SLT Holdings v. Mitch-Well Energy

J-A29041-14
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P. 65.37
SLT HOLDINGS, LLC, JACK E. : IN THE SUPERIOR COURT OF
MCLAUGHLIN, and ZUREYA A. : PENNSYLVANIA
MCLAUGHLIN, :
:
Appellees :
:
v. :
:
MITCH-WELL ENERGY, INC., and :
WILLIAM E. MITCHELL, JR., AN :
INDIVIDUAL, :
:
Appellants : No. 460 WDA 2014
Appeal from the Order Dated February 14, 2014
in the Court of Common Pleas of Warren County
Civil Division at No(s): A.D. 626 of 2013
BEFORE: FORD ELLIOTT, P.J.E., ALLEN, and STRASSBURGER,* JJ.
MEMORANDUM BY STRASSBURGER, J.: FILED DECEMBER 15, 2014
Mitch-Well Energy, Inc. (Mitch-Well), and William E. Mitchell, Jr.
(Mitchell) (collectively, “Appellants”) appeal from the grant of a preliminary
injunction against them and in favor of SLT Holdings, LLC, Jack E.
McLaughlin, and Zureya A. McLaughlin (Appellees). Upon review, we affirm.
The background of this case can be summarized as follows. This case
involves oil, gas, and mineral rights (OGMs) to two separate parcels of
property, also called warrants, namely Warrant 769 (the McLaughlin
property) and Warrant 3010 (the SLT property). The subsurface rights of
the McLaughlin property are currently owned by Jack E. McLaughlin and his
wife, Zureya McLaughlin (the McLaughlins). The subsurface rights of the SLT
* Retired Senior Judge assigned to the Superior Court.
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property are owned by SLT Holdings, LLC, with an outstanding six percent
royalty interest in the OGMs owned by the McLaughlins.
On May 30, 1985, Eleanor McLaughlin, prior owner of both properties,
entered into unrecorded oil and gas leases with United Land Service, Inc.
(United) for both properties.1 Relevant to this action, the lease provided
that United would have ninety days to commence drilling, and if work was
not commenced with reasonable diligence, United would pay Eleanor
McLaughlin certain fees. Additionally, United would have to continue
producing gas in paying quantities during the term of the lease. Moreover, if
the wells were capable of producing gas in paying quantities, but were shut-
in (ie. the lessee chooses not to produce the gas), United would pay Eleanor
McLaughlin certain royalties.
Thus, by its own terms, the lease provided that United could pay shut-
in gas royalties to operate to extend the lease when the well(s) were capable
of producing gas in paying quantities. It follows logically that if no shut-in
gas royalties were paid and the wells were capable of production, then the
lease terminated. Additionally, the lease would terminate whenever OGMs
were not produced in paying quantities. Furthermore, United promised to
drill one well during the first year, and five additional wells each year
thereafter until a total of thirty wells were drilled on the McLaughlin property
1
Although the acreage and dollar figures differed for each lease, the two
leases contained similar operative language; thus, we refer to one lease,
although there were separate leases and lease amendments involved for
each property.
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and twenty wells were drilled on the SLT property. The lease would
terminate if United did not drill these wells, except United would retain the
twenty acres surrounding each well it had drilled.2
While the lease itself was not recorded, a memorandum of the oil and
gas lease was signed on May 30, 1985 and recorded on June 3, 1985. The
Memorandum of Oil and Gas Lease acknowledged that United had no option
to renew the lease, which primary term was for five years or so long
thereafter as oil or gas was produced in paying quantities or there were
continuing operations on the property.
United subsequently assigned the SLT property lease and McLaughlin
property lease to Mitch-Well on April 10, 1986. The lease assignments to
Mitch-Well were recorded that same day. Meanwhile, the initial term of one
year with which to drill on both the SLT property and the McLaughlin
property was extended for a period of thirty days until June 30, 1986, giving
Mitch-Well more time to drill its first well on each of the two properties.
Before the initial term expired, on or about May 15, 1986, one well was
drilled on both the SLT property and the McLaughlin property.
