Swepi LP v. Wood, H. and B. ( 2016 )

J-A14042-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SWEPI LP, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
HARVEY AND BOBBI JO WOOD,
Appellees No. 1945 MDA 2015
Appeal from the Order Entered October 6, 2015
In the Court of Common Pleas of Tioga County
Civil Division at No.: 59 CV 2011
BEFORE: BOWES, J., OTT, J., and PLATT, J.*
MEMORANDUM BY PLATT, J.: FILED SEPTEMBER 07, 2016
Appellant, SWEPI LP,1 appeals from the grant of summary judgment in
favor of Harvey and Bobbi Jo Wood, husband and wife, Appellees, after it
brought an action for declaratory judgment in this oil and gas lease dispute.
This case returns to us after remand.2 We are constrained to conclude that
in granting summary judgment the trial court overlooked genuine issues of
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*
Retired Senior Judge assigned to the Superior Court.
1
Shell Western E & P (Exploration and Production) Inc. LP.
2
Appellees previously appealed from a prior order granting a preliminary
injunction to Appellant. This Court reversed and remanded, concluding that
the trial court improperly granted permanent relief in the nature of a final
injunction instead of preliminary relief to maintain the status quo. (See
SWEPI LP v. Wood, No. 619 MDA 2011, unpublished memorandum at *12
(Pa. Super. filed February 6, 2012)). The decision did not address any other
issues presented by Appellees. (See id.).
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material fact. Also, we conclude that the trial court does not appear to have
viewed the evidence of record in the light most favorable to Appellant as the
non-moving party. Accordingly, we are constrained to vacate the order of
summary judgment and remand for trial on the merits.
The facts of this case are rather convoluted, but the legal issues for
disposition are relatively straightforward. We derive the facts pertinent to
our review from the trial court’s opinion and our independent review of the
record. (See Trial Court Opinion, 12/28/15, at 1-3).
Both parties are successors in interest to their respective rights.
Appellees own a farm acquired from Harvey Wood’s “stepfather,” Roderick
Parthemer.3 On November 21, 2000, Mr. Parthemer executed an oil and gas
lease as lessor of the property, in favor of Allegheny Energy Development
Corporation as lessee, for a primary term of five years. The lease provided
for an optional five-year extension on stated terms, as follows:
Lessee may extend the primary term for one additional period
equal to the primary term by paying to Lessor at any time within
the primary term an Extension Payment equal in amount to the
annual Delay Rental as herein described, multiplied by a factor of
-0-, or by drilling a well on the Leasehold which is not capable of
commercial production.
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3
Although no longer Harvey’s actual stepfather, Roderick Parthemer was
previously married to Harvey’s mother. They divorced in the mid-’90’s. Mr.
Parthemer remarried (someone else), but has since been widowed. (See
N.T. Hearing, 2/22/11, at 108-09).
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(Plaintiff’s Exhibit 3, Oil and Gas Lease between Allegheny Energy
Development Corporation and Roderick P. Parthemer, 11/21/2000, at 1).
The zero was manually inserted into the preprinted paragraph.
The lease was duly notarized and recorded. Appellant SWEPI
eventually acquired the oil and gas lease interest originally executed by
Allegheny. Appellant claims drilling rights under the Allegheny lease, as
extended for a second five-year term.
Appellees maintain that the Allegheny lease expired at the end of its
original five-year term, and they re-leased the oil and gas rights to another
party (the “Fortuna” lease).4
Notably, after Appellees acquired their farm from Mr. Parthemer they
failed to file appropriate notice and supporting documentation with
Appellant’s predecessor, East Resources, successor in interest to Allegheny.
Accordingly, East Resources continued to make payments due under the
lease to Mr. Parthemer, who would then sign checks over to Appellees. (See
id. at 1-2).
After years of collecting royalties through Mr. Parthemer, Appellees
ejected SWEPI personnel from their property when they entered it to begin
surveys in preparation for drilling. Appellees asserted that the Allegheny
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4
While not affecting our disposition, we note for the sake of completeness
that in January 2010 East Resources acquired the Fortuna lease. Appellant
acquired East Resources in May of 2010. (See Trial Ct. Op., at 2).
