Opinion
J-A16017-16 No. 1164 WDA 2015
03-17-2017
ARTHUR MONTGOMERY AND BARBARA J. MONTGOMERY, HUSBAND AND WIFE, Appellees v. R. OIL & GAS ENTERPRISES, INC., Appellant
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P 65.37
Appeal from the Judgment Entered July 1, 2015 in the Court of Common Pleas of Venango County
Civil Division at No(s): Civil No 392-2014 BEFORE: SHOGAN, OLSON, and STRASSBURGER, JJ. MEMORANDUM BY STRASSBURGER, J.:
Retired Senior Judge assigned to the Superior Court.
Appellant, R. Oil & Gas Enterprises, Inc., appeals from the judgment on the pleadings against it and in favor of Appellees Arthur and Barbara Montgomery (the Montgomerys) entered on July 1, 2015. We affirm.
This matter involves interpretation of a lease agreement entered into by the parties' predecessors in interest. The certified record reveals the following. On August 11, 1975, Donald and Melvena MacDonald (the MacDonalds) entered into an oil and gas lease agreement (the Lease) with Quaker State Oil Refining Corporation (Quaker State). The Lease permitted Quaker State to drill for and produce oil and gas on 240 acres of land the MacDonalds owned in Venango County. The duration was for a period of 10 years, and as long thereafter as oil and gas could be produced in paying quantities.
The 240 acres covered by the Lease consisted of several different tracts of land, at least some of which were sold by the MacDonalds to other landowners at some point after the MacDonalds entered into the Lease.
Venango County, Pennsylvania, the location of the leasehold, sits atop a geological formation known as the Onondaga Formation (the Formation). The Formation is made up of limestone strata that lie under a layer of Marcellus black shale and above a layer of Oriskany sandstone. The Lease itself makes no distinction between oil and gas interests above and below the Formation. Rather, the terms of the Lease grant the lessee exclusive drilling rights to any oil and gas found under the 240 acres of surface land covered by the Lease.
See Bradford Willard, The Onondaga Formation in Pennsylvania, 44 Journal of Geology 578, 578 (1936), available at http://www.jstor.org/stable/30067366.
On January 14, 1991, as a result of Quaker State's assignment to Pennsylvania General Energy Corp. (Pennsylvania General), Appellant's predecessor in interest, of Quaker State's oil and gas interest in the area above the Formation, two distinct subsurface estates were created: Area A, above the Formation, and Area B, below the Formation. Quaker State retained the oil and gas rights for Area B. On January 26, 2009, Pennsylvania General conveyed its interest in Area A to Appellant, R. Oil and Gas Enterprises, Inc.
In 2010, the Montgomerys purchased 32.218 acres of the MacDonald's land. The Montgomerys' land was a portion of the 240 acres of surface land covered by the Lease. On April 10, 2014, after observing Appellant's representatives and equipment on their land, the Montgomerys filed the instant action against Appellant seeking a declaration that Appellant no longer possessed oil and gas rights to the subsurface estates below their tract of land. Specifically, the Montgomerys averred that the Lease was "terminated by the terms and provisions of said Lease, including but not limited to the provision that requires the production of oil or gas in paying quantities and/or upon the failure of [Appellant] to make rental payments as required." Complaint, 4/10/2014, at ¶ 15.
Thereafter, Appellant filed an answer, which contained new matter asserting, inter alia, that the trial court lacked jurisdiction over the Montgomerys' lawsuit because of the failure to join indispensable parties. On August 22, 2014, the Montgomerys filed a motion for judgment on the pleadings. After briefing and oral argument on the motion, the trial court granted judgment on the pleadings to the Montgomerys. This timely appeal followed. Both Appellant and the trial court complied with the mandates of Pa.R.A.P. 1925.
Appellant presents four issues for our review.
1. Whether [the] trial court's order terminating a portion of an oil and gas lease should be reversed when the [L]ease is not severable?Appellant's Brief at 6 (unnecessary capitalization omitted).
2. Whether [the] trial court order granting a motion for judgment on the pleadings to terminate a portion of an oil and gas lease should be reversed when parties which are indispensable parties to the lawsuit are not named as either plaintiffs or defendants?
