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McWreath v. Range Res. - Appalachia, LLC

United States District Court, W.D. Pennsylvania

January 26, 2015

DARLENE R. McWREATH, ROBERT C. McBRIDE, KAREN LUNDIN and DEBORAH L. McWREATH, Plaintiffs,
v.
RANGE RESOURCES -- APPALACHIA, LLC, Defendant

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For DARLENE R. MCWREATH, ROBERT C. MCBRIDE, KAREN LUNDIN, and, DEBORAH L. MCWREATH, Plaintiffs: David C. Hook, LEAD ATTORNEY, Hook and Hook, Waynesburg, PA.

For RANGE RESOURCES - APPALACHIA, LLC, Defendant: Justin H. Werner, LEAD ATTORNEY, Reed Smith LLP, Pittsburgh, PA; Kevin C. Abbott, Nicolle R. Snyder Bagnell, LEAD ATTORNEYS, Reed Smith, Pittsburgh, PA.

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MEMORANDUM OPINION

Nora Barry Fischer, United States District Judge.

I. INTRODUCTION

This case involves disputes surrounding Plaintiffs Darlene McWreath, Robert McBride, Karen Lundin and Deborah McWreath's (" Plaintiffs" ) ownership of a percentage of subsurface oil and gas rights underlying real property located in Washington County, Pennsylvania and certain agreements they have with Defendant Range Resources Appalachia, LLC (" Range" ). (Docket No. 1). Plaintiffs initially brought claims of conversion, trespass and accounting against Range but have now conceded their conversion and trespass claims, leaving only an accounting claim in this action. ( See Docket No. 37). Presently before the Court are cross motions for summary judgment filed by the parties arguing the sufficiency of the remaining accounting claim. (Docket Nos. 28, 31). After careful consideration of all of the parties' arguments and the transcript of the July 11, 2014 oral argument, (Docket No. 41), and for the following reasons, Range's Motion for Summary Judgment [28] is granted and Plaintiffs' Motion for Summary Judgment [31] is denied.

II. FACTUAL BACKGROUND

Plaintiffs own an undivided partial interest in the oil and gas underlying approximately 1,700.485 acres of real property in Washington County, Pennsylvania. (Docket Nos. 30 at ¶ ¶ 1-2; 33 at ¶ 1). They inherited said subsurface rights as the heirs of the Estate of David R. McWreath, their father (" the Estate" ). (Docket Nos. 30 at ¶ ¶ 6-7; 33 at ¶ 1). Plaintiffs own a thirty-three percent (33%) interest in the oil and gas in 1,332.485 acres of the property and a sixty-six percent (66%) interest in the oil and gas in the remaining 368

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acres of the property. (Docket No. 30 at ¶ 10; 28-2 at ¶ 7). Plaintiffs admit that they have no ownership interests in the surface rights in the real property and have never even attempted to enter the surface of the property. (Docket Nos. 30 at ¶ ¶ 3-4; 37 at ¶ 1; 28-8, Dar. McWreath Depo at 10; 28-9 McBride Depo at 7-8; 28-10, Lundin Depo at 11-14; 28-11, Deb. McWreath Depo at 7-8). Further, during all of the relevant events in question, the surface and subsurface estates have been severed. ( See Docket No. 30 at ¶ ¶ 2-4).

On September 20, 2007, the Estate entered into an " Oil and Gas Lease, Non-Surface Development" with Fortuna Energy, Inc., whereby the Estate granted Fortuna exclusive rights to explore, develop and produce the Estate's interests in the subsurface oil, gas and constituents thereof. (Docket No. 28-2 at 1, ¶ 5). Specifically,

Lessor hereby grants and leases exclusively to Lessee all oil and gas and their constituents, whether hydrocarbon or non-hydrocarbon, underlying the Leasehold, together with such exclusive rights as may be necessary or convenient for Lessee, at its election, to explore for, develop, produce, measure and market production from the Leasehold, using methods and techniques which are not restricted to current technology, including the exclusive right to conduct geophysical and other exploratory tests. For the purposes of this Lease, the term " gas" includes, but is not limited to, helium, carbon dioxide, gaseous sulfur compounds, methane produced from coal formations and other commercial gases, as well as normal hydrocarbon gases including casinghead gas and all other gaseous substances.

