Big & Little Oil v. Tanglewood

J-A27043-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
BIG & LITTLE OIL, LLC; BIVINS RYAN IN THE SUPERIOR COURT OF
INVESTMENTS, LLC; BLUE SPHINX PENNSYLVANIA
MANAGEMENT LTD; BRYAN WOOD;
BTBA, LLC; CAROLYN BIVINS 1952
TRUST #4; CO-PA, LLC; CORNELIA
WADSWORTH RITCHIE TRUST NO.
FOUR; CUSOLITO PULTORAK, LLC;
DARRELL F. AND SUZANNE H. ABEL;
EDWIN SHELTON PROPERTIES, LLC; EVA
DROBEZKO; FB. LAMAR, LP; FB
ROHANNA, LP; FHMW, LLP; FINE BUNCH,
LLC; GALBRAITH GREENE, LLP;
GALBRAITH LAMAR, LLP; GALBRAITH
ROHANNA, LLP; GALBRAITH ROHANNA 2
LLP; GEORGE W. ZUNDELL; HOOK
GREENE COUNTY, LLP; HOOK LAMAR,
LLP; HOOK LAMAR 2, LLP; HOOK
ROHANNA 1, LLP; HOOK ROHANNA 2
LLP; HOOK ROHANNA 3 H LLP; JABST
INVESTMENTS, LLC; JOHN & KATHY
MCNAY; JUSKOWICH PULTORAK 1H &
2H, LLP; JUSKOWICH ROHANNA 2H, LLP;
KEENER OIL & GAS, LLP; LIVING GOOD,
LLC; LNR INTERESTS, LP; MARK ERNEST
BIVINS TRUST; MARK E. FOX,
EXECUTOR OF THE ESTATE OF J.K.
WILLISON, DECEASED; MENDICINO
VENTURES, INC.; MG BIG GREEN
VENTURES, LLC; MOUNTAINTOP
INVESTORS 2010-1, LLC; MOUNTAINTOP
INVESTORS 2010-2, LLC; MOUNTAINTOP
INVESTORS L2-H, LLC; MOUNTAINTOP
INVESTORS R-2H, LLC; MOUNTAINTOP
INVESTORS PT LLC; ROHANNA IRON &
METAL, INC.; SILVER FOX FARM, LLC;
THOMAS PEYTON BIVINS TRUST;
THOMAS E. & BERTHA M. SCHERICH;
THOMAS M. COLELLA REVOCABLE
TRUST; TRES NGUYEN, LLC; WILLISON
FOX, LLP; AND 1952 ELDER BIVINS
CHILDREN’S EXEMPT TRUST
J-A27043-15
Appellee
v.
TANGLEWOOD EXPLORATION LLC AND
VANTAGE ENERGY APPALACHIA, LLC
Appellant No. 1813 WDA 2014
Appeal from the Order Entered October 24, 2014
In the Court of Common Pleas of Washington County
Civil Division at No(s): 2013-7699
BEFORE: BOWES, OLSON AND STABILE, JJ.
MEMORANDUM BY BOWES, J.: FILED JULY 25, 2016
Tanglewood Exploration LLC, a Texas limited liability company, and
Vantage Energy Appalachia, LLC, a Pennsylvania limited liability company,
(collectively “Tanglewood”), appeal from the October 24, 2014 order
overruling their preliminary objections to venue in Washington County,
Pennsylvania.1 We reverse and remand for further action consistent with
this disposition.
____________________________________________
1
We have jurisdiction to entertain the instant appeal pursuant to Pa.R.A.P.
311(b)(2), which provides that an
“An appeal may be taken as of right from an order in a civil
action or proceeding sustaining the venue of the matter . . . if:
...
(Footnote Continued Next Page)
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Tanglewood was engaged in oil and gas drilling in Pennsylvania. It
subsequently assigned its interests to Vantage. The Appellees (hereinafter
“Participants”), the majority of whom are from Pennsylvania, are mineral
rights owners and investors who entered into Joint Operating Agreements
(“JOAs”) and Participation Agreements (“PAs”) with Tanglewood for the
funding of the drilling operations in exchange for a percentage interest in the
proceeds. The PAs incorporate by reference the JOAs. A provision in the PA
states:
Governing Law. This Agreement and any claims related
directly to this Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the State of
Texas. No proceeding related directly or indirectly to this
Agreement shall be commenced, prosecuted or continued
in any court other than the courts of the State of Texas
located in the county of Tarrant.
