Opinion
93037.
Decided April 14, 2008.
Christopher Denton, Elmira for Plaintiffs.
David G. Wallace, Bath for Defendant Onalee Nixon as Executrix of the Estate of Harold G. Nixon, Nixon Peabody, LLP, Rochester (by David H. Tennant, of counsel) for Defendant Fortuna Energy, Inc.
This matter comes before the Court on plaintiffs' motion for partial summary judgment and declaratory relief on issues raised in the complaint, and on defendant Fortuna Energy, Inc.'s (Fortuna) cross-motion pursuant to CPLR 3212 for summary judgment dismissing the complaint against it. Onalee Nixon, Executrix of the Estate of Harold G. Nixon (Nixon), filed an affidavit in opposition to plaintiffs' motion. Counsel for all parties appeared and argued the motions and the Court reserved decision.
The subject of this litigation is a gas lease for a parcel of land in the Town of Hornby which is located over a portion of a vast natural gas deposit designated as the Quackenbush Hill Field. In November, 2001, Harold Nixon entered into a land contract with plaintiffs in which Nixon agreed to sell, and plaintiffs agreed to buy, the subject land for $18,000. The contract provided that plaintiffs would make interest-only payments until March 31, 2002, at which time they would make a principal payment of $3,000. Thereafter, plaintiffs would make monthly payments of $143.35, for 15 years. Plaintiffs had the right to pay off the contract before the 15-year deadline, without penalty. The contract also contained the following language: "The parties hereto covenant and agree that any revenues derived from any and all oil, gas or mineral leases, including any rents or profits derived therefrom, shall be split fifty-fifty (50/50) between the buyer and the seller herein for a period of fifteen (15) years from the date of this contract."
In September, 2002, Pennsylvania General Energy Corporation, defendant Fortuna's predecessor, sought to lease the gas under plaintiffs' parcel, as well as other neighboring parcels of land, in an effort to compile enough acreage to create a spacing unit. Spacing units are typically composed of several separately owned parcels of land under which natural gas is located and which can be accessed by one or more wells. In the event that a landowner does not voluntarily lease his land to the development company (known as an operator), the law allows the operator to petition the Department of Environmental Conservation for an order requiring the land owner to participate in the spacing unit. This forced participation is referred to as "compulsory integration." Plaintiffs declined to lease their property. Nevertheless, this parcel was included in the spacing unit and plaintiffs and Nixon were identified as non-leasing land owners under Environmental Conservation Law (ECL) Section 23-0901. Pursuant to this statute, an Interim Order was issued requiring Fortuna to pay the non-participating land owners royalty payments of not less than one-eighth of the profits realized from production of the well, pro rated to reflect the proportionate interest of the land owner in the spacing unit as a whole. This order did not restrict non-participating landowners from seeking compensation over and above this one-eighth payment.
On May 11, 2005, all parties signed a Royalty Division Order (RDO) which designated how these royalty payments were to be divided as between plaintiffs and defendant Nixon. In the RDO, the parties agreed that Nixon would receive 50% of the one-eighth royalty payments which Fortuna was required to pay. The RDO also stated that Nixon was to receive 50% of any revenues derived from the oil and gas on the property until November 30, 2016. On May 18, 2005, Nixon signed a lease with Fortuna giving Fortuna 50% of the oil and gas rights underlying the parcel.
Plaintiffs commenced this action on October 28, 2005, seeking to void the Nixon-Fortuna lease and to determine the parties' rights under the terms of the land contract. Plaintiffs assert that they own title to all of the oil and gas rights and are entitled to any future compensation over and above the one-eighth royalty interest. Defendants argue that, because Nixon had the right to 50% of the oil and gas rights, he legally conveyed his 50% share to Fortuna, thereby reducing any future compensation plaintiffs' may receive over the one-eighth royalty interest by 50%.
