Chesapeake Appalachia, L.L.C. v. Hickman

• Decision Date: 18 November 2015
• Docket Number: 14–0923.,14–0922,Nos. 14–0921,s. 14–0921
• Court: West Virginia Supreme Court
• Parties: CHESAPEAKE APPALACHIA, L.L.C., Red Sky Land, L.L.C., Red Sky–West Virginia, L.L.C., and Terry L. Murphy, Defendants below, Petitioners v. Cecil L. HICKMAN, Plaintiff below, Respondent and Geological Assessment & Leasing, and William Capouillez, Defendants below, Petitioners v. Cecil L. Hickman, Plaintiff below, Respondent and Great Lakes Energy Partners, LLC, n/k/a Range Resources–Appalachia, LLC, Defendant below, Petitioner v. Cecil L. Hickman, Plaintiff below, Respondent.

781 S.E.2d 198

CHESAPEAKE APPALACHIA, L.L.C., Red Sky Land, L.L.C., Red Sky–West Virginia, L.L.C., and Terry L. Murphy, Defendants below, Petitioners

v.Cecil L. HICKMAN, Plaintiff below, RespondentandGeological Assessment & Leasing, and William Capouillez, Defendants below, Petitioners

v.Cecil L. Hickman, Plaintiff below, RespondentandGreat Lakes Energy Partners, LLC, n/k/a Range Resources–Appalachia, LLC, Defendant below, Petitioner

v.Cecil L. Hickman, Plaintiff below, Respondent.

Nos. 14–0921

14–0922

14–0923.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 15, 2015.

Decided Nov. 18, 2015.

Timothy M. Miller, Esq., Mychal S. Schulz, Esq., Babst Calland Clements & Zomnir, P.C., Charleston, WV, for Petitioners Chesapeake Appalachia, L.L.C.; Red Sky Land, L.L.C.; Red Sky–West Virginia, L.L.C.; and Terry L. Murphy.

Robert C. James, Esq., Flaherty Sensabaugh Bonasso PLLC, Wheeling, WV, for Petitioners Geological Assessment & Leasing and William Capouillez.

Kenneth J. Witzel, Esq., Barnes Dulac Watson, Pittsburgh, PA, for Petitioner Great Lakes Energy Partners, LLC, now known as Range Resources–Appalachia, LLC.

Gregory A. Gellner, Esq., Gellner Law Offices, Wheeling, WV, for the Respondent.

KETCHUM, Justice:

This case presents three appeals of an August 7, 2014, order by the Circuit Court of Ohio County. The appeals have been consolidated for consideration.

The complex issues in this case revolve around four overlapping leases to extract oil and gas from land owned by the plaintiff. Each lease has an arbitration clause. The plaintiff brought an action seeking a declaration as to which lease was controlling as to various defendants, and seeking damages from the defendants. The circuit court's order voided two of the leases, addressed the substantive terms of two others, and compelled the parties to arbitrate any remaining claims by the plaintiff.

As we discuss below, we affirm the circuit court's order, in part, and reverse the order, in part, and remand the case for further proceedings.

I.FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Cecil L. Hickman owns a ¼ undivided interest in a 143.77 acre tract in Ohio County, West Virginia. Mr. Hickman does not live on the tract, but rather lives in Columbus, Ohio. He amicably shares ownership of the tract with his three siblings.¹ This case arises from four different leases for the oil and gas underlying the Ohio County tract, and concerns the application of the arbitration clauses contained within each lease.

Defendant William Capouillez is a geologist who runs a small company, defendant Geological Assessment & Leasing.² Mr. Capouillez represents landowners in their lease negotiations with companies who seek to lease the owner's land to drill for oil and gas. Mr. Capouillez ostensibly negotiates lease terms favorable to landowners, and helps landowners negotiate higher bonus and royalty payments.

Plaintiff Hickman and his siblings appear to have first been represented in oil and gas lease negotiations by Mr. Capouillez in 2001. While the resulting lease is not critical to this case, Mr. Hickman contends that the way the lease was signed in 2001 established a pattern that guided future expectations with Mr. Capouillez. Specifically, in late 2001, representatives of an oil and gas company³ offered to meet with Mr. Hickman and his three siblings to sign a lease of the Ohio County tract. Mr. Hickman could not attend the meeting, so the representatives met with the three siblings and Mr. Capouillez, all of whom signed the lease. Someone then mailed that signed lease to Mr. Hickman in Ohio. Mr. Hickman signed the lease and mailed it back.

Thereafter, Mr. Hickman received his one-quarter share of the payments from the oil and gas company, as required by the 2001 lease. Mr. Hickman asserts it is important to remember that he and his three siblings all signed the same document, and that the start date and the end date for the 2001 lease were the same for all four siblings.

We now turn to the four oil and gas leases, each of which included an arbitration clause, that are at issue in this case.

A. First Lease: December 2005

The first lease at issue in this case was signed only by Mr. Hickman's three siblings in December of 2005.

