Novosel, C. v. Seneca Resources

J-A35009-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

CARLENE M. NOVOSEL, TRUSTEE OF IN THE SUPERIOR COURT OF
NOVOSEL LEGACY REVOCABLE TRUST, PENNSYLVANIA

Appellant

v.

SENECA RESOURCES AND T AND W
HOWARD PRODUCTION, L.P.
AND
RICHARD REESER, CATHERINE (MARIE)
CLARK, A/K/A CATHERINE M.
ARNSWALD, COLEEN LARSON, AK/A
COLEEN J. REESER LARSON, CARRIE
MCGEE, JULIE REESER, JOE DUNLAP,
PATRICIA POLSON AND THOMAS
AFRICA, ESQ., EXECUTOR OF THE
ESTATE OF THOMAS L. KANE,

Appellees No. 1704 WDA 2014

Appeal from the Order September 17, 2014
In the Court of Common Pleas of McKean County
Civil Division at No(s): 1117-CD-2011

BEFORE: BENDER, P.J.E., SHOGAN, J., and MUSMANNO, J.

MEMORANDUM BY BENDER, P.J.E.: FILED JANUARY 20, 2016

Carlene M. Novosel (“Plaintiff” or “Novosel”), Trustee of Novosel

Legacy Revocable Trust, appeals from the order entered September 17,

2014, that denied her motion for partial summary judgment and granted the

motions for summary judgment filed by Seneca Resources (“Seneca”), T and

W Howard Production, L.P. (“Howard”), and Thomas Africa, Esq., Executor of

the Estate of Thomas L. Kane, et al. (collectively “Defendants”). The
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underlying dispute involves an oil and gas lease that was originally entered

into in 1890. After review, we affirm.

Novosel initiated this action by writ of summons on August 30, 2011,

filed a complaint on June 28, 2012, and an amended complaint on January

14, 2013. The parties filed various pleadings and discovery ensued. On

April 7, 2014, Novosel filed her motion for partial summary judgment,

asserting that the document at issue is a lease, not a deed conveying the oil

and gas estate, and that the lease had expired in that no activity had

occurred on Lot 262, one of the two lots covered by the lease. At the

hearing on Novosel’s motion, Defendants acknowledged that the document

at issue was indeed a lease. See N.T., 7/11/14, at 4. However, Defendants

moved for summary judgment, contending that Novosel failed to meet her

burden of proof that oil and gas were not produced in paying quantities.

Defendants also asserted that Novosel’s claims were barred by laches and/or

the statute of limitations.

The trial court set forth the factual basis of this case, stating:

Claim of title to the oil and gas lease originates from the
[l]ease from John Kelly et al. to Pennsylvania Gas Company of
1890 entered into “for the sole and only purpose of drilling,
mining and boring for, and producing oil and gas” on two parcels
located in Wetmore Township, McKean County, the first parcel of
which is 112.50 acres being the west half of Subdivision 224 in
Warrant Number 2568; and the second parcel of which is 190.39
acres in Subdivision 262 in Warrant Number 2567. The term of
the [l]ease is for twenty-five years and as long thereafter as oil
or gas is produced in paying quantities. Plaintiff owns the fee
simple interest in the western half of Warrant 224 and in all of
Warrant 262 subject to any outstanding leases as to the

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subsurface. The two parcels are hereinafter referred to as “the
OGM Property.” The chain of title to the various interests in the
oil and gas are set forth in Paragraphs 16 through 41 of the
Amended Complaint under headings, “Oil & Gas” and “Royalty
Interest” (This Court notes the responses filed in responsive
pleadings as to the content and legal effect of the documents in
the chain).

The 1890 lease granted the Pennsylvania Gas Company a
leasehold interest in the oil and gas underlying the OGM Property
for a primary term of 25 years and for “as long thereafter as oil
or gas is being produced in paying quantities.” Defendant
Seneca is a successor in interest to the Pennsylvania Gas
Company. The lease provided that the Lessor would receive a
royalty of one-eighth of the oil sold from the property and a
single payment in the amount of $2,726.01 for the gas sold from
the property. A driller, O. G. Murray drilled three wells on the
western half of Warrant 224 in the 1970's. There have never
been any wells drilled on Warrant 262.

