J-A27043-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
BIG & LITTLE OIL, LLC; BIVINS RYAN IN THE SUPERIOR COURT OF
INVESTMENTS, LLC; BLUE SPHINX
MANAGEMENT LTD; BRYAN WOOD; PENNSYLVANIA
BTBA, LLC; CAROLYN BIVINS 1952
TRUST #4; CO-PA, LLC; CORNELIA
WADSWORTH RITCHIE TRUST NO.
FOUR; CUSOLITO PULTORAK, LLC;
DARRELL F. AND SUZANNE H. ABEL;
EDWIN SHELTON PROPERTIES, LLC; EVA
DROBEZKO; FB. LAMAR, LP; FB
ROHANNA, LP; FHMW, LLP; FINE BUNCH,
LLC; GALBRAITH GREENE, LLP;
GALBRAITH LAMAR, LLP; GALBRAITH
ROHANNA, LLP; GALBRAITH ROHANNA 2
LLP; GEORGE W. ZUNDELL; HOOK
GREENE COUNTY, LLP; HOOK LAMAR,
LLP; HOOK LAMAR 2, LLP; HOOK
ROHANNA 1, LLP; HOOK ROHANNA 2
LLP; HOOK ROHANNA 3 H LLP; JABST
INVESTMENTS, LLC; JOHN & KATHY
MCNAY; JUSKOWICH PULTORAK 1H &
2H, LLP; JUSKOWICH ROHANNA 2H, LLP;
KEENER OIL & GAS, LLP; LIVING GOOD,
LLC; LNR INTERESTS, LP; MARK ERNEST
BIVINS TRUST; MARK E. FOX,
EXECUTOR OF THE ESTATE OF J.K.
WILLISON, DECEASED; MENDICINO
VENTURES, INC.; MG BIG GREEN
VENTURES, LLC; MOUNTAINTOP
INVESTORS 2010-1, LLC; MOUNTAINTOP
INVESTORS 2010-2, LLC; MOUNTAINTOP
INVESTORS L2-H, LLC; MOUNTAINTOP
INVESTORS R-2H, LLC; MOUNTAINTOP
INVESTORS PT LLC; ROHANNA IRON &
METAL, INC.; SILVER FOX FARM, LLC;
THOMAS PEYTON BIVINS TRUST;
THOMAS E. & BERTHA M. SCHERICH;
THOMAS M. COLELLA REVOCABLE
TRUST; TRES NGUYEN, LLC; WILLISON
FOX, LLP; AND 1952 ELDER BIVINS
CHILDREN’S EXEMPT TRUST
J-A27043-15
Appellees
v.
TANGLEWOOD EXPLORATION LLC AND
VANTAGE ENERGY APPALACHIA, LLC
Appellants No. 1813 WDA 2014
Appeal from the Order entered October 24, 2014
In the Court of Common Pleas of Washington County
Civil Division at No: 2013-7699
BEFORE: BOWES, OLSON, AND STABILE, JJ.
DISSENTING MEMORANDUM BY STABILE, J.: FILED JULY 25, 2016
I would affirm the trial court’s order based on the plain language of the
Joint Operating Agreements (“JOAs”) and Participation Agreements (“PAs”).
I therefore respectfully dissent.
As the Majority notes, each of the PAs contains a forum selection
clause: “No proceeding related directly or indirectly to this Agreement shall
be commenced, prosecuted or continued in any court other than the courts
of the State of Texas located in the county of Tarrant.” Appellant’s Amended
Preliminary Objections, 8/8/14, at Exhibit A, [PA] between Tanglewood and
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Big and Little Oil, LLC, at ¶ 15.1 Paragraph fifteen also provides that the
laws of Texas will govern any dispute. Id. The PAs incorporated the JOAs
by reference. Id. at ¶ 2. Essentially, the PAs provide a general outline of
the relationship between the signatory Appellee and Tanglewood. They
provide that the signatory Appellee (designated in the PA as a “Participant”),
will fund a percentage of Tanglewood’s drilling operations at a given site in
exchange for a percentage interest in the proceeds from that site. Id. at
¶¶ 1-6.
