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Cardinale v. R.E. Gas Development, LLC

Superior Court of Pennsylvania

January 17, 2017

LUCINDA A. CARDINALE AND IOLA HUGNEY, ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL THOSE SIMILARLY SITUATED
v.
R.E. GAS DEVELOPMENT, LLC, AND REX ENERGY CORPORATION APPEAL OF: IOLA HUGNEY, ROBERT L. HENRY AND ELAINE M. HENRY MARY R. BILLOTTE, ON BEHALF OF HERSELF AND ON BEHALF OF ALL THOSE SIMILARLY SITUATED
v.
R.E. GAS DEVELOPMENT, LLC, AND REX ENERGY CORPORATION APPEAL OF: IOLA HUGNEY, ROBERT L. HENRY AND ELAINE M. HENRY

         Appeal from the Order July 6, 2015 In the Court of Common Pleas of Clearfield County Civil Division at No(s): 2011-1791-CD, 2012-1099-CD

          BEFORE: SHOGAN, OLSON and STRASSBURGER, [*] JJ.

          OPINION

          OLSON, J.

         Appellants, Iola Hugney, Robert L. Henry, and Elaine M. Henry, appeal from the orders entered on July 6, 2015, denying the Motions for Class Certification that were filed on behalf of "Lucinda A. Cardinale and Iola Hugney, on behalf of themselves and on behalf of all those similarly situated," and "Mary R. Billotte, on behalf of herself and on behalf of all those similarly situated." After careful consideration, we vacate and remand.

         On October 25, 2011, Lucinda A. Cardinale ("Cardinale") and Iola Hugney ("Hugney") filed a class action complaint against R.E. Gas Development, LLC ("R.E. Gas") and Rex Energy Corporation ("Rex Energy") (hereinafter, collectively, "the Defendants"),[1] on behalf of themselves and on behalf of all those similarly situated. Cardinale and Hugney Complaint, 10/25/11, at 1-17. The complaint was docketed at 2011-1791-CD and, within their complaint, Cardinale and Hugney claimed that, in 2008, the Defendants entered into Marcellus Shale oil and gas leases with a number of individuals in Pennsylvania, including Cardinale and Hugney. Id. at ¶¶ 10-11. According to the complaint:

          Rex Energy is an independent oil and gas company that operates in the Appalachian Basin where it produced approximately 2.8 Million Mcf of natural gas per day in 2008. . . . Rex Energy used its wholly owned subsidiary[,] R.E. Gas[,] to obtain oil and gas leases in Clearfield County and elsewhere in Pennsylvania.

In 2008[,] R.E. Gas delivered ... to each plaintiff and each class member the standard form Oil and Gas Lease and the standard form memorandum of lease into which all of the required information, such as the lessors' identities and property identifications had been inserted. Each of the standard form Oil and Gas Leases was identical or substantially identical in all material respects except for references to the identity of the lessor, the description of the leased premises and the amount of the prepaid rental or bonus that was to be paid. The amount of the prepaid rental or bonus depended upon the number of acres that were included in the standard form Oil and Gas Lease.

Id. at ¶¶ 7, 9, and 15.

         Cardinale and Hugney claimed that they signed the Oil and Gas Lease, an Addendum, an Order for Payment, and a Memorandum of Oil and Gas Lease, and then delivered the executed documents either to R.E. Gas or to R.E. Gas' agent and landman, Western Land Services, Inc. Id. at ¶¶ 12-13, 16 and 18. R.E. Gas then "executed and accepted" the documents from Cardinale on July 23, 2008 and from Hugney on August 6, 2008. Id. at ¶¶ 17 and 19. Cardinale and Hugney claimed:

Under the terms of [] Cardinale's Oil and Gas Lease, R.E. Gas had to pay [] Cardinale $105,875.00 within [60] banking days of its receipt of [] Cardinale's order for payment and executed oil and gas lease, which occurred on or shortly after July 23, 2008. R.E. Gas's obligation to pay was subject only "to its inspection, approval of the surface, geology and title" of the leased premises.
Under the terms of [] Hugney's Oil and Gas Lease, R.E. Gas had to pay [] Hugney $71,925.00 within [60] banking days of its receipt of [] Hugney's order for payment and executed oil and gas lease, which occurred on or shortly after August 6, 2008. R.E. Gas's obligation to pay was subject only "to its inspection, approval of the surface, geology and title" of the leased premises.

Id. at ¶¶ 25-26 (paragraph numbering omitted).

         According to the complaint, after the 60-day time period expired, the Defendants "den[ied] that any contract or lease interest exist[ed] between [the Defendants and Cardinale, Hugney,] or those similarly situated to [Cardinale and Hugney]" and the Defendants failed to pay the bonuses or rents due to the landowners. Id. at ¶¶ 28-29. Further, the Cardinale and Hugney Complaint claimed that the Defendants denied the leases either without having inspected the landowners' properties or without having inspected the land within the requisite "60 banking days" after R.E. Gas received the leases and orders for payment. Id. at ¶¶ 30-33. Finally, the complaint claimed that the Defendants "denied that any contract or lease with class members existed not because of any purported right to inspect and approve the surface, geology or title, but for other reasons, including but not limited to [Defendants' decision to reduce capital expenditures in late 2008" due to the economic downturn. Id. at ¶ 43(e).

