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Pflasterer v. Range Resources-Appalachia, LLC

United States District Court, W.D. Pennsylvania

September 6, 2019

THOMAS W. PFLASTERER and ROBIN M. PFLASTERER, as Co-Trustees of the THOMAS W. and ROBIN M. PFLASTERER FAMILY TRUST, Plaintiffs,
v.
RANGE RESOURCES-APPALACHIA, LLC, Defendant.

          MEMORANDUM OPINION

          SUSAN PARADISE BAXTER UNITED STATES DISTRICT JUDGE

         In this civil action, Plaintiffs Thomas W. Pflasterer and Robin M. Pflasterer (collectively, "Plaintiffs"), acting as Co-Trustees of the Pflasterer Family Trust (the "Trust"), seek an accounting and damages for alleged breach of an oil and gas lease held by the Defendant, Range Resources - Appalachia, LLC (hereafter, "Range" or "Range Resources").[1] Pending before the Court is Range Resources' partial motion to dismiss or, alternatively, stay certain of Plaintiffs' claims. For the reasons that follow, Range's motion will be granted in part and denied in part.

         I. BACKGROUND

         On May 29, 2009, Plaintiffs executed an oil and gas lease (the "Lease") in favor of Range Resources relative to a 284-acre parcel of land situated in Washington County, Pennsylvania (the "Property"). Amended Compl., ¶ 8, ECF No. 9; ECF No. 9-2. In 2012, Plaintiffs conveyed the Property and related mineral interests under the Lease to the Trust via quitclaim deeds. See Amended Comp., ¶¶12-13, ECF No. 9; see also ECF No. 9-3.

         Paragraph 27 of the Lease addendum set forth Range's obligations to develop the Property in accordance with a "reasonably prudent operator" standard. Amended Compl. ¶ l1; ECF No. 9-2 at 8, ¶27. By operation of a Lease modification entered into on August 15, 2010, Range Resources was permitted to include the Property in drilling units larger than 640 acres in size, provided that more than four (4) wells would be drilled. Amended Compl. ¶¶ 40-41; ECF No. 9-9. According to Plaintiffs, this modification ensured that the enlarged size of the drilling unit would not exceed a ratio of one well to every 160 acres. Amended Compl. ¶¶ 41-42; ECF No. 9-9.

         On March 2, 2011, Range Resources recorded its "Designation of Unit" establishing the McAdoo Drilling Unit ("McAdoo Unit"). Amended Compl. ¶¶19-20; ECF No. 9-5. The McAdoo Unit totals 640 acres and includes approximately 203 acres of the Plaintiffs' Property. Amended Compl. ¶20; ECF No. 9-5.[2] Range has drilled two wells on the McAdoo Unit, both of which were completed and went into production in the latter half of 2011. Amended Compl. ¶¶25-29.

         On March 26, 2013, Range Resources recorded its "Designation of Unit" establishing the Dorothy Green Drilling Unit ("Dorothy Green Unit"). Amended Compl. ¶¶30-31; ECF No. 9-8. This unit totals 488.3177 acres and includes approximately 41 acres of the Property. Id. Range has drilled three wells on the Dorothy Green Unit, all of which began producing hydrocarbons in 2013. Amended Compl. ¶¶32-36.

         The hydrocarbon streams that were collected at the well heads on the McAdoo and Dorothy Green Units were transported to a facility where the hydrocarbons underwent processing to produce natural gas liquids ("NGLs") and residue gas. Amended Compl. ¶¶ 77-78. Both types of products were then sold by Range and royalties were paid on the sales of each product. Amended Compl. ¶¶46, 76.

         By virtue of their lease agreement with Range Resources, Plaintiffs are members of a class of lessors who challenged Range's calculation of royalty payments in a civil class action styled Donald C. Frederick, et al. v. Range Re source s-Appalachia, LC, No. 1:08-cv-228 (W.D. Pa.). The underlying dispute in the Frederick litigation concerned the extent to which Range Resources could deduct certain post-production costs from the royalties it was paying to class members. As part of the settlement agreement in Frederick, the district court entered an order on March 17, 2011 (hereafter, the "Frederick Order") that amended the class members' lease agreements so as to impose caps on the amount of post-production costs that Range could deduct. Amended Compl. ¶¶14-15; ECF No. 9-4. In the case of royalties attributable to "Wet Shale Gas production," the Frederick Order capped deductions of post-production costs at an amount equal to the lessor's "pro rata royalty share of $0.80 per MMBTU."[3] ECF No. 9-4, ¶l(B)(1)(b)(i). In the case of royalties attributable to "Dry Shale Gas production," the deductions of post-production costs were capped at an amount equal to the lessor's "pro rata royalty share of $0.72 per MMBTU." Id. at ¶ l(B)(1)(b)(ii). Plaintiffs acknowledge that, because of their status as class members, the Frederick Order modified the payment terms of their own Lease with Range Resources. Amended Compl. ¶16.