Defendant Seneca entered into an operating agreement
and assignment with Defendant T[] and W[] Howard Production,
L.P. (hereinafter “Howard”) effective November 1, 2006[,] and
thereafter Howard inspected the OGM Property and the three
existing wells. At the time Howard entered into said agreement,
the wells were producing oil in paying quantities. After obtaining
the right to operate for oil and gas on the OGM Property, Howard
sent correspondence dated April 16, 2007 to Plaintiff, informing
Plaintiff of Howard's intent to operate existing wells and to drill
and produce new wells. Plaintiff, in response, requested proof of
Howard's right to drill and operate on the OGM Property and
informed Howard that it had no permission to occupy the surface
to conduct its operations. Howard contacted American Refining
Group Inc. (hereinafter “ARG”) and requested their records
related to the production of the Murray Wells. Howard was
informed that American Refining Group only held records for two
years prior to the request. By correspondence dated June 19,
2007, Howard informed Plaintiff of the existence of production
records from October 2005 and Howard's inability to obtain prior
records. On June 18, 2007[,] Plaintiff notified Howard that she
considered the lease to have expired due to lack of production in
paying quantities. Plaintiff also recorded a Notice of Termination
of Oil and Gas Lease in McKean County Record Book 566, Page
158.

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In 2007, Howard began producing oil and gas from the
three existing Murry [sic] Wells. Since 2007, Howard drilled nine
additional wells on the OGM Property. All twelve wells are
currently producing. Since 2006 Howard invested
$1,032,336.40 in production of oil on the OGM Property as well
as in drilling new wells. Revenue from oil and gas production on
the Property totaled $159,535.79 in 2007, $313,566.69 in 2008,
$83,856.72 in 2009, $469,725.27 in 2010, $190,492.67 in 2011,
$193,414.33 in 2012, and $949,006.03 in 2013.

Plaintiff is seeking to terminate the 1890 lease because
she did not receive royalty payments during the twenty[-]year
period from 1986 through 2006 and because Howard cannot
furnish evidence of production during the years 1996 to 2005.
Plaintiff has failed or refused to sign a division order with ARG
(the current purchaser of the oil from the OGM Property) and is
not, therefore, accepting her portion of the oil and gas royalties
during the litigation. As of September of 2013, unpaid royalties
in the amount of $52,435.25 are being held in abeyance by ARG.
The additional Defendants Richard Reeser, Julie Rae Reeser
Draughn, Catherine Clark, Joe Dunlap, Patricia Poison, Carrie
McGee, and Coleen Larson have signed division orders and have
since been receiving royalties from the OGM Property.

Trial Court Opinion (TCO), 9/17/14, at 2-4.1

As noted above, Novosel’s motion for summary judgment was denied

and her cause of action was dismissed. Defendants’ motions for summary

judgment were granted. Thereafter, Novosel filed a timely appeal to this

Court, raising the following two issues for our review:

I. Whether the trial court erred in granting summary judgment
in favor of Appellees/Defendants where there existed genuine
issues of material fact in the record; the trial court applied an
____________________________________________

1
Novosel’s interest in the royalty payments consists of “one-eighth (1/8)
interest in the one-eighth (1/8) royalty of the Lease.” See Complaint,
6/28/12, at ¶ 22.

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incorrect standard in that it failed to consider all the evidence of
record in the light most favorable to Appellant/Plaintiff; and
where the trial court misapplied applicable Pennsylvania
jurisprudence?

II. Whether the trial court erred in granting summary judgment
on the basis that Plaintiff’s causes of action were barred by the
Doctrine of Laches and the Statute of Limitations for contract
where there existed genuine issues of material fact, including
that Defendant Howard, at his own risk, continued with
operations on the subject property despite being repeatedly
notified by Plaintiff that the lease was terminated and it did not
have permission to operate the property; and where the trial
court failed to apply Pennsylvania jurisprudence establishing that
Defendant Howard’s trespass was of a continual nature?

Novosel’s brief at 4.

