Mitch, R. v. XTO Energy

J-A03038-19
2019 PA Super 189RAYMOND A. MITCH, : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
v. :
:
XTO ENERGY, INC., :
:
Appellee : No. 1096 WDA 2018
Appeal from the Order Entered July 5, 2018
in the Court of Common Pleas of Butler County
Civil Division at No(s): A.D. No. 16-10505
BEFORE: BOWES, J., SHOGAN, J. and STRASSBURGER, J.*
OPINION BY STRASSBURGER, J.: FILED JUNE 12, 2019
Raymond A. Mitch appeals from the order entered on July 5, 2018,
which denied his amended motion for summary judgment, granted summary
judgment in favor of XTO Energy, Inc. (XTO), and dismissed Mitch’s
declaratory judgment action. After review, we affirm.
The trial court summarized the facts of the case as follows.
This case arises from a Paid Up Oil and Gas Lease [(Lease)] and
corresponding addendum [(Addendum)], entered into between
the parties, both under date of January 6, 2012.
Mitch is the owner of real property located in Oakland
Township, Butler County, Pennsylvania, designated as Butler
County Tax Map Parcel Number 250-1F105-7J-0000, comprised
of 53.28 acres. Mitch maintains his primary residence on said
real property.
* Retired Senior Judge assigned to the Superior Court.
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Mitch and his late wife entered into the [] Lease and
Addendum [], leasing the oil and gas rights associated with the
hereinabove[-]described property to XTO for the purpose of
permitting XTO to drill and extract oil and gas beneath the
surfaces of Mitch’s said property. Under the Lease, Mitch would,
and did, receive an up-front bonus payment, as well as royalty
payments in the amount of [18%] thereafter. Additionally,
paragraph [] 4 of the Addendum states as follows:
If any well(s) is (are) drilled on the lease premises
and is (are) producing in paying quantities, the
surface owner shall be entitled to receive a payment
in lieu of free gas equal to 300,000 cubic feet of gas
multiplied by the average price received by Lessee
during the preceding year of production, provided
the surface owner has his primary residence on the
lease premises.
[Addendum, 1/6/2012, at ¶ 4.]
Said Lease and Addendum were drafted by XTO and
provided to Mitch.
Subsequent to the Lease [], a well pad was constructed on
property owned by Timothy A. Welter. Pursuant to paragraph []
15 of the Lease [], XTO was permitted “to pool and unitize all or
any part of the lease premises with any other lease or leases,
land or lands, mineral estates, or any of them whether owned by
the Lessee or others, so as to create one or more pooled units.”
[Lease, 1/6/2012, at ¶ 15.] As a result, pursuant to a
Designation of Unit, T Welter Unit, under date of December 2,
2013, the lease on Mitch’s land was pooled and combined with
certain other leases “for the purpose of drilling for development,
and production of gas and liquid hydrocarbons[.” Designation of
T Welter Unit (T. Welter Unit), 12/2/2013, at ¶ 1.]
Consequently, it is via the T. Welter well pad that XTO
horizontally drilled beneath the surface of Mitch’s property to
gain access to any oil and gas thereunder, pursuant to the Lease
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and Addendum [], and the [T. Welter Unit].[1] It is uncontested
that said well is producing in paying quantities.
There is no dispute that the vertical portion of the well,
i.e., the well pad, access roads, pipeline, tanks, equipment,
and/or any associated facilities are not located on Mitch’s
property. Said vertical components of the well are located on
the property owned by Timothy A. Welter.
Trial Court Opinion, 8/30/2018, at 1-3 (party designation, capitalization and
emphasis altered).
On July 8, 2016, Mitch filed a complaint against XTO, seeking a
declaratory judgment that he was due and owed payment pursuant to
paragraph 4 of the Addendum.
At the close of pleadings, Mitch moved for summary judgment on
March 30, 2017. Following continuances and discovery, Mitch filed an
amended motion for summary judgment on January 30, 2018, and XTO
moved for summary judgment the next day. Following argument, the trial
court denied Mitch’s amended motion, granted summary judgment in favor
of XTO, and dismissed Mitch’s declaratory judgment action with prejudice on
July 13, 2018.
This timely-filed appeal followed.2 Mitch raises two issues on appeal.
