Heller v. Trienergy, Inc.

• Decision Date: 09 July 2012
• Docket Number: Civil Action No. 5:12–CV–46.
• Citation: 877 F.Supp.2d 414
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Franklin C. HELLER, II, and Jeanie Heller, Plaintiffs, v. TRIENERGY, INC., TriEnergy Holdings, LLC, AB Resources, LLC, Chevron U.S.A., Inc. Gray Montague, and Michael P. Trout, Defendants.

877 F.Supp.2d 414

Franklin C. HELLER, II, and Jeanie Heller, Plaintiffs,

v.TRIENERGY, INC., TriEnergy Holdings, LLC, AB Resources, LLC, Chevron U.S.A., Inc. Gray Montague, and Michael P. Trout, Defendants.

Civil Action No. 5:12–CV–46.

United States District Court,

N.D. West Virginia,

Wheeling.

July 9, 2012.

Daniel J. Guida, Weirton, WV, Jonathan E. Turak, Gold, Khourey & Turak, LC, Moundsville, WV, for Plaintiffs.

Joseph G. Nogay, Michael E. Nogay, Sellitti, Nogay & McCune, Weirton, WV, Phillip T. Glyptis, Steptoe & Johnson, PLLC, James F. Companion, Schrader, Byrd & Companion, PLLC, Gerald E. Lofstead, III, Cipriani & Werner, PC, Wheeling, WV, Charles J. Crooks, Mallory Brady Cash, Wendy Glover Adkins, Jackson Kelly PLLC, Morgantown, WV, for Defendants.

MEMORANDUM OPINION AND ORDER DENYING REMAND AND COMPELLING ARBITRATION

JOHN PRESTON BAILEY, District Judge.

Pending before this Court are defendants TriEnergy, Inc.'s and TriEnergy Holdings, LLC's Motion to Dismiss [Doc. 3], filed March 26, 2012; defendant AB Resources, LLC's Motion to Compel Arbitration or, in the Alternative, Motion to Dismiss [Doc. 7], filed March 30, 2012; defendant Chevron U.S.A., Inc.'s Motion to Compel Arbitration, or in the Alternative, Motion to Dismiss [Doc. 9], filed April 2, 2012; plaintiffs Franklin C. Heller, II's and Jeanie Heller's Motion to Remand [Doc. 10], filed April 25, 2012; and defendant Gray Montague's Motion to Dismiss [Doc. 17], filed May 8, 2012. These motions have since been briefed and are now ripe for decision. Having reviewed the record and considered the arguments of the parties, this Court concludes that the plaintiffs' motion to remand should be DENIED and the defendants' motions to compel arbitration should be GRANTED.

BACKGROUND

I. Factual Allegations

This civil action arises from an oil and gas lease dated August 24, 2006, and entered into between Franklin C. Heller, II, and Jeanie Heller, residents of Marshall County, West Virginia, and TriEnergy, Inc. (“TriEnergy”), a Pennsylvania corporation (the “Lease”).

A. Formation of the Lease

In July and August 2006, a TriEnergy landman named Gray Montague approached the Hellers at their Marshall County residence to offer them the Lease, which he had prepared on behalf of TriEnergy. Montague described the Lease as “standard” and one that “everyone was signing.” Montague advised the Hellers that a one-time bonus of $10.00, delay rental payments of $5.00 per acre per year, and a state-law minimum one-eighth royalty payment were the “going rates” in the marketplace and that no gas company would pay more. Nevertheless, Montague offered to increase the bonus payment to $10.00 per acre and promised the Hellers “free gas” that could be used wherever they desired “as long as they didn't sell it,” including using the gas in “outhouses or chicken houses.” In addition, Montague stated that drilling “would begin in six months,” and be celebrated by a “big catered party with BBQ chicken and beer” sponsored by TriEnergy. Montague further represented that the royalty payments the Hellers would receive would compare to those received by a Washington County, Pennsylvania, dairy farmer who was receiving $50,000 in monthly royalties per well, adding, “Every time they drill a well you get a check.”

The Hellers then asked Montague whether they would be “ripped off” by him or TriEnergy. Montague responded that “we're regulated by the government.” The Hellers understood Montague's statement to mean that Montague's activities were regulated by the government. Finally, Montague suggested that if the Hellers did not sign the Lease, they would “miss the boat” and no other gas company would be willing to sign a lease with them.

Although sign-on bonuses, delay rentals, and royalty payment rates for leases on similarly situated properties in the region were in fact substantially more favorable to lessors, the Hellers signed the Lease. Montague delivered the Lease to be notarized by Michael P. Trout, a resident of Wood County, West Virginia. On August 24, 2006, Trout notarized the Lease outside the presence of the Hellers whose signatures he did not personally witness. Montague signed the lease on behalf of TriEnergy.

