Lenau, N. v. Co-Exprise, Inc.

J-A04026-14
2014 Pa. Super. 207
NANCY M. LENAU AND DANIEL T. LENAU IN THE SUPERIOR COURT OF
AND KATHLEEN TRIESCHOCK ON PENNSYLVANIA
BEHALF OF THEMSELVES AND OTHERS
SIMILARLY SITUATED
Appellants
v.
CO-EXPRISE, INC.
Appellee No. 780 WDA 2013
Appeal from the Order of May 1, 2013
In the Court of Common Pleas of Allegheny County
Civil Division at No.: GD 12-022218
BEFORE: BOWES, J., WECHT, J., and STABILE, J.
OPINION BY WECHT, J.: FILED SEPTEMBER 23, 2014
In this case involving subsurface mineral rights, Nancy M. Lenau,
from the May 1, 2013 order that sustained the preliminary objections of Co-
-
the reasons that follow, we affirm.
The trial court summarized the factual history of this case as follows:
This litigation arises out of the conduct of [Co-eXprise], which,
acting as an intermediary, encouraged property owners in
Beaver County, Pennsylvania to pool their interests by joining
[Co-
the CX MarketPlace by signing a form agreement prepared by
[Co-
Agreement authorized Co-eXprise to competitively bid mineral
rights on behalf of the aggregated group of property owners for
J-A04026-14
the purpose of obtaining the most favorable lease terms for each
individual CX MarketPlace member.
Property owners who entered into [Co-
Agreement were organized into groups with each group
comprised of landowners within a defined geographical area.
[Co-eXprise] then sought bids from energy companies on behalf
of each group of landowners, who as a group could command
superior bargaining power and obtain more favorable terms in
leases of their subsurface mineral rights, thereby maximizing
d royalty payments.[1] Under
the terms of the MarketPlace Agreement, once Co-eXprise
obtained a bid from an energy company which contained lease
terms that met or exceeded a predetermined threshold amount
for bonus and royalty payments (outlined at [Section] 2(f) of the
MarketPlace Agreement, [see Complaint, 11/21/12, Exhibit D, at
1]), each property owner in the group was obligated to execute
a mineral lease with that energy company, which lease would
reflect the terms the energy company proposed during the
bidding process.
[Co-eXprise] initially promoted the MarketPlace program through
mass[]advertising and by conducting meetings with groups of
property owners during which Co-eXprise representatives
solicited participation in the CX MarketPlace by assuring
landowners that MarketPlace participants would obtain the best
available bonus and royalty payments through the competitive
bidding process. Promotional materials were prepared by [Co-
eXprise] and provided to prospective MarketPlace members via
____________________________________________
1
The trial court explained such agreements as follows:
[I]n an effort to reap the gas located underground throughout
Western Pennsylvania, a representative of an energy company
mineral rights for a term of several years. In consideration for
this mineral lease, the energy company offers an up-front bonus
payment, usually based on the acreage of the leasehold, and
ongoing royalty payments, which are generally calculated as a
percentage of the market value of the extracted gas.
Trial Court Opinion, 4/10/2013, at 1.
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regular mail, the Internet, and by hand during promotional
meetings. [See id. at Exhibits A-C]. Among the materials that
[Co-eXprise] supplied [to Appellants], either directly or through
[Co-
various terms commonly included in oil and gas leases based on
[Co- See id. at Exhibit C, at
unnumbered pages 1-3 (Lease Summary)]. [Co-eXprise]
represented in the MarketPlace Agreement that any resulting
lease agreement between the landowner and energy company
would contain terms substantially similar to those contained
within this [Lease Summary]. These terms were more favorable
to the landowner than the terms of the standard lease
agreements used by the energy companies.
The MarketPlace Agreement provided for [Co-eXprise] to receive
five percent of the up-front bonus in consideration for its
services. The money would be paid as soon as the landowner
and the highest[-]bidding energy company entered into a lease
agreement reflecting the terms of the bid.
On the basis of [Co-
entered into MarketPlace Agreements with [Co-eXprise] in
January 2011.1 [Co-eXprise] sought bids on behalf of
[Appellants] and fellow MarketPlace participants, and, at the
conclusion of the bidding process, identified Chesapeake
Appalachia, LLC [(Chesapeake),] as the highest bidder.
than a bid that would be binding on the MarketPlace members
under the provisions of the MarketPlace Agreement. A bid would
than a $3,000 per acre bonus, a 17% royalty, and the
substantial inclusion of the sample lease terms. The Chesapeake
bid provided for a $2,350 per acre bonus and a 15% royalty.
[See Complaint, at 9-10 ¶ 26].
1
The Lenau [Appellants] signed the MartketPlace
Agreement on or about January 24, 2011, and the
Trieschock [Appellants] signed the MarketPlace
Agreement on January 20, 2011. [See Co-
Preliminary Objections, 1/04/2013, Exhibit 2 (Lenau
Agreement) and Exhibit 3 (Trieschock Agreement)].
[Co-eXprise] notified the Lenau [Appellants] and the other
members of their group of the offer from Chesapeake at a June
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28, 2011 meeting, and represented that the terms reflected the
best market terms available. These [Appellants] and the other
members of the Lenau group received an email correspondence
on July 15, 2011 encouraging them to accept the terms of the
Chesapeake offer by signin
2
The Lenau
[Appellants] signed the Agreement to Accept on August 1,
2011[.]3
2
[See Complaint, Exhibit F, at 1]. Trieschock received a
similar email in September 2011 notifying her of an offer
landowner group.
3
[See Co-
Exhibit 4. Trieschock, a member of a different group than
the Lenau [Appellants], was presented with a different
offer and signed the Agreement to Accept that offer on
October 7, 2011. [Id. at] Exhibit 5.