1 The Well Location Plat for the T. Welter Unit designates the well as Well 1H
(T. Welter Unit Well). The parties agree that the horizontal component of
the T. Welter Unit Well traverses Mitch’s property beneath the surface, but
the well pad and vertical portion of the T. Welter Unit Well are not located on
Mitch’s property. See Complaint, 7/8/2016, at ¶ 12-13; XTO’s Brief at 4.
2 Mitch and the trial court complied with Pa.R.A.P. 1925.
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I. Did the trial court err by failing to interpret the contract,
specifically [paragraph] four of the Addendum, in accordance
with law and the manifest intent of the parties as evidenced by
the words utilized?
II. Did the trial court commit error when its findings can only be
supported upon a determination of contract ambiguity and
evaluation of evidence related to the parties’ intent to which
genuine issues of material fact remain?
Mitch’s Brief at 7.
We consider Mitch’s issues mindful of the following.
Our standard of review on an appeal from the grant of a motion
for summary judgment is well-settled. A reviewing court may
disturb the order of the trial court only where it is established
that the court committed an error of law or abused its discretion.
As with all questions of law, our review is plenary.
Krauss v. Trane U.S. Inc., 104 A.3d 556, 562-63 (Pa. Super. 2014)
(citations omitted).
We view the record in the light most favorable to the non-
moving party, and all doubts as to the existence of a genuine
issue of material fact must be resolved against the moving party.
Only where there is no genuine issue as to any material fact and
it is clear that the moving party is entitled to a judgment as a
matter of law will summary judgment be entered.
Motions for summary judgment necessarily and directly implicate
the plaintiff’s proof of the elements of [its] cause of action.
Summary judgment is proper if, after the completion of
discovery relevant to the motion, including the production of
expert reports, an adverse party who will bear the burden of
proof at trial has failed to produce evidence of facts essential to
the cause of action or defense which in a jury trial would require
the issues to be submitted to a jury. Thus, a record that
supports summary judgment will either (1) show the material
facts are undisputed or (2) contain insufficient evidence of facts
to make out a prima facie cause of action or defense and,
therefore, there is no issue to be submitted to the jury.
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H & R Block E. Tax Servs., Inc. v. Zarilla, 69 A.3d 246, 248–49 (Pa.
Super. 2013) (citations omitted); see also Pa.R.Civ.P. 1035.2.
It is settled that because contract interpretation is a question of law,
our review of the trial court’s decision is de novo and our scope of review
plenary. Bair v. Manor Care of Elizabethtown, PA, LLC, 108 A.3d 94, 96
(Pa. Super. 2015).
The fundamental rule in interpreting the meaning of a contract is
to ascertain and give effect to the intent of the contracting
parties. The intent of the parties to a written agreement is to be
regarded as being embodied in the writing itself. The whole
instrument must be taken together in arriving at contractual
intent. Courts do not assume that a contract’s language was
chosen carelessly, nor do they assume that the parties were
ignorant of the meaning of the language they employed. When
a writing is clear and unequivocal, its meaning must be
determined by its contents alone.
Maisano v. Avery, __ A.3d __, 2019 WL 638976 at *4 (Pa. Super. Feb. 15,
2019) (citation omitted). Further, as our Supreme Court has held,
[a] contract is ambiguous if it is reasonably susceptible of
different constructions and capable of being understood in more
than one sense. The “reasonably” qualifier is important: there is
no ambiguity if one of the two proffered meanings is
unreasonable. Furthermore, reviewing courts will not distort the
meaning of the language or resort to a strained contrivance in
order to find an ambiguity. Finally, while ambiguous writings are
interpreted by the finder of fact, unambiguous ones are
construed by the court as a matter of law.
Trizechahn Gateway LLC v. Titus, 976 A.2d 474, 483 (Pa. 2009)
(citations and some quotation marks omitted). In addition, we note the
following.
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[O]il and gas leases are subject to the same contract law
principles that apply to contract interpretation generally. When
a writing is clear and unequivocal, its meaning must be
determined by its contents alone. We must be mindful that the
object in interpreting instruments relating to oil and gas
interests, like any written instrument, is to ascertain and
effectuate the intention of the parties.
