United States District Court, W.D. Pennsylvania
THE DELMAS RAY BURKETT, II REVOCABLE TRUST, by DELMAS RAY BURKETT, II, TRUSTEE, and THE SHELDON JAY BURKETT REVOCABLE TRUST, by SHELDON JAY BURKETT, TRUSTEE, Plaintiffs,
EXCO RESOURCES (PA), LLC, Defendant.
MARK R. HORNAK, District Judge.
This case involves an oil and gas lease dispute in which Plaintiffs, The Delmas Ray Burkett, II Revocable Trust, by Delmas Ray Burkett, II, Trustee, and The Sheldon Jay Burkett Revocable Trust, by Sheldon Jay Burkett, Trustee, seek a declaration that the parties' lease is cancelled with respect to 130 allegedly undeveloped acres of the 180-acre leasehold because Defendant EXCO Resources (PA), LLC ("EXCO") allegedly breached both a duty to surrender those 130 undeveloped acres and an implied duty to develop the entire leased premises.
Before the Court are the parties' motions for summary judgment: Plaintiffs' Partial Motion for Summary Judgment, ECF No. 34, and Defendant's Cross Motion for Summary Judgment, ECF No. 43. The matter has been fully briefed and the parties' Motions are now ripe for disposition. For the following reasons, Plaintiffs' Partial Motion is denied, and Defendant's Motion is granted.
The relevant material facts are undisputed. Plaintiffs are the owners of several tracts of land in Jefferson County, Pennsylvania, by virtue of a recorded deed dated May 6, 2009. Pls.' Stat. Facts in Supp. of Pls.' Mot. for Partial Summ. 1. ("Pls.' Stat. Facts") ¶ 2. Plaintiffs' ownership interest in Parcel No. I in that deed includes all oil and gas rights, which are subject to the lease at issue ("the Lease"). Id. at ¶ 3. The Lease was entered into on or about July 13, 1916, and was recorded on August 14, 1919 in Jefferson County. Id. at ¶ 5. The Lease gives the Lessee exclusive rights to drill for oil and gas under an ISO-acre tract in Oliver Township, Jefferson County, Pennsylvania ("the Premises"). Id. at ¶ 6.
Plaintiffs are the current owners of the Premises and are the successors-in-interest to the Grantors/Lessors under the 1916 Lease. Id. at ¶ 18. Defendant EXCO is the assignee and successor-in-interest to the Grantee/Lessee, and currently has operating rights under the 1916 Lease. Id. at ¶ 19. EXCO acquired its current title to all rights via an Assignment/Bill of Sale from Hanley & Bird, recorded April 13, 2011, in Jefferson County. Def.'s Ex. D. The stated "sole and only purpose" of the Lease is "drilling and operating [the Premises] for said oil and gas and removing the same therefrom." Pls.' Stat. Facts ¶ 7. The Lease contains extensive provisions for forfeiture and delay rentals during the primary term. Id. at ¶ 8. The Lease's Development Clause is not at issue, and the parties agree that the terms applicable to the primary term of ten years have been satisfied. Id.
Prior to the expiration of the primary term in 1926, the Lessee completed two wells in accordance with the Development Clause. Id. at ¶ 11. Thereafter, the Lease was to extend for an indefinite secondary term for a period "as much longer as the said premises are being drilled or operated for the production of oil or gas, or as oil or gas is found or produced in paying quantities thereon." Id. This provision is known as the Habendum Clause. Id Under the Lease, the Lessor is to be paid a one-eighth (1/8) royalty during the secondary term from production of oil and/or fixed per-well rental for gas production. Id at ¶ 10.
By recorded agreement dated July 1, 1959 ("the 1959 Agreement"), then successor-Lessors (G. Raymond Coon, et ux.) and successor-Lessee (Hanley & Bird), faced with two abandoned wells and only three "old and very small" remaining wells, amended the 1916 Lease with respect to its provisions regarding per-well rental rates, free gas for the Lessor, and exactly which well rental rate would apply "should any other well or wells be drilled" on the Premises. Id at ¶ 16; Def.'s Ex. B.
The 1959 Agreement states that a total of five (5) wells were in fact drilled on the Premises. See Def.'s Ex. B. One provided free gas to the Grantors for their residential use (and was abandoned by July 1959), one was plugged and abandoned in February 1949, and three were in operation at the time the 1959 Agreement was executed. Id Currently, there are two (2) producing wells remaining on the Premises - both drilled during or shortly after the primary lease term. Pls.' Stat. Facts ¶¶ 13, 20. No additional wells have been drilled on the Premises since at least 1927. Id The parties agree that the Lease continued under the Habendum Clause (the secondary term) because the two wells continued to be operated for the next 85 years. Id at ¶ 14.
The 1916 Lease contains a clause providing for surrender and release of undeveloped acreage ("the Surrender Clause"), setting forth that:
IT IS AGREED, that if at any time or times the Grantee shall determine that said premises, or any part thereof, does not warrant further investigation or development, the Grantee shall thereupon surrender and cancel this grant, either as a whole or as to such part of the premises hereinbefore described, as does not warrant further investigation or development; and upon delivering direct to [the Lessors]... a duly executed release thereof, all payments and liabilities thereafter to accrue shall cease and determine, except as to such portions of said premises that the Grantee shall retain; and the decision of the Grantee that the said premises, or part thereof, does not warrant further investigation or development, shall be final and conclusive.
Id. at ¶ 21; Def.'s Ex. A.
Plaintiffs brought this action in the Court of Common Pleas of Jefferson County, Pennsylvania, alleging under Count I, "Breach of Lease, " and under Count II, "Breach of Implied Covenants." In their Amended Complaint for Declaratory Judgment ("Amended Complaint"), Plaintiffs seek a declaration that the 1916 Lease is partially cancelled because Defendant EXCO (1) breached the Surrender Clause of the Lease by having implicitly made a determination that 130 undeveloped acres of the Premises did not warrant further investigation or development without having released that undeveloped acreage; and (2) that EXCO breached implied covenants to fully develop the Premises, both as to depth and as to acreage. EXCO removed the case to this Court on diversity grounds and shortly thereafter, pursuant to Federal Rule of Civil Procedure 12(b)(6), moved to dismiss the Amended Complaint for failure to state a ...