Sabella, D. v. Appalachian Development Corp. , 103 A.3d 83 ( 2014 )

J-A04023-14
2014 Pa. Super. 237
DENNIS SABELLA IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
APPALACHIAN DEVELOPMENT
CORPORATION AKA APPALACHIAN
DEVELOPMENT CORP; AND BRIAN C.
HANER AND LISA M. HANER, D/B/A PINE
RIDGE ENERGY
Appellants No. 722 WDA 2013
Appeal from the Judgment Entered on April 8, 2013
In the Court of Common Pleas of Warren County
Civil Division at No.: 2010-150
DENNIS SABELLA IN THE SUPERIOR COURT OF
PENNSYLVANIA
Cross-Appellant
v.
APPALACHIAN DEVELOPMENT
CORPORATION AKA APPALACHIAN
DEVELOPMENT CORP; AND BRIAN C.
HANER AND LISA M. HANER, D/B/A PINE
RIDGE ENERGY
Cross-Appellees No. 766 WDA 2013
Appeal from the Judgment Entered on April 8, 2013
In the Court of Common Pleas of Warren County
Civil Division at No.: 2010-150
BEFORE: BOWES, J., WECHT, J., and STABILE, J.
OPINION BY WECHT, J.: FILED OCTOBER 20, 2014
J-A04023-14
In this oil and gas case, Dennis Sabella and the above-captioned
Appellants/Cross-Appellees (hereinafter, the “Haners,” except where context
requires reference to Brian Haner individually) file cross-appeals challenging
generally the judgment that the trial court entered in Sabella’s favor. Each
party challenges aspects of that learned court’s entry of partial summary
judgment, as well as that court’s verdict entered after a bench trial
addressing the issues not disposed of on summary judgment.
Following careful review, we affirm in part, but we vacate aspects of
the trial court’s judgment and remand for further proceedings.
BACKGROUND
The trial court has provided us a thorough summary of the facts and
background of the case:
[Sabella] . . . obtained the oil, gas, and mineral rights (OGMs) to
the subject property at a tax sale on September 8, 1997. . . .
The property was . . . properly recorded . . . in the Warren
County Register and Recorder’s Office in 1997. [Sabella] did not
own the surface rights to the property. However, there being a
public road near the property, Keller Road, [Sabella] did drive
the public road looking for any signs of development. Finding
none, he operated under the assumption that there was no oil
and gas development activity.
The piece of property at issue is a rural, wooded parcel of land,
covered by trees and brush. The property is not on a main road.
Also, there is just one home nearby the surface of the property
at issue. Further, [Sabella] suffered from progressive macular
degeneration. Eventually, [Sabella’s] condition prevented him
from driving a vehicle.
[Appalachian was] unrepresented in the instant action.
Appalachian is and was at all times relevant, an oil and gas
company operating in and around Warren, Pennsylvania.
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Appalachian was owned by Russell C. Southwell, Lee Borger, Jr.,
and Ted Carrington.
On November 15, 2001, Mark and Virginia Harvey [“the
Harveys”] owned the surface rights to 104 acres above the
66 subsurface acres [that Sabella] owned. Appalachian signed
an oil and gas lease with Mark and Virginia Harvey in 2001.1
The lease was for production of the 104 acres of oil and gas
rights underneath the Harvey surface tract. Appalachian called
this lease the “Harvey lease,” and duly recorded it at the
Register and Recorder’s Office . . . . However, unbeknownst to
either party to the Harvey lease, 66 of those 104 subsurface
acres were already owned by [Sabella].
1
Mark and Virginia Harvey are not parties to the instant
action. [The Haners] sought to interplead Mark and
Virginia Harvey, but this Court denied the request as
untimely.
Defendants Brian C. Haner and Lisa M. Haner are husband and
wife, trading and doing business under the registered fictitious
name Pine Ridge Energy (Pine Ridge). Pine Ridge is an
unincorporated business association. On June 23, 2003,
Appalachian, by and through three of its shareholders, signed a
letter of agreement to sell some of its holdings to Defendant
Brian Haner . . ., operating as Pine Ridge. Pine Ridge then
finalized the purchase of Appalachian in August 2003. As part of
the agreement of sale, Appalachian warranted good, marketable
title. Included in Pine Ridge’s purchase was the Harvey lease,
which included [Sabella’s] 66 acres of OGMs.
In effectuating the purchase of Appalachian, Pine Ridge retained
the services of local attorney Arthur Stewart. Mr. Stewart
advised2 Brian Haner of his title search options when acquiring
the Appalachian leases. Mr. Stewart informed Haner he could
either (1) obtain no title search, (2) obtain a “bring-down” title
search,[1] or (3) obtain a full title search. Stewart and Haner
____________________________________________
1
A bring-down title search has been described as follows:
A “bring down” search is the final review of the prothonotary’s
and recorder of deeds’ records to determine if there have been
any intervening events [that] affect the title to be conveyed at a
(Footnote Continued Next Page)
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discussed approximate costs and risks associated with each of
the options. Haner opted for the middle option, performing only
a “bring-down” title search on the Harvey lease. Pine Ridge also
acquired the drilling rights to adjacent properties, and began
producing adjacent properties.
2
Attorney-client privilege was waived for purposes of this
testimony.
When [the Haners] obtained the subject property, there were
two existing oil and natural gas wells on the subject property
[denominated Wells H-1 and H-2] . . . . Subsequently, seven
more wells were drilled by [the Haners] from 2004-2008
[denominated Wells H-3 through H-9] . . . . On March 8, 2008,
[Sabella] met Brian Haner. Drilling was completed on Well H-7
on August 14, 2008. Drilling was completed on Well H-8 on
August 20, 2008. And finally, drilling was completed on Well H-9
on August 26, 2008. In total, nine (9) wells were drilled on the
Sabella subsurface property. Those nine wells produced both oil
and gas.
The “Harvey wells” (producing from [Sabella’s] OGMs) were not
separately metered from surrounding wells. Rather, to collect
the oil and gas from the wells, the wells were connected with
wells producing [on] nearby properties. Royalty checks were
disbursed by tallying the number of wells producing in the area,
and dividing the total wells by each OGM lessor’s wells.
As Pine Ridge continued to expand its operations, [the Haners
were] considering selling ash timber and leasing more OGMs. In
early 2008, [Brian] Haner was attempting to get in touch with a
_______________________
(Footnote Continued)
settlement between the time the original title abstract is
prepared and the time of settlement. It is the generally
accepted practice among title abstractors to do a settlement
“bring down” as close in time as possible to the date of
settlement. If a settlement is scheduled for 9:00 a.m., it is
prudent and generally accepted among title abstractors to do a
bring down search during the afternoon prior to the settlement.
Penn Title Ins. Co. v. Intercounty Abstract, 31 Pa. D. & C.3d 635, 642
(Montgomery Cty. 1984).
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potential business contact who[] he knew used to work for
someone of the last name “Sabella.” So, [Brian] Haner began
calling “Sabellas” in the phone book. Ultimately, he reached
[Sabella] . . . and the two individuals planned to meet to discuss
business opportunities. On March 8, 2008, [Brian] Haner met
Sabella at his house and the two drove to McKean County to
examine a lease Sabella owned. The parties then examined
another property that Sabella owned in Frewsburg, New York,
had lunch, and returned to Sabella’s house to continue
discussing the oil and gas business.
Upon arrival at Sabella’s house, the two parties discussed the 66
acres that Sabella owned in Warren County. [Brian] Haner also
began discussing with Sabella other locations where [the
Haners], doing business as Pine Ridge Energy, [were] operating.
[Brian] Haner told Sabella he operated “between Irvine Run and
Keller Road” in Conewango Township. Sabella responded that he
owned [OGMs] there. Sabella then produced a map of the area.
[Brian] Haner recognized the map as the area [the Haners were]
then currently producing. However, [Brian] Haner did not
explicitly tell Sabella that [the Haners were] on the property.
There was conflicting testimony about precisely what was said as
the parties examined this map at the meeting of March 8, 2008.
This [c]ourt, after observing the witnesses, assessing the
witnesses’ credibility, and examining the totality of the
circumstances, determines that [Brian] Haner did not tell
[Sabella] that Pine Ridge was operating on [Sabella’s] property.
