Arthur and Virginia Thornsbury v. Cabot Oil & Gas

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2013 Term
FILED
_______________
September 26, 2013
released at 3:00 p.m.
No. 12-0152 RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
_______________ OF WEST VIRGINIA
ARTHUR THORNSBURY and
VIRGINIA THORNSBURY,
Petitioners
v.
CABOT OIL & GAS CORPORATION,
Respondent
____________________________________________________________
Appeal from the Circuit Court of McDowell County
The Honorable Booker T. Stephens, Judge
Civil Action No. 08-C-255-S
Reversed and Remanded
____________________________________________________________
Submitted: September 4, 2013
Filed: September 26, 2013
Christopher L. Brinkley, Esq. Timothy M. Miller, Esq.
The Masters Law Firm, LC Christopher L. Hamb, Esq.
Charleston, West Virginia Robinson & McElwee, PLLC
Counsel for the Petitioner Charleston, West Virginia
Counsel for the Respondent
The Opinion of the Court was delivered PER CURIAM.
CHIEF JUSTICE BENJAMIN and JUSTICE LOUGHRY concur, in part, and dissent, in
part, and reserve the right to file separate opinions.
SYLLABUS
“A valid, unambiguous written contract may be modified or superseded by
a subsequent contract based on a valuable consideration.” Syllabus Point 1, Lewis v. Dils
Motor Co., 148 W.Va. 515, 135 S.E.2d 597 (1964).
i
Per Curiam:
In this appeal from the Circuit Court of McDowell County, we are asked to
examine an order granting summary judgment to a defendant oil and gas developer. The
circuit court found that the defendant was immune from liability for damages to the
surface of a tract of land owned by the plaintiffs because of an exculpatory clause in a
1941 deed of the tract to a predecessor of the plaintiffs. The plaintiffs, however, assert
that the defendant is liable for breaching a subsequent 2006 written contract that
superseded the 1941 deed.
Upon appeal by the plaintiffs, we reverse the circuit court’s order and
remand the case for further proceedings.
I.
FACTUAL AND PROCEDURAL BACKGROUND
In 2001, petitioners (and plaintiffs below) Arthur and Virginia Thornsbury
bought the surface estate of a tract of land, about 30 acres in size, in McDowell County.
The parties agree that the Thornsburys own only the surface of the tract, and that the Tug
Fork Land Company owns all of the oil and gas underlying the tract.
Respondent Cabot Oil & Gas Corporation (“Cabot”) claims that, in 1949, it
leased the rights to the gas under the tract.1 In 2006, Cabot approached the Thornsburys
1
On September 26, 2006, Arthur Thornsbury signed an affidavit
acknowledging Cabot as “the oil and gas leasehold interest owner in and to” the
Thornsburys’ land.
1
seeking permission to build a road on the surface of the tract of land so it could install a
natural gas well. On May 24, 2006, the Thornsburys and Cabot entered into a written
contract allowing Cabot to build a 200-foot access road, and in exchange Cabot agreed to
pay the Thornsburys $500.00. The contract, styled “Right-of-Way Grant,” was signed by
both of the parties. It states that the road would be built:
Upon the route described in general terms as follows:
Beginning at Negro Branch [Creek] thence running in an
easterly direction to and with the line of [the adjoining
property owned by] Shirley B. Vance. . . .
While most of the contract is typed, a hand-written interlineation says that the road to be
built by Cabot would be only 200 feet in length.2 Cabot further agreed that, in building
the road, it “shall stack all timber ten (10) inches and larger.”
Shortly thereafter, Cabot prepared an “Access Road Right-of-Way
Acquisition Report.” This document, dated June 7, 2006, again states that Cabot had
acquired, for $500.00, a right of way with “Length: 200 (approx.) feet.” The “special
provisions” for the right of way included a duty by Cabot to “Stack timber 10 inches and
2
The May 24, 2006 contract states, in pertinent part (and with handwritten
interlineations in italics):
Cabot Oil & Gas Corporation will pay within 45 days of
receipt of the subject Access Road Right-of-Way 200’
properly executed, the sum of Three Five Hundred and
no/100 Dollars ($300.00 $500.00) which represents the full
consideration for said Access Road Right-of-Way . . .