Plaintiffs have moved for partial summary judgment seeking a declaration, as a matter of law, that Nixon had no right to enter into the lease with Fortuna and that any interest he had under the terms of the land contract to the gas revenues necessarily expires when the land contract is paid in full and title is transferred. Plaintiffs allege that they have paid the full amount due under the contract and are entitled to receive full title to the property. Nixon does not dispute that plaintiffs have paid the full amount due under the contract but claims that any deed must reserve his 50% interest in the gas rights for the 15 year period. Defendant Fortuna has also moved for summary judgment seeking a declaration that the lease between Nixon and Fortuna is valid and dismissing any claim against it for tortious interference with the land contract.
The burden of proof is, in the first instance, on the plaintiffs, as they moved initially for summary judgment ( JMD Holding Corp. v. Congress Financial Corp. , 4 NY3d 373 ). The moving party must set forth sufficient evidence to demonstrate the absence of any material issue of fact ( Alvarez v. Prospect Hospital, 68 NY2d 320, 324). If the proponent fails to make this showing, the motion for summary judgment must be denied regardless of the adequacy of the opposing papers ( Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853). However, once this showing has been made, the burden then shifts to the opponent of the motion to come forward with evidence in admissible form to establish the existence of material issues of fact which require a trial ( Gonzalez v. 98 Mag Leasing Corporation, 95 NY2d 124, 129; Alvarez v. Prospect Hospital, 68 NY2d 320, 324). In reviewing a motion for summary judgment, the evidence must be considered in the light most favorable to the opponent ( Ruzycki v. Baker, 301 AD2d 48, 50 [4th Dept. 2002]).
Plaintiffs claim that they are the sole owners of any oil, gas, and mineral rights attached to the parcel. Plaintiffs contend that, when they entered into the land contract on November 30, 2001, and took possession of the land, equitable title to the parcel vested in them. They argue that, from that date forward, Nixon had no right to enter into any leases of any kind concerning that land without the express written permission of the plaintiffs. Plaintiffs request a declaration from this court, as a matter of law, that any lease executed by Nixon after the date the land contract was signed is void ab initio because Nixon had no authority to encumber the land.
Defendants claim that, under the terms of the land contract, Nixon retained 50% of the oil and gas rights and that he had the right to lease that interest. They argue that the language in the land contract does not prohibit Nixon from entering into leases nor does it specifically state that only plaintiffs possess those oil and gas rights.
Under New York law, the rights and liabilities of the parties to a land contract are similar to the rights and liabilities of parties to a mortgage ( Bean v. Walker, 95 AD2d 70, 72 [4th Dept. 1983]). When a land owner executes a valid land contract, his ownership interest in the property changes from that of owner of the land to owner of the purchase money, and his interest in the property becomes a personal, rather than a property, interest ( Bean v. Walker, 95 AD2d 70, 72 [4th Dept. 1983]). From that point forward, the land owner holds legal title to the property in trust for the purchaser and possesses an equitable lien for the payment of the purchase price ( Bean v. Walker, Id. at page 897). Likewise, the purchaser under a land contract is the equitable owner of the land. The purchaser acquires all of the rights and responsibilities of land ownership, subject only to the terms of the land contract ( Romel v. Reale, 155 AD2d 747, 748 [3rd Dept. 1989]).
The court's role in interpreting a contract is to determine the intention of the parties when the contract was created ( Greenfield v. Philles Records, Inc., 98 NY2d 562, 569; WWW Associates, Inc. v. Giancontieri, 77 NY2d 157, 162). Whether a writing is ambiguous is a question of law ( WWW Associates, Inc. v. Giancontieri, Id. at 162). "If (the parties') intent is discernible from the plain meaning of the language of the contract, there in no need to look further. This may be so even if the contract is silent on the disputed issue" ( Evans v. Famous Music Corporation , 1 NY3d 452 , 458). A written agreement that employs clear and unambiguous terms must be enforced according to its plain meaning ( Greenfield v. Philles Records, Inc., 98 NY2d 562, 569).
Nixon claims that the language in the land contract which gave a fifty-fifty division of the revenues from any oil, gas and mineral leases established his right to retain 50% of the oil and gas rights attached to the land and to enter into leases of that interest. The language which Nixon relies on to support his argument does not specifically state that he has retained 50% of the mineral rights to the property, a right which was otherwise extinguished upon Nixon's transfer of the land to plaintiffs. The land contract only says that Nixon is entitled to 50% of the revenues generated from any leases. Had he wanted to reserve to himself the right to lease the minerals on the property in contravention of the plaintiffs' right to do so, Nixon should have done so explicitly (see generally, Greenfield v. Philles Records, Inc., Id.).
