Cardinale, L. v. R.E. Gas, Appeal of: Hugney, I.

J-A16018-16
2017 Pa. Super. 13
LUCINDA A. CARDINALE AND IOLA IN THE SUPERIOR COURT OF
HUGNEY, ON BEHALF OF THEMSELVES PENNSYLVANIA
AND ON BEHALF OF ALL THOSE
SIMILARLY SITUATED
v.
R.E. GAS DEVELOPMENT, LLC, AND REX
ENERGY CORPORATION
APPEAL OF: IOLA HUGNEY, ROBERT L.
HENRY AND ELAINE M. HENRY
No. 1186 WDA 2015
Appeal from the Order July 6, 2015
In the Court of Common Pleas of Clearfield County
Civil Division at No(s): 2011 -1791 -CD
MARY R. BILLOTTE, ON BEHALF OF IN THE SUPERIOR COURT OF
HERSELF AND ON BEHALF OF ALL THOSE PENNSYLVANIA
SIMILARLY SITUATED
v.
R.E. GAS DEVELOPMENT, LLC, AND REX
ENERGY CORPORATION
APPEAL OF: IOLA HUGNEY, ROBERT L.
HENRY AND ELAINE M. HENRY
No. 1187 WDA 2015
Appeal from the Order July 6, 2015
In the Court of Common Pleas of Clearfield County
Civil Division at No(s): 2012 -1099 -CD
BEFORE: SHOGAN, OLSON and STRASSBURGER,* JJ.
*Retired Senior Judge assigned to the Superior Court.
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OPINION BY OLSON, J.: FILED JANUARY 17, 2017
Appellants, Iola Hugney, Robert L. Henry, and Elaine M. Henry, appeal
from the orders entered on July 6, 2015, denying the Motions for Class
Certification that were filed on behalf of "Lucinda A. Cardinale and Iola
Hugney, on behalf of themselves and on behalf of all those similarly
situated," and "Mary R. Billotte, on behalf of herself and on behalf of all
those similarly situated." After careful consideration, we vacate and
remand.
On October 25, 2011, Lucinda A. Cardinale ( "Cardinale ") and Iola
Hugney ( "Hugney ") filed a class action complaint against R.E. Gas
Development, LLC ( "R.E. Gas ") and Rex Energy Corporation ( "Rex Energy ")
(hereinafter, collectively, "the Defendants "),1 on behalf of themselves and on
behalf of all those similarly situated. Cardinale and Hugney Complaint,
10/25/11, at 1 -17. The complaint was docketed at 2011 -1791 -CD and,
within their complaint, Cardinale and Hugney claimed that, in 2008, the
Defendants entered into Marcellus Shale oil and gas leases with a number of
individuals in Pennsylvania, including Cardinale and Hugney. Id. at
¶¶ 10 -11. According to the complaint:
1 Within the Cardinale and Hugney Complaint, Cardinale and Hugney averred
that R.E. Gas is a wholly -owned subsidiary of Rex Energy. Cardinale and
Hugney Complaint, 10/25/11, at ¶ 5.
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Rex Energy is an independent oil and gas company that
operates in the Appalachian Basin where it produced
approximately 2.8 Million Mcf of natural gas per day in
2008. . . Rex Energy used its wholly owned subsidiary[,]
.
R.E. Gas[,] to obtain oil and gas leases in Clearfield County
and elsewhere in Pennsylvania.
In 2008[,] R.E. Gas delivered ... to each plaintiff and each
class member the standard form Oil and Gas Lease and the
standard form memorandum of lease into which all of the
required information, such as the lessors' identities and
property identifications had been inserted. Each of the
standard form Oil and Gas Leases was identical or
substantially identical in all material respects except for
references to the identity of the lessor, the description of
the leased premises and the amount of the prepaid rental or
bonus that was to be paid. The amount of the prepaid
rental or bonus depended upon the number of acres that
were included in the standard form Oil and Gas Lease.
Id. at ¶ ¶7, 9, and 15.
Cardinale and Hugney claimed that they signed the Oil and Gas Lease,
an Addendum, an Order for Payment, and a Memorandum of Oil and Gas
Lease, and then delivered the executed documents either to R.E. Gas or to
R.E. Gas' agent and landman, Western Land Services, Inc. Id. at ¶¶ 12 -13,
16 and 18. R.E. Gas then "executed and accepted" the documents from
Cardinale on July 23, 2008 and from Hugney on August 6, 2008. Id. at
¶¶ 17 and 19. Cardinale and Hugney claimed:
Under the terms of [] Cardinale's Oil and Gas Lease, R.E.
Gas had to pay [] Cardinale $105,875.00 within [60]
banking days of its receipt of [] Cardinale's order for
payment and executed oil and gas lease, which occurred on
or shortly after July 23, 2008. R.E. Gas's obligation to pay
was subject only "to its inspection, approval of the surface,
geology and title" of the leased premises.
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Under the terms of [] Hugney's Oil and Gas Lease, R.E. Gas
had to pay [] Hugney $71,925.00 within [60] banking days
of its receipt of [] Hugney's order for payment and executed
oil and gas lease, which occurred on or shortly after August
6, 2008. R.E. Gas's obligation to pay was subject only "to
its inspection, approval of the surface, geology and title" of
the leased premises.
Id. at ¶¶ 25 -26 (paragraph numbering omitted).
According to the complaint, after the 60 -day time period expired, the
Defendants "den[ied] that any contract or lease interest exist[ed] between
[the Defendants and Cardinale, Hugney,] or those similarly situated to
[Cardinale and Hugney]" and the Defendants failed to pay the bonuses or
rents due to the landowners. Id. at ¶¶ 28 -29. Further, the Cardinale and
Hugney Complaint claimed that the Defendants denied the leases either
without having inspected the landowners' properties or without having
inspected the land within the requisite "60 banking days" after R.E. Gas
received the leases and orders for payment. Id. at ¶¶ 30 -33. Finally, the
complaint claimed that the Defendants "denied that any contract or lease
with class members existed not because of any purported right to inspect
and approve the surface, geology or title, but for other reasons, including
but not limited to [D]efendants' decision to reduce capital expenditures in
late 2008" due to the economic downturn. Id. at ¶ 43(e).