It appears from the record that [Co-eXprise] continued to recruit
landowners into the CX MarketPlace and, pursuant to that
recruitment effort, notified other landowners in the area that an
terms and the best current market price available in the area.
These prospective participants were warned that prices may
decline, and, in order to take advantage of the offer, landowners
should complete the CX MarketPlace and [Agreement to
Accept].4
4
MarketPlace members and prospective members in the
Accept] no later than August 4, 2011 in order to be eligible
to attend the August 5, 2011 lease-signing event.
Trieschock, again, a member of a different group, signed
the Agreement to Accept on October 7, 2011.
MarketPlace member landowners who elected to accept
-signing event
where the landowners entered into individual oil and gas leases
with Chesapeake.5
5
Lenau attended the lease[-]signing event on August 5,
2011; Trieschock on October 28, 2011.
-4-
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Once a landowner signed a mineral lease with Chesapeake, [Co-
eXprise] collected its transaction fee five percent of the
-front, bonus payment directly from
Chesapeake.
-4.
-eXprise,
including: (1) breach of contract; (2) unauthorized practice of law; (3)
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection
2
; (4) violation of the Pennsylvania Securities Act of 1972;
(5) breach of fiduciary duty; and (6) unjust enrichment/disgorgement. See
Complaint, at 14-25. Specifically, Appellants asserted the foregoing claims
as a class action:
[Appellants] bring this action on behalf of themselves and the
following Plaintiff Class: every citizen, or landowner, in the
Commonwealth of Pennsylvania who has entered into a [CX
MarketPlace Agreement] with [Co-eXprise] and paid [Co-
eXprise] a transaction fee pursuant to said agreement, which
arose out of a negotiation and consummation of an oil and gas
lease through the [CX MarketPlace p]rocess.
Id. at 26 ¶ 88. Appellants sought certification of the class action, various
forms of compensatory and restitutionary damages, disgorgement of Co-
On January 2, 2013, Co-eXprise filed a motion to assign the case to
the Commerce and Complex Litigation Center of Allegheny County. That
____________________________________________
2
See 73 P.S. § 201-1, et seq.
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same day, the trial court granted Co-
Co-eXprise filed preliminary objections in the nature of a demurrer to
f these objections. In relevant
part, Co-
otherwise meritless. See Co-
8-18. On January 28, 2013, Appellants filed a brief in opposition to Co-
arguments on Co-
-
preliminary objections and di
-eXprise filed a
brief in opposition to reconsideration. On May 3, 2013, the trial court denied
On May 8, 2013, Appellants filed a timely notice of appeal. The trial
court did not direct Appellants to file a concise statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b). Consequently,
Appellants did not elect to file such a statement. The trial court has not
issued a separate opinion pursuant to Pa.R.A.P. 1925(a).
Appellants present the following issues for our consideration:
I. Whether the trial [c]ourt erred as a matter of law by
sustaining [Co-
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J-A04026-14
A. Where the [t]rial [c]ourt erred as a matter of law in its
interpretation of ambiguous contract provisions, which
otherwise support a breach of contract claim[] sufficient to
overcome preliminary objections?
B. By concluding as a matter of law that the allegations of
the [c]omplaint and the [e]xhibits attached thereto
including admissions during argument, do not raise a
factual issue as to whether [Co-eXprise] have engaged in
the unauthorized practice of law? and;
C. By concluding as a matter [of law] that the lease of
natural gas rights at issue is not a security as defined by
the Pennsylvania Securities Act [of 1972]?
D. By dismissing claims of breach of fiduciary duty and
unjust enrichment?
-
the nature of a demurrer. Our standard of review in this context is well-
established:
Our standard of review of an order of the trial court overruling or
granting preliminary objections is to determine whether the trial
court committed an error of law. When considering the
appropriateness of a ruling on preliminary objections, the
appellate court must apply the same standard as the trial court.
Preliminary objections in the nature of a demurrer test the legal
sufficiency of the complaint. When considering preliminary
objections, all material facts set forth in the challenged pleadings
are admitted as true, as well as all inferences reasonably
deducible therefrom. Preliminary objections which seek the
dismissal of a cause of action should be sustained only in cases
in which it is clear and free from doubt that the pleader will be
unable to prove facts legally sufficient to establish the right to
relief. If any doubt exists as to whether a demurrer should be
sustained, it should be resolved in favor of overruling the
preliminary objections.
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Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. Super. 2011) (quoting Haun
v. Community Health Systems, Inc., 14 A.3d 120, 123 (Pa. Super.
2011)).
In their first claim, Appellants argue that the terms of the MarketPlace
Agreement regarding the payment of transaction fees to Co-eXprise are
ambiguous and should be construed in favor of Appellants:
Specifically, [Appellants] allege[,] and the [e]xhibits and
documents support [a conclusion,] that [Co-eXprise] breached
[the MarketPlace Agreement] by promising that the payment of
the transaction fee will be a written obligation imposed on the
successful bidder in the lease agreement, ([e]qual to 5 [percent]
multiplied by the gross up[-]front bonus payment upon the
completion of each negotiation event), but failed to ultimately
impose the transaction fee upon the successful bidder, and
binding the landowners to a similar renewal term (with the
ultimate[ly] successful bidder[,] Chesapeake) at the expiration
of the initial five[-]year lease term. In this regard, the [t]rial
[c]ourt erred in its interpretation of the contract language as
by Co-eXprise.
the MarketPlace Agreement was ambiguous, such that the trial court should
not have sustained Co- Id. at 20, 22. We
disagree.
ter of
Integrated Project Servs. v. HMS Interiors, Inc., 931
-8-
J-A04026-14
A.2d 724, 732 (Pa. Super. 2007) (quoting Welteroth v. Harvey, 912 A.2d
863, 866 (Pa. Super. 2006)).
It is also well[-]established that under the law of contracts, in
interpreting an agreement, the court must ascertain the intent of
the parties.