The JOAs contain extensive details governing the relationship between
Tanglewood and the signatory Appellees. In particular, the JOAs detail
Tanglewood’s rights and obligations as driller and operator. Appellees’
Amended Complaint, 6/23/14, at Exhibit A (A.A.P.L. Form 610-1989 Model
Form Operating Agreement , at Article V-VI). The JOAs also govern
Tanglewood’s accounting obligations. Id., at Article V, ¶ D.2 and Exhibit C.
The JOAs provide that the governing law will be the “law of the state in
which the Contract Area [i.e., the site of the drilling] is located.” Id.at
Article XIV, ¶ B. The JOAs do not incorporate the PAs by reference, and they
do not contain a forum selection clause.
Significantly, JOAs form the basis for all of the causes of action in
Appellees’ amended complaint. The amended complaint does not allege
causes of action arising under the PAs. The amended complaint states that
1
As the Majority notes, the PAs and JOAs are substantively identical.
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the JOAs require Tanglewood to “pay to the [Appellees] proceeds from
production and assess the cost of drilling and completion against a joint
account for each JOA (the “Joint Account”) in proportion to the working
interest of each [Appellee].” Amended Complaint, 6/13/14, at ¶ 69. The
amended complaint further alleges that the JOAs require Tanglewood to
“keep an accurate record of the joint account hereunder, showing expenses
incurred and charges and credits made and received.” Id. at ¶ 70 (quoting
JOA, at Article V, ¶ D.2). The JOA also gave Appellees “the right to conduct
audits to ensure that production, payments, expenses, [billings], and other
aspects of the financial dealings among the parties are accounted for
properly and accurately according to the terms of the JOAs and otherwise.”
Id. at ¶ 73 (citing JOA, at Article V, ¶ D.5 and Exhibit C).
Appellees requested an audit, and they allege the audit revealed
improper billings from Tanglewood to the parties’ joint accounts and more
than $2 million in underpayment of proceeds. Id. at ¶¶ 93-96. The
amended complaint alleges that Appellants have been selling gas for higher
prices than they have been reporting to Appellees. Id. at ¶ 106. Exhibit C
of the JOA authorizes Appellees to challenge Tanglewood’s charges to the
parties’ joint accounts. Id. at ¶ 98 (citing JOA, at Exhibit C, Article 1, ¶ 4).
The amended complaint also alleges Tanglewood violated provisions in
the JOAs governing a change of operator, i.e., the entity conducting the
drilling. Article V, ¶¶ B.1 and B.2 govern removal and replacement of an
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operator. In general, an operator may resign or be removed for good cause,
after which the remaining parties to the contract can choose a successor
operator. JOA, at Article V, ¶¶ B.1 and B.2. The amended complaint alleges
that Tanglewood transferred its interest in the JOAs to Vantage and
“attempted to appoint [Vantage] as successor Operator for the Contract
Area for each of the attached JOAs.” Amended Complaint, 6/13/14, at ¶ 75.
The amended complaint alleges this purported transfer of rights from
Tanglewood to Vantage violates Article V, ¶ B of the JOAs. Id. at ¶¶ 80-91.
The amended complaint also alleges that Tanglewood violated Article XVI
¶ H of the JOAs,2 whereby Tanglewood agreed that either Tanglewood or one
of its affiliates would remain the operator for ten years from the date of the
JOAs. Id. at ¶ 77 (citing JOA, at Article XVI, ¶ H). The amended complaint
alleges that Vantage is not Tanglewood’s affiliate. Id. at ¶ 78.
“[O]ur standard of review of an order of the trial court overruling or
granting preliminary objections is to determine whether the trial court
committed an error of law.” Richmond v. McHale, 35 A.3d 779, 783 (Pa.
Super. 2012). Appellants objected to venue based on the forum selection
clause in the PAs. Appellees, however, alleged causes of action arising
solely under the JOAs. Appellants argue we must construe the PAs and the
2
This provision appears in six of the seven JOAs at issue in this litigation.
