Martha Wellman v. Bobcat Oil & Gas, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1533
MARTHA WELLMAN; CHARLES WELLMAN,
Plaintiffs - Appellants,
v.
BOBCAT OIL & GAS, INC.,
Defendant – Appellee.
Appeal from the United States District Court for the Southern
District of West Virginia, at Huntington. Robert C. Chambers,
Chief District Judge. (3:10-cv-00147)
Argued: March 19, 2013 Decided: May 7, 2013
Before DUNCAN, FLOYD, and THACKER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Jason Andrew Poling, Robert R. Waters, WATERS LAW GROUP,
Huntington, West Virginia, for Appellants. Matthew James Perry,
LAMP, ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington,
West Virginia, for Appellee. ON BRIEF: Julie A. Warren, LAMP,
ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington, West
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Charles and Martha Wellman (“Appellants” or the
“Wellmans”) appeal an order by the district court declining to
invalidate an oil and gas lease granted to Bobcat Oil & Gas,
Inc. (“Appellee” or “Bobcat”). The district court concluded
that the lease did not terminate for lack of natural gas
production or due to missed or late rental payments. On appeal,
Appellants contend that the lease automatically terminated
because Bobcat failed to produce natural gas in paying
quantities and further failed to tender timely rental payments,
both of which they claim are required by the lease. They assert
that even though the lease provides for the payment of a “flat-
rate” rental, rather than a “production-based” royalty, the
lease nonetheless requires production, and, that, therefore,
Bobcat’s alleged failure to satisfy this condition terminated
the lease. We disagree.
Under longstanding West Virginia law, the quantity of
production is irrelevant to the expiration of the secondary term
of a mineral lease that provides for “flat-rate” rental
payments. Moreover, the Wellmans’ claim that Bobcat forfeited
the lease by failing to tender certain rental payments fails on
the grounds of ratification and principles of equity. For the
reasons detailed below, we affirm.
2
I.
A.
On May 17, 1933, Ida May Dean Purdue (“Purdue”)
executed a lease with the Chartiers Oil Company (“Chartiers”),
in which Chartiers was given the right to extract oil and gas
from the mineral estate owned by Purdue, located on Gragston
Creek in Wayne County, West Virginia (the “Lease”).
The “habendum,” or term, clause of the Lease provides:
It is agreed that this lease shall remain in full
force for the term of ten years from this date and as
long thereafter as oil or gas, or either of them, is
produced from the said land by the said party of the
second part, its successors and assigns.
J.A. 44. 1 The Lease requires the lessee to pay to the lessors a
flat-rate rental of “$75 each three months in advance for the
gas from each and every well drilled on said premises . . . to
be paid each three months thereafter while the gas from said
well is marketed and used.” Id. 2
1
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
2
In contrast, the Lease provides for a 1/8th royalty on all
oil produced.
We observe that mineral leases providing for the payment of
a flat-rate rental instead of a production-based royalty have
been disfavored in West Virginia as a matter of public policy
since 1982. See W. Va. Code § 22-6-8(a)(4), (b). Even so, the
Wellmans do not argue that the Lease is invalid for this reason.
See Wellman v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL
6415487, at *2, 5 (S.D.W. Va. Dec. 21, 2011) (noting that “the
(Continued)
3
B.
On January 12, 1978, the Wellmans purchased the rights
as the lessor to the mineral estate from Purdue. Chartiers sold
its rights under the Lease to PIP Petroleum (“PIP”), who in turn
sold the rights to Bobcat on March 10, 1993. On March 31, 1993,
PIP notified the Appellants that it had sold its interest in the
mineral estate to Bobcat, and that beginning in January of 1994,
“all Flat Royalty payments will be made by Bobcat Oil & Gas
Company.” J.A. 148. On January 10, 1994, Bobcat began
tendering the $75 flat-rate rental payments to the Wellmans on a
quarterly basis, as PIP had done previously.