Participation Agreement at ¶152 (emphasis added). The PAs also contain an
integration clause providing that “this Agreement” constitutes the entire
understanding between the parties. Id. at ¶17.
Participants commenced this cause of action in Washington County,
Pennsylvania, alleging breach of contract, unjust enrichment, fraud, and
_______________________
(Footnote Continued)
(2) the court states in the order that a substantial issue of
venue or jurisdiction is presented.
2
Substantively, the PAs are identical. Since the language in the PA
between Tanglewood and Big & Little Oil, LLC, is representative of all of the
PAs, we use that agreement as an exemplar.
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seeking declaratory relief under the JOAs. Tanglewood filed preliminary
objections to venue, asserting that the forum selection clause in the PAs
governed and mandated that all actions be maintained in Tarrant County,
Texas. After an amended complaint was filed, Tanglewood renewed the
objection to venue in Washington County.
The trial court overruled Tanglewood’s preliminary objections by order
dated October 6, 2014, and subsequently modified that order at
Tanglewood’s request to state that its order presented a substantial question
of venue for purposes of rendering it appealable as of right pursuant to
Pa.R.A.P. 311(b)(2).
Tanglewood presents one issue for our review:
Whether parties to agreements are required to bring this
proceeding, which involves the operation of oil and gas wells
they invested in pursuant to the agreements, in Tarrant County,
Texas, because they agreed that no proceeding related directly
or indirectly to the agreements shall be commenced, prosecuted,
or continued in any courts other than the courts of the State of
Texas located in the county of Tarrant.
Appellants’ brief at 4.
The threshold question is what law applies to construction of the
contracts herein. The PAs state that Texas law governs. The JOAs contain a
provision that “[t]his agreement and all matters pertaining hereto, including
but not limited to matters of performance, non-performance, breach,
remedies, procedures, rights, duties, and interpretation or construction shall
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be governed by the law of the state in which the Contract Area is located[,]”
which is Pennsylvania. JOAs, Article XIV at B.
"[T]he first step in a choice-of-law analysis under Pennsylvania law is
to determine whether a conflict exists between the laws of the competing
states." Sheard v. J.J. DeLuca Co., Inc., 92 A.3d 68, 76 (Pa.Super. 2014)
(citation omitted). Absent a conflict, we generally apply Pennsylvania law.
Tanglewood maintains that there is no conflict between Texas and
Pennsylvania law regarding the enforceability of forum selection clauses or
the treatment of contracts executed together and incorporated by reference.
Under Pennsylvania law, we construe multiple agreements related to the
same transaction as one agreement. See Southwestern Energy Prod.
Co. v. Forest Res., LLC, 83 A.3d 177, 188 (Pa.Super. 2013) (interpreting a
lease and two letter agreements referencing and incorporating each other as
a single agreement). Texas has adopted the same approach. See In re
Laibe Corp., 307 S.W.3d 314, 317 (Tex. 2010) (documents “pertaining to
the same transaction may be read together,” even if they are executed at
different times and do not reference each other, and “courts may construe
all the documents as if they were part of a single, unified instrument”).
The Participants agree that both Pennsylvania and Texas law provide
for the enforceability of forum selection clauses that are clear and
unambiguous, although they dispute that the instant clause meets that
criteria. Since it is undisputed that there is no appreciable conflict in the
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treatment of such clauses under either Pennsylvania or Texas law, we will
apply Pennsylvania law in determining whether the forum selection clause is
enforceable herein.
We review a trial court order disposing of preliminary objections as to
venue for an abuse of discretion or legal error. Beemac Trucking, LLC v.
CNG Concepts, LLC, 2016 PA Super 32 (Pa.Super. 2016) (citing
Autochoice Unlimited, Inc. v. Avangard Auto Fin., Inc., 9 A.3d 1207,
1211 (Pa.Super. 2010)). “If venue is based upon the interpretation and
application of a forum selection clause in a contract, then we conduct a de
novo review of the trial court's conclusions of law.” Autochoice Unlimited,
Inc., supra at 1211 (affirming grant of preliminary objections based on
venue lying in Florida because parties agreed to forum selection clause in
contract). .
The specific contract language at issue is contained in the PAs:
No proceeding related directly or indirectly to this Agreement
shall be commenced, prosecuted or continued in any court other
than the courts of the State of Texas located in the county of
Tarrant.
