Hildebrand, J. v. EQT Production
165 A.3d 969
Pa. Super. Ct.2017Background
- Parties: Jon and Ellen Hildebrand (lessors) sued EQT Production Co., Equitrans, L.P., Max Schinkovec and others over royalty allocations under a 1928 Hupp oil-and-gas lease and 2009 lease modifications.
- The Hupp Lease (1928) contained a non-apportionment provision directing royalties to the owner of the particular tract where a well is located (i.e., royalties follow the surface tract with the well).
- In 2009 EQT executed four lease modifications (Hildebrand, Long, Schinkovec, Schmidt) adding pooling/unitization language; only the Hildebrand modification contained a paragraph (¶5) addressing reduction of royalties if a lessor owned less than the entire undivided fee (a “lesser interest” clause).
- EQT formed the Hildebrand #1 unit (2011) including acreage from the Hupp lease that did not include any of Schinkovec’s land, yet EQT credited Schinkovec with a 1.34% net revenue interest in the unit and paid royalties to him.
- The trial court interpreted ¶5 of the Hildebrand modification as amending the Hupp Lease’s non-apportionment rule—concluding the modifications converted the lease to an apportionment lease and granted summary judgment to EQT and Schinkovec; Hildebrand appealed.
- The Superior Court reversed, holding the trial court misread ¶5 (it is a lesser-interest clause) and that the 2009 pooling/unitization language did not entitle Schinkovec (whose land was not in the unit) to unit royalties; remanded for relief requested in Hildebrand’s declaratory-counts.
Issues
| Issue | Plaintiff's Argument (Hildebrand) | Defendant's Argument (EQT/Schinkovec) | Held |
|---|---|---|---|
| Whether 2009 lease modifications nullified the Hupp Lease non-apportionment clause | ¶5 in Hildebrand modification is a lesser-interest clause and did not change non-apportionment; royalties should follow the tract with the well | Modifications (including ¶5) amended the lease so royalties are apportioned among owners of leased acreage included in a unit | Court held the trial court erred: ¶5 is a lesser-interest clause and did not nullify non-apportionment; modifications did not convert lease into apportionment lease |
| Whether ¶5 in the Hildebrand modification applies to all lessors | ¶5 was specific to Hildebrand to adjust royalties for Hildebrand’s mistaken acreage and was not in Long/Schinkovec mods | EQT argued the modifications together operate to apportion royalties among all Hupp-lessees | Held ¶5 appears only in Hildebrand modification and was correctly read as a proportionate-reduction (lesser-interest) clause for Hildebrand, not a universal apportionment amendment |
| Whether Schinkovec is entitled to unit royalties though his land was not pooled into the unit | Hildebrand: Schinkovec’s land was not in the unit, so he is not entitled to unit royalties | EQT: assigned Schinkovec a share based on his percentage of Hupp-lease acreage and the unit calculations | Held Schinkovec’s land was not pooled; no language in his modification entitles him to unit royalties; trial court erred in awarding him unit proceeds |
| Whether the trial court properly invoked law-of-the-case based on its prior rulings | Hildebrand: prior rulings misinterpreted ¶5; law-of-the-case should not foreclose reconsideration of that legal error | Defendants: prior rulings resolved the issue and lower court properly followed them | Held Superior Court concluded lower court was not bound to uphold its earlier erroneous interpretation and corrected the error on appeal |
| Whether Wettengel/apportionment rule governs after modern pooling for horizontal wells | Hildebrand: pooling/unitization clauses govern royalty allocation for pooled acreage; Wettengel non-apportionment survives unless clearly amended | EQT: industry changes and 2009 modifications reflect apportionment approach under Wettengel principles | Held court applied contract text: pooling clauses determine unit royalty allocation; no clear amendment to Hupp non-apportionment clause was found, so Wettengel did not override the lease terms here |
Key Cases Cited
- Wettengel v. Gormley, 39 A. 57 (Pa. 1898) (establishes Pennsylvania’s apportionment rule upon subdivision of leased tracts)
- Kepple v. Fairman Drilling Co., 551 A.2d 226 (Pa. Super. 1988) (explains proportionate-reduction/lesser-interest clause purpose and effect)
- Reinoso v. Heritage Warminster SPE, LLC, 108 A.3d 80 (Pa. Super. 2015) (standard of review for summary judgment)