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SLT Holdings, LLC v. Mitch-Well Energy, Inc.

Superior Court of Pennsylvania

August 23, 2019

SLT HOLDINGS, LLC, JACK E. MCLAUGHLIN AND ZUREYA MCLAUGHLIN, Appellees
v.
MITCH-WELL ENERGY, INC. AND WILLIAM E. MITCHELL, JR., AN INDIVIDUAL, Appellants

          Appeal from the Order Entered March 13, 2018 In the Court of Common Pleas of Warren County Civil Division at No(s): A.D. 626 of 2013

          BEFORE: BENDER, P.J.E., DUBOW, J., and FORD ELLIOTT, P.J.E.

          OPINION

          BENDER, P.J.E.

         Mitch-Well Energy, Inc. ("Mitch-Well") and William E. Mitchell, Jr. ("Mr. Mitchell"), an individual, (collectively "Appellants"), appeal from the March 13, 2018 order dismissing without prejudice count VI of the amended complaint in equity filed by SLT Holdings, LLC ("SLT"), Jack E. McLaughlin and Zureya McLaughlin ("the McLaughlins") (collectively "Appellees").[1] After careful review, we affirm.

         The trial court summarized the factual background of this case as follows:

This action concerns certain leases granting oil, gas, and mineral (OGM) rights for two parcels. Both parcels are in Warren County. The parties have referred to the parcels according to how they are identified for tax/recording purposes. The one parcel is within Warrant 3010 and the other is within Lot 769. [SLT] came to own the OGM rights for Warrant 3010, which it leased to a company that subsequently assigned the lease to [Mitch-Well]. [See SLT Lease, 5/30/85.] [The McLaughlins] came to own the OGM rights for Lot 769, which they leased to a company that subsequently assigned the lease to Mitch-Well. [See McLaughlin Lease, 5/30/85.][2] Neither of the above-described leases were recorded[, ] but appropriate memoranda concerning those leases were recorded, as were the assignments to Mitch-Well.
The leases are similar in that they both contain provisions requiring Mitch-Well to drill a certain number of wells on the two parcels … and to make specified minimum payments to lessors/[Appellees] each year if the royalties do not exceed said minimum payments…. Beginning around 1996 and ending around 2013, the wells on Warrant 3010 and Lot 769 operated by Mitch-Well did not produce OGM in marketable quantities. Thus[, ] Mitch-Well made no royalty payments to [Appellees] during this time. Mitch-Well also failed to make minimum payments as required under both leases. For approximately sixteen years, Mitch-Well violated the leases by failing to either pay royalties in excess of the minimum annual payments or to make said minimum payments. Although Mitch-Well did visit the wells in question during this period, it did so to ensure that the wells remained safe and in compliance with applicable law. Mitch-Well did not attempt to achieve marketable levels of OGM production between 1996 and 2013. It appears that the prevailing OGM prices hindered production in that it was not economical for Mitch-Well at that time.
In 2013, storage tanks connected to the wells on Warrant 3010 and Lot 769 had collected enough fluid to cause Mr. Mitchell to have them emptied[, ] and their contents were transferred to two storage tanks located on a parcel referred to in this litigation as "Mitchell Farm[."] Mitchell Farm is owned by the Mitchell family. One of the storage tanks on Mitchell Farm was connected to one of three wells on Mitchell Farm. These three wells are owned by Mr. Mitchell[, ] individually[, ] and not by Mitch-Well. Mr. Mitchell allowed the fluid to settle in the two tanks on the farm so that the brine separated from the oil. Mr. Mitchell had an agreement with a company called Ergon, which then came and collected the oil and marketed it. Ergon remitted payment for the entirety of the gross production to Mr. Mitchell. Mr. Mitchell attempted to distribute the royalties to [Appellees] out of Mr. Mitchell's personal account. This attempt at payment was apparently not deposited. Mitch-Well did not have a bank account at the time[, ] although it does now. Mitch-Well "probably" went five years without a bank account.
[Mr. Mitchell] is currently the sole owner, shareholder, officer, and employee of Mitch-Well….
There is a controversy surrounding an unnumbered subparagraph under ¶17 of both leases. The language in each of the leases is identical. The subparagraph provides for the retention of certain land by lessee/Mitch-Well even after termination of the lease. However, there is limiting language in the subparagraph. The subparagraph states that if Mitch-Well fails to meet its drilling obligations then the lease is terminated, but Mitch-Well shall retain 20 acres surrounding each well it drilled that is capable of producing oil and/or gas. This matter is further complicated by certain identical amendments to both leases. These amendments reduced the retained acreage from the 20 acres referenced above to only 5 acres. The enforceability of the amendments is disputed by [Appellants]. The amendments were signed by [Mitch-Well's] predecessor in interest rather than [Mitch-Well or Mr. Mitchell], and neither of the amendments was recorded nor was a memorandum recorded as with the leases themselves.
[Appellees] argue that because Mitch-Well has defaulted on the lease[s], the lease[s] ha[ve] terminated[, ] or else [they have] been abandoned. [Appellants] argue[] that the leases do not allow for a finding of termination. [Appellants] rely on certain identical provisions in the two leases. Paragraph 2 of each lease purports to govern the length of the term of the lease. This paragraph provides in relevant part that each lease will continue in effect for so long as the lessee (Mitch-Well) determines that OGM can be produced in paying quantities. Thus, Mitch-Well has the exclusive power to end the term of the lease. Paragraph 12 of each lease is also identical[, ] and it governs default and remedies. Termination of each lease is the exclusive remedy for default, but [Appellees] must comply with certain prerequisites. [Appellees] must give written notice to Mitch-Well describing the default. Mitch-Well has thirty days from receipt of the notice to cure said default. If a court subsequently determines that the default has not been cured, then the lease is terminated under its own provisions.