         The Cardinale and Hugney Complaint contained three counts: breach of contract against R.E. Gas; tortious interference with contract against Rex Energy; and civil conspiracy against both Defendants. Moreover, Cardinale and Hugney sought to represent the following class in the lawsuit:

All persons who signed an oil and gas lease in 2008 with R.E. Gas Development, LLC, related to property located in Clearfield County, Pennsylvania, or elsewhere in Pennsylvania for which Western Land Services, Inc., acted as agent for or represented R.E. Gas Development, LLC, and for which R.E. Gas Development, LLC, did not pay amounts specified by the oil and gas leases or orders for payment, including the applicable pre-paid rental or "bonus" payments.

Id. at ¶ 41.

         The following contractual documents were attached to the Cardinale and Hugney Complaint: the Oil and Gas Lease, an Addendum, a Memorandum of Oil and Gas Lease, and an Order for Payment. In relevant part, the Oil and Gas Lease between Hugney and R.E. Gas reads as follows:[2]

         OIL AND GAS LEASE (PAID UP)

Project: Skywalker III
THIS AGREEMENT is made as of the 6th day of AUGUST, 2008, by and between Iola Hugney ... as Lessor, and R.E. Gas Development, LLC, ... as Lessee.
1. Lessor, for and in consideration of One Dollar ($1.00), and other good and valuable consideration, the receipt of which is hereby acknowledged, and the covenants and agreements of the Lessee hereinafter contained, does hereby grant, lease and let unto Lessee the land described below, including all interests therein Lessor may acquire by operation of law, reversion or otherwise, (herein called the "Leasehold Estate"), exclusively, for the purposes of exploring by geophysical and other methods, drilling, operating for and producing oil and/or gas from any strata and any depth . . . together with all rights, privileges and easements . . . useful or convenient in connection with the foregoing and in connection with treating, storing, caring for, transporting and removing oil and/or gas produced from the Leasehold Estate. . . .
2. It is agreed that this lease shall remain in force for a primary term of five (5) years from the date of this lease, and as long thereafter as operations are conducted upon the Leasehold Estate or on lands pooled or unitized therewith with no cessation for more than 90 consecutive days. . . .
3. Within sixty (60) days from the date of execution of this lease, Lessee agrees to pay to the Lessor the sum of r$71,925.001 as full and complete bonus payment for this lease for the entire primary term of this lease. This is a paid-up lease and no delay rentals shall be due. The bonus paid hereunder is consideration for this lease and shall not be allocated as mere rental for a period.
4. Lessee covenants and agrees to pay the following royalties: [stating the computation of royalties]. . . .
Iola Hugney
This instrument was prepared by Timothy J. Kotzman, agent for R.E. Gas Development LLC. . .
Oil and Gas Lease between Hugney and R.E. Gas, 8/6/08, at 1-4.

         The Memorandum of Oil and Gas Lease between Hugney and R.E. Gas reads, in relevant part, as follows:

         MEMORANDUM OF OIL AND GAS LEASE

Project: Skvwalker III
THIS MEMORANDUM OF LEASE, dated this 6th day of August, 2008, by and between Iola Hugney . . . hereinafter called Lessor . . . and R.E. Development LLC . . . hereinafter referred to as "LESSEE". . . .

         WITNESSETH:

1. For and in consideration of Ten Dollars ($10.00) and other good and valuable consideration paid and to be paid by Lessee to Lessor and in further consideration of the rents reserved and the covenants and conditions more particularly set forth in a certain lease between Lessor and Lessor dated August 6, 2008, (hereinafter referred to as the "Lease") does hereby lease and let exclusively unto Lessee the following described premises: [describing the leased premises]. . . .
Containing a total of 28.77 acres, more or less, (hereinafter referred to as the "Premises") for the purpose of exploring for ..., drilling, operating, producing and removing oil, and gas and all the constituents thereof.....
2. TO HAVE AND TO HOLD the Premises for a Primary Term of five (5) years from August 6, 2008 and for as long thereafter as prescribed payments are made, or for as long thereafter as operations are conducted on the Premises in search of oil, gas or their constituents. . . .
3. The rental, covenants, provisions and conditions of the within Memorandum of Lease shall be the same as the rental, covenants, provisions and conditions set forth in the Lease to which rental, covenants, provisions and conditions referenced in hereby made and the same are hereby incorporated by reference as though fully written herein.
4. This memorandum of Lease is executed in simplified short form for the convenience of the parties and for the purpose of recording the same, and this Memorandum of Lease shall not have the effect of in any way modifying, supplementing or abridging the Lease or any of its provisions as the same or now or may hereafter be in force and effect.
Iola Hugney
This instrument was prepared by Timothy J. Kotzman, agent for R.E. Development LLC. . . .

         Memorandum of Oil and Gas Lease between Hugney and R.E. Gas, 8/6/08, at 1-2.

         The Order for Payment then declares:

         ORDER FOR PAYMENT

Lessee shall, subject to its inspection, approval of the surface, geology and title, make payment to Lessor as indicated herein by check within 60 banking days of Lessee's receipt of this Order For Payment and the executed Oil and Gas Lease associated herewith. No default shall be declared for failure to make payment until 20 days after written notice from Lessor of intention to declare such default. . . .
For collection, the original copy herein must be submitted directly to Lessee at the address below along with an ...

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