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Carey v. New Penn Exploration

April 28, 2010

WILLIAM S. CAREY AND GERMAINE A. CAREY, PLAINTIFFS,
v.
NEW PENN EXPLORATION, LLC, AND SOUTHWESTERN ENERGY PRODUCTION COMPANY, INC., DEFENDANTS,



The opinion of the court was delivered by: A. Richard Caputo United States District Judge

(JUDGE CAPUTO)

MEMORANDUM

Presently before the Court is a motion to dismiss by Defendants New Penn Exploration, LLC ("New Penn"), and Southwestern Energy Production Company, Inc. ("Southwestern"). (Doc. 4.) For the reasons discussed below, this motion will be granted in part and denied in part. This Court has jurisdiction over Plaintiffs' claims pursuant to 28 U.S.C. § 1332 (diversity jurisdiction).

BACKGROUND

Plaintiffs William and Germaine Carey are the fee simple owners of a parcel of appropximately 61.56 acres in Clark Summit, Pennsylvania. (Compl. ¶¶ 1, 4.) On or about May 17, 2007, Plaintiffs entered into a "preprinted form Paid-Up Oil and Gas Lease" with New Penn. (Compl. ¶ 5.) On or about December 8, 2008, New Penn assigned this lease to Southwestern. (Compl. ¶ 7.) Plaintiffs entered into the lease agreement after being told by New Penn's agent that "Defendant would never pay any more than $50.00 per acre so they better take the $50.00 per acre and that the Plaintiffs will never get anymore." (Compl. ¶ 10.) Plaintiffs were informed that the lease conformed with Pennsylvania law. (Compl. ¶ 12.) Plaintiffs were also told by New Penn's agent that if they did not sign the lease, that a well would be put on their neighbor's land and that they could take Plaintiffs' gas and pay Plaintiffs nothing. (Compl. ¶ 21.) Plaintiffs relied upon the assertions of New Penn's agent (Compl. ¶¶ 17-18) and Plaintiffs subsequently learned that at least some of those assertions were false. (Compl. ¶ 19). The lease agreement provides that Plaintiffs will receive a one-eighth royalty after deduction of post-production expenses incurred downstream of the wellhead. (Compl. ¶ 23.)

Plaintiffs filed their complaint in the Pennsylvania Court of Common Pleas of Susquehanna County, Pennsylvania, on or about December 30, 2008, seeking a court order to invalidate the lease agreement with Defendants. (Doc. 3.) On January 29, 2009, Defendants removed this action to the United States District Court for the Middle District of Pennsylvania. (Doc. 1.) On February 4, 2009, Defendants filed the present motion to dismiss. (Doc. 4.) This motion has been fully briefed by both sides and is now ripe for disposition.

LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. Dismissal is appropriate only if, accepting as true all the facts alleged in the complaint, a plaintiff has not pleaded "enough facts to state a claim to relief that is plausible on its face," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), meaning enough factual allegations "'to raise a reasonable expectation that discovery will reveal evidence of'" each necessary element, Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556); see also Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993) (requiring a complaint to set forth information from which each element of a claim may be inferred). In light of Federal Rule of Civil Procedure 8(a)(2), the statement need only "'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Twombly, 550 U.S. at 555). "[T]he factual detail in a complaint [must not be] so undeveloped that it does not provide a defendant [with] the type of notice of claim which is contemplated by Rule 8." Phillips, 515 F.3d at 232; see also Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007).

In deciding a motion to dismiss, the Court should consider the allegations in the complaint, exhibits attached to the complaint, and matters of public record. See Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). The Court may also consider "undisputedly authentic" documents when the plaintiff's claims are based on the documents and the defendant has attached copies of the documents to the motion to dismiss. Id. The Court need not assume the plaintiff can prove facts that were not alleged in the complaint, see City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 263 & n.13 (3d Cir. 1998), or credit a complaint's "'bald assertions'" or "'legal conclusions,'" Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997)). "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009).

When considering a Rule 12(b)(6) motion, the Court's role is limited to determining whether a plaintiff is entitled to offer evidence in support of her claims. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The Court does not consider whether a plaintiff will ultimately prevail. See id. A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. See Gould Elecs. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).

DISCUSSION

Plaintiffs' Complaint contains two counts. At Count I, Plaintiffs allege that the Defendants, through their agent, fraudulently induced them to enter into the lease agreement. At Count II, Plaintiffs allege that the lease agreement violates Pennsylvania law setting the statutory minimum level of royalty payments. I will consider Defendants' motion to dismiss each count seriatim.

I. Fraudulent Inducement*fn1

Plaintiffs first allege that statements made by Defendant New Penn's agent were fraudulent, and that those statements induced them to enter into the lease agreement. Fraudulent inducement occurs where a contracting party made false representations which induced the complaining party to agreeing to the contract. Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 205 (Pa. 2007) (citations omitted). To sufficiently allege a cause of action for fraudulent inducement, Plaintiffs must allege: 1) a false representation; 2) materiality; 3) scienter; 4) justifiable reliance; and 5) damage as a proximate result. Piper v. Am. Nat'l Life Ins. Co., 228 F. Supp.2d 553, 559 (M.D. Pa 2002). Plaintiffs allege that three statements made by Defendants' agent fraudulently induced them toenter into the lease agreement: 1) that the best price Defendants would pay was $50 per acre; 2) that without the lease, ...


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