( Id. at ¶ 1). In ¶ 2, the Lease defines the term " Leasehold" as the denoted lands located in the Towns of Hanover and Jefferson, in Washington County, sets forth the boundaries of the property and is " described for the purposes of this Lease as containing 1700.485 acres, more or less, including all contiguous, appurtenant, submerged or riparian lands owned or hereinafter owned by Lessor." ( Id. at ¶ 2). In exchange, Fortuna agreed to pay the Estate an annual rental fee of $5.00 per mineral acre until the oil and gas are produced, at which time the Estate is entitled to royalty payments:

in an amount equal to the current market value at the wellhead as and when produced of one-eighth (1/8th) of all oil, gas and the constituents thereof produced, saved, marketed and sold from the Leasehold. In no event shall the current market value be deemed to be in excess of the value actually received by the Lessee pursuant to a bona fide, arm's length sale or transaction. Lessee may withhold Royalty payments until such time as the total withheld exceeds twenty-five ($25.00) dollars.[1]

( Id.). The term of the lease is set forth as five years and continuing thereafter as long as any of a number of contingencies occurs including, among other things, if " a well capable of producing oil and/or gas is located on lands pooled, unitized or combined with all or a portion of the Leasehold." (Docket No. 28-2 at ¶ 3). The lessee was granted unrestricted rights to " pool or unitize all or any portion of the Leasehold with any other land or lands,

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whether contiguous or not contiguous, at any time before or after the drilling of a well so as to create one (1) or more drilling or production units." ( Id. at ¶ 12). The disputed portion of the Lease provides that:

4. Non-Development Lease
Lessor and Lessee acknowledge and agree that Lessee is not granted any right whatsoever: (i) to drill a well on any portion of the surface of the Leasehold; or (ii) install, construct or locate access roads or pipelines on any portion of the surface of the Leasehold. Accordingly, any lands that have been pooled, unitized or combined with all or a portion of the Leasehold in accordance with the terms of this Lease shall bear the burden of all surface development. Lessor does, however, acknowledge and provide its consent to the possibility that a wellbore may pass through or terminate below the surface of the Leasehold as a result of slant or directional drilling operations originating from a surface entry on lands nearby or adjacent to the Leasehold.

(Docket No. 28-2 at ¶ 4). Another provision, Lease Development, states that " [t]here is no express or implied covenant to develop the Leasehold within a certain timeframe, and there shall be no Lease forfeiture for an implied covenant to produce. The terms and conditions of this Lease constitute full compensation for the privileges granted by this Lease." ( Id. at ¶ 14). The Notice provision provides that:

In the event Lessor considers that Lessee has not complied with any of its obligations under this Lease, Lessor shall notify Lessee in writing at the address set forth above, via certified United States mail, setting out specifically in what respects Lessor considers Lessee has breached this Lease (the " Notice" ). Lessee shall then have sixty (60) days after receipt of the Notice within which to either: (i) meet or commence to meet all or any part of the breach or breaches alleged by Lessor, or (ii) provide an answer to Lessor outlining the reasons why, in its reasonable opinion, the breach or breaches alleged by Lessor have not occurred. Neither service of the Notice nor the doing of any act by Lessee aimed at meeting all or any part of the alleged breach or breaches as set forth in the Notice shall be deemed an admission or presumption that Lessee failed to perform any of its obligations under this Lease. Service of the Notice shall be precedent to the bringing of any action by Lessor on this Lease for any cause, and Lessor shall bring no such action until the lapse of sixty (60) days after service of the Notice on Lessee. In the event a matter is litigated and there is a final judicial determination that a breach or default occurred, this Lease shall not be forfeited or cancelled in whole or in part unless Lessee is given a reasonable time after such final judicial determination to remedy the breach or default and Lessee fails to do so. Notwithstanding anything to the contrary contained in this Lease, this Lease shall not terminate or be subject to forfeiture or cancellation if there is located on lands pooled, unitized, or combined with all or a portion of the Leasehold, a well capable of producing oil and/or gas, or on which Operations are being conducted and, in that event, Lessor's sole remedy for any default under this Lease shall be damages.

( Id. at ¶ 11).

