District court denies immediate pipeline rerouting

On October 24, 2013, the United States District Court for the Middle District of Pennsylvania denied a gas pipeline company’s motions for partial summary judgment and immediate possession for the construction of a replacement pipeline in York County. Columbia Gas Transmission, LLC v. 1.01 Acres, More or Less in Penn Tp., York County, Pa., 2013 WL 5773414 (M.D. Pa Oct. 24, 2013). Columbia gas sought to replace and reroute a portion of an existing pipeline that runs through York County because the current location of the pipeline has become heavily populated. In that process the pipeline company was unable to obtain the necessary easements from four landowners, and filed suit against the lands and the owners of the lands, asserting eminent domain. The pipeline company moved for summary judgment on the issue of its right to condemn the easements. The court denied the pipeline company’s motion for summary judgment because the pipeline company failed to establish the proposed reroute was an authorized “replacement” of an “eligible facility,” so as to allow automatic authorization under FERC Guidelines (codified at  18 C.F.R. §§15.203(a)-(b), 157.208(a) & (d)). The court reasoned that it should resolve whether the pipeline company satisfied regulations by deferring to FERC’s interpretations of its own regulations. The relevant interpretations provided automatic approval of reroutes where the new route was “outside but adjacent to” an existing right-of-way, or “spill over from the original temporary workspace or permanent right-of-way.” (Emergency Reconstruction, 68 Fed.Reg. at 4122). Here, the court explained the new proposal created “an entirely new route due to the need to circumvent [a congested area].” 

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

Nov. 2013

District court dismisses summary judgment in ongoing Butters Living Trust litigation.

On October 18, 2013, a magistrate judge for the United States District Court for the Middle District of Pennsylvania issued a memorandum opinion that dismissed a well operator’s motion for summary judgment in an on-going action revolving around the status of an oil and gas lease. Butters Living Trust v. SWEPI, Inc., 2013 WL 5707787 (M.D. Pa. Oct. 18, 2013). At this juncture of the litigation, the trust and gas producer disputed whether operations had commenced sufficient to propel the lease beyond its primary term. The language of the May 27, 2001, lease contained a ten year primary term and a habendum clause, negotiated in 2009, that stated “any drilling or reworking operations on or production from a well on that unit shall continue this lease in full force and effect.” In the weeks before May 27, 2011, the gas producer initiated surveying, permitting, and site preparation activities. Actual drilling did not occur. On May 31st, counsel for the trust informed the operator that the lease expired. During the discussions, the trust conveyed a portion of the estate’s surface rights, and language in the conveying deed reserved “all past and future rents and royalties from the existing [emphasis added] oil and gas lease.” Additionally, during conversations between counsel for the trust and a representative of the producer, it was alleged the producer representative tacitly conceded the lease had expired.

The court held that the motion for summary judgment should be denied because the landowner’s “contested claims” and producer’s “disputed assertions” contained genuine issues of material fact. The court reasoned that each party’s allegations contained factual disputes because of the alleged treatment of the lease by the parties. While the landowner maintained the lease expired, it referenced an “existing lease” when deeding a portion of the surface estate. Conversely, while the operator maintains the lease remains in effect, a representative allegedly admitted to its expiration. Therefore, the court found summary judgment would be inappropriate because the interpretations of the habendum clause entailed legal and factual matters that were genuinely disputed.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

November 2013

District court dismisses claims that Act 13 violated a physician’s first and fourteenth amendment rights

On October 23, 2013, the United States District Court for the Middle District of Pennsylvania granted the Commonwealth’s motion to dismiss claims that Act 13 of 2013, referred to by the plaintiff as “the Medical Gag Act,” violated the plaintiff physician’s first and fourteenth amendment rights because the physician lacked standing to sue. Rodriguez v. Krancer, 2013 WL 5744866 (M.D. Pa Oct. 23, 2013). The Act contains language that limited the availability of trade secret protected hydraulic fracturing fluid composition to health professionals outside of a medical emergency (58 Pa.C.S. §3222.1(b)(11)). As a physician involved with patients whose “illness or medical condition results from contacts with environmental contaminants” the plaintiff argued that he could not provide the amount of information necessary to conform with the ethical obligation to respect patients’ right to self-decision. The court held that the physician lacked standing under Third Circuit precedent because the injury alleged was too conjectural. The court explained the plaintiff had not yet sustained injury because he had not experienced a situation where Act 13 prevented him from acquiring the information necessary to effectuate treatment. Further, any alleged civil penalties or economic injury to the plaintiff would only be incurred by future actions by the plaintiff. Therefore, the court granted the Commonwealth’s motion to dismiss.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

