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Price v. Elexco Land Services

July 9, 2009

NEIL N. PRICE, PLAINTIFF
v.
ELEXCO LAND SERVICES, INC., AND SOUTHWESTERN ENERGY PRODUCTION CO., DEFENDANTS



The opinion of the court was delivered by: (Judge Munley)

MEMORANDUM

Before the court is the defendants' motion to dismiss the instant complaint. Having been briefed, this matter is ripe for disposition.

BACKGROUND

This case arises out of a lease entered into between Neil Price, the Plaintiff, and Defendant Elexco Land Services, Inc. (Complaint (Doc. 1-3)) (hereinafter "Complt."). Plaintiff and Defendant Elexco Land Services, Inc. entered into a preprinted form "Paid Up Oil and Gas Lease" prepared by the defendant on October 6, 2007. (Id. at ¶ 5). The parties signed a memorandum of lease, which the defendant also prepared, on the same day. (Id. at ¶ 6). On May 19, 2008, the lease was assigned to Defendant Southwestern Energy Production Co. (Id. at ¶ 7). As incentive for signing the oil and gas lease, the defendants authorized its agents to tell the plaintiff that the defendants would pay the plaintiff $100.00 per acre. (Id. at ¶ 8). The property in question consisted of approximately 41.68 acres, and the defendants thus offered Plaintiff Price $4,168.00 as consideration for the lease. (Id. at ¶¶ 4, 9). During the negotiations surrounding the lease, the defendants' agent told the plaintiff that in the event they did not sign, the defendants would place a well on neighboring land and "take Plaintiff's gas under the 'rule of capture' and pay Plaintiff's nothing." (Id. at ¶ 11). Defendants also allegedly told the plaintiff that the lease conformed to Pennsylvania law in regard to royalty payments, but according to the plaintiff, it does not. (Id. at ¶ 12-15).

On February 9, 2009, plaintiffs filed a complaint in the Court of Common Pleas of Susquehanna County, Pennsylvania. (Doc. 1-3). Defendants filed a notice of removal with this court on March 9, 2009. (Doc. 1-1) Plaintiff Price's complaint raises two causes of action. Count I alleges that the plaintiff was fraudulently induced by defendants' agent, who told them that the defendants would take gas under the plaintiff's land from neighboring parcels legally through the "rule of capture" if he did not sign. Moreover, the plaintiff was also allegedly told that he would receive a royalty of one-eighth of the amount realized from sale of gas at the well, when the lease deducted certain costs downstream from the wellhead before payment. (Complt. at ¶ 12-15). Count II seeks a declaration from the court voiding the lease as invalid under 58 P.S. § 402(8). The plaintiff alleges that the gas lease is invalid because it failed to provide for the minimum one-eighth royalty payment required under Pennsylvania law.

Defendants subsequently filed a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Doc. 2). Both sides briefed the issues, bringing the case to its present posture.

JURISDICTION

The plaintiff is a citizen of Pennsylvania. (Complt. at ¶ 1). Defendant Elexco Land Services, Inc. is a Michigan corporation with its principal place of business in that state. (Notice of Removal (Doc. 1-1) at ¶ 3). Defendant Southwestern Energy Production Company is a Delaware corporation with its principal place of business in Texas. (Id. at ¶ 4). The amount in controversy exceeds $75,000. (Notice of Removal at ¶ 5). As such, this court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. The substantive law of Pennsylvania shall apply to the case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir. 2000), citing Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938).

STANDARD OF REVIEW

This case is before the court pursuant to defendants' motion to dismiss for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). When a 12(b)(6) motion is filed, the sufficiency of the allegations in the complaint is tested. The issue is whether the facts alleged in the complaint, if true, support a claim upon which relief can be granted. In deciding a 12(b)(6) motion, the court must accept as true all factual allegations in the complaint and give the pleader the benefit of all reasonable inferences that can fairly be drawn therefrom, and view them in the light most favorable to the plaintiff. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997).

DISCUSSION

The motion to dismiss attacks both counts of the plaintiff's complaint. We will discuss each count separately.

I. Fraudulent Inducement

Count I of the plaintiff's complaint advances a cause of action for fraudulent inducement. (Complt. at ¶ 9-16). This claim is made in regard to a statement made by the defendants' representative that the defendants would place a gas well on neighboring property and take gas under the plaintiff's land under the "rule of capture" and pay Plaintiff Price nothing if he did not sign a lease. (Id. at ¶ 11). The defendants' agent also told the plaintiff when he signed, he would receive one-eighth of the amount realized from the sale of gas at the well. The complaint avers: "[c]ontrary to Defendant's representations the lease provides for a royalty after the deduction for the costs of gathering, transportation, compression, fuel, line loss, and other post-production expenses incurred downstream from the wellhead." (Id. at ¶ 13). Defendants argue that plaintiff' s fraudulent inducement claim should be dismissed as a matter of law. (Defendant's Brief in Support of their Motion to Dismiss, (Doc. 4) at 17, hereinafter "Defendant's Brief"). The defendants argue that the court should dismiss the fraudulent inducement claim since the statements made by the defendants' land agent were neither false nor fraudulent. (Defendant's Reply Brief in Support of their Motion to Dismiss, (Doc. 7) at 13-14) (hereinafter "Defendant's Reply"). The defendants also contend that the plaintiff cannot base a fraudulent inducement claim on parol evidence. (Id.).

Under Pennsylvania law, fraudulent inducement may be found where a contracting party made false representations "that induced the complaining party to agree to the contract." Toy v. Metropolitan Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 205 (2007) ...


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