Power Gas Marketing v. Cabot Oil & Gas

• Decision Date: 31 March 2008
• Docket Number: No. 783 WDA 2007,783 WDA 2007
• Citation: 2008 PA Super 54,948 A.2d 807
• Parties: POWER GAS MARKETING & TRANSMISSION, INC., Appellant v. CABOT OIL & GAS CORPORATION and Linn Energy, LLC, Appellees.
• Court: Pennsylvania Superior Court

948 A.2d 807

2008 PA Super 54

POWER GAS MARKETING & TRANSMISSION, INC., Appellant v. CABOT OIL & GAS CORPORATION and Linn Energy, LLC, Appellees.

No. 783 WDA 2007

Superior Court of Pennsylvania.

Argued January 16, 2008.

Filed March 31, 2008.

Reargument Denied June 12, 2008.

Paul L. Mitchell, Houston, TX, and Erin N. Fischer, Pittsburgh, for appellant.

Robert W. Lambert, Indiana, for Linn, appellee.

Rodger L. Puz, Pittsburgh, for Cabot, appellee.

BEFORE: LALLY-GREEN, PANELLA and TAMILIA, JJ.

OPINION BY TAMILIA, J.:

¶ 1 Power Gas Marketing and Transmission, Inc. (Power), appeals nunc pro tunc from the February 27, 2007, Order granting Cabot Oil & Gas Corporation (Cabot) and Linn Energy, LLC's (Linn Energy) respective motions for summary judgment and, conversely, denying Power's cross-motion for summary judgment.

¶ 2 On November 5, 1969, Felmont Oil Corporation, Consolidated Gas Supply Corporation, T.W. Phillips Gas and Oil Company, and the Sylvania Corporation executed a Joint Operating Agreement (JOA). Pursuant to the terms of the JOA, each corporate signatory was to contribute oil and natural gas leases and oil and natural gas ownership rights in an area known as the Pineton Prospect, which spans portions of Indiana and Cambria Counties, to a newly formed joint venture.

¶ 3 The stated purpose of the joint venture was "to explore and develop [the contributed] leases and interests for oil and gas." Record, No. 8, Complaint, Exb. A, Recital. Each party to the JOA agreed to share in both the liabilities incurred by the joint venture as well as the ownership of any oil or natural gas excavated in percentages corresponding with the leases and rights each party contributed to the joint venture relative to the entirety of the joint venture's holdings in Pineton Prospect. The parties further agreed that all interests arising under the JOA were assignable; however, the JOA included a preferential purchase rights provision which reads, in pertinent part, as follows:

18. PREFERENTIAL RIGHT TO PURCHASE

Should any party desire to sell all or any part of its interests under this contract, or its rights and interests in the Unit Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing parties.

Record, No. 8, Complaint, Exb. A.

¶ 4 Through a series of assignments executed in the mid-to-late 1990's, appellant Power acquired an interest in the joint venture. On September 1, 2003, appellee Cabot, which also obtained its interest in the joint venture through a series of assignments, conveyed its interest in the joint venture to appellee Linn Energy. At the time of the conveyance, Linn Energy had no pre-existing interest in the joint venture.

¶ 5 On September 27, 2005, Power filed a complaint raising a breach of contract claim against Cabot and raising an intentional interference with contractual rights claim against Linn Energy. The complaint alleged, inter alia, Cabot had failed to offer Power the opportunity to purchase Cabot's interest prior to conveying it to Linn Energy and, as such, the September 1, 2003, conveyance breached the JOA preferential purchase rights provision. The complaint sought an order setting aside the transaction and requested compensatory damages.

¶ 6 On August 29, 2006, the pleadings closed. On October 26, 2006, Linn Energy filed a motion for summary judgment contending the rule against perpetuities, codified at 20 Pa.C.S.A. § 6104, Rule against perpetuities, (b) Void interest; exceptions,¹ rendered the JOA preferential purchase rights provision unenforceable by operation of law. On November 14, 2006, Cabot filed its own motion for summary judgment echoing Linn Energy's argument, albeit in a more exhaustive fashion. Thereafter, on December 11, 2006, Power filed a cross-motion for summary judgment contending, in relevant part, no material issue of fact existed as to whether it was entitled to the benefit of the JOA preferential purchase rights provision.

¶ 7 On January 16, 2007, the trial court heard oral argument on all three outstanding motions. Shortly thereafter, the court entered the Order subject of this appeal with a corresponding Opinion. On April 24, 2007, the trial court granted Power the right to appeal nunc pro tunc and this timely appeal followed.