In construing a contract, we must give effect to all of the
provisions therein. An interpretation will not be given to one
part of the contract which will annul another part of it.
Porter v. Chevron Appalachia, LLC, __ A.3d __, 2019 WL 493216 at *4-5
(Pa. Super. Feb. 8, 2019) (citations omitted).
Paragraph 4 of the Addendum entitles Mitch to payment in lieu of free
gas if (1) a well is drilled on the lease premises; (2) the well is producing in
paying quantities; and (3) Mitch maintains his primary residence on the
lease premises. Addendum, 1/6/2012 at ¶ 4. The parties do not dispute
that the T. Welter Unit Well is producing in paying quantities and that Mitch
maintains his primary residence on the lease premises. See Trial Court
Opinion, 8/30/2018, at 2; Mitch’s Brief at 25-26. Thus, the primary issue we
are called to determine is whether there is a well drilled on the lease
premises, as provided by paragraph 4 of the Addendum.
The terms “well” and “on the lease premises” are not defined in the
Lease. The term “lease premises” is, however, defined in the Lease as
follows.
All that certain tract of land situate in the Township of Oakland,
County of Butler, Commonwealth of Pennsylvania, and bounded
substantially as follows (the “lease premises”):
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Tax ID 250-1F104-7J and bounded as follows:
On the North by lands now or formerly of: 250-1F04-
5D;
On the East by lands now or formerly of: 250-1F04-
8;
On the South by lands now or formerly of: 250-
1F04-10A;
On the West by lands now or formerly of: 250-1F04-
7F; Fallecker Rd.
and containing 53.28 acres, whether actually containing more or
less; being all or a portion of that certain land described in that
certain deed to Lessor from John J. Stayduhar, dated November
27, 1991 recorded in Book 1906 Page 298 in the Official Records
of said County.
Insofar and only insofar as the lease premises cover depths of
one thousand feet (1000’) below the stratigraphic equivalent of
the base of the Speechly Sandstone Formation being defined at a
depth of approximately 2,578, as seen on the Schlumberger
Compensated Neutron/Litho-Density/Gamma Ray log ran
January 12, 2007 in the PC Exploration, Inc. Steven Lesney et ux
Well Number 1 (API Serial No. 37-019-21438-00) located in
Connoquenessing Township, Butler County, Commonwealth of
Pennsylvania.
Lease, 1/6/2012, at 1.
According to Mitch, paragraph 4 of the Addendum entitles him to
payment in lieu of free gas because a well has been drilled on the lease
premises (i.e., horizontal portion of the T. Welter Unit Well that is drilled
beneath the surface of Mitch’s property). Mitch’s Brief at 16-26. Mitch
argues that the horizontal portion of the T. Welter Unit Well drilled beneath
the surface of his property is a well drilled on the lease premises, as
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contemplated in paragraph 4 of the Addendum. Mitch’s Brief at 16-26.
Mitch contends that the term “well” in paragraph 4 of the Addendum means
either a vertical or horizontal well. Id. at 19. Mitch points to various
paragraphs in the Lease where a vertical or horizontal well is referenced
specifically. Id. at 19-20. As such, Mitch argues, the failure to indicate the
type of well in paragraph 4 of the Addendum means that it includes both. In
addition, Mitch argues that the Lease, when read as a whole, supports his
contention that “on the lease premises” indicates proximity and
encompasses both on and beneath the surface. Id. at 21-25.
XTO, on the other hand, maintains that to receive payment under
paragraph 4 of the Addendum, a well must be drilled on the surface of the
lease premises, not beneath. Id. at 6-8, 10-23. XTO argues that Mitch is
not entitled to payment under paragraph 4 of the Addendum because the T.
Welter Unit Well is not drilled on the surface of Mitch’s property, but rather,
beneath it. Id. XTO argues the ordinary meaning of the word “on” means
on the surface of the leased premises, and points to 46 provisions in the
Lease and Addendum where the term “on the lease premises” is used to
refer to surface activities. Id. at 13-18.
In interpreting paragraph 4 of the Addendum against Mitch, the trial
court reasoned as follows.