3. Whether the trial court improperly granted a motion for judgment on the pleadings in favor of the [Montgomerys], terminating a portion of an oil and gas lease, even though a question of fact remained whether oil or gas could be produced from real estate governed by the [L]ease?
4. Whether the trial court improperly considered statements made in a consent order and agreement when deciding the motion for judgment on the pleadings?
In the first and second issues raised on appeal, the substance of Appellant's argument is that the trial court lacked subject matter jurisdiction over this controversy because the Montgomerys failed to join indispensable parties. Specifically, Appellant contends that the Montgomerys' Land was not severable from the 240 acres of surface land covered by the Lease. Appellant's Brief at 19. Therefore, Appellant argues, the owners of the remaining surface land covering the leased property are indispensable parties. Additionally, Appellant argues even if the Montgomerys' Land is severable from the 240 acres of surface land covered by the Lease, the subsurface oil and gas estates are not severable; thus, the party that purports to own the oil and gas rights to Area B is an indispensable party. Id. at 21.
For simplicity, we hereinafter refer to this party as Quaker State, although Quaker State may have since assigned its interest in Area B under the Lease to a different party. --------
Our standard of review of these issues is de novo and our scope of review is plenary. See Seneca Res. Corp. v. S & T Bank , 122 A.3d 374, 380 (Pa. Super. 2015) (holding that whether a lease is severable is a question of law subject to de novo review); see also N. Forests II , Inc. v. Keta Realty Co., 130 A.3d 19, 28-29 (Pa. Super. 2015) (citation omitted) ("The failure to join an indispensable party is a non-waivable defect that implicates the trial court's subject matter jurisdiction."); S.K.C. v. J.L.C., 94 A.3d 402, 406 (Pa. Super. 2014) (citation omitted) (providing that whether a trial court possesses subject matter jurisdiction is a question of law subject to de novo review).
It is well-settled that "[w]hen declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding." 42 P.S. § 7250(a).
Our Supreme Court has previously determined:
[U]nless all indispensable parties are made parties to an action, a court is powerless to grant relief. Thus, the absence of such a party goes absolutely to the court's jurisdiction. A party is indispensable when his
or her rights are so connected with the claims of the litigants that no decree can be made without impairing those rights. A corollary of this principle is that a party against whom no redress is sought need not be joined. In this connection, if the merits of a case can be determined without prejudice to the rights of an absent party, the court may proceed.
The determination of an indispensable party question involves the following considerations:
Bastian v. Sullivan , 117 A.3d 338, 343 (Pa. Super. 2015) (citations and footnotes omitted).1. Do absent parties have a right or interest related to the claim?
2. If so, what is the nature of that right or interest?
3. Is that right or interest essential to the merits of the issue?
4. Can justice be afforded without violating the due process rights of absent parties?
One of the major factors involved in a determination of whether a party is indispensable in a lease context is whether the lease is severable. With respect to the Lease's severability, we are mindful of the following.
In determining whether an oil and gas lease is severable ... there is no bright line rule requiring that a court first find that the intent of the parties is unclear as to entirety/severability before it may look to factors such as the conduct of the parties and the character of the consideration to determine whether an agreement is entire or severable. The central task is to ascertain the intent of the parties. That intent may be apparent from the explicit language of the lease or it may be obvious from
a construction of the agreement, including the nature of the consideration. In short, principles of construction may reveal the intent of the parties no less than the actual language addressing entirety/severability. Thus, absent express language that a lease is entire, a court may look to the lease as a whole, including the character of the consideration, to determine the intent of the parties as to severability and may also consider the circumstances surrounding the execution of the lease, the conduct of the parties, and any other factor pertinent to ascertaining the parties' intent. The court need not make a specific predicate finding of ambiguity before undertaking the inquiry; indeed, if the contract were crystal clear as to the parties' intent, severability likely would not be a contested issue.Seneca Res. Corp., 122 A.3d at 381 (internal alterations, quotation marks, ellipses, footnote, and citations omitted; emphasis added).