The Lease was prepared on a " New York Oil and Gas Lease" form as clearly indicated on the bottom of each page. (Docket No. 28-2). Neither party took any discovery to determine the origin of the lease form. Further, despite this indication,

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there is no choice of law clause or designation of New York law as applying to interpret or construe the terms and conditions therein. ( Id.). Only three standard provisions bear on interpretation/construction of the Lease: 17. " Entire Agreement" ; 20. " Headings" ; and 21. " Severability" . ( Id. at ¶ ¶ 17, 20, 21). Relevant here, the Headings provision states that " [t]he headings contained in this Lease are inserted for convenience of reference only and shall not affect the interpretation or construction of any provision herein." ( Id. at ¶ 20).

Two of the Plaintiffs, Darlene McWreath and Robert McBride, executed the lease on behalf of the Estate in their roles as executor and executrix of the Estate. (Docket Nos. 28-2 at 6). The parties agree that Fortuna Energy subsequently assigned its rights in the lease to Range and that the Plaintiffs inherited the Estate's rights in the lease. (Docket Nos. 28 at ¶ 2; 37 at ¶ 2). The record is undisputed that Range has made payments to the McWreaths under the Lease, although the McWreaths may not have cashed the checks sent to them. (Docket No. 49 at 12). It is also uncontested that the McWreaths have not served the required Notice on Range outlining any defects in Range's performance of its obligations under the Lease and have consistently stated throughout this litigation that they are not presently suing Range for breach of contract. ( See Docket Nos. 32, 37, 40, 42).

In 2011, Range presented each of the Plaintiffs with identical surface consent agreements authorizing Range to drill wells on the surface of the real property located directly above their interests in the subsurface oil and gas estate. (Docket Nos. 28-4:28-7). The relevant portions of these identical agreements state that:

WHEREAS, the undersigned is the owner of property subject to that certain oil and gas lease executed by Estate of David R. McWreath, Executors: Darlene R. McWreath and Robert C. McBride... to Fortuna Energy Inc., dated September 20, 2007 and recorded in instrument #200814687 of the Deeds Records of Washington County, Commonwealth of Pennsylvania; and;
WHEREAS, it is the intent of the undersigned to evidence the approval to RANGE RESOURCES-APPALACHIA, LLC of the well site(s), associated production equipment, access road(s), and pipeline(s) to be utilized by RANGE RESOURCES-APPALACHIA, LLC in conducting operations under the above referenced lease, and;
WHEREAS, the aforesaid location(s) shown on the Well Location Plat(s) of McWreath Units #1H, #2H, #3H, #4H, #5H, #6H, #7H, #8H, #9H, #10H, #11H, #12H, #13H, #14H, #15H, and #16H well(s) attached hereto as " EXHIBIT A" .
NOW THEREFORE, In consideration of the payment of One ($1.00) Dollar and in consideration of the premises set forth herein, the undersigned parties to hereby consent to ratify and approve the location of the well site(s) associated production equipment, access road(s) and pipeline(s), as indicated on the plat attached as Exhibit A.

(Docket Nos. 28-4:28-7). The Well Location Plats showing the location of each of the 16 proposed wells #1H through #16H on the surface of real property are attached to each of the agreements. ( Id.). Each of the plats identifies Starvaggi Industries as the surface owner of the land. ( Id.).

The parties agree that each of the Plaintiffs separately executed the Surface Consent agreements. (Docket Nos. 30 at ¶ ¶ 14; 33 at ¶ ¶ 4-5). However, Plaintiffs argue that they were misled or fraudulently

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induced by Range to enter into such agreements because: they did not understand the terms of the agreements; were unaware of the fact that the location of the wells was located directly above the subsurface rights they owned; and did not appreciate that the agreement purported to amend the earlier Lease. (Docket No. 33 at ¶ 6). Darlene McWreath testified that she signed the surface consent agreement at the behest of landman Kevin Mastrangelo[2] from Range because he advised that all of the interested property owners were signing such agreements and they needed to be executed prior to any production of oil and gas under the lease. (Docket No. 34 at 53-58). She also testified that she received the document in the mail and called Range. ( Id. at 53). Kevin then immediately drove to meet her at her office and arrived in a few minutes. ( Id.). Darlene McWreath admitted that she was not forced to sign the documents. ( Id.). She added that she told Kevin that she was not prepared to sign the agreement that day but " after chitchatting with him, I did. I did sign it. I didn't date it, I just signed it. After talking with him, he made me feel like, you know, it wasn't that big a deal and this is what we do." ( Id. at 20). Robert McBride also spoke to Kevin prior to signing the document and Kevin told him that the document was " just a formality" to allow Range to put some infrastructure on the surface of the property. ( Id. at 12). The other Plaintiffs explained that they signed at the behest of their siblings/Plaintiffs. ( Id. at 52).