These requirements resulted in a total of 71 payments,
to be made from Bobcat to the Wellmans, beginning in January
1994 to the third quarter of 2011, when the record in this case
was closed. Bobcat has presented proof indicating that all 71
payments were made, though the type of proof varies. Of the 71
payments, 50 are evidenced by cancelled checks with Appellants’
signatures. The remaining 21 payments are demonstrated by check
stubs, indicating the payment amount of $75 and the date upon
which the checks were written. Of the 21 check stubs, 17 checks
are checks that the Wellmans admit they received beginning with
West Virginia legislature cannot overwrite pre-existing
contracts, see, e.g., U.S. Const. art. 1, § 10”).
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the first quarter of 2008 until the close of the record, but
elected not to cash. At issue in this case is the alleged non-
payment of certain quarterly rental payments due before 2008, as
well as allegedly late or missed payments due in 2008 and
thereafter.
Regarding the allegedly late or missed payments due in
2008 and thereafter, Appellants stopped cashing the rental
checks they received from Bobcat after the fourth quarter of
2007, and assert that certain rental payments owed after that
time are either missing or late. According to both parties, the
payment for the first quarter of 2008, which they agree for the
sake of argument was due by January 29, 2008, was sent by
certified mail on November 27, 2007. The parties disagree about
all later payments.
The next check appears in Bobcat’s check register for
the date of March 27, 2008, as payment for the second quarter of
2008. The Wellmans claim that it was not sent until July 2008,
when it was mailed by certified mail. Thus, the Wellmans
contend that at least one quarterly payment is missing or late,
and if it was late, all subsequent payments would be at least
one quarter late. Bobcat responds that its check register
indicates all rental payments have been tendered to the
Wellmans. As noted, the record in the case was closed in the
third quarter of 2011.
5
C.
The Wellmans commenced this action on February 12,
2010, and filed an amended complaint on July 26, 2010, which
contains five counts: (1) breach of contract; (2) breach of
common-law duties; (3) fraudulent concealment of mineral
extraction; (4) declaratory judgment that the Lease is null and
void because Appellee did not produce gas from the mineral
estate on a consistent basis; and (5) negligent or intentional
trespass. The Wellmans seek compensatory and punitive damages,
an injunction against further gas extraction, an accounting of
the mineral proceeds extracted, declaratory judgment that the
Lease is null and void, and attorney’s fees and costs.
On cross motions for summary judgment, the district
court concluded that the Lease did not expire nor was it
breached and granted judgment in favor of Bobcat. See Wellman
v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL 6415487(S.D. W. Va. Dec. 21, 2011) (concluding that production was
irrelevant to continuation of Lease); Wellman v. Bobcat Oil &
Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va. Feb.
14, 2012) (finding no dispute of material fact indicating
defendant breached Lease through late or missing payments).
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II.
We review de novo a district court’s order granting
summary judgment. See Webster v. U.S. Dep’t of Agric., 685 F.3d
411, 421 (4th Cir. 2012).
III.
A.
We turn first to the Wellmans’ contention that the
Lease expired on its own terms because Bobcat ceased production
of natural gas during certain identified periods. In this
regard, they point to language in the term clause of the Lease
that appears to require Bobcat to produce. Specifically, the
Wellmans direct our attention to the language stating that the
Lease continues “so long thereafter as oil or gas . . . is
produced from the . . . land.” J.A. 44. Bobcat responds that
this case is squarely controlled by West Virginia law, which
holds that a mineral lease providing for the payment of flat-
rate rental payments rather than production royalties cannot
terminate due to a lack of production. See Bruen v. Columbia
Gas Transmission Corp., 188 W. Va. 730, 426 S.E.2d 522 (1992).
We agree with Appellee. The case before us is squarely
controlled by the Bruen decision and its antecedents.
The term clause in the Bruen lease extended the lease
“so long thereafter as oil or gas is produced from the land
leased and royalty and rentals paid by lessee therefore.” Id.7
at 552. In terms of royalty, the lease required a 1/8 royalty
on oil, a $200 annual rent for each gas well, and a $1200 yearly
advance payment to the lessee, from which all royalties were
subtracted. Id. As the district court correctly observed, the
terms of the Bruen lease and the Lease in this case are
essentially the same, excepting the $1200 annual payment.