From January 17, 1991 through November 3, 2013, McLaughlin
received no payments of any kind, including royalty payments, delay rental
payments, or any other type of payments for the leases at issue. Similarly,
Richard C. Cochran, manager of SLT Holdings, LLC, testified that neither SLT
2
On February 20, 1986, the leases were amended to reduce that amount to
five acres.
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Holdings, nor its predecessor in interest, Sheffield Land and Timber
Company, a company in which he was also involved, had ever received
royalty payments, delay rental payments, or any other type of payments.
Furthermore, there was no physical indication at the 1986 well sites
that the wells were either producing or capable of producing oil or gas.
Additionally, a report filed by the Pennsylvania Department of Environmental
Protection indicated that as early as March 27, 1990, the well sites had been
abandoned.
On October 18, 2005, McLaughlin filed an Affidavit of Non-Production
with respect to the McLaughlin property. Along the same lines, on February
6, 2012, Sheffield Land and Timber Company filed an Affidavit of Non-
Production with respect to the SLT property. Each affidavit stated that there
had been no production of oil and gas on the property at issue and that the
1986 lease had expired.
The McLaughlins conveyed their interest in the SLT property to
Sheffield Land and Timber Company via deed dated June 16, 2008 and
recorded on June 19, 2008. Sheffield Land and Timber Company was
subsequently merged into SLT Holdings, LLC on December 18, 2012.
Utica Resources, Inc. (Utica) entered into an OGM lease with both SLT
Holdings and the McLaughlins on or about March 17, 2011. The Utica leases
cover the sands no deeper than 3,000 feet from the surface of the
properties. Upon execution of the leases with Utica, Utica began performing
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its obligations, including preparing for drilling operations, and actually
drilling five wells in the first two years of the Utica leases. During this time,
Utica discovered the Mitch-Well well from 1986 and attempted to pump it.
The results of this attempt were not clear at the preliminary injunction
hearing.
Sometime in the spring of 2013, representatives from Mitch-Well
contacted Utica and advised that Utica’s drilling operations on the SLT
property and McLaughlin property violated Mitch-Well’s rights with respect to
each property. Also, Mitch-Well objected to Utica’s installation of wells
within the twenty acres surrounding the wells drilled in May 1986. Since
being confronted by Mitch-Well, Utica has ceased its operations at the wells
and the McLaughlins and SLT Holdings are not currently receiving any
payments from the wells Utica drilled.
Furthermore, at some point on or about September 23, 2013, oil and
gas tanks located on both properties were drained without the consent of
McLaughlin, SLT Holdings, or Utica. Both McLaughlin and SLT Holdings
contacted the Pennsylvania State Police. On November 4, 2013, McLaughlin
received a personal check from William E. Mitchell, Jr. for royalties payable
for oil removed from the McLaughlin property.3 Included with this personal
check for royalties was a purchase statement from Ergon Oil Purchasing, Inc.
3
McLaughlin did not deposit the check.
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(Ergon) that referenced Mitchell as Ergon’s client and the sole owner of the
oil and gas from the McLaughlin property. The purchase statement did not
identify or otherwise designate either McLaughlin or SLT Holdings as having
any ownership interest in the oil and gas sold to Ergon.
The personal check from Mitchell to the McLaughlins was the first
payment the McLaughlins or their predecessors in interest received from
either Mitchell or Mitch-Well for the SLT property or McLaughlin property
since a few months after the wells were first drilled in May 1986. SLT
Holdings received no such royalties check from Mitch-Well or Mitchell.
These events led the McLaughlins and SLT, Appellees, to file a
complaint and petition for preliminary injunction against Mitchell and Mitch-
Well, Appellants, on November 19, 2013. Appellees also filed a motion for
expedited discovery to obtain answers to interrogatories and for production
of documents. After argument, the trial court required that Appellants
provide answers by January 2, 2014, and scheduled the hearing on
preliminary injunction for January 23, 2014. Appellants responded to the
discovery requests on January 3, 2014, and identified two individuals,
William E. Mitchell, Jr. and Rick Gilmore, as witnesses. Appellees then
contacted Appellants to schedule depositions of Mitchell and Gilmore, and
served notices of depositions to take place on January 17, 2014. Counsel for
Appellants advised Appellees that he was unavailable on that date. The
depositions never occurred.