The handwritten interlineations were initialed by Cabot’s representative and by the
Thornsburys.
2
larger.” A later letter by Cabot to the Thornsburys, and a Well Work Permit issued by
the West Virginia Department of Environmental Protection, similarly say that “[a]ny
salvageable timber will be cut and stacked to the side of the roadway or removed to a
stockpile area” by Cabot.
Cabot later entered onto the Thornsburys’ surface tract and constructed a
roadway approximately 1,300 feet long. Cabot drilled a natural gas well, and allegedly
erected an above-ground pipeline across the tract, bisecting the tract and making a portion
of it inaccessible. In building the road, drill site and pipeline, Cabot allegedly failed to
stack any timber.
On October 10, 2008, the Thornsburys sued Cabot. In their complaint, they
alleged that Cabot had breached the May 2006 Right-of-Way Grant contract by building
a road longer than 200 feet, building it in the wrong location, and by failing to stack the
timber that had been cut. The Thornsburys also sought the value of the surface estate
used by Cabot for the placement of the well and for the above-ground pipeline, neither of
which were addressed in or relate to the Right-of-Way Grant. The Thornsburys alleged
that Cabot’s placement of the well and pipeline had rendered large portions of their
property worthless because it interfered with their ability to access and remove timber, or
to use the tract for four-wheeling.
During discovery, Cabot asserted that it had the right to engage in mineral
development pursuant to a 1949 lease from the mineral owner, and that the 2006 Right-
of-Way Grant was not binding and had only been executed “out of an abundance of
3
caution.”3 The Thornsburys countered that the 1949 lease between Cabot and the mineral
owner required Cabot to “bury all permanent oil and gas lines . . . [to] at least plow
depth” and to pay “for all timber that it is necessary to cut and for all damages done to
timber, fences, buildings, or crops, or other property[.]”4 The Thornsburys were not a
party or in privity to this lease.
3
Cabot’s answer to the Thornsburys’ complaint states:
[Cabot] avers that it had the right to build the roadway across
the Thornsbury property pursuant to that certain lease dated
October 22, 1949. . . . [Cabot] nevertheless entered into the
Right-of-Way with the [Thornsburys] . . . out of an abundance
of caution to make sure they had ratified and confirmed their
right to build a roadway across the surface property, and to
remove any potential dispute as to the location of the surface
property boundaries due to the ambiguous nature of the
property descriptions for the surface properties.
4
In their brief, it appears that the Thornsburys are attempting to develop a
theory that they are beneficiaries of the sixth clause of the 1949 lease from the mineral
rights owner to Cabot, which states:
[Cabot] shall, when required by Lessor, bury all
permanent oil and gas lines across improved or cultivated
property at least plow depth, and shall pay Lessor or any coal
mining or other lessees of Lessor, as their respective interests
may appear, for all timber that it is necessary to cut and for all
damages done to timber, fences, buildings, or crops, or other
property, in any operations of [Cabot].
The Thornsburys’ brief also asserts that the 1949 lease required Cabot to
drill its well within five years, or the lease expired. In 1964, Cabot signed a new lease
extending the 1949 lease, and the lease was again for a five-year period or for as long as
oil and gas were produced. The Thornsburys contend that because no well was drilled (or
oil and gas produced) on their 30-acre tract until 2007, the 1949 and 1964 leases had
long-since expired. Cabot, however, claims that the leases were for oil and gas
(continued . . .)
4
In October 2011, after the conclusion of discovery, Cabot filed a motion for
summary judgment. Attached as an exhibit to the motion was a May 19, 1941, deed that
created the 30-acre surface estate now owned by the Thornsburys. The 1941 deed
severed “the surface and surface only” of the 30-acre tract from all of the minerals below,
and reserved to the grantor “all the coal, oil, gas, stone, water and other minerals of every
kind and character in, on, and underlying said land[.]”