In the cases of a written contract, the intent of the parties is the
writing itself. If left undefined, the words of a contract are to be
given their ordinary meaning. Pines Plaza Bowling, Inc. v.
Rossview, Inc., 145 A.2d 672, 676 (Pa. 1958). When the
terms of a contract are clear and unambiguous, the intent of the
parties is to be ascertained from the document itself.
Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa.
1986). When, however, an ambiguity exists, parol evidence is
admissible to explain or clarify or resolve the ambiguity,
irrespective of whether the ambiguity is patent, created by the
language of the instrument, or latent, created by extrinsic or
collateral circumstances. Steuart v. McChesney, 444 A.2d
659, 663 (Pa. 1982); , 161 A.2d 32, 34 (Pa.
1960).
Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004) (citations modified).
With specifi
of contract interpretation, our Supreme Court has opined as follows:
susceptible of different constructions and capable of being
understood in Hutchison, 519 A.2d at
390. This is not a question to be resolved in a vacuum. Rather,
contractual terms are ambiguous if they are subject to more
than one reasonable interpretation when applied to a particular
set of facts. See Gamble Farm Inn, Inc. v. Selective Ins.
Co., 656 A.2d 142, 144 (Pa. Super. 1995); Techalloy Co., Inc.
v. Reliance Ins. Co., 487 A.2d 820, 823 (Pa. Super. 1984). We
will not, however, distort the meaning of the language or resort
to a strained contrivance in order to find an ambiguity. Steuart,
444 A.2d at 663.
Madison Const. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa.
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clauses must be construed, whenever possible, in a manner that effectuates
Welteroth, 912 A.2d at 866 (citing
Flatley by Flatley v. Penman, 632 A.2d 1342, 1344 (Pa. Super. 1993)).
annul another part and that writings which comprise an agreement must be
Southwestern Energy Prod. Co. v. Forest Res.,
LLC, 83 A.3d 177, 187 (Pa. Super. 2013) (citing Shehadi v. Northeastern
, 378 A.2d 304, 306 (Pa. 1977)).
In relevant part, the MarketPlace Agreement that is implicated by
3. Transaction Fee. For the following addresses identified
in Exhibit B, Owner[3
Lease Agreement with the successful Bidder,[4] in an amount
equal to 5% multiplied by the gross up front bonus payment
upon the completion of each Negotiation Event. The payment of
the Transaction Fee shall be a written obligation imposed on the
successful Bidder in the Lease Agreement. In the event that
while this MarketPlace Agreement is in effect, Owner breaches
this MarketPlace Agreement and enters a Lease Agreement on
any of the Parcels outside of the MarketPlace Agreement, Owner
shall be responsible to pay the Transaction Fee pertaining to
such Parcel.
____________________________________________
3
In the MarketPlace
4
According to the language of the MarketPlace Agreement, the term
e.g., gas
companies, financial institutions, and others that may be interested in
.
- 10 -
J-A04026-14
MarketPlace Agreement, at 1 ¶ 3.
Appellants argue that this language is ambiguous, in that it does not
There is one sentence in Section 3 of the [MarketPlace
Agreement] that is clear and unambiguous[,] which is as follows:
is nothing ambiguous about this sentence. It mandates that the
The [t]rial [c]ourt, attempting to give effect to all of the words in
Section 3, interprets the second sentence as reading
successful bidder will make the payment to Co-eXprise on behalf
not the
language Co-eXprise utilized in the contract. The language
utilized does not clearly impose the obligation to pay the
transaction fee on the owner. Section 3 is ambiguous in that it
does not state who the transaction fee will be paid to[,] or whose
services are being compensated. Finally, the last sentence of
ce
Agreement is in effect, owner breaches this [M]arket[P]lace
[A]greement and enters a lease agreement on any of the parcels
outside of the [M]arket[P]lace [A]greement, owner will be
responsible to pay the transaction fee pertaining to such
parcel creates ambiguity in relation to the first
sentence.
-19 (emphases in original).
interpretation of Section 3 of the MarketPlace Agreement is a selective
reading that focuses upon the meaning of a single sentence, to the exclusion
of the other relevant language:
Section 3 clearly provides for the landowner to make the five
percent bonus payment. The first sentence provides for
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[Appellants] to pay a transaction fee of five percent of the gross
up-front bonus payment. The second sentence provides that
[Chesapeake] will make the five-percent payment to [Co-
eXprise] on behalf of [Appellants]. However, if [Appellants], in
breach of [their] agreement with [Co-eXprise], enter[] into a
contract that does not include a written obligation for
[Chesapeake] to make the five-percent payment to [Co-eXprise]
on behalf of [Appellants], [Appellants] will be responsible for
transmitting the payment.
T.C.O. at 5. We concur with the tria
instant contract provision. The first sentence of Section 3 unambiguously
states that the landowners in this case, Appellants bear the financial
responsibility of paying Co- ds of
their initial bonus payment. The second sentence of Section 3, which places
the obligation of actually transmitting those funds upon Chesapeake, does
manner in which payment
the third sentence of Section 3 does not create ambiguity, but merely
provides for a contingency in which a landowner breaches the MarketPlace
Agreement by entering into a lease agreement that does not expressly
provide for the payment of a transaction fee.
By focusing solely upon the meaning of the second sentence of Section
that our governing precedent forbids. See Southwestern Energy Prod.,
full effect to an entire document, if possible, and not only those portions
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supporting a specific conclusion. Id.
parties on the meaning of language or the proper construction of contract
Pappas v. UNUM Life Ins. Co. of
America, 856 A.2d 183, 187 (Pa. Super. 2004). Instantly, Appellants argue
that the second sentence of Section 3 indicates that payment of the
in this
ignores the first sentence of Section 3, which clearly indicates that the
financial responsibility of payment is upon the landowner. See T.C.O. at 5
-
other hand, gives meaning to each provision
Based upon the foregoing discussion, we conclude that the contract
terms of Section 3 of the MarketPlace Agreement are not ambiguous.
