Meanor, D. v. Peoples Natural Gas ( 2019 )

J-A20034-18
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
DONNA L. MEANOR, AS EXECUTOR : IN THE SUPERIOR COURT OF
OF THE ESTATE OF ROBERT : PENNSYLVANIA
WAGNER, SR., DECEASED; FAIRMAN :
DRILLING COMPANY; ALAN R. :
FAIRMAN; SANDRA R. FAIRMAN; :
RONALD R. FAIRMAN; BEVERLY A. :
FAIRMAN; RICHARD M. FAIRMAN; :
GARY D. FAIRMAN; FRANK G. :
FAIRMAN;TERRY L. FAIRMAN; :
WILLIAM WOOD AND BETTY WOOD, :
HIS WIFE; DOLORES M. WAGNER; :
DOLORES J. WAGNER; COUNTY- :
WIDE REAL ESTATE COMPANY, INC.; :
B. LEONARD BRODY; PATRICK F. :
MCCARTHY; E. JAMES TRIMARCHI; :
DAVID R. TOMB; WAGNER AND :
WAGNER; JAMES CARSON AND :
SUSAN CARSON, HIS WIFE :
:
v. :
:
PEOPLES NATURAL GAS COMPANY, :
LLC, AS SUCCESSOR BY MERGER TO :
EQUITABLE GAS COMPANY, A :
DIVISION OF THE FORMER :
EQUITABLE RESOURCES, INC. :
:
APPEAL OF: DONNA L. MEANOR, AS :
EXECUTOR OF THE ESTATE OF :
ROBERT WAGNER, SR., DECEASED, :
FAIRMAN DRILLING COMPANY, :
ALAN R. FAIRMAN, SANDRA R. :
FAIRMAN, RONALD L. FAIRMAN, :
BEVERLY A. FAIRMAN, DOLORES M. :
WAGNER, AND DOLORES J. WAGNER : No. 1757 WDA 2017
Appeal from the Judgment Entered October 23, 2017
in the Court of Common Pleas of Indiana County,
Civil Division at No(s): 2007-11360
J-A20034-18
DONNA L. MEANOR, AS EXECUTOR : IN THE SUPERIOR COURT OF
OF THE ESTATE OF ROBERT : PENNSYLVANIA
WAGNER, SR., DECEASED; FAIRMAN :
DRILLING COMPANY; ALAN R. :
FAIRMAN; SANDRA R. FAIRMAN; :
RONALD R. FAIRMAN; BEVERLY A. :
FAIRMAN; RICHARD M. FAIRMAN; :
GARY D. FAIRMAN; FRANK G. :
FAIRMAN;TERRY L. FAIRMAN; :
WILLIAM WOOD AND BETTY WOOD, :
HIS WIFE; DOLORES M. WAGNER; :
DOLORES J. WAGNER; COUNTY- :
WIDE REAL ESTATE COMPANY, INC.; :
B. LEONARD BRODY; PATRICK F. :
MCCARTHY; E. JAMES TRIMARCHI; :
DAVID R. TOMB; WAGNER AND :
WAGNER; JAMES CARSON AND :
SUSAN CARSON, HIS WIFE :
:
v. :
:
PEOPLES NATURAL GAS COMPANY, :
LLC, SUCCESSOR BY MERGER TO :
EQUITABLE GAS COMPANY, LLC :
F/K/A EQUITABLE GAS COMPANY, A :
DIVISION OF THE FORMER :
EQUITABLE RESOURCES, INC. :
:
: No. 1786 WDA 2017
Appeal from the Judgment Entered October 23, 2017
in the Court of Common Pleas of Indiana County,
Civil Division at No(s): 2007-11360
BEFORE: BENDER, P.J.E., LAZARUS, J., and MUSMANNO, J.
MEMORANDUM BY MUSMANNO, J.: FILED JANUARY 23, 2019
Donna L. Meanor, As Executor of the Estate of Robert Wagner, Sr.,
Deceased (“Meanor”), Fairman Drilling Company, Alan R. Fairman, Sandra R.
Fairman, Ronald R. Fairman, Beverly A. Fairman, (collectively, “the Fairman
Plaintiffs”), Dolores M. Wagner, and Dolores J. Wagner (collectively, “the
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Plaintiffs”)1 appeal from the Judgment entered following a nonjury trial
wherein the trial court found Peoples Natural Gas Company, LLC, successor
by merger to Equitable Gas Company, LLC, f/k/a Equitable Gas Company, a
Division of the Former Equitable Resources, Inc. (“Peoples”), had breached a
contract to purchase natural gas, but did not award damages on the breach
of contract claim. Peoples filed a cross-appeal from the Judgment. We affirm
in part and vacate in part, and remand with instructions.
The trial court set forth the relevant underlying facts as follows:
On July 3, 1995, Wagner & Wagner[fn], as Seller, entered into Gas
Purchase Agreement No. 2075 (hereinafter “GPC 2075”) with
Apollo Gas Company (hereinafter “Apollo”), as Buyer. Pursuant
to GPC 2075, Apollo agreed to buy all natural gas produced by
Seller from the wells on the Wagner family property.[fn2]
[fn]Wagner & Wagner was a joint business venture between
brothers Robert and Homer Wagner.
