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Stewart v. SWEPI, LP

United States District Court, M.D. Pennsylvania

January 16, 2013

Robert J. STEWART, Edna L. Stewart, as Trustee(s) of The Stewart Living Trust, Derra, Ltd., Thomas Bower and Lynn Bower, Plaintiffs,
v.
SWEPI, LP, Defendant.

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[Copyrighted Material Omitted]

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Andrew J. Nicholas, Todd J. O'Malley, O'Malley & Langan P.C., Scranton, PA, Taunya M. Rosenbloom, Law Office of Taunya Knolles Rosenbloom, Athens, PA, William S. Friedlander, Friedlander, Friedlander & Assoc., Waverly, NY, for Plaintiffs.

Jeremy A. Mercer, Fulbright & Jaworski L.L.P., Canonsburg, PA, for Defendant.

MEMORANDUM

CHRISTOPHER C. CONNER, District Judge.

Presently before the court in the above-captioned matter is the motion to dismiss (Doc. 8) filed by defendant SWEPI, LP (" SWEPI" ). In their complaint (Doc. 1), plaintiffs Robert Stewart, Edna Stewart, Thomas Bower, Lynn Bower, and Derra, Ltd. (collectively, when appropriate, " plaintiffs" ), bring four counts: Count I seeks a declaratory judgment that the oil and gas lease that is the subject of this litigation has expired; Count II seeks, in the alternative, a declaratory judgment that the lease has expired with respect to particular portions of the leasehold estate; Count III alleges slander of title under Pennsylvania law; and Count IV alleges breach of the covenant of good faith and fair dealing under Pennsylvania law. The motion to dismiss has been fully briefed and is ripe for disposition. For the reasons to be discussed, the court will grant SWEPI's motion in part, and deny it in part.

I. Factual and Procedural Background

When ruling on a motion to dismiss under Rule 12(b)(6), the court must " accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir.2009) (quoting

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Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.2008)); see also Kanter v. Barella, 489 F.3d 170, 177 (3d Cir.2007) (quoting Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir.2005)). Although the court is generally limited in its review to the facts contained in the complaint, it " may also consider matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n. 2 (3d Cir.1994); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir.1997).

This case involves the oil, gas and mineral rights in a number of tracts of land in North-Central Pennsylvania. Plaintiff The Stewart Living Trust (the " Living Trust" ) owns seven parcels of land [1] in Middlebury and Tioga Townships, Tioga County, Pennsylvania, with a total acreage of 797.24 acres. In March 2010, the Trustees of the Living Trust executed and recorded a quit claim deed with the Tioga County Recorder of Deeds, which was later modified by a corrective deed executed and recorded in December 2010. The quit claim deed divided the oil, gas and mineral rights in the seven parcels into one third interests, transferring a one third interest to David Stewart and Eloise Stewart, as husband and wife, a one third interest to Thomas Bower and Lynn Bower, as husband and wife, and retaining a one third interest for the Living Trust. David and Eloise Stewart executed a quit claim deed at an unspecified time in 2011, which was recorded with the Tioga County Recorder of Deeds on February 14, 2011, in which they deeded their one third interest in the oil, gas and mineral rights in the property to plaintiff Derra, Ltd.

On September 22, 2005, Robert and Edna Stewart, as Trustees of the Living Trust, executed an oil and gas lease with Fortuna Energy, Inc. According to plaintiffs, Fortuna Energy later sold, assigned, or otherwise transferred its interests in the lease to defendant SWEPI. This litigation concerns the primary term of the lease, the provisions providing for the pooling, unitization, or combination of portions of the leasehold, and the actual operations undertaken in exploring and accessing any gas, mineral or oil in the subsurface estate. Careful examination of these portions of the lease is essential to disposition of the pending motion, and hence those relevant passages will be reproduced here in full:

3. LEASE TERM

This Lease shall remain in force for a primary term of Five (5) years from September 22, 2005 (the " Primary Term" ), and for so long thereafter as any of the following occur:
(i) a well capable of producing oil and/or gas is located on the Leasehold, or on lands pooled, unitized or combined with all or a portion of the Leasehold;
(ii) Lessor is receiving Royalty payments or Shut-In payments pursuant to the terms of this lease;
(iii) Operations, as hereinafter defined, are being conducted on the Leasehold, or on lands pooled, unitized or combined with all or a portion of the Leasehold, with no cessation of greater than one hundred

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eighty (180) consecutive days, provided that such Operations result in a well capable of producing oil and/or gas; or
(iv) the Leasehold is used, or intended to be used, for the underground storage of gas, or for the protection of stored gas;
provided that if, after the expiry of the Primary Term, the last producing well located on the Leasehold, or on lands pooled, unitized or combined with all or a portion of the Leasehold, is plugged and abandoned, this Lease shall remain in force for an additional period of one (1) year from the date of the plugging and abandonment of such well, and shall continue thereafter if any of the conditions in items (i) through (iv) of this provision are applicable at the end of such additional one (1) year period.
For the purposes of this Lease, " Operations" includes any of the following which may occur on the Leasehold, or on lands pooled, unitized or combined with all or a portion of the Leasehold:
(i) drilling, which includes applying for permits, the commencement of clearing operations on or adjacent to the well site area such as the removal of trees and the construction of access roads in preparation for drilling, the delivery of heavy equipment and otherwise using bona fide good faith efforts to diligently prepare the physical ...

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