It appears that Mr. Capouillez contacted Mr. Hickman and his three siblings again sometime in late 2005, because a new company—defendant Great Lakes Energy Partners, LLC (now known as Range Resources—Appalachia, LLC, and hereinafter called "Range Resources")—had sent an "offer of lease" to Mr. Capouillez.⁴ Mr. Hickman and his siblings were invited to meet with representatives from Range Resources at the Bethany, West Virginia, Fire Department on December 21, 2005. However, only the three siblings attended the meeting. Mr. Hickman, still a resident of Columbus, Ohio, could not attend because of work commitments.

Mr. Hickman says he knew of the general terms and conditions of the Range Resources lease and intended to join his siblings on the lease. Mr. Hickman and his siblings also claim they thought they were simply renewing the 2001 lease. Further, Mr. Hickman and his siblings assert they believed they were leasing the property together, and they expected that the lease time frames would be identical for all four siblings.

The 2005 lease was in a similar format, and was presented in a similar way, to the lease they had signed in 2001. The lease explicitly provided it was between Range Resources and all four siblings. The lease term was for five years (that is, until December 2010), but could be extended on a year-to-year basis if Range Resources made "a bona fide attempt to secure or restore" the production of oil and gas. The lease required the payment of bonuses and royalties in equal shares to all four siblings.

The lease also identified Mr. Capouillez as a "consultant" for Mr. Hickman and his three siblings. Rather than the four siblings paying Mr. Capouillez for his negotiation efforts, the lease contained provisions requiring the oil and gas company to pay a small share of the bonuses and royalties directly to Mr. Capouillez. The lease also prohibited the landowners and the oil and gas company from modifying the lease to Mr. Capouillez's detriment.

Important to this appeal, the December 2005 lease contains an arbitration clause. The clause provides that "[a]ny controversy or claim arising out of or relating to this Lease ... shall be ascertained and settled" by arbitration.⁵

In addition to the lease, at the December 21, 2005, meeting the three siblings were presented with a "memorandum of lease," which was a summary of the lease that the oil and gas company intended to publicly file with the Clerk of the County Commission of Ohio County. The memorandum of lease excluded the specific bonus and royalty amounts. However, the memorandum of lease provided that the lessors of the Ohio County tract were all four siblings, including Mr. Hickman, acting jointly.

Both the December 2005 lease and the memorandum of lease identify Mr. Hickman as one of the four lessors of the tract; both the lease and the memorandum of lease had four signature lines under the heading "Lessor." On December 21, 2005, the three siblings signed the lease and the memorandum of lease, leaving the fourth line on each document blank. Mr. Capouillez also signed the lease on a line marked "Consultant," and a representative for Range Resources signed on a line marked "Lessee."

This case has its genesis, in part, on an unfortunate problem: Mr. Hickman never signed the December 2005 lease (or the memorandum of lease) with Range Resources.

Both Mr. Hickman and his siblings were under the impression that "someone"—probably defendant Range Resources—would mail the signed lease to Mr. Hickman so he could apply his signature to the end. Mr. Hickman says that, sometime in early 2006 (he is unsure when or how often), he realized he had not received the lease payments that had been received by his siblings, and so he called Mr. Capouillez and asked when he would be receiving the lease. Mr. Capouillez never returned his calls, and Mr. Hickman never received the December 2005 lease to sign.

Without procuring Mr. Hickman's signature, on June 2, 2006, Range Resources recorded the memorandum of lease (signed by the three siblings) with the Ohio County Clerk. The memorandum gave the public notice that Mr. Hickman and his three siblings were bound by the terms of a joint oil and gas lease with Range Resources, dated December 21, 2005, and extending for five years (or longer if Range Resources made good faith efforts to produce oil and gas from the tract).

B. Second Lease: July 2006

Sometime in July 2006, Range Resources sent a new, unsigned and undated oil and gas lease to Mr. Hickman. Range Resources also sent a new memorandum of lease, and asked Mr. Hickman to sign both documents and have his signature notarized. Both documents indicate the lease was for a five-year term. The documents also contained extension language identical to that in the December 2005 lease that may be important in the instant case. The lease states that, if the lessee of the tract made "a bona fide attempt to secure ... the production" of oil and gas by drilling a well, then the lease could continue on a year-to-year basis.

The July 2006 lease contains the same arbitration clause as that contained in the December 2005 lease.⁶ The clause provides that "[a]ny controversy or claim arising out of or relating to this Lease ... shall be ascertained and settled" by arbitration.

Mr. Hickman claims that he signed both the lease and the memorandum of lease, but he did not date the documents. A notary public notarized Mr. Hickman's signature on July 19, 2006. Thereafter, Mr. Hickman mailed the signed documents to Range Resources.

Mr. Hickman says he thought he was agreeing to the same lease terms that his siblings had agreed to, namely that the effective date would be the same as his siblings: December 21, 2005. It is Mr. Hickman's contention that someone at Range...