In fact, [Brian Haner] made statements to [Sabella] that would
have indicated to a reasonable person that there was no oil and
gas activity occurring on the property but that he was very close
to [Sabella’s] property. Furthermore, the effect of [Brian]
Haner’s statements to Sabella were such that Sabella believed
he did not need to worry about that piece of property being
developed, even if Sabella did not know precisely where the
boundary lines were drawn. On the other hand, Sabella assured
[Brian] Haner they would work out something with respect to
royalties and not to worry in the event [that the Haners were] on
the land.
Rather than speak with his attorney regarding title, [Brian
Haner’s] immediate response was to meet with Appalachian’s
partners who assured him he had good title. However, [the
Haners] did not obtain a title search on the property after this
meeting. [The Haners] did not escrow the funds of the oil and
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gas proceeds after this meeting. [The Haners] did not pay
royalties to [Sabella]. [The Haners] even continued to develop
the property. Following the March 8, 2008[] meeting, [the
Haners] expanded production on the Harvey lease, drilling an
additional three (3) wells on the property in August 2008 to
bring the total [number of] wells on Sabella’s OGMs to nine (9).
[The Haners] continued to produce oil and gas from the 66
subsurface acres. On March 10, 2010, this suit in ejectment,
trespass and conversion was filed by [Sabella].
Trial Court Opinion (“T.C.O.”), 1/25/2013, at 3-8 (record citations and one
footnote omitted; emphasis in original).
The trial court also has provided the following procedural history:
[Sabella] filed a Complaint on March 10, 2010 asserting three
causes of action: Count I—Ejectment; Count II—Conversion;
and Count III—Trespass. [The Haners] filed an Answer and New
Matter to Complaint on June 17, 2010. [Sabella] responded by
filing an Answer to New Matter on June 25, 2010. On the same
date, [Sabella] filed a Motion for Partial Summary Judgment
seeking judgment as a matter of law as to [ejectment] and
judgment [only] on the issue of liability . . . on Counts II and III.
[The Haners] filed a Motion for Leave to Join Additional
Defendants [i.e., the Harveys] on June 30, 2010. On September
13, 2010, this [c]ourt issued a Memorandum Opinion and Order
denying [the Haners’] Motion for Leave . . . and granting
[Sabella’s] Motion for Partial Summary Judgment.
One week later, on September 20, 2010, [Sabella] filed a Motion
for Entry of Final Appealable Order Pursuant to Pa.R.A.P. 341,
which sought the entry of a final order regarding Count I—
Ejectment. On the same date, this [c]ourt granted said Motion
and judgment in ejectment was entered in favor of [Sabella] and
against [the Haners]. No appeal of that Order was taken by
either [Sabella] or [the Haners].
****
On June 29, 2012, [the Haners] filed a Motion for Summary
Judgment. This [c]ourt denied [the Haners’] Motion for
Summary Judgment by Order dated August 27, 2012 . . . .
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A three-day bench trial on the merits of the case commenced on
August 29, 2012. At trial, the sole remaining issue[s] for this
[c]ourt’s consideration [were] damages as to Counts II and III,
Conversion and Trespass, respectively.
At the bench trial, no separate witnesses were presented on
behalf of [Sabella]. [Sabella] was called as on cross-
examination by [the Haners]. [The Haners] called Brian
Haner, . . . Ted Carrington, Arthur J. Stewart, John M. Sveda,
and Lauri L. Sekerak. At the conclusion of the trial, the [c]ourt
directed the parties to file written closing statements along with
proposed findings of fact and conclusions of law for this Court’s
consideration. Each party filed [proposed findings and
conclusions] by November 15, 2012.
T.C.O., 1/25/2013, at 2-3.
Thereafter, for reasons set forth in a detailed and comprehensive
thirty-four-page memorandum opinion, the trial court found the Haners
liable for trespass (both good-faith and bad-faith) and conversion, and
entered judgment on April 8, 2013, in favor of Sabella in the amount of
$249,972.30. Both parties filed post-trial motions, which the trial court
denied in material part in a memorandum opinion and order entered on April
2, 2013. On April 25, 2013, the Haners filed the instant appeal. On May 6,
2013, Sabella filed the instant cross-appeal. The trial court directed the
parties to file concise statements of errors complained of on appeal pursuant
to Pa.R.A.P. 1925(b), and the parties timely complied. On June 20, 2013,
the trial court filed its Rule 1925(a) opinion addressing the parties’
respective issues, primarily by reference to its earlier opinions in this matter.
The case now is ripe for our review.
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DISCUSSION
The respective parties to this cross-appeal raise more issues than
warrant verbatim reproduction. Taken in sum, they may be grouped into
several categories, which, in service of clarity and expedience, we will
address in turn by topic rather than by the party raising the particular issue,
although the Haners raise considerably more issues than Sabella. Thus, we
begin by addressing those arguments that would entirely invalidate the
underlying judgment. First, we must address the Haners’ challenge to the
trial court’s subject matter jurisdiction for Sabella’s failure to join an
indispensable party. Second, we will address the Haners’ contention that
the statute of limitations barred Sabella’s claims in their entirety. Next, we
take up other issues, including the Haners’ challenge to the trial court’s
grant of summary judgment in favor of Sabella on his claims for ejectment.
Once we have explained why these issues do not warrant relief, we address
each party’s challenges to the results of the trial in this matter, which
encompass liability, damages, and other matters.
I. Subject Matter Jurisdiction
Taking the Haners’ last issue first, we consider their claim that the
Harveys, as parties who purported to lease Sabella’s now-undisputed rights
to the oil and gas in question, were indispensable parties. See Brief for the
Haners at 67-69. The Harveys were the undisputed owners of the surface
rights over Sabella’s OGMs, and mistakenly purported to lease those rights
to the Haners.
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Under Pa.R.C.P. 2227, a “[p]erson[] having only a joint interest in the
subject matter of an action must be joined on the same side as plaintiffs or
defendants.”
As a general rule, an indispensable party is one whose rights are
so connected with the claims of the litigants that no decree can
be made without impairing its rights. Appellate courts have
consistently held that property owners are indispensable parties
in lawsuits concerning the owners’ property rights.
The absence of an indispensable party goes absolutely to the
court’s jurisdiction. If an indispensable party is not joined, a
court is without jurisdiction to decide the matter. The absence
of an indispensable party renders any order or decree of the
court null and void. The issue of “the failure to join an
indispensable party” cannot be waived.
Hart v. O’Malley, 647 A.2d 542, 549 (Pa. Super. 1994) (citations omitted).2
The trial court rejected the Haners’ contention upon the basis that “the
only necessary or indispensable party defendant to an ejectment action is
the person in actual possession, and, where such land is under lease, it is
the tenant, not the landlord, who constitutes the only necessary or
indispensable party.” T.C.O., 6/20/2013, at 4 (citing Bannard v. N.Y.
State Natural Gas Co., 172 A.2d 306, 310 (Pa. 1961)). Noting that the
____________________________________________
2
That the issue cannot be waived is why we will spend no time
addressing the trial court’s assertions that the Haners did not assert
indispensable party as a basis for joinder in their Motion for Leave to Join
Additional Defendants and that the Haners’ motion was filed out of time.
See T.C.O., 6/20/2013, at 4-6. Regardless of whether, when, or how the
Haners raised the indispensable party issue, the jurisdictional challenge is
ripe for review.
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parties in possession of the oil and gas estate at issue in this case were the
Haners, not the Harveys, the court found that the Harveys were not
indispensable parties to the ejectment action. Id.; cf. Hicks v. Amer.
Natural Gas Co., 57 A. 55, 58 (Pa. 1904) (finding that possession lay with
the gas lessee because it had drilled a well and had the gas “in [its]
control”).
The Haners argue as follows:
The Harveys are indispensable parties to this action because
they have a joint interest in the subject matter of the litigation:
the [OGMs]. That they asserted such an interest is patently
obvious as they gave a lease that covered all of the [OGMs].
The [trial court’s Rule 1925(a)] opinion demonstrates even more
plainly how the Harveys are indispensable. The trial court wrote
that “[h]ere, the issues were essentially ‘who owned the
[OGMs.]’” [T.C.O., 6/20/2013, at 4 (emphasis added)].
However, the Harveys undeniably believed they owned the
[OGMs,] having leased the same to [the Haners]. Moreover, the
trial court went on to conclude that[,] “by definition, the Harveys
were not indispensable parties because they did not possess or
own the [OGMs].” [Id. (emphasis added)].