Consequently, the trial court did not err in sustaining Co-
preliminary objections on thi
In their second claim, Appellants allege that the trial court erred in
-eXprise engaged in the unauthorized
practice of law. See -23. The trial court has provided
an excellent summary of the conduct referenced by Appellants in support of
their position:
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In support of their position that [Co-eXprise] is practicing law,
[Appellants] refer to the following activities: [Co-eXprise]
solicited landowners requesting they participate in its bidding
scheme; [Co-eXprise] presented an agreement for the
landowners to execute in order for them to receive [Co-
-eXprise] delivered to the landowners an
explanation of the terms of a lease that the winning bidder will
be required to use; [Co-eXprise] described to the landowners the
terms of the highest bid and recommended that they accept the
bid; [Co-eXprise] furnished information to the landowners who
accepted the bid as to documents that would need to be brought
to the mass signing and other relevant information; and the
bidder and the landowner[s] were required to sign the lease
agreement provided by [Co-eXprise] which included protections
to the landowners that are not typically included in the form
leases of the energy company.
T.C.O. at 6-7 (footnote omitted). Thus, Appellants allege that Co-eXprise
engaged in the unauthorized practice of law. We disagree.
The unauthorized practice of law is prohibited in Pennsylvania, and
such conduct is criminalized. See 42 Pa.C.S.A. § 2524(a). Additionally,
Section 2524(c) creates a private civil cause of action in connection with the
unauthorized practice of law. Id. at § 2524(c). In pertinent part, the
statute reads as follows:
(c) Injunction. In addition to criminal prosecution,
unauthorized practice of law may be enjoined in any county
court of common pleas having personal jurisdiction over the
defendant. The party obtaining such an injunction may be
awarded costs and expenses incurred, including reasonable
attorney fees, against the enjoined party. A violation of
subsection (a) is also a violation of the act of December 17,
1968 (P.L. 1224, No. 387), known as the Unfair Trade Practices
and Consumer Protection Law.
Id.
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The Supreme Court of Pennsylvania has thoroughly discussed what
The Pennsylvania Constitution vests with our [Supreme] Court
the exclusive authority to regulate the practice of law, which
includes the power to define what constitutes the practice of law.
Pa. Const. Art. V, § 10(c); Dauphin County Bar Association v.
Mazzacaro, 351 A.2d 229, 233 (Pa. 1976). What constitutes
the practice of law, however, is not capable of a comprehensive
definition. For this reason, [the Supreme] Court has not
attempted to provide an all-encompassing statement of what
activities comprise the practice of law. Office of Disciplinary
Counsel v. Marcone, 855 A.2d 654, 660 (Pa. 2004); Shortz
et. al. v. Farrell, 193 A. 20, 21 (Pa. 1937). Thus, we have
determined what constitutes the practice of law on a case-by-
case basis.
While our Court has addressed the question of what constitutes
the practice of law on an individualized basis, we have made
clear that paramount to the inquiry is consideration of the public
interest. Marcone, 855 A.2d at 658; Dauphin County, 351
A.2d at 233. Consideration of the public interest has two related
aspects: protection of the public and prudent regulation so as
not to overburden the public good.
Regarding the protection of the public, then Justice, later Chief
concern in Shortz[:]
While in order to acquire the education necessary to gain
admission to the bar and thereby become eligible to
corn delights, and live
practice to laymen is not to secure lawyers a monopoly,
however deserved, but, by preventing the intrusion of
inexpert and unlearned persons in the practice of law, to
assure to the public adequate protection in the pursuit of
justice, than which society knows no loftier aim.
Shortz, 193 A. at 24.
* * *
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When considering the public interest, our [Supreme] Court has
focused on the character of the activities at issue. In Shortz,
our [Supreme] Court set forth three broad categories of
activities that may constitute the practice of law: (1) the
instruction and advising of clients in regard to the law so that
they may pursue their affairs and be informed as to their rights
and obligations; (2) the preparation of documents for clients
requiring familiarity with legal principles beyond the ken of
ordinary laypersons; and (3) the appearance on behalf of clients
before public tribunals in order that the attorney may assist the
deciding official in the proper interpretation and enforcement of
the law. Shortz, 193 A. at 21. More recently, our [Supreme]
Court expressed that the practice of law is implicated by the
holding out of oneself to the public as competent to exercise
legal judgment and the implication that he or she has the
technical competence to analyze legal problems and the requisite
character qualifications to act in a representative capacity.
Dauphin County, 351 A.2d at 232-33 (considering whether
licensed casualty adj
constituted the unauthorized practice of law). Thus, the
character of the actions taken by the individual in question is a
significant factor in the determination of what constitutes the
practice of law.
Harkness v. Unemployment Comp. Bd. of Review, 920 A.2d 162, 166-
practice of law is made on a case-by-case basis, focusing primarily on
protection of the public and the public weal, and in doing so, considering the
Id. at 167.
Appellants argue that Co-
require[d] abstract understanding of legal principals [sic] and refined skill for
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allege that Co-
hts,
encumbrances on the property, liens, easements, and certain
environmental issues. The transactions contemplated require[d]
an understanding of the legal principals [sic] implicated by
contract law and real property law. Oil, gas and mineral rights
law is itself a specialty in Pennsylvania. There are a variety of
concepts including surface rights for drilling, surface rights for
pipelines, rights to natural gas storage, concerns related to
environmental pollution, just to name a few.
Id. at 24. While Appellants urge that Co-
fact that a company utilizes documents prepared by lawyers, and relies upon
the opinions of lawyers in conducting its business, does not, ipso facto,
indicate that a company is practicing law:
[W]hat [Appellants] describe is a bidding company conducting its
business. There is no explanation by [Appellants] as to which of
the activities described above constitute the practice of law.
