Filed: Mar. 29, 2016
Latest Update: Mar. 02, 2020
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 15-1371 _ DARLENE R. MCWREATH; ROBERT MCBRIDE; KAREN LUNDIN; DEBORAH L. MCWREATH, Appellants v. RANGE RESOURCES - APPALACHIA, LLC _ On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civ No. 2-13-cv-00560) District Judge: Hon. Nora B. Fisher _ Submitted Under Third Circuit L.A.R. 34.1(a) November 5, 2015 _ Before: FUENTES, JORDAN, and VANASKIE, Circuit Judges (Filed: March 29,
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 15-1371 _ DARLENE R. MCWREATH; ROBERT MCBRIDE; KAREN LUNDIN; DEBORAH L. MCWREATH, Appellants v. RANGE RESOURCES - APPALACHIA, LLC _ On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civ No. 2-13-cv-00560) District Judge: Hon. Nora B. Fisher _ Submitted Under Third Circuit L.A.R. 34.1(a) November 5, 2015 _ Before: FUENTES, JORDAN, and VANASKIE, Circuit Judges (Filed: March 29, 2..
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-1371
_____________
DARLENE R. MCWREATH; ROBERT MCBRIDE;
KAREN LUNDIN; DEBORAH L. MCWREATH,
Appellants
v.
RANGE RESOURCES - APPALACHIA, LLC
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ No. 2-13-cv-00560)
District Judge: Hon. Nora B. Fisher
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
November 5, 2015
______________
Before: FUENTES, JORDAN, and VANASKIE, Circuit Judges
(Filed: March 29, 2016)
___________
OPINION*
___________
VANASKIE, Circuit Judge.
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
Appellants Darlene McWreath, Deborah McWreath, Robert McBride, and Karen
Lundin (“the McWreaths”) appeal the District Court’s grant of summary judgment to
Appellee Range Resources-Appalachia, LLC (“Range”) on the McWreaths’ claim for an
accounting, as well as the District Court’s denial of leave to amend their Complaint. The
McWreaths assert that the oil and gas lease they entered into with Range does not apply
to the oil and gas produced from two wells drilled by Range that tapped into oil and gas
reserves partially owned by the McWreaths. The McWreaths claimed they were
cotenants in the oil and gas estate and sought an accounting of the oil and gas production
from these wells. For the reasons discussed below, we hold that the lease does indeed
apply to the oil and gas produced from the wells, and therefore, the McWreaths’ claims to
cotenant status and right to an accounting fail. We also conclude that the District Court
did not abuse its discretion in denying leave to amend because the McWreaths did not
submit a draft amended complaint, the request was untimely, and the amendment would
have been futile. Accordingly, we will affirm the District Court’s judgment.
I.
The McWreaths own an undivided partial interest in the oil and gas underlying
approximately 1,700 acres of real property in Washington County, Pennsylvania, which
they inherited as heirs to the Estate of David R. McWreath.1 The McWreaths do not have
any ownership interests in the surface rights of the property. On September 20, 2007, the
Estate entered into a lease agreement with Fortuna Energy, Inc., whereby the Estate
1
The McWreaths own a 33% interest in the oil and gas underlying approximately
1,332 acres and a 66% interest in the remaining 368 acres.
2
granted Fortuna the exclusive rights to explore, develop, and produce the Estate’s
interests in the oil and gas. The terms of the lease stated that Fortuna would pay the
Estate an annual rental fee of $5.00 per mineral acre until oil and gas was produced, at
which time the Estate would receive royalty payments equal to 1/8th of the market value
of the oil and gas produced and sold, proportionate to their partial interest.
Fortuna subsequently assigned the lease to Range, which then entered into leases
with the remaining two owners of partial interests in the oil and gas, thereby leasing
100% of the oil and gas interests underlying the property. Range also entered into a
surface consent agreement with the surface owner of the property that gave Range the
right to enter onto the surface of the property and drill wells for its oil and gas
exploitation. Thereafter, Range drilled the two Marcellus Shale wells on the property at
issue here.
