Allison, D. v. Rice Drilling B. ( 2021 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
DONNA L. ALLISON AND STEVEN M. : IN THE SUPERIOR COURT OF
ALLISON, WIFE AND HUSBAND, AND : PENNSYLVANIA
DAVID A. ALLEN AND LUCINDA R. :
ALLEN, HUSBAND AND WIFE :
:
Appellants :
:
v. :
:
RICE DRILLING B., LLC AND EQT :
PRODUCTION COMPANY : No. 537 WDA 2021
Appeal from the Order Entered April 14, 2021,
in the Court of Common Pleas of Greene County,
Civil Division at No(s): AD No. 211-2019.
BEFORE: KUNSELMAN, J., KING, J., and COLINS, J.*
MEMORANDUM BY KUNSELMAN, J.: FILED: DECEMBER 30, 2021
This case concerns three oil-and-natural-gas leases on a tract of land in
Greene County. David Allen and Donna Allison, who inherited that land from
their father (Jesse Allen), appeal from an order denying them partial summary
judgment and granting summary judgment to Rice Drilling B., LLC and EQT
Production Company.1 Because the trial court misapplied the law of tenancies-
at-will and there is a genuine issue of material fact, we affirm the denial of
partial summary judgment to the Allens, reverse the grant of summary
judgement to the Companies, and remand for trial.
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* Retired Senior Judge assigned to the Superior Court.
1Mr. Allen and Ms. Allison’s spouses are also plaintiffs, and Ms. Allison changed
her last name upon marrying Mr. Allison. For the sake of simplicity, we refer
to all four plaintiffs collectively as “the Allens.” Additionally, we refer to the
defendants as the “Companies.”
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Based on discovery, the parties agree that, in the early 1900s, the
Sayers Family owned the Allens’ land. On June 14, 1913, the Sayers executed
an oil-and-natural-gas lease with Carnegie Natural Gas Company (“CNG”).
The 1913 Lease would run for “as long . . . as oil or gas, or either of them is
produced from the said land by [CNG], its successors and assigns.” Trial Court
Opinion, 4/14/21, at 3. In exchange, CNG agreed to provide free gas to a
home on the property and to pay the Sayers $125, per well drilled, every three
months. The parties later reduced the payment to $100, per well, annually.
CNG drilled one well on the property and connected it to a transmission
pipeline that runs through and off the property. It also ran a gas line from
the transmission pipeline to the Sayers’ home.
The Allens’ parents purchased the property on June 27, 1957. The
parties agree CNG continued providing free gas and paying Jesse Allen $100
annually. They also agree that the well continued producing until 1991, but
they disagree about whether it produced gas thereafter.
According to an industry database, CNG last entered a production record
for the well on September 30, 1991. Thereafter, CNG no longer reported the
well as producing gas to the Pennsylvania Department of Environmental
Protection (“DEP”) or in industry databases.
However, no one plugged the well. This omission prompted one of the
Companies’ witnesses to testify at his deposition that “old wells are always
[in] that gray area . . . and unless [the database] specifically states that a
well is basically plugged [with] cement filled in, then there is always a
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possibility that that well could be producing, in some way, shape, or form.”
Depo. of Eakin, 11/7/19, at 25. Based on his history and experience with old
wells in Greene County and West Virginia, the witness said, “these wells were
Carnegie Natural Gas, and a lot of these wells around here haven’t been
plugged, so, they really still are producing.” Id. at 26 (some punctuation
omitted).
Another witness for the Companies agreed. He said, “If they are old
wells, without any meters on them, they can just be open into pipeline, sales
line, and . . . they could be flowing gas, that is, going down the pipeline, but
we are not measuring it, or recording it in any of our databases.” Depo. of
Lamm, 3/3/20, at 104. Thus, the well may or may not have ceased production
of natural gas in 1991.
On May 27, 1999, EQT Corporation acquired CNG, and the Companies
succeeded to CNG’s rights under the 1913 Lease. They continued giving Jesse
Allen free natural gas and making $100 payments throughout his life.
In May of 2016, the Companies began hydraulicly fracturing and
extracting natural gas from the section of the Marcellus Shell Formation
beneath the property. Three months later, Jesse Allen died, and his children
jointly inherited the land. The Allens did not inform the Companies of their
father’s death. Instead, they refused to cash any of the $100 checks that kept
arriving in Jesse Allen’s name.
Eventually, the Allens entered two, identical oil-and-natural-gas leases
with Rice Drilling for the property. Unlike the 1913 Lease (that provided $100
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and free gas to one home), the 2017 Leases granted the Allens 18.5% gross
royalties for all gas produced from their land. Rice Drilling also paid the Allens
two signing-bonuses of $384,963.75, one for each of the 2017 Leases.
