Walney v. SWEPI LP

• Citation: 311 F.Supp.3d 696
• Decision Date: 20 April 2018
• Docket Number: CIVIL ACTION No. 13–102 Erie
• Parties: Thomas J. WALNEY and Rodney A. Bedow, Sr., individually and on behalf of all others similarly situated, Plaintiffs, v. SWEPI LP and Shell Energy Holding GP, LLC, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

311 F.Supp.3d 696

Thomas J. WALNEY and Rodney A. Bedow, Sr., individually and on behalf of all others similarly situated, Plaintiffs,

v.SWEPI LP and Shell Energy Holding GP, LLC, Defendants.

CIVIL ACTION No. 13–102 Erie

United States District Court, W.D. Pennsylvania.

Signed April 20, 2018

Joseph E. Altomare, The Law Office of Joseph Altomare, Titusville, PA, Richard N. Lettieri, Lettieri Law Firm, LLC, Pittsburgh, PA, for Plaintiffs.

Jeremy A. Mercer, Blank Rome LLP, Pittsburgh, PA, Daniel M. McClure, Norton Rose Fulbright US LLP, Houston, TX, for Defendants.

OPINION

Joy Flowers Conti, Chief United States District Judge

This class action is being prosecuted by Thomas J. Walney ("Walney") and Rodney A. Bedow, Sr. ("Bedow") on behalf of certain Pennsylvania landowners who executed gas and oil leases for the benefit of SWEPI LP. In this action, Walney and Bedow (collectively, "plaintiffs") allege that SWEPI LP and its general partner, Shell Energy Holding GP, LLC (collectively, "SWEPI" or "defendants"), failed to pay bonus monies that were owed to the various class members under the terms of their respective leases.

Presently pending before the court are cross-motions for summary judgment filed by plaintiffs (ECF No. 140) and SWEPI (ECF No. 156). For the reasons that follow, plaintiffs' motion will be granted in part and denied in part; defendants' motion will be denied.

I. Factual and Procedural Background

SWEPI LP is a limited partnership engaged in the business of oil and gas exploration and production. (PCSF ¶ 2.)¹ Beginning in 2011, SWEPI sought to acquire mineral leases in certain parts of Pennsylvania with the help of independent contractors, including Southeast Land Services, LLC ("Southeast"), who acted as SWEPI's agents. (PCSF ¶¶ 4, 5.) Ultimately, Southeast helped SWEPI obtain more than 2,800 oil and gas leases. (Id. ¶ 5)

An account of SWEPI's lease acquisition practices is set forth in the declarations of Ian Haney ("Haney"), a Senior Land Representative in SWEPI's Land Department,² and Eric Jenevein ("Jenevein"), manager of Southeast's Appalachia Region. (See ECF Nos. 163–9, 163–10, and 150–1.) According to Haney and Jenevein, in 2011, Southeast's "landmen" began contacting individual landowners who, based on county property records, appeared to own oil and gas interests in Butler and Venango Counties. (First Haney Decl. ¶ 6, ECF No. 163–9; Jenevein Decl. ¶ 6, ECF No. 163–10.) Based upon their initial contact with landowners, the landmen would determine whether the property in question was already under lease to another company and, if not, whether the landowner was interested in entering into a lease with SWEPI. (Id. ) If the landowner expressed interest, the landman and landowner would discuss possible bonus amounts or other potential terms of the lease. (Id. ) Negotiations might occur over the course of days, weeks, or months. (Id. ) During late 2011 and 2012, other companies in competition with SWEPI were actively leasing in the same area. (Id. ) Consequently, landowners often negotiated with other oil and gas companies at the same time that they were negotiating with SWEPI's contracted landmen. (Id. )

Most landowners verbally inquired during the course of negotiations about how and when they would be paid their lease bonus. (Jenevein Decl. ¶ 8.) With respect to these inquiries, Southeast instructed its landmen to explain that payment would be made by a bank draft rather than a check. (Id. ) According to Jenevein,

it was the practice of Southeast's landmen to inform the landowner prior to obtaining the written lease that the payment would be made by a bank draft and not be payable until the expiration of a set number of banking days, usually ninety (90) days, that banking days differ from calendar days, and that ultimate payment would not be made if the title examination during the ninety (90) days did not result in a clean title examination acceptable to SWEPI. It was not the usual practice of Southeast landmen to make any representations or promises about the payment of a SWEPI lease bonus different than the terms reflected in the written bank draft.