On March 6, 2013, the McWreaths filed this lawsuit in the Court of Common
Pleas of Washington County, Pennsylvania, and asserted claims for: (1) trespass, (2)
conversion, and (3) an accounting of the oil and gas production from the wells. Range
removed the case to the United States District Court for the Western District of
Pennsylvania based on the diversity of the citizenship of the parties. The McWreaths did
not allege that Range breached the terms of its lease, but rather asserted that the lease was
not applicable to oil and gas produced from these two wells. In their view, the lease only
gave Range the right to exploit their oil and gas interests when the drilling operations
were set up on an adjacent property and not on the surface directly above the McWreaths’
oil and gas interests. Because the McWreaths argued that these wells were not covered
3
by the lease, they concluded that they were a cotenant in the oil and gas estate and were
entitled to a royalty equal to the gross revenue of any future sales of oil and gas produced
from these wells, proportionate to their partial interest.2
The parties filed cross motions for summary judgment. The McWreaths conceded
that summary judgment should be entered against them on their trespass and conversion
claims, leaving only their accounting claim. The McWreaths, however, requested leave
to amend their Complaint to add a claim that sought to invalidate the lease with Range.
The District Court interpreted the lease and concluded that the lease was applicable to oil
and gas produced from the two wells. Because the lease covered the oil and gas
produced from these wells, the District Court held that the McWreaths did not have
cotenant status and granted summary judgment to Range on the McWreaths’ accounting
claim. Additionally, the District Court denied the McWreaths leave to amend their
Complaint. The McWreaths timely filed this appeal.
II.
The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(a). We
have appellate jurisdiction under 28 U.S.C. § 1291. Our review of the District Court’s
order granting summary judgment is plenary. Trinity Indus., Inc. v. Chi. Bridge & Iron
Co., 735 F.3d 131, 134 (3d Cir. 2013). We view the evidence “in the light most
favorable to the nonmoving party.”
Id. at 134–35 (quoting Kurns v. A.W. Chesterton
2
It is uncontested that apart from the initial flow-back that was produced at the
time Range completed the wells—which Range compensated the McWreaths for under
the terms of the lease—neither well is currently producing any oil or gas.
4
Inc., 620 F.3d 392, 395 (3d Cir. 2010)). Summary judgment is appropriate where the
movant establishes “that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). We review the
District Court’s denial of leave to amend for abuse of discretion. U.S. ex rel. Schumann
v. Astrazeneca Pharm. L.P.,
769 F.3d 837, 849 (3d Cir. 2014).
III.
A.
In Pennsylvania,3 an oil and gas lease “is in the nature of a contract and is
controlled by principles of contract law.” T.W. Phillips Gas & Oil Co. v. Jedlicka, 42
A.3d 261, 267 (Pa. 2012). Under Pennsylvania law, “as a general matter, interpretation
of a written agreement is a task to be performed by the court rather than a jury.” Am.
Eagle Outfitters v. Lyle & Scott Ltd.,
584 F.3d 575, 587 (3d Cir. 2009) (citing Gonzalez v.
U.S. Steel Corp.,
398 A.2d 1378, 1385 (Pa. 1979)); see also Standard Venetian Blind Co.
v. Am. Empire Ins. Co.,
469 A.2d 563, 566 (Pa. 1983). In construing a contract, “[t]he
accepted and plain meaning of the language used, rather than the silent intentions of the
contracting parties,” will determine the construction of the agreement. T.W. Phillips Gas
& Oil
Co., 42 A.3d at 267 (quoting J.K. Willison v. Consol. Coal Co.,
637 A.2d 979, 982
(Pa. 1994)). Moreover, the “writing must be interpreted as a whole, giving effect to all its
provisions.” Atl. Richfield Co. v. Razumic,
390 A.2d 736, 739 (Pa. 1978).
3
Because this case arises under diversity jurisdiction, we will apply the
substantive law of the forum state, Pennsylvania. See Erie R.R. Co. v. Tompkins, 304
U.S. 64, 78 (1938). Moreover, the parties agree that Pennsylvania law applies to this
dispute.
5
A key provision in an oil and gas lease is the granting clause, which specifies what
rights the lessor is conveying to the lessee. See T.W. Phillips Gas & Oil Co., 42 A.3d at
267. Here, the granting clause states:
[The McWreaths] hereby grant[] and lease[] exclusively to
[Range] all oil and gas and their constituents, whether
hydrocarbon or non-hydrocarbon, underlying the Leasehold,
together with such exclusive rights as may be necessary or
convenient for [Range], at its election, to explore for, develop,
produce, measure and market production from the Leasehold,
using methods and techniques which are not restricted to
current technology . . . .
(Supp. App. 1.) (emphasis added.) We agree with the District Court that the granting
clause: (a) conveyed all of the McWreaths’ oil and gas rights in the property; (b) granted
Range the exclusive ability to explore for and produce oil and gas; and (c) authorized
Range to use any methods or techniques to do so.