¶ 8 We begin by defining the parameters of our review: Pennsylvania law provides that summary judgment may be granted only in those cases in which the record clearly shows that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. The moving party has the burden of proving that no genuine issues of material fact exist. In determining whether to grant summary judgment, the trial court must view the record in the light most favorable to the non-moving party and must resolve all doubts as to the existence of a genuine issue of material fact against the moving party.

Thus, summary judgment is proper only when the uncontroverted allegations in the pleadings, depositions, answers to interrogatories, admissions of record, and submitted affidavits demonstrate that no genuine issue of material fact exists, and that the moving party is entitled to judgment as a matter of law. In sum, only when the facts are so clear that reasonable minds cannot differ, may a trial court properly enter summary judgment. As already noted, on appeal from a grant of summary judgment, we must examine the record in a light most favorable to the non-moving party. With regard to questions of law, an appellate court's scope of review is plenary. The Superior Court will reverse a grant of summary judgment only if the trial court has committed an error of law or abused its discretion.

Roche v. Ugly Duckling Car Sales, Inc., 879 A.2d 785, 789 (Pa.Super.2005), appeal denied 587 Pa. 732, 901 A.2d 499 (2006), quoting Regscan, Inc. v. Con-Way Transp. Servs., 875 A.2d 332, 336 (Pa.Super.2005) (additional citation omitted).

¶ 9 Power asks that this Court to consider whether the JOA preferential purchase rights provision is subject to the rule against perpetuities. Appellant's brief at 4. Before we consider this issue, it is necessary for purposes of our analysis to determine whether the JOA preferential purchase rights provision is a right of first refusal or an option. This Court recently defined a right of first refusal, otherwise known as the right to preemption, as follows:

A right of first refusal constitutes a promise to offer the res of the right to the promisee for such consideration as the promisor determines to accept on the basis of an offer from a third party before accepting the offer of the third party. A right of first refusal does not require the promisor to offer the res at all. The right of first refusal merely requires that before the promisor accepts an offer of a third party, [the promisor] must offer the res to the promisee of the right for the consideration [the promisor] is willing to accept from the third party.

Delaware River Preservation Co. v. Miskin, 923 A.2d 1177, 1181 (Pa.Super.2007), quoting CBS, Inc. v. Capital Cities Communications, Inc., 301 Pa.Super. 557, 448 A.2d 48, 56 (1982) (emphasis omitted); see also Gateway. Trading Co. v. Children's Hosp. of Pittsburgh, 438 Pa. 329, 265 A.2d 115, 119 (Pa.1970), citing Corbin, Contracts at 863 (1952); Black's Law Dictionary at 1350 (8th ed. 2004).

¶ 10 The JOA preferential purchase rights provision grants the parties to the JOA the right to purchase "for such consideration as the promisor determines to accept on the basis of an offer from a third party" and "does not require the promisor to offer the res at all." Delaware River, supra at ¶ 81; see also Record, No. 8, Complaint, Exb. A, at ¶ 18 ("The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase on the same terms and conditions the interest which the other party proposes to sell...."). The JOA preferential purchase rights provision can only be defined as a right of first refusal. Cf. Villoresi v. Femminella, 856 A.2d 78, 81 (Pa.Super.2004), appeal denied 582 Pa. 719, 872 A.2d 1200 (2005), quoting Barnes v. Rea, 219 Pa. 279, 68 A. 836, 838 (1908) ("[A]n option is a unilateral agreement, binding upon the optionor from the date of its execution, but does not become a contract inter partes in the sense of an absolute contract to convey on the one side and to purchase on the other until exercised by the optionee."); Phoenixville, Valley Forge, & Strafford Elec. Ry. Co.'s Appeal, 70 Pa.Super. 391, 395 (1918) (defining an option as a "unilateral agreement, containing the terms and conditions upon which the optionor agrees to sell and convey his land, not yet ripened into an absolute contract to sell and convey on one side and to purchase and pay on the other."); see also Black's Law Dictionary at 1127 (8th ed. 2004).

¶ 11 Appellees, Cabot and Linn Energy, both anticipating that the JOA preferential purchase rights provision would be defined as a right of first refusal, rely on this Court's decision in Estate of Royer v. Wineland Equipment, Inc., 444 Pa.Super. 276, 663 A.2d 780 (1995), for the proposition that "rights of first refusal are subject to the [rule against perpetuities]." Cabot brief at 7, accord Linn Energy brief at 10 (internal quotation marks omitted). Appellees'...