****
Because the court ruled that [the Haners] did not own the
[OGMs], by extension it ruled that the Harveys did not own
[them] as well. That this was the net[ ]effect of the court’s
ruling is clearest when one reviews the impact the court’s ruling
had on the Harveys. This resulted in the practical termination of
the lease as to the Harveys[, a] lease from which they use[d] to
receive royalties.
Brief for the Haners at 68-69.
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Sabella responds that, in Bannard, our Supreme Court held that
ejectment, being strictly a possessory action, does not require the
appearance of all parties with a potential claim to the underlying title:
The writ is served upon the one found in possession, rather than
upon the one who may chance to have title. If the one in
possession happens to be a tenant, his landlord may intervene
and defend; if he does not choose so to do, and judgment be
obtained against the tenant, the landlord cannot then intervene
to prevent the plaintiff in ejectment from taking possession. The
possession of the tenant is the possession of the landlord;
therefore the ejectment, whilst it may have no effect in
determining the question of title as between the plaintiff and the
lessor, does determine the right of possession.
172 A.2d at 310. Sabella also notes that the Harveys were barred from
intervening relative to the trespass component of Sabella’s action because
by purporting to grant a lease to the Haners that allowed the Haners to
remove oil and gas for as long as operations continue – precisely the reason
the Haners claim the Harveys were indispensable parties – the Harveys
surrendered a fee simple determinable, with only a reversionary interest that
is triggered only if and when production of oil and gas ceases. See Snyder
Bros. v. Peoples Natural Gas Co., 676 A.2d 1226, 1230
(Pa. Super. 1996). Thus, the Harveys, even taking such conjectural claims
of ownership at face value, had neither a possessory right nor an ownership
interest upon which to raise a trespass action unless and until the
reversionary interest vested.
As presented, the Haners’ argument ultimately is drawn from our
larger body of law concerning indispensable parties. It provides no answer
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to the trial court’s reasoning or the more closely on-point authority cited by
Sabella, which indicates that the Harveys’ joinder in this action, even if
permissible, was not necessary as a matter of law to establish the trial
court’s jurisdiction. Accordingly, we agree with the trial court that the
Harveys were not indispensable parties to this action. Thus, the trial court’s
jurisdiction cannot be challenged upon this basis.
II. The Statute of Limitations
The trial court determined that the applicable two-year statutes of
limitation, which facially would bar all of Sabella’s claims (or at least would
preclude damages for certain time periods encompassed by the lawsuit),3
were tolled for two alternative and independent reasons: First, the court
found that the discovery rule tolled the statute of limitations, and, second,
the court concluded that the doctrine of fraudulent concealment also tolled
the statute of limitations at least for the two years preceding Sabella’s March
8, 2008, conversation with Brian Haner, which conversation gave each
person cause to suspect that the Haners were taking oil and gas to which
Sabella held title. The Haners raise a series of related arguments against
each of these findings. See Brief for the Haners at 38-52. However,
because we find that the court did not err in its application of the discovery
rule, the application of the doctrine of fraudulent concealment is moot.
____________________________________________
3
See 42 Pa.C.S. §§ 5524(3), (4) (conversion and trespass,
respectively).
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“There is a strong policy in Pennsylvania courts favoring the strict
application of statutes of limitation[]. Statutes of limitation[] are designed
to effectuate three purposes: (1) preservation of evidence; (2) the right of
potential defendants to repose; and (3) administrative efficiency and
convenience.” Kingston Coal Co. v. Felton Min. Co., Inc., 690 A.2d 284,
288 (Pa. Super. 1997) (citations omitted). For these reasons, “a party
asserting a cause of action is under a duty to use all reasonable diligence to
be properly informed of the facts and circumstances upon which a potential
right of recovery is based and to institute suit within the prescribed statutory
period.” Id. (quoting Pocono Int’l Raceway, Inc. v. Pocono Produce,
Inc., 468 A.2d 468, 471 (Pa. 1983)). However, this obligation is qualified
by the “discovery rule”:
[T]he start of the statutory limitation on an action in tort may be
delayed by plaintiff’s ignorance of his injury and its cause, until
such time as he could or should have discovered it by the
exercise of reasonable diligence. Lewey v. Fricke Coke Co.,
31 A. 261 (Pa. 1895); see Anthony v. Koppers Co., Inc.,
425 A.2d 428, 431-35 (Pa. Super. 1981), and cases cited
therein; Gee v. CBS, Inc., 471 F. Supp. 600, 617
(E.D.Pa. 1979).
The plaintiff has the burden of justifying any delay beyond the
date on which the limitation would have expired if computed
from the date on which the acts giving rise to the cause of action
allegedly occurred. He must allege and prove facts [that] show
that he made reasonable efforts to protect his interests and
[that] explain why he was unable to discover the operative facts
for his cause of action sooner than he did. Patton v.
Commonwealth Trust Co., 119 A. 834, 836 (Pa. 1923).
Where the facts are neither disputed nor close, the decision on
reasonableness is made by the court as a matter of law, instead
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of by the jury as a matter of fact. A. J. Aberman, Inc. v. Funk
Bldg. Corp., 420 A.2d 594 (Pa. Super. 1980).
Bickell v. Stein, 435 A.2d 610, 612 (Pa. Super. 1981) (citations modified;
footnote omitted); Kingston Coal, 690 A.2d at 288 (quoting Colonna v.
Rice, 664 A.2d 979, 980 (Pa. Super. 1995))(“The ‘discovery rule’ provides
that where the existence of the injury is not known to the complaining party
and such knowledge cannot reasonably be ascertained within the prescribed
statutory period, the limitations period does not begin to run until the
discovery of the injury is reasonably possible.” (emphasis added in
Kingston Coal)).
We must emphasize that “[w]hether the statute [of limitations] has
run on a claim is usually a question of law for the judge, but where . . . the
issue involves a factual determination, i.e., what is a reasonable period, the
determination is for the jury.” Smith v. Bell Tel. Co., 153 A.2d 477, 481
(Pa. 1959); see Kingston Coal, 690 A.2d at 288 (“The question of due
diligence in discovering an injury, as it relates to a statute of limitations
defense, is usually one for a jury’s consideration.”). Thus, inasmuch as the
Haners contest the trial court’s determination that Sabella exercised
reasonable diligence in protecting his property interests, the issue presents a
mixed question of law and fact.
The Haners argue first that the trial court erroneously shifted the
burden of disproving application of the discovery rule to the Haners, when
the burden of establishing the discovery rule should have rested upon
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Sabella. Brief for the Haners at 39-41. In particular, the Haners focus upon
the following discussion by the trial court as evidence of impermissible
burden-shifting:
A defendant asserting an affirmative defense has the burden of
proof as to that affirmative defense. Reott v. Asia Trend, Inc.,
55 A.3d 1088, 1092 (Pa. 2012). As the party asserting the
affirmative defense of the statute of limitations, [the Haners]
bore the initial burden of establishing that the action was filed
after the applicable period would have expired, had it started to
run at the time the cause of action accrued. Westinghouse
Elec. Corp. v. Penna. Dep’t of Env’l Protection, 705 A.2d
1349, 1351 (Pa. Cmwlth. 1998). If the defendant meets that
criterion, then the burden would shift to the plaintiff to justify
the delay in suit. Id. In other words, only after the defendant
meets his burden of proof that the statute of limitations should
bar some portion of the remedy does the burden of proof on the
discovery rule shift to the plaintiff.
Here, the burden was on the [Haners] to prove the affirmative
defense of the statute of limitations. [They] did not adduce
enough evidence at trial to persuade the Court that the statute
of limitations should bar any portion of [Sabella’s] remedy in the
instant action.
T.C.O., 4/2/2013, at 2-3 (citations modified).
We agree with the Haners on this point. It cannot be disputed that the
Haners aptly pleaded that the statute of limitations applied to bar Sabella’s
claims. The alleged trespass and conversion, subject to two-year statutes of
limitation, undisputedly began in 2003, approximately seven years before
Sabella filed the instant suit. Thus, upon the establishment of that basis for
the application of the statute of limitations, the burden shifted to Sabella to
establish that the discovery rule tolled the statute until 2008 in order to
make his 2010 suit timely. However, the trial court’s brief analysis, as set
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forth above, does not overwhelm that court’s own more detailed
observations in which it had correctly allocated the relevant burden of proof
to Sabella.