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The hearing scheduled for January 23, 2014 took place. Before
testimony got underway, counsel for Appellees presented two motions to the
trial court. First, Appellees argued that the averments in their petition for
preliminary injunction be deemed admitted because Appellants did not file
an answer to the petition. The trial court denied that motion. N.T.,
1/23/2014, at 10. Second, Appellees presented a motion to bar testimony
and evidence. In that motion, Appellees first argued that Appellants be
limited to the documents produced during discovery. The trial court granted
that relief. Appellees also argued that Appellants not be permitted to
present testimony of Mitchell and Gilmore because they were not deposed,
even though their depositions had been noticed properly. The trial court
agreed and barred the testimony of Mitchell and Gilmore. Thus, the only
testimony presented at the hearing was from Richard Cochran, manager of
SLT Holdings, LLC. The trial court also considered the affidavit of Jack
McLaughlin. At the close of the hearing, the trial court gave the parties 10
days to submit proposed findings of fact and conclusions of law. On
February 14, 2014, the trial court entered an order and opinion granting a
preliminary injunction against Appellants and in favor of Appellees.
Specifically, the injunction prohibited Appellants from entering onto the
either parcel of property, and required Appellees to post a $500 bond.
Appellants timely filed a notice of appeal, and both Appellants and the trial
court complied with Pa.R.A.P. 1925.
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On appeal, Appellants set forth four issues for our review, which we
have renumbered for ease of disposition.
1. The trial court abused its discretion and committed an
error of law in granting SLT’s motion to deem the allegations
admitted pursuant to Pa.R.C.P. 206.7.
[2.] The trial court abused its discretion and committed an
error of law in admitting the affidavit of Jack E. McLaughlin
pursuant to Pa.R.C.P. 1531(a) [over] the hearsay objection of
Mitch-Well.
[3.] The trial court abused its discretion and committed an
error of law in granting the motion to bar testimony from Mitch-
Well as a sanction for the alleged violation of discovery.
4. The trial court abused its discretion and committed an
error of law in granting the preliminary injunction in favor of
SLT.
Appellants’ Brief at 5.
Appellants first argue that the trial court erred in “granting” Appellees’
motion to deem averments admitted. Appellants’ Brief at 10. However, as
both the trial court and Appellees point out, this motion was denied by the
trial court. See N.T., 1/23/2014 at 10; Trial Court Opinion, 4/11/2014, at 2.
Accordingly, there is no relief available to Appellants for this issue.
We next consider Appellants’ contention that the trial court erred in
considering the affidavit of Jack McLaughlin. Appellants’ Brief at 18. The
use of affidavits for preliminary injunctions is governed by Pa.R.C.P.
1531(a), which provides as follows.
A court shall issue a preliminary or special injunction only after
written notice and hearing unless it appears to the satisfaction of
the court that immediate and irreparable injury will be sustained
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before notice can be given or a hearing held, in which case the
court may issue a preliminary or special injunction without a
hearing or without notice. In determining whether a preliminary
or special injunction should be granted and whether notice or a
hearing should be required, the court may act on the basis of the
averments of the pleadings or petition and may consider
affidavits of parties or third persons or any other proof which the
court may require.
Pa.R.C.P. 1531(a). Thus, under the plain language of the rule, the trial court
“may consider the affidavits of parties” in “determining whether a
preliminary … injunction should be granted.” Id. Accordingly, Appellants’
argument to the contrary is without merit.
We now consider Appellants’ argument that the trial court erred in
barring the testimony of Mitchell and Gilmore. Specifically, Appellants assert
that the motion was sprung on counsel just prior to the hearing, and
resulted in “trial by ambush.” Appellants’ Brief at 15. Furthermore,
Appellants assert that the trial court’s decision to bar this testimony was too
severe a discovery sanction under these circumstances where there “was no
showing of willfulness or bad faith by testimony or correspondence.” Id. at
17.