There is nothing ambiguous about the terms used in the land contract. "Clear language does not become ambiguous just because the parties argue differing interpretations" ( Sterling National Bank v. Fashion Associates, 17 Misc 3d 113 (A) [New York County 2007] citing Bethlehem Steel Co. v. Turner Constr. Co., 2 NY2d 456). Of the two parties, Nixon was the more sophisticated business person. By his own admission, he was not inexperienced in transactions of this nature. He had been in the real estate business "for about 50 years" and had negotiated leases for various properties that he owned, prior to selling the Hornby property to plaintiffs (see Exhibit A, Affirmation of David H. Tennant). Nixon had the land contract prepared by his attorney. Plaintiffs, on the other hand, were unrepresented by counsel, and were not sophisticated business people. Therefore, even if ambiguous, the contract must be interpreted against Nixon ( Rochester Home Equity, Inc. v. Guenette , 6 AD3d 1119 [4th Dept. 2004]).
Based on the above, plaintiffs are entitled to a declaration that defendant Nixon did not retain rights to the oil and gas underlying the parcel after he entered into the land contract and that he did not have authority under the land contract to enter into the lease of those rights to Fortuna. However, this determination does not resolve the issue of what rights Nixon had as a result of the subsequent Royalty Division Order.
Plaintiffs also seek a declaration that Nixon's right to receive 50% of the oil and gas lease revenues for 15 years does not survive the pay-off of the land contract. Plaintiffs argue that Nixon's interest does not survive complete performance of the contract, as a matter of general contract law. Plaintiffs are correct in stating that generally the terms and conditions set forth in a contract for sale of land are merged in the deed and thus are extinguished at closing of title ( Novelty Crystal Corp., v. PSA Institutional Partners, L.P., ___ AD3d ___, 850 NYS2d 497 {49 AD3d 113} [2nd Dept. 2008]). However, this rule does not apply where the parties clearly intended that a particular provision of the contract of sale will survive delivery of the deed ( Novelty Crystal Corp., v. PSA Institutional Partners, L.P., Id. at page 500).
The land contract, by its terms, was designed to be completed in 15 years. Although there is language in the contract which provides that the land contract can be paid off early without penalty, there is no language in the contract which states that Nixon's revenue rights are linked to the pay-off of the land contract. Rather, paragraph 20 of the land contract provides that, when the plaintiffs have paid the sums due, Nixon will deliver a warranty deed conveying good and marketable title free and clear of all liens and encumbrances "other than herein set forth." Within that same section, the contract sets forth Nixon's entitlement to 50% of the revenue generated from leases of the oil and gas rights attached to the property for 15 years from the date of the contract. Read as a whole, it is clear that Nixon's right to this revenue was intended to survive the delivery of the deed. As a result, any transfer of the property to the plaintiffs is subject to Nixon's interest for the agreed upon period. Plaintiffs' application for an order directing Onalee Nixon to provide a warranty deed without such reservation is denied.
Fortuna has moved for summary judgment declaring Nixon's lease with Fortuna valid and enforceable. Fortuna argues that, regardless of the terms of the land contract, Nixon and plaintiffs agreed in the Royalty Division Order (RDO) that Nixon would receive 50% of any revenues derived from the production of oil and gas from the property. The RDO states that "(i)t is understood that Harold G. Nixon or his assigns or heirs shall have a 50% share in any revenues from oil, gas or minerals from the said property for a period of fifteen (15) years from November 30, 2001." Fortuna argues that under this agreement Nixon had the right to retain 50% of any revenues from the oil, gas and mineral from the property, not just 50% of the one-eighth royalty revenue which Fortuna has been ordered to pay by the Department of Environmental Conservation.