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lease had expired after the original term of five years, on November 21,
2005. They denied that any of the fees they received, either directly or
through Mr. Parthemer, represented the fee for extension of the term
specified in the lease. They similarly denied receiving notice of any exercise
of the extension either directly or through Mr. Parthemer.
At a hearing on a preliminary injunction, Mrs. Wood conceded they
preferred a subsequent lease, the Fortuna lease, which offered them better
terms. (See N.T. Hearing, 2/22/11, at 135). Appellant maintains that
Appellees had accepted payments from its predecessors, directly or
indirectly through Mr. Parthemer, including payment for the extension of the
Allegheny lease for a second five-year term.
Appellees professed ignorance, or confusion, about the purpose of the
payments, most notably the payment Appellant maintains was for the
extension of the lease to a second five-year term. Mrs. Wood claimed at one
point that they appeared to be regular royalty payments (under the original
term of the Allegheny lease). At another point, Mr. Wood speculated that
the payments might have been a “gift.” (See Appellant’s Brief, at 34-35
n.21; see also N.T. Hearing, 2/22/11, at 159).
On October 6, 2015, the trial court granted summary judgment in
favor of Appellees, finding that the Allegheny lease had expired “as a matter
of law” on November 20, 2005. (Trial Ct. Op., at 4). The trial court
reasoned that the extension-of-term clause under which Appellant SWEPI
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claimed was void for lack of consideration. It based this conclusion on the
manual insertion of “-0-” into the preprinted clause which provided, in
pertinent part, for the calculation of the payment for extension, so that the
finalized clause to extend the lease required “an Extension Payment equal in
amount to the annual Delay Rental as herein described, multiplied by a
5
factor of ‘-0-’[.]” (Id. at 6).
Adopting the argument advocated by Appellees, the trial court
professed to apply mathematical principles,6 specifically, that multiplying
anything by a factor of zero yields zero. (See id. at 6). Thus, it reasoned,
the extension provision lacked consideration, because it called for a payment
of “zero dollars.” (Id.). The trial court decided this provision was
unambiguous, and dismissed Appellant’s argument to the contrary as
“grammatical gymnastics[.]” (Id.).
The court further decided that because there was no contract, claims
of waiver, estoppel, and ratification did not apply. (See id. at 7). It also
rejected Appellant’s assertion that the statute of limitations had expired on
Appellees’ counterclaims. (See id. at 8). This timely appeal followed.7
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5
The Delay Rental Fee was set at $888.
6
Both Appellees and the trial court say “principals.”
7
Appellant filed a concise statement of errors on December 3, 2015
(postmarked on December 1). The trial court filed an opinion on December
28, 2015. See Pa.R.A.P. 1925.
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Appellant presents three questions on appeal:
1. Did the trial court err in finding the lease to be
unambiguous and expired as of November 21, 2005?
2. Did the trial court err in finding that, as a matter of law,
the doctrines of waiver, estoppel, and/or ratification do not
prohibit [Appellees] from challenging the validity of the
Extension of Term provision?
3. Did the trial court err when it granted [Appellees’]
motion for summary judgment notwithstanding the fact that
[Appellant] raised a statute of limitations defense?
(Appellant’s Brief, at 2-3) (unnecessary capitalization omitted).
Our standard and scope of review are well-settled.
As our Supreme Court reiterated in Gilbert v. Synagro
Cent., LLC, 131 A.3d 1, 10 (Pa. 2015) (citing Basile v. H & R
Block, Inc., 761 A.2d 1115, 1118 (Pa. 2000)), an appellate
court’s scope of review of an order granting summary judgment
is plenary. Our standard of review is that “the trial court’s order
will be reversed only where it is established that the court
committed an error of law or clearly abused its discretion.” Id.Furthermore,
[s]ummary judgment is appropriate only in those cases
where the record clearly demonstrates that there is no
genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law. The reviewing
court must view the record in the light most favorable to
the nonmoving party, resolving all doubts as to the
existence of a genuine issue of material fact against the
moving party. When the facts are so clear that reasonable
minds cannot differ, a trial court may properly enter
summary judgment.