GPC 2075 specifies six (6) different natural gas wells from
[fn2]
which the Buyer will purchase all produced natural gas. A seventh
natural gas well located on the property was subsequently covered
by the terms of GPC 2075, beginning on November 1, 1995.
This contract was negotiated and signed by Homer Wagner, and
the payee of all sums to be paid was specified as “Homer Wagner,
Agent.” Within the Fourth enumerated provision of GPC 2075, the
Buyer’s obligation to purchase natural gas in regard to market
____________________________________________
1 We note that the trial court added as indispensable parties, William Wood
and his wife, Betty Wood; County-Wide Real Estate Company, Inc.; B. Leonard
Brody; Patrick F. McCarthy; E. James Trimarchi; David R. Tomb; Wagner &
Wagner; and James Carson and his wife, Susan Carson. While these parties
have an interest in the gas wells, they have not filed appellate briefs and are
not parties to this appeal. See Trial Court Opinion, 7/11/17, at 2 n.1 (noting
that “[t]he remaining plaintiffs were not individually represented.”).
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conditions is detailed; this provision is known as a “market-out”
clause. The Fourth provision states in relevant part:
BUYER’s agreement to purchase natural gas hereunder is
expressly made subject to BUYER’s ability to fully recover the
entire purchase price paid SELLER, as such ability of BUYER may
be affected by any order, opinion, enactment or regulation of
any governmental authority or any court.
BUYER’s agreement to purchase natural gas hereunder is
further subject to BUYER’s willingness to pay the applicable
contract price in light of the market and economic conditions
prevailing from time to time.
GPC 2075 then establishes a “Posted Price” price term. The Sixth
enumerated provision of said agreement states that “[t]he price
to be paid by BUYER to SELLER for the gas purchased under this
Agreement shall be BUYER’s then effective POSTED PRICE for the
class of gas delivered under this contract.” The Sixth provision
further states that:
BUYER’S POSTED PRICE is established from time to time by
notice published by BUYER to its several sellers and to natural
gas producers generally in the area of BUYER’s system....
As BUYER’S POSTED PRICE is changed from time to time,
BUYER shall forward notice thereof to SELLER by depositing
such notice in the mails, postage prepaid, at BUYER’S office.
This Agreement shall be deemed amended as to price upon the
depositing in the mails of each of said notices.
The parties do not dispute that Apollo’s “Posted Price” for gas at
the time GPC 2075 was executed was $1.60 per Mcf.[fn3] About
three months prior to the execution of GPC 2075, on April 12,
1995, Apollo issued “Notice to Natural Gas Producers in the State
of Pennsylvania of Posted Price” (hereinafter “1995 Posted Price
Notice”) setting its “Posted Price” at $1.60 per Mcf. Th[e 1995
Posted Price] Notice states, in relevant part, that:
Effective with the meter reading of April, 1995, and remaining
until changed by the Company, Apollo Gas Company is
announcing its “Posted Price” of $1.60/Mcf for qualified
producers in the state of Pennsylvania.
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The existing “Posted Price” of $1.60/Mcf is being established in
order to maintain the Company’s gas acquisition practice of
purchasing least cost gas while striving to avoid shut-in of local
production. …
[fn3]“Mcf is an abbreviation denoting a thousand cubic feet of
natural gas. A natural gas well that produces 400 Mcf of gas per
day operates with a daily production rate of 400,000. A single Mcf
is equal to approximately 1,000,000 Btu (British thermal units) of
energy. The “M” in MCF comes from the ancient Roman letter M,
which stood for one thousand.” INVESTOPEDIA, [Mcf],
http://www.investopedia.com/terms/m/mcf.asp#ixzz4lKLrsV18
(last visited Jun. 28, 2017).
In November 1995, Apollo began paying to Wagner & Wagner for
gas produced from its wells at a rate of $1.60 per Mcf. This
payment and its associated check was accepted and cashed.
Carnegie Natural Gas Company (hereinafter “Carnegie”) acquired
Apollo via a merger in early 1996. Carnegie continued to pay the
“Posted Price” of $1.60 per Mcf through November 1999. All
payments and checks from November 1995 to November 1999
were accepted and cashed. Carnegie then increased its “Posted
Price” and began paying $1.80 per Mcf during production month
December 1999. Plaintiffs assert that they never received the
required notice of any “Posted Price” or change in “Posted Price.”
Equitable Resources, Inc., (hereinafter “Equitable”) acquired
Carnegie on December 15, 1999. Equitable continued to pay
$1.80 per Mcf through production month January 2004. All
associated payments and checks during this period were accepted
and cashed.
Equitable continued to issue a total of 65 checks at $1.80 per Mcf
to “Homer Wagner, Agent,” which covered production months
February 2004 through June 2009. The Executrix of the Estate of
Homer Wagner, Dolores M. Wagner, did not cash these checks. In
August 2009, Equitable ceased issuing the payments and began
to internally account for the payments at $1.80 per Mcf. A total of
52 payments were accounted for internally by Equitable for
production months July 2009 to October 2013.
The [P]laintiffs consist of those who have interests in the natural
gas wells drilled and producing on the Wagner Family Properties.
