District Court lifts stay on discovery in Marcellus gas lease litigation

On August 14, 2013, the United States District Court for the Middle District Court of Pennsylvania ruled on a well operator’s motions to dismiss a landowner’s claims of specific performance, fraudulent misrepresentation, slander of title, breach of implied duty of good faith and fair dealing and punitive damages claims. Crain v. Chesapeake Appalachia, LLC, 2013 WL 4419023 (M.D. Pa. 2013).

Crain, the landowner, entered into a standard oil and gas lease with East Resources in 2006. The lease provided for a five year primary term, ending on September 11, 2011, that could be extended by production. It also contained a pooling provision that required the well operator to give the landowner notice if it brought any of the leased land into a drilling unit. In 2008, the well operator had not commenced any drilling. As a result, in May 2008, the Plaintiffs entered into a second lease and addendum with East Resources, which established another primary term at the end of the 2006 lease, on September 11, 2011. In exchange, the 2008 lease provided the landowner’s would receive an additional $300 per acre at its execution, and an additional $1700 per acre within 90 days of the 2008 lease’s commencement. In July 2011, a “Declaration of Notice of Pooled Unit” was filed with the Bradford County Recorder of Deeds. It was recorded on September 13, 2011.

In its motions to dismiss, Chesapeake first contended that it had no interest in the 2006 or 2008 lease because Chesapeake Operation and Energy did not assume the interests of East Resources, the party that executed both leases. Chesapeake Appalachia was the sole assignee in the corporate Assignment of East Resources interest. The court denied the motion to dismiss because the dispute over Chesapeake Operation’s and Chesapeake Energy’s interests in the leases could be resolved in discovery. The landowner was not privy to “the structure of corporate entities” according to the court, but could determine the interests in discovery.

With regard to the specific performance claim, the court granted the well operator’s motion to dismiss. The court explained that an adequate remedy at law existed for the landowners because they sought payment under the 2008 lease.

Next, the court denied Chesapeake’s motion to dismiss the landowner’s claim of fraudulent inducement. The court stated that parol evidence would be allowed because the entire 2008 lease, and not simply its payment terms, was predicated upon alleged oral misrepresentations of the land agent.

The landowner’s claim that Chesapeake clouded title on the property by filing a Declaration of Pooling was also dismissed. The court granted the motion to dismiss because the landowner had failed to bring the claim within the one year limit prescribed by the statute of limitations. It explained that the date of publication was at the latest November 11, 2011, and that more than one year had elapsed between that date and when the claim was brought.

Further, the court granted the motion to dismiss landowner’s breach of implied duty of good faith and fair dealing claim because “such a breach is merely a breach of contract.” It allowed the landowner’s an opportunity to amend their complaint for breach of contract. Lastly, the court denied the motion to dismiss claims for punitive damages pending the amended breach of contract claim.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

September 2013