October 2013

District court finds settlement stipulated underground pipeline is the sole use for a property

On October 11, 2013, the United States District Court for the Middle District of Pennsylvania denied a gas pipeline company’s Motion to Enforce Settlement Stipulation and Order because the clear and unambiguous language of an earlier settlement order limits the gas pipeline company’s use of land solely for a natural gas pipeline. Tennessee Gas Pipeline Co., L.L.C. v. Permanent Easement, 2013 WL 5603595 (M.D. Pa. Oct. 11, 2013).

In 2012, Tennessee Gas commenced the action at hand by filing a complaint to condemn a parcel of property in Pike County, PA. After several months of litigation, the parties agreed to a settlement that stipulated the landowners agreed to deliver to the gas company a deed conveying a portion of their land, including rights of way, along with a written confirmation of subdivision approval by a “federal master.” On February 26, 2013, the federal master sent the parties a letter requiring their signatures on a “Request for Planning Waiver and Non-Building Declaration” that was attached. The request provided a written description of the disputed parcel of land and its intended use: “the sole purpose of the ‘out parcel’ is for the installation of the underground gas pipeline.” Tennessee disputed this language and asked that the intended use be revised for “facilities” or “construction.” The federal master rejected these changes. Tennessee then, on April 9, requested the description be changed to reflect “current” intended use, which it argued could change subject to approval because it held the parcel in fee simple. The federal master again rejected the changes, and Tennessee filed the instant motion.

The court found against Tennessee and denied its motion to enforce the settlement because the relief requested by the gas company (requiring signing and approval of the revised request) contradicted the clear and unambiguous terms of the settlement agreement. The court explained the settlement provision specifically limited the land use solely to an underground natural gas pipeline because the settlement provision’s language stated the land was to be used “strictly and solely for use of a natural gas transmission pipeline.” Further, the deed restricted use of the land because it incorporated the provisions of the settlement agreement. Therefore, the gas company’s motion was denied.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

October 2013

District court holds conservation easement prohibits natural gas drilling

On August 27, 2013, the United States District Court for the Middle District of Pennsylvania found that no genuine issues of material fact existed in interpreting a conservation easement. Stockport Moutain Corp. LLC v. Norcross Wildlife Foundation, Inc., 2013 WL 4538822 (M.D. Pa. Aug. 27, 2013). Stockport Mountain Corp. purchased a parcel of land subject to a conservation easement placed on the land by Norcross (a previous owner). The easement prohibited “commercial” and “industrial” use of the land.

In December 2007, Stockport was approached by Chesapeake Appalachia regarding the possibility of natural gas being located under the property. Stockport communicated this possibility to Norcross, and Norcross notified Stockport that it interpreted the easement to prohibit such activities. The court found three aspects of potential leases to be pertinent: 1) the use and construction of roads, 2) the construction and use of commercial structures, and 3) the storage and removal of debris. At issue is the defendant, Norcross’s, motion for summary judgment to determine whether there are any genuine issues of material fact with respect to the permissibility of surface drilling for natural gas under the conservation easement.