         Based on the production codes set forth in the check stubs that Range transmitted with its royalty payments, Plaintiffs deduce that Range has been selling gas, natural gas liquids ("NGL's"), and condensates that are attributable to the wells in the McAdoo and the Dorothy Green Units. Amended Compl. ¶46; ECF No. 9-10. According to Plaintiffs, the check stubs contain, among other things, a "deduct code" of "CSW," which is described as "PPC CAP .80/MMBTU." Amended Compl. ¶47; ECF Nos. 9-4 and 9-10. Plaintiffs believe and aver that the "PPC CAP .80/MMBTU" deduction code reflects the $.80 per MMBTU pro rata post-production cap for "Wet Shale Gas" set forth in the Frederick Order. Id. In addition to the royalty payments, Range issued royalty statements that detailed, among other things, the month of the hydrocarbon production, the type of hydrocarbon produced, the volume of hydrocarbon produced, the value of the hydrocarbon, and any deductions assessed against the price of sale. Amended Compl. ¶45; ECF No. 9-10.

         Based upon their examination of these records, Plaintiffs believe that Range neglected or otherwise failed to properly cap its post-production costs relative to the transactions identified in the check stubs that it issued with royalty payments. Amended Compl. ¶48. As a result, Plaintiffs conclude that Range wrongfully reduced the royalty payments that were made to the Trust by essentially taking unauthorized deductions from the Trust's royalties. Id. ¶49. Plaintiffs also aver that Range has failed to abide by its drilling obligations under the Lease.M ¶¶56-58.

         Seeking redress of these grievances, Plaintiffs filed the within civil action in the Washington County Court of Common Pleas. ECF No. 1-2. Range Resources removed the action to this Court on October 25, 2018. ECF No. 1.

         On November 30, 2018, Plaintiffs filed their Amended Complaint, ECF No. 9, which is presently their operative pleading. Therein, Plaintiffs assert the following four causes of action:

• a breach of contract claim based on Range's failure to drill additional wells in accordance with its alleged obligations under the Lease (Count I);
• a breach of contract claim based on Range's alleged failure to consistently apply the $.80/MMBTU post-production cap for all sales of natural gas produced from the McAdoo and Dorothy Green Units (Count II);
• an alternative breach of contract claim based on the theory that Range should have applied the $.72/MMBTU post-production cap relative to sales of natural gas produced from the McAdoo and Dorothy Green Units (Count III); and
• a claim seeking an accounting of Range's records to determine whether additional discrepancies exist relative to Range's calculation of royalty payments and application of the post-production caps required by the Frederick Order (Count IV).

         Range Resources filed its pending motion, along with a supporting brief, on December 14, 2018. ECF Nos. 11 and 12. In its motion, Range seeks to dismiss Counts II through IV of the Amended Complaint or, alternatively, dismiss Count III and stay Counts II and IV pending resolution of a post-settlement dispute that is presently being litigated in the Frederick case. Plaintiffs filed their response to the motion and opposing brief on January 8, 2019. ECF Nos. 16 and 17. Range filed its reply brief on January 16, 2019. ECF No. 18. As a result of the foregoing submissions, the issues have been adequately joined and Defendant's motion is ripe for adjudication.

         II. STANDARD OF REVIEW

         Defendant's motion to dismiss is brought under Rule 12(b)(6) of the Federal Rules of Civil Procedure. "When considering a Rule 12(b)(6) motion, we accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Wayne Land & Mineral Grp. LLC v. Delaware River Basin Comm'n,894 F.3d 509, 526-27 (3d Cir. 2018) (internal quotation marks and citations omitted). In order to survive dismissal, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal,556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plausibility means "more than a sheer possibility that a defendant has acted unlawfully." Id. "A claim has facial ...


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