The Cardinale and Hugney Complaint contained three counts: breach
of contract against R.E. Gas; tortious interference with contract against Rex
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Energy; and civil conspiracy against both Defendants. Moreover, Cardinale
and Hugney sought to represent the following class in the lawsuit:
All persons who signed an oil and gas lease in 2008 with
R.E. Gas Development, LLC, related to property located in
Clearfield County, Pennsylvania, or elsewhere in
Pennsylvania for which Western Land Services, Inc., acted
as agent for or represented R.E. Gas Development, LLC, and
for which R.E. Gas Development, LLC, did not pay amounts
specified by the oil and gas leases or orders for payment,
including the applicable pre -paid rental or "bonus"
payments.
Id. at ¶ 41.
The following contractual documents were attached to the Cardinale
and Hugney Complaint: the Oil and Gas Lease, an Addendum, a
Memorandum of Oil and Gas Lease, and an Order for Payment. In relevant
part, the Oil and Gas Lease between Hugney and R.E. Gas reads as follows:2
OIL AND GAS LEASE
(PAID UP)
Project: Skywalker III
THIS AGREEMENT is made as of the 6t" day of AUGUST,
2008, by and between Iola Hugney as Lessor, and R.E.
. . .
Gas Development, LLC,...as Lessee.
2 The Oil and Gas Lease, Memorandum of Oil and Gas Lease, and Order for
Payment are standard forms. As the complaint correctly states, Cardinale's
documents are "identical or substantially identical in all material respects [to
Hugney's documents,] except for references to the identity of the lessor, the
description of the leased premises and the amount of the prepaid rental or
bonus that was to be paid." Cardinale and Hugney Complaint, 10/25/11, at
¶ 15. Therefore, we will only recite the relevant terms of Hugney's
documents. Moreover, we will not restate the terms of the Addendum, as
the Addendum is irrelevant to the current appeal.
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1. Lessor, for and in consideration of One Dollar ($1.00),
and other good and valuable consideration, the receipt of
which is hereby acknowledged, and the covenants and
agreements of the Lessee hereinafter contained, does
hereby grant, lease and let unto Lessee the land described
below, including all interests therein Lessor may acquire by
operation of law, reversion or otherwise, (herein called the
"Leasehold Estate "), exclusively, for the purposes of
exploring by geophysical and other methods, drilling,
operating for and producing oil and /or gas from any strata
and any depth together with all rights, privileges and
. . .
easements . useful or convenient in connection with the
. .
foregoing and in connection with treating, storing, caring
for, transporting and removing oil and /or gas produced from
the Leasehold Estate... .
2. It that this lease shall remain in force for a
is agreed
primary term of five (5) years from the date of this lease,
and as long thereafter as operations are conducted upon the
Leasehold Estate or on lands pooled or unitized therewith
with no cessation for more than 90 consecutive days... .
3. Within sixty (60) days from the date of execution of
this lease, Lessee agrees to pay to the Lessor the sum of
[$71,925.00] as full and complete bonus payment for this
lease for the entire primary term of this lease. This is a
paid -up lease and no delay rentals shall be due. The bonus
paid hereunder is consideration for this lease and shall not
be allocated as mere rental for a period.
4. Lessee covenants and agrees to pay the following
royalties: [stating the computation of royalties]... .
Iola Hugney
This instrument was prepared by Timothy J. Kotzman, agent
for R.E. Gas Development LLC. . .
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Oil and Gas Lease between Hugney and R.E. Gas, 8/6/08, at 1 -4.
The Memorandum of Oil and Gas Lease between Hugney and R.E. Gas
reads, in relevant part, as follows:
MEMORANDUM OF OIL AND GAS LEASE
Project: Skywalker III
THIS MEMORANDUM OF LEASE, dated this 6t" day of
August, 2008, by and between Iola Hugney hereinafter
. . .
called Lessor ... and R.E. Development LLC ...
hereinafter
referred to as "LESSEE "... .
WITNESSETH:
1. For and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration paid and to be paid
by Lessee to Lessor and in further consideration of the rents
reserved and the covenants and conditions more particularly
set forth in a certain lease between Lessor and Lessor dated
August 6, 2008, (hereinafter referred to as the "Lease ")
does hereby lease and let exclusively unto Lessee the
following described premises: [describing the leased
premises]... .
Containing a total of 28.77 acres, more or less, (hereinafter
referred to as the "Premises ") for the purpose of exploring
for ... , drilling, operating, producing and removing oil, and
gas and all the constituents thereof
2. TO HAVE AND TO HOLD the Premises for a Primary
Term of five (5) years from August 6, 2008 and for as
long thereafter as prescribed payments are made, or for as
long thereafter as operations are conducted on the Premises
in search of oil, gas or their constituents...
.
3. The rental, covenants, provisions and conditions of
the within Memorandum of Lease shall be the same as the
rental, covenants, provisions and conditions set forth in the
Lease to which rental, covenants, provisions and conditions
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referenced in hereby made and the same are hereby
incorporated by reference as though fully written herein.
5. This memorandum of Lease is executed in simplified
short form for the convenience of the parties and for the
purpose of recording the same, and this Memorandum of
Lease shall not have the effect of in any way modifying,
supplementing or abridging the Lease or any of its
provisions as the same or now or may hereafter be in force
and effect.
Iola Hugney
This instrument was prepared by Timothy J. Kotzman, agent
for R.E. Development LLC... .
Memorandum of Oil and Gas Lease between Hugney and R.E. Gas, 8/6/08,
at 1 -2.
The Order for Payment then declares:
ORDER FOR PAYMENT
Lessee shall, subject to its inspection, approval of the
surface, geology and title, make payment to Lessor as
indicated herein by check within 60 banking days of
Lessee's receipt of this Order For Payment and the executed
Oil and Gas Lease associated herewith. No default shall be
declared for failure to make payment until 20 days after
written notice from Lessor of intention to declare such
default... .
For collection, the original copy herein must be submitted
directly to Lessee at the address below along with an
executed original Oil and Gas Lease.
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PAYEE (Lessor): Iola Hugney
Address:
Phone:
The amount of: ($71,925.00) Dollars
This payment represents full consideration for a Five (5)
year paid-up Oil and Gas Lease dated August 6, 2008
covering the following described lands: [stating a
description of the land].