The court held that no genuine issues of material fact existed and that the conservation easement clearly prohibited drilling for natural gas because drilling is considered “commercial” or “industrial” use under the clear, unambiguous terms of the easement. The court explained that it would broadly construe the terms of the easement because the Pennsylvania Conservation and Preservation Easement Act instructs courts to construe the terms of conservation easements liberally. Therefore, under the dictionary definitions of “commercial” and “industrial” natural gas drilling was prohibited by the easement because the exchange of gas for royalties falls under the common meaning of commerce and the use of machinery in a systematic effort to extract gas falls under the common meaning of industrial. The court order granted Norcross’s motion for summary judgment, and awarded Norcross attorneys’ fees under the terms of the conservation easement.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

September 2013

Chesapeake Energy Agrees to Settle Royalty Class Action Lawsuit for $7.5 Million

Chesapeake Energy agreed to settle a class action lawsuit that alleged that Chesapeake breached its contracts with leaseholders and its implied duty to pay the proper royalty amount to leaseholders. The Plaintiffs, Pennsylvania leaseholders with leases containing "Market Enhancement Clauses," had alleged that Chesapeake improperly deducted "post-wellhead" costs from their royalty payments and that the gas was sold in an "unmarketable condition" to Chesapeake's affiliates and third parties, which breached Chesapeake's duty to sell the gas at the higher "marketable condition" rate and reduced the Plaintiff's royalty.  Chesapeake denied all of the allegations.  While U.S. District Court Judge Malachy Mannion must approve of the settlement before it takes effect, Governor Tom Corbett issued a statement on September 4, 2013, stating that he was "pleased with the proposed settlement" and that the "settlement is a significant step forward in protecting the interests of Pennsylvania landowners."

For more information on this settlement and Governor Corbett's statement, see: https://stateimpact.npr.org/pennsylvania/2013/09/03/chesapeake-energy-agrees-to-pay-7-5-million-to-settle-royalty-lawsuit/

The Plaintiff's complaint and Chesapeake's answer may be found at the U.S. District Court for the Middle District of Pennsylvania, Docket No.: 3:13-cv-02289-MEM

Tom Panighetti

September 6, 2013

Bankruptcy court denies motion to dismiss claims that pooling violated stay

On July 23, 2013, the United States Bankruptcy Court for the Middle District of Pennsylvania denied Defendant gas producer’s motion to dismiss claims:

1. that pooling a property and developing the shale beneath it violated a stay in the pending bankruptcy proceeding; 
2. that the Defendant engaged in civil trespass to extract the gas; 
3. and that the Defendant should pay the royalties owed for extraction to the debtor. 

In re Powell, 2013 WL 3822105 (Bkrtcy. M.D. Pa. July 23, 2013).

In earlier proceedings, the court found that the oil and gas lease in question was an unexpired lease on the file date of bankruptcy and that the Debtor’s rejection of the lease could not be approved. The court denied the motions to dismiss claim because the Defendant’s allegations that the lease was expired must be accepted as true in Rule 12 proceedings. According to the court, therefore, assuming that the lease did expire after bankruptcy was filed, whether the Defendant’s violated the stay by pooling the property in order to extract natural gas was a bona fide issue of fact.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

August 2013

District Court adopts recommendation finding lease extension terms ambiguous, denies motion to dismiss.

On July 12, 2013, the United States District Court for the Middle District of Pennsylvania adopted a Magistrate Judge’s recommendation that a well operator’s motion to dismiss a dispute involving an ambiguous lease be denied. Butters Living Trust v. SWEPI, LP, 2013 WL 3676533 (M.D. Pa. July 12, 2012). In February 2007, the parties entered into a written oil and gas lease. While the lease provided for the extension of the lease of pooled lands, so long as production occurred, these provisions were “expressly deleted” by hand-written changes to the lease by the parties. Further, an addendum to the lease provided the lessee to extend non-pooled acreage “under the same terms of this lease.” The “same terms,” however, were stricken from the lease by the parties’ hand-written changes.

The magistrate recommended that defendant well operator’s motion to dismiss be denied because the lease was ambiguous. Pre-printed terms in a lease, under Pennsylvania law, are to yield to hand-written changes because a hand written change “presumably evidences the deliberate expression of the parties’ true intent.” Here, the handwritten changes to the lease created more than one reasonable interpretation of the lease. The lease of pooled property could either be extended under the pre-printed terms, or not under the hand-written changes; and the lease of non-pooled property could be extended under the addendum, or not because it references rights that were stricken from the lease. Therefore, according to the recommendation, the lease was ambiguous. The magistrate explained that at a minimum the ambiguities compelled the presentation of parol evidence in order to provide some degree of contractual coherence in interpreting the disputed lease.