In Bruen, the owners of the mineral estate sued the
lessee, arguing that the mineral lease terminated because the
well did not “produce” during various periods between 1928 and
1971. Id. at 524-25. The jury returned a verdict for the
plaintiffs. On appeal, the Supreme Court of Appeals of West
Virginia concluded that the trial court erred in instructing the
jury that “produced” means “produced in paying quantities,”
because the quantity of production regarding the disputed lease
was immaterial. Id. at 527.
The Bruen court first recognized the long-established
distinction between “flat-rate” and “production” mineral leases,
explaining:
In McGraw Oil Co. v. Kennedy, 65 W. Va. 595, 64 S.E.
1027 (1909), this Court spoke to the nature of a flat-
rate lease for oil and gas:
This lease does not limit its term by
requiring that oil or gas shall be found in
paying quantity, as leases usually do. It
says that the lease shall endure ‘five years
from this date and as long thereafter as oil
and gas, or either of them, is produced
therefrom by the party of the second part.’
8
So, this lease contains nothing in terms
allowing the lessor to end it because oil or
gas is not found in paying quantity.
65 W. Va. at 598, 64 S.E. at 1028 (emphasis supplied);
see also syl. pt. 1, id.
Similarly, in Bassell v. West Virginia Central Gas
Co., 86 W. Va. 198, 103 S.E. 116 (1920), the Court
again addressed a lease involving an annual rental per
well.
The rental bears no relation to the quantity
of gas contemplated or actually produced. It
was compensation fixed in advance of
production and without any definite
knowledge as to what the production would
be. Hence, the rental reserved was the same
for wells of light production and wells of
heavy production.
86 W. Va. at 202, 103 S.E. at 117 (emphasis supplied).
In McCutcheon v. Enon Oil & Gas Co., 102 W. Va. 345,
135 S.E. 238 (1926), the Court said of flat-rate oil
and gas leases:
[T]he lease does not in terms say the well
must produce gas in ‘paying quantities' and
be marketed. Having no market, the lessee
had the right to shut the gas in and pay the
stipulated price. It would be of little
concern to [the] lessor what was done with
the gas, if he gets his payments.
102 W. Va. at 354, 135 S.E. at 241 (emphasis
supplied). And in Ketchum v. Chartiers Oil Co., 121
W. Va. 503, 506, 5 S.E.2d 414, 416 (1939), the Court
distinguished a flat-rate lease from the “usual”
lease: “Unlike the usual oil and gas lease, production
of oil and gas in paying quantities is not expressly
required for the extension of the instant lease beyond
the fixed term.” (emphasis in original).
Bruen, 426 S.E.2d at 524-25 (alteration supplied).
9
Addressing the lease before it, the Bruen court
recognized,
production in paying quantities is not what is
“required by the terms of [the] lease as necessary to
its continuation,” . . . . Rather, the type of lease
involved in this case requires “flat” payments of
rental in the amount of $1200 per year, regardless of
production.
Id. at 525 (emphasis supplied).
The Bruen court observed that its earlier decisions in
McGraw Oil and McCutchen “upheld leases when there was no paying
production, but both lessors received rental payments as though
there was paying production, and in the same amount.” Id. at
526 (emphasis added). In view of these principles, the Bruen
court held:
[I]f an oil and gas lease contains a clause to
continue the lease for a term “so long thereafter as
oil or gas is produced,” but also provides for “flat-
rate” rental payments, then quantity of production is
not relevant to the expiration of the term of the
lease if such “flat-rate” rental payments have been
made by the lessee.
Bruen, 426 S.E.2d at 527 (emphasis supplied).
In this case, the term clause of the Lease provides as
follows:
It is agreed that this lease shall remain in full
force for the term of ten years from this date and as
long thereafter as oil or gas, or either of them, is
produced from the said land by the said party of the
second part, its successors and assigns.
10
J.A. 44. It may appear that this language, standing alone,
requires production of oil or gas. But precisely like the lease
in Bruen, the lease here “also provides for ‘flat-rate’ rental
payments. . . .” Bruen, 426 S.E.2d at 527 (emphasis supplied).
That is, the Lease requires the lessee to pay the lessors “$75
each three months in advance for the gas from each and every
well drilled on said premises . . . to be paid each three months
thereafter while the gas from said well is marketed and used.”