Issued on behalf of Lessee by:
Timothy J. Kotzman, Agent
R.E. Gas Development LLC
This Order for Payment expires one year from date of
issuance, unless paid sooner, terminated or replaced by
Lessee.
Order for Payment, 8/6/08, at 1.
As this Court previously explained:
[The Defendants] filed preliminary objections to the
complaint. Their objections span[ned 27] pages and
consist[ed] of [84] numbered paragraphs. After [Cardinale
and Hugney] filed their response to the objections, the trial
court entered the following order.
Now, this 9th day of May, 2012, following argument on
[the Defendants'] Preliminary Objections to Class Action
Complaint and receipt and review of the parties' briefs
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and applicable case law, it is the ORDER of this [c]ourt
as follows:
1. As to [the Defendants'] Demurrer to the Complaint in
its entirety this [c]ourt agrees that as a matter of law
[the Defendants] did not accept [the Cardinale and
Hugney Plaintiffs'3] offer[s] to enter into binding gas
leases.
2. As such, no contracts were formed between [the
Cardinale and Hugney Plaintiffs] and R.E. Gas.
3. Accordingly, it is the ORDER of this [c]ourt that [the
Defendants'] Demurrer be and is hereby GRANTED.
[Cardinale and Hugney's] Complaint is hereby
DISMISSED in its entirety, with prejudice; and
4. In support of its dismissal the [c]ourt hereby adopts
the legal reasoning and conclusions as set forth in
paragraphs 8 through [55] of [the Defendants']
Preliminary Objections to Class Action Complaint filed on
January 25, 2012.
Trial Court Order, 5/10/12[, at 1]. . . .
In paragraphs eight through [55] of their preliminary
objections, [the Defendants] presented the following
arguments in support of their request for a demurrer to
[Cardinale and Hugney's] complaint.
According to [the Defendants], the parties never entered
into a binding lease/contract. In support of this position,
[the Defendants] noted that, in addition to signing the "Oil
and Gas Leases," [the Cardinale and Hugney Plaintiffs
signed "Orders for Payment." [The Defendants] highlighted
the following language from the "Orders for Payment:"
3As a shorthand, we will refer to Cardinale, Hugney, and the proposed
members of the class Cardinale and Hugney wished to represent as "the
Cardinale and Hugney Plaintiffs."
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Lessee[, i.e., R.E. Gas,] shall, subject to its
iLidection, approval of the surface, geology and
title, make payment to Lessor[, i.e., the Cardinale and
Hugney Plaintiffs] as indicated herein by check within 60
days of Lessee's receipt of this Order For Payment and
the executed Oil and Gas Lease associated herewith.
[Order for Payment, 8/6/08, at 1 (emphasis added)]. [The
Defendants] also pointed out that the "Orders for Payment"
state, "This Order for Payment expires one year from date
of issuance, unless paid sooner, terminated or replaced by
Lessee." Id.
The thrust of [the Defendants'] argument was as follows:
. . . [the Cardinale and
R.E. Gas did not make offers to
Hugney Plaintiffs] to enter into contracts that include the
Bonus Payments because the Orders for Payment: (i)
gave R.E. Gas an unlimited right to terminate the Orders
of Payment and, therefore, decide later the nature and
extent of its performance, and (ii) required a further
manifestation of assent by R.E. Gas.
As a result, the provision of the Proposed Leases and the
Orders for Payment was merely an invitation to bargain
on the part of R.E. Gas. Then [the Cardinale and
Hugney Plaintiffs], by signing and returning the
Proposed Leases and Orders for Payment, made offers
to R.E. Gas to enter into the Proposed Leases and
Orders for Payment under the terms and conditions
contained in those documents.
However, R.E. Gas explicitly rejected [the Cardinale and
Hugney Plaintiffs'] offers in Rejection Letters.
As a result, because R.E. Gas rejected [the Cardinale
and Hugney Plaintiffs'] offers, no contracts that include
Bonus Payments were ever formed. Therefore, the
[c]ourt should dismiss Count I of the Complaint as
. . .
legally insufficient.
[The Defendants' Preliminary Objections, 1/24/12,]
VI] 48-51 (citations omitted). In paragraphs [52] through
[55] of their preliminary objections, [the Defendants]
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argued that, because no contracts were ever formed by [the
Cardinale and Hugney Plaintiffs] and R.E. Gas, counts two
and three of the complaint also are legally insufficient and
should be dismissed.
Cardinale v. R.E. Gas Dey., LLC, 74 A.3d 136, 138 -139 (Pa. Super. 2013).
As noted, on May 10, 2012, the trial court sustained the Defendants'
preliminary objections and dismissed the Cardinale and Hugney Complaint.
Cardinale and Hugney filed a timely notice of appeal and this Court vacated
the trial court's order in a published opinion. Within this Court's opinion, we
held that the trial court erred when it concluded that "the parties never
entered into contracts /leases." Id. at 140.
At the outset, the Cardinale Court held that the following clause in
the Oil and Gas Lease "places an unconditional duty upon R.E. Gas to pay
[Hugney] the bonus payment:"
3. Within sixty (60) days from the date of execution of this
lease, Lessee agrees to pay to the Lessor the sum of
[$71,925.00] as full and complete bonus payment for this
lease for the entire primary term of this lease. This is a
paid -up lease and no delay rentals shall be due. The bonus
paid hereunder is consideration for this lease and shall not
be allocated as mere rental for a period.
Oil and Gas Lease between Hugney and R.E. Gas, 8/6/08, at 1 -4; see also
Cardinale, 74 A.3d at 140.4
4 Within the Cardinale opinion, this Court directly quoted excerpts from
Lucinda Cardinale's contracts and documents. However, we noted:
[t]he Hugney/R.E. Gas documents are identical to the
Cardinale/R.E. Gas documents with respect to the questions
that this Court must address to dispose of on this appeal.
(Footnote Continued Next Page)
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The Cardinale Court then held: "the language utilized in the lease
agreement documents strongly indicates that the parties manifested an
intent to be bound by the terms of the documents[;] that the terms of the
documents were sufficiently definite[, and,] that consideration existed."