Lawyers are frequently involved in drafting the writings that the
more sophisticated party to a transaction will use. The drafting
of the writings may be the practice of law. But the use of those
writings has nothing to do with the practice of law.
T.C.O. at 7 (emphases added).
Assuming, arguendo, that Co-
that are typically handled by lawyers, our Supreme Court has specifically
endorsed such actions in the limited context of business transactions:
There can be no objection to the preparation of deeds and
mortgages or other contracts by such brokers so long as the
papers involved pertain to and grow out of their business
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transactions and are intimately connected therewith. The
drafting and execution of legal instruments is a necessary
concomitant of many businesses, and cannot be considered
unlawful. Such practice only falls within the prohibition . . .
when the documents are drawn in relation to matters in no
matter connected with the immediate business of the person
preparing them, and when the person so drafting them is not a
member of the bar and holds himself out as specially qualified
and competent to do that type of work.
Childs v. Smeltzer, 171 A. 883, 885-86 (Pa. 1934) (emphasis added).
Instantly, Co-
properties. Appellants have not alleged that Co-eXprise held itself out as a
5
legal actor in any way beyond Co-eX
____________________________________________
5
Moreover, in Childs
estate broker is not prohibited from drawing a deed of conveyance or other
appropriate instrument relating to property of which he or his associates
have negotiated a sale or lease Childs, 171 A. at 886. Although the trial
court does not cite Childs, its discussion certainly alludes to the many
parallels between Co-
Childs:
There is not a great deal of difference between the activities
performed by [Co-eXprise] in this case and the activities
performed by a real estate agent for a seller of residential
property. The agent solicits the general public; the agent follows
up on leads; the agent is retained by having the seller sign a
agent explains the terms of the form agreement to the seller
before it is signed; there may be bargaining between the sales
agent and the seller; the agent makes recommendations to the
seller reg
respond to offers; unless the buyer is represented by counsel,
the agent will have the buyer sign the form sales agreement
(Footnote Continued Next Page)
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have failed to allege any facts that, if proved at trial, would lead to a
conclusion that Co-eXprise was engaged in the unauthorized practice of law.
While our Supreme Court has clearly stated that we should guard against
unauthorized legal practice, that Court also has cautioned against
unnecessarily expanding our definition of what constitutes such practice:
While the public interest is certainly served by the protection of
the public, it is also achieved by not burdening the public by too
broad a definition of the practice of law, resulting in the
[Supreme] Court in Dauphin County[:]
The threads of legal consequences often weave their way
through even casual contemporary interactions. There are
times, of course, when it is clearly within the ken of lay
persons to appreciate the legal problems and
consequences involved in a given situation and the factors
which should influence necessary decisions. No public
interest would be advanced by requiring these lay
judgments to be made exclusively by lawyers . . . .
Dauphin County, 351 A.2d at 233.
_______________________
(Footnote Continued)
between the agent for the seller and the buyer and/or the
and if the buyer has an attorney, the attorney will negotiate
directly with the agent for the seller.
Also consider the typical transaction involving mineral rights: a
representative of the energy company solicits the landowner; the
representative furnishes a copy of its form lease for the
landowner to sign; the representative explains and/or responds
to questions of the landowner about its contents; and the
representative assumes responsibility for all of the paperwork.
T.C.O. at 7.
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Harkness, 920 A.2d at 167.6
Based upon the foregoing discussion, we conclude that the trial court
-eXprise engaged in the
unauthorized practice of law. Appellants were not pursuing legal
representation through Co-eXprise. Rather, Appellants engaged in contract
negotiations regarding their mineral rights with Co-eXprise, negotiations
which Co-eXprise is authorized to undertake as a matter of Pennsylvania
law. See Childs
fails.
In their third issue before this Court, Appellants assert that Co-eXprise
has violated the Pennsylvania Securities Act of 1972:
-eXprise violated the
Pennsylvania Securities Act of 1972 by providing investment
advice as defined by the Act to [Appellants] and other
____________________________________________
6
commercial consequences:
The landowners did not look to [Co-eXprise] for legal
representation. Except for those landowners who consulted with
counsel, the landowners would have viewed themselves as
unrepresented persons deciding whether to contract with [Co-
eXprise]. . . . Thus, if the courts were to agree with
transaction described to a consumer by a more sophisticated
party constitutes the unauthorized practice of law, many
businesses would be put out of business.
T.C.O. at 6.
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landowners. [Appellants] have alleged that Co-eXprise ha[s] not
properly registered with the Pennsylvania Securities Commission
as required by Section 301 of the Securities Act. The touchstone
s the allegation that the Pennsylvania
Securities Act of 1972 defines participation in an oil, gas or
mining title or lease (or in payments out of production under
such a lease or title) to be a security subject to the Act.
-29 (citing 70 P.S. § 1-102(t)). Thus, Appellants
argue that Co-
the business of advising others . . . as to the value of securities or as to the
advisability of investing -
102(j).
question of law, our standard of review is de novo, and our scope of review
Commonwealth v. Hacker, 15 A.3d 333, 334 (Pa. 2011)
(citing Snead v. SPCA of Pennsylvania, 985 A.2d 909, 912 (Pa. 2009)).
Id. (ci
interpretation and construction of statutes is to ascertain and effectuate the
intention of the General Assembly. Every statute shall be construed, if
Court previously has
identified this underlying intent:
The Pennsylvania Securities Act is remedial legislation. Its
primary purpose is to protect the investing public. The Act
contemplates an investigation to determine whether the
securities are being offered to the public honestly and in good
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faith without any intent to deceive or defraud. Commonwealth
v. Summons, 41 A.2d 697, 699 (Pa. Super. 1945). That part of
the Securities Act[,] therefore[,] which specifies classes of
investments which are within the contemplation of the
legislation, is to be liberally construed. And the clear intent of
the Act is not to be defeated by a too literal reading of words
without regard to their context and the evils which the Act
clearly was designed to correct.