J.A. 44. Because the Lease provides for the payment of a flat-
rate rental to the Wellmans, the quantity of production --
whether high, low, or zero -- is utterly irrelevant for
determining whether the secondary term of the Lease expired,
again assuming the payments are, in fact, made. See Bruen, 426
S.E.2d at 527; see also McCutcheon, 135 S.E. at 241 (“It would
be of little concern to [the] lessor what was done with the gas,
if he gets his payments.”). Accordingly, we conclude that the
district court did not err by determining that the quantity of
production is irrelevant to the continuation of the Lease.
B.
Appellants also contend that Bobcat forfeited the
Lease by failing to tender, or by tendering late, certain
required rental payments. In support, they claim that certain
rental payments were not made: one in 2003 and three in 2006.
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Appellants also raise the argument that certain royalty payments
were missing or late after the last quarter of 2007.
1.
Allegedly Missing or Late Payments Before 2008
As noted, the Lease provides for quarterly flat-rate
payments of $75.00, paid “in advance,” for natural gas produced
from the leasehold estate. The parties agree that 71 total
payments were due from the point at which Bobcat acquired the
Lease to the close of the record in this case, that is, from
January 1994 to the third quarter of 2011. 3
The Wellmans now seek rescission based on late or
missing checks from various points between 1995 and 2006, but
they cashed many royalty checks during and after any such
periods of delay. Indeed, the Wellmans concede they received
and cashed the royalty payments for the four quarters of 2007 --
after earlier payments were alleged to be late or missing.
We agree with the district court that this acceptance
negates any need to resolve the disputed issues of fact
regarding the defects in earlier payments inasmuch as the
Wellmans’ acceptance of the 2007 payments ratified any breach
3
The Wellmans believe that the payments are due on the 29th
day of January, April, July, and October of each year, but
Bobcat disputes that any specific payment schedule is required
by the terms of the Lease.
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that may have occurred before that time. Under the doctrine of
ratification, the district court correctly concluded that the
Wellmans are prevented from now claiming that any defective
payment due before 2008 voided the Lease.
In general, ratification occurs, and there is no
breach justifying rescission, “so long as the injured party
elects to treat the contract as continuing.” Atl. Bitulithic
Co. v. Town of Edgewood, 137 S.E. 223, 225 (W. Va. 1927)
(internal citations omitted). Additionally, West Virginia law
specifically prohibits a lessor from accepting imperfect
performance under a lease on an ongoing basis, then complaining
of the accepted breach. See Ohio Fuel Oil Co. v. Greenleaf, 99
S.E. 274, 279–80 (W. Va. 1919) (“It has been held repeatedly
that, where the continuance of a lease such as this depends upon
the payment of money by a certain time, any conduct upon the
part of the lessor which would indicate that the time of payment
might be extended, or conduct on his part indulging the lessee
in making such payment, would estop him from claiming that the
lessee’s rights had ceased.”).
When the Wellmans accepted the quarterly payments
throughout 2007, they ratified any defects in payments due
before that time and may not now claim that such defects justify
cancelling the Lease. Thus, we are left with the question of
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whether any post-2007 missing or late payments are sufficient to
terminate the Lease.
2.
Allegedly Missing or Late Payments After 2007
Appellants stopped cashing the rental checks they
received from Bobcat after the fourth quarter of 2007. They
complain, however, that certain of these post-2007 payments were
missing or late. Because it is undisputed that the Wellmans
decided not to cash any of these checks, the only evidence of
their issue or timeliness is provided by Bobcat’s check
register, and, for some payments, certified mail records.
Appellants neither presented any records of the checks nor did
they offer any evidence as to when they received the checks.
As noted, Appellants assert that quarterly royalty
payments are due on January, April, July, and October 29 of each
year. Although Bobcat disputes that the Lease requires any
specific payment schedule, because both parties have used these
dates to calculate the timeliness of the payments for the
purpose of this case, we also use them for reference. 4 Guided by
these “due dates,” the parties submitted charts indicating when
4
We offer no opinion as to whether the Lease establishes
these payment dates.
14
quarterly royalty checks for 2008–2012 have been due, written,
and received.
