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Harrison v. Cabot Oil & Gas Corp.

Supreme Court of Pennsylvania

February 17, 2015

WAYNE HARRISON AND MARY HARRISON, Appellees
v.
CABOT OIL & GAS CORPORATION, Appellant

Submitted October 8, 2014

Appeal from the U.S. Court of Appeals, Third Circuit No. 12-3613, Granting Petition for Certification of Question of Law.

For PA Independent Oil & Gas Assoc; Marcellus Shale Coalition; Chief Oil & Gas; Southwestern Energy, AMICUS CURIAE: Kevin Jon Moody, Esq.

For United States Third Circuit Court of Appeals, PARTICIPANTS: Thomas I. Vanaskie, Esq., Marcia Mary Waldron, Esq.

For Cabot Oil & Gas Corp., APPELLANT: George A. Bibikos, Esq., David R. Fine, Esq., Amy L. Groff, Esq., K& L Gates, L.L.P.

For Wayne Harrison and Mary Harrison, APPELLEE: Charles Lyman Becker, Esq., Kline & Specter, P.C.

For Pauline Beck, Ronald J. Gulla, Margaret Henry, Rebecca Roter, Angela Smith & William Smith, APPELLEE AMICUS CURIAE: Charles McPhedran, Esq.

CASTILLE, CJ, SAYLOR, C.J., EAKIN, BAER, TODD, McCAFFERY, STEVENS, JJ. MR. CHIEF JUSTICE SAYLOR. Messrs. Justice Eakin and Baer, Madame Justice Todd and Mr. Justice Stevens join the opinion.

OPINION

Page 179

MR. CHIEF JUSTICE SAYLOR

We accepted certification from the United States Court of Appeals for the Third Circuit to address whether the primary term of an oil-and-gas lease should be equitably extended by the courts, where the lessor has pursued an unsuccessful lawsuit challenging the validity of the lease.

The Third Circuit has related the material, undisputed facts along the following lines. In August 2007, Appellee Wayne Harrison entered into a lease with Appellant Cabot Oil & Gas Corporation, per which Cabot obtained the exclusive right to explore oil-and-gas resources on Mr. Harrison's property. In exchange, the company agreed to pay an initial bonus plus a one-eighth royalty on oil or gas successfully produced from the land. The instrument carried a " primary term" of five years, but it also provided for an extended term " as long thereafter as oil or gas is produced . . . in paying quantities from the premises[.]" See generally T.W. Phillips Gas & Oil Co. v. Jedlicka, 615 Pa. 199, 42 A.3d 261 (2012) (discussing the " paying quantities" convention frequently utilized in oil-and-gas leases). Furthermore, Cabot was provided with an option to extend the primary term for an additional five years.

Approximately halfway through the primary lease term, Mr. Harrison and his wife commenced a civil action against Cabot in a federal district court, seeking a declaration that the lease was invalid. Via an amended complaint, the Harrisons centered the litigation upon their contention that the company had fraudulently induced Mr. Harrison to enter into the lease via an agent's representation that Mr. Harrison would never receive any more than $100 per acre as a threshold bonus payment from a gas producing company. The Harrisons asserted that they subsequently learned of other landowner-lessors receiving higher payments.

Cabot denied the material allegations of the complaint and lodged a counterclaim. In this pleading, the company sought a declaratory judgment that, in the event the

Page 180

Harrisons' suit failed, the primary term of the lease would be equitably tolled during the period of time during which the suit was pending, and, concomitantly, the lease would be extended for an equivalent period of time beyond what was provided by its actual terms. In support of this request, Cabot alleged that the cloud upon the lease created by the Harrisons' suit had prevented the company from " prudently tak[ing] any steps to develop or commence operations on [Harrison's] leasehold as allowed by the Lease." Petition for Certification of Question of ...


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