In its earlier opinion explaining why it denied the Haners’ motion for a
non-suit, the trial court unequivocally recited and applied the correct
standard:
Here, [Sabella] did not have actual knowledge that [the Haners
were] producing oil and gas out of his subterranean land
holdings until within the two[-]year period before he filed suit on
March 10, 2010. Next the Court considers whether, by the
exercise of reasonable diligence, [Sabella] could have discovered
his injury.
[The Haners] posit that the party seeking to invoke the
discovery rule bears the burden of establishing the inability to
know of the injury despite the exercise of reasonable diligence.
Pocono Int’l Raceway, 468 A.2d at 471. [The Haners
asserted] that the standard of reasonable diligence is objective,
not subjective. In other words, the standard is not a standard of
reasonable diligence unique to a particular plaintiff, but instead,
a standard of reasonable diligence as applied to a “reasonable
person.” Dalrymple v. Brown, 701 A.2d 164, 167 (Pa. 1997).
While [the Haners] have applied the proper standard of law, this
Court holds that [Sabella] has met his burden of
establishing that he was unaware of the trespass and that a
reasonable person would not have discovered the
trespass and conversion occurring on his subterranean
holdings based upon the location of the development.
T.C.O., 1/25/2013, at 9-10 (citations modified; emphasis added).
In explaining its conclusions, the trial court marshalled the following
facts, all of which find ample support in the record:
[Sabella] first purchased his 66 acres of oil and gas rights in
1997 at a tax sale. [Sabella] recorded the deed upon his
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purchase in 1997. He examined the surface of the parcel of land
after purchasing it. [Sabella] observed no oil and gas production
on the instant property at the time that he purchased it. Given
that Pennsylvania has very strong protections as a “race-notice”
state, 21 P.S. § 351,[4] it [was] reasonable for [Sabella] to have
assumed that his [OGMs] would be protected by virtue of his
having recorded his 1997 oil and gas deed.
Here, [Sabella] did not own the surface rights to either the
instant property or the adjacent properties. When he did
examine the property, he stayed on the public road that was
near the parcel and saw no activity. Testimony adduced at trial
also indicated that [Sabella] occasionally drove Keller Road
looking for timber, but found no oil and gas development on his
property. Nobody told [Sabella] about development on the
property. There was no reason for [Sabella] to believe
development was occurring on the instant property.
The surface of the property at issue was covered with trees and
brush. The property was in a rural area. It was secluded. . . .
Someone on the nearby road probably would not have seen the
wells. There was only one house in the nearby area, and that
house was owned by John Sveda. Some of the wells were visible
____________________________________________
4
Section 351 requires the recordation of “[a]ll deeds, conveyances,
contracts, and other instruments of writing wherein it shall be the intention
of the parties . . . to grant, bargain, sell, and convey any lands, tenements,
or hereditaments situate in this Commonwealth.” Section 357 of the same
chapter provides as follows:
The legal effect of the recording of such agreements shall be to
give constructive notice to subsequent purchasers, mortgagees,
and/or judgment creditors of the parties to said agreements of
the fact of the granting of such rights or privileges . . ., and the
rights of the subsequent purchasers, mortgagees, and/or
judgment creditors of the parties to said agreements shall be
limited thereby with the same force and effect as if said
subsequent purchasers, mortgagees, and/or judgment creditors
had actually joined in the execution of the agreement or
agreements aforesaid.
21 P.S. § 357. The topic of constructive notice and its bearing upon this
case is taken up in section IV.A, infra.
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from [Sveda’s] deck. However, Sabella did not have the type of
relationship with [Sveda] such that he would be at [Sveda’s]
house looking for oil and gas wells in his yard. . . . [T]here was
no activity on nearby Keller Road that would have indicated oil
and gas activity was occurring. The first two wells [the Haners]
drilled were not visible from Keller Road. The pump jacks for the
wells were also not visible from Keller Road. Furthermore,
[Sveda] testified [that] there is only one spot on Keller Road
[from which] one can actually see one of the wells while driving
on the road. Sveda also testified that you needed binoculars and
needed to know what you were looking for to [see a well] from
Keller Road.
Based on these facts, the Court finds that a reasonably
prudent landowner exercising reasonable efforts would
not have discovered the oil and gas production on the 66
acres at issue. . . . [Sabella] has proven here that even
exercising reasonable efforts, one would not have learned of the
production on the property.
T.C.O., 1/25/2013, at 11-12 (emphasis added; record citations and footnote
omitted).
We accept this lengthy explanation of the trial court’s reasoning as an
accurate account of the considerations that drove the court’s ruling, rather
than the much briefer account provided in its April 2, 2013 Rule 1925(a)
opinion, especially insofar as the trial court, in its April 2 opinion, cited the
January 25 opinion as providing the full explanation of the basis for the
court’s reasoning. T.C.O., 4/2/2013, at 3 (“The factual foundation for this
decision has already been addressed at length in the Court’s January 25,
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2013 Memorandum Opinion.”). That leaves the question of whether the trial
court’s application of the law to those facts was in error.5
In support of their argument that the trial court did so err, the Haners
contend that Kingston Coal, supra, controls this case in their favor. In that
case, the complaining party in a conversion claim contested the trial court’s
ruling that the statute of limitations barred its claim, and this Court affirmed.
At issue in that case was whether the claimant had exercised reasonable
diligence in detecting coal mining activity on certain property under which
the claimant owned the subterranean coal rights. The coal had been
removed in a strip-mining operation, with the attendant substantial surface
disruption. As well, the mining operation was located within 800 feet of
public roads for a six-month period, during which time 1,144 trucks hauled
coal from the site during daylight hours. As well, a mining permit relative to
the property was advertised in at least one local newspaper and a sign was
posted on the land where it intersected a township road, advising that a
mining permit had been issued for the property. The claimant at all relevant
times lived fewer than four miles from the site of the mining activity.
Kingston Coal, 690 A.2d at 289. We concluded that, “due to the long-
term, open and obvious nature of the mining and reclamation activity taking
____________________________________________
5
We review such questions of law de novo, and the scope of our review
is plenary. Stamerro v. Stamerro, 889 A.2d 1251. 1257 (Pa. Super.
2005).
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place on [the property], it was reasonably possible for any person having an
interest in the coal estate . . . to realize that [his or her] interests might be
in jeopardy.” Id. at 289-90.
The Haners argue that the facts in this case are analogous to those in
Kingston Coal. As in Kingston Coal, the activity in the instant case was
on the surface. As in Kingston Coal, the activity here was open and
involved an expanding operation that required the felling of trees and other
changes to the property. However, the trial court found the instant case
distinguishable from Kingston Coal in several telling particulars. As noted
in the trial court’s thorough recitation of the facts, the drilling activity, for
practical purposes, was not visible from a public road to a person exercising
reasonable diligence to inform himself of any such activity. Nor was
evidence presented to suggest that the equivalent of other Kingston Coal
factors were present: The Haners’ activities did not result in a radical
increase in truck traffic, and there was no public signage or publication
notice of the mining activity. As well, it is reasonable to maintain that strip
mining only 800 feet from a public road is more open and obvious than
quieter, less disruptive drilling activity that is sufficiently set back as to be
nearly invisible from any adjacent public road. Furthermore, in properly
recording his deed to the OGMs, Sabella reasonably could expect that
anyone seeking to drill on the property would learn through a title search of
Sabella’s interest.
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The Haners object to two other aspects of the trial court’s recital of its
reasons for denying their motion for non-pros based on the statute of
limitations. First, they argue that the court signaled its reliance upon
impermissible considerations when it suggested that Sabella’s legal
blindness and his putative inability to enter upon the property because he
did not own the surface estate justified his ignorance of the drilling activity.
Brief for the Haners at 46-47. Second, they argue that the trial court relied
too heavily, and improperly, upon Pennsylvania’s constructive notice statute,
in effect creating a new rule relieving a property owner of the obligation of
attending to his property in person or through a proxy simply by recording
his deed. Brief for the Haners at 47-48. We agree that each of these
propositions is problematic under the applicable law, but we disagree that
these problems alone or collectively require us to disturb the trial court’s
ruling.
In light of the above-recited standards, as well as the considerations
that we find dispositive in the instant case, little need be said with regard to
Sabella’s blindness. Because the reasonable diligence test generally requires
an objective, “reasonable person” inquiry, any impediments to a given
individual’s ability to survey his or her property are of limited relevance.