Gilbert, supra at 10.
Telwell Inc. v. Grandbridge Real Estate Capital, LLC, ___ A.3d ____,
No. 1713 EDA 2015, at *3-*4 (Pa. Super. filed July 21, 2016).
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We view the record in the light most favorable to the non-
moving party, and all doubts as to the existence of a genuine
issue of material fact must be resolved against the moving party.
Only where there is no genuine issue as to any material fact and
it is clear that the moving party is entitled to a judgment as a
matter of law will summary judgment be entered.
Caro v. Glah, 867 A.2d 531, 533 (Pa. Super. 2004) (quoting Pappas v.
Asbel, 768 A.2d 1089, 1095 (Pa. 2001), cert. denied, 536 U.S. 938 (2002)).
We also observe that:
[An oil and gas] lease is in the nature of a contract and is
controlled by principles of contract law. It 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. Further,
a party seeking to terminate a lease bears the burden of proof.
T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012)
(citations, internal quotation marks and other punctuation omitted).
As we undertake our analysis, we remind ourselves the
judicial construction of instruments involving oil and gas is
particularly troublesome. Pennsylvania case law evidences a
long and tortured trail of attempts to make sense of phrases,
parts of phrases, and words of art sometimes used in a common
sense manner and sometimes used with a precise technical
meaning, and all used in documents sometimes drafted with care
and sometimes quickly scribbled by the litigants themselves. . . .
The legal effect of words clearly understood when used in
other contexts, therefore, becomes murky when considered in
the context of oil and gas instruments. . . . Applying the literal
meaning to words and phrases found in oil and gas documents is
fraught with the opportunity for injustice.
As a result, we must be mindful that the object in
interpreting instruments relating to oil and gas interests, like any
written instrument, is to ascertain and effectuate the intention of
the parties.
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Szymanowski v. Brace, 987 A.2d 717, 719–20 (Pa. Super. 2009), appeal
denied, 997 A.2d 1179 (Pa. 2010) (citations and internal quotation marks
omitted).
In interpreting contracts, we are guided by the following
principles:
The interpretation of any contract is a question of
law and this Court’s scope of review is plenary. Moreover,
we need not defer to the conclusions of the trial court and
are free to draw our own inferences. 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 (citations and internal quotation marks omitted).
A contract is ambiguous if it is reasonably susceptible of
different constructions and capable of being understood in more
than one sense. The “reasonably” qualifier is important: there is
no ambiguity if one of the two proffered meanings is
unreasonable. See Murphy v. Duquesne Univ. Of The Holy
Ghost, 565 Pa. 571, 591, 777 A.2d 418, 430 (2001)
(“[C]ontractual terms are ambiguous if they are subject to more
than one reasonable interpretation when applied to a
particular set of facts.” (emphasis added)). Furthermore,
reviewing courts will not distort the meaning of the language or
resort to a strained contrivance in order to find an ambiguity.
Finally, while ambiguous writings are interpreted by the finder of
fact, unambiguous ones are construed by the court as a matter
of law.
Trizechahn Gateway LLC v. Titus, 976 A.2d 474, 483 (Pa. 2009) (some
citations and internal quotation marks omitted) (emphasis added in original).
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When determining the nature of the right or estate created by an
instrument, the court will consider the document as a whole,
without regard to its formal division into parts and may refer to
the habendum clause when the terms of the grant under an oil
and gas extraction agreement are ambiguous.
Hetrick v. Apollo Gas Co., 608 A.2d 1074, 1079 (Pa. Super. 1992)
(citation omitted).