That autumn, EQT and Rice Drilling merged, and several hydraulic-
fracturing wells began producing natural gas from the Allens’ property. The
Companies began paying the Allens $100, per well, based on the 1913 Lease,
rather than the 18.5% gross royalties under their 2017 Leases with Rice
Drilling.
On March 18, 2019, the Allens sued the Companies for breach of the
2017 Leases. The Companies filed an Answer and asserted a counterclaim for
declaratory judgment that the 1913 Lease remains in full force and effect.
After discovery closed, the parties moved for summary judgment. The
trial court denied the Allens’ request for partial summary judgment on the
counterclaim and granted summary judgment in favor of the Companies. This
timely appeal followed.
The Allens raise eight appellate issues. All of those issues are actually
sub-issues of the main question on appeal: Did the trial court properly deny
the Allens partial summary judgment on the Companies’ counterclaim and
properly grant summary judgment to the Companies?
The eight sub-issues challenging the summary-judgment order are as
follows:
1. Did the 1913 Lease automatically terminate under
Pennsylvania law when oil and gas production from
the [CNG-drilled] well ceased in 1991?
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2. Did the cessation of production from the well in 1991
and the resulting automatic termination of the 1913
Lease entitle the [Allens] to their requested partial
summary judgment?
3. Were the Companies entitled to summary judgment
on their counterclaim . . . even though . . . the
Companies conceded at summary judgment that they
held rights under a tenancy-at-will?
4. [D]id subsequent oil and gas production attributed to
the property . . . in 2016 [reinstate] the 1913 Lease?
5. [D]oes the [2016] commencement of oil and gas
production prevent [the Allens] from terminating the
tenancy-at-will?
6. [D]id the record support a finding that a tenancy-at-
will arose?
7. Were the 2017 Leases inoperative “top leases” [that
the 1913 Lease superseded]?
8. Was there a question of fact about whether the 2017
Leases were intended as “top leases?”
The Allens’ Brief at 11-14.
Our analysis addresses sub-issues one through six, which fully dispose
of this appeal. As we explain, a critical issue of fact (whether the CNG-drilled
well ceased production in or after 1991) remains unresolved. Thus, no party
is entitled to summary judgment.
When a trial court rules upon a motion for summary judgment, it awards
or denies judgment as a matter of law. Accordingly, the “question of whether
summary judgment is warranted is one of law, and thus our standard of review
is de novo, and our scope of review is plenary.” City of Philadelphia v.
Cumberland Cty. Bd. of Assessment Appeals, 81 A.3d 24, 44 (Pa. 2013).
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“Summary judgment may be entered only where the record
demonstrates that there remain no genuine issues of material fact, and it is
apparent that the moving party is entitled to judgment as a matter of
law.” Id., citing Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174,
1182 (Pa. 2010). “We must view the record in the light most favorable to the
nonmoving party, and all doubts as to the existence of a genuine issue of
material fact must be resolved against the moving party.” Carlino E.
Brandywine, L.P. v. Brandywine Vill. Ass'n, 197 A.3d 1189, 1199 (Pa.
Super. 2018).
1. The Allens’ Motion for Partial Summary Judgment
We address sub-issues one and two together, because they essentially
ask the same question. The Allens assert the 1913 Lease expired, because
they claim the CNG-drilled well stopped producing gas. They believe that they
are entitled to judgment, as a matter of law, on the Companies’ counterclaim,
which seeks a declaration that the 1913 Lease remains in full force and effect.
We disagree with the Allens.
An oil-and-natural-gas lease is simply a lease. Like any other lease, the
law of contracts governs. See, e.g., Amoco Oil Co. v. Snyder, 478 A.2d
795, 798 (Pa. 1984). Thus, we interpret the lease pursuant to its terms. See
Id.“The accepted and plain meaning of the language used, rather than the
silent intentions of the contracting parties, determines the construction to be
given the agreement.” Willison v. Consolidation Coal Co., 637 A.2d 979,
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982 (Pa. 1994). “It is well established that the intent of the parties to a written
contract is to be regarded as being embodied in the writing itself, and when
the words are clear and unambiguous the intent is to be discovered only from
the express language of the agreement.” Id. (quoting Steuart v.
McChesney, 444 A.2d 659, 661 (Pa. 1982)).
Here, the 1913 Lease endures “as long . . . as oil or gas, or either of
them is produced from the said land by [CNG], its successors and assigns.”
