J-A13020-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SANDRA L. FISHER, JEANNE E. BELL, IN THE SUPERIOR COURT OF
NANCY L. JORDAN, MARTHA J. KEENEY PENNSYLVANIA
AND JOHN R. CUNNINGHAM,
Appellees
v.
DONOVAN L. POWELL, D/B/A POWELL
SERVICES, L.P.,
Appellant No. 1689 WDA 2014
Appeal from the Order September 19, 2014
In the Court of Common Pleas of Greene County
Civil Division at No(s): A.D. No. 889, 2012
BEFORE: PANELLA, SHOGAN, and OTT, JJ.
MEMORANDUM BY SHOGAN, J.: FILED JULY 07, 2015
Donovan L. Powell, doing business as Powell Services, L.P.
(“Appellant”), appeals from the order entered on September 19, 2014, that
declared an oil and gas lease null and void and entered judgment in favor of
Sandra L. Fisher, Jeanne E. Bell, Nancy L. Jordan, Martha J. Keeney, and
John R. Cunningham (collectively “Appellees”) in this action to quiet title.
We affirm.
The trial court set forth the relevant background of this case as
follows:
On May 5, 2014, sitting without a jury, we heard the
complaint of [Appellees] asking that we quiet title to a tract of oil
and gas lands they own in Whiteley Township. Specifically, they
ask that we declare a certain oil and gas lease dated October 30,
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2006, and of record in Record Book 404 page 968 in the Office of
the Recorder of Deeds of Greene County, to be “deemed
abandoned and relinquished”. Complaint[, 8/28/12, at 6
(unnumbered)].
In 1967, Mary Louise Cunningham, widow, formerly known
as Mary Louise John, conveyed to Harold F. VanDruff and
Gertrude VanDruff 295.179 acres of land in Whiteley Township,
reserving to herself the oil and gas. Complaint Ex. A.
[Appellees] are the heirs of Mary Louise Cunningham. See Deed
of Distribution dated March 15, 2006, Record Book 344 page
312. In 2006, [Appellant] approached [Appellees] about a
possible lease of their oil and gas. There were some discussions
and then [Appellees] signed the “Oil and Gas Lease” dated
October 30, 2006. For our purposes, the relevant language is as
follows:
2. This lease shall continue in force and the rights
granted hereunder be quietly enjoyed by the Lessee
for a period of Three (3) year(s) and so much
longer thereafter as oil or gas or their constituents
are produced or are capable of being produced on
the premises in paying quantities, in the judgment of
the Lessee, or as the premises shall be operated by
Lessee in the search for oil and gas and as provided
in Paragraph Seven (7) following. After Three (3)
years an Annual Delay Rental of Fifteen ($15.00)
Dollars per acre per year shall be paid to Lessor,
which payment shall be made on the anniversary
date of the lease.
3. This lease, however, shall become null and void
and all rights of either party hereunder shall cease
and terminate unless, within twelve (12) months
from the date hereof, a well shall be commenced or
placed into production on the premises. A well shall
be deemed commenced when preparations for
drilling have been commenced. A well shall be
deemed placed into production at such time as a well
is producing gas in marketable [quantities]. A second
well must be commenced or placed into production in
the second twelve (12) months of the Lease on the
same terms and conditions stated herein above.
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***
8. In the event a well drilled hereunder is a
producing well and the Lessee is unable to market to
production therefrom, or should production cease
from a well drilled on the premises, or should the
Lessee desire to shut in producing wells, the Lessee
agrees to pay the Lessor, commencing on the date
one year from the completion of such producing well
or the cessation of production, or the shutting in of
producing wells, an advance royalty in the amount
and under the terms herein above provided for delay
rental until production is marketed and sold off the
premises or such well is plugged and abandoned
according to law.
According to the “Addendum to the Lease”, [Appellees]
were to receive $20,000.00 at signing, $10,040.00 on the first
anniversary and $10,040.00 on the second anniversary. This
money was paid. The Addendum provided for royalties of 20%,
but no royalties have been paid. In 2010, [Appellant] tendered
delay rental to [Appellees] which was not accepted.
[Appellant] has been in the oil and gas business since
1986, mostly for Equitable, but recently on his own. In 2002, he
heard from Greg Barbe, at that time, a Consolidation Coal
Company (Consol) landman, that the company owned a well on
the VanDruff farm known as the R.F. John Well 462 and that it
might be interested in selling. After securing permission from
VanDruff, [Appellant] inspected the well and believed it to be
capable of producing gas in marketable quantities. He hired
Greene County Gas and Oil, Inc., to bail the well and found it
could produce six to eight mcf per day, but after another bailing
session in 2003, production increased to about 14 mcf per day.