In Seneca Res. Corp., this Court determined that the oil and gas lease at issue was not severable. In so doing, we focused on the language of the lease and the intent of the parties, noting that
[the lease was entered on January 1, 1962 pursuant to an agreement (the Agreement) the between the successors in interest to the appellant landowners and Seneca]. In the Agreement, the parties identified the total land to be leased as 25,000 acres. Additionally, in 1974, the [appellant landowners] assigned their rights to certain acreage implicated by the Lease to Koppers Company, Inc. ("Koppers"). In the Assignment, the [appellant landowners] clearly stated that the conveyance was subject to the rights provided [to the original lessee] under the Lease. Importantly, the [appellant landowners] stated that under the Lease, they "leased unto [the original lessee] 25,000 acres of land for the exploration and development of oil and gas under the terms and conditions therein set forth[.]" These documents evidence that the [appellant landowners] understood that the "leased premises" includes 25,000 acres, not separate and severable operated and unoperated acreages.Id. (citations and footnotes omitted). Thus, because the Agreement and the Assignment both identified the same acreage and rights, this Court concluded that the lease was intended to be entire and, therefore, was not severable. Id. at 385.
In the instant case, the Lease states, in relevant part, as follows.
...the lessor in consideration of the sum One Dollar in hand paid, the receipt of which is hereby acknowledge [(sic)], and in further consideration of the covenants and agreement hereinafter contained on the part the lessee to be kept and performed, hereby leases and grants unto lessee, its successors and assigns, together the exclusive right to drill wells and operate thereon to produce, save and take care said products, all for the term of Ten years from the date hereof and as long thereafter as oil and gas is or can be produced in paying quantities.
* * *
The lessor further grants to the lessee all rights of way over said premises necessary for the purposes aforesaid, with the right to lay pipelines for the transportation thereon and thereover of oil, gas or water from said premises or other lands operated by the lease, to run electric and telephone lines over the leased premises, to erect necessary buildings thereon, and to remove all machinery, fixtures and buildings placed thereon by the lease; the right to use free from royalty, sufficient oil, gas and water produced from the premises for all operations thereon (provided that it finds said water at its own expense); the right to subdivide and release the premises and the right to surrender this lease at any time and thereupon be discharged from all obligations, covenants, and conditions herein contained.
* * *
It is mutually agreed that upon the surrender of this lease by the lessee, the same shall thereafter be null and void. This lease shall be binding upon and extend to the parties hereto and
their respective heirs, personal representatives, successors and assigns.Complaint, 4/10/2015, Exhibit B (emphasis added).
The Lease is distinguishable from that evaluated by this Court in Seneca Res. Corp. First, unlike the lease in Seneca Res. Corp., the 240 acres at issue herein consisted of a number of distinct parcels. Further, the terms of the Lease specifically grant the lessee the right to "subdivide and release" the property. Lease at ¶ 4. Additionally, the final paragraph provides that the Lease terms are "binding upon and extend to the parties hereto and their respective heirs, personal representatives, successors and assigns." Id. at ¶ 13.
The parties do not dispute that the original lessors, the MacDonalds, by deed dated February 17, 2010, sold 32.318 acres of the leased property to the Montgomerys. Although the Lease does not mention the Onondaga Formation, Appellant admits that it acquired an interest in Area A in 2009, but "the interest of the lessee in the Lease below the top of the Onondaga formation [Area B] were [(sic)] retained by Quaker State ... in an exception and reservation found in an Assignment dated January 14, 1991[.]" Appellant's Brief at 8. Thus, the actions of the parties, coupled with the language of the document, support a finding that the Lease is severable, both with respect to surface land ownership and to the ownership of oil and gas rights above and below the top of the Onondaga Formation.
