W.W. McDonald Land Co. v. EQT Production Co.
983 F. Supp. 2d 790
S.D.W. Va2013Background
- Dispute over royalties from fourteen oil and gas leases owned by plaintiffs; defendants deduct post-production costs and royalties may be based on wellhead or market price.
- EQT Production purchased the leases in February 2000; in 2005 reorganized into EQT Gathering entities and related firms; post-2005 structure separates production from gathering and energy entities.
- Plaintiffs contend Tawney and Wellman prohibit post-production monetary deductions and require royalties on market price; dispute involves monetary deductions and ‘volume deductions’ for unsold gas.
- Undisputed facts: from 2000–2005 EQT Production paid post-production costs and passed some to plaintiffs via flat per-unit charges; after 2005, defendants claim no monetary deductions were taken and royalties are based on wellhead price less gathering charges.
- Plaintiffs sue for multiple counts including breach of contract (Count II); defendants move for summary judgment on several counts; court analyzes under West Virginia law and Tawney/Wellman framework.
- Clarifications and rulings address monetary deductions under leases (l) and (m), royalties on lost volumes, and fuel gas; court ultimately grants partial or full relief on Count II and addresses other claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Post-production monetary deductions allowed under leases (l) and (m) | plaintiffs contend Tawney bars post-production deductions unless lease expressly provides otherwise | defendants argue leases authorize monetary deductions or allow them under Tawney framework | Monetary deductions under (l) and (m) are not allowed; only specific deductions (compression, desulphurization, transportation) to the extent reasonable may be permitted |
| Royalties on lost volumes (volume deductions) | Tawney requires royalties on market-based value including volume losses | volume losses are not deductions; royalties should be based on sold volume | Royalties are payable only on gas actually sold; Tawney does not require royalties on unsold volumes |
| Retroactivity of Tawney | Tawney should apply to older leases | retroactivity should be limited | Tawney applies retroactively to leases and conduct at issue |
| Non-lessee defendants' liability for breach of contract | non-lessees may be vicariously liable via joint venture or conspiracy | non-lessees were not in privity and cannot owe contractual duties | Non-lessee defendants denied summary judgment on contract; genuine disputes remain regarding vicarious liability |
| Statute of limitations on tort claims | tolling or discovery rule extends limitations for certain tort claims | limitations applicable; some claims time-barred due to tolling agreements | Two-year tolling schedule applies to tort claims; partial tolling based on class-action agreements; some claims barred prior to applicable dates |
Key Cases Cited
- Estate of Tawney v. Columbia Natural Resources, LLC, 219 W.Va. 266, 633 S.E.2d 22 (W. Va. 2006) (establishes heightened specificity requirements for post-production cost deductions)
- Wellman v. Energy Resources, Inc., 210 W.Va. 200, 557 S.E.2d 254 (W. Va. 2001) (implied duty to market; lessee bears post-production costs unless lease provides otherwise)
- Kanawha Valley Bank v. United Fuel Gas Co., 121 W.Va. 96, 1 S.E.2d 875 (W. Va. 1939) (royalty based on market value; production taxes not deductible)
- Cotiga Development Co. v. United Fuel Gas Co., 128 S.E.2d 626 (W. Va. 1962) (royalties based on price received; deductions rule discussed in market context)
- Imperial Colliery Co. v. OXY USA Inc., 912 F.2d 696 (4th Cir. 1990) (royalties based on market price; post-production deductions not allowed)
- Dunn v. Rockwell, 689 S.E.2d 255 (W. Va. 2009) (limits on tolling and statute-of-limitations analysis for actions)
- Grass v. Big Creek Dev. Co., 84 S.E. 750 (W. Va. 1915) (fiduciary duties between lessee and lessor discussed)