Opinion
J. A29013/16 No. 239 WDA 2016
12-13-2016
DANIEL L. HEATH, Appellee v. GEORGE D. DELLICH AND MARY ANN DELLICH, Appellants
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
Appeal from the Judgment February 8, 2016
In the Court of Common Pleas of Venango County
Civil Division at No.: 848-2011 BEFORE: DUBOW, J., MOULTON, J., and MUSMANNO, J. MEMORANDUM BY DUBOW, J.:
Appellants purport to appeal from the January 28, 2016 Order denying their Post-Trial Motions. Appellants filed a Praecipe for entry of Judgment on February 8, 2016. See Pa.R.C.P. No. 227.4; Prime Medica Assocs. v. Valley Forge Ins., 970 A.2d 1149, 1154 n.6 (Pa. Super. 2009) (holding that Orders denying Post-Trial Motions are interlocutory and generally not appealable; rather, the subsequent Judgment is appealable). We have changed the caption accordingly.
Appellants, George D. Dellich and Mary Ann Dellich, appeal from the February 8, 2016 Judgment entered after a bench trial in this oil and gas lease dispute. Upon review, we affirm.
We adopt the facts as set forth by the trial court in its October 7, 2015 Findings of Fact pursuant to Pa.R.C.P. No. 1038. See Trial Court Opinion, 10/7/15, at 1-19. We, therefore, reiterate only the facts relevant to the instant appeal. In 1982, Appellants, landowners of 59 acres in Venango County, Pennsylvania, and the Peoples Natural Gas Company entered into an Oil and Gas Lease.
The relevant portions of the lease provided as follows:
2. TERM. It is agreed that this lease shall remain in force for the term of five (5) years from April 2, 1983 and as long thereafter as the above described land, or any portion thereof or any other land pooled or unitized therewith as provided in paragraph 3 hereof is operated by the Lessee in the search for or production of oil or gas or as long as gas is being stored, held in storage, or withdrawn from the premises by the Lessee. Upon the drilling of a well upon the premises, or any portion thereof, or any other land pooled or unitized therewith, yielding no royalty, the Lessee may continue to hold the leased premises, upon the continued payment of the delay rental hereinafter provided for a further term of five (5) years after the expiration of the term above mentioned and as long thereafter as the land, or any portion thereof or any other land pooled or unitized therewith, is operated by the Lessee in the search for or production of oil or gas.Oil and Gas Lease, 12/2/1982, at 1.
* * *
SHUT IN ROYALTY: If any well or wells, on the leasehold or acreage unitized therewith, are capable of producing gas and are shut-in and no gas is produced and there are no other production or drilling operations being conducted, or payments made under any other provision of this lease to maintain the lease in force, Lessee covenants and agrees to pay a royalty at the rate of [$29.50], quarterly in advance, beginning ninety (90) days from the date any well or wells are shut-in and each three months thereafter during the shut-in period.
In 1987, the Peoples Natural Gas Company pooled Appellants' land with 17 other leases and 13 tracts of land, and drilled K. Greene #1 Well into Medina sand to a depth of 6,700 feet ("Well #1").
In January 2000, Appellee acquired the Peoples Natural Gas Company's rights under the original lease by Assignment and continued to operate the Well. In 2002, Well #1 ran into problems involving a salt bed embedded near the Well, which dramatically decreased the amount of gas produced. In 2005, due to similar salt bed issues, Well #1 collapsed.
The Well stopped producing gas in April 2008. Under a provision of the original lease, if the Well yielded no royalty payments Appellee could extend the lease for 5 years by paying a "delay rental," also referred to as a "shut-in royalty payment." Beginning in February 2009, Appellee provided these payments every three months in the amount of $29.50, accompanied by letters to assuage Appellants' concerns. Appellants cashed the checks until February 2011 when they began returning the checks. Appellee then placed the checks in escrow from and after that date until July 2011.
In March 2010, the Pennsylvania Department of Environmental Protection ("DEP") issued a Notice of Violation after an inspection indicated the Well was abandoned. Appellee contacted DEP in August 2010 to request additional time to bring the Well into compliance in order to conduct evaluation and testing. DEP granted him 90 additional days. In November 2010, Appellee filed an Application for Inactive Well Status, which DEP denied in December 2010.
The trial court stated that the DEP characterized the well as abandoned "in compliance with its regulations" pertaining to non-producing wells that are not plugged. Trial Court Opinion, 10/7/15, at 26.
