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Southwestern Energy Production Co. v. Forest Resources, LLC

Superior Court of Pennsylvania

November 27, 2013

SOUTHWESTERN ENERGY PRODUCTION COMPANY
v.
FOREST RESOURCES, LLC, KOCJANCIC FAMILY LIMITED PARTNERSHIP, HAROLD H. WOLFINGER, JR., ULTRA RESOURCES, INC., JACKSON CORNERS SPORTSMEN, INC., NORTHERN FORESTS II, INC., WEVCO PRODUCTION, INC., AND ANADARKO PETROLEUM CORPORATION, LP A/K/A ANADARKO PETROLEUM CORPORATION INTERNATIONAL DEVELOPMENT CORPORATION AND TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST DATED OCTOBER 28, 1980, TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST,
v.
FOREST RESOURCES, LLC, KOCJANCIC FAMILY LIMITED PARTNERSHIP, HAROLD H. WOLFINGER, JR., ULTRA RESOURCES, INC., JACKSON CORNERS SPORTSMEN, INC., NORTHERN FORESTS II, INC., AND INTERNATIONAL DEVELOPMENT CORPORATION, TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST,
v.
SOUTHWESTERN ENERGY PRODUCTION COMPANY AND LANCASTER EXPLORATION & DEVELOPMENT CO., LLC
v.
TRUSTEES OF THE MARGARET O.F. PROCTOR TRUST APPEAL OF: TRUSTEES OF THE MARGARET O.F. PROCTOR TRUST SOUTHWESTERN ENERGY PRODUCTION COMPANY
v.
FOREST RESOURCES, LLC, KOCJANCIC FAMILY LIMITED PARTNERSHIP, HAROLD H. WOLFINGER, JR., ULTRA RESOURCES, INC., JACKSON CORNERS SPORTSMEN, INC., NORTHERN FORESTS II, INC., WEVCO PRODUCTION, INC., AND ANADARKO PETROLEUM CORPORATION, LP A/K/A ANADARKO PETROLEUM CORPORATION INTERNATIONAL DEVELOPMENT CORPORATION AND TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST DATED OCTOBER 28, 1980, TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST,
v.
FOREST RESOURCES, LLC, KOCJANCIC FAMILY LIMITED PARTNERSHIP, HAROLD H. WOLFINGER, JR., ULTRA RESOURCES, INC., JACKSON CORNERS SPORTSMEN, INC., NORTHERN FORESTS II, INC., AND INTERNATIONAL DEVELOPMENT CORPORATION, TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST,
v.
SOUTHWESTERN ENERGY PRODUCTION COMPANY AND LANCASTER EXPLORATION & DEVELOPMENT CO., LLC
v.
TRUSTEES OF THE MARGARET O.F. PROCTOR TRUST APPEAL OF: TRUSTEES OF THE THOMAS E. PROCTOR HEIRS TRUST

Appeal from the Orders Entered December 19, 2012 In the Court of Common Pleas of Lycoming County Civil Division at No(s): 11-02308

Joseph D. Seletyn, Esq.

BEFORE: GANTMAN, J., ALLEN, J., and MUNDY, J.

OPINION

MUNDY, J.

Appellants, the Trustees of the Thomas E. Proctor Heirs Trust (PHT) and the Margaret O.F. Proctor Trust (MPT), appeal from the orders entered on December 19, 2012, granting Appellee Lancaster Exploration & Development Co., LLC's (Lancaster) motion for judgment on the pleadings and sustaining Southwestern Energy Production Company's (Southwestern) and Lancaster's respective preliminary objections.[1] These orders dismissed Appellants' respective counterclaims for declaratory judgment, seeking a decree declaring the invalidity of certain oil and gas lease agreements for non-compliance with the Guaranty Minimum Royalty Act (GMRA), 58 P.S. § 33.[2] After careful review, we reverse and remand for further proceedings.

We summarize the factual and procedural history of this case as follows. Appellants maintain a claim to oil, gas and mineral rights underlying certain acreage found in warrant 1621 in Lycoming County, Pennsylvania, stemming from the reservation of such rights in an 1894 deed from Thomas and Emma Proctor to the Elk Tanning Company.[3] Other parties in this action (Adverse Defendants) claim competing rights stemming from a decree entered in a 1988 quiet title action by Northern Forests.[4] On June 17, 2002, PHT executed an agreement leasing its oil and gas rights to Lancaster, evidenced by a recorded lease and referenced "Letter Agreement." On February 17, 2005, PHT executed a second "Letter Agreement, " amending the 2002 agreement and providing for the execution of an extension of the lease, which was executed on June 22, 2005.[5] On November 24, 2009, MPT and PHT executed a "confirmatory deed, " in which MPT confirmed the assignment of its oil and gas rights at issue in this case, inter alia, to PHT. The deed did not state the date of the assignment. MPT disclaims any assignment and the validity of the confirmatory deed. Those issues remain unresolved. Southwestern subsequently succeeded to Lancaster's interests in the subject property.

