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In re Tayfur

United States District Court, W.D. Pennsylvania

July 7, 2014


Page 283

For MUSTAFA TAYFUR, Appellant: Mary Bower Sheats , LEAD ATTORNEY, Frank, Gale, Bails, Murcko & Pocrass, P.C., Pittsburgh, PA.

For SWEPI LP, Appellee: Kirk B. Burkley, LEAD ATTORNEY, Bernstein Law Firm, P.C., Pittsburgh, PA; Daniel R. Schimizzi, Bernstein-Burkley, P.C., Pittsburgh, PA.

APPALACHIAN PETROLEUM, Appellee, Pro se, Warren, OH.


Page 284


Arthur J. Schwab, United States District Judge.

I. Introduction

This case is before the Court on appeal from a final order of the United States Bankruptcy Court for the Western District of Pennsylvania. The question presented is whether the Bankruptcy Court erred in denying the appellant's motion to reject a lease under 11 U.S.C. § 365(d)(2). For the reasons that follow, the decision of the Bankruptcy Court will be affirmed.

II. Background

Mustafa Tayfur (" Tayfur" ) owns roughly 107 acres of real property in Worth Township, which is located in Butler County, Pennsylvania. ECF No. 1-3 at 2. On December 28, 2005, Tayfur executed a lease agreement permitting Central Appalachian Petroleum to extract oil and gas lying beneath the property's surface. ECF No. 1-15 at 6. Although the agreement was signed by Tayfur at the time of its execution, it was never signed by a representative of Central Appalachian Petroleum. ECF No. 1-3 at 2. At a minimum, the agreement was to remain in force for a " primary term" of ten years. ECF No. 1-15 at 6. Tayfur was to be paid $3.00 per year for each acre, totaling an annual payment of $321.00. ECF No. 1-3 at 2. The terms of the agreement provided that the lease could be extended by either the continuation of the prescribed payments or the conduction of operations designed to

Page 285

extract oil or gas from the property.[1] ECF No. 1-15 at 6. Payments due under the lease agreement commenced in a timely manner. ECF No. 1-3 at 2. Central Appalachian Petroleum assigned the lease to East Resources, Inc. (" East Resources" ), on July 14, 2006. ECF No. 1-25 at ¶ 3. SWEPI LP (" SWEPI" ) is East Resources' successor-by-merger. Id. at ¶ 4. During the relevant period of time, Tayfur received proper payments from SWEPI and its predecessors. Id. at ¶ 5. He cashed every check that was sent to him pursuant to the terms of the lease agreement. Id. at ¶ 6. No exploratory operations have commenced under the lease. Id. at ¶ 8.

On November 14, 2011, Tayfur filed a voluntary petition for bankruptcy under Chapter 13 of the Bankruptcy Code [11 U.S.C. § 1301 et seq. ]. ECF No. 1-3 at 2. In a plan dated November 22, 2011, Tayfur expressed an intention to provide the necessary funding through oil and gas payments totaling approximately $120,000.00. Id. He indicated that the payments would most likely commence in June 2012. Id. The United States Bankruptcy Court for the Western District of Pennsylvania confirmed the plan on an interim basis. Id. at 3. Tayfur filed an amended plan on July 30, 2012. Id. He advised that a decline in gas prices had delayed the anticipated drilling on the property, and that payments were expected to begin during the summer of 2013. Id. An interim order confirming the modified plan was entered on September 20, 2012. Id.

Thomas E. McMaster (" McMaster" ), an agent for Bounty Minerals, apparently contacted Tayfur during the early part of 2013 to discuss a potential purchase of the right to extract oil and gas from the property. ECF No. 1-29 at 15-16. In a letter to Tayfur dated February 17, 2013, McMaster stated that he had prepared a proposed offer for the purchase of the property's " mineral rights." ECF No. 1-15 at 5. On February 20, 2013, Tayfur filed a motion to reject the " unexpired lease" pursuant to 11 U.S.C. § 365(d)(2). ECF No. 1-3 at 3. In support of his motion, Tayfur asserted that he " wishe[d] to reject the lease based upon a tentative offer for a substantial amount of money related to [his] subsurface rights." ECF No. 1-5 at ¶ 6.

SWEPI filed an objection on March 21, 2013, contending that Tayfur's motion should be denied because he had " provide[d] no evidence of the alleged new lease or its purported benefit to the estate." ECF No. 1-7 at ¶ 3. Attempting to provide an additional ground for the denial of Tayfur's motion, SWEPI argued that 11 U.S.C. § 365(h)(1)(A)(ii) would allow it to remain in possession of the property even if Tayfur were permitted to reject the existing lease. Id. at ¶ ¶ 4-13. SWEPI maintained that it would " exercise its right of continued possession," and that Tayfur " w[ould] be unable to lease the premises to another party." Id. at ¶ 13.

Harry Klodowski (" Klodowski" ) is a Pennsylvania attorney whose practice focuses on environmental and mineral rights law. ECF No. 1-12 at ¶ 3. He has negotiated gas leases with SWEPI and its agents. Id. at ΒΆ 7. In an affidavit signed on March 26, 2013, Klodowski declared that the payment terms of Tayfur's 2005 lease agreement were " ...

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