Pennsylvania Rule of Civil Procedure 4019 governs sanctions for
discovery violations, and provides, in relevant part, as follows: “The court
may, on motion, make an appropriate order if … a party or an officer, or
managing agent of a party or a person designated under Rule 4007.1(e) to
be examined, after notice under Rule 4007.1, fails to appear before the
person who is to take the deposition[.]” Pa.R.C.P. 4019(a)(1)(iv).
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[S]anctions pursuant to Pa.R.C.P. 4019 generally are imposed
when a court order has been violated, although certainly the rule
does allow for sanctions when there has been a discovery
violation[.]… The decision whether to sanction a party, and if so
the severity of such sanction, is vested in the sound discretion of
the trial court. Absent a finding that the trial court abused its
discretion, [the Superior] Court will not reverse an order
sanctioning a party which the trial court found necessary and
proper.
McGovern v. Hosp. Serv. Ass’n of Ne. Pennsylvania, 785 A.2d 1012,
1015 (Pa. Super. 2001) (internal citations and quotations omitted).
Instantly, Appellants did not violate a court order.4 Moreover,
Appellants were available, and the depositions did not take place because of
the purported unavailability of their attorney. Additionally, Appellees could
have moved the trial court to compel these depositions, but did not do so.
Therefore, the penalty imposed, which resulted in Appellants not having any
witnesses testify at the hearing, was particularly severe; perhaps too severe
under these circumstances and an abuse of discretion.
Nonetheless, as Appellees point out, any error was harmless because
“Mr. Mitchell and Mr. Gilmore would have difficulty straying from the verified
responses to written discovery, which confirm they have no documents
evidencing any royalty payments or attempted payments to either Appellee
from 1986 through 2012.” Appellees’ Brief at 17. Furthermore, the trial
court did not extend its prohibition against Appellants’ testimony to the final
4
Here, the only court order signed was Appellees’ motion for expedited
discovery. That motion concerned only answers to interrogatories and
production of documents, not the taking of depositions.
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injunction hearing. Therefore, we conclude that the trial court’s abuse of
discretion in barring testimony as a discovery sanction under these
circumstances was harmless error, and does not require this Court to grant a
new hearing on the preliminary injunction.
We now turn to Appellants’ final issue, wherein they contend that the
trial court erred in granting a preliminary injunction in favor of Appellees.
We set forth our well-settled standard of review: “While the granting of a
preliminary injunction is an extraordinary remedy, our review is narrow….
[W]e do not inquire into the merits of the controversy, but only examine the
record to determine if there were any apparently reasonable grounds for the
action of the court below.” A.M. Skier Agency, Inc. v. Gold, 747 A.2d 936,
939 (Pa. Super. 2000) (internal quotations and citations omitted).
A petitioner seeking a preliminary injunction must establish
every one of the following prerequisites; if the petitioner fails to
establish any one of them, there is no need to address the
others.
First, a party seeking a preliminary injunction must show
that an injunction is necessary to prevent immediate and
irreparable harm that cannot be adequately compensated by
damages. Second, the party must show that greater injury
would result from refusing an injunction than from granting it,
and, concomitantly, that issuance of an injunction will not
substantially harm other interested parties in the proceedings.
Third, the party must show that a preliminary injunction will
properly restore the parties to their status as it existed
immediately prior to the alleged wrongful conduct. Fourth, the
party seeking an injunction must show that the activity it seeks
to restrain is actionable, that its right to relief is clear, and that
the wrong is manifest, or, in other words, must show that it is
likely to prevail on the merits. Fifth, the party must show that
the injunction it seeks is reasonably suited to abate the
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offending activity. Sixth and finally, the party seeking an
injunction must show that a preliminary injunction will not
adversely affect the public interest.
Duquesne Light Co. v. Longue Vue Club, 63 A.3d 270, 275 (Pa. Super.
2013) (internal citations and quotations omitted; emphasis added).