B. Terms of the Lease

Pursuant to the Lease, which is two-and-one-half pages in length and contains twenty-six paragraphs, the Hellers leased approximately 258 acres of their property located in the Union District of Marshall County to TriEnergy, its successors and assigns, for the purpose of “exploring for, developing, producing and marketing oil and gas, including methane gas present in any coal seam, along with all hydrocarbon substances produced in association therewith....” (Lease at ¶¶ 1–2). The Hellers also granted TriEnergy the right to “pool or unitize the leased premises, or any part thereof, with any other property for the production of [oil or gas], so as to create one or more drilling or production units” with the condition that “[s]aid drilling or production units shall not exceed six hundred forty (640) acres.” ( Id. at ¶ 8).

As consideration for the Lease, TriEnergy agreed to pay the Hellers a one-eighth royalty from the proceeds of any sales of oil or gas discovered on the premises as well as rent in the amount of $5.00 per acre for each twelve months prior to commencement of work for the drilling of a well. ( Id. at ¶¶ 4, 6). In addition, the Lease permitted the Hellers to use gas produced “over and above the amount required for operations by the Lessee” for “domestic purposes, free of charge, ... not to exceed 300,000 cubic feet of gas per annum.” ( Id. at ¶ 20).

The Lease was to remain in force “for a primary term of five (5) years from the date of this lease and for so long thereafter as oil, gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith or this lease is otherwise maintained pursuant to the provisions hereof.” ( Id. at ¶ 3). The Lease also provided that “[i]f, at the end of the primary term or any time thereafter, this lease is not being kept in force by any other provision hereof, but Lessee is then engaged in drilling, reworking or any other operation calculated to obtain production on the leased premises or lands pooled therewith, this lease shall remain in force as long as such operations are conducted in a reasonably prudent manner and, if such operations result in the production of any substance covered hereby, as long thereafter as production continues in paying quantities.” ( Id. at ¶ 7). The Hellers further agreed that they would not “grant an oil and gas lease or similar right for oil and gas covering the premises ... leased ... to any other party during the primary term of the lease” and that TriEnergy would have the “first option to lease the oil and gas rights underlying the described premises for a period ending sixty (60) days after the primary term of th[e] lease.” ( Id. at ¶ 16).

The Lease also contains the following arbitration clause:

Any question concerning this lease or performance thereunder shall be ascertained and determined by three disinterested arbitrators, one thereof to be appointed by the Lessor, one by the Lessee and the third by the two so appointed as aforesaid, and the award of such three persons shall be final and conclusive. The cost of such arbitration will be borne equally by the parties.

( Id. at ¶ 17).

C. Assignments of the Lease

In December 2008, TriEnergy assigned its rights under the Lease to TriEnergy Holdings, LLC (“TriEnergy Holdings”), which has a Pennsylvania citizen as its sole member. TriEnergy Holdings, though retaining an overriding royalty, subsequently assigned its rights under the Lease to AB Resources, LLC (“AB Resources”), which has a member limited liability company with members all over the United States. In January 2011, AB Resources assigned fifty percent of its rights under the Lease to Chief Exploration and Development, LLC, and Radler 2000 Limited Partnership. Those entities assigned their rights under the Lease to Chevron U.S.A., Inc. (“Chevron”), a Pennsylvania corporation with its principal place of business in California. On August 5, 2011, AB Resources assigned its remaining rights under the Lease to Chevron.

D. Performance of the Lease

Effective August 8, 2011, TriEnergy Holdings and Chevron pooled and unitized all or a portion of the property covered by various leases to form a production unit of 457.6539 acres, known as the F. Heller Unit. Included in the F. Heller Unit was a portion of the property owned by the Hellers consisting of 66.00 acres.

As of August 22, 2011, when the primary term of the lease was set to expire, no oil or gas had been produced or was being produced in paying quantities from the leased premises or from property pooled therewith. Prior to that date, neither TriEnergy nor any of the subsequent assignees: (1) engaged in drilling, reworking, or any other operation calculated to obtain production on the Hellers' properties or lands pooled therewith; (2) conducted operations in a reasonably prudent manner; or (3) conducted its operations so as to result in the production of gas on the subject property in paying quantities.

II. Procedural History

On February 21, 2012, the Hellers filed suit against TriEnergy, TriEnergy Holdings, AB Resources, Chevron, Montague, and Trout in the Circuit Court of Marshall County, West Virginia. The Complaint [Doc. 3–1] contains fourteen causes of action.

Count I alleges that TriEnergy Holdings, AB Resources, and/or Chevron breached the covenant to diligently and reasonably explore, develop, produce, and market the leaseholds of the subject property that is in implied in the Lease. Count II claims that TriEnergy Holdings and Chevron pooled the Hellers' property in bad faith. Count III asserts that TriEnergy, by and through Montague, fraudulently induced the Hellers to sign the Lease. Count IV alleges that the Lease is unconscionable. Count V is a...