McWreath v. Range Resources—Appalachia, LLC, Civil Action No. 13–560.

• Decision Date: 26 January 2015
• Docket Number: Civil Action No. 13–560.
• Citation: 81 F.Supp.3d 448
• Parties: Darlene R. McWREATH, Robert C. McBride, Karen Lundin and Deborah L. McWreath, Plaintiffs, v. RANGE RESOURCES—APPALACHIA, LLC, Defendant.
• Court: U.S. District Court — Western District of Pennsylvania

81 F.Supp.3d 448

Darlene R. McWREATH, Robert C. McBride, Karen Lundin and Deborah L. McWreath, Plaintiffs

v.RANGE RESOURCES—APPALACHIA, LLC, Defendant.

Civil Action No. 13–560.

United States District Court, W.D. Pennsylvania.

Signed Jan. 26, 2015.

David C. Hook, Hook and Hook, Waynesburg, PA, for Plaintiff.

Justin H. Werner, Kevin C. Abbott, Nicolle R. Snyder Bagnell, Reed Smith LLP, Pittsburgh, PA, for Defendant.

MEMORANDUM OPINION

NORA BARRY FISCHER, District Judge.

I. INTRODUCTION

This case involves disputes surrounding Plaintiffs Darlene McWreath, Robert McBride, Karen Lundin and Deborah McWreath's (“Plaintiffs”) ownership of a percentage of subsurface oil and gas rights underlying real property located in Washington County, Pennsylvania and certain agreements they have with Defendant Range Resources Appalachia, LLC (“Range”). (Docket No. 1). Plaintiffs initially brought claims of conversion, trespass and accounting against Range but have now conceded their conversion and trespass claims, leaving only an accounting claim in this action. (See Docket No. 37). Presently before the Court are cross motions for summary judgment filed by the parties arguing the sufficiency of the remaining accounting claim. (Docket Nos. 28, 31). After careful consideration of all of the parties' arguments and the transcript of the July 11, 2014 oral argument, (Docket No. 41), and for the following reasons, Range's Motion for Summary Judgment [28] is granted and Plaintiffs' Motion for Summary Judgment [31] is denied.

II. FACTUAL BACKGROUND

Plaintiffs own an undivided partial interest in the oil and gas underlying approximately 1,700.485 acres of real property in Washington County, Pennsylvania. (Docket Nos. 30 at ¶¶ 12; 33 at ¶ 1). They inherited said subsurface rights as the heirs of the Estate of David R. McWreath, their father (“the Estate”). (Docket Nos. 30 at ¶¶ 6–7; 33 at ¶ 1). Plaintiffs own a thirty-three percent (33%) interest in the oil and gas in 1,332.485 acres of the property and a sixty-six percent (66%) interest in the oil and gas in the remaining 368 acres of the property. (Docket No. 30 at ¶ 10; 28–2 at ¶ 7). Plaintiffs admit that they have no ownership interests in the surface rights in the real property and have never even attempted to enter the surface of the property. (Docket Nos. 30 at ¶¶ 3–4; 37 at ¶ 1; 28–8, Dar. McWreath Depo. at 10; 28–9 McBride Depo. at 7–8; 28–10, Lundin Depo. at 11–14; 28–11, Deb. McWreath Depo. at 7–8). Further, during all of the relevant events in question, the surface and subsurface estates have been severed. (See Docket No. 30 at ¶¶ 2–4).

On September 20, 2007, the Estate entered into an “Oil and Gas Lease, Non–Surface Development” with Fortuna Energy, Inc., whereby the Estate granted Fortuna exclusive rights to explore, develop and produce the Estate's interests in the subsurface oil, gas and constituents thereof. (Docket No. 28–2 at 1, ¶ 5). Specifically,

Lessor hereby grants and leases exclusively to Lessee all oil and gas and their constituents, whether hydrocarbon or non-hydrocarbon, underlying the Leasehold, together with such exclusive rights as may be necessary or convenient for Lessee, at its election, to explore for, develop, produce, measure and market production from the Leasehold, using methods and techniques which are not restricted to current technology, including the exclusive right to conduct geophysical and other exploratory tests. For the purposes of this Lease, the term “gas” includes, but is not limited to, helium, carbon dioxide, gaseous sulfur compounds, methane produced from coal formations and other commercial gases, as well as normal hydrocarbon gases including casinghead gas and all other gaseous substances.

