Patrick D. Leggett v. EQT Production Co. ( 2017 )

No. 16-0136 - Patrick D. Leggett, et al. v. EQT
Production Company FILED
May 30, 2017
released at 3:00 p.m.
RORY L. PERRY, II CLERK
SUPREME COURT OF APPEALS
Davis, Justice, dissenting: OF WEST VIRGINIA
In this proceeding, the Court was asked to decide whether W. Va. Code § 22-6-8(e)
authorized the Respondents to deduct from the royalty payments of the Petitioners part of the
post-production costs associated with drilling oil and gas. When this issue was first
presented, a majority of this Court determined that the statute did not authorize such
deductions from the royalty payments. I voted with the majority in that decision. After the
majority opinion was filed, Respondents filed a motion for rehearing. I voted against a
rehearing, but a majority of the Court voted to rehear the case.1 After the rehearing, a new
majority opinion was issued which concluded that, under W. Va. Code § 22-6-8(e), the
Respondents could, in fact, deduct post-production costs associated with drilling oil and gas.
For the reasons set out below, I dissent from this new majority opinion.
A. Two Preliminary Issues
As a preliminary matter, there are two issues I wish to quickly dispose of before
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One member of the Court who was on the original majority opinion, Justice
Benjamin, was no longer with the Court when the rehearing was decided.
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addressing the merits of my dissent. First, contrary to the unsubstantiated assertion of the
majority opinion, there is and was no legal basis for granting a rehearing in this case.
Rule 25 of the West Virginia Rules of Appellate Procedure states that
a petition for rehearing “shall state with particularity the points of law or fact
which in the opinion of the petitioner the Court has overlooked or
misapprehended[.]” (emphasis added). This Court has recognized that “well
settled principles of appellate procedure indicate that ‘a rehearing on an appeal
can be granted only for purposes of correcting errors that the court has made
. . . .’” Perrine v. E.I. du Pont de Nemours and Co., 225 W. Va. 482, 598, 694
S.E.2d 815, 931 (2010) (quoting In re Leslie H., 369 Ill. App. 3d 854, 308
Ill. Dec. 445, 861 N.E.2d 1010, 1015 (2006)).
West Virginia Reg’l Jail & Corr. Facility Auth. v. A.B., 234 W. Va. 492, 519, 766 S.E.2d
751, 778 (2014). Moreover, “[r]epetition of argument previously presented to the Court in
the case in not a proper basis for a petition for rehearing.” W. Va. R. App. Proc. 25(b).
I have combed through the majority opinion several times and have failed to find any
legal or factual error in the original majority opinion that this new majority opinion relied
upon to justify granting the rehearing. All that the new majority opinion has done is to
provide self-serving reasons as to why it would resolve the issue presented differently. In
the final analysis, all that the new majority opinion has done is to conclude that the operative
language in the dispositive statute was not ambiguous whereas the original majority opinion
reached the opposite view of the statute. This difference of opinion is not a basis for
rehearing. Ultimately, this is simply an impermissible request by the Respondents asking the
Court to change its mind.
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Second, the new majority opinion went to great lengths to misconstrue the manner in
which the original majority opinion discussed the decisions in Wellman v. Energy Resources,
Inc., 210 W. Va. 200, 557 S.E.2d 254 (2001), and Tawney v. Columbia Natural Resources,
L.L.C., 219 W. Va. 266, 633 S.E.2d 22 (2006). Contrary to the assertions of the new majority
opinion, the original majority opinion had to discuss those cases because they were part of
the certified question. After discussing those decisions, the original majority opinion held
the following:
All the preceding inevitably leads us back to the first
certified question, which asks simply whether our 2006 decision
in Tawney has “any effect” on the proper construction of the
statutory term “at the wellhead,” enacted in 1982 as part of West
Virginia Code § 22-6-8, in connection with the minimum royalty
payments due owners of oil and gas in place subject to flat-rate
leases. Through our discussion, we have demonstrated that
Tawney and our earlier precedents, particularly Wellman, indeed
inform the analysis of the issue, but the question as formulated,
we believe, imprecisely addresses the particular dispute between
the parties.