Southwestern initiated the instant case on December 9, 2011, with the filing of a complaint. In count two of its complaint, Southwestern seeks to quiet title to the oil, gas and mineral rights underlying real estate identified in warrants 1621 and 1622 in Lycoming County, Pennsylvania, against Adverse Defendants. In count one of its complaint, Southwestern seeks a declaratory judgment defining said subsurface rights among itself, Adverse Defendants, PHT, and Appellee International Development Corporation (IDC).

On January 27, 2012, PHT filed an answer and new matter to Southwestern's complaint together with a counterclaim and cross-claim. In its answer and new matter, PHT averred Southwestern's claimed interest in PHT's reserved oil, gas and mineral rights was baseless, being derived as the assignee of invalid leases. PHT cross-claimed against Adverse Defendants to quiet title and for declaratory judgment based on the alleged invalidity of the 1988 quiet title decree. In its counterclaim against Southwestern, PHT seeks a declaratory judgment that the PHT/Lancaster lease, as amended, is invalid under the GMRA.

On February 15, 2012, Southwestern filed preliminary objections, in the nature of a demurrer and for more specific pleadings, to PHT's counterclaim. That same day, PHT filed a joinder complaint against additional defendant Lancaster. On April 9, 2012, PHT filed its second amended counterclaims, which, in addition to its declaratory judgment claim, included a second count for a constructive trust for all proceeds generated under the allegedly invalid leases. On April 26, 2012, Southwestern filed preliminary objections, demurring to both counts of PHT's second amended counterclaims. On May 2, 2012, Lancaster filed a joinder complaint, adding MPT as an additional defendant to settle the status of MPT's 6.25% interest in the oil, gas and mineral rights in PHT's declaratory judgment counterclaim. On May 14, 2012, Lancaster filed an answer with new matter to PHT's joinder complaint together with counterclaims alleging breach of contract, tortious interference with contractual relations, and slander of title.

On May 24, 2012, the trial court sustained Southwestern's preliminary objections and dismissed PHT's second amended counterclaim. PHT filed a motion, requesting the trial court to certify its May 24, 2012 order for immediate appeal. The trial court did not rule on the motion until July 2, 2012, when it determined that due to the lapse of more than 30 days it was without authority to grant the motion. The trial court expressed its view, in a footnote, that it would have denied the motion in any event since "immediate appeal would not facilitate resolution of the entire case." Trial Court Opinion and Order, 7/3/12, at 1, n.1.

Meanwhile, MPT filed its Answer and New Matter together with a cross-claim and counterclaim on June 21, 2012. Both Southwestern and Lancaster filed preliminary objections to the counterclaims. MPT filed an amended Answer and New Matter together with cross-claims and counterclaims on July 25, 2012. In its cross-claim against the Adverse Defendants, MPT sought declaratory judgment and quiet title relief averring those defendants' claims to its 6.25% interest in the subsurface rights of the aforesaid acres in Warrant 1621 are invalid. In its cross-claim against PHT, MPT seeks rescission of the confirmatory deed, alleging it was executed in error and that MPT never conveyed its interests in the subject property to PHT. Accordingly, MPT further alleged its interests are not subject to the lease between PHT and Lancaster or the assignment of that lease to Southwestern. In its counterclaim against Southwestern and Lancaster, MPT seeks declaratory judgment on the basis that the PHT/Lancaster Lease, as amended, is invalid as it violates the provisions of the GMRA. MPT also seeks a constructive trust against Southwestern and Lancaster for any profit derived from drilling activities in derogation of MPT's rights. Again, both Southwestern and Lancaster filed preliminary objections in the nature of a demurrer to MPT's counterclaims on August 9, 2012, and August 14, 2012, respectively.

On October 31, 2012, Lancaster filed a motion for judgment on the pleadings seeking dismissal of PHT's joinder complaint and "for a declaration that PHT must execute an assignment to Lancaster of 50% of its royalty interest under the PHT/Lancaster Lease and the TPT/Lancaster Lease pursuant to the 2005 PHT/Lancaster Letter Agreement and the 2005 TPT/Lancaster Letter Agreement." Lancaster's Motion for Judgment on the Pleadings, 10/31/12, at 14.

On December 19, 2012, the trial court entered an order, with an accompanying Opinion, granting Lancaster's motion for judgment on the pleadings in part and finding in favor of Lancaster and against PHT on its declaratory judgment claim.[6] The trial court also entered an order sustaining both Lancaster's and Southwestern's preliminary objections to MPT's amended counterclaim. PHT and MPT each filed a notice of appeal on January 17, 2013. The trial court did not order either Appellant to file a concise statement of errors complained of on appeal pursuant to Pennsylvania Rule of Appellate Procedure 1925(b). The trial court filed a Rule 1925(a) opinion referencing its earlier opinions accompanying the orders at issue for an explanation of the court's reasons for its rulings.

