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Larry E. Roman and v. Chesapeake Appalachia

June 8, 2012

LARRY E. ROMAN AND
ROBERTA D. ROMAN, PLAINTIFFS
v.
CHESAPEAKE APPALACHIA, L.L.C., DEFENDANT



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

MEMORANDUM

Before the court for disposition is Defendant Chesapeake Appalachia,

L.L.C.'s motion to compel arbitration or, in the alternative, to dismiss counts II and III and the demands for punitive damages and attorneys fees. (Doc. 3). The matter is fully briefed and ripe for disposition. For the following reasons, the court will compel arbitration.

Background

Plaintiffs Larry E. Roman and Roberta D. Roman (collectively "plaintiffs") initiated the instant action on August 29, 2011 with a three count complaint against Defendant Chesapeake Appalachia, L.L.C. (hereinafter "defendant"). (See Doc. 1, Compl. (hereinafter "Compl.")). In Count I, plaintiffs seek a declaration, pursuant to the Declaratory Judgment Act, 28 U.S.C § 2201, that their oil and gas lease with defendant is no longer in effect. (Id. ¶¶ 29-42). Count II is a Pennsylvania state law claim for slander of title, in which plaintiffs seek $250,000.00 in damages. (Id. ¶¶ 43-51). Count III is a Pennsylvania state law claim for breach of covenant of good faith and fair dealing, in which plaintiffs demand $250,000.00 in compensatory damages and $250,000.00 in punitive damages for defendant's alleged bad faith. (Id. ¶¶ 52-62). The well-pleaded facts alleged in the complaint are summarized as follows.

On January 19, 2001, plaintiffs executed an "Oil and Gas Lease" (hereinafter "the lease") with Central Appalachian Petroleum. (Id. ¶ 7; Doc. 1-2, Ex. A, Oil & Gas Lease). This lease provides the lessee with exclusive rights to "all the oil and gas and their constituents, whether hydrocarbon or non-hydrocarbon, underlying" plaintiffs land in Ulster Township, Bradford County, Pennsylvania. (Doc. 1-2, Ex. A, Oil & Gas Lease). The lease also grants the lessee with the rights to drill, explore, construct roads, lay pipelines, store natural resources and otherwise make use of its right to the oil and natural gas on the land. (Id.) Approximately 135.88 acres of plaintiffs' property is subject to this lease. (Id.; Compl. ¶ 10). Some time after executing the lease, Central Appalachian Petroleum assigned its interest in the lease to defendant. (Compl. ¶¶ 8-9).

The lease has a primary term of ten years, commencing on January 19, 2001. (Id. ¶ 12; Doc. 1-2, Ex. A, Oil & Gas Lease). The lease provides that the primary term of ten years would be extended "for as long thereafter as operations are conducted on the Leasehold in search of or production of oil, gas, or their constituents, or for as long as a well capable of production is located on the Leasehold, or for as long as extended by provision herein, or for as long as the Leasehold is used for underground storage of gas, or for the protection of stored gas." (Doc. 1-2, Ex. A, Oil & Gas Lease). Plaintiffs contend that "[n]o drilling, exploration, production, transportation or storage operation sufficient to extend the Lease has been conducted on the plaintiffs' leasehold by the Lessee or any successor including defendant Chesapeake" since the lease was executed. (Compl. ¶ 14).

The lease contains two other provisions that are particularly pertinent to this action. The first of these provisions provides that the leasehold, or a portion of the leasehold, could be "unitized." (Id. ¶ 15). This unitization provision grants the lessee the "right to pool, unitize, or combine all or parts of the Leasehold with other lands, whether contiguous or not contiguous, leased or unleased, whether owned by Lessee or by others, at a time before or after drilling to create drilling or production units either by contact right or pursuant to government authorization." (Doc. 1-2, Ex. A, Oil & Gas Lease). The lease provides that the lessor will receive a proportional share of the royalties if the lessor's property is unitized. (Id.; Compl. ¶ 17). If the lessor's property is placed into a unit, "the drilling, operations in preparation for drilling, production from, or payment for Royalty, Shut-in Royalty, or Delay in Marketing for a well on such a unit shall have the same effect upon the terms of this Lease as if a well were located on the Leasehold." (Doc. 1-2, Ex. A, Oil & Gas Lease).

The second provision of this lease that is pertinent to this action is the arbitration clause, which provides as follows:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this lease, performance thereunder, or damages caused by Lessee's operations, settlement shall be by a panel of three disinterested arbitrators. Lessor and Lessee shall appoint and pay the fee of one each, and the two so appointed shall appoint the third, whose fee shall be borne equally by Lessor and Lessee. The award shall be by unanimous decision of the arbitrators and shall be final. (Doc. 1-2, Ex. A, Oil & Gas Lease).

On January 18, 2011, at 4:56 p.m., defendant filed a unitization declaration with the Bradford County Recorder of Deeds. (Compl. ¶ 19; Doc. 1-3, Ex. B, Decl. & Notice of Pooled Unit). This pooled unit, named the "Wasyl Unit," includes a portion of plaintiffs' leased property. (Compl. ¶¶ 19-20). Plaintiffs allege that defendant was aware, or should have been aware, that the primary term of the lease was going to expire and no "operations" triggering an extension of the lease had been conducted. (Id. ¶ 22). Plaintiffs contend that defendant filed the declaration of the Wasyl Unit on the eve of the expiration of the primary term of the lease in an attempt to extend the term. (Id. ¶¶ 21-22). Plaintiffs further posit that insufficient operations were conducted on the leasehold property and on the Wasyl Unit to trigger an automatic extension under the lease, that their property cannot be considered a part of the Wasyl Unit as a matter of law and public policy, and that defendant's unlawfully clouded the title to plaintiffs' property. (Id. ¶¶ 23-25).

Defendant responded to plaintiffs complaint with a motion to compel arbitration, or, in the alternative, to dismiss plaintiffs' Pennsylvania state law claims for slander of title and bad faith and to strike plaintiffs' requests for attorney's fees and punitive damages. (See Doc. 3). The parties fully briefed the issues, bringing the case to its current posture. Jurisdiction

The court has jurisdiction pursuant to the diversity statute, 28 U.S.C. § 1332. Plaintiffs Larry Roman and Roberta Roman are citizens and residents of the Commonwealth of Pennsylvania. (Compl. ¶ 1). Defendant Chesapeake Appalachia, L.L.C. is an Oklahoma limited liability company with a business address in Oklahoma. (Id. ¶ 2). Because complete diversity of citizenship exists among the parties and the amount in controversy exceeds $75,000.00, the court has jurisdiction over the case. See 28 U.S.C. § 1332. Because we are sitting in diversity, the substantive law of ...


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