Cardinale, 74 A.3d at 141. Further, we held that "[n]o language contained
in the 'Order for Payment' alter[ed] [our] conclusion" that a valid contract
between Hugney and R.E. Gas existed. Id. First, we cited to the following
language in the Order for Payment:
Lessee[, i.e., R.E. Gas,] shall, subject to its inspection,
approval of the surface, geology and title, make payment to
Lessor[, i.e. Hugney,] as indicated herein by check within
60 banking days of Lessee's receipt of this Order For
Payment and the executed Oil and Gas Lease associated
herewith.
Hugney's Order for Payment, 8/6/08, at 1; see also Cardinale, 74 A.3d at
141.
(Footnote Continued)
Thus, our analysis of, and holding upon, the Cardinale/R.E.
Gas documents applies with equal force to the Hugney /R.E.
Gas documents.
Cardinale, 74 A.3d at 140 n.1.
In the case at bar, we have quoted the relevant portions of Hugney's
documents with R.E. Gas. Further, "[t]he Hugney/R.E. Gas documents are
identical to the Cardinale/R.E. Gas documents with respect to the questions
that this Court must address to dispose of on this appeal." See id. As such,
when quoting and analyzing this Court's prior opinion in Cardinale, we will
utilize the language contained in Hugney's documents as opposed to the
language contained in Cardinale's documents.
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On appeal in Cardinale, the Defendants claimed that the above
language "created a condition precedent to the formation of an agreement."
Cardinale, 74 A.3d at 141. We disagreed with the Defendants and held:
The conditional language in the "Order for Payment" does
not directly relate to the existence of an agreement
between R.E. Gas and [Hugney]. Rather, the language
deals with R.E. Gas's duty of performance. R.E. Gas is
required to perform by paying [Hugney] as indicated in the
"Order for Payment," subject to the conditions stated
therein. Consequently, this provision in the "Order for
Payment" does not render the parties' lease agreements
invalid.
Id. at 141 -142.
Next, the Cardinale Court interpreted the language in the Order for
Payment, which declared: "This Order for Payment expires one year from
date of issuance, unless paid sooner, terminated or replaced by Lessee."
Hugney's Order for Payment, 8/6/08, at 1; see also Cardinale, 74 A.3d at
142. On appeal, the Defendants argued that this language gave R.E. Gas
"the discretion to terminate the leases at will." Cardinale, 74 A.3d at 142.
We held that the Defendants were incorrect:
This statement, at best, allows R.E. Gas to terminate the
"Order for Payment." This statement does not allow R.E.
Gas to terminate the parties' lease agreement or even R.E.
Gas's duty to perform under the lease agreement.
Moreover, there is nothing of record that suggests that R.E.
Gas sought to terminate the "Order for Payment."
Id.
On June 19, 2013, we vacated the trial court's order and remanded
the case for further proceedings.
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While the Cardinale and Hugney appeal was pending before this Court,
a substantially similar class action complaint was filed in the trial court, at
docket number 2012 -1099 -CD, by "Mary R. Billotte, on behalf of herself and
on behalf of all those similarly situated." Billotte Complaint, 7/18/12, at
1 -16 and Attachments. The Billotte Complaint is, in all relevant respects,
identical to the Cardinale and Hugney Complaint and the documents
attached to the Billotte Complaint are "identical or substantially identical in
all material respects [to Cardinale and Hugney's documents,] except for
references to the identity of the lessor, the description of the leased
premises and the amount of the prepaid rental or bonus that was to be
paid." See Cardinale and Hugney Complaint, 10/25/11, at ¶ 15; see also
Billotte Complaint, 7/18/12, at 1 -16 and Attachments. Further, as was true
with Cardinale and Hugney, Billotte sought to represent the following class:
All persons who signed an oil and gas lease in 2008 with
R.E. Gas Development, LLC, related to property located in
Clearfield County, Pennsylvania, or elsewhere in
Pennsylvania for which Western Land Services, Inc., acted
as agent for or represented R.E. Gas Development, LLC, and
for which R.E. Gas Development, LLC, did not pay amounts
specified by the oil and gas leases or orders for payment,
including the applicable pre -paid rental or "bonus"
payments.
Billotte Complaint, 7/18/12, at ¶ 35.
On October 1, 2014, the trial court entered an order declaring that the
Billotte Case and the Cardinale and Hugney Case were "consolidated for all
purposes." Trial Court Order, 10/1/14, at 1.
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On February 5, 2015, counsel for Appellants filed a "Motion to
Substitute Class Representatives" at both docket numbers. The motion
sought to "substitute class members Robert L. Henry and Elaine M. Henry
[(hereinafter, collectively "the Henrys ")] as representative plaintiffs in place
of Lucinda Cardinale." Appellants' Motion to Substitute, 2/5/15, at 1.
Further, within the motion, Appellants averred that the Henrys are class
members and that Appellants sought to substitute the Henrys for Lucinda
Cardinale because "Ms. Cardinale entered into a plea agreement on January
22, 2015, in a criminal matter." Id. at 2. Appellants further averred that
Mary R. Billotte passed away on January 24, 2015 and that "counsel will
consult with Ms. Billotte's personal representative about a substitution under
Pa.R.Civ.P. 2351 et seq. after the personal representative is appointed." Id.
at 2 n.1. The trial court, however, never ruled on Appellants' "Motion to
Substitute Class Representatives" and Ms. Cardinale and Ms. Billotte remain
as designated plaintiffs in the cases.
On March 6, 2015, Appellants filed a Motion for Class Certification at
both docket numbers.5 Within the motion, Appellants sought certification for
the following class:
All persons who signed an oil and gas lease in 2008 with
R.E. Gas Development, LLC, related to property located in
Clearfield County, Pennsylvania, or elsewhere in
5 For purposes of brevity, we will refer to the two identical motions as a
singular "motion."
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Pennsylvania (other than persons who signed a top lease)
for which Western Land Services, Inc., acted as agent for or
represented R.E. Gas Development, LLC, and for which R.E.
Gas Development, LLC, did not pay amounts specified by
the oil and gas leases or orders for payment, including the
applicable pre -paid rental or "bonus" payments.
