Dewing, A. & S. v. Abarta Oil & Gas Co. ( 2015 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ANDREW R. AND SALLY A. DEWING, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellants
v.
ABARTA OIL & GAS CO., INC. TALISMAN
ENERGY USA, INC., AND RANGE
RESOURCES APPALACHIA, LLC,
Appellees No. 268 MDA 2015
Appeal from the Order Entered January 30, 2015
In the Court of Common Pleas of Bradford County
Civil Division at No(s): 10 CV 000480
BEFORE: BENDER, P.J.E., ALLEN, J., and OLSON, J.
MEMORANDUM BY BENDER, P.J.E.: FILED SEPTEMBER 04, 2015
Andrew R. and Sally A. Dewing (the Dewings), husband and wife,
appeal from the order dated January 30, 2015, and entered on the docket
on February 3, 2015, which, after remand from this Court, reinstated the
trial court’s February 25, 2011 order, entering judgment in favor of Abarta
Oil & Gas Co., Inc. (Abarta), Talisman Evergy USA, Inc. (Talisman), and
Range Resources (Range) (collectively Appellees). We affirm.
This Court set forth the extensive factual and procedural posture of
this case in a prior decision, stating:
The Dewings own more than 493 acres of land located in
Warren Township, Bradford County, Pennsylvania. On April 3,
2001, the Dewings, as lessors, entered into a ten-year oil and
gas lease with Central Appalachian Petroleum (CAP), as lessees.
The lease requires a payment of delay rental of $5.00 per acre
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annually to maintain the lease during the primary term unless
and until a well is drilled on the property or a well unit is drilled
and such well produces oil and/or gas in commercial quantities.
Appellees are the successors-in-interest of CAP and co-lessees
under the lease. Appellees had working interests in the lease
and paid the annual delay rental to the Dewings for years.
On April 13, 2010, the Dewings gave Abarta notice that
the delay rental payment due on the third of that month had not
been received. By email on April 20, 2010, the Dewings’
attorney notified Talisman’s counsel of Abarta’s failure to pay the
delay rental. The following day, Talisman’s counsel advised the
Dewings that Range was handling all administrative matters
related to the lease, including, but not limited to, paying delay
rentals. From April 26, 2010 through June 21, 2010, the
Dewings received no delay rental payments from Appellees. By
letter dated June 21, 2010, the Dewings served notice on Range,
with a copy to Talisman, advising them that the lease was being
terminated as a result of the delinquent delay rental payments
and in accordance with the lease’s forfeiture provision. In the
letter, the Dewings requested that Appellees file a release of the
lease. On July 2, 2010, Range sent the Dewings a check for the
delinquent delay rentals.
On August 3, 2010, the Dewings commenced the
underlying action against Appellees alleging termination of and
abandonment of the lease. In the complaint, the Dewings
sought a declaration that: (1) they have the right to file an
action for forfeiture pursuant to the forfeiture provision in the
lease; (2) the lease is terminated as a result of Appellees’ failure
to timely pay the delay rental; and (3) the Appellees’ failure to
pay the delay rental, after receiving a demand for payment,
evidences the abandonment of the lease and also constitutes a
material breach. On August 20, 2010, Appellees filed an
answer/new matter asserting that their untimely remittance of
the delay rental monies does not give rise to the remedy of
forfeiture, that the lease remains in full force and effect, that the
forfeiture clause in the lease is not “automatic,” and that the
untimely payment of money due under the lease is not a
material breach. On August 23, 2010, Appellees moved for a
preliminary injunction, claiming therein that the Dewings refused
to provide access to the property and to consent to Appellees’
reasonable selection of well pad, access road, and pipeline
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locations. The Dewings opposed the request for injunctive relief,
arguing the lease was subject to termination.
The parties submitted a joint statement of stipulated facts;
oral argument on a ruling regarding the stipulated facts was
subsequently held. At the beginning of the hearing, the parties
agreed that the sole legal issue before the court was whether the
forfeiture provision in the lease was an “automatic forfeiture”
rendering any untimely payment a material breach that gives the
Dewings the right to terminate the lease. After conducting
the equivalent of a stipulated non-jury trial, the trial court
concluded that the parties’ lease provision was not an
“automatic forfeiture” provision, that Appellees had not
materially breached the lease, that notice of a demand for
payment is not, in and of itself, sufficient to obtain
forfeiture at trial, and no other evidence suggested that
the Appellees had abandoned the lease. Based on these
conclusions, on January 14, 2011, the trial court granted a
preliminary injunction in favor of Appellees. However, because
the parties had agreed to convert the injunction hearing into a
hearing on the merits, the court issued an order, on February
25, 2011, entering final judgment in favor of Appellees on their
counterclaims and dismissing all claims in the Dewings’
complaint.