Trial Court Opinion, 4/14/21, at 3. By that language, the duration of the 1913
Lease is tied to the ability of CNG and its successors to continue producing oil
or natural gas from the property. Thus, the clause is not limited to the CNG-
drilled well from 1913. If CNG or its successors commenced oil or natural-gas
production at other wells on the property while the CNG-drilled well continued
to produce, the duration clause would extend to those additional wells. On
the other hand, if the CNG-drilled well ceased to produce before another well
went into production, then the 1913 Lease expired.
The parties agree that the only extraction point for oil or natural gas on
the property was the CNG-drilled well until the Companies began natural-gas
production from the Marcellus Shell Formation in May of 2016. Accordingly,
if the CNG-drilled well ceased production anytime between September of
1991 and May of 2016, then the 1913 Lease expired. However, if the CNG-
drilled well continually produced natural gas through May of 2016, then the
1913 Lease remains in full force and effect.
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The Allens sought summary judgment on the counterclaim, wherein the
Companies requested declaratory judgment that the 1913 Lease remains in
full force and effect. Thus, we must view the proffered evidence in the light
most favorable to the Companies (i.e., the nonmoving parties) to resolve the
first and second sub-issues.
The Companies offered deposition testimony from employees who have
experience with CNG-drilled wells in the Greene County area. They testified
that, where, as here, the CNG-drilled well is not capped with cement, then the
well is likely continually producing some natural gas. This production occurs
even though it went unrecorded in any database and unreported to the DEP.
If the fact finder accepts this testimony as true, the Companies will win their
declaratory-judgment counterclaim, because the 1913 Lease will remain in full
force and effect, pursuant to its clear and unambiguous language.
We must accept the testimony of the Companies’ employees as true to
resolve the Allen’s motion for summary judgment. See Carlino E.
Brandywine, L.P., supra. Also, the “witnesses’ credibility is a determination
for the [fact finder] and necessarily creates a genuine issue of material fact.”
Gruenwald v. Advanced Computer Applications, Inc., 730 A.2d 1004,
1009 (Pa. Super. 1999).
As a result, the Allens are not entitled to partial summary judgment.
2. The Companies’ Motion for Summary Judgment
The Allen’s third through sixth sub-issues focus on the trial court’s grant
of summary judgment to the Companies. Because we are now reviewing the
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Companies’ motion for summary judgment, our scope of review shifts to
examine the proffered evidence in the light most favorable to the Allens (i.e.,
the nonmoving party).
Hence, the following analysis rests upon the assumption that the fact
finder will discredit the testimony of the Companies’ witnesses regarding the
CNG-drilled well’s production of natural gas after 1991. Instead, we now
presume the fact finder will infer, from the absence of any post-1991 records
of production at the CNG-drilled well, that it ceased producing any natural gas,
whatsoever.2 As explained above, this factual presumption (if true) leads to
the conclusion that the 1913 Lease expired, under its own terms, in
September of 1991, because there were no other oil or natural-gas extraction
points on the property at that time.
In this scenario, the question is whether the Companies may enforce
the 1913 Lease’s duration provision after the 1913 Lease expired. The trial
court held that they may. First, the court correctly determined that, if the
CNG-drilled well ceased production in 1991, then the relationship between the
parties “became a tenancy-at-will, terminable by either party.” Trial Court
Opinion, 4/14/21, at 4, citing Cassell v. Crothers, 44 A. 44 (Pa. 1899).
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2 We note that “the drawing of inferences of fact from the evidence . . . is the
province of the jury.” Mayne v. Fid. & Deposit Co. of Maryland, 48 A. 469(Pa. 1901). Moreover, the trial court correctly held that the Allens have the
burden of proving the termination of the 1913 Lease. See Trial Court Opinion,
4/14/21, at 4. This includes proving the cessation of gas production from the
CNG-drill well between 1991 and the beginning of natural-gas extraction from
the Marcellus Shell Formation in May of 2016.
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However, the trial court misapplied the law governing tenancies-at-will when
it granted summary judgment to the Companies.
The court believed “the success of each party’s motion [for summary
judgment], depends upon timing.” Id. In the trial court’s mind, the time
frame in which the Allens could unilaterally terminate the tenancy-at-will ran
from the cessation of natural gas production in 1991 to the commencement
of Marcellus Shell extraction in May of 2016. The court essentially held that
the tenancy-at-will reverted to the duration clause found in the 1913 Lease
when production resumed and thereby revoked the Allens’ authority to
terminate the leasehold whenever they desired. The trial court cites no law
to support its reversion-to-the-1913-duration-clause theory. See id. at 5.