He therefore offered to buy and Consol agreed to sell Well 462.
The date of the assignment was November 30, 2006, one month
after the date of the lease. At the moment of the Consol
assignment, [Appellant] was, by his lights [sic], in compliance
with the first part of Paragraph Three of the lease. He had a
producing well on the land encumbered by the lease. By 2012,
says [Appellant], the well was producing approximately 50 mcf
per day, although no gas was going to market.
There was also on the VanDruff farm a methane drainage
borehole apparently drilled by Consol. On June 6, 2008,
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[Appellant] accepted an assignment of this borehole from the
VanDruffs. Ex. 120. [Appellant] says he examined the gas
issuing from the borehole and estimated its production to be 70
mcf (Powell Affidavit, October 3, 2013). He never measured the
flow but relied on his experience with similar wells. He captured
a sample on June 1, 2006, and had it analyzed by Gas
Analytical, Inc. It proved to be a little high in nitrogen and
oxygen, but if blended with the output of Well 462 would be of
pipeline quality, in [Appellant’s] opinion. [Appellant] believed he
had his second well. It is interesting to note that [Appellant]
testified that even though he has owned as many as seven gas
wells, he has never drilled any. His business seems to be
reconditioning old wells.
For years after the execution of the lease, and probably
even before, [Appellant] worked diligently to market the gas.
The problem of course is transportation. He attempted to
reestablish a connection with Equitable Line 311, which had at
one time carried the output of Well 462, but was refused
because of the poor condition of the line. He inquired of
Columbia and Dominion, but their pipelines were some distance
away and intervening surface owners denied him permission to
cross. Each one of these attempts involved negotiations with
various individuals and companies. He even explored the
possibility of moving the gas by truck. Ex. 21.
Meanwhile, [Appellees] were waiting for their royalties. On
February 4, 2009, Attorney Theron G. Noble, on behalf of
[Appellees], wrote to [Appellant] and advised him that the lease
was null and void for failure to produce and failure to complete
two wells. On November 19, 2009, one of the lessors (the letter
is unsigned), wrote to [Appellant] to point out there was no
production of oil and gas and no activity to drill a second and
therefore the lease was null and void. A second letter was sent
on October 20, 2010, demanding evidence that there were two
producing wells on the property. Finally, this action was
commenced on August 28, 2012.
Trial Court Opinion, 8/5/14, at 1-5 (emphasis in original) (footnote omitted).
As noted, Appellees filed the underlying action to quiet title on August
28, 2012. In response, Appellant filed preliminary objections, and on
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September 21, 2012, Appellees filed an amended complaint. Appellant
subsequently filed his answer and new matter, and on November 16, 2012,
Appellees filed their reply to new matter. On August 19, 2013, Appellees
filed a motion for summary judgment that the trial court denied in an order
filed on January 13, 2014. The case proceeded to a two-day nonjury trial
that commenced on May 5, 2014. On August 5, 2014, the trial court found
Appellant in default of his obligations under Paragraph Three of the lease by
failing to produce a second well within the second twelve months of the
term. Trial Court Opinion, 8/5/14, at 8. Therefore, the trial court concluded
that the lease was “null and void.” Order, 8/5/14. Post-trial motions were
filed and denied, and on September 19, 2014, judgment was entered in
favor of Appellees. This timely appeal followed.
On appeal, Appellant raises the following issues for this Court’s
consideration:
1. Did the Trial Court properly place the burden of proof on
[Appellant]?
2. Did the Trial Court properly consider a claim of default of the
Oil and Gas Lease because Well #2 was not proven to be capable
of producing gas in paying quantities?
3. Did the Trial Court properly reject the un-contradicted
testimony of [Appellant], which had been elicited on cross-
examination?
4. Did the Trial Court properly terminate the Oil and Gas Lease
when there had been substantial part performance?
5. Did the Trial Court properly refuse to enter a non-suit after
[Appellees’] case in chief when [Appellees] had offered no
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testimony showing a failure to have two wells capable of
production, but instead had elicited the un-contradicted
testimony of [Appellant] on cross examination that there were
two wells capable of production?
6. Did the Trial Court properly disregard the substantial, and
uncontradicted evidence that there were two wells producing in
paying quantities?
Appellant’s Brief at 3-4.
The relevant standard of review of a trial court’s decision in a nonjury
trial is as follows:
Our review in a non-jury case is limited to whether the findings
of the trial court are supported by competent evidence and
whether the trial court committed error in the application of law.
