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Pollock v. Energy Corporation of America

United States District Court, W.D. Pennsylvania

February 23, 2015

DAVID F. POLLOCK, as executor of the estate of Margaret F. Pollock, JOHN T. DIBIASE, JR., JOHN S. FRAYTE, STUART W. WHIPKEY, PATRICIA L. CHRISTOPHER, LOUIS A. VECCHIO and BESSIE P. VECCHIO, BARBARA A. MORRIS; GENE M. VIRGILI and ERIN R. VIRGILI, and LLOYD R. SHAFFER, III, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
ENERGY CORPORATION OF AMERICA, Defendant.

MEMORANDUM OPINION[1]

ROBERT C. MITCHELL, Magistrate Judge.

I. INTRODUCTION

Presently before the Court for disposition are the following motions:

(1) Defendant ECA's Omnibus Motion in Limine [ECF No. 176]; and
(2) Plaintiffs' Omnibus Motion in Limine [ECF No. 179].

The motions are fully briefed and ripe for disposition.

II. BACKGROUND

Because the factual background of this case has been discussed extensively in prior opinions issued by the Court, see Pollock v. Energy Corp. of America, 2013 WL 5338009 (W.D.Pa. Sept. 16, 2013) adopted by 2013 WL 5491736 (W.D.Pa. Sept. 30, 2013) (decision on class certification); Pollock v. Energy Corp. of America, 2012 WL 6929174 (W.D.Pa. Oct. 24, 2012) adopted by 2013 WL 275327 (W.D.Pa. Jan. 24, 2013) (decision on motion for summary judgment); Pollock v. Energy Corp. of America, 2011 WL 3667289 (W.D.Pa. June 27, 2011) adopted by 2011 WL 3667385 (W.D.Pa. Aug. 22, 2011) (decision on motion to dismiss), only the facts necessary for the disposition of the present motions will be recounted.

Generally, the named Plaintiffs are class representatives who entered into oil and gas leases with Defendant, Energy Corporation of America, ("ECA"), a company engaged in the production of oil and gas. Plaintiffs claim that ECA underpaid royalties in various ways including deducting interstate transportation charges and marketing charges from Plaintiffs' royalties when such charges were not incurred by ECA or incurred after the gas was sold by ECA The Court certified two subclasses with respect to Plaintiffs' claims:

All lessors on an oil and gas lease with Energy Corporation of America or Eastern American Energy Corporation that conveys oil and gas rights to real property in Pennsylvania, and
(1) the lessee deducted charges for interstate pipeline services between November 22, 2006 and March 26, 2012 (subclass one) and/or
(2) the lessee deducted marketing fees from the royalties between November 22, 2006 and March 26, 2012 (subclass two).

Order of 9/30/2013 [ECF No. 145]. While the Plaintiffs' lease provisions are not identical, the leases all generally provide that the Plaintiffs are entitled to a royalty of one-eighth of the net proceeds received from the sale of gas.

The Court has previously granted Plaintiffs' summary judgment for interstate transportation charge deductions that were incurred after ECA transferred title of the gas to third party purchasers at the five points where the gas is received into the interstate pipeline system. Rep. and Rec. [ECF No. 92] at 29, adopted by Memo. Order [ECF No. 103]. The Court found:

[T]he proper inquiry is the point at which the gas is sold, and not... whether ECA actually incurred the interstate pipeline transportation costs. On this point, it is undisputed EMCO buys the gas from ECA. It is also undisputed that, under the terms of the Gas Purchase/Sales Contract, ECA retains title to the gas until it passes to third party purchasers at the five points where the gas is received into the interstate system. Thus the gas is "sold" at these points and ECA cannot recover costs incurred thereafter.

Ibid. The Court found that "the significant event concerning the ownership of the gas is the point at which title passes" and ECA is entitled to show at trial that it incurred the transportation expenses while it held title to the gas. ECF No. 103 at 5-6.

With respect to the marketing charges deducted from Plaintiffs' royalties, the Court has previously addressed the issue of whether the Pennsylvania Supreme Court's decision in Kilmer v. Elexco Land Servs., 990 A.2d 1147 (Pa. 2010) allows marketing cost deductions from royalties and which entity, ECA or its marketing subsidiary, EMCO, actually incurred the marketing costs. See Rep. and Rec. [ECF No. 92] at 18, adopted by Memo. Order [ECF No. 103]. It was previously explained that Kilmer defined a "royalty" in the natural gas industry as the "landowner's share of production, free of expenses of production." Ibid. (citations omitted). Expenses from production include those "costs incurred in drilling wells and bringing the product to the surface, but exclude the post-production costs of transporting the oil/gas from the wellhead to the point of sale. " Ibid. (citing Kilmer, 990 A.2d at 1157) (emphasis added). The Court found that under Kilmer, post-production costs properly deducted from royalties include marketing costs and transportation charges. Ibid.

The Court ultimately denied ECA's motion for summary judgment on the question of whether it was proper for ECA to deduct marketing costs as a post-production cost from the Plaintiffs' royalties and found that the nature of the transactions governed by the contract between ECA and EMCO is ambiguous because while the Gas Purchase/Sales Contract described EMCO as the buyer of the gas, it also provides that EMCO never holds title to the gas. Ibid. at 23. Additionally, the Court found that a dispute existed as to "whether the post-formation behavior of the parties constituted an oral modification of the contract." Ibid.

Therefore, to prevail on their claims, Plaintiffs must prove that ECA deducted from the Plaintiffs' royalties marketing and interstate transportation charges after title ...


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