In February 2011, Appellee sought advice from Thomas Havranek ("Havranek") regarding his options to repair the collapsed Well #1, and the two spoke about the project every 6-8 weeks. Havranek prepared a list of five options to fix the Well. DEP again inspected Well #1 in March 2011 and concluded that it was still abandoned. In May 2011, Appellee plugged Well #1.
In June 2011, Appellants sent a letter to Appellee terminating the lease due to the lack of production and activity. On July 15, 2011, Appellee initiated the instant action by filing a Complaint to quiet title and for declaratory judgment. The trial court denied summary judgment.
Also in July 2011, Appellee submitted an application to DEP for a sidetrack procedure. Although DEP granted Appellee's application, Appellee abandoned the sidetrack in September 2011 after further consultations and endangered species concerns. Instead, in October 2011, Appellee applied for a permit to drill an alternate Well ("Well #2"), which DEP granted in November 2011. Appellee drilled Well #2 in March 2012, and Well #2 began producing in November 2012.
The sidetrack procedure involved plugging the existing vertical Well with cement above the problematic area, and then drilling laterally into the side of the existing Well from that point to a similar total depth "to correct the deficiencies in the existing [W]ell[.]" Trial Court Opinion, 10/7/15, at 8; Letter from Havranek to DEP, 7/8/11, at 1.
Appellee expended approximately $400,000 to get Well #2 into production, as well as $300,000 for a compression facility completed in 2013 to create a market for gas from the Well. Trial Court Opinion, 10/7/15, at 8, 10, 25.
Following a bench trial conducted on September 10-12, 2015, the trial court rendered its written verdict in favor of Appellee on October 7, 2015, granting the declaratory judgment and confirming title with respect to the lease in Appellee.
After the denial of their Post-Trial Motion, Appellants filed a timely Notice of Appeal. Appellants and the trial court complied with Pa.R.A.P. 1925.
Appellants present four issues for our review:
1. Did the trial court err as a matter of law when it concluded the burden of proof was initially on the Appellants in both the Quiet Title Action and the Declaratory Judgment Action?Appellants' Brief at 4.
2. Did the trial court err as a matter of law or abuse its discretion by finding in favor of Appellee?
3. Did the trial court err as a matter of law when it determined that Appellee was tendering a valid shut-in payment?
4. Did the trial court err as a matter of law or abuse its discretion by utilizing an Exhibit that was not admitted into evidence?
Our standard of review in a declaratory judgment action "is limited to determining whether the trial court clearly abused its discretion or committed an error of law." Peters v. Nat'l Interstate Ins. Co., 108 A.3d 38, 42 (Pa. Super. 2014). "We may not substitute our judgment for that of the trial court if the court's determination is supported by the evidence." Id.
In reviewing a trial court's decision in a non-jury trial, we are mindful of the following precepts:
Our review in a non-jury case is limited to whether the findings of the trial court are supported by competent evidence and whether the trial court committed error in the application of law. We must grant the court's findings of fact the same weight and effect as the verdict of a jury and, accordingly, may disturb the non-jury verdict only if the court's findings are unsupported by competent evidence or the court committed legal error that affected the outcome of the trial. It is not the role of an appellate court to pass on the credibility of witnesses; hence we will not substitute our judgment for that of the factfinder. Thus, the test we apply is not whether we would have reached the same result on the evidence presented, but rather, after due consideration of the evidence which the trial court found credible, whether the trial court could have reasonably reached its conclusion.Kennedy v. Consol Energy Inc., 116 A.3d 626, 640 (Pa. Super. 2015) (citation and quotation marks omitted).
"[A] lease is in the nature of a contract, and [it] is controlled by principles of contract law." T.W. Phillips Gas and Oil Co. v. Jedlicka , 42 A.3d 261, 267 (Pa. 2012) (citation omitted). "[T]he object in interpreting instruments relating to oil and gas interests, like any written instrument, is to ascertain and effectuate the intention of the parties." Szymanowski v. Brace , 987 A.2d 717, 720 (Pa. Super. 2009) (citation and quotation omitted).
A lease 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." Jedlicka , supra at 267 (citations omitted). "This Court must construe the contract only as written and may not modify the plain meaning under the guise of interpretation." Szymanowski , supra at 722 (citation omitted). "[A] party seeking to terminate a lease bears the burden of proof." Jedlicka , supra at 267 (citation omitted).