Appellants' Motion for Class Certification, 3/6/15, at 1 -2.
Appellants claimed that all requirements for class certification were
present because: 1) "there are 112 leases in dispute, affecting
approximately 148 different individual landowners" (therefore, "the class is
so numerous that joinder of all members is impracticable "); 2) R.E. Gas used
standard form leases and other documents for all members of the class, the
terms of the documents are materially identical, and the breach in every
case was essentially identical (therefore, "there are questions of law or fact
common to the class "); 3) the representative plaintiffs' claims are typical of
the claims of the class; 4) the representative plaintiffs "will fairly and
adequately assert and protect the interests of the class;" and, 5) "this class
action provides a fair and efficient method for adjudicating the controversy."
Appellants' Motion for Class Certification, 3/6/15, at 1 -34.
The Defendants filed a response in opposition to the motion for class
certification and argued that the trial court should deny Appellants' motion
because individual questions of fact and law predominate across the
proposed class and because the claims of the representative parties are not
typical of the claims of the class. See The Defendants' Response, 4/20/15,
at 1 -54. With respect to the Defendants' claim that individual questions of
law and fact predominated across the proposed class, the Defendants first
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argued that, under the lease documents, "R.E. Gas had the right to condition
its payment of prepaid rent on [R.E. Gas'] inspection under the lease and
approval of the surface, geology and title to a parcel." Id. at 17 (internal
emphasis omitted); see also Cardinale and Hugney Complaint, 10/25/11, at
¶ 51 (averring: "[R.E. Gas'] obligations under the Oil and Gas Leases were
unconditional except that R.E. Gas had the right to condition its payment of
prepaid rent on [R.E. Gas'] inspection under the lease and approval of the
surface, geology and title to a parcel. [R.E. Gas], however, did not invoke or
rely upon any such rights "). Therefore, the Defendants claimed, "[i]n order
to determine whether the conditions precedent were satisfied [for R.E. Gas
to pay the landowners the bonuses,] each proposed lease, as well as the
conditions and circumstances surrounding it, must be individually analyzed
to determine whether R.E. Gas approved the surface, geology, and title of
each proposed lease and, therefore, whether each putative class member is
entitled to the bonus payment." The Defendants' Response, 4/20/15, at 18
(some internal capitalization omitted).
Second, the Defendants claimed, "the evidence in this case
demonstrates that R.E. Gas reviewed each proposed lease individually to
decide whether to approve the surface, geology, and title and, therefore,
establishes that individual questions predominate." Id. (some internal
capitalization omitted). With respect to this claim, the Defendants cited to
record exhibits, which declared that some leases were rejected because R.E.
Gas did not approve an individual's purported title to the oil and gas
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interests, some leases were rejected because R.E. Gas did not approve the
geology of the land, and some leases were rejected because R.E. Gas did not
approve the surface of the property. Id. at 19 -26.
Further, the Defendants claimed that any argument that they "waived"
or were estopped from relying upon the conditions precedent contained in
the lease documents supported denying class certification, as waiver and
estoppel inquiries are individual and fact -intensive. Id. at 29 -30.
Finally, the Defendants claimed that the representative plaintiffs'
claims were not typical of the putative class members. As the Defendants
argued, "R.E. Gas rejected the proposed leases of [representative plaintiffs]
Lucinda Cardinale and Iola Hugney because they both had significant title
issues associated with their proposed leases." Id. at 37 n.24.
On June 19, 2015, the trial court held a hearing on Appellants' motion
for class certification. During the hearing, the parties introduced, and the
trial court accepted, certain documentary evidence and the parties then
orally argued their respective positions. See N.T. Hearing, 6/19/15, at 10-
11. As is relevant to the current appeal, during the hearing, Appellants
introduced evidence demonstrating that the proposed class consisted of 112
leases. The evidence further demonstrated that, when calculated in calendar
days from the date the leases were signed until the date R.E. Gas
purportedly "rejected" the leases: R.E. Gas rejected 109 of the 112 leases
(or, 97.3% of the leases) in an untimely manner; R.E. Gas rejected one of
the 112 leases in a timely manner, and there was no record evidence to
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demonstrate when R.E. Gas rejected two of the 112 leases. See Plaintiffs'
Exhibit 8, 6/19/15, at "Exhibit 67, Exhibit A." Moreover, when calculated in
"banking days" from the date the leases were signed until the date R.E. Gas
purportedly "rejected" the leases: R.E. Gas rejected 97 of the 112 leases
(or, 86.6% of the leases) in an untimely manner; R.E. Gas rejected 13 of
the 112 leases in a timely manner, and there was no record evidence to
demonstrate when R.E. Gas rejected two of the 112 leases. Id.
On July 8, 2015, the trial court entered an order denying Appellants'
motion for class certification. Trial Court Order, 7/8/15, at 1. Within the
trial court's accompanying opinion, the trial court analyzed the case only
insofar as was necessary to support its conclusion that, with respect to the
breach of contract claim, Appellants failed to establish that "common
questions of law or fact predominate over any question affecting only
individual members." See Trial Court Opinion, 7/8/15, at 1 -8; see also
Pa.R.C.P. 1702(5) and Pa.R.C.P. 1708(a)(1); but see Pa.R.C.P. 1710 ("Mn
certifying, refusing to certify or revoking a certification of a class action, the
court shall set forth in an opinion accompanying the order the
reasons for its decision on the matters specified in Rules 1702, 1708
and 1709, including findings of fact, conclusions of law and
appropriate discussion ") (emphasis added). The trial court reasoned that
individual questions of law and fact predominated in the breach of contract
claim because:
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To fully resolve the case, the finder of fact would have to
analyze each individual property and the circumstances
surrounding the Defendants' refusal to pay the bonus to
determine if the Defendants breached each contract, or if
the Defendants simply did not approve of the surface, title,
or geology of each parcel of land according to the Order for
Payment. A separate factual determination would have to
be made for each lease which necessarily means that
individual factual questions predominate. In this manner,
proof as to one claimant would not necessarily be proof as
to any other claimant, much less proof as to all other
claimants. Therefore, the case is not proper for class
certification... .
Trial Court Opinion, 7/8/15, at 8 (internal emphasis omitted).