Appellants argue that the trial court erred not only with respect to five
of the above-cited factors,5 but also entered the preliminary injunction “out
of whole cloth as the factors simply do not appear in the record.” Appellants’
Brief at 22. We disagree.
With respect to the first two factors, the trial court concluded that
Appellants’ “continuing trespass and seizure of property constitutes
irreparable and immediate harm[.]” Trial Court Opinion, 2/14/2014, at 8.
Furthermore, the trial court observed it is unreasonable and unjust to permit
Appellants to profit from the enterprise. In response, Appellants argue that
SLT never drilled a well on the property; thus, they could not be harmed by
Mitch-Well’s operation of the tanks. Appellants’ Brief at 22-23. They also
appear to argue that Appellees actually benefitted because gas is being
produced.
In other words, Appellants concede that they entered onto the
property in 2013, drained the gas, then sold it to Ergon. However, the record
supports the trial court’s conclusion that no activity had occurred on the
property between 2008 and 2013. See N.T., 1/23/2014, at 29-33 (Cochran
5
Appellants acknowledge that the sixth factor, regarding an adverse effect
on the public interest, is not at issue here. Appellants’ Brief at 25.
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testifying about entering the property three to five times between 2008 and
2013 and seeing the wells in “disrepair”). Thus, Appellants’ actions in
entering the property, draining the tanks, and selling the gas, when it may
not have had a right to do so, would undoubtedly constitute immediate and
irreparable harm. Furthermore, because activity was dormant for so many
years, the trial court’s conclusion that halting any further activity until
resolution of the rights to the OGM leases was also reasonable.
With respect to the third factor, the trial court determined that the
“parties will be properly returned to the pre-litigation status quo if
[Appellants’] involvement is enjoined[.]” Trial Court Opinion, 2/14/2014, at
9. Here, the status quo, as established by the record, is that there has been
no drilling activity on this land for many years. Therefore, the trial court’s
decision to enjoin Appellants from entering the land restores the parties to
the status quo as it existed before the tanks were drained.
We consider together the fourth and fifth factors. “Fourth, the party
seeking an injunction must show that the activity it seeks to restrain is
actionable, that its right to relief is clear, and that the wrong is manifest, or,
in other words, must show that it is likely to prevail on the merits.”
Duquesne Light, 63 A.3d at 275. “Fifth, the party must show that the
injunction it seeks is reasonably suited to abate the offending activity.” Id.
Instantly, the trial court concluded that Appellants “have abandoned the
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property, the lease has terminated, and [Appellees] have rights to the
property.” Trial Court Opinion, 2/14/2014, at 9.
Appellants argue that, pursuant to the terms of the lease, they did not
receive adequate notice and the opportunity to cure the alleged default.
Appellants’ Brief at 23. Appellants also argue that the injunction was
overbroad in prohibiting entry onto the property when, in fact, they should
still be permitted to enter the area around their own wells. Appellants’ Brief
at 24.
We bear in mind that “[a] preliminary injunction’s purpose is to
preserve the status quo and prevent imminent and irreparable harm that
might occur before the merits of the case can be heard and determined.”
Walter v. Stacy, 837 A.2d 1205, 1209 (Pa. Super. 2003) (internal
quotation omitted). Instantly, Appellants’ arguments are best left for
resolution at a final injunction hearing. The trial court properly prohibited
Appellants from accessing these wells, because there is a dispute about who
currently owns them. Moreover, whether Appellees complied with the notice
of default procedures does not affect the resolution of a preliminary
injunction, which only seeks to halt activity until the issues are resolved.
Appellants will have the opportunity to litigate fully both of these issues at
the final injunction hearing.6
6
We note that Appellants’ decision to appeal from the grant of the
preliminary injunction, rather than proceed to a hearing on a final injunction,
is ultimately what has delayed resolution of many of these issues.
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Thus, having concluded that apparently reasonable grounds have been
established by the record, we discern no abuse of discretion in the trial
court’s grant of a preliminary injunction in favor of Appellees and against
Appellants. Accordingly, we affirm the order of the trial court.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/15/2014
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