Because this appeal stems from the trial court’s order that denied

Novosel’s motion for summary judgment and granted Defendants’ motion for

summary judgment, we are guided by the following:

The standards which govern summary judgment are well settled.
When a party seeks summary judgment, a court shall enter
judgment whenever there is no genuine issue of any material
fact as to a necessary element of the cause of action or defense
that could be established by additional discovery. A motion for
summary judgment is based on an evidentiary record that
entitles the moving party to a judgment as a matter of law. In
considering the merits of a motion for summary judgment, a
court views the record in the light most favorable to the
nonmoving party, and all doubts as to the existence of a genuine
issue of material fact must be resolved against the moving party.
Finally, the court may grant summary judgment only when the
right to such a judgment is clear and free from doubt. An
appellate court may reverse the granting of a motion for
summary judgment if there has been an error of law or an abuse
of discretion....

Swords v. Harleysville Ins. Companies, 883 A.2d 562, 566-67 (Pa.

2005) (citations omitted).

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Furthermore, Pa.R.C.P. 1035.2 provides the standard for granting a

motion for summary judgment, stating:

After the relevant pleadings are closed, but within such time as
not to unreasonably delay trial, any party may move for
summary judgment in whole or in part as a matter of law

(1) whenever there is no genuine issue of any material
fact as to a necessary element of the cause of action or
defense which could be established by additional
discovery or expert report, or

(2) if, after the completion of discovery relevant to the
motion, including the production of expert reports, an
adverse party who will bear the burden of proof at trial
has failed to produce evidence of facts essential to the
cause of action or defense which in a jury trial would
require the issues to be submitted to a jury.

The Notes following Rule 1035.2, direct in part that:

Under subparagraph (2) the record contains insufficient evidence
of facts to make out a prima facie cause of action or defense
and, therefore, there is no issue to be submitted to a jury. The
motion in this instance is made by a party who does not have
the burden of proof at trial and who does not have access to the
evidence to make a record which affirmatively supports the
motion. To defeat this motion, the adverse party must come
forth with evidence showing the existence of the facts essential
to the cause of action or defense.

Here, in her appeal, Novosel argues that Defendants failed to pay

royalties for a period of nearly twenty years, from 1986 through 2005. She

bases this on the fact that she had taken ownership of the property in 1992

and has never received any royalties. Moreover, Novosel suggests that

Defendants provided no records showing that any production had occurred

until 2005, when Howard took over production of the oil and gas wells.

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Thus, Novosel claims that because Defendants failed to demonstrate that

there was continual production in paying quantities, she had the right to

terminate the lease at any time.2 In simple terms, Novosel’s argument

consists of two points: (1) she received no royalties, therefore, no

production in paying quantities had taken place between 1986 and 2006,

and (2) Defendants failed to provide proof of production.

Initially, we note that “a party seeking to terminate a lease bears the

burden of proof.” T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261,

267 (Pa. 2012) (citing Jefferson County Gas Co. v. United natural Gas

Co., 93 A. 340, 341 (Pa. 1915)). Therefore, since Novosel sought to

terminate the lease, it was her burden to prove a lack of production; it was

not Defendants’ burden. Thus, when Defendants filed for summary

judgment, Novosel, as the non-moving party, had a duty to identify evidence

that if presented at trial would support the elements of the cause of action

she espouses.

Novosel relies solely on the fact that she received no royalties. See

Plaintiff’s Brief in Opposition to [Defendants’] Joint Motion for Summary

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2
We note that in her brief, Novosel mentions that documents produced
during discovery evinced a lack of production in the mid-1970s. However,
Novosel’s complaint and amended complaint do not contain allegations of
non-production for that time period and she cannot now raise this issue in
her appeal to this Court, having failed to raise it before the trial court. See
Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived and
cannot be raised for the first time on appeal.”).

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Judgment, 4/21/14, at 6-7 (stating “the only evidence regarding what

production, if any, occurred from 1986 through 2006 is that Novosel has not

received royalties during the 20-year gap and was unaware of any oil and

gas operations on Subdivision W224 and 226.”); see also Novosel’s

Deposition, 7/18/13, at 69, 74-75. Novosel admits that she had no personal

knowledge about any oil or gas operations on the property, id. at 49, 52, 75.

