Leggett v. Eqt Prod. Co., 16-0136

Decision Date26 May 2017
Docket NumberNo. 16-0136,16-0136
CourtSupreme Court of West Virginia
PartiesPATRICK D. LEGGETT, et al., Plaintiffs Below, Petitioners, v. EQT PRODUCTION COMPANY, et al., Defendants Below, Respondents.
Certified Questions from the United States District Court for the Northern District of West Virginia
The Honorable Fredrick P. Stamp, Jr., Judge

Case No. 1:13-cv-00004-FPS

CERTIFIED QUESTIONS ANSWERED

Marvin W. Masters, Esq.

Richard A. Monahan, Esq.

April D. Ferrebee, Esq.

The Masters Law Firm lc

Charleston, West Virginia

and

Michael W. Carey, Esq.

Carey, Scott, Douglas & Kessler, PLLC

Charleston, West Virginia

Attorneys for Petitioners

Howard M. Persinger, III, Esq.

Persinger & Persinger, L. C.

Charleston, West Virginia

Attorney for Amici Curiae

West Virginia Land and Mineral Owners'

Association, West Virginia Royalty Owners'

Association, West Virginia Farm Bureau,

National Association of Royalty Owners,

Appalachia, and Lewis Maxwell Oil & Gas LLC

Timothy M. Miller, Esq.

Mychal S. Schulz, Esq.

Katrina N. Bowers, Esq.

Babst, Calland, Clements & Zomnir, P. C.

Charleston, West Virginia

Attorneys for Amici Curiae

West Virginia Oil and Natural Gas Association

and West Virginia Independent Oil and Gas

Association

Michael J. Hammond, Esq.

Dodaro, Matta & Cambest, P. C.

Canonsburg, Pennsylvania

Attorney for Amicus Curiae Bounty Minerals, LLC

David K. Hendrickson, Esq.

Carl L. Fletcher, Jr., Esq.

Hendrickson & Long PLLC

Charleston, West Virginia

Attorneys for Respondents CHIEF JUSTICE LOUGHRY delivered the Opinion of the Court.

JUSTICE WORKMAN concurs and reserves the right to file a concurring opinion.

JUSTICE DAVIS dissents and reserves the right to file a separate opinion.

SYLLABUS BY THE COURT

1. "'A de novo standard is applied by this court in addressing the legal issues presented by certified question from a federal district or appellate court.' Syl. Pt. 1, Light v. Allstate Ins. Co., 203 W.Va. 27, 506 S.E.2d 64 (1998)." Syl. Pt. 2, Aikens v. Debow, 208 W.Va. 486, 541 S.E.2d 576 (2000).

2. "Where the issue on an appeal . . . is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review." Syl. Pt. 1, in part, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995).

3. "The primary rule of statutory construction is to ascertain and give effect to the intention of the Legislature." Syl. Pt. 8, Vest v. Cobb, 138 W.Va. 660, 76 S.E.2d 885 (1953).

4. "Judicial interpretation of a statute is warranted only if the statute is ambiguous and the initial step in such interpretative inquiry is to ascertain the legislative intent." Syl. Pt. 1, Ohio County Comm'n v. Manchin, 171 W.Va. 552, 301 S.E.2d 183 (1983).

5. "Where the language of a statute is free from ambiguity, its plain meaning is to be accepted and applied without resort to interpretation." Syl. Pt. 2, Crockett v. Andrews, 153 W.Va. 714, 172 S.E.2d 384 (1970).

6. "When a statute is clear and unambiguous and the legislative intent is plain, the statute should not be interpreted by the courts, and in such case it is the duty of the courts not to construe but to apply the statute." Syl. Pt. 5, State v. General Daniel Morgan Post No. 548, V.F.W., 144 W.Va. 137, 107 S.E.2d 353 (1959).

7. "The basic and cardinal principle, governing the interpretation and application of a statute, is that the Court should ascertain the intent of the Legislature at the time the statute was enacted, and in the light of the circumstances prevailing at the time of the enactment." Syl. Pt. 1, Pond Creek Pocahontas Co. v. Alexander, 137 W.Va. 864, 74 S.E.2d 590 (1953).

8. Royalty payments pursuant to an oil or gas lease governed by West Virginia Code § 22-6-8(e) (1994) may be subject to pro-rata deduction or allocation of all reasonable post-production expenses actually incurred by the lessee. Therefore, an oil or gas lessee may utilize the "net-back" or "work-back" method to calculate royalties owed to a lessor pursuant to a lease governed by West Virginia Code § 22-6-8(e). The reasonableness of the post-production expenses is a question for the fact-finder.LOUGHRY, Chief Justice:

This case is before the Court upon certified questions presented by the United States District Court for the Northern District of West Virginia regarding whether this Court's decision in Tawney v. Columbia Natural Resources, L.L.C., 219 W. Va. 266, 633 S.E.2d 22 (2006), has "any effect" upon whether a lessee of an oil and/or gas lease subject to West Virginia Code § 22-6-8 (1994) may deduct post-production expenses from the lessor's royalty. Upon original hearing, a majority of this Court reformulated the certified question and held that royalties paid pursuant to leases which were subject to West Virginia Code § 22-6-8 could not be "diluted" by costs incurred downstream from the wellhead, nor could amounts attributable to loss or beneficial use of volume be deducted prior to calculation of royalties.