(Id. )

Once lease terms were finalized, the landman would meet again with the interested landowner, usually at the office of a notary public. At that point, the landman would obtain the signed lease and a signed memorandum of lease ("MOL") in exchange for a draft instrument issued in the amount of the agreed upon bonus. (First Haney Decl. ¶¶ 4, 10; Jenevein Decl. ¶ 9.) The lease, MOL and bank draft were usually executed and exchanged at the same time. (Jenevein Decl. ¶ 9.) The amount of the lease bonus was normally not specified in the lease agreement itself; instead, it was reflected in the bank drafts that landmen issued on behalf of SWEPI. (First Haney Decl. ¶ 8; Jenevein Decl. ¶ 7.) The drafts were payable through SWEPI's bank, Amegy Bank N.A. ("Amegy"), and typically allowed 90 banking days (or sometimes 30 banking days) "for title examination and for payment" once the draft was submitted by the landowner's bank to Amegy for collection.³ (ECF No. 150–30; see First Haney Decl. ¶ 8; Jenevein Decl. ¶ 7.) The drafts also included the statement: "No liability for payment or otherwise shall be attached to any of the parties hereto." (Id. )

After the landmen obtained the signed leases and MOLs from the landowners, they would return those documents to Southeast's or SWEPI's administrative offices for processing. (First Haney Decl. ¶ 10; Jenevein Decl. ¶ 10.) The MOL would typically be recorded in the county records office within a few days thereafter. (Id. )

Following recordation, Southeast would undertake an in-depth records search to confirm that title to the oil and gas interest was in the acreage amount represented and that no other problems existed with respect to the chain of title. (First Haney Decl. ¶ 10; Jenevein Decl. ¶ 10.) Upon completion of its search, Southeast would provide SWEPI a confidential report and analysis relative to each parcel of property in question in order to identify whether a failure of title existed as to the particular property and, if so, whether curative action was required. (First Haney Decl. ¶ 12; Jenevein Decl. ¶ 11.) Sometimes the title problems could be cured by having the landowner execute a new lease reflecting the correct acreage or the correct ownership names; this curative action would involve cancellation of the original draft and issuance of a new one, if the landowner was agreeable. (First Haney Decl. ¶ 14; Jenevein Decl. ¶ 13.) In cases where there was a title problem that could not be readily cured, SWEPI would cancel the bank draft and surrender the lease back to the landowner. (Id. ) When drafts were cancelled prior to payment and no substitute draft was issued for the same lease, SWEPI or its contract landmen would file written surrenders of the oil and gas lease in the county records. (First Haney Decl. ¶ 21.)

According to SWEPI, the title examination process was both cumbersome and time consuming, as it required substantial manual research. (First Haney Decl. ¶ 13; Jenevein Decl. ¶ 12.) In the first half of 2012, the Venango county courthouse experienced significant congestion, as dozens of oil and gas leasing companies undertook title searches and competed for access to public records. (Id. ) By April 2012, the congestion in the courthouse had become so severe that the Venango County commissioners restricted access to the register and recorder's offices. (Id. ) As a result of these restrictions, Southeast's landmen were substantially delayed in their efforts to complete their title searches for Venango County properties. (Id. ) In many cases, landmen could not complete their title searches in Venango County, or SWEPI could not complete its evaluation of Southeast's title analysis, within the time frame specified in the drafts. (Id. ) Because of these difficulties, SWEPI decided, in or around June 2012, to stop acquiring new leases in most of Venango County and to cancel any outstanding drafts that had not already been paid. (First Haney Decl. ¶ 20.)

Between December 2010 and November 2013, SWEPI funded approximately 4,927 drafts and paid lease bonuses totaling approximately $313,000,000.00. (Second Haney Decl. ¶ 23, ECF No. 150–1.) Approximately 283 drafts that were issued during this time frame (the "Claimed Class Drafts") were never funded for various reasons. (ECF Nos. 150–7; Second Haney Decl. ¶ 23.)

Typically, SWEPI made its decision about whether to fund a draft prior to the draft's due date (usually 90 banking days). (Second Haney Decl. ¶ 23.) The most common reason for SWEPI's refusal to fund drafts was a perceived problem with the lessor's chain of title to the underlying minerals. (Id. ¶¶ 24, 28.) SWEPI, however, cites other reasons for refusing to fund class members' drafts. In 17 instances, funds were not paid because SWEPI surrendered the underlying lease at the landowner's request. (Id. ¶ 31.) In addition, "the inability of [SWEPI's] contract landmen at Southeast to complete courthouse title searches due to difficulty accessing the courthouse in the Spring and Summer of 2012 was a substantial reason why many drafts in Venango County were canceled and not paid." (Id. ¶ 25.) SWEPI also acknowledges that, by June 2012, a drop in the commodity price of natural gas made leasing in Venango County "less attractive," and this—together with the difficulty of completing timely title analysis—played into its decision to cancel some of the unpaid drafts. (Id. )

Plaintiffs Walney and Bedow are among those landowners who signed lease agreements and MOLs in favor of SWEPI but were never paid. (ECF No. 57 ¶ 1; ECF No. 58 ¶ 1; ECF Nos. 150–21, 150–54, 150–56, and 150–60.) Walney alleges that, in January 2012, he signed a lease agreement covering 42.18 acres of land in exchange for a promised bonus of $137,085.00. (ECF No. 57 ¶¶ 15, 17–18; ECF No. 63–1.) Bedow signed multiple lease agreements in 2011 and early 201...