Commonwealth v. Yaste, 70 A.2d 685, 687 (Pa. Super. 1950); see also
Commonwealth v. Bomersbach, 393 A.2d 995, 998 (Pa. Super. 1978)
classes of investments that are to be protected must be liberally
Yaste, 70 A.2d at 687).
(t) means any note; stock; treasury stock; bond;
debenture; evidence of indebtedness; share of beneficial interest
in a business trust; certificate of interest or participation in any
profit-sharing agreement; collateral trust certificate;
preorganization certificate or subscription; transferable share;
investment contract; voting trust certificate; certificate of
deposit for a security; limited partnership interest; fractional
undivided interest in oil, gas or other mineral rights; put,
call, straddle, option or privilege on a security, certificate of
deposit of a security or group or index of securities, including
any interest in the securities or based upon the value of the
securities, or any put, call, straddle, option or privilege entered
into on a national securities exchange relating to foreign
currency; membership interest in a limited liability company of
any class or series, including any fractional or other interest in
such interest, unless excluded by clause (v); or, in general, any
certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing. All of the
foregoing are securities whether or not evidenced by written
document.
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70 P.S. § 1-102(t) (emphasis added). As noted above, Penns
Id.
The Pennsylvania Securities Act of 1972 also states the following with
§ 1-301. Registration requirement.
* * *
(c) It is unlawful for any person to transact business in this
State as an investment adviser unless he is so registered or
registered as a broker-dealer under this act or unless he is
exempted from registration. It is unlawful for any person to
transact business in this State as an investment adviser
representative unless he is so registered or exempted from
registration.
Id. at § 1-301(c). In the light of the foregoing, our task is clear. We must
ascertain whether the leasing of mineral rights in this context constitutes a
see id. at § 1-102(t), such that Co-eXprise must be registered as
Our Court adjudicated a question very similar to this in Yaste, 70 A.2d
at 686, albeit under the Pennsylvania Securities Act of 1939.7 In Yaste, this
____________________________________________
7
The terms of the Pennsylvania Securities Act of 1939 that defined what
See 70 P.S. § 32.
However, the language used in the earlier iteration of this statute that is
relevant to our present inquiry is identical to the current language.
Compare Yaste 32, defines a security in this language:
(Footnote Continued Next Page)
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a variety of forms were intended to be made subject to the regulatory
p Id. at 688. However,
in so holding, we specifically exempted the type of royalty agreements
implicated by the instant case. Specifically, we relied upon an earlier
holding of the U.S. Supreme Court:
It may be noted that a royalty interest in an oil lease, as the
subject matter of sale, ha[s] been held not to be a security
within the definition of the Act and therefore not within its
purview. . . . [A] royalty interest in an oil lease, as the subject
matter of sale, ha[s] been held not to be a security for the very
reason that it was [considered] real property under the
Securities Act of April 13, 1927, P.L. 273, 70 P.S. § 1, et seq.,
interest
The precise question was before the Supreme Court of the
United States in Securities and Exchange Comm. v. C.M.
Joiner Leasing Corp., 320 U.S. 344 (1943). In that case[,] the
[U.S. Court of Appeals for the Fifth Circuit] had adopted a
construction of the Federal Securities Act of 1933[,] which
excluded from its operation all trading in oil and gas leases. The
May 27, 1933, as amended, 15 U.S.C. § 77(b)(1), is
substantially the same as that of the Pennsylvania Act and
case[,] the defendants held leases on a large tract of land in
Texas which they had obtained in consideration of their
_______________________
(Footnote Continued)
fractional undivided interest in
oil, gas, or other mineral rights with 70 P.S.
§ 1-
our opinion in Yaste, we conclude that its interpretation remains relevant.
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agreement to drill a test well. On the inducement of the
proposed exploration well[,] they sold small subdivisions of their
leasehold to about fifty purchasers on an acreage basis. The
sales literature assured the prospect that the drilling of a well, so
located as to test the oil producing possibilities of the offered
leaseholds, would be pushed to completion. Other language in
the advertising literature emphasized the character of the
purchase as an investment and as a participation in an
enterprise. In disposing of the question whether the sales of
u
excludes sales of leasehold subdivision by parcels. Oil and
gas rights posed a difficult problem to the legislative
draftsman. Such rights were notorious subjects of
speculation and fraud, but leases and assignments were
also indispensable instruments of legitimate oil exploration
and production. To include leases and assignments by
name might easily burden the oil industry by controls that
were designed only for traffic in securities. This was
avoided by including specifically only that form of splitting
up of mineral interests which had been most utilized for
speculative purposes. We do not think the draftsmen
thereby immunized other forms of contracts and offerings
which are proved as matter of fact to answer to such
Joiner, 320 U.S. at 352.
Yaste, 70 A.2d at 687-88 (footnote omitted). Thus, in Yaste, the Court
securities, but that other transfers of gas rights were not so burdened. See
id.
Our case law on the subject of which mineral rights leaseholds
- 25 -
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Martin v. ITM International Trading & Marketing, 494 A.2d 451, 453
(Pa. Super. 1985), our Court derived some guidance from federal case law,
inasmuch as the relevant language in the federal Securities Act of 1933 is
identical to the Pennsylvania Securities Act of 1972. See Martin, 494 A.2d
at 453; compare 15 U.S.C.S. § 77b(a)(1), with 70 P.S. § 1-102(t). Like
the Martin panel, we turn to the federal courts for assistance in determining
whether the instant royalty agreements constitute regulated securities. See
id.; see also Yaste, 70 A.2d at 687-88.