However, upon careful review of the briefs on rehearing, the appendix record, the arguments of the parties and amici curiae,1 and the applicable legal authority, we conclude that both the legislative intent and language utilized in West Virginia Code § 22-6-8 permits allocation or deduction of reasonable post-production expenses actuallyincurred by the lessee and more specifically permits use of the "net-back" or "work-back" method of royalty calculation.

I. FACTS AND PROCEDURAL HISTORY

The petitioners Patrick D. Leggett, et al (hereinafter "the petitioners") are owners of a 75% undivided interest in the gas estate of a 2,000-acre tract in Doddridge County. Certain wells on the property are "flat-rate" wells, i.e. wells for which the lease provides for payment of a sum certain per well, per year. In 1982, the Legislature enacted the predecessor of West Virginia Code § 22-6-8,2 which provides that permits for flat-rate wells will not be issued unless the lessee swears by affidavit that it will pay the lessor no less than one-eighth "of the total amount paid to or received by or allowed to [the lessee] at the wellhead for the oil or gas so extracted, produced or marketed[.]" (emphasis added).

The petitioners filed suit against respondent EQT Production Company and affiliated companies (hereinafter "EQT")3 for underpayment of royalties, resulting fromEQT's deduction of certain costs incurred for the gathering and transporting of the gas to the interstate pipeline. In particular, EQT takes the full price it obtains by selling the gas at the interstate pipeline and deducts "some" of the costs ("midstream" costs or "post-production" costs) incurred after it is extracted,4 but before it reaches the market at the pipeline. EQT maintains that the only way to capture the statutorily-required "wellhead" price is to utilize this so-called "net-back" or "work-back" method which deducts post-production expenses from the sales price to duplicate the "wellhead" price. The petitioners contend that neither West Virginia Code § 22-6-8(e) nor the common law of West Virginia permit deduction or allocation of costs in this manner for purposes of royalty calculation.

Accordingly, the District Court certified the following questions to this Court pursuant to the Uniform Certification of Questions of Law Act, West Virginia Code § 51-1A-1 (1996) et seq.:

1. Does Tawney v. Columbia Natural Resources, L.L.C., 219 W. Va. 266, 633 S.E.2d 22 (2006), which was decided after the enactment of West Virginia Code § 22-6-8, have any effect upon the Court's decision as to whether a lessee of a flat-rate lease, converted pursuant to West Virginia Code § 22-6-8,may deduct post-production expenses from his lessor's royalty, particularly with respect to the language of "1/8 at the wellhead" found in West Virginia Code § 22-6-8(e)?
2. Does West Virginia Code § 22-6-8 prohibit flat-rate royalties only for wells drilled or reworked after the statute's enactment and modify only royalties paid on a per-well basis where permits for new wells or to modify existing wells are sought, or do the provisions of West Virginia Code § 22-6-8 abrogate flat-rate leases in their entirety?5

(footnote added).

II. STANDARD OF REVIEW

This Court has consistently held that "'[a] de novo standard is applied by this court in addressing the legal issues presented by certified question from a federal district or appellate court.' Syl. Pt. 1, Light v. Allstate Ins. Co., 203 W. Va. 27, 506 S.E.2d 64 (1998)." Syl. Pt. 2, Aikens v. Debow, 208 W. Va. 486, 541 S.E.2d 576 (2000). Moreover, "[w]here the issue on an appeal . . . is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review." Syl. Pt. 1, Chrystal R.M. v. CharlieA.L., 194 W. Va. 138, 459 S.E.2d 415 (1995). With this standard of review in mind, we proceed to the remaining certified question.

III. DISCUSSION

Upon review of EQT's petition for rehearing, this Court determined that substantial justice required us to revisit the prior opinion issued in this matter to ascertain whether the previous majority had misapprehended certain points of law. See W. Va. R. App. Proc. 25(b) ("A petition for rehearing is granted only in exceptional cases. The petition shall . . . state with particularity the point of law or fact which in the opinion of the petitioner the Court has overlooked or misapprehended[.]"). While an admittedly uncommon occurrence, rehearing exists expressly for the purpose of ensuring that opinions which are not well-founded due to misapprehension of the issues, the law, or the facts are rectified. Justice demands this procedural remedy, which this Court has judiciously utilized when the issues or outcome demand it. See Knotts v. Grafton City Hosp., 237 W. Va. 169, 786 S.E.2d 188 (2016) (reversing and remanding upon rehearing after original affirm); W. Va. Reg'l Jail & Corr. Facility Auth. v. A.B., 234 W. Va. 492, 498, 766 S.E.2d 751, 757 (2014) (stating that "public policy concerns...

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