Dewing v. Abarta Oil & Gas Co., Inc., et al., No. 1537 MDA 2013,
unpublished memorandum at 1-4 (Pa. Super. filed September 25, 2014)
(footnotes omitted) (emphasis added).
The Dewings filed post-trial motions, which Appellees claimed were
untimely filed. Eventually, judgment was entered and the Dewings filed a
notice of appeal. Upon review, this Court held that because the trial court
had failed to determine whether the Dewings’ post-trial motions were timely
filed, it was necessary to vacate the judgment and remand to allow the trial
court to determine the timeliness issue. See id. After a hearing was held
on January 22, 2015, the court found that the Dewings’ post-trial motions
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had been filed in a timely manner and that the issues raised were properly
preserved. See Finding of Facts and Order, 1/30/15. Thus, as ordered in
February of 2011, the court re-entered judgment in favor of Appellees and
the Dewings again filed an appeal. They raise the following issue for our
review:
Whether the court erred in entering final judgment in favor of
[A]ppellees when the plain language of the lease as well as the
joint statement of stipulated facts indicates that judgment
should have been entered in favor of [the Dewings]?
Dewings Brief at 5. In the issue they raise, the Dewings request that we
review the trial court’s interpretation of the lease language dealing with the
forfeiture clause. They also assert that the court erred by requiring proof of
abandonment by Appellees.
We begin by setting forth the specific language of the lease that is in
contention in this case. Subparagraph J of the lease states:
(J) LIMITATION OF FORFEITURE: This Lease shall never be
subject to a civil action or other proceeding to enforce a claim of
forfeiture due to Lessee’s alleged failure to perform as specified
herein, unless Lessee has received written notice of Lessor’s
demand and thereafter fails or refuses to satisfy Lessor’s
demand within 60 days from the receipt of the notice.
We further recognize that this Court in our earlier memorandum decision
explained the basis for the trial court’s decision granting a preliminary
injunction and noted that the trial court used the same reasons for ruling on
the merits in Appellees’ favor and against the Dewings in dismissing all of
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their claims. See Dewing, supra (note highlighted sentence in quoted
material above).
When this Court reviews the interpretation of language in a lease, we
apply contract principles and property law. McCausland v. Wagner, 78
A.3d 1093, 1100 (Pa. Super. 2013). The McCausland decision provides
further guidance, stating:
“[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 omitted).
In interpreting a contract, the ultimate goal is to
ascertain and give effect to the intent of the parties
as reasonably manifested by the language of their
written agreement. When construing agreements
involving clear and unambiguous terms, this Court
need only examine the writing itself to give effect to
the parties’ understanding. This Court must
construe the contract only as written and may not
modify the plain meaning under the guise of
interpretation.
Id. at 722 (citation and emphasis omitted).
To show a breach of contract, a party must establish: “(1)
the existence of a contract, including its essential terms, (2) a
breach of a duty imposed by the contract, and (3) resultant
damages.” Hart v. Arnold, 884 A.2d 316, 332 (Pa. Super.
2005). When performance of a duty under a contract is due,
any nonperformance is a breach. Widmer Engineering, Inc.
v. Dufalla, 837 A.2d 459, 467-468 (Pa. Super. 2003). If a
breach constitutes a material failure of performance, the non-
breaching party is relieved from any obligation to perform; thus,
a party who has materially breached a contract may not insist
upon performance of the contract by the non-breaching party.
LJL Transp., Inc. v. Pilot Air Freight Corp., 599 Pa. 546, 962
A.2d 639, 648 (Pa. 2009). Conversely, a party might breach the
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contract but still substantially perform its obligations under the
agreement. Cimina v. Bronich, 517 Pa. 378, 537 A.2d 1355,
1358 (Pa. 1988). In that case, the breach is deemed
nonmaterial and the contract remains in effect. Id. The
breaching party retains the right to enforce the contract and
demand performance; the nonbreaching party has no right to
suspend performance. Widmer Engineering, Inc., 837 A.2d at
468.
Id. at 1101.