We must grant the court’s findings of fact the same weight and
effect as the verdict of a jury and, accordingly, may disturb the
non-jury verdict only if the court’s findings are unsupported by
competent evidence or the court committed legal error that
affected the outcome of the trial. It is not the role of an
appellate court to pass on the credibility of witnesses; hence we
will not substitute our judgment for that of the factfinder. Thus,
the test we apply is not whether we would have reached the
same result on the evidence presented, but rather, after due
consideration of the evidence which the trial court found
credible, whether the trial court could have reasonably reached
its conclusion.
Kennedy v. Consol Energy Inc., ___ A.3d ___, 2015 PA Super 93, *12
(Pa. Super. 2015) (citations and quotation marks omitted). Moreover, a
lease is in the nature of a contract, and it is controlled by principles of
contract law. T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261, 267
(Pa. 2012) (citation omitted). The lease must be construed in accordance
with the terms of the agreement as manifestly expressed, and “the accepted
and plain meaning of the language used, rather than the silent intentions of
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the contracting parties, determines the construction to be given the
agreement.” Id. (citations omitted). The party seeking to terminate a lease
bears the burden of proof. Id. It is well settled that “[w]hen performance
of a duty under a contract is due, any nonperformance is a breach.”
Widmer Engineering, Inc. v. Dufalla, 837 A.2d 459, 467 (Pa. Super.
2003) (citing Restatement (Second) of Contracts § 235(2) (1981)). “If a
breach constitutes a material failure of performance, then the non-breaching
party is discharged from all liability under the contract.” Id. However, if the
breach is an immaterial failure of performance, and the contract was
substantially performed, the contract remains effective. Id.
While Appellant has presented six issues, we agree with the trial court
that there is, in fact, one overarching issue in this matter, and it involves the
termination provisions of Paragraph Three in the lease. Trial Court Opinion,
8/5/14, at 8. The language in Paragraph Three is clear and unambiguous.
Paragraph Three expressly provides that the lease shall become null and
void unless two wells are commenced or placed into production. “A well
shall be deemed placed into production at such time as a well is producing
gas in marketable quantities.” Oil and Gas Lease, 10/30/06, at ¶ 3.
Appellant argues that he is not in breach of the terms of the lease.1
____________________________________________
1
Appellant claims in his brief that Appellees failed to provide notice of their
belief that he was in breach pursuant to Paragraph Sixteen of the lease.
Appellant’s Brief at 22. However, this claim is refuted by the record,
(Footnote Continued Next Page)
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The trial court addressed Appellant’s argument as follows:
[Appellees] argue that Paragraph Three of the lease,
requiring two wells within 24 months of the date of the lease,
overrides Paragraph Two, which sets a primary term of three
years, and in any event by now over seven years have elapsed,
with no production. [Appellant] responds that the lease obliges
him only to place in production two wells which he has done,
according to the definitions in the lease. Paragraph Three
provides: “A well shall be deemed placed into production at such
times as a well is producing gas in marketable quantities.”
Paragraph Two also provides that the secondary term of the
lease shall continue so long as “oil or gas . . . are produced or
are capable of being produced on the premises in paying
quantities, in the judgment of the Lessee.” Paragraph Eight of
the lease further provides: “In the event a well drilled hereunder
is a producing well and the Lessee is unable to market
production therefrom . . . the Lessee agrees to pay the Lessor...
an advance royalty in the amount . . . provided for delay rental
until production is marketed and sold off of the premises . . . [.]”
[Appellant’s] position is that the lease obligates him to drill
no wells at all but only to place wells into production. A well
becomes productive when it produces gas in marketable
quantities, which is a judgment to be made by the Lessee alone.
Furthermore, the lease authorizes him to shut in the wells
indefinitely so long as he tenders a delay rental. He argues he is
able to do this because there were in fact two wells on the
premises at the time the [Appellees] signed the lease and even
long before.
_______________________
(Footnote Continued)
because, as noted above, Appellees, on February 4, 2009, through Attorney
Theron G. Noble, wrote to Appellant and advised him that the lease was null
and void due to his failure to produce and failure to complete two wells.
Subsequently, on November 19, 2009, Appellees wrote to Appellant and
placed him on notice of his breach. Another letter was sent on October 20,
2010, demanding evidence that there were two producing wells on the
property. Finally, this action was commenced on August 28, 2012.
Accordingly, Appellant had sufficient notice, and his claim to the contrary is
meritless.
