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Danko Holdings, L.P. v. EXCO Resources (PA), LLC

United States District Court, M.D. Pennsylvania

September 29, 2014

DANKO HOLDINGS, L.P., Plaintiff
v.
EXCO RESOURCES (PA), LLC, and ENERPLUS RESOURCES (USA), CORPORATION, Defendants

For Danko Holdings, L.P., Plaintiff: James W. Pfeifer, LEAD ATTORNEY, Pepper Hamilton LLP, Pittsburgh, PA; Joseph R. Musto, LEAD ATTORNEY, Attorney Joseph R. Musto, P.C., Williamsport, PA; Justin G. Weber, Timothy B. Anderson, LEAD ATTORNEYS, Pepper, Hamilton LLP, Harrisburg, PA.

For EXCO Resources (PA), LLC, Enerplus Resources (USA) Corporation, Defendants: Bryan D. Rohm, LEAD ATTORNEY, K& L Gates LLP, Pittsburgh, PA; George A. Bibikos, LEAD ATTORNEY, K& L Gates LLP, Harrisburg, PA; Mark D. Feczko, LEAD ATTORNEY, PRO HAC VICE, K& L Gates LLP, Pittsburgh, PA.

Page 390

MEMORANDUM

Matthew W. Brann, United States District Judge.

This case concerns issues of first impression in Pennsylvania in a dispute over whether an oil and gas land lease was extended or expired by its own terms. Before the Court is the Defendants' Motion to Dismiss the Plaintiff's Complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) (ECF No. 6). For the following reasons, the Defendants' Motion is granted and the Plaintiff's Complaint is dismissed.

I. FACTUAL BACKGROUND

On May 3, 2005, Thomas G. Stubler and Beth B. Stubler (" Lessors" or the " Stublers" ) entered into an oil and gas lease

Page 391

(" Lease" ) granting The Keeton Group, LLC, the right to operate for oil and gas on 880.95 acres of property situate in Gamble, Cascade, and Mifflin Townships, Lycoming County, Pennsylvania. See Notice Removal, Ex. 2, at Ex. A, Feb. 14, 2014, ECF No. 1 [hereinafter Lease]. The Lease expressly defines the Stublers as " Lessor" and The Keeton Group, LLC as " Lessee."

On February 26, 2007, The Keeton Group assigned all of its right, title and interest in certain oil, gas, and mineral leases, including the Lease, to eCORP Resources Partners I, L.P. Sometime prior to April 8, 2009, eCORP Resource Partners assigned all its right, title, and interest in the Lease to Chief Oil & Gas, LLC. Sometime after September 21, 2010, Chief assigned all its right, title, and interest in the Lease to EXCO, the Defendant in this case.[1] See Notice Removal, Ex. 2, Feb. 14, 2014, ECF No. 1.

The Lease contains a primary term of five (5) years, that expired on May 2, 2010. The Lease also provided for a 5-year extension of the primary term if the Lessee made an extension payment within the primary term as follows:

EXTENSION OF TERM: Lessee may extend the primary term for one additional period equal to the primary term by paying to Lessor, at any time within the primary term, proportionate to Lessor's percentage of ownership an Extension Payment equal in amount to the annual Delay Rental as herein described, or by drilling a well on the Leasehold which is not capable of commercial production.

Lease, at 1. Therefore, to effectuate this language and extend the primary term, the Extension Payment was due to the Lessor on or before May 2, 2010.

In January 2006, the Stublers conveyed a portion of the Leased Premises comprised of 731.832 acres known as the " High Farm Tract" to Timbervest Partners Pennsylvania, LLC (" Timbervest" ). After Timbervest obtained the property, MK Resource Partners, L.P., an entity identifying itself as the agent for the successor in title to The Keeton Group, transmitted to Timbervest the 2006 and 2007 annual delay rentals for the portion of the Lease covering the High Farm Tract on April 1, 2008.

Thereafter, Chief Oil & Gas, LLC obtained the Lease and, by email dated April 10, 2008, sent to Timbervest a Release in Full for a drill site location on a portion of the High Farm Tract (the " Release" ), and also asked Timbervest to ratify the Lease by signing a Ratification of Oil, Gas, and Mineral Lease with respect to the High Farm Tract (the " Ratification" ).[2] The Release identified Timbervest as the owner of the surface of Lycoming County Tax Parcel No. 31-306-125 (presumably all or some of the property) and the Ratification acknowledged the Deed and identified Timbervest as the owner of the High Farm Tract.

On March 25, 2010, more than six weeks before the deadline for extending the term of the Lease, EXCO's predecessor recorded a Notice of Extension of Oil and Gas Lease (" Notice of Extension" ) that extended the Lease through May 3, 2015. The Notice of Extension states, in pertinent part:

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WHEREAS, Thomas G. Stubler and Beth B. Stubler, husband and wife, executed and delivered unto The Keeton Group, LLC, that certain Oil and Gas Lease (the " Lease" ) dated May 3, 2005 . . . covering 880.95 acres, more or less . . . .
. . .
WHEREAS, the Lease contains an extension provision whereby the Lessees may extend the primary term thereof for five (5) additional years, and
WHEREAS, the Lessees have exercised the extension option as granted in the Lease, and have timely paid the additional consideration as set forth executing and filing this instrument of record in order to provide notice to third parties of the extension of the primary term of the Lease . . . .

Def.'s Br. Supp. 6-7, Mar. 7, 2014, ECF No. 7.

As referenced in the Notice of Extension, on March 17, 2010, more than seven weeks before the deadline for extending the term of the Lease, Defendant sent a letter to the Stublers, (i) stating that they were extending the term of the Lease for an additional five years, and (ii) enclosing a check in the amount of $1,761.90 (880.95 acres x $2.00 per acre) for the Extension Payment. See Def.'s Br. Supp, Ex. 2. On or about September 21, 2010, Defendant re-issued the Extension Payment to Timbervest.

On July 23, 2010, Defendant recorded a Declaration of Pooling and Unitization Agreement that pooled the interests of a group of oil and gas leases, including the Lease at issue, into a drilling unit titled the " Flook Unit." On or before July 2011, Defendant EXCO began producing natural gas from the Flook Unit. In July and October 2011, EXCO and Enerplus began mailing royalty checks to Timbervest for production of gas from the Flook Unit. EXCO continues to operate a well for the production of gas from the Flook Unit.

In June 2013, Timbervest conveyed the High Farm Tract to Plaintiff Danko Holdings, L.P. (" Plaintiff" ). On January 13, 2014, Plaintiff commenced the above-captioned action in the Court of Common Pleas of Lycoming County, Pennsylvania. Defendants removed the case to Federal Court on February 14, 2014.[3] As previously articulated, the Plaintiffs assert the lease expired by its own terms and seek a declaratory judgment to that effect, along with pendant claims of ejectment, trespass, and conversion, due to the Defendants' continued operation on the land. The Defendants assert they extended the Lease by making the proper rental payments according to the plain language of the Lease, and that Plaintiff's Complaint should be dismissed. Consequently, Defendant filed the pending Motion to Dismiss.

II. DISCUSSION

A. Legal Standards

1. Motion to Dismiss

" To survive a motion to dismiss, a complaint must contain sufficient ...


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