Several members of the Wagner family possess interests in the
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at-issue gas wells. Robert N. Wagner is one such individual.
Throughout the years−including as far back as 1997-Robert N.
Wagner objected to GPC 2075. In several letters written and sent
over a period of years[,] he stated that the contract was
fraudulent and that the incorrect price was being paid. He also
requested that all future payments be made to him, and not to
Homer Wagner, as agent. Original Wagner & Wagner agent and
contract negotiator, Homer M. Wagner, died on August 3, 2003.
His wife, Dolores M. Wagner, was appointed as the Executrix of
his estate. Plaintiff Fairman Drilling Company possesses a 50%
interest in the wells covered by GPC 2075.
Robert Wagner initiated this suit on July 19, 2007, via a Praecipe
for Writ of Summons. Most of the other plaintiffs were
involuntarily joined by this Court on July 18, 2012. Original
plaintiff Robert Wagner died on March 16, 2014. Donna L. Meanor
was appointed the Executor of the Estate of Robert Wagner, and
then was formally substituted for Robert N. Wagner on April 30,
2014. Via their March 5, 2012[] Complaint, Plaintiffs assert two
causes of action: Breach of Contract and Unjust Enrichment.
Plaintiffs are seeking the difference between the $1.80 per Mcf
payments and the market price of natural gas per Mcf for
production months July 1995 to July 2015, in the amount of
$1,421,511.00.[fn4] [Equitable filed an Answer and New Matter.]
[fn4]In her Post-Trial Brief, plaintiff Donna L. Meanor, as Executor
of the Estate of Robert Wagner, Sr., Deceased, seeks damages in
the amount of $1,421,511.00. In their Post-Trial Brief, the
Fairman [P]laintiffs seek damages in the amount of
$1,560,000.00. The Fairman [P]laintiffs explain that this amount
represents a reasonable contract price for gas from February 2004
through December 2016, plus interest and accruing damages.
Both figures are based on Plaintiffs’ expert’s calculations.
On December 17, 2013, Equitable Gas Company, LLC, was
merged into Peoples Natural Gas Company, LLC[] (hereinafter
“Peoples”). Peoples has succeeded to the rights under GPC 2075
and has continued to internally account for the gas produced
under GPC 2075 at $1.80 Mcf. Peoples has accounted for a total
of 38 suspended payments between production months November
2013 and December 2016. [Peoples filed a Motion for Summary
Judgment, which the trial court denied.]
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This matter proceeded to trial on January 21, 2017. At trial, the
[trial c]ourt heard testimony from several lay witnesses and two
experts. First, the [trial c]ourt heard testimony from Ronald
Fairman, the President of Fairman Drilling Company. The [trial
c]ourt then heard from plaintiff James Carson, owner of the land
on which the wells are located, and a 30[-]year employee of
Fairman Drilling Company. The [trial c]ourt then heard from
Dolores J. Wagner, ex-wife of Robert Wagner, and from Dolores
M. Wagner, known as “D,” the widow of Homer Wagner. Of
particular importance to the [trial c]ourt is the testimony of the
two expert witnesses in this matter. Plaintiffs’ expert, William E.
Roach [(“Roach”)], is a chemical/petroleum engineer. He
provided testimony regarding the delta (or difference) between
the $1.80 per Mcf price paid and the market prices for the years
of payments in dispute in this case. Defendant’s expert,
Benjamin Schlesinger, Ph.D. [(“Dr. Schlesinger”)], currently
works as a natural gas industry consultant. Dr. Schlesinger
provided testimony regarding the meaning of the term “Posted
Price” as used in contracts in the natural gas industry.
Trial Court Opinion, 7/11/17, at 2-9 (footnotes in original).
Following a hearing, the trial court found Peoples had breached GPC
2075 by failing to properly specify a “Posted Price.” However, the trial court
also found Plaintiffs failed to prove identifiable damages, and concluded that
any damage award would be speculative. The trial court further found that
Plaintiffs’ unjust enrichment claim failed as a matter of law. Peoples, Meanor
and the Fairman Plaintiffs filed timely Motions for Post-Trial Relief. The trial
court denied the Motions. Subsequently, Judgment was entered on October
23, 2017. Plaintiffs filed a joint timely Notice of Appeal. Peoples filed a cross-
appeal. Thereafter, Plaintiffs and Peoples filed court-ordered Pennsylvania
Rule of Appellate Procedure 1925(b) Concise Statements.
On appeal, Plaintiffs raise the following questions for our review:
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1. Whether after determining that [Peoples] breached [GPC 2075]
by failing to establish a “Posted Price,” the trial court should
have substituted a “reasonable price” in accordance with the
Pennsylvania Uniform Commercial Code [(“UCC”)]?
2. Whether after determining that [Peoples] breached [GPC 2075]
by failing to establish a “Posted Price,” the Plaintiffs[]
presented unrefuted evidence of their loss calculations,
entitling the Plaintiffs to damages?
Brief for Meanor at 5.2
On cross-appeal, Peoples raises the following questions for our review:
1. Does the record support a finding that Peoples (and its
predecessors) breached GPC [] 2075?