In Jedlicka , the Supreme Court of Pennsylvania held that "if a [W]ell consistently pays a profit, however small, over operating expenses, it will be deemed to have produced in paying [q]uantities." Id. at 276. In that case, the lessor argued that "because there was a $40 loss in 1959, the subject [W]ells failed to produce in paying quantities, resulting in termination of the lease." Id. The Jedlicka Court rejected this argument and affirmed the trial court's finding that a one-year period in the context of a 80-year-old lease was not an appropriate time period for evaluating profitability. Id.
In their first issue, Appellants aver that the trial court improperly placed the burden of proof on them as defendants in the underlying matter. Appellants' Brief at 14. Appellants acknowledge that they could not locate any Pennsylvania oil and gas lease case, "where there was a challenge regarding the burden of the moving party[.]" Appellants' Brief at 15. Instead, Appellants cite several Ohio cases and mischaracterize the trial court's actions and decision by arguing that "[t]he trial court seeks to shift this requirement to [Appellants], without first requiring a showing of prima facie title by [Appellee.]" Appellants' Brief at 17.
The trial court relied on our Supreme Court's decision in Jedlicka , supra , and concluded "that once it is established that a [W]ell has been produced and that the lease has been in production, [] the burden then is on the landowner, and not the producer, to demonstrate that the lease is no longer in production." Trial Court Opinion, 10/7/15, at 22. The trial court then concluded that Appellee satisfied this prima facie showing and that Appellants failed to meet their burden of proof. We agree with the trial court and conclude that the trial court properly applied the applicable burden of proof.
In their second issue, Appellants aver that the trial court generally abused its discretion and erred as a matter of law when it ruled in favor of Appellee. Appellants chiefly contend that the trial court fundamentally misapplied the concept of good faith set out in Jedlicka , supra , which permits the trial court to examine economic determinations and business judgments when evaluating whether the leaseholder has exercised good-faith efforts to maintain the lease. Appellants contend that Jedlicka applies only to determinations of "what constitutes production 'in paying quantities' sufficient to maintain a leasehold[]" where a Well has continuously produced. Appellants' Brief at 21. Appellants aver that, because Well #1 stopped producing, a different good-faith standard that did not examine economic determination and other business determinations is more appropriate.
Appellants specifically direct our attention to the good faith standard set forth in Pemco Gas , Inc. v. Bernardi , 5 Pa. D. & C.3d 85 (Pa Com. Pl. Ct. 1977), and argue that the Armstrong County Court of Common Pleas properly took into account diligent actions and actual "operations [but] not [] economic decisions." Appellants' Brief at 24; see also Appellants' Reply Brief at 2-3. Appellants believe applying this alternative standard would alter the legal conclusions in the instant case, and generally challenge the trial court's findings of fact and conclusions of law.
As an initial matter, the trial court properly relied on Jedlicka , supra , which constitutes binding precedent. Pemco , supra , a decision of a Court of Common Pleas, is not binding precedent for this Court or another Court of Common Pleas. Sysco Corp. v. FW Chocolatier , LLC , 85 A.3d 515, 520 n.2 (Pa. Super. 2014) ("It is well-settled that Court of Common Pleas decisions 'are not binding precedent for this Court[,]' ... [but] may be considered for their persuasive authority."); see also Castle Pre-Cast Superior Walls of Delaware , Inc. v. Strauss-Hammer , 610 A.2d 503, 505 (Pa. Super. 1992) (holding trial court decision from a different county did not constitute binding precedent).
Based on our review of the certified record, we conclude that the findings of the trial court are supported by competent evidence and the court did not err in its application of precedential law. As a result, we will not disturb the trial court's reasonable conclusions.
In their third issue, Appellants aver that the trial court improperly concluded that Appellee had provided valid "shut-in payments" between 2009 and 2011 to extend the oil and gas lease under the "Shut In Royalty" section. Appellants' Brief at 33. They argue that "the [W]ell was not capable of producing gas after April 17, 2008[,]" and the shut-in payment provision could not apply because that provision of the lease states that the well must be capable of producing gas. Appellants' Brief at 34.
As quoted above, the original oil and gas Lease provided for Shut In Royalty payments. The trial court addressed this issue as follows:
It was a bone of contention whether the payments were for "shut-in" royalty or for some other intention. [Appellee's] contention [was that they were] for shut-in royalty and he so testified repeatedly. Defense counsel's position is that such language flaunts the language of the lease. We conclude that [Appellee] made the payments in good faith in an effort to demonstrate to the lessees that he was fully intending to maintain the well in operation, which was the subject of the lease.Trial Court Opinion, 1/28/16, at 4.