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We consider these arguments with certain guidelines. An
oil and gas lease is a contract to be construed like any other
contract. Willison v. Consolidation Coal Company, 637 A.2d 979
(Pa. 1994). The judgment of the lessee is presumed to be in
good faith[,] Colgan v. Forest Oil Company, 45 A. 119 (Pa.
1899), at least until the operator shows clearly that he is not
acting in good faith. Id.
We pause here to review part of the procedural history of
this case. The complaint was file[d] on August 28, 2012. An
Answer and New Matter was filed on October 31, 2012.
Discovery followed. On August 19, 2013, [Appellees] filed a
Motion for Summary Judgment and a Brief in Support Thereof.
On October 3, 2013, [Appellant] filed an “An Answer to Motion
for Summary Judgment”, a Brief in Support Thereof, and the
Affidavit of Donovan L. Powell. On January 13, 2014, we denied
the Motion for Summary Judgment, because a key issue in these
kinds of cases implicates the good faith of the lessee, and that
concept is generally an improper one for disposition through
summary judgment. Coy v. Ford Motor Credit Company, 618
A.2d 1024 (Pa. Super. 1973).
A comparison of [Appellant’s] Affidavit with his trial
testimony opens a window on [Appellant’s] credibility and good
faith. In his Affidavit he swore: “Currently, I have installed a two
inch pipeline connecting the two existing wells to within twenty-
five feet of the EQT Gathering, LLC., Pipeline 311.” The wells are
approximately 2,500 feet apart. At trial, he testified that no such
connection had been made and in fact displayed a picture of coils
of plastic pipe which he said he intended to use for that purpose.
This testimony was offered some seven months after his
Affidavit. Falso in uno, Falsus in omnibus. If [Appellant] lied in
his Affidavit, and it appears he did, what else is he lying about?
The fact finder is free to reject even uncontradicted evidence,
especially opinion evidence[,] Taliaferro v. Darby Township
Zoning Hearing Board, 873 A.2d 807 (Pa. Cmwlth. 2005) and we
specifically reject [Appellant’s] opinion that Well 2 is capable of
producing gas in paying quantities. The evidence on this point
rests entirely on his opinion, and we find it untrustworthy. As
there is absolutely no corroborating testimony of the production
of Well 2, and we are unable to accept [Appellant’s] word on the
matter, we find he is [in] default of his obligations described in
Paragraph 3 of the lease by failing to produce a second well
within the second twelve months of the term.
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Trial Court Opinion, 8/5/14, at 5-8 (footnote omitted).
In the argument portion of his brief, Appellant asks this Court to
ignore or reweigh the trial court’s credibility determinations. Appellant avers
that the determination as to whether there was production in marketable
quantities establishing the existence of two “wells” should have been based
upon his opinion alone, and because he testified as such, the trial court
erred. Appellant’s Brief at 23-24. However, as set forth above, the crucial
detail Appellant fails to address is the trial court’s conclusion that Appellant
was not credible in his testimony and lied in his affidavit. Trial Court
Opinion, 8/5/14, at 8. As discussed earlier, it is not the role of an appellate
court to determine the credibility of a witness. Kennedy, ___ A.3d at ___,
2015 PA Super 93 at *12. Accordingly, we will not substitute our judgment
for that of the factfinder. Id. “Thus, the test we apply is not whether we
would have reached the same result on the evidence presented, but rather,
after due consideration of the evidence which the trial court found credible,
whether the trial court could have reasonably reached its conclusion.” Id.
After review, we agree with the trial court as we have no basis upon
which to conclude that the trial court erred or abused its discretion in
assessing Appellant’s credibility. Appellant’s credibility, or lack thereof, was
fatal to his defense of Appellees’ claim that he breached the terms of the
lease. The lease required two wells producing in marketable quantities. Oil
and Gas Lease, 10/30/06, at ¶ 3. Appellees filed the underlying quiet title
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action because there was only one well on the property as the borehole was
not a well, and even if the borehole were deemed a well, it was not
producing in marketable quantities. The trial court, concluding that
Appellant was not credible, also found that Appellant was not acting in good
faith, and thus, he breached the terms of the lease. Colgan v. Forest Oil
Company, 45 A. 119, 121 (Pa. 1899).
Pursuant to our standard of review, we conclude the trial court’s
decision and its findings are aptly supported by the record. Therefore,
because we agree with the trial court’s determination that Appellant
breached the terms of the lease, we discern no error in the trial court’s order
that declared the lease null and void and entered judgment in favor of
Appellees. Accordingly, we affirm the order.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/7/2015
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