In granting the Montgomery's motion for judgment on the pleadings, the trial court determined that, with respect to Appellant's interest in Area A, (1) the Lease had expired under its own terms prior to Appellant's ownership and (2) Appellant's predecessor in interest, Harmony Oil and Gas Company (Harmony), had abandoned the Lease. Trial Court Opinion, 6/30/2015, at 7-15. A review of the record demonstrates that the court's decision affected only Appellant's interests and "did not disturb the rights of any other interests of the [L]ease," in particular because the Lease had lapsed due to abandonment. Trial Court Opinion, 11/4/2015, at 7 (unnumbered). Moreover, the court's order makes no restriction on any other leaseholder's rights and no other parties are necessary to dispose of the claims raised herein. Thus, the record supports the trial court's determination that it had subject matter jurisdiction over this case as the merits could be determined without prejudice to the rights of an absent party.
Accordingly, because the Lease is severable and because the court's order is properly confined to the Montgomerys' claim, Appellant's argument that this action must fail for failure to join indispensable parties is without merit.
In its third issue, Appellant argues that the trial court erred in granting the Montgomerys' motion for judgment on the pleadings because "a factual question remains [as to] whether oil or gas can be produced in paying quantities." Appellant's Brief at 24. We address this claim mindful of the following.
Our scope of review on an appeal from the grant of judgment on the pleadings is plenary. Entry of judgment on the pleadings is permitted under Pennsylvania Rule of Civil Procedure 1034, which provides that after the pleadings are closed, but within such time as not to unreasonably delay trial, any party may move for judgment on the pleadings.Altoona Reg'l Health Sys. v. Schutt , 100 A.3d 260, 265 (Pa. Super. 2014) (citations and quotation marks omitted).
A motion for judgment on the pleadings is similar to a demurrer. It may be entered when there are no disputed issues of fact and the moving party is entitled to judgment as a matter of law. In determining if there is a dispute as to facts, the court must confine its consideration to the pleadings and relevant documents. On appeal, we accept as true all well-pleaded allegations in the complaint.
On appeal, our task is to determine whether the trial court's ruling was based on a clear error of law or whether there were facts disclosed by the pleadings which should properly be tried before a jury or by a judge sitting without a jury.
Neither party can be deemed to have admitted either conclusions of law or unjustified inferences. Moreover, in conducting its inquiry, the court should confine itself to the pleadings themselves and any documents or exhibits properly attached to them. It may not consider inadmissible evidence in determining a motion for judgment on the pleadings. Only when the moving party's case is clear and free from doubt such that a trial would prove fruitless will an appellate court affirm a motion for judgment on the pleadings.
The trial court rejected Appellant's argument, holding instead that from the pleadings it was clear no oil or gas had been produced in paying quantities on the Montgomerys' Land since 2001 and Appellant's predecessor in interest had breached the implied obligation to explore and develop the property "with reasonable diligence." Trial Court Opinion, 6/30/2015, at 7-12. Thus, the court held that the Lease is "null, void, and of no force and effect pertaining to [the Montgomerys' Land]." Id. at 14. We agree with the well-reasoned opinion of the trial court and, following our review of the certified record, the parties' briefs, and the relevant law, we conclude that the opinion of the Honorable Robert L. Boyer states findings of fact that are supported by the record, evidences no abuse of discretion or errors of law, and thoroughly and correctly addresses and disposes of Appellant's third issue and supporting argument. Accordingly, we adopt the trial court's opinion, at pages 7 through 14, filed on June 30, 2015, as our own.
Finally, Appellant contends that the trial court improperly considered statements made in a March 9, 2009 consent order and agreement between Appellant and the Pennsylvania Department of Environmental Protection (DEP) when deciding the motion for judgment on the pleadings. Appellant's Brief at 26-30. The consent order outlines an agreement Appellant made with the DEP to purchase wells, including those on the Montgomerys' Land, which had previously been deemed "abandoned" during Harmony's ownership. Appellant's Answer and New Matter, 5/13/2014, Exhibit 1 at 1. Pursuant to this agreement, Appellant acknowledged that Harmony, in violation of a prior agreement with the DEP, had failed to plug or produce 668 wells. Id. at 1-2. Appellant's request to purchase those wells and bring them into compliance with any relevant environmental statutes was granted, and an order was entered which set forth the obligations of both parties, including civil penalties that would arise for non-compliance. Id. at 2-9. The record reflects that the challenged document was attached in its entirety to Appellant's answer and new matter, filed on May 13, 2014. Appellant's Answer and New Matter, Exhibit 1.