To view the full opinion of this case, and other cases related to the Marcellus shale play, please visit the Penn State Agricultural Law Resource and Reference Center's Marcellus Shale Resource Area.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

July 2013

Zupp v. Cabot Oil & Gas Corp., No. 3:CV-12-2333, 2013 WL 3103763 (June 18, 2013).

On June 18, 2013, the District Court for the Middle District of Pennsylvania denied a landowners motion for reconsideration of a May decision that found a 2007 oil and gas lease was still in effect.

In the May decision, Zupp, Plaintiff, brought suit against Cabot, Defendant, seeking a declaration that an oil and gas lease was no longer in effect. The lease between the two parties stipulated an initial lease term of 5 years for Cabot to explore for oil and gas that was extended as long as oil or gas was produced in paying quantities. In dispute were “continuous operation” and “well shut-in” provisions that the Defendant relied on when extending its occupation of the Plaintiff’s land.

The continuous operations provision allowed for the lease to remain in effect so long as the well operator maintained certain operations stipulated in the lease. These included drilling, testing, completing, working, recompleting, deepening, plugging or repairing a well. In the event a well was drilled and shut-in (production of oil and gas is halted), the shut-in provision stated the lease remained in effect if the operator paid shut-in “royalties” to the landowner. The Plaintiff argued that the operator had not maintained continuous operations to extend the lease, and that the language of the lease prevented a shut in from maintaining the lease if it occurred beyond the primary term. The court disagreed with both of these arguments.

The court, in the May decision, granted the Defendant’s motion to dismiss because Cabot demonstrated that it maintained operations necessary to extend the lease. Further, it shut-in the well after the operations ceased, and paid the owner the necessary royalties to keep the lease in effect. The May court granted the Defendant’s motion to dismiss, but allowed the Plaintiff one opportunity to amend his complaint within 21 days.

In the June 18 decision, the court denied the Plaintiff’s motion to reconsider its May opinion. The court disagreed with the Plaintiff’s arguments that the court had failed to adequately consider the most significant parts of the lease and the legal arguments about those parts of the lease. The court stated that the motion raised by the Plaintiff disregarded sections of the May opinion that clearly examined the parts of the lease in question. Further, the court refused to give “legal conclusions” in the Plaintiff’s complaint the presumption of truth because legal conclusions are not the “well plead factual allegations” required to survive a motion to dismiss for failure to state a claim. Therefore, the motion to reconsider the May order was denied.

Written by: Garrett Lent, Research Assistant

Agricultural Law Resource and Reference Center

June 2013

Valley Rod & Gun Club v. Chesapeake Appalachia, LLC., No. 3:CV-13-0725, 2013 WL 2393003 (M.D. Pa. June 3, 2013).

On June 3, 2013, the United States District Court for the Middle District of Pennsylvania ruled on a gas well operator’s motion to dismiss a landowner’s claims of trespass and conversion/misappropriation by the company. Defendant operator Chesapeake and Plaintiff landowner Valley Rod & Gun Club executed a lease that contained provisions allowing Defendant access to the Plaintiff’s property, granting a right of entry, permission to construct a well pad, the privilege to install and use roads, and utilize oil, gas and non-domestic water for the storage of gas. Defendant and Plaintiff, disagreed on the location of the well, and Defendant chose a location against the owner’s requests that damaged the Plaintiff’s surface property. Defendant, via its sub-contractor, utilized stone, fill, rock, trees and mulch on the Club’s property to construct the access roads to the pad, without permission of the owner. The court dismissed the trespass claim because the lease granted Defendant a right of entry to the Plaintiff’s land, an absolute defense to trespass. The court explained that the lease provisions privileged the Defendant to install and use roads on the surface estate, and lacked provisions that restricted access where the Defendant’s otherwise had a right to be. The court, however, denied Defendant’s motion to dismiss the conversion and misappropriation claim. The court explained the Plaintiff plead facts sufficient to demonstrate that the stone, fill, rock, trees and mulch were not utilized by Defendant in sitework incidental to the extraction of oil and gas, but rather in the construction of access roads.

Written by: Garrett Lent, Research Assistant

Penn State Law, Agricultural Law Center

June 2013