However, the Haners are incorrect that Pennsylvania law holds unequivocally
that such a party-specific consideration may never play into the inquiry. To
the contrary, in Crouse v. Cyclops Industries, our Supreme Court held
that, “although reasonable diligence is an objective rather than a subjective
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standard, ‘it is sufficiently flexible . . . to take into account the difference[s]
between persons and their capacity to meet certain situations and the
circumstances confronting them at the time in question.’” 745 A.2d 606,
611 (Pa. 2000) (quoting Burnside v. Abbott Laboratories, 505 A.2d 973,
988 (Pa. Super. 1985)).
We are similarly unpersuaded that Sabella’s subterranean rights to the
property authorized him to enter the surface estate with impunity. While it
certainly is true that Sabella had the right of access to his OGMs, which
might require entry upon the surface estate, see Chartiers Block
Coal Co. v. Mellon, 25 A. 597, 599 (Pa. 1893), it is not clear that Sabella’s
regular entry upon the property to look around would be characterized fairly
as an exercise of that relatively narrow right. In Lewey, supra, our
Supreme Court observed that “[t]he owner of land may be present by
himself or his servants on the surface of his possessions, no matter how
extensive they may be. He is for this reason held to be constructively
present wherever his title extends.” 31 A. at 264. In that case, however,
the owner in question owned the entire fee to the property in question,
including the surface estate. Thus, the Court did not face the question of
whether or to what extent regular entry upon another party’s estate merely
to look around is permissible as part and parcel of the right of access, or
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whether such regular entry is necessary in an exercise of reasonable
diligence vis-à-vis the goings-on relative to his subterranean estate.6
Ultimately, the trial court’s fact-finding measuring Sabella’s diligence
relative to an essentially objective standard is supported by the record and
does not clearly run afoul of any of the legal authorities cited by the Haners.
We do not lightly disturb the trial court’s fact-finding, and the court’s
application of the law to the facts is not erroneous under the circumstances
of this case. We agree with the Haners that Sabella’s legal blindness does
not conclude the reasonable diligence inquiry. We also agree that our case
law does not support the proposition that merely recording a deed in all
instances relieves a party of an obligation of affirmative observation in
protecting his interests. However, we do not read the trial court as having
relied critically upon either basis or both of them. To the contrary, as set
forth at length above, the trial court plainly relied upon a suite of case-
specific factors, properly viewed through an objective, reasonable-person
standard, not one substantially tailored to Sabella’s personal circumstances
____________________________________________
6
Interestingly, the trial court in this case observed (albeit without
citation to the record) that, under other procedural circumstances, the
Haners had made an issue of Sabella’s entry upon the land overlaying
Sabella’s OGMs. See T.C.O., 1/25/2013, at 11 n.5 (“It would be
unreasonable to expect the subsurface owner to regularly trespass on the
surface owner’s property. The fact that the parties complained at trial about
[Sabella] entering the surface owner’s land to obtain photographs of the
wells at issue for trial illustrates the type of issues that may arise when a
visitor to the property enters upon the land.”).
- 23 -
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or condition. Accordingly, we find that the trial court did not err as a matter
of law or abuse its discretion in applying the discovery rule to toll the statute
of limitations under the circumstances of this case.
III. Summary Judgment
We may dispense quickly with the Haners’ challenge to the trial court’s
entry of summary judgment in favor of Sabella on his ejectment claim. The
Haners argue that, because Sabella filed his motion for summary judgment
immediately upon the closing of the pleadings, they were denied the
opportunity to seek discovery that might lead to the establishment of a fact
dispute regarding the ejectment action. Brief for the Haners at 61-62. The
Haners cite a number of cases for boilerplate propositions regarding the
standards applicable to the presentation, opposition, and decision of a
motion for summary judgment, but provide no authority to support their
particular argument. Furthermore, and most importantly, they do not
provide a record citation documenting their preservation of this objection.
This is problematic for the Haners’ argument, inasmuch as they
evidently failed to exercise their prerogatives affirmatively to seek relevant
discovery under Pa.R.C.P. 1035.3(b). They did not raise the issue during
summary judgment proceedings and do not claim before this Court that they
were denied the opportunity to do so. Furthermore, Sabella notes, the
Haners did request additional time specifically to obtain certain tax records
pertaining to Sabella’s chain of title but for no other purpose. The court
denied the Haners’ request as moot because the records in question were
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furnished to the Haners either before or during the pendency of the motion.
Finally, Sabella notes that approximately forty days passed between his
filing of a motion for summary judgment and the argument the trial court
heard regarding that motion, precluding any suggestion that the Haners did
not have ample time to request further delay and/or seek (perhaps further)
discovery. Second Brief for Sabella at 24-25.
The trial court did not address this issue in detail, noting that, “to the
extent [the Haners] complain of outstanding ‘genuine issue of material fact’
precluding the entry of summary judgment, [the Haners] have not expressly
identified those factual issues with sufficient particularity such that the [trial
court] may address them presently.” T.C.O., 6/30/2013, at 3. Citing the
fact that, when faced with an “overly vague or broad” Rule 1925(b)
statement, a court may deem the issue waived, id. (citing Majorsky v.
Douglas, 58 A.3d 1250, 1258 (Pa. Super. 2012)), the trial court opted not
to take up that aspect of the Haners’ complaint regarding the entry of
summary judgment.
The Haners have not established that they preserved this objection
before the trial court, and they have no response to Sabella’s assertions
regarding the summary judgment proceedings, which account is consistent
with the certified record. Furthermore, we agree with the trial court that the
Haners’ Rule 1925(b) statement was insufficient to apprise the trial court of
the specific arguments made before this Court. Thus, the Haners arguably
have waived the issue for several distinct reasons. See Pa.R.A.P. 302
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(“Issues not raised in the lower court are waived and cannot be raised for
the first time on appeal.”); 1925(4)(ii), (vii) (requiring that errors be stated
“with sufficient detail to identify all pertinent issues for the judge,” and
authorizing waiver for non-compliance). And in any event, they fail to set
forth a sound basis for relief from the trial court’s entry of summary
judgment upon Sabella’s ejectment claim. Thus, we will not disturb the trial
court’s entry of summary judgment in Sabella’s ejectment action.
IV. Trial
This brings us to the numerous issues raised by each party with regard
to various factual findings and legal conclusions that the trial court made
following the bench trial on Sabella’s claims for trespass and conversion.
A. Good-Faith Trespass Versus Bad-Faith Trespass
The parties do not dispute that the general framework for the
computation of damages arising from a trespass distinguishes between
innocent or good-faith trespasses and trespasses committed in bad faith.
Stated broadly, when improvements to land are made by a good-faith
trespasser, the injured party is entitled, in effect, to the trespasser’s net
profits, i.e., the revenues generated upon the land less the moneys
expended in facilitating the profitable activity. However, when a party
trespasses in bad faith, the injured party is entitled to all moneys derived
from the trespass without any offset for the cost of generating those
moneys. See Matthews v. Rush, 105 A. 817, 818 (Pa. 1919);
Crawford v. Forest Oil Co., 57 A. 47 (Pa. 1904); Appeal of Coleman,
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62 Pa. 252, 278-79 (Pa. 1869); Herdic v. Young, 55 Pa. 176, 178-79
(Pa. 1867); see also United States v. Wyoming, 331 U.S. 440, 458
(1947) (“[O]ne who ‘willfully’ or ‘in bad faith’ trespasses on the land of
another, and removes minerals, is liable to the owner for their full value
computed as of the time the trespasser converted them to his own use, by
sale or otherwise, but . . . an ‘innocent’ trespasser, who has acted ‘in good
faith,’ may deduct from such value the expenses of extraction.”).
In the instant case, the trial court found that the Haners were good-
faith trespassers from the Haners’ commencement of drilling activities in
2003 until the fateful March 8, 2008 conversation between Brian Haner and
Sabella, during which, the trial court determined, the Haners learned or
should have learned that they might be trespassing upon Sabella’s property.
Thereafter, in not only continuing but indeed expanding production by
drilling three additional wells without making adequate efforts to ascertain
Sabella’s potential interest in the oil and gas extracted from the property or
to compensate him, the Haners (as determined by the trial court) acted in
bad faith until their cessation of oil and gas drilling and production in 2011.