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JOAs as a single agreement. Appellants argue the forum selection clause3
applies because the PAs incorporate the JOAs by reference and because the
forum selection clause requires any “proceeding related directly or indirectly
to this Agreement” to be filed in Tarrant County, Texas. PA, at ¶ 15. The
issue before us is therefore one of contract interpretation.
The interpretation of any contract is a question of law and
this Court’s scope of review is plenary. Moreover, we need not
defer to the conclusions of the trial court and are free to draw
our own inferences. In interpreting a contract, the ultimate goal
is to ascertain and give effect to the intent of the parties as
reasonably manifested by the language of their written
agreement. When construing agreements involving clear and
unambiguous terms, this Court need only examine the writing
itself to give effect to the parties’ understanding. This Court
must construe the contract only as written and may not modify
the plain meaning under the guise of interpretation.
Southwestern Energy Prod. Co. v. Forest Res., LLC, 83 A.3d 177, 187
(Pa. Super. 2013), appeal denied, 96 A.3d 1029 (Pa. 2014).
In addition:
It is a general rule of law in the Commonwealth that where
a contract refers to and incorporates the provisions of another,
both shall be construed together. It is well-settled that clauses
3
“[T]he modern trend is to uphold the enforceability of forum selection
clauses where those clauses are clear and unambiguous. Patriot
Commercial Leasing Co., Inc. v. Kremer Rest. Enterprises, LLC, 915
A.2d 647, 650 (Pa. Super. 2006), appeal denied, 951 A.2d 1166 (Pa. 2008).
“[A] forum selection clause will be considered unreasonable ‘only where its
enforcement would, under all circumstances existing at the time of litigation,
seriously impair [a party’s] ability to pursue his cause of action.’” Id.
(quoting Central Contracting, Co. v. C.E. Youngdahl & Co., 209 A.2d
810, 816 (Pa. 1965). In light of my conclusion that the PAs are separate
agreements and that their forum selection clauses do not apply to Appellees’
causes of action under the JOAs, the law of forum selection clauses is not
relevant to my analysis.
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in a contract should not be read as independent agreements
thrown together without consideration of their combined effects.
Terms in one section of the contract, therefore, should never be
interpreted in a manner which nullifies other terms in the same
agreement.
Id. (quoting Trombetta v. Raymond James Fin Servs., Inc., 907 A.2d
550, 560 (Pa. Super. 2006)). The Southwestern Court also wrote that
“[w]here several instruments are made as part of one transaction they will
be read together, and each will be construed with reference to the other;
and this is so although the instruments may have been executed at different
times and do not in terms refer to each other.” Id. at 187. In
Southwestern, the Court considered a lease and a letter agreement, both
executed in 2002. Id. at 187. This Court noted the two documents
referenced and incorporated each other “with the clear intent they should be
interpreted as a single agreement.” Id. Indeed, the letter agreement
described itself as an amendment of the lease. Id. at 188. Based on the
unequivocal language of the two documents, we interpreted them together
as a single agreement. Id.
Appellants also rely on Heugel v. Mifflin Constr. Co., Inc., 796 A.2d
350 (Pa. Super. 2002). There, the plaintiff homeowners sued a construction
company and a financing company that loaned plaintiffs money for their
home improvement project. Id. at 352-53. The construction contract gave
the plaintiffs the right to ask the contractor to arrange a construction loan,
and plaintiffs did so. Id. at 355. The loan agreement contained an
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arbitration clause, but the construction contract did not. Id. The trial court
overruled the defendants’ preliminary objections seeking to compel
arbitration. Id. The trial court found the arbitration clause inapplicable
because the plaintiffs’ causes of action arose from work performed under the
construction contract. Id. at 354. The loan agreement attached a
description of the goods and services purchased and provided that payment
of the note was subject to the terms of the contract between the
construction company and plaintiffs. Id. The arbitration clause in the loan
agreement stated: “any and all disputes relating [to] the provisions of, or
obligations or work performed under this Contract shall be submitted to
binding arbitration.” Id.