Appellants misread the relevant provision of the oil and gas lease in constructing their argument. Upon examining the terms of the lease and the trial court's Opinions, the validity of the payments under the "Shut In Royalty" section was not at issue. Rather, the issue centered on the "Terms" section of the lease, which examined whether Appellee operated the land "in the search for or production of oil or gas." Oil and Gas Lease, 12/2/1982, at 1.
Appellants also mischaracterize the trial court's findings and conclusions. The trial court concluded that the payments made to Appellants constituted circumstantial evidence of Appellee's good faith efforts to maintain the lease when examined in light of the totality of the circumstances, including the letters accompanying the payments attempting to assuage Appellants and Appellee's good-faith efforts to get Well #1 running again. The trial court did not resolve the issue of whether the payments constituted valid "shut in royalty" payments.
Moreover, the trial court pointed out that Appellants accepted the payments from February 2009 through February 2011. When they began returning all payments to Appellee, Appellee deposited these payments in escrow until July 2011. Trial Court Opinion, 10/7/15, at 7. The trial court could reasonably rely on these payments to Appellants, along with the letters and attempts at repairs, to support its conclusion that Appellee acted in good faith to maintain the lease under the "Terms" section of the lease. As a result, we will not disturb the trial court's reasonable conclusions.
In their fourth issue, Appellants aver that the trial court improperly relied on an exhibit that was not admitted into evidence at trial. The evidence at issue is Exhibit 26, a letter Havranek sent to DEP in April 2011. The trial court acknowledged the letter in its timeline of events in its formal decision and findings of fact. See Trial Court Opinion, 10/7/15, at 18. Appellants' argument has no merit.
The trial court addressed Appellants' challenge as follows:
[Appellants] note[] that Exhibit 26 was never admitted into evidence; therefore, it was error for the trial court to rely upon the same. The discussion on the record as to Exhibit 26 is in the transcript Pages 281 to 291 and occurs during the testimony of Mr. Havranek. [Appellants'] counsel initially, as we discussed the admissibility of Exhibit 26, agreed it was admissible and did not object; however, once it was established that Exhibit 26, which was a transmittal letter to DEP, also contained enclosures and there was some dispute as to what the enclosures contained and also as to whether or not DEP even received the letter, counsel for the [Appellee] withdrew Exhibit 26 and Exhibit 26 was not received into evidence. [However,] [w]hen counsel for [Appellee] withdrew Exhibit 26 he said that he was satisfied that the record showed that the letter, which was dated April 17, 2011, was, in fact, sent and was mentioned to show activity and that he did not need to have in evidence the substance of the letter. We are treating the record as establishing that on April 17, 2011, a letter was sent from Havranek to DEP but the contents of the letter were not received into evidence. Whether this letter was sent or not is not very material to the overall disposition of the case.Trial Court Opinion, 1/28/16, at 46 (emphasis added).
Our review of the record indicates that Appellant did not object to the admission of the fact of the existence of the letter. Appellants have waived this claim by failing to specifically object and present this argument to the trial court. See Pa.R.A.P. 302(a) ("Issues not raised in the lower court are waived and cannot be raised for the first time on appeal.").
Moreover, we note that "[t]he admissibility of evidence is a matter addressed solely to the discretion of the trial court and may be reversed only upon a showing that the court abused its discretion." Klein v. Aronchick , 85 A.3d 487, 491 (Pa. Super. 2014). "To constitute reversible error, an evidentiary ruling must not only be erroneous, but also harmful or prejudicial to the complaining party." Id.
Our review of the certified record confirms the trial court's summary of events. While the trial court granted Appellants' Motion to strike the contents of the letter and any attachments, the trial court admitted the testimony about the existence of the letter Havranek sent in April 2011. As a result, the trial court could properly reference the letter in its timeline based on Havranek's actual testimony about the letter. We discern no abuse of discretion or error under these circumstances.
In addition, even if there had been error, Appellants suffered no prejudice or harm. As the trial court noted, the letter was inconsequential given the other evidence upon which the court relied.
As a result, Appellant's fourth claim merits no relief.
The parties are instructed to attach a copy of the trial court's Opinions dated 10/7/15, 1/28/16, and 3/24/16, to all future filings.
Order affirmed. Judgment Entered. /s/_________
Joseph D. Seletyn, Esq.
Prothonotary Date: 12/13/2016
Image materials not available for display.