We therefore reformulate the question, in accordance
with the discretion afforded us by West Virginia Code
§ 51-1A-4, as follows:
Whenever the lessee-owner of a working interest in an oil
or gas well must comply with West Virginia Code § 22-6-8(e)
by tendering to the lessor-owner of the oil or gas in place a
royalty not less than one-eighth of the total amount paid to or
received by or allowed to the lessee, does the statute require in
addition that the lessee not deduct from that amount any
expenses that have been incurred in gathering, transporting, or
treating the oil or gas after it has been initially extracted, any
sums attributable to a loss or beneficial use of volume beyond
that initially measured, or any other costs that may be
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characterized as post-production?
We answer that question in the affirmative.
Leggett v. EQT Prod. Co., No. 16-0136, 2016 WL 6835732, at *8 (W. Va. Nov. 17, 2016).
The new majority opinion wrongly stated that the original majority opinion used contract
principles applicable in Wellman and Tawney in order to decide the intent behind the
statutory meaning of “at the wellhead.” However, as noted above, the original majority
opinion reformulated the certified question so as to take out the Wellman and Tawney
analysis as a basis for answering the question. The reformulated question clearly was
grounded on the meaning of the statute. This point is made clear in the original majority
opinion when it held the following:
The absence of clear, unambiguous language [in the statute]
gives rise to the uncertainty that there may be more than one
way by which the holder of a working interest in an oil or gas
well can comply with West Virginia Code § 22-6-8(e)’s
command that the landowner’s royalty be calculated “at the
wellhead.” It thus becomes necessary that we resort to
traditional rules of statutory construction to accurately discern
the intent of the Legislature. See syl. pt. 1, Farley v. Buckalew,
186 W. Va. 693, 414 S.E.2d 454 (1992) (“A statute that is
ambiguous must be construed before it can be applied.”); State
v. Gen. Daniel Morgan Post No. 548, Veterans of Foreign Wars,
144 W. Va. 137, 144, 107 S.E.2d 353, 358 (1959) (“[I]n the
interpretation of a statute, the legislative intention is the
controlling factor; and the intention of the legislature is
ascertained from the provisions of the statute by the application
of sound and well established canons of construction.”).
Leggett, 2016 WL 6835732, at *6. To be clear, in order to justify its erroneous decision in
this case, the new majority opinion wrongly asserted that the original majority opinion used
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contract principles to analyze the statute. I have shown that the original majority opinion
expressly stated that it was relying upon statutory principles to examine the statute, not the
law governing contracts.
B. The Operative Language in W. Va. Code § 22-6-8(e) Is Ambiguous
The new majority opinion found that the applicable language in W. Va. Code
§ 22-6-8(e) is not ambiguous. It further erroneously concludes that the statute clearly
authorizes the Respondents to deduct post-production costs from the Petitioners’ royalty
payments. The majority opinion is simply wrong. The relevant language of the statute
provides as follows:
the owner of the working interest in the well . . . shall tender to
the owner of the oil or gas in place not less than one eighth of
the total amount paid to or received by or allowed to the owner
of the working interest at the wellhead for the oil or gas so
extracted, produced or marketed before deducting the amount to
be paid to or set aside for the owner of the oil or gas in place, on
all such oil or gas to be extracted, produced or marketed from
the well.
W. Va. Code § 22-6-8(e) (emphasis added). According to the new majority opinion, there
is no ambiguity in the language of this provision. The new majority opinion determined that
this provision clearly shows that “[r]oyalty payments pursuant to an oil and gas lease
governed by the [statute] may be subject to pro-rata deduction or allocation of all reasonable
post-production expenses actually incurred by the lessee.” I cannot understand how this
reasoning by the new majority opinion is supported by the statute. The statute does not
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contain any provisions that address the issue of “pro-rata deduction or allocation of all
reasonable post-production expenses.”