2. Did the trial court correctly determine that Plaintiffs had failed
to offer sufficient evidence for the [trial c]ourt to properly
fashion a damages award where they failed to offer any
evidence as to how the “Posted Price” term contained in the
contract related to market forces, how often it was required to
change (if at all), and how to account for those factors that
significantly impact the amount due under a “market-based”
contract such as post-meter deductions?
Brief for Peoples at 1-2.
Our appellate role in cases arising from non-jury trial
verdicts is to determine whether the findings of the trial court are
supported by competent evidence and whether the trial court
committed error in any application of the law. The findings of fact
of the trial judge must be given the same weight and effect on
appeal as the verdict of a jury. We consider the evidence in a light
most favorable to the verdict winner. We will reverse the trial
court only if its findings of fact are not supported by competent
evidence in the record or if its findings are premised on an error
____________________________________________
2We note that the Fairman Plaintiffs filed a separate brief, which includes a
Statement of Questions substantially similar to Meanor’s brief. See Brief for
Fairman Plaintiffs at 5. Because of the similarity, we will not restate the
questions herein.
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of law. However, where the issue concerns a question of law, our
scope of review is plenary.
The trial court’s conclusions of law on appeal originating
from a non-jury trial are not binding on an appellate court because
it is the appellate court’s duty to determine if the trial court
correctly applied the law to the facts of the case.
Stephan v. Waldron Elec. Heating and Cooling LLC, 100 A.3d 660, 664–
65 (Pa. Super. 2014) (citation, brackets and ellipses omitted).
We will first address Peoples’s claim challenging the trial court’s finding
that it breached GPC 2075. Peoples contends that the evidence of record does
not support the allegations of breach of contract made in the Complaint. Brief
for Peoples at 25-27, 34-35. Peoples initially argues that the trial court abused
its discretion in finding that the “Posted Price” term in GPC 2075 was
ambiguous. Id. at 27-28. Peoples asserts that while GPC 2075 does not
define “Posted Price,” its expert, Dr. Schlesinger, indicated that “Posted Price”
is a term of art in the gas industry that is defined as “a posting [set by the
buyer] that reflects the standing offer to buy gas at that posted price.” Id. at
30; see also id. at 26-28, 29, 31-32, 34-35 (arguing that the Plaintiffs offered
no expert opinion to controvert the meaning of “Posted Price,” and that when
the parties entered into GPC 2075, they chose to incorporate this term of art
with a well-defined meaning). Peoples further asserts that under the well-
accepted definition of “Posted Price,” there was no obligation to change or
adjust the “Posted Price.” Id. at 28, 30, 34; see also id. at 33 (arguing that
the buyer has the “sole right to post the price it will pay for gas.”). Peoples
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claims that a “Posted Price” is an alternative to a “market-price contract,” and
is not tied to fluctuating market prices. Id. at 32, 33-34.3
“[A] lease is in the nature of a contract and is controlled by principles
of contract law.” T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267
(Pa. 2012). “[T]he interpretation of any contract is a question of law and this
Court’s scope of review is plenary[, and] we need not defer to the conclusions
of the trial court and are free to draw our own inferences.” Seneca Res.
Corp. v. S & T Bank, 122 A.3d 374, 380 (Pa. Super. 2015) (citation omitted).
“To show a breach of contract, a party must establish: (1) the existence of
a contract, including its essential terms, (2) a breach of a duty imposed by
the contract, and (3) resultant damages.” McCausland v. Wagner, 78 A.3d
1093, 1101 (Pa. Super. 2013) (citation and quotation marks omitted).
A contract “must be construed in accordance with the terms of the
agreement as manifestly expressed, and 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.” Id. (citation,
quotation marks, and brackets omitted). “When construing agreements
____________________________________________
3 Peoples also claims that the Plaintiffs waived their breach of contract claim
because they accepted payments without objection for many years. Brief for
Peoples at 35-38. However, we decline to find the claim waived. Here,
objections to the pricing were made through letters sent in 2003. Further,
the fact that checks were cashed between 1999 and 2004 does not in and of
itself demonstrate acceptance of the price of gas. Indeed, GPC 2075 only
required a change to the “Posted Price” from time to time.
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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.” Seneca Res. Corp., 122 A.3d at 380
(citation omitted).
In the law of contracts, custom in the industry or usage in
the trade is always relevant and admissible in construing
commercial contracts and does not depend on any obvious
ambiguity in the words of the contract. If words have a special
meaning or usage in a particular industry, then members of that
industry are presumed to use the words in that special way,
whatever the words mean in common usage and regardless of
whether there appears to be any ambiguity in the words.
[T]he parol evidence rule does not apply in its ordinary
strictness where the existence of a custom or usage to explain the
meaning of words in a writing is concerned. Where terms are used
in a contract which are known and understood by a particular class
of persons in a certain special or peculiar sense, evidence to that
effect is admissible for the purpose of applying the instrument to
its proper subject matter.... [I]n the absence of an express
provision to the contrary, custom or usage, once established, is
considered a part of a contract and binding on the parties though
not mentioned therein, the presumption being that they knew of
and contracted with reference to it.