Cabot asserted it was entitled to summary judgment because of an
exculpatory clause within the 1941 deed. That exculpatory clause states that the grantor
(McDowell-Wyoming Land Company) reserved to itself
the right on the part of the grantor, its successors, lessees and
assigns, at any time or times hereafter to mine and remove
any and all of said coal and other minerals and to engage in
any and all undertakings in, upon, under and across said land
which the grantor, its successors, lessees and assigns may at
any time deem expedient, all without liability on the part of
the grantor, its successors, lessees and assigns, to the
grantees, or to any person or persons claiming or to claim
through or under the grantee for any injury to the surface of
said land or to any structure or other property thereon by
reason of such mining or removing of such coal and other
minerals or by reason of caving or pumping out or the escape
of water on said land, or by placing thereon refuse from any
mine or mines; the right to drill, sink, construct and operate
in, and upon said land all such prospect holes, prospect shafts
or water and hoisting shafts, and all such slopes as the
grantor, its successors, lessees and assigns shall at any time
deem expedient, and to have and use sufficient right of way to
and from the same; the right to appropriate and use the
surface of said land at or about any prospect, air, water or
underlying 2,129 acres, of which the Thornsburys’ 30-acre tract is but a small part, and
claims it “has been in full force and effect since its inception.”
5
hoisting shafts; the right to transport upon, under and across
said land coal and other minerals to and from any other lands
that are now or that any time hereafter may be owned or
leased by the grantor, its successors, lessees and assigns; the
right to transport upon, under and across said land to and
from any other lands that are now or that at any time hereafter
may be owned or leased by the grantor, its successors, lessees
and assigns, workmen, material and supplies; the right to use,
operate, maintain, replace, change the location of, and remove
any wells, pumps, pipe lines, tanks, and filter plants now
upon said land.
Cabot contended that, as a lessee of the oil and gas under the property, it was a
beneficiary of the 1941 exculpatory clause and entitled to operate on the Thornsburys’
tract “all without liability . . . for any injury to the surface of said land or to any structure
or other property thereon by reason of . . . removing . . . minerals[.]”
The Thornsburys objected to Cabot’s reliance upon the 1941 deed because
the deed had never been produced during discovery. Furthermore, they claimed that the
exculpatory clause in the 1941 deed was unenforceable because it was unconscionable
and against West Virginia public policy. The Thornsburys noted that the Legislature
statutorily banned the use of exculpatory clauses in deeds after 1983.5 They therefore
asserted that the circuit court should have ignored the 1941 exculpatory clause.
5
As we discuss later, the Oil and Gas Production Damage Compensation
Act, West Virginia Code § 22-7-1 to -8, requires oil and gas developers to pay the owner
of the surface estate damages caused by drilling operations. W.Va. Code § 22-7-1(c)
[1994] bans exculpatory clauses and states:
(c) The Legislature declares that the public policy of this state
shall be that the compensation and damages provided in this
article for surface owners may not be diminished by any
provision in a deed, lease or other contract entered into after
(continued . . .)
6
Additionally, the Thornsburys argued to the circuit court that Cabot was
bound by the 2006 contract. The Thornsburys asserted, regardless of the 1941 deed or
any other document, that Cabot agreed in writing in the 2006 Right-of-Way Grant to
build only a 200 foot long road, and agreed to stack all cut timber 10 inches and larger.
They therefore contended that summary judgment was improper and that they were
entitled to a trial on whether Cabot breached the agreement, and the extent of their
damages.
In an order dated January 4, 2012, the circuit court granted Cabot’s motion
for summary judgment. The circuit court found no questions of material fact, and relied
solely upon the exculpatory clause in the 1941 severance deed, which it called “a
covenant against liability . . . for damages to the surface estate caused by [Cabot’s]
activities in exploiting its mineral oil and gas interests.” It found that this “reservation [of
minerals] and covenant against liability are clear, unambiguous and run with the land . . .
[and] are each fully enforceable[.]” The circuit court found no error in Cabot’s late
production of the 1941 deed because the Thornsburys “have been on notice of the
Severance Deed since the date it was recorded more than seventy (70) years ago.” As a
matter of law, the circuit court found that the Thornsburys had “no proper claim against
[Cabot] for breach of contract for exceeding the terms of the [2006] Right-of-Way
[Grant] . . . because [Cabot’s] use of the surface of the Property does not exceed the
the ninth day of June, one thousand nine hundred eighty-
three.
7
rights in and to the use of the surface of the Property as defined by the reservation
contained in the [1941] Severance Deed.”
The Thornsburys now appeal the circuit court’s January 4, 2012, summary
judgment order.
