Szymanowski v. Brace

• Decision Date: 13 November 2009
• Docket Number: No. 1703 WDA 2008,1703 WDA 2008
• Citation: 987 A.2d 717,2009 PA Super 218
• Parties: John SZYMANOWSKI and Michael A. Wheeling, individually and on behalf of BSW, Appellants v. Robert H. BRACE and BCD Properties, Inc., Appellees.
• Court: Pennsylvania Superior Court

987 A.2d 717

2009 PA Super 218

John SZYMANOWSKI and Michael A. Wheeling, individually and on behalf of BSW, Appellants v. Robert H. BRACE and BCD Properties, Inc., Appellees.

No. 1703 WDA 2008

Superior Court of Pennsylvania.

Filed November 13, 2009.

Reargument Denied January 28, 2010.

W. Patrick Delaney, Erie, for appellants.

Richard A. Lanzillo, Erie, for appellee.

BEFORE: BENDER, BOWES and CLELAND, JJ.

OPINION BY CLELAND, J.:

¶ 1 Appellants John Szymanowski and Michael A. Wheeling (Szymanowski/Wheeling) appeal the trial court's order granting summary judgment in favor of Appellees Robert H. Brace (Brace) and BCD Properties, Inc. (BCD). The parties formed a partnership known as BSW to drill two gas wells in Erie County on leaseholds previously acquired by and still titled to Brace. The parties dispute whether their partnership encompasses two later developed gas wells not mentioned in their partnership agreement but drilled on the same leasehold titled to Brace and on which one of the partnership's own wells was located. For reasons that follow, we affirm.

¶ 2 As we undertake our analysis, we remind ourselves the judicial construction of instruments involving oil and gas is particularly troublesome. Pennsylvania case law evidences a long and tortured trail of attempts to make sense of phrases, parts of phrases, and words of art sometimes used in a common sense manner and sometimes used with a precise technical meaning, and all used in documents sometimes drafted with care and sometimes quickly scribbled by the litigants themselves. Many oil and gas titles trace to agreements from the late 19th or early 20th century and may use antiquated terms foreign to us today. A century ago, a farmer's understanding of how the surface of his land would be used to extract the oil and gas lying beneath it would be considerably different from the understanding of the surface owner today who is acutely aware of the increased burdens on the surface imposed by modern extraction technology. See McGavitt v. Guttman Realty Company, 909 A.2d 1 (Pa.Super.2006); Jacobs v. CNG Transmission Corp., 332 F.Supp.2d 759 (W.D.Pa.2004).

¶ 3 The legal effect of words clearly understood when used in other contexts, therefore, becomes murky when considered in the context of oil and gas instruments. The fact, for example, that an instrument is titled a "lease," "deed," or "agreement" is not determinative. Even the use of the words "grant and convey" does not necessarily create a fee simple estate in the grantee. See Pennsylvania Bank and Trust Company, Youngsville Branch v. Dickey, 232 Pa.Super. 224, 335 A.2d 483 (1975). Applying the literal meaning to words and phrases found in oil and gas documents is fraught with the opportunity for injustice.

¶ 4 As a result, we must be mindful that the object in interpreting instruments relating to oil and gas interests, like any written instrument, "is to ascertain and effectuate the intention of the parties." Hess v. Jones, 335 Pa. 569, 7 A.2d 299 (1939). Stewart v. Chernicky, 439 Pa. 43, 266 A.2d 259 (1970).

¶ 5 With these principles in mind, we turn now to the case before us. One of the two partnership wells, Danylko #1 on the Danylko lease, had a brief but spectacular lifetime.¹ In its 28 months' existence it generated $454,913.80 for Szymanowski/Wheeling on the 20% net profit interest they acquired for a $30,000 investment. It ceased production in February 2005. In early 2004, Brace, for his own account, completed Danylko #2 and Danylko #4 wells which remain successful producers.

¶ 6 In 2005, Szymanowski/Wheeling, individually and on behalf of BSW, brought this breach of contract and breach of fiduciary duty action against Brace and BCD. In July 2007, Brace and BCD filed a motion for partial summary judgment. On October 8, 2007, the trial court granted the motion. On October 15, 2008, because the parties entered into a stipulation dismissing all claims and counterclaims except Szymanowski/Wheeling's claim to the Danylko lease and Danylko #2 and Danylko #4 wells, the trial court entered an order rendering its October 8 order as final and determining "no further matters need to be heard by this court."² The parties' further stipulated that BSW was a partnership, not a different business entity, but "without prejudice to any party's positions or arguments on all other issues." Stipulation, 10/09/08, at ¶ 2. On October 15, 2008, Szymanowski/Wheeling timely appealed.

