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Neuhard v. Range Resources-Appalachia, LLC

United States District Court, M.D. Pennsylvania

April 30, 2014

THOMAS A. NEUHARD and BARBARA S. NEUHARD, Plaintiffs,
v.
RANGE RESOURCES--APPALACHIA, LLC, Defendant

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[Copyrighted Material Omitted]

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For Thomas A. Neuhard, Barbara S. Neuhard, Plaintiffs, Counterclaim Defendants: Michael A. Dinges, DINGES, DINGES & WALTZ, LLC, Williamsport, PA.

For Range Resources-Appalachia, LLC, Defendant, Counterclaim Plaintiff: Andrew D. Sims, Troy Okruhlik, PRO HAC VICE, Harris, Finley & Bogle, P.C., Fort Worth, TX; J. David Smith, McCormick Law Firm, Williamsport, PA.

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MEMORANDUM

Matthew W. Brann, United States District Judge.

This case concerns a dispute over an oil and gas lease executed by the Parties. Thomas A. Neuhard and Barbara S. Neuhard (" Plaintiffs" or " the Neuhards" or " Lessors" ) initiated the case by filing a Complaint in the Court of Common Pleas of Lycoming County on September 28, 2011 (ECF No. 1, Ex. A). The Neuhards seek a Declaratory Judgment clarifying that the oil and gas lease (" Lease" ) that they entered into with the Defendant, Range Resources--Appalachia, LLC (" Defendant" or " Range" or " Lessee" ) expired by its own terms.[1]

On October 28, 2011, the Defendant removed this case to Federal Court based on diversity jurisdiction, pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 1441 (ECF No. 1).[2] Then-Chief United States District Court Judge Yvette Kane presided over the case until it was reassigned to United States District Court Judge Robert D. Mariani on November 16, 2011. The case was subsequently reassigned to the undersigned on January 17, 2013.

The Defendant filed an Answer with affirmative defenses, and made a counterclaim seeking a declaratory judgment that the Lease is valid (ECF No. 7). The Plaintiffs filed an answer to the counterclaim (ECF No. 8). Discovery was then conducted.

The case is presently before the Court on the Parties' cross motions for summary judgment (ECF Nos. 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34). The Court held oral argument on the motions on March 26, 2014. There are no material facts in dispute, and the issues before the Court involve interpretation of contract provisions as a matter of law. The Parties have fully briefed the issues and the case is now ripe. Consequently, the case is amendable to disposition in its current posture.

As elaborated below, the Neuhards' Motion for Summary Judgment should be granted. Range Resource's Motion for Summary Judgment should be denied.

I. BACKGROUND

On June 21, 2006, the Parties executed an Oil and Gas Lease. Pls.' Statement Material Facts ¶ 1, Dec. 14, 2012, ECF No. 23 [hereinafter " Pls.' SOF" ]. The Lease provided Range the rights to procure oil and gas from forty-seven (47) acres owned

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by the Neuhards situate in Lewis Township, Lycoming County, Pennsylvania.[3] Id. ¶ 4. The Lease contains a primary term of five years calculated from June 21, 2006. Pls.' Br. Supp. Mot. Summ. J. Ex.1, Dec. 14, 2012, ECF No. 26 [hereinafter Pls.' Br. Supp.]. Unless extended by the commencement of drilling operations or as otherwise provided, the Lease would expire by its own terms on June 21, 2011.

On June 13, 2011, Range executed a Designation of Unit document for the " Null Eugene A Unit," which it filed with the Lycoming County Recorder of Deeds on June 15, 2011. Def.'s Statement Material Facts ¶ 28, Dec. 14, 2012, ECF No. 27 [hereinafter " Def.'s SOF" ]. The Designation of Unit Document indicates that " by virtue of the authority conferred by the terms of the leases" it creates a 395.0638 acre production unit comprised of nine separately owned parcels of land that includes the Neuhards' 47 acres. Def.'s Br. Supp. Mot. Summ. J., Ex. 2(T), Dec. 14, 2012, ECF No. 26 [hereinafter Def.'s Br. Supp.]. A non-material fact remains disputed whether Range notified the Neuhards of the unit plan and their filing the Designation of Unit document prior to July 7, 2011.