Additionally, she acknowledges that she never informed anyone that she had

acquired a royalty interest in the property, id. at 24, 53-54, 70-71.

Furthermore, the additional Defendants, who are parties in this case, own

royalty interests and have not alleged that they did not received royalty

payments between 1986 and 2006.

The trial court explained its position regarding whether any issues of

material fact remained outstanding, which would prohibit its granting of

Defendants’ motions for summary judgment. The court stated:

As to whether there is sufficient evidence before the Court
to enable the Court to determine as a matter of law that there
remains no genuine issue of material fact that the Lease must be
terminated for lack of production and that Plaintiff has failed to
produce evidence of facts essential to [the] termination of the
Lease, the Court finds that there are gaps in the evidence to
prove either production or non-production occurred from 1986 to
2005. Odis Glen Murry [sic], the driller under an operating
agreement of 1975, is deceased. His heirs have no knowledge of
either production or a lack thereof. The Plaintiff has no evidence
as to production during the years in question and only knows
that she did not receive royalties during those years. Although
all discovery has been completed, as acknowledged by attorneys
representing all the parties, inexplicably there is no record of
whether there had been any oil or gas received and paid for by
ARG or any other purchaser. Despite the Court's incredulity as

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to the total lack of evidence as to production or non-production,
there is no indication that further investigation can uncover such
evidence. The burden of proof is on the party seeking to
terminate an oil and gas lease. T. W. Phillips Gas and Oil
Company v. Jedlicka, 42 A.3d 261 (Pa. 2012). Although Jedlicka
is not on point with the instant case in all respects, it is on point
in that a lessor was seeking to terminate an oil and gas lease for
lack of production, the essence of the issue before this Court.
The Court has been asked by the Defendants to find
circumstantially that if there was production during all periods of
time from which records can be found, i.e.[,] up to 1986 and
after 2005, that production must have occurred in the interim.
The Court cannot decide the issue on speculation. Such
evidence does not satisfy the test of circumstantial evidence that
the facts proven must lead to the existence of the facts in
dispute. On the other hand, the Court cannot speculate that a
lack of records of oil or gas sales to a purchaser and a failure of
one party to receive royalties constitute sufficient evidence of
non-production. Plaintiff cites Mealy v. Clark, 9 Pa. D &C 3d 566
(Warren County 1978)[,] which cites Aye v. Philadelphia Co.[,]
44 A. 555 (Pa. 1899)[,] but neither case can illumine this Court
on the instant case because in both cases there was clear
evidence of the exact amount of production, in the former,
scanty production, and in the latter, no production.

The Court cannot find that the party who bears the burden
of proof in the case before it, has evidence of facts essential to
the cause of action which, if the case were to be tried before a
jury would require the issues to be submitted to a jury. There is
also no genuine issue of material fact necessary to Plaintiff's
cause of action which could be established by additional
discovery; i.e.[,] no attorney has argued that additional
discovery would produce evidence as to the necessary element
of non-production

TCO at 6-7. We agree with the trial court’s reasoning and conclude that

Novosel’s first issue is meritless. It was her burden to prove a lack of

production in paying quantities, which she failed to do. Therefore,

Defendants’ motions for summary judgment were properly granted.

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In her second issue, Novosel argues that the trial court erred in

granting the motions for summary judgment filed by Defendants on the

basis of laches and the applicable statute of limitations. See Novosel’s brief

at 29. We note that the trial court determined that the doctrine of laches

applied under the circumstances presented here, i.e., Novosel failed to

exercise due diligence and her delay caused prejudice to Defendants. See

TCO 8-9. However, the trial court found that the statute of limitations

argument was moot due to its conclusions relating to its grant of counts I

and II of Defendants’ motions for summary judgment. We agree and also

conclude that we need not discuss Novosel’s second issue in light of our

decision as to Novosel’s first issue. Accordingly, we affirm the trial court’s

order denying Novosel’s motion for summary judgment and granting

Defendants’ motions for summary judgment.

Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 1/20/2016

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