¶ 7 Brace has been in the oil and gas business for years, having acquired various leases in Erie County and, through BCD, a natural gas gathering or pipeline system to move the gas to third party purchasers. Robert Brace Deposition, 12/4/06, at 33-44. On September 27, 2000, he acquired the Danylko lease on 150 acres and began drilling Danylko #1 on or about October 1, 2002.³ Amended Complaint, Exhibit A; Wheeling Deposition, 7/20/06, at 59-60. On October 1, 2002, approximately three days before completing the well, BCD and Szymanowski/Wheeling entered into a Gas Well Agreement that is the substance of their partnership agreement.⁴ Amended Complaint, Exhibit C.

¶ 8 The Gas Well Agreement is a one-page agreement providing:

BCD Properties, Inc. (owner Robert H. Brace) and Michael A. Wheeling and John Szymanowski have entered into an agreement on this 1st day of October, 2002, involving two new gas wells being drilled. The two new gas wells, Dougherty # 1, and Danylko # 1 are located in McKean Twp. Each of the two parties entering this agreement with BCD Properties, Michael A. Wheeling and John Szymanowski, have agreed to purchase into a portion of the wells at $15,000.00 per well, each, making a total of $30,000.00 received from each contributor. This amount will be due BCD Properties at the signing of this contract. This total will account for 10% from each contributor per well. Each contributor will then receive 10% net profit after royalties, well tending fees, and operating expenses are deducted from the wells production each month.

Id.

¶ 9 The Gas Well Agreement did not make any express or implied reference to any other oil and gas ventures, on the Danylko or Dougherty leases or elsewhere, or any other kind of undertaking. The parties did discuss the possibility of additional gas well projects or ventures but no commitments of any kind were made. Wheeling Deposition, 7/20/06, at 52, 61-62; Szymanowski Deposition, 7/20/06, at 11, 17. The parties did not discuss any assignment of the Danylko or Dougherty leases. Id. at 33.

¶ 10 Danylko # 1 production peaked in October 2003 and began a steady decline thereafter until it ceased and the well was disconnected in February 2005. Wheeling Deposition, 7/20/06, at 91-92 and Exhibit 47. In April 2004, BCD drilled the two additional wells, Danylko # 2 and Danylko #4, each on the same Danylko leasehold and approximately 1,100 to 1,200 feet from Danylko # 1, and each modestly successful. Randall J. Brace Deposition, 7/21/06, at 91, 95-96.

¶ 11 Szymanowski/Wheeling contend that the partnership owns the Danylko oil and gas lease and Danylko #2 and #4 gas wells and that Brace and BCD must account for the profits from these two wells. Appellant's Brief at 10.

¶ 12 On appeal, they state the following questions:

A. Whether the trial court erred in concluding that there existed no genuine issue of material fact as to whether an oil and gas lease (and gas wells developed thereunder) was a partnership asset?

B. Whether the trial court erred in concluding that there existed no genuine issue of material fact as to the claim of usurpation of a partnership opportunity (and breach of fiduciary duty) when one partner drills two additional gas wells for his own benefit on the same land, pursuant to the same lease, to the same depth, and in close proximity to the gas well drilled by the partnership?

¶ 13 In reviewing a summary judgment: We view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Only where there is no genuine issue as to any material fact and it is clear that the moving party is entitled to a judgment as a matter of law will summary judgment be entered. Our scope of review of a trial court's order granting or denying summary judgment is plenary, and our standard of review is clear: the trial court's order will be reversed only where it is established that the court committed an error of law or abused its discretion.

Universal Health Services, Inc. v. Pennsylvania Property and Cas. Ins. Guar. Ass'n, 884 A.2d 889, 892 (Pa.Super.2005) (internal citations omitted).

¶ 14 In interpreting contracts, we are guided by the following principles:

The interpretation of any contract is a question of law and this Court's scope of review is plenary. Moreover, "[w]e need not defer to the conclusions of the trial court and are free to draw our own inferences. In interpreting a contract, the ultimate goal is to ascertain and give effect to the intent of the parties as reasonably manifested by the language of their written agreement." When construing agreements involving clear and unambiguous terms, this Court need only examine the writing itself to give effect to the parties' understanding. This Court must construe the contract only as written and may not modify the plain meaning under the guise of interpretation.

Abbott v. Schnader, Harrison, Segal & Lewis, LLP, 805 A.2d 547, 553 (Pa.Super.2002) (internal citations omitted) (emphasis added).

¶ 15 As we examine the Gas Well Agreement, we agree with the trial court's conclusion that the agreement lends neither express nor implied support to Szymanowski/Wheeling's argument the Danylko lease and the Danylko #2 and #4 wells were intended to be partnership assets. A fair reading of the agreement demonstrates the parties' focus was on the singular mission of developing two gas wells, Danylko # 1 and Dougherty # 1. There was no...