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Alder Run Land, LP v. Northeast Natural Energy LLC

United States District Court, W.D. Pennsylvania

April 30, 2014

ALDER RUN LAND, LP; ORRIN L. FRENCH, as trustee of the Schoonover Real Estate; JEFFREY A. DALKE, as trustee of the Schoonover Real Estate Trust; CATHERINE G. ANDERSON, as trustee of the Catherine G. Anderson Trust; DAVID K. DAHLGREN and MARJORIE DAHLGREN, husband and wife; BONNIE LOU DAHLGREN PETERS and TERRY PETERS, wife and husband, Plaintiffs,
v.
NORTHEAST NATURAL ENERGY LLC, Defendant.

MEMORANDUM OPINION

KIM R. GIBSON, District Judge.

I. Introduction

Plaintiffs bring this action against Defendant Northeast Natural Energy, LLC ("Northeast"), alleging that Northeast has refused to honor its agreement to enter into certain oil and gas leases. Northeast has filed a motion to dismiss or, in the alternative, to compel arbitration (ECF No. 10). For the reasons that follow, the motion will be granted to the extent the Court will direct the parties to arbitrate Plaintiffs' claim.

II. Jurisdiction and Venue

The Court exercises diversity jurisdiction under 28 U.S.C. § 1332(a) because the amount in controversy exceeds $75, 000, exclusive of interests and costs, and the suit is between citizens of different states.[1] Venue is proper under 28 U.S.C. § 1391 because a substantial part of the events or omissions giving rise to the claim occurred in this district.

III. Background

Plaintiffs own oil and gas interests in Clearfield County and Centre County, Pennsylvania. (Compl. ¶ 11). On May 4, 2010, Plaintiffs and East Resources, Inc. executed three separate but essentially identical leases (the "2010 Leases") in which East Resources obtained the right to produce oil and gas from approximately 1, 800 acres of Plaintiffs' property. ( Id . ¶¶ 12-14). Each lease contained an addendum stating, in material part:

21. GOVERNING LAW AND ARBITRATION: The laws and regulations of the Commonwealth of Pennsylvania shall govern the performance of both parties under this oil and gas lease...
Any issue, item or disagreement between Lessor and Lessee concerning this lease or performance there under shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by Lessor, one by the Lessee and third by the two so appointed as aforesaid in and the award of such collective group shall be final and conclusive....

(ECF No. 1-2 at 28; ECF No. 1-3 at 24; ECF No. 1-4 at 32).

SWEPI, L.P. acquired East Resources, Inc., thus becoming the successor lessee under the 2010 Leases. (Compl. ¶ 15). In 2011, Defendant Northeast sought to acquire oil and gas leases from SWEPI, including an assignment of the 2010 Leases. ( Id. ¶ 16). Before acquiring the 2010 Leases, however, Northeast insisted on certain modifications to those agreements. To encourage Plaintiffs to amend the 2010 Leases, Northeast and Plaintiffs executed three separate but nearly identical letter agreements (the "Letter Agreements").

The Letter Agreements, each dated April 28, 2011, define the 2010 Leases as the "Underlying Lease." (ECF No. 1-5 at 1; ECF No. 1-6 at 1; ECF No. 1-7 at 1). Each Letter Agreement also states:

Should Northeast acquire an Assignment of... the Underlying Lease, then the parties hereto specifically agree that the Underlying Lease shall be subject to the following conditions:
* * *
3. For a period of eighteen (18) months from the date Northeast acquires the East Resources Leases, Northeast agrees to lease from the Lessor any additional oil and gas fee interests that may be acquired or identified and available to be leased by the Lessor and that are part of or contiguous to lands covered by the East Resources Leases... upon the same terms and conditions as set forth in the Underlying Lease, with the exception ...

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