See T.C.O., 1/25/2013, at 18-21.
The Haners raise several challenges to the trial court’s rulings in this
regard. They maintain that the trial court erroneously applied an objective
test for bad faith, rather than determining whether the Haners actually acted
in bad faith, a subjective inquiry. See Brief for the Haners at 52-57. The
Haners also contend that the trial court’s determination that the Haners
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acted in good faith until March 2008 barred the trial court as a matter of law
from finding that they acted in bad faith thereafter. Id. at 57-61.
By contrast, Sabella maintains that the trial court erred in finding that
the Haners acted in good faith at any time relevant to this case. Because his
interest in the OGMs duly was recorded years before the Haners’ trespass,
Sabella contends that the Haners were on constructive notice of that interest
and, therefore, trespassed upon Sabella’s OGMs in bad faith for the entire
duration of the drilling operation. Consequently, Sabella maintains that the
trial court erred in allowing the Haners any offsets whatsoever. Brief for
Sabella at 6-13.
For the reasons that follow, we agree with Sabella. Because we agree
that the Haners were on constructive notice of Sabella’s interest in the
subject property, and that the Haners therefore acted in bad faith for the
entire period of their trespass upon Sabella’s OGMs, the Haners’ arguments
with regard to the trial court’s rulings on good and bad faith, all of which
pertain to the trial court’s calculations of the appropriate offsets, are moot
and require no discussion. Similarly, Sabella’s arguments in the alternative
regarding bad faith also are moot.
Sabella’s argument that the Haners acted entirely in bad faith is based
primarily upon Pennsylvania’s constructive notice statute, which provides, in
relevant part, as follows:
§ 356. Agreements concerning real property
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All agreements in writing relating to real property situate in this
Commonwealth by the terms whereof the parties executing the
same do grant, bargain, sell, or convey any rights or privileges
of a permanent nature pertaining to such real property . . . shall
be acknowledged according to law by the parties thereto or
proved in the manner provided by law, and shall be recorded in
the office for the recording of deeds in the county or counties
wherein such real property is situate.
§ 357. Constructive notice as result of recordation
The legal effect of the recording of such agreements [i.e., deeds]
shall be to give constructive notice to subsequent purchasers,
mortgagees, and/or judgment creditors of the parties to said
agreements of the fact of the granting of such rights or
privileges and/or of the execution of said releases, and the rights
of the subsequent purchasers, mortgagees, and/or judgment
creditors of the parties to said agreements shall be limited
thereby with the same force and effect as if said subsequent
purchasers, mortgagees, and/or judgment creditors had actually
joined in the execution of the agreement or agreements
aforesaid.
21 P.S. §§ 356-57.
Sabella argues that only trespassers who are “good[-]faith purchasers
for value without notice of the plaintiff’s superior title, either actual or
constructive,” may offset the plaintiff’s recovery of moneys obtained through
mineral production by the costs of production. Brief for Sabella at 6 (citing
Boggs v. Varner, 6 Watts & Serg. 469 (Pa. 1843)). However, notice of his
trespass, actual or constructive, renders the trespasser in bad faith and
precludes the application of offsets for the costs of production. Id. at 7-8
(citing McCray v. Clark, 82 Pa. 457 (Pa. 1876)). While recorded deeds may
not provide constructive notice when “latencies in the record,”
notwithstanding recordation, relieve the trespasser of its responsibility for
- 29 -
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informing itself as to recorded interests in the subject property,7 Sabella
contends that the Haners have recourse to no such remedy in this case,
because Sabella’s interest in the OGMs undisputedly was properly recorded
and indexed. The oversight arose simply because the Haners willfully
elected not to conduct the full title search that would have informed them of
Sabella’s interest. Id. at 8-10. Sabella thus maintains that “constructive
notice will vitiate a trespassing defendant’s entitlement to offset where the
record is sufficiently conclusive as to the wrongfulness of the entry.” Id. at
10.
Sabella also seeks support in the Restatement (Third) of Restitution,
which, he contends, is looked upon “with favor” by Pennsylvania courts.
Specifically, Sabella cites section 10 and the comments and examples
appended thereto. Section 10, entitled “Mistaken Improvements,” provides
that “[a] person who improves the real or personal property of another,
acting by mistake, has a claim in restitution as necessary to prevent unjust
enrichment. A remedy for mistaken improvement that subjects the owner to
a forced exchange will be qualified or limited to avoid undue prejudice to the
owner.” Restatement (Third) of Restitution § 10. Sabella further notes that
section 69 of the Restatement indicates that “[a] person has notice of a fact
____________________________________________
7
See Brief for Sabella at 8-10 (citing Stanko v. Males, 135 A.2d 392
(Pa. 1957); Crawford v. Forest Oil Co., 57 A. 47 (Pa. 1904); Skiles v.
Houston, 20 A. 722 (Pa. 1885)).
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if the person either knows the fact or has reason to know it,” and that a
person has “reason to know a fact if,” inter alia, “knowledge of the fact is
imputed to the person by statute (including provisions for notice by filing or
recording).” Id. §§ 69(2), (3).
Sabella emphasizes the strength of the language of Pennsylvania’s
constructive notice statute, and pairs that with his apt observation that the
Haners do not suggest that the recordation of Sabella’s interests in the
OGMs was somehow flawed. Sabella further maintains that the application
of the doctrine of constructive notice to this case renders irrelevant the
Haners’ actual knowledge or lack thereof of Sabella’s recorded interest in the
property. Sabella argues that, to the contrary, the Haners must be barred
from recovering any offset when they willfully left themselves ignorant of
Sabella’s interest by consciously, and undisputedly with the advice of
counsel regarding each of their three options, declining to run complete title
searches for the property, thus assuming the risk of bad-faith status.
The Haners correctly note that Pennsylvania courts have yet to adopt
or apply the Restatement (Third) of Restitution in any context. However,
the principles Sabella seeks to support by reference to the Third
Restatement are hardly alien to Pennsylvania law. Indeed, Pennsylvania’s
above-cited constructive notice statute embodies many of the same ideas, at
least as applies to the context of real estate transactions and disputes.
We begin with our Supreme Court’s observations regarding “the
unique characteristics of an oil or gas lease”:
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As this Court recognized in Brown v. Haight, “[t]he traditional
oil and gas ‘lease’ is far from the simplest of property concepts.
In the case law oil and gas ‘leases’ have been described as
anything from licenses to grants in fee.”[8] 255 A.2d 508, 510
(Pa. 1969). Generally, however, the title conveyed in an oil and
gas lease is inchoate, and is initially for the purpose of
exploration and development. Calhoun v. Neely, 50 A. 967,
968 (Pa. 1902); Burgan v. South Penn Oil Co., 89 A. 823, 826
(Pa. 1914) (“The title is inchoate, and for purposes of
exploration only until oil is found.” (internal quotation marks
omitted)); see also Hite v. Falcon Partners, 13 A.3d 942
(Pa. Super. 2011) (same); Jacobs v. CNG Transmission
Corp., 332 F. Supp. 2d 759, 772 (W.D.Pa. 2004) (same).
If development during the agreed upon primary term is
unsuccessful, no estate vests in the lessee. If, however, oil or
gas is produced, a fee simple determinable is created in the
lessee, and the lessee’s right to extract the oil or gas becomes
vested. Calhoun, 50 A. at 968; Jacobs, 332 F. Supp. 2d at 772-
73. A fee simple determinable is an estate in fee that
automatically reverts to the grantor upon the occurrence of a
specific event. Brown, 255 A.2d at 511. The interest held by
the grantor after such a conveyance is termed “a possibility of
____________________________________________
8
To this point, one authority observes as follows:
Early decisions about oil and gas leases lack uniformity even
within a given jurisdiction. An instrument of this type has been
held to be a deed, a lease, a sale, a license, and an optional
contract, and the legal interest created by them has been held to
be a profit a prendre, a corporeal hereditament, an incorporeal
hereditament, an estate in land, not an estate in land, an estate
in oil and gas, not an estate in oil and gas, a servitude, a chattel
real, real estate, interest in land, not an interest in land,
personal property, a freehold, a tenancy at will, property
interest, and the relation of landlord and tenant.
1A Summers Oil and Gas § 9.5 at 190-94 (3d ed.) (footnotes omitted).