II.
STANDARD OF REVIEW
We review a circuit court’s entry of summary judgment de novo. Syllabus
Point 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). “A motion for
summary judgment should be granted only when it is clear that there is no genuine issue
of fact to be tried and inquiry concerning the facts is not desirable to clarify the
application of the law.” Syllabus Point 3, Aetna Casualty & Surety Co. v. Federal
Insurance Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).
III.
ANALYSIS
The Thornsburys’ best argument for why the circuit court erred in granting
summary judgment is that a party’s contractual obligations cannot be “pre-empted” by an
exculpatory clause in a deed between different parties executed seven decades before the
contract. The Thornsburys argue that Cabot contractually agreed in 2006 to build a road
only 200 feet long, and to stack any cut timber 10 inches or greater in diameter. After
review of the record, we agree that the circuit court erred. As we discuss below, the
Thornsburys should be allowed to prove that Cabot breached the provisions of the 2006
agreement, and that Cabot may be liable for damages arising from this breach.
8
A deed is nothing more than “a written, contractual agreement reflecting
the parties’ intent.” Faith United Methodist Church v. Morgan, 231 W.Va. 423, 443, 745
S.E.2d 461, 481 (2013). See also Cabot Oil & Gas Corp. v. Huffman, 227 W. Va. 109,
117, 705 S.E.2d 806, 814 (2010) (a “deed reflects the agreement” of the seller and buyer,
and as such, a “deed is a contract.”); Syllabus Point 2, Koen v. Kerns, 47 W.Va. 575, 35
S.E. 902 (1900) (a “deed represents the final contract of the parties” for the sale of
property); Am. Buttonhole, Overseaming & Sewing Mach. Co. v. Burlack, 35 W.Va. 647,
652, 14 S.E. 319, 320 (1891) (“A deed is a writing or instrument, written on paper or
parchment, sealed and delivered, to prove and testify the agreement of the parties whose
deed it is, to the things contained in the deed.”). Deeds “are much more solemn than the
usual unsealed agreement not acknowledged for record,” Southern v. Sine, 95 W.Va. 634,
638, 123 S.E. 436, 437-38 (1924), and are “instruments executed with formality,” Donato
v. Kimmins, 104 W.Va. 200, 204, 139 S.E. 714, 715 (1927), but they are contracts
nonetheless.
It is a well-established, fundamental principle of contract law that a valid,
unambiguous written contract may be modified or superseded by a subsequent contract
based on a valuable consideration. As we said in Syllabus Point 1 of Lewis v. Dils Motor
Co., 148 W.Va. 515, 135 S.E.2d 597 (1964), “A valid, unambiguous written contract may
be modified or superseded by a subsequent contract based on a valuable consideration.”
See also, Wilkinson v. Searls, 155 W.Va. 475, 484, 184 S.E.2d 735, 741 (1971) (“A valid,
unambiguous written contract may be modified or superseded by a subsequent written or
parol contract but only if the subsequent contract is based upon a valuable
9
consideration.”); Syllabus Point 2, State ex rel. Coral Pools, Inc. v. Knapp, 147 W.Va.
704, 131 S.E.2d 81 (1963) (“A written contract may be altered or supplemented by a
valid parol contract subsequently made.”); Wyckoff v. Painter, 145 W.Va. 310, 315, 115
S.E.2d 80, 84 (1960) (“a written contract in some situations may be modified by the
conduct of the parties or by a subsequent parol contract.”); Syllabus Point 1, Sanford v.
First City Co., 118 W.Va. 713, 192 S.E. 337 (1937) (“A written contract may be
modified by the subsequent conduct of the parties thereto with relation to the same
subject matter.”); and Simpson v. Mann, 71 W.Va. 516, 518, 76 S.E. 895, 896 (1912)
(“Everywhere we find the law to be that a new or changed contract will take the place of
or modify a former written contract[.]”).
The record establishes that in 2006, Cabot and the Thornsburys contracted
that Cabot (1) would build a road 200 feet in length on the 30 acre tract, (2) would build
it in the location described in the right-of-way agreement, and (3) would stack any timber
it cut that was 10 inches or larger. Cabot paid the Thornsburys $500.00 in consideration
for the contract rights. Cabot allegedly constructed a road that was 1,100 feet longer in a
different location and disposed of the timber it cut.