… Wherever reasonable, the manifestations of intention of
the parties to a promise or agreement are interpreted as
consistent with each other and with any relevant course of
performance, course of dealing, or usage of trade. …
There is no requirement that an ambiguity be shown before
usage can be shown, and no prohibition against showing that
language or conduct have a different meaning in the light of usage
from the meaning they might have apart from the usage. The
normal effect of a usage on a written contract is to vary its
meaning from the meaning it would otherwise have.
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Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1193 (Pa. 2001)
(citations and quotation marks omitted).
As noted above, GPC 2075 states, in relevant part, the following:
FOURTH: … BUYER’S agreement to purchase natural gas
hereunder is further subject to BUYER’S willingness to pay the
applicable contract price in light of the market and economic
conditions prevailing from time to time.
***
SIXTH: … The price to be paid by BUYER to SELLER for the gas
purchased under this Agreement shall be BUYER’s then effective
POSTED PRICE for the class of gas delivered under this contract.
…
BUYER’S POSTED PRICE is established from time to time by notice
published by BUYER to its several sellers and to natural gas
producers generally in the area of BUYER’s system. A copy of the
currently effective POSTED PRICE notice is attached hereto and
made a part hereof.
As BUYER’S POSTED PRICE is changed from time to time, BUYER
shall forward notice thereof to SELLER by depositing such notice
in the mails, postage prepaid, at BUYER’S office. This Agreement
shall be deemed amended as to price upon the depositing in the
mails of each of said notices.
GPC 2075, 7/3/95, at 4-5 (unnumbered). GPC 2075 does not define the term
“Posted Price” or “time to time.”
Here, the trial court accepted the uncontroverted testimony of Dr.
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Schlesinger,4 the expert witness for Peoples, indicating that the term “Posted
Price” in GPC 2075 is a term of art in the natural gas industry. See id. at 14;
N.T., 1/31/17, at 132 (wherein Dr. Schlesinger testified that “Posted Price” is
a term of art in the oil and gas industries).5 Here, the trial court found credible
Dr. Schlesinger’s definition of “Posted Price” as the “[p]rice for oil or gas in a
given area, set by principal buyers. Price[] [is] available to [any] energy
producer in the area.” N.T., 1/31/17 at 133; Dr. Schlesinger Letter, 7/13/16,
____________________________________________
4 The trial court detailed Dr. Schlesinger’s background in the oil and gas
industry as follows:
Dr. Schlesinger … works as the president of Benjamin Schlesinger
and Associates, LLC, a natural gas and oil consulting firm. As a
consultant, Dr. Schlesinger performs/provides market research,
advisory services, contract review and negotiation, and litigation
support, particularly on oil and gas issues such as gas pricing. Dr.
Schlesinger earned his Ph.D. in Industrial Engineering from
Stanford University[.]
Trial Court Opinion, 7/11/17, at 13-14.
5 In interpreting GPC 2075, the trial court erroneously found that the term
“Posted Price” was also ambiguous. See Trial Court Opinion, 7/11/17, at 12-
13. Thus, while the trial court admitted evidence regarding the interpretation
of GPC 2075 based upon a purported ambiguity, such admission was not error
where the trial court was free to admit evidence that the term “Posted Price”
in GPC 2075 is a widely used and well-accepted term in the natural gas
industry. See Sunbeam Corp., 781 A.2d at 1193.
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at 4; see also Trial Court Opinion, 7/11/17, at 13, 16.6 Thus, based upon the
plain language contained in GPC 2075, and the credible definition of the term
as accepted in the oil and gas industry, the buyer sets the “Posted Price” based
upon where the gas is produced.7 While Peoples ostensibly argues that the
determination of whether there was a breach of GPC 2075 turns on the
definition of “Posted Price,” in actuality, the parties are disputing whether the
buyer (Peoples), in setting the “Posted Price,” was obligated to change the
price from “time to time.”
Here, the trial court determined that under the plain language of GPC
2075, the parties intended to change the “Posted Price” from “time to time”
due to market forces. See Trial Court Opinion, 7/11/17, at 16-17. The trial
court found that while the term “Posted Price” was not meant to be the market
price of natural gas, it was also not characterized as a fixed price. See id. at
____________________________________________
6 Dr. Schlesinger also provided two other definitions of “Posted Price” as used
in the oil and gas industry. Dr. Schlesinger defined the use of “Posted Price”
in oil production, and in instances where the seller sets the price. See N.T.,
1/31/17, at 133-34; Dr. Schlesinger Letter, 7/13/16, at 4; see also Trial
Court Opinion, 7/17/11, at 14-15. The trial court, in light of the language of
GPC 2075, determined that Dr. Schlesinger’s above definition of “Posted Price”
was credible and applicable to GPC 2075. See Trial Court Opinion, 7/17/11,
at 16.
7The trial court noted that the “purpose of the ‘Posted Price’ is to achieve the
goal of purchasing least cost natural gas while avoiding shut-ins, and it is
available to all producers in the area.” Trial Court Opinion, 7/17/11, at 15-
16.
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16, 17. The trial court found that Peoples breached GPC 2075 by failing to
change the “Posted Price,” stating as follows:
In order to ascertain whether or not [Peoples] breached GPC 2075
by failing to pay the “Posted Price” as properly defined, the [trial
c]ourt looks no further then [sic] to [Peoples’s] own admissions.