Pennsylvania is among those jurisdictions that have issued occasionally
contradictory rulings on these points during the past 150 years. However,
the law as set forth in the discussion to which this footnote is appended has
stabilized on the questions relevant to this case.
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reverter.” Higbee Corp. v. Kennedy, 428 A.2d 592, 595
(Pa. Super. 1981). Such a fee is a fee simple, because it may
last forever in the grantee and his heirs and assigns, “the
duration depending upon the concurrence of collateral
circumstances which qualify and debase the purity of the grant.”
Id. at 595 n.4 (quoting Slegel v. Lauer, 23 A. 996, 997
(Pa. 1892)).
T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012)
(citations modified); cf. Hutchison v. Sunbeam Coal Corp., 519 A.2d 385,
387 n.1 (Pa. 1986) (noting that “[t]he term ‘lease’ is in some respects a
misnomer. What is really involved is a transfer of an interest in real estate,
the mineral in place”; and further underscoring that the transfer “involve[s]
the characteristics of a fee simple determinable in the coal, which the lease
severs from” the surface interest); Higbee Corp., 428 A.2d at 595, 597
(establishing a rebuttable presumption that an oil and gas lease is a fee
simple with a possibility of reverter, which vests automatically, rather than a
fee simple subject to a condition subsequent, which vests only upon reentry
by the lessor). More recently, this Court has held that, “[a]lthough the
interpretation of oil and gas leases has proved to be troublesome for the
courts of this Commonwealth, the law has developed to provide that an oil
and gas lease, despite the use of the term ‘lease,’ actually involves the
conveyance of property rights.” Nolt v. TS Calkins & Assoc., LP,
2014 Pa. Super. 141, at *2 (July 7, 2014) (citing Szymanowski v. Brace,
987 A.2d 717, 719-20 (Pa. Super. 2009)); see Lesnick v. Chartiers
Natural Gas Co., 889 A.2d 1282, 1284-85 (Pa. Super. 2005).
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We also must address an important consideration raised by the Haners
in opposition to Sabella’s reliance upon 21 P.S. § 357. Specifically, the
Haners seek to bar section 357’s application by casting themselves as
occupants rather than purchasers, ostensibly because section 357’s
application is limited by its terms to “purchasers, mortgagees, and/or
judgment creditors” of the property in question. Brief for the Haners at 13.
This would appear to exclude lessees, as they are commonly understood,
from the class of parties subject to imputed notice. This result would appear
to be compelled by our venerable maxim of interpretation, expressio unius
est exclusio alterius, “the inference that, where certain things are designated
in a statute, all omissions should be understood as exclusions.”
Commonwealth v. Charles, 411 A.2d at 287 (Pa. Super. 1979) (internal
quotation marks omitted).
Because we must strive to discern the import of sections 356 and 357,
our review is governed by the following interpretive principles:
“[T]he objective of all interpretation and construction of statutes
is to ascertain and effectuate the intention of the legislature.”
Bayada Nurses v. Dep’t of Labor & Indus., 8 A.3d 866, 880
(Pa. 2010) (citing 1 Pa.C.S. § 1921(a)). Generally, the best
indication of the General Assembly’s intent is the plain language
of the statute. “When the words of a statute are clear and free
from all ambiguity, they are presumed to be the best indication
of legislative intent.” Chanceford Aviation v. Chanceford
Twp. Bd. of Supervisors, 923 A.2d 1099, 1104 (Pa. 2007)
(citations omitted). When, however, the words of a statute are
ambiguous, a number of factors are used in determining
legislative intent. Furthermore, “it is axiomatic that in
determining legislative intent, all sections of a statute must be
read together and in conjunction with each other, and construed
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with reference to the entire statute.” Hoffman Min. v. Zoning
Hearing Bd., 32 A.3d 587, 592 (Pa. 2011) (citation omitted).
Moreover, statutes are considered to be in pari materia when
they relate to the same persons or things, and statutes or parts
of statutes in pari materia shall be construed together, if
possible. 1 Pa.C.S. § 1932. Courts are required, if possible, to
give effect to each provision or subsection of the statute.
Id. § 1921(a).
Allstate Life Ins. Co. v. Commonwealth, 52 A.3d 1077, 1080-81
(Pa. 2012) (citations modified). Thus, we must interpret sections 356 and
357 in pari materia.
Notably, section 356 requires recordation of “[a]ll agreements in
writing relating to property situate in this Commonwealth by the terms
whereof the parties executing the same do grant, bargain, sell, or convey
any rights or privileges of a permanent nature pertaining to such real
property.” The question thus becomes whether section 357, read in isolation
or in tandem with section 356, imputes constructive notice to oil and gas
lessees, whose interest in the subject property is in the nature of a fee
simple determinable.
It cannot reasonably be disputed that the written conveyance to
Sabella of the OGMs at issue in this case “relat[es] to real property” that
granted, sold, or conveyed rights and privileges of a permanent nature.
See 21 P.S. § 356. Similarly there is no dispute in this case that the
conveyance in question was duly recorded, as required by section 356.
Consequently, section 357 plainly imputes knowledge of that conveyance to
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“subsequent purchasers, mortgagees, and/or judgment creditors.”
21 P.S. § 357.
We can exclude by section 357’s plain language the possibility that the
Haners qualified as mortgagees or judgment creditors. It would be in
derogation of those terms’ clear meanings to add to their scope those who
enter into an oil and gas lease, whether construed as conveying a fee simple
determinable or another estate. That leaves only the question whether oil
and gas lessees such as the Haners are purchasers for purposes of
section 357. Under the circumstances, we find that they are.
We have already established, supra, that Pennsylvania law recognizes
oil and gas leases as something other than conventional leases. A
conventional lessor by definition does not convey to a lessee “rights or
privileges of a permanent nature.” See Black’s Law Dictionary 898 (Deluxe
7th ed.) (“The lease term can be for life, for a fixed period, or for a period
terminable at will.”).9 However, an oil and gas lease, upon vestiture arising
from successful discovery and production of oil, conveys a potentially
indefinite fee simple determinable.
This Court’s recent decision in Nolt, while distinguishable, reinforces
this reading of sections 356 and 357. In that case, we considered, inter alia,
____________________________________________
9
An indefinite oil and gas lease is not terminable at will. Rather, upon
the production of oil or gas, it terminates only when the possibility of
reverter vests upon the cessation of such production.
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whether a party who entered into an oil and gas lease exercised reasonable
diligence in apprising himself of the status of the title. Noting the status of
an oil and gas lease as a fee simple determinable, we applied the common-
law obligation of due diligence associated with a “purchaser” of land to the
facts at bar. First, we noted that “it is always the duty of a purchaser of real
estate to investigate the title of his vendor, and the purchaser must exercise
due diligence in this regard.” Nolt, 2014 Pa. Super. 141, at *4 (internal
modifications and quotation marks omitted) (quoting Ohio River Junction
R. Co. v. Penna. Co., 72 A. 271, 273 (Pa. 1909)). After reviewing our
Supreme Court’s discussion of the obligations associated with due diligence
in Lund v. Heinrich, see 189 A.2d 581, 585 (Pa. 1963), we explained as
follows:
[A] purchaser fulfills his or her due diligence requirement when
he or she examines the documents recorded in the county or
counties in which the property is situated and when he or she
asks the possessor about title, as well as any other people the
purchaser has reason to believe would know about the status of
the property’s title.
Nolt, 2014 Pa. Super. 141, at *4. In Nolt, we found that the “landman” for
the lessee in question had exercised due diligence: She undisputedly had
checked the title records in the county in which the land was situate and had
contacted the resident of a house on the property in question. Although we
relied upon a common-law due diligence requirement in resolving that case,
we noted in tandem with our discussion of the governing principles that
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21 P.S. § 357 confers constructive notice upon subsequent purchasers of the
property recorded. Nolt, 2014 Pa. Super. 141, at *4 n.5.
We are constrained to find that the same obligation of due diligence,
and the same consequence of section 357, inheres in the instant matter.