Range did, however, acquire a Road Right of Way Agreement signed by Barbara Neuhard on June 16, 2011. Def.'s SOF, ¶ 30. The Agreement provided Range the right to widen and grade a turn on a local road to make it easier for Range's truck traffic to access the surface location from which they intended to drill the " 1H" gas well on the Null property. Range paid Barbara Neuhard $3,000 as consideration for this Agreement. Id. ¶ ¶ 31, 41.

Range engaged in numerous other preparatory activities prior to drilling throughout the spring of 2011. Range obtained several mandatory permits from state and local regulatory agencies, including drilling, zoning, and development permits. Id. ¶ ¶ 11, 13, 14, 16-18, 22, 24. Range contracted with an engineering firm to design a grading and erosion control plan for the well pad site, and entered into various agreements with other landowners regarding its construction. Id. ¶ ¶ 9, 23, 26. On May 28, 2011 Range began constructing the access roads and pad site for the well. Id. ¶ 25.

On July 1, 2011, the Neuhards, by and through counsel, notified Range that it was the Neuhards' position that Range had failed to commence a well on the Neuhards' " Leased Premises," within the five year primary term of the Lease, and therefore, that the Lease expired by its own terms. Pls.' SOF, ¶ 12. Range responded by letter dated July 7, 2011, stating that it believed that it maintained the Lease by the commencement of a well on acreage unitized with the Neuhards' Leased Premises prior to the expiration of the Lease's primary term.

Range then continued its development of the properties. Between May 28 and September 15, 2012, Range drilled three wells that extend in different directions from the same initial well pad, utilizing contemporary horizontal drilling technology not available in Pennsylvania at the time the Lease was signed. See Def.'s SOF, ¶ ¶ 32-51. The wellbores of two of the three wells pass under and through

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the Neuhards' 47 acres. Id. ¶ 51. As of December 2012, Range had expended approximately $4,000,000 in connection with drilling and completing the wells. Id. ¶ 49.

II. DISCUSSION

A. Legal Standards

1. Summary Judgment Standard

Summary judgment is appropriate when " there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue of material fact exists only if " the evidence is such that a reasonable jury could find for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When the court considers the parties' arguments, " [t]he evidence of the non-movant is to be believed and all justifiable inferences are to be drawn in his favor." Id. at 255.

The burden of establishing the nonexistence of a " genuine issue" is on the party moving for summary judgment. In re Bressman, 327 F.3d 229, 237 (3d Cir. 2003) (internal citations omitted). The moving party may meet this burden by either (1) submitting positive evidence that negates an essential element of the nonmoving party's claim; or (2) demonstrating that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's case. Id. at 331.

In deciding the merits of a party's motion for summary judgment, the court's role is not to evaluate the evidence and decide the truth of the matter, but to determine whether there is a genuine issue for trial or whether judgment as a matter of law is proper. Anderson, 477 U.S. at 249. The standard by which the court decides a summary judgment motion does not change when the parties file cross-motions. Weissman v. United States Postal Serv., 19 F.Supp.2d 254, 259 (D.N.J. 1998). When ruling on cross-motions for summary judgment, the court must consider the motions independently, Williams v. Philadelphia Housing Authority, 834 F.Supp. 794, 797 (E.D. Pa. 1993), aff'd, 27 F.3d 560 (3d Cir. 1994), and view the evidence presented for each motion in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