Included amongst the joint trial exhibits of all parties is [Peoples’s]
Objections and Responses to Plaintiffs’ First Set of Interrogatories
…. Therein, in response to Interrogatories 2, 3, 4, 6, [Peoples]
repeatedly states, with some minor variations, that “Peoples
responds that it/Equitable does not have a ‘Posted Price’ for
natural gas.”
The admission that Equitable/Peoples did not and does not have
a “Posted Price” is telling. When Equitable succeeded to the rights
of GPC 2075, it simply continued to pay the then existing price of
$1.80 [per] Mcf. This price never changed because [Peoples] does
not have a “Posted Price.” The [trial c]ourt finds that [Peoples] is
and has been treating GPC 2075 as a fixed price contract. If the
original parties to GPC 2075 wanted a fixed price contract at $1.60
per Mcf (or $1.80 per Mcf for that matter), the [trial c]ourt must
assume they would have done so; they did not. GPC 2075 is not,
nor has it ever been, a fixed price contract. By [Peoples’s] expert
Dr. Schlesinger’s own testimony[,] “Posted Price” is not a fixed
price contract, but rather only “a standing offer to buy (or sell)
gas at that price.” Peoples has unilaterally turned GPC 2075 into
a fixed price contract due to their complete failure to have a
“Posted Price.” This is not what the parties intended and
constitutes a breach of contract.
Id. at 17-18.
Upon our review of GPC 2075, and the relevant record, we agree with
the trial court’s reasoning. GPC 2075 clearly and unequivocally states that
the “Posted Price” will be changed occasionally based upon market and
economic forces. See GPC 2075, 7/3/95, at 4. Peoples admitted to failing to
change the “Posted Price” based upon market and economic forces. We
decline to accept Peoples’s argument that under the above definition of
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“Posted Price,” it was under no obligation to change or adjust the “Posted
Price.” See, e.g., N.T., 1/31/17, at 138 (wherein Dr. Schlesinger states that
the buyer is not obligated to change the “Posted Price” absent “some
mechanism”). Indeed, Peoples ignores the mechanism in the plain language
of GPC 2075 that directed it to change the “Posted Price” from “time to time.”
We must give effect to all provisions of GPC 2075. See Com. ex rel. Kane
v. UPMC, 129 A.3d 441, 463-64 (Pa. 2015) (noting that a contract must be
construed, if possible, to give effect to all of its terms). Thus, based upon the
foregoing, we conclude that Peoples breached GPC 2075.
We will now address the damages claims raised by Plaintiffs. Plaintiffs
contend that the trial court erred in failing to award damages on the breach
of contract. Brief for Meanor at 16; Brief for Fairman Plaintiffs at 22. Plaintiffs
argue that mere uncertainty in the amount of damages is not a bar to
recovery, where Peoples clearly caused the breach by failing to change the
“Posted Price” from time to time, and the resultant damages. Brief for Meanor
at 14; Brief for Fairman Plaintiffs at 24, 25-26, 28-29, 30, 35. Plaintiffs assert
that they provided the trial court with a method to calculate damages with
reasonable certainty. Brief for Meanor at 17; Brief for Fairman Plaintiffs at 22,
26, 29, 31. Plaintiffs further assert that market value may be used to
determine a reasonable price, as market price influences the pricing terms in
a “Posted Price.” Brief for Meanor at 20-21, 22; Brief for Fairman Plaintiffs at
26-27, 33-34. Plaintiffs argue that the difference between the “Posted Price”
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and market price from 1995 to 2015 was approximately $1,560,000. Brief for
Meanor at 23; Brief for Fairman Plaintiffs at 26-27, 31-32.
Plaintiffs also claim that the trial court erred in determining that it
needed evidence as to a proper “Posted Price” for the time period in question,
and that market price could not be used in calculating damages. Brief for
Meanor at 17, 20-21; Brief for Fairman Plaintiffs at 22. Plaintiffs point to
section 2305 of the UCC, Open Price Term, which purportedly allows Plaintiffs
to fix a reasonable price for the gas produced under GPC 2075 due to Peoples’s
bad faith in failing to properly set the “Posted Price.” Brief for Meanor at 18;
Brief for Fairman Plaintiffs at 23-24, 26. Plaintiffs argue that the trial court
erred in finding that section 2305 is inapplicable to this case, as the use of a
“Posted Price” in setting the price of the gas does not constitute bad faith.
Brief for Meanor at 19-20; Brief for Fairman Plaintiffs at 25. Plaintiffs claim
that Peoples was obligated to act in good faith, and that the use of a “Posted
Price” does not automatically satisfy this requirement. Brief for Meanor at 20;
Brief for Fairman Plaintiffs at 24-25. Plaintiffs contend that its calculation of
damages was uncontroverted, and that it provided the trial court with a
reasonable price for damages. Brief for Meanor at 24; Brief for Fairman
Plaintiffs at 22, 32.
Damages for a breach of contract should place the aggrieved
party in as nearly as possible in the same position it would have
occupied had there been no breach. To that end, the aggrieved
party may recover all damages, provided (1) they were such as
would naturally and ordinarily result from the breach, or (2) they
were reasonably foreseeable and within the contemplation of the
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parties at the time they made the contract, and (3) they can be
proved with reasonable certainty.