The Haners purchased the oil and gas lease here at issue from their
predecessor in title. In so doing, they obtained an estate in land, a fee
simple determinable in the OGMs10 that was qualified only by the lessor’s
reversionary interest in the event that the lessee ceased production on the
land. As purchasers of a fee, by section 357’s plain language, they
necessarily were subject to the constructive notice imputed to them by
statute as though they “had actually joined in the execution of the
agreement or agreements aforesaid,” 21 P.S. § 357, i.e., Sabella’s
acquisition of the subject OGMs. In declining to conduct a full title search,
when such would have revealed conclusively Sabella’s ownership of the
OGMs, the Haners lost their claim to bona fide purchaser status and their
recourse to the protections associated with that status. Consequently, the
trial court erred in ruling that the Haners acted in good faith in their oil and
gas operations at any time during their drilling operations. Because the
Haners were not good-faith purchasers of the OGMs, they were entitled to
____________________________________________
10
Because there were already productive wells on the land when the
Haners purchased the lease, their interest in the land was never inchoate.
In effect, they purchased an already-vested fee simple determinable in the
OGMs.
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no offsets whatsoever; rather, Sabella was entitled to recover the entirety of
the revenues the Haners derived from their production upon Sabella’s OGMs.
Having so ruled, we find the balance of the Haners’ issues associated
with good and bad faith status to be moot. The Haners’ challenges to the
trial court’s calculations of the appropriate offsets also are moot, as are
Sabella’s corollary challenges to said calculations and the adequacy of the
evidence introduced by the Haners as to this matter.
B. Pre-Judgment Interest and Delay Damages
Only one issue remains for our consideration. Sabella contends that
the trial court erred in denying him pre-judgment interest or delay damages
in this matter. Sabella relies principally upon our Supreme Court’s decision
in Marrazzo v. Scranton Nehi Bottling Co., in which the Court opined as
follows:
Although there is language in some early cases to the contrary,
City of Allegheny v. Campbell, 107 Pa. 530 (1884); Penna.
R.R. Co. v. Patterson, 73 Pa. 491, 498-499 (1873), it is now
the settled law in this Commonwealth that interest, as such, is
not allowed in tort actions when the damages sought to be
recovered are unliquidated. Girard Trust Corn Exch. Bank v.
Brink’s Inc., 220 A.2d 827 (Pa. 1966); Carbondale City Sch.
Dist. v. Fidelity & Deposit Co. of Md., 31 A.2d 279
(Pa. 1943); Klages v. Phila. & Reading Terminal Co.,
28 A. 862 (Pa. 1894); Act of April 6, 1859, P.L. 381, § 1, 12 P.S.
§ 781 and 1 Sm.L. 7, § 2, 12 P.S. § 782.
This Court, however, has developed the doctrine that:
‘* * * there are cases sounding in tort, and cases of
unliquidated damages, where not only the principle on
which the recovery is to be had is compensation, but
where, also, the compensation can be measured by market
value or other definite standard. Such are cases of the
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unintentional conversion or destruction of property, etc.
Into these cases the element of time may enter as an
important factor, and the plaintiff will not be fully
compensated unless he receive not only the value of his
property, but receive it, as nearly as may be, as of the
date of his loss. Hence it is that the jury may allow
additional damages in the nature of interest for the lapse
of time. It is never interest as such, nor as a matter of
right, but compensation for the delay, of which the rate of
interest affords the fair legal measure.’ Richards v.
Citizens Natural Gas Co., 18 A. 600 (Pa. 1889).
Irvine v. Smith, 53 A. 510 (Pa. 1902); Stevenson v. Ebervale
Coal Co., 52 A. 201 (Pa. 1902); Klages, supra; Campbell v.
Baltimore & Ohio R.R. Co., 58 Pa. Super. 241 (1914). We
have emphasized that compensation for delay in payment is not
a matter of right but is an issue for the finder of fact, the
resolution of which depends upon all the circumstances of the
case.
263 A.2d 336, 337 (Pa. 1970). Outside the context of contract actions,
where damages arising from breach of contract may be awardable as of
right, we review a trial court’s decision regarding pre-judgment interest for
an abuse of discretion. Liss & Marion, P.C., v. Recordex Acquisition
Corp., 937 A.2d 503, 516 (Pa. Super. 2007) (citing, inter alia, Kaiser v.
Old Republic Ins. Co., 741 A.2d 748, 755 (Pa. Super. 1999)).
Sabella maintains, in effect, that, because the damages awardable in
this matter were liquidated inasmuch as they might be calculated based
upon various objective criteria for the periods of time in question, Marrazzo
left the trial court no choice but to award pre-judgment interest. In the
alternative, Sabella argues that he is entitled to delay damages as a matter
of equity – again, because the damages in question are susceptible to
calculation pursuant to objective consideration preceding the entry of
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judgment. Sabella’s argument is brief, underdeveloped, and does not
acknowledge Marrazzo’s specific observation that the decision whether to
award pre-judgment interest lies with the fact-finder.
In this case, the trial court, sitting as fact-finder, was vested with
discretion to determine whether and to what extent pre-judgment interest or
delay damages were due in this matter, a determination we will not overturn
absent a showing that such discretion was abused. The trial court
acknowledged that the damages in this case might have been ascertainable,
but emphasized correctly that “that fact alone is not dispositive of an award
of prejudgment interest.” T.C.O., 1/25/2013, at 33. The trial court further
explained its decision not to award pre-judgment or delay damages as
follows:
Each party to this case made a legal argument as to the amount
of damages that should be awarded. [The Haners] did not have
a clear legal obligation to pay [Sabella] any damages. Neither
party was necessarily at fault for the delay in payment. Thus,
[the Haners] are not faulted for failing to pay [Sabella] during
the pendency of this litigation.
In the alternative, [Sabella] requests this [c]ourt to use its
equity powers to award delay damages. For the reasons
mentioned above, the interests of justice would not be served
were this [c]ourt to award delay damages to [Sabella].
Id. at 33-34.
If we were to uphold the trial court’s measure of damages and the
legal basis underlying it in all their particulars, Sabella’s failure to establish
any basis upon which we might conclude that the trial court abused its
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discretion would preclude relief on this claim. However, the trial court’s
ruling on this matter expressly hinged upon its finding that the Haners “did
not have a clear legal obligation to pay [Sabella] any damages.” Inasmuch
as the trial court ultimately entered judgment in favor of Sabella, we read
this comment as suggesting that, to the trial court, the question of Sabella’s
entitlement to damages remained unsettled during the course of this
litigation. Accordingly, it would be inappropriately punitive to impose such
interest or damages upon the Haners.
We believe that this premise at least arguably is undermined by our
determination that the Haners acted at all relevant times in bad faith in its
production of oil and gas from Sabella’s estate. Although we would not
intrude upon the trial court’s prerogative to determine whether the
circumstances of this case, even as modified by our ruling in this matter,
warrant an award of pre-judgment interest, we conclude that the trial court
should reconsider this decision in light of our ruling that the Haners were
trespassers in bad faith at all times relevant to this litigation. Consequently,
we vacate the trial court’s order to the extent that it denied Sabella’s
request for pre-judgment interest or delay damages, but we express no
opinion as to whether the trial court should award such interest or damages
as a consequence of our rulings in this matter. Such interest and damages
do not appear to us to be compelled by law. We merely invite the trial court
to re-examine its decision anew upon remand.
CONCLUSION
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For the foregoing reasons, we find that the trial court had subject
matter jurisdiction over the instant matter. No indispensable party was
absent from this litigation so as to deprive the trial court of its jurisdiction to
hear and decide the claims raised in this case. We further find that the trial
court did not err or abuse its discretion in applying the discovery rule to find
that Sabella’s claims were brought before the expiration of the applicable
statutes of limitation. The Haners’ challenge to the trial court’s grant of
partial summary judgment to Sabella also is unavailing. The Haners having
failed constructively to assert the basis at trial upon which they now seek
relief, it would be unfair and in violation of binding law for us to grant such
relief. Consequently, we affirm those aspects of the trial court’s rulings.
However, we conclude that the trial court erred in finding that the
Haners’ trespass from the commencement of its production of Sabella’s
OGMs to March 2008 was enacted in good faith. Because this ruling
precludes the application of any offsets for the cost of production against the
damages to which Sabella is entitled, we must vacate the trial court’s
judgment and remand for the recalculation of compensatory damages freed
from any offset for the costs of development and production. In so doing,
we also vacate the trial court’s order denying Sabella pre-judgment interest
and/or delay damages, in what amounts solely to an invitation to the trial
court to reconsider (without any limitation upon its discretion) its ruling on
such interest and/or damages in light of our determination that the Haners
acted at all times as bad-faith trespassers.
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Judgment affirmed in part and vacated in part. Case remanded.
Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 10/20/2014
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