We look first to the payments beginning with the
payment due on January 29, 2008. The parties agree that this
first quarter 2008 payment was due in January 29, 2008, and was
sent on November 27, 2007, by certified mail. The parties
disagree about all later payments.
The next check appears in Bobcat’s check register for
the date of March 27, 2008 (“second quarterly payment”), which
it claims was both issued and mailed around that date. The
Wellmans insist that they did not receive the second quarterly
payment until sometime in July 2008, when it arrived by
certified mail -- nearly one quarter late. Bobcat disputes this
account, noting that its check register indicates that separate
checks were issued in both March and July of 2008, for the
second and third quarters of 2008. The Wellmans do not explain
what they believe actually happened to the checks issued in
March and July of 2008, but simply list the check issued March
27, the second quarterly payment, as corresponding to the July
2008 certified mailing. Based on these calculations, according
to the Wellmans, the March 2008 and all subsequent quarterly
payments are at least one quarter late. The district court
concluded, however, that the Wellmans’ version of events in this
regard has little support in the record. See Wellman v. Bobcat
15
Oil & Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va.
Feb. 14, 2012).
We need not wade into this particular factual dispute
because if we assume the second quarterly payment was either
never issued or was late, the result would remain the same;
neither circumstance is sufficient to justify cancellation of
the Lease under West Virginia law. That is, for the sake of
argument we can view the second quarterly payment as missed, in
which case the third quarterly payment made in July 2008 and all
subsequently payments were timely. Alternatively, we can view
the second quarterly payment as simply tendered one quarter
late, in which case all following payments were correspondingly
one quarter late. Adopting either view of the facts, the single
missed payment or correspondingly late quarterly payments are
simply insufficient to justify cancelling the Lease and
declaring Bobcat’s leasehold estate forfeit.
The state supreme court has long expressed a “general
disfavor of forfeitures in contractual matters[] within the
context of oil and gas lease rental clauses. . . .” Warner v.
Haught, Inc., 329 S.E.2d 88, 95 (W. Va. 1985). The Warner court
explained as follows:
The failure to make stipulated quarterly payments on
the well is not ground for declaration of a forfeiture
of the lease, in the absence of a clear and
unequivocal stipulation that such failure to pay will
forfeit. We have many times declared, following the
16
rule formulated when chancery courts came into
existence, that equity will never lend its aid to
enforce a forfeiture. Never to declare or enforce a
forfeiture, nor divest an estate or title for
violation of a condition subsequent, is an invariable
rule of equity, if there be a legal remedy. Under
such circumstances, a court of equity utterly declines
to touch the case, and leaves the party to his legal
remedies. “Equity abhors a forfeiture.”
Plaintiffs had their legal remedy for the enforcement
of the quarterly payments, and in the answer defendant
proffers to pay, upon an ascertainment of the amount,
claiming that plaintiffs should account for the gas
used from the well in one of the houses, which use was
not authorized in the lease contract. The lease
cannot be forfeited because of nonpayment of the
quarterly payments, under the circumstances shown by
the evidence.
Id. 329 S.E.2d at 95-96 (quoting McCutcheon, 135 S.E. at 241)
(citations omitted and emphasis supplied). See also Bethlehem
Steel Corp. v. Shonk Land Co., 288 S.E.2d 139, 142 (W. Va. 1982)
(“The right to forfeit must be clearly stipulated for in terms,
else it does not exist. Every breach of a covenant or condition
does not confer it upon the injured party. It never does,
unless it is so provided in the instrument. Such breaches are
usually compensable in damages, and, if a forfeiture has not
been stipulated for, it is presumed that the injured party
intended to be content with such right as is conferred by the
ordinary remedies.” (citing Peerless Carbon Black Co. v.
Gillespie, 105 S.E. 517 (W. Va. 1920))).
In this case, the Lease does not contain a “clear and
unequivocal stipulation” that the lessee’s failure to make
17
quarterly rental payments will result in forfeiture. See
Warner, 329 S.E.2d at 95-96. Accordingly, even if we credited
the Wellmans’ allegations regarding the single missed payment or
late payments that correspondingly followed, the evidence
presented is far from sufficient to justify cancelling the
Lease. Id. Therefore, under these facts, the Lease remains
valid.
IV.
For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
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