On May 24, 2012, Range designated the location of wells on the surface of the property, naming them " McWreath Units #3H and #8H" and then recorded the location of the wells with the Recorder of Deeds of Washington County. (Docket No. 30 at ¶ 22). Range subsequently recorded an " Amended Designation of Unit - McWreath Unit 3H & 8H" with Washington County dated July 9, 2012. (Docket No. 34 at 34-45). Such document expressly refers to the McWreaths, and the attached plats identify the McWreaths as lessors and Starvaggi as the surface owner. ( Id.).

It is undisputed that separately from its interactions with Plaintiffs, Range entered into leases with all of the other partial mineral owners in the subsurface oil and gas and has now fully leased one-hundred percent (100%) of the oil and gas interests in the subject property.[3] (Docket No. 30 at ¶ ¶ 18- 19). Range also entered into a surface consent agreement with the surface owner of the property, Starvaggi, which provides that Range is permitted: entry onto the surface of the property; to drill wells on the surface of the property; and to use the surface of the property for other oil and gas operations. ( Id. at ¶ ¶ 20-21). Indeed, Starvaggi is both a cotenant in the oil and gas estate and the

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surface owner of the property. (Docket No. 49 at 26).

Subsequent to obtaining the aforementioned consent from all parties with interest in the subsurface and surface of the subject property, Range drilled and completed two horizontal Marcellus wells in the property that is subject to the Lease at McWreath Unit 3H and 8H wells. (Docket No. 28-3, Affidavit of Jeffrey P. Kramer at ¶ 15). The facts are likewise uncontested that " [w]ith the exception of the initial flow-back that is produced at the time Range completed the wells, neither well is currently producing oil and gas." ( Id. at ¶ 16). As noted, Range has sent checks to Plaintiffs to compensate them under the Lease although the checks may not have been cashed at this point given the ongoing litigation. (Docket No. 49 at 12-13).

Plaintiffs each testified that the relief they are seeking in this lawsuit is a higher royalty for their oil and gas rights than that set forth in the Lease they inherited, (i.e., 1/8th of production for their portion of the property or 12.5%). ( See Docket Nos. 28-8, Def. Ex. 7, Dar. McWreath Dep. at 6-7; 28-9, Def. Ex. 8, McBride Dep. at 5-6; 28-10, Def. Ex. 9, Lundin Dep. at 6; 28-11, Def. Ex. 10, Deb. McWreath Dep. at 5-6). They explained that they were aware that Range has entered into leases with higher royalty rates (up to eighteen and one half percent) and paid thousands of dollars in bonuses to other individuals in exchange for leases in the more recent past, in contrast to the lease the Estate entered into with Fortuna in 2007. (Docket Nos. 28-8, Def. Ex. 7, Dar. McWreath Dep. at 6-7; Docket Nos. 28-9, Def. Ex. 8, McBride Depo at 5-6).

III. PROCEDURAL HISTORY

Plaintiffs initiated this case by filing a Complaint against Range in Washington County and Range subsequently removed the case to this Court based upon diversity jurisdiction on April 18, 2013. (Docket No. 1). The Court established a deadline for the parties to amend pleadings and/or add parties to the litigation by July 15, 2013 and no such motions were filed. (Docket No. 9). After receiving an extension of time from the Court, the parties completed discovery by the Court's extended deadline of December 13, 2013 and requested that a summary judgment schedule be established.[4] (Docket Nos. 23, 24). The parties then jointly requested an extension of the summary judgment deadlines, which was granted by the Court. (Docket Nos. 26, 27).

Pursuant to this schedule, the parties filed cross motions for summary judgment, supporting briefs, concise statements of material facts and appendices on March 31, 2014. (Docket Nos. 28-34). Responses were later filed by both parties on April 30, 2014. (Docket Nos. 36-38). Replies followed ...


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