Edgar Messner v. SWEPI , 574 F. App'x 96 ( 2014 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 13-3813
EDGAR H. MESSNER,
Appellant
v.
SWEPI, LP
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(Civ. No. 4-13-cv-00014)
District Judge: Hon. Matthew W. Brann
Submitted Pursuant to Third Circuit LAR 34.1(a)
June 26, 2014
Before: McKEE, Circuit Judge, FUENTES and
GREENAWAY, JR., Circuit Judges
(Opinion filed: July 17, 2014 )
OPINION
McKEE, Circuit Judge.
Edgar Messner appeals the district court’s Rule 12(b)(6) dismissal of the action he
filed seeking a declaration that an oil and gas lease of 159.97 acres of land in Tioga
County, Pennsylvania is no longer in effect.1 We will affirm.2
1
Messner began his action in the Court of Common Pleas of Tioga County. SWEPI
removed it to the district court pursuant to 28 U.S.C. §§ 1332, 1441(b), and 1446. After
removal, SWEPI filed its Rule 12(b)(6) dismissal motion.
2
This Court has jurisdiction under 28 U.S.C. § 1291.
1
I.
The district court’s opinion sets forth the factual and procedural history of this
case in full, and we will therefore not repeat it here. See Messner v. SWEPI, LP, 2013
WL 4417723 (M.D. Pa. Aug. 14, 2013). Accordingly, we will only briefly recite facts
and procedural history necessary to our disposition of this appeal.
On October 16, 2006, Messner and East Resources, SWEPI, LP’s predecessor,
entered into the disputed lease. The lease had a primary term of 5 years beginning on
October 16, 2006. Paragraph 12 of the lease, the “Shut-In Royalty” paragraph, provides
as follows:
If during or after the primary term of this lease, all wells on
the leased premises or within a unit that includes all or a part
of the lease premises, are shut-in, suspended or otherwise not
producing for any reason whatsoever for a period of twelve
(12) consecutive months, and there is no current production
of oil or operations on said leased premises sufficient to keep
this lease in force and this lease is not otherwise kept in force
by other provisions of this lease, Lessee may maintain this
lease in effect by tendering to Lessor a shut-in royalty equal
to the Delay Rental as found elsewhere in this lease. Said
shut-in royalty shall be paid or tendered to the Lessor within
ninety (90) days after the next ensuing yearly anniversary of
the Effective Date of this lease, and thereafter on or before
each yearly anniversary of the Effective Date hereof while the
wells are shut-in or production therefrom is not being
marketed by Lessee. Upon payment of the shut-in royalty as
provided herein, this lease will continue in force during all of
the time or times while such wells are shut-in but failure to
properly pay shut-in royalties shall [r]ender Lessee liable only
for the amount due and shall not operate to terminate this
lease.
App. 143.
2
In January and February of 2011, SWEPI’s predecessor pooled approximately 135
of the leased acres into two units – the Guindon # 706 Unit-IV (which contained about 10
acres of the leased property), and the Ingalls # 710 Unit-IV (which contained about 125
acres of the leased property). SWEPI’s predecessor also drilled a well on each of the
units. After the wells were drilled, they were shut-in, and SWEPI tendered to Messner
the Shut-In Royalty payments that were required under the terms of the lease. However,
Messner refused to accept the Shut-In Royalty payments because he took the position that
the lease had expired. He then began this action to have the lease declared expired or
otherwise invalid.
In his complaint for declaratory relief, Messner alleged that the lease had expired
or was otherwise invalid, and that neither the Guindon well nor the Ingalls well was
capable of producing gas in paying quantities. He thus alleged that neither well could be
characterized as being “shut-in” under ¶ 12 of the lease. According to Messner, since
neither well was capable of producing gas, the Shut-In Royalty provision did not apply
and was inoperative to maintain, extend or otherwise hold the lease beyond the October
16, 2011 termination date. Messner also contended that SWEPI neglected, failed or
refused to execute a form of lease surrender that he tendered, and that SWEPI has
continued to wrongfully assert or maintain an alleged interest in the hydrocarbon
formations beneath his lands.
After the suit was removed to federal court, SWEPI filed a motion to dismiss
Messner’s complaint, in which it argued that Messner’s complaint misconstrues the plain
language of the Shut-In Royalty provision. SWEPI argued that the facts pled by
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Messner, as well as the clear terms of the lease, established that the lease agreement
remained in force.
The district court referred the matter to Magistrate Judge Martin C. Carlson, who,
in his extensive Report and Recommendation (“R&R”), recommended that SWEPI’s
motion for summary judgment be granted and that Messner’s complaint be dismissed.
The district court adopted the thoughtful R&R in full and dismissed the complaint with
prejudice.
We are in complete agreement with the Magistrate Judge’s careful and thorough
analysis, and his well-reasoned conclusion that the complaint itself pleads facts that show
that the Shut-In Royalty provision applies. As Magistrate Judge Carlson so ably
explains, the complaint alleges that the lease had a five-year primary term that began on
October 16, 2006; the lease acreage was pooled; a well was drilled on each of the primary
units during the primary term of the lease; the drilled wells are not producing; and
SWEPI tendered the Shut-In Royalty payment to Messner. These allegations bring the
dispute squarely within the terms of the Shut-In Royalty provision and establish that
SWEPI complied with the terms of the lease. Despite Messner’s claims to the contrary,
there is absolutely nothing in the language of the Shut-In Royalty provision that requires
that wells in question must produce paying quantities of gas. The lease expressly permits
SWEPI to extend the lease beyond the primary term by payment of the Shut-In Royalty
payment whenever the wells that have been drilled have been shut-in, or suspended, or
otherwise are not producing for any reason whatsoever. And SWEPI complied with these
terms in acting to extend the lease. 2013 WL 4417723, at *4-6.
4
We also agree with the Magistrate Judge’s rejection of Messner’s attempt to rely
on the “automatic termination” rule. Messner’s reliance on that rule rests on cases
outside of Pennsylvania which hold that an oil or gas lease creates a fee simple
determinable in the oil and gas resources underneath the real property. The
“determinable” event in such cases is failure of any wells to produce hydrocarbons in
paying quantities. In that case, the rule provides for automatic termination unless there is
a savings clause that will permit the lease to be extended. However, the Magistrate Judge
properly found that rule inapplicable here because SWEPI relied on an express
contractual provision in the lease that provided for rental payments to be made for wells
that have been drilled but are not producing in order to extend the lease, i.e., SWEPI
tendered the Shut-In Royalty payment to provide for an extension of the lease. 2013 WL
4417723, at *7-9.
II.
For the above reasons, we will affirm without further elaboration.
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