Here, on independent review, we are constrained to conclude that the
trial court’s rationale does not ascertain or give effect to the intent of the
parties as reasonably manifested by the language of their written
agreement. Rather, we find the trial court’s attempt at a literal application
of a textbook mathematical principle to interpret the intent of parties to an
oil and gas lease to be a strained contrivance not supported by the facts of
record or any controlling caselaw. Aside from a string of citations for
general principles, the trial court offers no pertinent authority in support of
its specific methodology. Labelling a problematical provision as
“unambiguous” does not relieve the trial court of the obligation to provide
pertinent controlling authority for its legal conclusions. Here, the trial court
offers none. (See Trial Ct. Op., at 5).
Furthermore, the trial court in reaching its conclusion failed to review
the facts of record in the light most favorable to the non-moving party.8
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8
The trial court emphatically denies reliance on oral testimony for its
contract interpretation, insisting its decision is based “solely” on the
unambiguous language of the lease. (Trial Ct. Op., at 6). Nevertheless, as
(Footnote Continued Next Page)
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Arguably ambiguous actions, such as the acceptance of fees which Appellant
maintains included the term extension fee, required review in the light most
favorable to Appellant as the non-moving party, not to Appellees as the
movants. All doubts as to the existence of a genuine issue of material fact
should have been resolved against Appellees as the moving party. See
Caro, supra at 533.
Furthermore, nothing of record supports the trial court’s conclusion
that the drafter, or for that matter, either party to the original lease (let
alone the assignees who are the litigants here), intended the language
employed or the manually inserted zero to be a mere mechanical application
of the zero property of multiplication. Similarly, there is nothing of record to
indicate that the parties intended to nullify the operation of the extension
provision sub silentio by the expedient of multiplying it by zero. The trial
court’s conclusion rests on mere unsupported speculation.
While inartfully constructed, the extension provision could reasonably
be interpreted to mean that it became operative on payment of the “delay
rental” ($888) with no multiple applied to increase the payment. As the trial
_______________________
(Footnote Continued)
noted by Appellant, the court explains away inconsistent acts by Appellees
as excused by their incorrect “impression” of the nature of fees received
(which Appellant claims to be payments for the lease extension), as regular
rental payments. The court also ignored Mr. Wood’s alternative explanation
of a gift. The trial court erred in accepting one litigant’s subjective
impression as justifying a summary judgment as “a matter of law.” (Id. at
4). The inconsistent explanations presented a genuine issue of material fact.
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court suggests, however implausibly, the intent of the parties may have
been to render the entire provision inoperable. Reading the clause literally,
a third alternative is that the extension provision could be operative without
the payment of any fee (“0”).
We conclude that the provision at issue is highly ambiguous.
Ambiguous writings are to be interpreted by the finder of fact. See
Trizechahn, supra at 483. The trial court erred in granting summary
judgment as a matter of law on an issue that should have been presented to
the jury. The court also erred in not viewing the record in the light most
favorable to Appellant as the non-moving party.
Finally, we note that the trial court reasoned that the lease was void
for lack of consideration because it called for a payment of “zero dollars.”
(Trial Ct. Op., at 6). We are constrained to disagree.
We note Appellant’s argument that the lease contract was under seal.
The general rule, with exceptions not pertinent here, is that a seal imports
consideration. See Socko v. Mid-Atl. Sys. of CPA, Inc., 126 A.3d 1266,
1270 (Pa. 2015). The rule is well-settled. See Selden v. Jackson, 230
A.2d 197, 197 (Pa. 1967) (“[A] plaintiff who relies upon a sealed instrument
is not obliged to prove consideration to take the case to the jury. The seal
imports consideration.”). Even if we were to accept the trial court’s “factor
of zero” interpretation for the sake of discussion, it would not render the
contract void. We are constrained to conclude the trial court erred in
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granting summary judgment to Appellees. The trial court should have
denied summary judgment and proceeded to a trial on the merits.
Because our conclusion requires remand to the trial court for trial, we
need not address any other issue presented by Appellant at this time, and
we decline to do so.
Order vacated. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/7/2016
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