Our own Third Circuit has explained the meaning of a fractional
undivided interest as follows:
[A]n interest arises when a lessee of mineral rights sells parts of
its interest in the rights in order to finance the development of
the minerals. These are fractionalized undivided working
interests because they give the investor rights to a percentage of
therefrom and are subject to at least part of the expense of
development, operation, or maintenance.
Penturelli v. Spector, Cohen, Gadon & Rosen, Attorneys at Law, P.C.,
779 F.2d 160, 165 (3d Cir. 1985).
Furthermore, many federal courts8 have approved of the analysis set
forth in Woodward v. Wright, 266 F.2d 108, 112 (10th Cir. 1959), which
explained:
____________________________________________
8
See, e.g., Nolfi v. Ohio Ky. Oil Corp., 675 F.3d 538, 547 (6th Cir. 2012);
Pacific Dunlop Holdings v. Allen & Co., 993 F.2d 578, 581 (7th Cir.
1993); Adena Exploration, Inc. v. Sylvan, 860 F.2d 1242, 1244 (5th Cir.
(Footnote Continued Next Page)
- 26 -
J-A04026-14
the sale or offering for sale of an oil and gas lease, or an
undivided interest
other persons to make their investment a profitable venture.
Woodward, 266 F.2d at 112. Under Woodward
interest is created for the purpose of sale, the conveyance of the interest is
Adena Exploration, Inc. v. Sylvan, 860 F.2d
1242, 1246 (5th Cir. 1988).
The statutory definition of a security includes both relatively
alone carry well-
categories, composed of instruments referenced b
Penturelli v. Spector, Cohen, Gadon &
Rosen
mineral rights sells parts of its interest in the rights in order to
that the 1933 Act specifically enumerates these fractional
interests as securities, stating:
Congress chose not to include leases and assignments
because they were indispensable instruments of legitimate
oil exploration and production and it wanted to avoid
burdening the oil industry by controls that were designed
only for traffic in securities. On the other hand, Congress
did specifically mention in the Acts the fractional undivided
inter
interests which had been most utilized for speculative
_______________________
(Footnote Continued)
1988); Penturelli, 779 F.2d 160 at 166; Gilbert v. Nixon, 429 F.2d 348,
354 (10th Cir. 1970); Shimer v. Webster, 225 A.2d 880, 883 (D.C. 1967);
Fund of Funds, Ltd. v. Arthur Andersen & Co., 545 F. Supp. 1314, 1346
(S.D.N.Y. 1982).
- 27 -
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Adena, 860 F.2d at 1247-1248 (footnotes omitted).9
Thus, in Adena, the Fifth Circuit held that general leases and
assignments of oil and mineral rights do not constitute securities. The Court
addressed the language of the federal securities statutes and determined
balancing the need for regulation against the burdens to the oil industry.
Id. at 1245;
see also Commonwealth v. Frye, 853 A.2d 1062, 1066 (Pa. Super. 2004)
expressio unius est
exclusio alterius
(citing ways, 222 A.2d 913 (Pa.
1966)).
Similarly, the Sixth Circuit held that, when determining whether a
____________________________________________
9
Interpreting the same language, the United States District Court for
the Ce
Fearneyhough v. McElvain, 598 F. Supp. 905, 907 (C.D. Ill. 1984)
meaning of the 1933 and 1934 Acts, notwithstanding the fact that the
plaintiffs retained an overriding one-
- 28 -
J-A04026-14
the
purchase guaranteed by oil production, is distinct from partnership and joint-
Nolfi v. Ohio Ky. Oil Corp.,
675 F.3d 538, 546 n.5 (6th Cir. 2012) (citing Graham v. Clark, 332 F.2d
155, 156 (6th Cir. 1964)
In Nolfi
under 15 U.S.C.S. § 77b(a)(1). Id. at 546.
In the instant case, Appellants argue that their involvement with Co-
eXprise created a security interest
common enterprise and [were] lead [sic] to expect profits solely from the
Martin
their tract of land, and based on [Co-
conveyed a lease interest based on the expectation of realizing profits, in the
form of royalty payments, solely from the efforts of [Co-eXprise] or a third
Id. at 32. We disagree.
Martin is misplaced.
Appellants cite Martin
originally set forth in S.E.C. v. Howey, 328 U.S. 293 (1946), which provides
- 29 -
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contract, transaction or scheme whereby a person invests his money in a
common enterprise and is led to expect profits solely from the efforts of the
Martin, 494 A.2d at 453 (citing Howey,
328 U.S. at 298-99).
leasehold
agreements offered by Co-eXprise is contradicted by their own pleading, in
which they acknowledge that they were already landowners when they were
first approached by Co-eXprise. (See Complaint, at 5 ¶¶ 11-12). Therefore,
the security at interest is an investment contract is
belied by the record. See Howey, 328 U.S. at 298-99.
Howey
economic reality test was designed to determine whether a particular
instrument is an
Landreth Timber
Co. v. Landreth, 471 U.S. 681, 691 (1985). Thus, where the question is
whether the contested instrument is another type of security pursuant to 70
P.S. § 1-102(t), specifically, a fractional undivided interest in oil, gas or
other mineral rights, the Howey test, as described in Martin, does not
apply.
Here, with the assistance of Co-eXprise, Appellants entered into an
agreement to lease their mineral rights to Chesapeake, while retaining the
- 30 -
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right to royalty payments. Cf. Fearneyhough v. McElvain, 598 F. Supp.
905, 907 (C.D. Ill. 1984). The agreement with Chesapeake does not split up
the interest in the leasehold for speculative purposes or to finance the
Nolfi, 675 F.3d at
546 n.5. Thus, under federal precedent, it would not constitute a fractional
undivided interest in the mineral rights, and would not be a security. See
Adena, 860 F.2d at 1245. We believe this approach is consistent with our
the subject matter of sale, ha[s] been held not to be a security within the
Yaste, 70 A.2d at 687. Accordingly, the
agreements at issue here are not securities, and therefore are not regulated
by the Pennsylvania Securities Act, 70 P.S. §§ 1-101, et seq
claims under the Act therefore would not merit relief, and the trial court did
not err in granting Co-
third issue lacks merit.