Ely v. Susquehanna Aquacultures, Inc., 130 A.3d 6, 10 (Pa. Super. 2015)
(brackets, citations, and quotation marks omitted). Further, “[a]s a general
rule, damages are not recoverable if they are too speculative, vague or
contingent and are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty.” Spang & Co.
v. U.S. Steel Corp., 545 A.2d 861, 866 (Pa. 1988). However,
[t]here should be no doubt that recovery will not be precluded
simply because there is some uncertainty as to the precise amount
of damages incurred. It is well established that mere uncertainty
as to the amount of damages will not bar recovery where it is clear
that damages were the certain result of the defendant’s conduct.
... The basis for this rule is that the breaching party should not
be allowed to shift the loss to the injured party when damages,
even if uncertain in amount, were certainly the responsibility of
the party in breach.
Id. (citation omitted).
We must first determine whether the UCC governs the award of
damages at issue in this case. The UCC is intended to be a “semi-permanent
and infrequently-amended piece of legislation,” and “is intended to make it
possible for the law embodied in the [UCC] to be applied by the courts in the
light of unforeseen and new circumstances and practices.” 13 Pa.C.S.A.
§ 1103, cmt. 1. The Legislature directed that the UCC
must be liberally construed and applied to promote its underlying
purposes and policies, which are:
(1) to simplify, clarify and modernize the law governing
commercial transactions;
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(2) to permit the continued expansion of commercial practices
through custom, usage and agreement of the parties; and
(3) to make uniform the law among the various jurisdictions.
Id. § 1103(a). “The text of each section [of the UCC] should be read in the
light of the purpose and policy of the rule or principle in question, as also of
the [UCC] as a whole, and the application of the language should be construed
narrowly or broadly, as the case may be, in conformity with the purposes and
policies involved.” Id. § 1103, cmt.
In relevant part, section 2305 of the UCC states the following:
(a) General rule.--The parties if they so intend can conclude a
contract for sale even though the price is not settled. In such a
case the price is a reasonable price at the time for delivery if:
…
(2) the price is left to be agreed by the parties and they fail to
agree[.]
…
(b) Price to be fixed by party.--A price to be fixed by the seller
or by the buyer means a price for him to fix in good faith.
(c) Price not fixed through fault of party.--When a price left
to be fixed otherwise than by agreement of the parties fails to be
fixed through fault of one party the other may at his option treat
the contract as cancelled or himself fix a reasonable price.
13 Pa.C.S.A. § 2305; see also id. § 1201(b)(20) (defining “good faith” as
“honesty in fact and the observance of reasonable commercial standards of
fair dealing.”). Further, comment 3 of section 2305 elucidates subsection
(a)(2) as follows:
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3. Subsection (2), dealing with the situation where the price is to
be fixed by one party rejects the uncommercial idea that an
agreement that the seller may fix the price means that he may fix
any price he may wish by the express qualification that the price
so fixed must be fixed in good faith. Good faith includes
observance of reasonable commercial standards of fair dealing in
the trade if the party is a merchant. (Section 2-103). But in the
normal case a “posted price” or a future seller’s or buyer’s “given
price,” “price in effect,” “market price,” or the like satisfies the
good faith requirement.
Id. § 2305, cmt. 3.
The trial court found that section 2305 of the UCC was inapplicable to
the instant case, thereby precluding Plaintiffs from setting a reasonable price.
Trial Court Opinion, 7/11/17, at 24. The trial court specifically found that
comment 3 to section 2305 indicates that the use of a “Posted Price” satisfied
the good faith requirement. Id. at 24-25; see also id. at 25 (noting that the
reference to “Posted Price” in comment 3 of section 2305 “unequivocally
excludes the application of [s]ection 2305 to a “Posted Price” contract.”).
Upon our review, we conclude that the trial court’s interpretation of
section 2305 is overly broad in light of the fact that the drafters of the UCC
utilized “normal case,” instead of “all cases.” See Allapattah Servs., Inc.
v. Exxon Corp., 61 F. Supp. 2d 1308, 1320 (S.D. Fla. 1999) (stating that
“the words ‘in the normal case’ mean that, although a posted price will usually
be satisfactory, it will not be so under all circumstances.”) (citation omitted).
While the UCC does not define “normal case,” the good-faith presumption for
a “Posted Price” was meant to apply broadly to avoid litigation on open-price
terms. See, e.g., Autry Petroleum Co. v. BP Prod. N. Am., Inc., 334 F.
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App’x 982, 985 (11th Cir. 2009) (accepting “that the draftsmen of the UCC
intended that the safe harbor created by the normal case good faith
presumption apply broadly lest every price set pursuant to an open-price term
be vulnerable to attack and subject to litigation.”); Flagler Auto., Inc. v.
Exxon Mobil Corp., 582 F. Supp. 2d 367, 378 (E.D.N.Y. 2008) (noting that
under section 2305, the drafters sought “to eliminate litigation over prices that
are nondiscriminatory and set in accordance with industry standards.”)
(citation omitted); Shell Oil Co. v. HRN, Inc., 144 S.W.3d 429, 435 (Tex.