This Court concluded the two agreements were part of one transaction,
noting that the loan agreement was “replete with references not only to
[plaintiffs’] obligation to repay the money borrowed, but also to their rights
and obligations for the goods and services purchased.” Id. at 356.
Ultimately, the Heugel Court concluded the loan agreement “effectively
incorporated” the construction contract, and that the arbitration clause in the
loan agreement applied to plaintiffs’ causes of action on the construction
contract. Id.
Appellants argue we must construe the PAs and the JOAs together,
because they plainly relate to the same series of transactions. Appellants
note that the PAs incorporate the JOAs, and the PAs’ forum selection clauses
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apply to any action relating directly or indirectly to the PAs. I would
conclude Appellants’ argument does not survive close inspection of the PAs
and JOAs.
As Appellees note, the PAs in several places refers to itself as “this
Agreement” and, in the same paragraph or clause, refers additionally to the
“JOA.” For example, paragraph 8 of the PA provides as follows: “8.
Operating Standard. Tanglewood shall not be liable to the participant for
Tanglewood’s own sole, joint or concurrent negligence or strict liability
arising from its operations under this agreement or the JOA[.]” PA, at
¶ 8 (emphasis added). Likewise, in paragraph 13:
13. Assignment. Any purported sale, assignment or
transfer of Participant’s interest [. . .] shall require the written
consent of Tanglewood [. . .] providing Participant has complied
with this Agreement and all other agreements including
the JOA and providing the third party assumes all responsibility
under this Agreement and the JOA[.]
PA, at ¶ 13 (emphasis added). Thus, paragraph 13 expressly refers to the
JOAs as among a group of “other agreements.”
With this background, I quote in full the language of the PAs’ forum
selection clause:
15. Governing Law. This Agreement and any claims
related directly or indirectly to this Agreement shall be
governed by, and construed and interpreted in accordance with,
the laws of the State of Texas. No proceeding related directly or
indirectly to this Agreement shall be commenced, prosecuted
or continued in any court other than the courts of the State of
Texas located in the county of Tarrant.
PA, at ¶ 15 (emphasis added).
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Thus, the PAs consistently refer to themselves as “this Agreement.”
The PAs consistently and expressly refer to the JOAs as distinct from “this
Agreement.” Most significantly, the PAs forum selection clauses refer only to
“this Agreement.” If, as Appellants argue, the PA forum selection clauses
applied to the JOAs, I would expect to see the second sentence of paragraph
15 state: “No proceeding related directly or indirectly to this Agreement or
the JOA shall be commenced. . .” It does not. Appellees seem to argue
that the absence of any reference in paragraph 15 creates a latent ambiguity
that renders the forum selection clause unenforceable. I would conclude
instead that the PAs’ forum selection clauses unambiguously apply only to
actions arising under the PAs. To reach this conclusion, I need only examine
the writing and give effect to its unambiguous terms, in accord with basic
principles of contract interpretation. Southwestern, 83 A.3d 177 at 187.4
Finally, I believe the facts before us are distinguishable from
Southwestern and Heugel. In those cases, the agreements at issue
mutually referred to one another. Here the PAs attached and incorporated
the JOAs, but the JOAs do not refer to or incorporate the PAs. Further, as I
have explained, the PAs draw express distinctions between themselves and
4
In addition, as noted above, the JOAs contain their own governing law
clause, albeit without a forum selection clause. The JOAs provide that
Pennsylvania law governs any dispute arising thereunder. While choice of
law is not directly at issue in this appeal, I believe the contradictory choice
of law provisions in the PAs and JOAs undermine Appellants’ argument that
the parties intended the PAs and the JOAs to be construed together as one
agreement.
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the JOAs and treat the JOAs as separate agreements. No such facts were
present in Southwestern and Heugel.
For the foregoing reasons, I respectfully dissent.
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