Tellingly, the Companies do not assert the trial court’s timing analysis is
correct. See Companies’ Brief at 53-57. They only offer a vague statement:
“Since [the Allens] did not terminate the lease before the Marcellus Shale
production . . . commenced in May of 2016, the terms of the [1913 Lease]
continue to govern the tenancy.” Id. at 54. To support this assertion, the
Companies rely on two cases: Bentz v. Barclay, 144 A. 280 (Pa. 1928), and
Routman v. Bohm, 168 A.2d 612 (Pa. Super. 1961). Neither is on point.
We begin with Bentz. There, landowners granted Bentz the right to
mine coal on their land. Despite language that the lease would terminate after
six months, Bentz continued mining coal for two years. A dispute arose as to
the amount of royalties that Bentz owed his landlords and a lawsuit for rents
and replevin ensued. In resolving the rents due, the Supreme Court of
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Pennsylvania stated, “as the lessees held over under their grant, the
stipulations fixing the rights of the respective parties continued in force until
the abandonment of the property.” Bentz, 144 A. at 281.
Unlike the 1913 Lease at bar, the language of Bentz’s lease did not tie
duration to continued resource production. Moreover, the Bentz Court does
not state (much less decide) what type of tenancy arose after six months of
mining. Thus, Bentz has no bearing upon a tenancy-at-will. Instead, Bentz
deals with holder-over tenants’ obligations to pay rent pursuant to the terms
of an expired lease, not the duration of or rights to terminate a holdover
tenancy. The Companies’ reliance upon Bentz is misplaced.
Turning to Routman, there, a group of apartment tenants for a term of
years held over after the expiration of their lease. This Court held they
“became tenants from year to year,” not tenants-at-will. Routman, 168
A.2d at 615. The Companies overlook that critical distinction when discussing
this case. Routman does not support the theory that the defunct, duration
clause of the 1913 Lease reactivates upon the commencement of new oil or
natural-gas production.
Such reinstatement would impermissibly negate the tenancy-at-will. In
this Commonwealth, “A tenancy-at-will has an indefinite term of duration and
is terminable at the will of either the lessor or the lessee.” SUMMARY OF PA.
JUR. (SECOND) § 26:43 at 67 (emphasis added) (citing Flomar Corp. v.
Logue, 210 A.2d 254 (Pa. 1965)). This rule applies to tenancies-at-will that
arise after an oil-and-natural-gas lease expires.
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For example, in Heasley v. KSM Energy, Inc., 52 A.3d 341 (Pa. Super.
2012), this Court determined that an oil-and-natural-gas lease, which expired
upon cessation of production, became a tenancy-at-will that the landowner-
lessor could unilaterally terminate. “When production ceased, the lease
became an at-will-tenancy, subject to termination by the lessor at any time.”
Id. at 346–47 (emphasis added). “Heasley elected to terminate [the tenancy-
at-will], first by ceasing to accept KSM’s payments after 2009, and second and
more definitively, by filing suit asking the court to deem the leases to be
terminated. That was his right under the law.” Id. at 347.
Assuming production at the Allens’ property ceased between September
of 1991 and May of 2016, under Heasley, a tenancy-at-will arose. That new
tenancy continued until the Allens unilaterally terminated it by ceasing to
accept the $100 payments from EQT, even though they did so after Marcellus
Shell extraction began. They “more definitively” terminated the tenancy “by
filing suit asking the court to deem [it] to be terminated. That was [their]
right under the law.” Id. at 347.
Resumption of oil or natural-gas production on the property during a
tenancy-at-will has no bearing upon either party’s right to terminate that form
of tenancy. The tenancy-at-will “has an indefinite term of duration and is
terminable at the will” of either party. SUMMARY OF PA. JUR. (SECOND) § 26:43
at 67 (emphasis added). If such a tenancy arose, the Allens could terminate
it “at any time.” Heasley, 52 A.3d at 347.
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Thus, the trial court erroneously held that “the success of each party’s
motion [for summary judgment], depends upon timing.” Trial Court Opinion,
4/14/21, at 4. The success of both motions for summary judgment depends,
instead, upon the factual question of whether the CNG-drilled well stopped
production between September of 1991 and May of 2016. That question can
only be answered at trial. No one is entitled to summary judgment.
Therefore, the trial court erred by granting summary judgment to the
Companies.3
Order affirmed in part and reversed in part. Case remanded for trial.
Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/30/2021
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3 The trial court’s “top lease” analysis is now irrelevant to our disposition of
this appeal. Therefore, we dismiss the seventh and eighth sub-issues as moot.
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