I will not belabor this point. It is clear to anyone reading the statute that you cannot
discern a legislative intent to allow a deduction for post-production expenses. The new
majority opinion has used legal sophistry to fool only itself.
The original majority opinion correctly found that the provision was ambiguous. In
doing so, the original majority opinion applied basic statutory construction principles to
discern the legislative intent of the statute. The original majority opinion looked to the whole
of the statute to see if it could determine a legislative intent to force oil and gas owners to pay
for post-production costs. The original majority opinion held that “[w]e need not guess at
the Legislature’s purpose in enacting § 22-6-8, for the wrongs intended to be redressed are
starkly revealed in the legislative findings and declarations indelibly engraved into the statute
itself.” The original majority opinion then cited to the following provision of the statute to
reach the conclusion that the Legislature did not intend to have oil and gas owners pay for
post-production costs:
The Legislature hereby finds and declares:
....
That continued exploitation of the natural resources of
this state in exchange for such wholly inadequate compensation
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is unfair, oppressive, works an unjust hardship on the owners of
the oil and gas in place, and unreasonably deprives the economy
of the state of West Virginia of the just benefit of the natural
wealth of this state.
W. Va. Code § 22-6-8(a)(2). After reviewing this provision of the statute, as well as others,
the original majority opinion reached the rational conclusion that “[i]t would have been
perversely inconsistent with the overarching remedial intent of the flat-rate statute for a
Legislature so passionately dedicated to ensuring the future flow of adequate compensation
to oil and gas landowners to have purposefully provided a mechanism of royalty valuation
specifically designed to curtail that compensation.” Leggett, 2016 WL 6835732, at *6. In
other words, the legislative purpose of the statute unequivocally revealed an intent to provide
oil and gas owners with the maximum possible royalty payments. The statute was not
intended as a mechanism to reduce royalty payments or to fill the coffers of companies who
develop oil and gas interests. This is the intent only of the new majority opinion.
In order for the new majority opinion to have reached its unsupported conclusion, it
had to create the illusion that the statute was not ambiguous. This point is key because if the
new majority opinion had followed basic rules of statutory construction, it would have been
compelled to reach the same conclusion that the original majority opinion reached.
In my final thoughts on this matter, I must return to Wellman and Tawney. As I
previously noted, those two decisions were jettisoned by the new majority opinion because
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they presented an impediment to the conclusion that the new majority strained to reach.
Those two opinions have been the law with respect to oil and gas contracts for over ten years.
Specifically, for over ten years those two opinions have stood for the proposition that oil and
gas leases that contain language requiring payment of royalty “at the wellhead,” without
more, do not permit the reduction of royalty payments for post-production costs. In spite of
the existence of this proposition in Wellman and Tawney for more than ten years, the
Legislature has never amended W. Va. Code § 22-6-8(e) so as to remove the “at the
wellhead” language from the statute for the purpose of distinguishing the reasoning of
Wellman and Tawney. In 2017, Delegate Walters introduced the following amendment to
W. Va. Code § 22-6-8(e) for the purpose of removing “at the wellhead” from the provision:
(e) To avoid the permit prohibition of subsection (d), the
applicant may file with such application an affidavit which
certifies that the affiant is authorized by the owner of the
working interest in the well to state that it shall tender to the
owner of the oil or gas in place not less than one eighth of the
total amount paid to or received by or allowed to the owner of
the working interest at the wellhead for the oil or gas so
extracted, produced or marketed before deducting the amount to
be paid to or set aside for the owner of the oil or gas in place, on
all such oil or gas to be extracted, produced or marketed from
the well. If such affidavit be filed with such application, then
such application for permit shall be treated as if such lease or
leases or other continuing contract or contracts comply with the
provisions of this section.
(Strikethrough in original). This amendment died in committee. Clearly, this amendment
was intended to remove the implications of Wellman and Tawney from an analysis of the
statute. The Legislature chose not to remove that implication because the implication was
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correct. However, the new majority opinion has done what the Legislature refused to do.
The new majority opinion has rewritten the statute to say what it was never intended to say.
In view of the foregoing, I dissent.
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