This provision of the RDO clearly gives Nixon greater rights than were reserved under the land contract. Under the RDO Nixon was given 50% of any revenues derived from the gas itself, not just from any leases. It also clearly gave Nixon the right to assign his interest. Given the plain language of the RDO, Fortuna has come forward with prima facie proof that the lease between Nixon and Fortuna was valid to the extent that it assigned any future interest Nixon has to any revenues over and above his share of the one-eighth royalty under the interim order. The burden then shifts to plaintiffs to come forward with admissible proof sufficient to require a trial on this issue.
Plaintiffs do not dispute that Nixon is entitled to continue to receive 50% of the one-eighth royalty under the DEC Interim Order as agreed to in the RDO. However, plaintiffs submitted a detailed affidavit wherein they alleged that they were induced to signed the RDO based upon misrepresentations made to them by Fortuna representatives. Plaintiffs claim that, when they questioned the additional language in the RDO which purported to give Nixon a 50% share in any revenues derived from oil, gas, and mineral extracted from the property, they were told the RDO did not change any of the terms of the land contract, but only authorized the splitting of the one-eighth royalty that was being held in escrow under the interim order. Plaintiffs allege that they were induced to sign the order based on this misrepresentation and the representation that New York State would not permit the release of their royalty monies unless they signed this RDO.
These detailed and fact-specific allegations are sufficient to raise a question of fact concerning whether misrepresentations were knowingly made to plaintiffs to induce them to sign the RDO and whether the subsequent lease between Fortuna and Nixon is valid and enforceable. Therefore, Fortuna's application for summary judgment on this issue is denied.
Fortuna has also moved to dismiss plaintiffs' third cause of action for tortious interference with contractual relations. Fortuna claims that, as plaintiffs have not suffered any actual damages or injury to date, they have failed to establish an essential element of this cause of action.
To prove a claim based on the tort of interference with contractual relations, a plaintiff must present evidence establishing the existence of a valid contract between plaintiff and a third party; defendant's knowledge of that contract; defendant's intentional inducement of the third party to breach the contract, and damages to plaintiff ( Lama Holding Co. v. Smith Barney, Inc., 88 NY2d 413, 424). The claim becomes enforceable when all of the elements of the cause of action can be truthfully alleged in the complaint ( Kronos v. AVX Corp., 81 NY2d 90, 96). There can be no enforceable right until there is a loss. It is the damage suffered that creates a legally recognized claim ( Kronos, Inc. v. AVX Corp., Id. at 94). Since damages are an essential element of the tort, the claim does not arise until plaintiff actually suffers damages, and such damages may not necessarily be suffered at the time the contract was breached ( IDT Corp. v. Morgan Stanley Dean Witter Co. , 45 AD3d 419-420 [1st Dept. 2007]).
Plaintiffs contend that when Fortuna induced Nixon to sign a lease giving Fortuna 50% of the mineral rights to the parcel, plaintiffs' right to eventually receive a just and reasonable portion of all of the oil and gas revenues attributable to their parcel was impaired and they were damaged. Plaintiffs' attorney submitted an affidavit wherein he calculated the revenues to which he believes, based on his experience in compulsory integration proceedings, plaintiffs will be entitled "when the just and reasonable' compensation hearing finally occurs."
Plaintiffs have presented no proof that they have been presently damaged by Fortuna's conduct. Nonparticipating landowners, like plaintiffs, may be eventually awarded a larger percentage of the gas operator's profits as part of the "just and reasonable" compensation hearing under the compulsory integration process. Although the assignment between Fortuna and Nixon, if valid, could reduce the percentage of plaintiffs' ultimate award, plaintiffs' claim for tortious interference will not mature until that award is made and they have actually suffered a loss. Presently, pursuant to their agreement with Nixon, plaintiffs and Nixon are each receiving 50% of the one-eighth royalty payment to which they are statutorily entitled as non-leasing land owners. The assignment between Fortuna and Nixon has not altered the division of those payments between the parties. As a result, plaintiffs have suffered no actionable damage because of the Nixon-Fortuna assignment at this time. Therefore, Fortuna's application to dismiss plaintiffs' third cause of action for tortious interference is granted.
Plaintiffs' counsel to submit Order.