Appellants6 filed a timely notice of appeal at both docket numbers.
See Kern v. Lehigh Valley Hosp., Inc., 108 A.3d 1281, 1283 n.2 (Pa.
6 Appellants at both docket numbers include Robert L. Henry and Elaine M.
Henry, who are two nonnamed members of the class described in the
complaints. Nevertheless, as the Pennsylvania Supreme Court has held,
nonnamed class members are parties to the action upon the filing of the
class action complaint. According to the Supreme Court:
When an action is instituted by a named individual on behalf
of himself and a class, the members of the class are more
properly characterized as parties to the action. A
subsequent order of a trial court allowing an action to
proceed as a class action is not a joinder of the parties not
yet in the action. The class is in the action until properly
excluded.
Bell v. Beneficial Consumer Discount Co., 348 A.2d 734, 736 (Pa.
1975); see also Alessandro v. State Farm Mut. Auto. Ins. Co., 409 A.2d
347, 350 n.9 (Pa. 1979) ( "[u]nlike a case where parties are joined, all
members of a class action are 'parties pi.ntif' upon the filing of the
-
-dant successfullyy mo,,,es for decertification, the
complaint. When the cdefendant
decertified parties are 'put out of court' as to the class :action "); Prince
George Ctr., Inc. v. U.S. Gypsum Co., 704 A.2d 141, 145 (Pa. Super.
1997) ("Mn Pennsylvania all class members are plaintiffs in the action upon
(Footnote Continued Next Page)
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Super. 2015) ( "an order refusing to certify a class is an appealable collateral
order "); see also Pa.R.A.P. 313; see also McGrogan v. First
Commonwealth Bank, 74 A.3d 1063, 1076 and 1079 (Pa. Super. 2013)
( "an order denying class certification is usually appealable under the
collateral order doctrine because . . the order is separable from and
collateral to the cause of action for liability, as the class certification issue is
not concerned with the underlying merits of the action. . . . [Further, the
(Footnote Continued)
the filing of the complaint "); but see Devlin v. Scardelletti, 536 U.S. 1, 16
(2005) (Scalia, J., dissenting) ( "[n]ot even petitioner is willing to
. . .
advance the novel and surely erroneous argument that a nonnamed class
member is a party to the class- action litigation before the class is certified ")
(emphasis omitted); Smith v. Bayer Corp., 564 U.S. 299, 313 (2011)
( "[i]n general, a 'party' to litigation is one by or against whom a lawsuit is
brought, or one who becomes a party by intervention, substitution, or
third -party practice. And [the United States Supreme Court has] further
held that an unnamed member of a certified class may be considered a
'party' for the particular purpose of appealing an adverse judgment. But as
the dissent in Devlin noted, no one in that case was willing to advance the
novel and surely erroneous argument that a nonnamed class member is a
party to the class- action litigation before the class is certified. Still less does
that argument make sense once certification is denied ") (internal citations,
corrections, and emphasis omitted) (some internal quotations omitted).
The Pennsylvania Supreme Court precedent, which defines nonnamed "class
members" as "parties" to a class action even prior to class certification,
binds us and, since the Defendants do not contest the Henrys' standing to
appeal the orders denying class certification, we conclude that both appeals
are properly before this Court. See Pa.R.A.P. 501 ( "any party who is
aggrieved by an appealable order .may appeal therefrom "); In re
. .
Nomination Petition of de Young, 903 A.2d 1164, 1168 (Pa. 2006) ( "[the
Pennsylvania Supreme Court] has consistently held that a court is prohibited
from raising the issue of standing sua sponte ").
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order usually] involves a right too important to be denied review [and]
presents a question that, if review is postponed until final judgment in the
case, the claim will be irreparably lost ") (internal quotations, citations, and
corrections omitted). Appellants now raise the following claims to this
Court:7
[1.] Can individual questions predominate over common
questions for class certification purposes where, for the vast
majority of class members, [the Defendants] did not timely
invoke any right to cancel the oil and gas lease based on
defects in surface, geology or title of the land, thereby
making [the Defendants'] obligation to pay absolute and
any evidence of defects inadmissible?
[2.] Do common questions predominate over individual
questions where [the Defendants] presented evidence from
which a jury could conclude that [the Defendants] rejected
leases not on the basis of any contractual right but because
[the Defendants] decided to change their business strategy
and cut their leasing budget?
[3.] Did this Court's earlier decision in Cardinale v. R.E.
Gas Development, LLC, 74 A.3d 136 (Pa. Super. 2013),
that the parties' oil and gas leases manifested an intention
to form contracts and that the "subject to" language in the
Order for Payment was not a condition to contract formation
preclude the trial court from holding that the "subject to"
language was a condition to contract formation?
[4.] Did [the Defendants] "thoroughly rebut" Appellants'
prima facie case for class certification where (a) [the
Defendants] did not invoke any contractual right to cancel
the oil and gas leases within the time permitted in the lease
documents and (b) [the Defendants] could identify no
7 For ease of discussion, we have renumbered Appellants' claims on appeal.
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defect in surface, geology or title in rejecting the vast
majority of the leases?
[5.] Where no individual questions existed for 89 of the 112
leases because [the Defendants] could identify no defect in
surface, geology or title in rejecting those leases and all
other class certification standards were satisfied, should the
trial court have certified a class at least as to the lessors of
those 89 leases?
Appellants' Brief at 4.
We have stated:
The lower court's determination regarding class certification
is a mixed finding of law and fact entitled to appropriate
deference upon appeal. . Trial courts are vested with
. .
broad discretion in determining definition of the class as
based on commonality of the issues and the propriety of
maintaining the action on behalf of the class. Accordingly,
the lower court's order granting or denying class
certification will not be disturbed on appeal unless the court
neglected to consider the requirements of the rules or
abused its discretion in applying them.
Nye v. Erie Ins. Exch., 503 A.2d 954, 956 (Pa. Super. 1986) (internal
quotations and citations omitted). "An abuse of discretion may not be found
merely because an appellate court might have reached a different
conclusion." Ball v. Bayard Pump & Tank Co., 67 A.3d 759, 767 (Pa.