Finally, Appellants combine their fourth and fifth issues and assert that
regard to dismissal of counts alleging unauthorized practice of law, and
breach of the Securities Act, the equitable disgorgement/unjust enrichment
Id. (emphasis omitted). Appellants having done so, we
- 31 -
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need only address their claim that Co-eXprise breached an alleged fiduciary
duty.
Regarding this claim, Appellants assert:
that Co-eXprise assumed a fiduciary duty to [them] in three
distinct manners, (1) by agreeing to undertake to represent
ers which
duty arose [by] virtue of the Market[P]lace Agreement, (2) by
engaging in the unauthorized practice of law, and (3) by acting
as an investment advisor.
Specifically, [Appellants] contend that a breach of fiduciary duty
claim arises by virtue of the Market[P]lace Agreement which
contemplated that Co-eXprise would be vetting potential bidders
access to the Co-
-37 (record citation omitted). Because Appellants
have failed to identify any breach of duty owed to them by Co-eXprise, we
disagree.
In their complaint, Appellants contend the following:
78. By entering into the [Co-eXprise] Market[P]lace
Agreement, [Co-eXprise] assumed a fiduciary duty toward
[Appellants] because it was given the exclusive right and control
lease them through the [Co-eXprise] Market[P]lace process
which [Co-eXprise] maintained complete exclusive control over.
The [Co-eXprise] Market[P]lace Agreement provided that if
[Appellants] leased their oil and gas rights outside of the [Co-
eXprise] Market[P]lace Agreement then [Appellants] would still
be obligated to pay [Co-eXprise] the transaction fee. A fiduciary
relationship arises whenever the relative position of the parties is
such that one has the power and means to take advantage of
the other or where there is a dependence or justifiable trust on
the other. It also arises because [Co-eXprise] assumed a
relationship of trust and confidence toward [Appellants].
- 32 -
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79. A fiduciary duty arose on behalf of [Co-eXprise]
toward [Appellants], also, by virtue of the fact that it, through its
authorized employees, [Co-eXprise] was engaging in the practice
of law (although unauthorized) and performing investment
advisory services.
80. [Co-eXprise] breached this fiduciary duty owed
toward [Appellants], and as a result of said breach, [Appellants]
were collectively damaged in an amount totaling $31,246.39,
which were the total fees paid collectively by [Appellants] to [Co-
eXprise].
Complaint, at 23-24 ¶¶ 78-80.
would support a finding that [Co-eXprise] breached any duties owed to
[Appellants]. Second, the only harm described in the [c]omplaint is [Co-
obligated to pay these fees pursuant to the terms of the contract between
explanation, failed to plead any material facts regarding what the alleged
breach was. See id. at 24 ¶ 80. Even giving Appellants the benefi
Appellants failed to identify the manner in which Co-eXprise breached a duty
to them. See Feingold, 15 A.3d at 941. Although Appellants contended
ed their oil and gas rights outside of the [Co-
eXprise] Market[P]lace Agreement then [Appellants] would still be obligated
to pay [Co- id. at 23 ¶ 78, by their own
admission, Appellants signed leases with Chesapeake and did not lease their
- 33 -
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oil and gas rights outside of the agreement. See id. at 11 ¶ 29. Further, as
previously discussed, Co-eXprise was not engaged in the practice of law or
investment advisory services, and therefore breached no duty upon these
grounds. See id. at 23-24 ¶ 79.
support this element of the claim, and Appellants therefore failed to state a
claim for breach of a fiduciary duty. See Grose v. P&G Paper Prods. (In
re Grose), 866 A.2d 437, 442 (Pa. Super. 2005).
question regarding the alleged breach of a fiduciary duty only if [they] first
establish[] a jury question that such a duty attaches to [an a]ppellee[] in the
Rock v. Meakem, 61 A.3d 239, 257 (Pa. Super. 2013).
a fiduciary or confidant or party in a position to exercise undue influence and
entering an arms[-]length commercial agreement, however important its
eToll, Inc. v.
Elias/Savion Adver., 811 A.2d 10, 23 (Pa. Super. 2002) (citing Valley
, 28 F.
Supp. 2d 947, 952-953 (E.D. Pa. 1998)).
Most commercial contracts for professional services involve one
providing that particular service. Indeed, if a party did not
believe that the professional possessed specialized expertise
worthy of trust, the contract would most likely never take place.
- 34 -
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This does not mean, however, that a fiduciary relationship arises
merely because one party relies on and pays for the
specialized skill or expertise of the other party. Otherwise,
a fiduciary relationship would arise whenever one party had any
marginally greater level of skill and expertise in a particular area
than another party. Rather, the critical question is whether the
relationship goes beyond mere reliance on superior skill, and into
the other side. A confidential relationship is marked by such a
disparity in position that the inferior party places complete trust
to give rise to a potential abuse of power.
Id. at 23 (citations omitted, emphasis added).
Here, Appellants simply alleged the existence of
-eXprise. Complaint, at 23-24
¶
contractual relationship with Co-eXprise. See eToll, Inc., 811 A.2d at 23
(citations omitted). Thus, Appellants have failed to plead sufficient facts to
state a claim that the relationship with Co-eXprise was fiduciary, and not
merely contractual. Rock, 61 A.3d 239 at 257. Appellants have failed to
state a claim for breach of fiduciary duty, and the trial court did not commit
an error of law in granting Co-
See Feingold ef,
and the trial court properly dismissed the complaint.
Order affirmed.
- 35 -
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/23/2014
- 36 -