The Dewings contend that there are two types of forfeiture clauses
using the “unless” language, namely (1) an “[u]nless [c]lause [w]ithout
[e]xpress [p]rovision for [f]orfeiture” or (2) an “[u]nless [c]lause with
[f]orfeiture.” See Dewings’ Brief at 14. The Dewings explain that the first
type of “unless” clause does not allow the lessor to terminate the lease when
lessee fails to pay delay rental, and lessor may only bring an action for
damages. With regard to the second type of “unless” clause containing a
forfeiture provision, the lessor may choose to bring an action to terminate
the lease. Id. at 15. Thus, the Dewings assert that because the clause in
the lease agreement at issue is of the second type of forfeiture clause,
Appellees had a duty to pay the delay rental or drill. Since Appellees did
neither, the Dewings claim they had the right to bring this action to
terminate the lease, so long as the two conditions precedent were satisfied,
i.e., notice to lessee and a failure or refusal to satisfy lessor’s demand within
60 days of receipt of the notice. The Dewings acknowledge that
subparagraph J of the lease is not an automatic forfeiture provision. Rather,
they claim that it allows them to bring this action, or otherwise the parties’
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intent in entering into the lease would be invalidated and their bargained for
remedy would be void. Id. at 20.
The Dewings also contend that Appellees’ action in failing to pay the
delay rental payment within the sixty-day cure period was a material breach
of the lease, a question that they argue was not reached by the trial court.
They further contend that if we agree that a breach did occur, there is
insufficient evidence on which to determine the materiality of the breach and
a remand is necessary.
However, in reviewing the language of the trial court’s January 14,
2011 order, we recognize that its reasoning supports a conclusion that
although Appellees breached a contractual duty, it was not a material breach
that would allow for forfeiture. The court also appears to have found that
the Dewings did not present evidence regarding abandonment of the lease
by Appellees and that, therefore, their remedy was an action to recover the
delay rental, not forfeiture. The court relied on Girolami v. Peoples
Natural Gas Co., 76 A.2d 375 (Pa. 1950), wherein our Supreme Court
explained:
The lease in suit contains no provision for its automatic
termination in the event of the failure of the lessee to drill or to
pay the delay rental, nor any express reservation of the power of
forfeiture. It therefore leaves the lessors to an action at law for
the rentals and is subject to rescission only upon clear proof of
its abandonment by the lessee[.]
Id. at 377 (citations omitted). Although we recognize the distinction
between the lease language in the instant case and the absence of the same
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language in the lease in Girolami, we conclude that the court did not err in
rejecting the Dewings’ claim. It is evident that the Dewings had the right to
seek forfeiture, but they did not prove that Appellees’ action rose to the
necessary level of materiality allowing for the grant of forfeiture by the
court.
Both parties also discuss Linder v. SWEPI, 549 Fed. Appx. 104 (3d
Cir. 2013), a non-precedential decision involving an oil and gas lease
between the Linder Trust and Shell Exploration and Production, LP. Although
we recognize that this Court is not obliged to follow the dictates of the
Linder case, in the absence of Pennsylvania precedential case law on point,
we set forth the following discussion from Linder, which we find persuasive:
As the Trust correctly notes, SWEPI breached its contractual
duty when it belatedly made its delay rental payment following
the expiration of the initial Lease term in September 2010. The
District Court held that this breach was immaterial, however.
The Trust counters that SWEPI’s late payment was material
because the timely payment of delay rental is of the utmost
importance to the lessor-lessee relationship. We disagree. A
brief delay in payment of rent where the contract contains no
“time-is-of-the-essence” provision does not amount to a material
breach. See Gorzelsky v. Leckey, 402 Pa. Super. 246, 586
A.2d 952, 956 (1991). The Trust also cites a clause in the Lease
that gives SWEPI a 60-day cure period before the Trust can sue
for forfeiture of the Lease. The Trust argues that because SWEPI
failed to cure within 60 days, its belated payment was a material
breach. Again, we disagree because this argument alters that
clause's purpose, which is meant to improve the chances of an
out-of-court resolution in the event of a breach by giving SWEPI
a brief grace period to right its wrong. By its terms, the 60-day
cure period relates only to the timeliness of bringing a lawsuit.
It does not establish the materiality of a breach as would a time-
is-of-the-essence clause.
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Id. at 107-08.
Taken together, the case law cited above and by the parties and the
stipulated facts provide a basis upon which to conclude that Appellees’
breach was not material and that abandonment was not proven. Notably,
the parties’ joint stipulation of facts contains the following:
21. The Dewings contend that on or after June 21, 2010, after
the Dewings[’] letter of June 21, 2010 had been sent to the
[Appellees], the Dewings withdrew their consent to Talisman’s
contractors being on their property and requested that
Talisman’s contractors cease all work on the property. While
Talisman stipulates to the withdrawal of consent as set forth in
this paragraph, it does not stipulate to the date of said
withdrawal.
Stipulation of Facts, ¶ 21. Obviously, Appellees’ contractors continued work
on the property until requested by the Dewings to cease. This stipulation
certainly supports a lack of intentional abandonment.
Accordingly, we conclude that the trial court’s determination was not in
error. Therefore, we affirm.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/4/2015
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