As noted above, in determining whether to grant a motion for judgment on the pleadings, the court "must confine its consideration to the pleadings and relevant documents" properly attached thereto. Altoona Reg'l Health Sys., 100 A.3d at 265. Here, the trial court relied in part on the consent order and agreement to determine that the wells were abandoned prior to Appellant's acquisition. Trial Court Opinion, 6/30/2015, at 14. However, Appellant argues that, pursuant to Pennsylvania Rule of Evidence 408, offers of compromise are inadmissible when offered to prove liability; thus, the consent order and agreement could not be considered when ruling on the Montgomerys' motion. See Pa.R.E. 408(a). The Rule provides as follows.
(a) Prohibited Uses. Evidence of the following is not admissible--on behalf of any party--either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
(1) furnishing, promising, or offering--or accepting, promising to accept, or offering to accept--a valuable consideration in compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise negotiations about the claim.
Pa.R.E. 408.
(b) Exceptions. The court may admit this evidence for another purpose, such as proving a witness's bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.
We disagree with Appellant that use of the consent order and agreement to support granting judgment on the pleadings violated Rule 408. The Montgomerys herein are not parties to the consent order and agreement between Appellant and the DEP. Additionally, the consent order and agreement at issue has no bearing on whether the Montgomerys' Land remains subject to the Lease. As the trial court explained,
[t]he Commonwealth Court addressed non-parties to COAs in City of Chester v. PUC , 773 A.2d 1280, 1286 (Pa. [Cmwlth]. 2001), wherein the Commonwealth Court noted the problems with a PUC consent decree, the court itself was not bound by that consent decree. As a judicial entity, this court is similarly not bound by the COA between Appellant and the DEP. Likewise, Appellee was not a party to the Consent Order and Agreement, and therefore would not be bound by its terms, following the principle of contract law that a non-party cannot be bound without consent.
A decision by a Pennsylvania Environmental Hearing Board directly deals with the language seen in the COA at bar. In Mary E. Collier & Ronald M. Collier v. Commonwealth et al., 2012
WL 2950743 (Pa. Env, Hrg. Bd. 2012), the Board entertained an argument by the plaintiffs challenging identical language in a similar Consent Order [and] Agreement. Acknowledging that the Board could not determine whether or not the provision would be admissible before the Court of Common Pleas of Indiana County, the Board nevertheless stated the Colliers could not be bound by the COA, under the principles stated in City of Chester....Trial Court Opinion, 11/4/2015, at 8-9 (unnumbered).
Certainly, the court in deciding this matter does not need the [DEP's] authorization in deciding the factual basis of a case. Further, the Montgomerys were not parties to the agreement between the COA between the DEP and Appellant.
Moreover, we find disingenuous Appellant's argument that the language of the consent order itself, which provides that "[t]he Parties do not authorize any other persons to use the Findings in this Consent Order and Agreement in any matter or proceeding," bars its use in this proceeding. As the trial court pointed out, "the [Pennsylvania Environmental Hearing] Board note[d] that [this] language does not prohibit the use of the COA in other matters, but only that such use is done without authorization" of either party. Id. at 8 (unnumbered). Appellant ostensibly violated this provision by attaching the consent order and agreement to its own pleading, and relying upon the information contained therein in its defense of the Montgomerys' suit. Accordingly, we reject Appellant's attempt simultaneously to rely on and distance itself from the consent order and agreement. Finally, we acknowledge the trial court's statement that it "relied on more than just the COA in reaching its determination." Trial Court Opinion, 11/4/2015, at 9 (unnumbered). This is borne out by the trial court's June 30, 2015 opinion. For all of the foregoing reasons, we affirm the judgment entered against Appellant.
Judgment affirmed. The parties shall attach the trial court's June 30, 2015 opinion to this memorandum in the event of further proceedings. Judge Shogan joins. Judge Olson files a dissenting memorandum. Judgment Entered. /s/_________
Joseph D. Seletyn, Esq.
Prothonotary Date: 3/17/2017
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