2013) (internal quotations and citations omitted). Instead, "[a]n abuse of
discretion occurs only where the trial court has reached a conclusion that
overrides or misapplies the law, or when the judgment exercised is
manifestly unreasonable, or is the result of partiality, prejudice, bias or ill -
will." Id.
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First, Appellants claim that the trial court erred in denying their Motion
for Class Certification. According to Appellants, the trial court erred when it
concluded that class certification was inappropriate because common
questions of law or fact did not predominate over individual questions. As
Appellants argue, their class action revolves around the claim that the
Defendants "did not timely invoke" their right to cancel the standard -form oil
and gas leases. As such, Appellants claim, the Defendants' contractual
obligation to pay the stated bonuses in the leases became "absolute" at the
conclusion of the relevant time period and, thus, common questions of law
and fact predominate in this class. We agree and thus vacate the trial
court's order.
The Pennsylvania Supreme Court has explained:
For the trial court, the question of whether a class should be
certified entails a preliminary inquiry into the allegations of
the putative class and its representative, whose purpose is
to establish the identities of the parties to the class action.
Pa.R.C.P. 1707 cmt. (certification process "is designed to
decide who shall be the parties to the action and nothing
more "). As a practical matter, the trial court will decide
whether certification is proper based on the parties'
allegations in the complaint and answer, on depositions or
admissions supporting these allegations, and any testimony
offered at the class certification hearing. The court may
review the substantive elements of the case only to envision
the form that a trial on those issues would take.... Debbs
v. Chrysler Corp., 810 A.2d 137, 154 (Pa. Super. 2002)
(perceived adequacy of underlying merits of a claim should
not factor into certification decision). Any consideration of
merits issues at the class certification stage pertains only to
that stage; the ultimate factfinder, whether judge or jury,
must still reach its own determination on these issues at the
liability stage. Even if the class is certified, before a
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decision on the merits, the certification order may be
revoked, altered or amended by the court on its own motion
or on the motion of any party.
Pursuant to Pennsylvania's civil procedure rules, the trial
court may allow a representative to sue on behalf of a class
if, the class is numerous ("numerosity"); there are
questions of law or fact common to the class
("commonality"); the claims of the representative are
typical of the class ("typicality"); the representative will
fairly and adequately protect the interests of the class
("adequate representation"); and a class action is a fair and
efficient method for adjudicating the parties' controversy,
under criteria set forth in Rule 1708. Pa.R.C.P. 1702.
Among the Rule 1708 criteria for determining whether the
class action is a fair and efficient method of adjudication is
"whether [the] common questions of law or fact
predominate over any question affecting only individual
members" ("predominance"). Pa.R.C.P. 1708(a)(1) (also
listing six factors in addition to predominance). The class "is
in the action until properly excluded" by, e.g., an order of
court refusing certification or an order de-certifying the
class. Pa.R.C.P. 1701(a) & cmt.; B3II, 348 A.2d at 736
(same).
During certification proceedings, the proponent of the class
bears the burden to establish that the Rule 1702
prerequisites were met. The burden is not heavy at the
preliminary stage of the case. Indeed, evidence supporting
a prima facie case will suffice unless the class opponent
comes forward with contrary evidence; if there is an actual
conflict on an essential fact, the proponent bears the risk of
non-persuasion. It is essential that the proponent of the
class establish requisite underlying facts sufficient to
persuade the court that the Rule 1702 prerequisites were
met.
Samuel-Bassett v. Kia Motors Am., Inc., 34 A.3d 1, 16 (Pa. 2011) (some
internal citations and quotations omitted).
In this case, the trial court concluded that class certification was
inappropriate solely because common questions of law or fact did not
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predominate over individual questions with respect to the breach of contract
claim. As the Supreme Court of Pennsylvania did in Samuel-Bassett, we
will "address [the] commonality and predominance" requirements together.
Samuel-Bassett, 34 A.3d at 22; see also Pa.R.C.P. 1702(2)
(commonality); Pa.R.C.P. 1708(a)(1) (predominance). According to the
Samuel-Bassett Court:
To establish the commonality requirement, [the class
proponent] had to identify common questions of law and
fact - a common source of liability. Simply contending that
all putative members of a class have a complaint is not
sufficient if the complaints are disparate personal
allegations arising from different circumstances and
requiring different evidence, i.e., one requiring less, the
other requiring more, the one not indicative of the merits,
the other appearing to approach the merits of individual
cases. Commonality may not be established if various
intervening and possibly superseding causes of damage
exist. The critical inquiry for the certifying court is whether
the material facts and issues of law are substantially the
same for all class members. The court should be able to
envision that the common issues could be tried such that
proof as to one claimant would be proof as to all members
of the class.
[The class proponent is] not required to prove that the
claims of all class members [are] identical; the existence of
distinguishing individual facts is not "fatal" to certification.
The common questions of fact and law merely must
predominate over individual questions. Pa.R.C.P.
1708(a)(1). The standard for showing predominance is
more demanding than that for showing commonality, but is
not so strict as to vitiate Pennsylvania's policy favoring
certification of class actions.
The predominance inquiry tests whether proposed classes
are sufficiently cohesive to warrant adjudication by
representation. Thus, a class consisting of members for
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whom most essential elements of its cause or causes of
action may be proven through simultaneous class -wide
evidence is better suited for class treatment than one
consisting of individuals for whom resolution of such
elements does not advance the interests of the entire class.
See [Liss & Marion, P.C. v. Recordex Acquisition Corp.,
983 A.2d 652, 666 (Pa. 2009)] ( "[c]lass members may
assert a single common complaint even if they have not all
suffered actual injury; demonstrating that all class members
are subject to the same harm will suffice "); Delaware
County v. Mellon Fin. Corp., 914 A.2d 469, 475 (Pa.
Cmwlth. 2007) (existence of separate questions "essential"
to individual claims does not foreclose class certification);
Cook v. Highland Water & Sewer Auth., 530 A.2d 499,
505 (Pa. Cmwlth. 1987) ( "[w]here a common source of
liability can be clearly identified, varying amounts of
damage among the plaintiffs will not preclude class
certification. However, where there exist various
intervening and possibly superseding causes of the damage,
liability cannot be determined on a class -wide basis. ").