Participation Agreement, at ¶15.
The question herein is whether the forum selection clause in the PAs
applies to disputes based upon breaches of the JOAs. Tanglewood contends
that the PAs, which incorporate the JOAs, constitute one agreement, and
that the forum selection clause in the PAs governs. It directs our attention
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to Huegel v. Mifflin Construction Co., 796 A.2d 350 (Pa.Super. 2002),
where homeowners sued both a construction company and a financing
company that loaned them money for their project. The contractor arranged
for the loan pursuant to a provision in the construction contract permitting it
to do so at the homeowners’ request. The loan agreement specifically
referenced the goods and services purchased, and was made subject to the
terms of the construction contract. It also contained an arbitration clause
that provided, “any and all disputes relating [to] the provisions of, or
obligations or work performed under this Contract shall be submitted to
binding arbitration.” Id. at 355. At issue was whether the arbitration clause
governed a dispute involving the construction itself.
The trial court found that the arbitration clause was inapplicable
because the claims arose from work performed under the construction
contract. This Court reversed, concluding that the loan agreement
effectively incorporated the construction contract, and that the construction
and loan agreements constituted one transaction that had to be construed
together. In addition, we noted the loan agreement was “replete with
references not only to [homeowners’] obligation to repay the money
borrowed, but also to their rights and obligations for the goods and services
purchased” under the construction accord. Id. See also Southwestern
Energy Prod. Co. v. Forest Res., LLC, 83 A.3d 177, 188 (Pa.Super. 2013)
(interpreting a lease and two letter agreements referencing and
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incorporating each other as a single agreement); Giant Food Stores, LLC,
v. THF Silver Spring Dev., L.P., 959 A.2d 438 (Pa.Super. 2008) (holding
four written instruments executed at different times and which did not in
terms refer to each other constituted one agreement governing one
transaction).
Participants make no attempt to distinguish Huegel or its progeny.
Rather, they argue that it is unclear from the PAs’ forum selection clauses
whether they were intended to apply to actions involving the JOAs. They
contend that the repetitive “this Agreement” language should be construed
as referring solely to the PAs. In further support of that construction, they
point to other provisions in the PAs distinguishing between “this Agreement”
and the JOAs as proof that the two agreements are distinct contracts.
Finally, Participants assert that the purpose of the PAs was solely to
fund Tanglewood’s initial exploration and development on certain subject
leases in exchange for a percentage interest in those leases while the JOAs
define the parties’ rights and obligations regarding the operation of the
contract areas. Participants maintain that the scope of the instant dispute
falls within the JOAs, not the PAs, as the claims do not relate to funding but
only to operations. They rely upon Morgan Trailer Mfg. Co. v. Hydraroll
Ltd., 759 A.2d 926 (Pa.Super. 2000), where this Court held that claims for
tortious interference with employment relationship, misappropriation of
trade secrets, unfair competition and the like were separate from the
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contract because they did not involve the sale of products, and thus, were
not subject to the forum selection clause.
We begin by determining what constitutes the agreement of the
parties. The record reveals the following. As in Heugel, the various PAs
expressly incorporate by reference and attach the JOAs. See PA at ¶2
(“contemporaneously with the execution of this Agreement Participant shall
pay to Tanglewood: (i) the sum of $360,000, which is on eight percent (8%)
of the estimated AFE cost . . . . which are attributable to Tanglewood’s
working interest under the JOAs, attached hereto and made a part hereof as
‘Exhibit A’”). In addition, there are numerous references in the PAs to the
JOAs. Paragraph 3 of the PAs provides that Participant “acknowledges that
any Earned Acreage hereunder will be subject to and burdened by the JOA
and the Letter Agreement dated July 21, 2009.” The Participation Letter
Agreements, executed the same day as the PAs and expressly incorporated
by reference therein, additionally provided that Tanglewood would be the
operator of the lease and Tanglewood and Participant “shall enter into a joint
operating agreement (“JOA”) governing the lease” on the form agreement
610-1989. The letter concluded:
If the foregoing correctly sets forth your understanding of our
agreement in this matter, please so indicate by executing a copy
of this letter in the space provided below and returning a
completely executed copy to the undersigned as soon as
possible.
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Participation Letter Agreement. Participants executed the participation letter
agreements. The PAs contain an integration clause providing that this
Agreement constitutes the entire understanding between the parties. Id. at
¶17.