Assuming that the exculpatory clause in the 1941 deed is valid,
unambiguous, and applies to the parties,6 it was superseded by the 2006 contract on three
6
Cabot entered no clear evidence before the circuit court to suggest that it
is a beneficiary of the 1941 deed. We accept, for purposes of this Opinion, the
representation of Cabot’s counsel that the 1941 deed is valid, unambiguous, and
applicable to the parties. Furthermore, neither we, nor the circuit court, nor the parties
have parsed the language of the exculpatory clause to explain the extent of its
(continued . . .)
10
points: the length of the road to be constructed on the Thornsburys’ estate, the location of
the road, and the stacking of certain timber. On these three allegations by the
Thornsburys, the circuit court plainly erred in finding that no genuine question of
material fact remained for resolution.7 The Thornsburys fairly alleged in their complaint
that Cabot had agreed to limit the length of the road it constructed, to construct it in the
location set out in the agreement, and to stack any timber it cut that was 10 inches or
greater in diameter, and that it had breached its agreement.
applicability to Cabot’s situation. We note, however, the general principle in our law that
any ambiguity in the language of a deed “will be construed most strongly against the
grantor,” Syllabus Point 3, West Virginia Dept. of Highways v. Farmer, 159 W.Va. 823,
226 S.E.2d 717 (1976), and a construction “will be adopted which is most favorable to
the grantee.” Syllabus Point 6, Paxton v. Benedum-Trees Oil Co., 80 W.Va. 187, 94 S.E.
472 (1917). See also, Syllabus Point 2, Neekamp v. Huntington Chamber of Commerce,
99 W.Va. 388, 129 S.E. 314 (1925) (“Restrictive covenants are to be strictly construed
against the person seeking to enforce them, and all doubts must be resolved in favor of
natural rights and a free use of property, and against restrictions.”).
7
The Thornsburys assert the circuit court erred in several other ways.
Significantly, they contend that exculpatory clauses like that in the 1941 severance deed
are unconscionable, against West Virginia public policy, and are unenforceable. We
decline to consider this argument.
The Thornsburys also assert that the circuit court erred in ruling that the
Thornsburys failed to join some unnamed, “indispensable parties” to their lawsuit. Rule
12(b)(7) of the Rules of Civil Procedure requires a defendant to assert an objection to the
plaintiff’s “failure to join a party under Rule 19” in its first responsive pleading,
something Cabot does not appear to have done. Furthermore, the primary remedy for a
plaintiff’s failure to join a necessary party is not dismissal of the action, but rather to join
the party needed for a just adjudication. See Rule 19. However, since the circuit court
granted summary judgment under Rule 56, and not dismissal under Rule 19(b), we
decline to consider this argument as well.
11
The Thornsburys, however, allege that they are entitled to additional
damages that do not arise from any breach of the 2006 contract. They allege in their
complaint they have a right to seek additional damages from Cabot because the contract
did not allow Cabot to construct, maintain or operate a natural gas well on, or gas
pipeline across, their surface estate. The Thornsburys also claim they are entitled to
damages because the pipeline obstructs their use of a portion of their surface estate; for
instance, they assert they can no longer access part of their land to extract timber.
West Virginia grants a surface owner certain common law remedies and
statutory remedies that are non-contractual when an oil and gas developer damages the
surface of their property.
First, the general, common law rule in West Virginia is that a mineral
owner or developer has the right to enter the overlying surface estate, but only to do that
which is “fairly necessary” or “reasonably necessary” for the extraction of the mineral. It
is firmly established that the owner of a mineral estate has, “as incident to this ownership,
the right to use the surface in such manner and with such means as would be fairly
necessary for the enjoyment of the mineral estate.” Syllabus Point 1, Squires v. Lafferty,
95 W.Va. 307, 121 S.E. 90 (1924). See also, Porter v. Mack Mfg. Co., 65 W.Va. 636, 64
S.E. 853 (1909) (ownership of a mineral estate carries with it “an implied right to use the
surface in such manner and with such means as would be fairly necessary for the
enjoyment” of the mineral estate); Syllabus Point 2, Buffalo Mining Co. v. Martin, 165
W.Va. 10, 267 S.E.2d 271 (1980) (owner of the mineral estate may use the overlying
surface estate “for purposes reasonably necessary to the extraction of the minerals.”);
12
Whiteman v. Chesapeake Appalachia, L.L.C., ___ F.3d ___, ___ (4th Cir., 2013) (Slip Op.