Sar.;ul- Bassett, 34 A.3d at 22 -23 (some internal quotations, citations,
corrections, and internal parentheticals omitted) (emphasis in original).
According to the trial court, "[t]o fully resolve the case, the finder of
fact would have to analyze each individual property and the circumstances
surrounding the Defendants' refusal to pay the bonus to determine if the
Defendants breached each contract, or if the Defendants simply did not
approve of the surface, title, or geology of each parcel of land according to
the Order for Payment." Trial Court Opinion, 7/8/15, at 8. Respectfully, we
conclude that the trial court's holding and reasoning are in error.
We have jurisdiction over this appeal by way of the collateral order
doctrine. As such, this Court may not consider the merits of the claims or
interpret the relevant contractual language contained in the documents.
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See Jacksonian v. Temple Univ. Health Sys. Found., 862 A.2d 1275,
1279 (Pa. Super. 2004) ("for a claim arising from a non-final order to be
separable and collateral, the nature of the issue reviewed must be such that
it can be addressed without the need to analyze the central issue of the
case. An order is not separable if the matter being reviewed has the
potential to resolve an issue in the case") (internal quotations and citations
omitted). Nevertheless, we note that, during the class certification hearing,
Appellants presented evidence which, they claim, show that: every member
of the class entered into a standard-form oil and gas lease with R.E. Gas (or
R.E. Gas' alleged agent and landman, Western Land Services, Inc.); under
the terms of each lease, R.E. Gas was obligated to pay each member of the
class a stated "bonus" following the expiration of a certain time period
(usually 60 days) from the "execution of" the lease; under the terms of the
lease and the Order for Payment, during the (normally) 60-day time period,
R.E. Gas had a right to reject the lease based upon a good-faith
determination that the title was uncertain or that the surface or geology was
inappropriate; in all but three cases, R.E. Gas failed to reject the lease within
the contractual time-frame; and, R.E. Gas' decision to reject each lease was
based upon the Defendants' determination that they needed to cut costs,
rather than upon a good faith determination that title, surface, or geology
was inappropriate.
The Defendants contest a number of Appellants' arguments. However,
the Defendants' arguments do not change the fact that Appellants' primary
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class action claim for breach of contract revolves around the claim that R.E.
Gas failed to pay the class members the stated "bonus" within the
specified time period and failed to reject the parties' agreements
within the allowable deadline. Under Appellants' interpretation of the
lease documents, it matters not whether the Defendants' eventually- stated
reason for "rejecting" the lease was based upon title, surface, or geology,
when the rejection was untimely. This is because, Appellants claim, under
the plain terms of the contractual documents, R.E. Gas' obligation to pay the
"bonus" became absolute upon the expiration of the contractually- stated
time period. Further, during the class certification hearing, Appellants
presented evidence tending to show that R.E. Gas rejected 97% of the
entire, 112 - lease- proposed -class in an untimely manner. As such, under
Appellants' theory of the case, for the vast majority of the proposed class,
the fact -finder will not have to consider whether the title, surface, or geology
was inappropriate for R.E. Gas, as R.E. Gas' duty to pay the bonus became
"absolute" upon the expiration of the stated time -period.
Again, this Court may not consider the merits of Appellants' claims.
However, we note that the fundamental questions in this case are common
to all class members, including: whether a contract was formed between
R.E. Gas and the class members; at what point was the contract between
R.E. Gas and the class members "executed;" under the contractual
documents, when did the time begin to run regarding R.E. Gas' obligation to
pay the "bonus" to each class member; was R.E. Gas' obligation to pay the
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bonus to each class member contingent upon its approval of title, surface,
and geology; did R.E. Gas' obligation to pay the bonus to each class member
become absolute at the expiration of the stated time, notwithstanding R.E.
Gas' failure to inspect the title and property; and, whether the time for
paying the stated bonus to each class member is to be calculated in
"calendar days" or "banking days." As Chief Judge Joy Flowers Conti noted
in a closely analogous case:
Resolution of the foregoing questions will depend on an
interpretation of certain key provisions in the form
documents that are materially uniform and applicable to all
transactions. The court will have to determine, in the first
instance, whether the contractual provisions at issue are
ambiguous in their meaning and, if so, what the legal
consequences are. . . [T]he determination of whether
.
contractual language is ambiguous is a question of law for
the court. If the agreements are found to be unambiguous,
the court can declare their meaning as a matter of law.
Moreover, if the court adopts plaintiffs' proposed
construction of the agreement, plaintiffs will be able to
establish liability on a classwide basis by virtue of
nonpayment alone. Thus, plaintiffs' breach of contract
theory can potentially be resolved by reference to, and
interpretation of, common form documents. At the very
least, common, classwide issues are present, the resolution
of which will drive this litigation forward, toward either
judgment or a possible settlement.
Walney v. SWEPI LP, 2015 WL 5333541, at *13 (W.D. Pa. 2015) (internal
citations omitted).
Since the trial court's sole stated reason for denying class certification
is erroneous, we conclude that the trial court abused its discretion in denying
Appellants' Motion for Class Certification. We thus vacate the trial court's
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order and remand so that the trial court may utilize its discretion and
determine whether class certification is proper in this case, including
whether the class definition is overly broad insofar as it may include
individuals whose leases or orders for payment were rejected in a timely
fashion.8
Orders vacated. Cases remanded. Jurisdiction relinquished.
Judgment Entered.
J:seph Seletyn,
D.
Prothonotary
Date: 1/17/2017
8
We have determined that the trial court erred in denying Appellants'
motion for class certification and have vacated the trial court's order.
Therefore, we will not review the remainder of Appellants' claims on appeal.
To the extent Appellants claim that this Court should order that "all
requirements for class certification are satisfied," we refuse Appellants'
request, as the trial court failed to make the necessary "findings of fact,
conclusions of law, and appropriate discussion" that are required under Rule
1710. See Pa.R.C.P. 1710 ("Mn certifying, refusing to certify or revoking a
certification of a class action, the court shall set forth in an opinion
accompanying the order the reasons for its decision on the matters specified
in Rules 1702, 1708 and 1709, including findings of fact, conclusions of law
and appropriate discussion "). Therefore, this Court is not in a position to
hold that class certification is or is not proper in this case.
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