On appeal, Appellants raise virtually identical single issues for our review.

Does an oil and gas lease that results in an effective royalty of one sixteenth by requiring the lessor to assign one half of the one-eighth royalty back to the original lessee violate Pennsylvania's Guaranteed Minimum Royalty Act, Act of July 20, 1979, P.L. 183, No. 60, §1, 58 P.S. § 33?

PHT's Brief at 5.

An oil and gas lease transaction provides the lessor with only a one-sixteenth royalty, because half of the nominal royalty was assigned back to the original lessee as an integral part of the lease transaction. Does this violate Pennsylvania's Guaranteed Minimum Royalty Act, Act of July 20, 1979, P.L. 183, No. 60, § 1, 58 P.S. § 33?

MPT's Brief at 4.

As a preliminary matter, we address Southwestern's and Lancaster's assertions that PHT's appeal is late-filed and should be quashed. Southwestern and Lancaster contend the trial court's order of May 24, 2012, was a final appealable order and PHT's notice of appeal, filed beyond the 30 days allowed for an appeal, is untimely. Lancaster's Brief at 16; Southwestern's Brief at 10.[7] Pennsylvania Rule of Appellate Procedure 341 provides that an appeal may be taken from any final order entered by a trial court. See Pa.R.A.P. 341(a). The Rule defines a final order as one that "(1) disposes of all claims and of all parties; or (2) is expressly defined as a final order by statute …." Pa.R.A.P. 341(b)(1), (2). The Declaratory Judgment Act provides, in part, as follows.

Courts of record … shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. … The declaration may be either affirmative or negative in form and effect, and such declaration shall have the force and effect of a final judgment or decree.

42 Pa.C.S.A. § 7532 (emphasis added); see Redevelopment Auth. of Cambria County v. International Ins. Co., 685 A.2d 581, 585-587 (Pa.Super. 1996) (en banc) (holding trial court order declaring parties' rights under duty-to-defend provisions of insurance contract was final order, per 42 Pa.C.S.A. § 7532, notwithstanding underlying insurance claim remained pending), appeal denied, 695 A.2d 787 (Pa. 1997).[8]

The trial court's May 24, 2012 order sustaining Southwestern's preliminary objections had the effect of declaring only the respective rights between Southwestern and PHT relative to PHT's declaratory judgment counterclaim. See Nationwide Mut. Ins. Co. v. Wickett, 763 A.2d 813, 817-818 (Pa. 2000) (holding an order sustaining preliminary objections in the nature of a demurrer, raised against a claim for declaratory judgment, "effectively declared the legal rights of the parties" where the basis for the order was that there existed no legal basis upon which the plaintiff could recover). However, the trial court's May 24, 2012 order did not dismiss any of the parties, which were still attached to PHT's counterclaim issue through PHT's and Lancaster's joinder complaints and MPT's counterclaim, or dispose of the those remaining claims. In Pennsylvania Bankers Ass'n v. Pennsylvania Dept. of Banking, 948 A.2d 790, 799 (Pa. 2008) and U.S. Org. for Bankruptcy Alternatives, Inc. v. Dept. of Banking, 26 A.3d 474 (Pa. 2011), our Supreme Court made clear that its holding in Wickett did not render an order, that did not fully release a party or completely resolve the dispute, a final order. Rather such an order would be deemed a partial declaration of the parties' rights and would not be immediately appealable. Pennsylvania Bankers, supra.

In light of the foregoing, we conclude the trial court's May 24, 2012 order, sustaining only Southwestern's preliminary objections to PHT's counterclaim for declaratory judgment, was not a final appealable order. Rather, it was the trial court's orders of December 19, 2012, granting Lancaster's motion for judgment on the pleadings and sustaining Lancaster's and Southwestern's preliminary objections to MPT's counterclaim, that released all the parties and resolved the declaratory judgment action. Id. As PHT's notice of appeal was filed within 30 days of the trial court's December 19, 2012 final orders, we decline to quash PHT's January 17, 2013 notice of appeal as untimely. See Pa.R.A.P. 903.

As an additional preliminary matter, we address Lancaster's arguments that MPT's appeal should be quashed. Lancaster's MPT Appeal Brief at 14-18. In its preliminary objections to MPT's counterclaim for declaratory judgment, Lancaster included as one of the grounds for its demurrer that MPT lacked standing to contest the validity of the lease between itself and PHT. Lancaster's Preliminary Objections to the Counterclaims of the Trustees of [MPT], 8/14/12, at 10. Lancaster averred MPT conceded it was not a party to any of the agreements underlying the dispute over the validity of the leases/letter-agreements or assignments on the basis of the GMRA and was not an intended beneficiary of any of the agreements. Id. at 12 ΒΆ53. "Given that it is not a party to any of the operative agreements at issue, MPT was not entitled to bring an action concerning the validity of the PHT/Lancaster Lease or seek relief in the nature of having it declared unlawful ...


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