120 F. Supp. 3d 425
W.D. Pa.2015Background
- In 1961 the Burigs executed a three-page "dual purpose" oil & gas lease (the 1961 lease) granting production, storage, and protection rights; habendum clause extended the lease beyond a 10-year primary term if the land was used for production, storage, or protection of stored gas.
- The Masons now own a 151-acre parcel that lies on the eastern edge of Columbia’s Donegal Storage Field protective area (but not over the storage reservoir); no production well was ever drilled on the parcel during the 1961 lease primary term.
- Columbia (successor to the original lessee) operated the Donegal storage field, paid annual acreage rentals to the Burigs/Masons after 1971, and in 2005 subleased or assigned production rights to Range (predecessor to Range Resources-Appalachia LLC); NiSource later succeeded Columbia’s interests.
- In 2007 the Masons signed a separate production lease with Range; that lease expired in 2010 without drilling. The Masons sued seeking a declaration that production rights reverted to them.
- At bench trial the court found the 1961 lease ambiguous on some payment terminology, credited experts for defendants on storage-field boundaries, and concluded the 1961 lease remained in effect because use of the land for protection of stored gas continued the lease into the secondary term.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether use of the Masons' land for protection of adjacent stored gas extended the 1961 lease beyond its 10-year primary term | Mason: protection of stored gas on neighboring lands was not within the habendum unless production/storage on the leased premises first occurred; hence lease expired | Defendants: the habendum and granting clauses expressly allow extension for storage or protection of stored gas on adjoining or neighboring lands; protective area is part of the storage field | Held: Court found the lease unambiguous in permitting extension for protection of stored gas on adjoining lands; lease continued into secondary term. |
| Whether the annual $165 acreage payment was merely a delay rental (insufficient consideration) or a storage/protection rental (sufficient) | Mason: the payment is a delay rental and thus cannot sustain the lease after the primary term | Defendants: the parties’ course of conduct and lease language show the payment served as storage/protection rental after the primary term | Held: Court found ambiguity resolved by extrinsic evidence (course of dealing) showing parties intended the payments to serve as storage/protection rentals; consideration adequate. |
| Whether the 2005 sublease/assignment and the 2007 Mason–Range lease operated as a novation extinguishing the 1961 lease | Mason: the 2005 transfer severed production rights; the 2007 lease between Range and the Masons was a novation replacing the 1961 lease, so rights reverted when the 2007 lease expired | Defendants: no evidence of mutual intent to extinguish the 1961 lease; 2005 instrument did not alter the 1961 lease terms | Held: No novation; plaintiffs failed to prove intent to extinguish and replace the 1961 lease. |
| Whether plaintiffs are bound by factual allegations in their complaint about Donegal storage | Mason: should be allowed to amend or avoid those allegations as unjust | Defendants: complaint statements are binding judicial admissions | Held: Court treated specified complaint paragraphs as binding judicial admissions that the land is in the Donegal protective area and used for protection of stored gas. |
Key Cases Cited
- Spence v. ESAB Grp., Inc., 623 F.3d 212 (3d Cir.) (federal court must follow state supreme court when applying state law)
- Lesko v. Frankford Hosp.-Bucks Cnty., 15 A.3d 337 (Pa. 2011) (contract construction seeks parties' intent; clear writings control)
- T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261 (Pa.) (general rule that contract law governs lease interpretation)
- Jacobs v. CNG Transmission Corp., 332 F. Supp. 2d 759 (W.D. Pa.) (discussion of "dual purpose" leases and common lease provisions)
- Penneco Pipeline Corp. v. Dominion Transmission, Inc., [citation="300 F. App'x 186"] (3d Cir.) (storage use and payment can extend leases into secondary term)