2. Rules of Contract Construction

The Court exercises diversity jurisdiction over this case, and therefore state substantive law applies.[4] See, e.g., Erie R. Co. v. Tompkins, 304 U.S. 64, 91-92, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Under Pennsylvania law, " a lease is in the nature of a contract and is controlled by principles of contract law." T.W. Phillips Gas & Oil Co. v. Jedlicka, 615 Pa. 199, 208, 42 A.3d 261, 267 (2012). Accordingly, " [t]he object in interpreting instruments relating to oil and gas interests, like any written instrument, 'is to ascertain and

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effectuate the intention of the parties.'" Szymanowski v. Brace, 2009 Pa.Super. 218, 987 A.2d 717, 720 (Pa. S.Ct. 2009) (quoting Hess v. Jones, 335 Pa. 569, 7 A.2d 299 (1939)).

" It is a generally accepted proposition that when the terms of a writing are plain and unambiguous, there is no room for interpretation or construction since the only purpose of judicial construction is to remove doubt and uncertainty." 11 Richard A. Lord, Williston on Contracts § 30:4 (4th ed. 2013); see also Steuart v. McChesney, 498 Pa. 45, 48-49, 444 A.2d 659, 661 (1982). " The meaning of an unambiguous contract presents a question of law. . . ." Lesko v. Frankford Hospital-Bucks County, 609 Pa. 115, 124, 11 A.3d 917, 922 (2011). The " focus . . . is upon the terms of the agreement as manifestly expressed, rather than as, perhaps, silently intended." Steuart, 444 A.2d at 661.

A court must consider the text as a whole when construing the language's operative effect. Contrans, Inc. v. Ryder Truck Rental, Inc., 836 F.2d 163, 169 (3d Cir. 1987). " [A]ll provisions in the agreement will be construed together and each will be given effect . . . we will not interpret one provision of a contract in a manner which results in another portion being annulled." LJL Transp., Inc. v. Pilot Air Freight Corp., 599 Pa. 546, 560, 962 A.2d 639, 647-48 (2009) (internal citations omitted). " [A] contract should be read so as to give meaning to all of its terms when read as an entirety." Contrans, 836 F.2d at 169.

The Court assumes generally that the parties used words in their " commonly accepted and plain meaning." Steuart, 444 A.2d at 661. The Court also recognizes, however, " that every agreement is made and to be construed with due regard to the known characteristics of the business to which it relates . . . and hence the language used in a contract will be construed according to its purport in the particular business." Franklin Sugar Ref. Co. v. Howell, 274 Pa. 190, 118 A. 109, 110 (1922). The Court will not " rely upon a strained contrivancy" to establish ambiguity. Steuart, 444 A.2d at 663. Rather, the Court seeks to be faithful to the meaning that the parties would have given the language at the time of contracting, given their respective positions. Felmont Oil Corp. v. Cavanaugh, 300 Pa.Super. 520, 525, 446 A.2d 1280, 1283 (Pa. S.Ct. 1982).

B. The Merits

The language of the Lease, Range's activities, and the positions of the Parties raise three legal issues. The issues are interrelated, as the resolution of the first issue necessarily impacts the resolution of the second and third issues.

First, did Range's activities prior to June 21, 2011, the expiration date of the Lease's primary term, constitute the " commencement of a well" as a matter of law? If Range's activity prior to June 21, 2011 constituted the commencement of a well as a matter of law, then to extend the Lease either: second, Range must have validly unitized the Nehaurds' property under the Lease's terms, or, third, Range's actual drilling activity that was sufficient to constitute the commencement of a well was done " on the Leased Premises." [5]

The Court first articulates the material portions of the Lease and their operation, and then addresses these three issues seriatim.

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1. Material Provisions of the Lease

Oil and gas leases typically contain a primary term of fixed duration, expressed as a number of years. The habendum clause of an oil and gas lease, which generally establishes the primary term, describes " the duration of the interest granted, subject to modification by other provisions contained in the lease which may provide for an extension of the lease." 3-27 Eugene Kuntz, et al., Kuntz, Law of Oil and Gas § 27.1 (2013). Such a lease will terminate at the expiration of its primary term if ...


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