at 12-13, No. 12-1790, Sept. 4, 2013) (“[I]n West Virginia, a mineral estate owner that
enters upon a surface estate owner’s land does so without lawful authority only if, under
the ‘reasonable necessity’ standard, the mineral estate owner ‘exceed[s] its rights . . .
thereby invading the rights’ of the surface estate owner.”). Cf. Faith United Methodist
Church & Cemetery of Terra Alta v. Morgan, 231 W.Va. at 440, 745 S.E.2d at 478 (the
owner of the surface estate has “the right to use the surface for such ordinary uses as may
be made thereof, with the right to use as much of the subsurface as may be necessary for
the customary and ordinary uses of the surface, just as the owner of the subsurface estate
has a correlative right to use the surface in order to develop the subsurface rights.”
(citation omitted)). A reasonable use of a surface estate by a mineral owner generally
includes the construction of a road to access a drilling site. Syllabus Point 2, Coffindaffer
v. Hope Natural Gas, 74 W.Va. 107, 81 S.E. 966 (1914) (a mineral owner “has the right
to build a road over the land, when necessary to haul machinery and material to the place
selected for drilling a well.”).
Whether a surface owner’s rights have been invaded, or whether a mineral
owner has exceeded its rights are questions to be resolved by the court.
In a case where there is a dispute of fact, the jury should find
the facts, and from such finding of facts by the jury it is the
duty of the court to determine whether the use of the surface
by the owner of the minerals has exceeded the fairly
necessary use thereof, and whether the owner of the minerals
has invaded the rights of the surface owner, and thus
exceeded the rights possessed by the owner of such minerals.
Adkins v. United Fuel Gas Co., 134 W.Va. 719, 724, 61 S.E.2d 633, 636 (1950).
13
Second, the West Virginia Legislature has clarified that a surface owner is
entitled to compensation for losses wrongfully caused by an oil and gas developer. The
West Virginia Oil and Gas Production Compensation Act, W.Va. Code §§ 22-7-1 to -8,
was enacted to
provide constitutionally permissible protection and
compensation to surface owners of lands on which oil and gas
wells are drilled from the burden resulting from drilling
operations commenced after the ninth day of June, one
thousand nine hundred eighty-three. . . . This article shall be
interpreted to benefit surface owners, regardless of whether
the oil and gas mineral estate was separated from the surface
estate and regardless of who executed the document which
gave the oil and gas developer the right to conduct drilling
operations on the land.
W.Va. Code § 22-7-1(d) [1994]. The Act goes on to require an oil and gas developer to
pay a surface owner certain damages, including diminution in value of the surface lands,
for any drilling operations commenced after June 9, 1983. W.Va. Code § 22-7-3 [1994].
Further, the Act explicitly preserves “the common law remedies, including damages, of a
surface owner . . . against the oil and gas developer for the unreasonable, negligent or
otherwise wrongful exercise of the contractual right, whether express or implied, to use
the surface of the land for the benefit of the developer’s mineral interest.” W.Va. Code §
22-7-4(a) [1994] (emphasis added).
The Thornsburys do not assert in their complaint causes of action for
violations of the common law or of the Oil and Gas Production Compensation Act. As
the Thornsburys’ case is pled in their complaint, they have only fairly asserted one claim:
for breach of the 2006 right-of-way contract. That contract pertains to Cabot’s promise
14
to build a road only 200 feet in length, the location of the road, and Cabot’s promise to
stack certain timber. Genuine issues of material fact were established on whether Cabot
breached the contract, and it was error for the circuit court to have granted summary
judgment on this question.8
IV.
CONCLUSION
The circuit court’s January 4, 2012, summary judgment order is reversed,
and the case is remanded for further proceedings.
Reversed and Remanded.
8
On remand, the circuit court will need to determine, if raised, whether
Cabot has any liability for the portion of the road that exceeds 200 feet under the
common law “reasonable necessity” standard.
15