(Id. at ¶ 1). In ¶ 2, the Lease defines the term “Leasehold” as the denoted lands located in the Towns of Hanover and Jefferson, in Washington County, sets forth the boundaries of the property and is “described for the purposes of this Lease as containing 1700.485 acres, more or less, including all contiguous, appurtenant, submerged or riparian lands owned or hereinafter owned by Lessor.” (Id. at ¶ 2). In exchange, Fortuna agreed to pay the Estate an annual rental fee of $5.00 per mineral acre until the oil and gas are produced, at which time the Estate is entitled to royalty payments:

in an amount equal to the current market value at the wellhead as and when produced of one-eighth (1/8th) of all oil, gas and the constituents thereof produced, saved, marketed and sold from the Leasehold. In no event shall the current market value be deemed to be in excess of the value actually received by the Lessee pursuant to a bona fide, arm's length sale or transaction. Lessee may withhold Royalty payments until such time as the total withheld exceeds twenty-five ($25.00) dollars.¹

(Id. ). The term of the lease is set forth as five years and continuing thereafter as long as any of a number of contingencies occurs including, among other things, if “a well capable of producing oil and/or gas is located on lands pooled, unitized or combined with all or a portion of the Leasehold.” (Docket No. 28–2 at ¶ 3). The lessee was granted unrestricted rights to “pool or unitize all or any portion of the Leasehold with any other land or lands, whether contiguous or not contiguous, at any time before or after the drilling of a well so as to create one (1) or more drilling or production units.” (Id. at ¶ 12). The disputed portion of the Lease provides that:

4. Non–Development Lease

Lessor and Lessee acknowledge and agree that Lessee is not granted any right whatsoever: (i) to drill a well on any portion of the surface of the Leasehold; or (ii) install, construct or locate access roads or pipelines on any portion of the surface of the Leasehold. Accordingly, any lands that have been pooled, unitized or combined with all or a portion of the Leasehold in accordance with the terms of this Lease shall bear the burden of all surface development. Lessor does, however, acknowledge and provide its consent to the possibility that a wellbore may pass through or terminate below the surface of the Leasehold as a result of slant or directional drilling operations originating from a surface entry on lands nearby or adjacent to the Leasehold.

(Docket No. 28–2 at ¶ 4). Another provision, Lease Development, states that “[t]here is no express or implied covenant to develop the Leasehold within a certain timeframe, and there shall be no Lease forfeiture for an implied covenant to produce. The terms and conditions of this Lease constitute full compensation for the privileges granted by this Lease.” (Id. at ¶ 14). The Notice provision provides that:

In the event Lessor considers that Lessee has not complied with any of its obligations under this Lease, Lessor shall notify Lessee in writing at the address set forth above, via certified United States mail, setting out specifically in what respects Lessor considers Lessee has breached this Lease (the “Notice”). Lessee shall then have sixty (60) days after receipt of the Notice within which to either: (i) meet or commence to meet all or any part of the breach or breaches alleged by Lessor, or (ii) provide an answer to Lessor outlining the reasons why, in its reasonable opinion, the breach or breaches alleged by Lessor have not occurred. Neither service of the Notice nor the doing of any act by Lessee aimed at meeting all or any part of the alleged breach or breaches as set forth in the Notice shall be deemed an admission or presumption that Lessee failed to perform any of its obligations under this Lease. Service of the Notice shall be precedent to the bringing of any action by Lessor on this Lease for any cause, and Lessor shall bring no such action until the lapse of sixty (60) days after service of the Notice on Lessee. In the event a matter is litigated and there is a final judicial determination that a breach or default occurred, this Lease shall not be forfeited or cancelled in whole or in part unless Lessee is given a reasonable time after such final judicial determination to remedy the breach or default and Lessee fails to do so. Notwithstanding anything to the contrary contained in this Lease, this Lease shall not terminate or be subject to forfeiture or cancellation if there is located on lands pooled, unitized, or combined with all or a portion of the Leasehold, a well capable of producing oil and/or gas, or on which Operations are being conducted and, in that event, Lessor's sole remedy for any default under this Lease shall be damages.

(Id. at ¶ 11).

The Lease was prepared on a “New York Oil and Gas Lease” form as clearly indicated on the bottom of each page. (Docket No. 28–2). Neither party took any discovery to determine the origin of the lease form. Further, despite this indication, there is no choice of law clause or designation of New York law as applying to interpret or construe the terms and conditions therein. (Id. ). Only three standard provisions bear on interpretation/construction of the Lease: 17. “Entire Agreement”; 20. “Headings”; and 21. “Severability”. (Id. at ¶¶ 17, 20, 21). Relevant here, the Headings provision states that “[t]he headings contained in this Lease are inserted for convenience of reference only and shall not affect the interpretation or construction of any provision herein.” (Id. at ¶ 20).

Two of the Plaintiffs, Darlene McWreath and Robert McBride, executed the lease on behalf of the Estate in their roles as executor and executrix of the Estate. (Docket Nos. 28–2 at 6). The parties agree that Fortuna Energy subsequently assigned its rights in the lease to Range and that the Plaintiffs inherited the Estate's rights in the lease. (Docket Nos. 28 at ¶ 2; 37 at ¶ 2). The record is undisputed that Range has made payments to the McWreaths under the Lease, although the McWreaths may not have cashed the checks sent to them. (Docket No. 49 at 12). It is also uncontested that the McWreaths have not served the required Notice on Range...