while Willow Run’s declaratory judgment claim against the other defendants remained in the circuit court, would result in “piecemeal” litigation that was potentially inefficient and inconsistent. The Court, however, relying explicitly on its decision in State ex rel. Johnson Controls, Inc. v. Tucker, 229 W. Va. 486, 729 S.E.2d 808 (2012) (which addressed the arbitrability of claims under the FAA that resulted in piecemeal litigation), found that the circuit court “must enforce [under the Act] the bargain of the parties to arbitrate, even where the result might be the inefficient maintenance of separate proceedings in different forums.” Golden Eagle at 16.

Like many courts around the country, the West Virginia Supreme Court of Appeals has addressed a variety of arbitration issues in the past decade as businesses significantly increase the use of arbitration provisions in a wide variety of transactions, including mineral leases. Most of the resulting decisions have been decided under the FAA as the transaction in dispute involves interstate commerce. Golden Eagle offered the Court a rare opportunity to address an arbitration issue that arose solely under the Act instead of the FAA because the property involved was located completely within West Virginia.

Nonetheless, the Court adopted both an analysis and a result that mirrored its prior cases decided under the FAA, thereby signaling that it viewed West Virginia law in the Act as mirroring the law under the FAA. Because of this, parties to a mineral lease that include an arbitration provision can be confident that arbitration issues under West Virginia law will be treated the same as under federal law.