When read as a whole, the only reasonable interpretation
of paragraph [] 4 of the Addendum is that Mitch would receive
payment in excess of the royalties and bonus, and in lieu of free
gas[,] where his primary residence was on the drilling land, and
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a vertical drilling mechanism, or well pad, was constructed on
the surface of his[] property. It makes no reasonable or
rational sense that XTO would contract for an additional benefit
in favor of Mitch where there is no additional detriment to Mitch,
i.e., disruptive operations related to the vertical surface
components of a well. To do so[] would be more of a charitable
act than is reasonable to find as part of a business transaction
for profit.
If XTO was [sic] to construct the vertical portion of the well
on the surface of Mitch’s land, i.e., the well pad including access
roads, pipeline, tanks, equipment, and/or any associated
facilities, there would be a loss of enjoyment and/or disruption in
Mitch’s use of his land such that further payment to him by XTO
would be appropriate. Conversely, if XTO merely drills
horizontally far below the surface of Mitch’s land, there is no
greater detriment to Mitch than that which was contracted for in
exchange for royalty and bonus payments. Pursuant to the
Lease and Addendum [], Mitch is already being compensated in
the form of bonus and royalty payments for the rights he has
leased to XTO. Consequently, further payment without further
disruption would not make logical, consistent, or reasonable
sense.
Thus, it is clear that the parties’ intentions to contract for
the possibility of the scenario as described above, i.e., vertical
well components being constructed on the surface of Mitch’s
land, did not come to fruition. Accordingly, Mitch is not entitled
to the additional payment in lieu of free gas, as provided for in
paragraph [] 4 of the Addendum [].
Trial Court Opinion, 8/30/2018, 6-7 (party designation, capitalization and
some emphasis altered). We discern no error in the trial court’s analysis.
Specifically, we conclude that the trial court properly determined that
the language of paragraph 4 of the Addendum is unambiguous. See id. at
6. Our review of the Lease and Addendum as a whole leads us to ascertain
the parties’ intent in using the phrase “on the lease premises” in paragraph
4 of the Addendum to mean on the surface of the lease premises. To
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require XTO to pay in this situation would be an unreasonable interpretation
that does not effectuate the intention of the parties. See Trizechahn
Gateway LLC, supra; see also RESPA of Pa., Inc. v. Skillman, 768 A.2d
335, 340 (Pa. Super. 2001) (“A contract is not ambiguous merely because
the parties do not agree on its construction.”) (citation omitted).
Under paragraph 4 of the Addendum, a surface owner is not entitled to
payment in lieu of free gas unless, inter alia, a well is drilled on the lease
premises. It is unreasonable to find that the parties intended to compensate
a surface owner (who may be different from the lessor) where a well,
situated on the surface of another’s property, has a horizontally-drilled
portion that traverses the surface owner’s land thousands of feet beneath
the surface. This interpretation is furthered by the fact that payment is to a
surface owner, intending to compensate for operations on the surface of the
property. See also Lease, 1/6/2012, at ¶ 14 (providing, inter alia, payment
to surface owner for agricultural crop damages due to XTO’s well pad
locations). Moreover, the second use of the phrase “on the lease premises”
in paragraph 4 of the Addendum, which requires a surface owner to have his
primary residence “on the lease premises” supports this interpretation.
Addendum, 1/6/2012, at ¶ 4. Surely, the parties’ intent in using this phrase
with respect to the primary residence was to require a primary residence on
the surface of property.
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Mitch’s arguments that paragraph 4 of the Addendum includes
horizontal wells and the use of the term “on” means proximity to the surface
do not create ambiguity. We should not “distort the meaning of the
language or resort to a strained contrivance in order to find an ambiguity.”
Trizechahn Gateway LLC, 976 A.2d at 483; Kripp v. Kripp, 849 A.2d
1159, 1163 (Pa. 2004) (“When the terms of a written contract are left
undefined, they are to be given their ordinary meaning.”). Here, in
construing the word “on” in its ordinary sense and reading the Lease and
Addendum together as a whole, we conclude that the only reasonable
interpretation of “on the lease premises” is to mean on the surface of the
lease premises. Accordingly, because a well is not drilled on the surface of
the lease premises, Mitch is not entitled to compensation pursuant to
paragraph 4 of the Addendum.
In light of the foregoing, we affirm the order of the trial court.3
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/12/2019
3 Due to our disposition, we need not address Mitch’s remaining issue.
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