“It is a general rule of law in the Commonwealth that where a contract
refers to and incorporates the provisions of another, both shall be construed
together.” Shehadi v. Northeastern Nat'l. Bank, 378 A.2d 304, 306 (Pa.
1977). Further, as this Court reiterated in Giant Food Stores, LLC, supra
at 445 (quoting Huegel, supra at 445), "[w]here several instruments are
made as part of one transaction they will be read together, and each will be
construed with reference to the other; and this is so although the
instruments may have been executed at different times and do not in terms
refer to each other."
Herein, the PAs expressly contemplate and incorporate the JOAs and
the Participation Letter Agreements. The fact that the JOAs do not refer to
the PAs is not dispositive, especially since the JOAs are simply form
agreements setting forth the specifics of the arrangement among the
operator and the non-operators, all of whom are participants under the PAs.
Signatures on the Participation Letter Agreements confirm that the
Participants agreed to enter JOAs governing the lease. The JOAs do not
have integration clauses. Although this is not determinative of the issue, the
absence of an integration clause in those documents is evidence that they
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were not intended to be the entire contract among the parties. See Green
Valley Dry Cleaners, Inc. v. Westmoreland County Industrial Dev.
Corp., 832 A.2d 1143 (Pa.Cmwlth. 2003); see also Price v. Elexco Land
Servs., Inc., 2009 U.S. Dist. LEXIS 58268 (M.D. Pa. 2009).
Nor are we persuaded that the specific references in the PAs to the
JOAs and treating the latter as distinctly identifiable documents alters the
fact that they were intended to constitute the entire agreement among the
parties. We conclude that the PAs incorporate and include the JOAs and the
Participation Letter Agreements, and thus, all three documents constitute
the entire agreement among the parties and must be construed together.
A common sense examination of the claims asserted herein leaves no
doubt that they directly or indirectly related to the entire transaction among
the parties. The underlying claims relate to Tanglewood’s assignment of its
interests to Vantage, underpayment of proceeds to Participants, and
improper billings. Although the alleged breaches arise under the terms of
the JOAs, since those agreements are incorporated into the PAs, it
necessarily follows that claims for breach of the JOAs are directly or
indirectly related to the PAs.
Finally, Participants contend that requiring this action to be brought in
Texas would annul or vitiate the governing law clause of the JOAs. We
disagree. Participants conflate forum selection with choice of law. A court
sitting in Tarrant County, Texas, can apply Pennsylvania law to the merits of
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the underlying controversy. It is for that court to determine what law
applies with reference to its own conflicts rules.
As we held in Patriot Commer. Leasing Co. v. Kremer Rest.
Enters., LLC, 915 A.2d 647, 650 (Pa.Super. 2006), “the modern trend is to
uphold the enforceability of forum selection clauses where those clauses are
clear and unambiguous.” Such clauses are subject to the principles of
general contract interpretation and generally enforceable where the parties
have agreed to litigate in a particular forum and the provision is not
unreasonable. Central Contracting Co. v. C.E. Youngdahl & Co., 209
A.2d 810, 819 (Pa. 1965); Midwest Fin. Acceptance Corp. v. Lopez, 78
A.3d 614, 629 (Pa.Super. 2013). Furthermore, such clauses are
presumptively valid in commercial contracts and “will be deemed
unenforceable only when: 1) the clause itself was induced by fraud or
overreaching; 2) the forum selected in the clause is so unfair or inconvenient
that a party, for all practical purposes, will be deprived of an opportunity to
be heard; or 3) the clause is found to violate public policy.” Id.
We do not find the forum selection clause in the PAs ambiguous. Also,
it is not unreasonable in light of the fact that Tanglewood Exploration LLC is
a Texas limited liability company and many of the Participants are residents
of Texas. Participants do not argue that the forum selection clause was
fraudulently induced, that the Texas forum is so unfair as to deprive them of
an opportunity to be heard, or that the clause violates public policy. Hence,
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we conclude that the forum selection clause applies and venue lies solely in
Tarrant County, Texas. We therefore reverse and remand for entry of an
order sustaining preliminary objections to venue and dismissing the action
without prejudice to Participants to bring it in the appropriate forum.
Order reversed. Case remanded with instructions. Jurisdiction
relinquished.
Judge Olson joins the memorandum.
Judge Stabile files a dissenting memorandum.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/25/2016
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