         Trial Court Opinion ("TCO"), 1/9/18, at 1-5 (citations to record omitted).

         Appellees commenced this action on November 19, 2013, with the filing of a complaint in equity against Appellants, seeking injunctive relief (Count I), a declaratory judgment (Count II), an accounting (Count III), ejectment (Count IV), conversion (Count V), and tortious interference with contract (Count VI).[3] On that same date, Appellees filed a petition for a preliminary injunction against Appellants, which was subsequently granted by the trial court on January 24, 2014. The preliminary injunction enjoined Appellants from physically entering upon Warrant 3010 and Lot 769, and from removing, selling, transferring or otherwise disposing of any material from either property, "including fixtures, whether oil, gas, or mineral." Trial Court Order, 2/14/14.[4]

         On July 26, 2017, Appellees filed a motion for partial summary judgment relating to counts I, II, and V, which was granted by the trial court on January 8, 2018, after hearing argument thereon. A jury trial was scheduled on the remaining counts III, IV, and VI; however, the trial court subsequently granted without prejudice Appellees' motions for voluntary dismissal regarding these counts. On April 12, 2018, Appellants filed a timely notice of appeal. No order was issued by the trial court directing the filing of a Pa.R.A.P. 1925(b) statement of errors complained of on appeal. Appellants now present the following issues for our review, which we have renumbered for ease of disposition:

1. Did the trial court err in granting summary judgment in favor of [Appellees] and against [Appellants] on its claim for declaratory judgment?
2. Did the trial court err in granting summary judgment in favor of [Appellees] and against [Appellants] on its claim for permanent injunction?
3. Did the trial court err in granting summary judgment in favor of [Appellees] and against [Appellants] on its claim for conversion?
4. Did the trial court err in granting voluntary dismissal without prejudice and without hearing on [Appellees'] claim for accounting, ejectment, and tortious interference with contract?

         Appellants' Brief at 5 (unnecessary capitalization omitted).

         Our standard of review with respect to a trial court's decision to grant or deny a motion for summary judgment is well-settled:

A reviewing court may disturb the order of the trial court only where it is established that the court committed an error of law or abused its discretion. As with all questions of law, our review is plenary.
In evaluating the trial court's decision to enter summary judgment, we focus on the legal standard articulated in the summary judgment rule. Pa.R.C.P. 1035.2. The rule states that where there is no genuine issue of material fact and the moving party is entitled to relief as a matter of law, summary judgment may be entered. Where the non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment. Failure of a non-moving party to adduce sufficient evidence on an issue essential to his case and on which it bears the burden of proof establishes the entitlement of the moving party to judgment as a matter of law. Lastly, we will ...

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