2004) (stating that with regard to section 2305, “the drafters wished to
minimize judicial intrusion into the setting of prices under open-price-term
contracts[, and] that requiring sellers in open-price industries, such as the oil
and gas industry, to justify the reasonableness [of] their prices in order to
satisfy section [2305] would mean that in every case the seller is going to be
in a lawsuit and that every sales contract would become a public utility rate
case.”) (citation, brackets, and quotation marks omitted). 8 To overcome the
good faith presumption in “Posted Price” cases, and to promote certainty and
____________________________________________
8 “Although these cases involved other jurisdictions’ versions of the UCC, they
are nevertheless persuasive authority here[,] as the relevant provisions in
their UCC statutes are substantially similar to the provisions in the
Pennsylvania UCC and one of the goals of uniform laws such as the UCC is
uniformity of application.” Cont’l Ins. Co. v. Schneider, Inc., 873 A.2d
1286, 1293 n.10 (Pa. 2005); see also 1 Pa.C.S.A. § 1927 (stating that
“[s]tatutes uniform with those of other states shall be interpreted and
construed to effect their general purpose to make uniform the laws of those
states which enact them.”).
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predictability in commercial transactions, “allegations of dishonesty under this
section must also have some basis in objective fact[,] which[,] at a minimum
requires some connection to the commercial realities of the case.” Shell Oil
Co., 144 S.W.3d at 435-36; see also Casserlie v. Shell Oil Co., 902 N.E.2d
1, 5 (Ohio 2009) (noting that “[i]f a subjective inquiry could determine bad
faith, a seller charging a fair price, even exactly the same price as another,
good-faith seller, could be deemed to be acting in bad faith.”).
As noted above, the evidence presented at the nonjury trial
demonstrated that Peoples did not fulfill the requirements of GPC 2075 when
it failed to change the “Posted Price” from “time to time.” See Trial Court
Opinion, 7/11/17, at 17-18. While the price may have been commercially
reasonable, Peoples did not act with honesty in fact or good faith in the
manner in setting the price. See id.; see also Allapattah, 61 F. Supp. 2d
at 1322 (stating that the posted price presumption did not apply where the
dispute involved the manner in which the price was calculated, and not the
price itself). Thus, this constitutes an abnormal case, and the posted price
presumption does not apply in this case. Because Peoples failed to act in good
faith, Plaintiffs are entitled to damages that are based upon a reasonable price
for the gas during the time in question pursuant to section 2305(c).
Here, Plaintiffs claim that in calculating a reasonable price for the gas,
the market price should be utilized. See Brief for Meanor at 20-21, 22, 23;
Brief for Fairman Plaintiffs at 26-27, 31-32, 33-34; see also N.T., 1/31/17,
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at 95-96, 98 (wherein Plaintiffs’ expert, Roach, testified to calculating
damages based upon the market price of the gas during the time in question).
The trial court found that market price was not a proper metric in calculating
damages, as GPC 2075 called for a “Posted Price,” which was neither a market
price nor a fixed price. Trial Court Opinion, 7/11/17, at 22-23. The trial court
noted that no evidence was presented as to a proper posted price for the time
period in question, how a posted price should be calculated, the relationship
between a posted price and market price, or other posted prices in the area
during the relevant time. Id. at 23. The trial court concluded that based upon
the evidence of record, an award of damages was speculative and could not
be established with reasonable certainty. Id. at 23-24.
Upon review, we agree with the trial court’s finding that the damages
were not established with reasonable certainty. However, pursuant to section
2305(c), Plaintiffs were entitled to a reasonable price for the gas during the
time in question, and Peoples is not entitled to shift the loss to Plaintiffs. See
Spang & Co., supra. Thus, we now consider whether a new trial on damages
should be granted.
“A court has discretion to hold a new trial solely on the issue of damages
if: (1) the issue of damages is not ‘intertwined’ with the issue of liability, and
(2) the issue of liability has been ‘fairly determined.’” Shiflett v. Lehigh
Valley Health Network, Inc., 174 A.3d 1066, 1092 (Pa. Super. 2017)
(citation, ellipses and some quotation marks omitted). “[L]iability is not
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intertwined with damages when the question of damages is readily separable
from the issue of liability.” Id. (citation omitted). “The liability issue has been
‘fairly determined’ when liability has been found ‘on clear proof’ under
circumstances that would not cause the verdict to be subject to doubt.” Id.(citation omitted).
Here, as noted above, the liability issue (the breach of contract by
Peoples) has been fairly determined. Further, the issue of damages, i.e., the
reasonable price for natural gas during the time in question, is readily
separable from the liability issue. Thus, we vacate the portion of the Judgment
awarding no damages to Plaintiffs, and remand for a new trial limited to
damages. In this new trial, the parties should address the concerns articulated
by the trial court regarding the calculation of damages to a reasonable
certainty and price.
Based upon the foregoing, we affirm the Judgment with regard to the
finding that Peoples breached GPC 2075, vacate the Judgment with regard to
the award of no damages, and remand for a new trial limited to damages.
Judgment affirmed in part and vacated in part. Case remanded with
instructions. Jurisdiction relinquished.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/23/2019
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