Despite the broad grant of rights conveyed in the granting clause, the McWreaths
contend that there is “no lease” here. They assert that the lease agreement between the
parties is a “Non-Surface Development Lease” that precludes Range from conducting
drilling activities on the surface estate directly above their subsurface oil and gas
interests.4 Because the McWreaths seek complete avoidance of the lease, they must
4
We reject at the outset, as the District Court did, any notion that the headings
“NON-SURFACE DEVELOPMENT” and “NON-DEVELOPMENT LEASE” are
relevant in ascertaining the parties’ intent. Paragraph 20 of the lease expressly states:
“The headings contained in this Lease are inserted for convenience of reference only and
shall not effect [sic] the interpretation or construction of any provision herein.” (Supp.
App. 4.)
6
establish that the lease obligations are conditioned upon Range conducting its drilling
activities on property other than the surface estate.
To meet their burden of showing that the lease is conditioned upon Range drilling
for oil and gas on property other than the surface estate, the McWreaths rely on
Paragraph 4 of the lease. This paragraph, in relevant part, provides:
Lessor and Lessee acknowledge and agree that Lessee is not
granted any right whatsoever to: (i) drill a well on any portion
of the surface of the Leasehold; or (ii) install, construct or
locate access roads or pipelines on any portion of the surface
of the Leasehold. Accordingly, any lands that have been
pooled, unitized or combined with all or a portion of the
Leasehold in accordance with the terms of this Lease shall bear
the burden of all surface development. . . .
(Supp. App. 2.) According to the McWreaths, the first sentence of this provision
indicates that the McWreaths intended to preclude Range from drilling on the surface
estate in order to reserve their own implied right to access and use the surface estate, as
the owner of subsurface oil and gas interests. Additionally, the McWreaths contend that
the phrase “any lands that have been pooled, unitized or combined with . . . the Leasehold
. . . shall bear the burden of all surface development” in the second sentence evidences
the parties’ intent to restrict the lease’s application to wells that were set up on adjacent
land. (Supp. App. 2.)
Neither of these arguments is persuasive. In Pennsylvania, the owner of a
subsurface estate has an implied right to access and use the surface in order to access
what they own. See Belden & Blake Corp. v. Com., Dep’t of Conservation & Nat. Res.,
969 A.2d 528, 532 (Pa. 2009). This right, however, arises by operation of law and is
7
attendant to the subsurface oil and gas. Id.; see Humbertson v. Chevron U.S.A., Inc., 75
A.3d 504, 511 (Pa. Super. Ct. 2013) (“[T]he law of this Commonwealth is that one who
has the right to remove subsurface minerals, also has the right to enter onto the surface
and to make reasonable use of a portion of the surface to retrieve his property.”).
Because the McWreaths conveyed all of their rights in the oil and gas to Range, they had
no implied right to access and use the surface. Accordingly, the first sentence of
Paragraph 4 cannot be reasonably interpreted as reserving any rights for the McWreaths.
Rather, this can only be reasonably interpreted as an acknowledgment that the lease did
not grant Range an express right to use the surface estate because the McWreaths did not
own any express right in the surface estate. This sentence does not, however, restrict
Range from obtaining the express right to use the surface estate from the owner of the
surface estate, as Range did here.
Next, the phrase “any lands that have been pooled, unitized or combined with . . .
the Leasehold . . . shall bear the burden of all surface development,” (Supp. App. 2.),
must be read in conjunction with the lease’s provision on pooling and unitization. This
provision grants Range the sole discretion “to pool or unitize all or any portion of the
Leasehold with any other land or lands, whether contiguous or not contiguous.” (Supp.
App. 3.) Here, Range pooled contiguous property, consisting of the surface estate and the
remaining partial interests in the subsurface estate, with the Leasehold. The land that
Range pooled with the Leasehold—the surface estate—is bearing the burden of surface
development, as required by Paragraph 4. The McWreaths’ interpretation that this phrase
limits surface development to adjacent lands would only be reasonable if the lease
8
allowed Range to pool the Leasehold only with adjacent lands. The express terms of the
lease, however, allow Range to pool the Leasehold with “any other land,” which in turn
must bear the burden of surface development. (Supp. App. 3.)
“[A]n act or event designated in a contract will not be construed as a condition
unless that clearly appears to be the intention of the parties.” Lesko v. Frankford Hosp.-
Bucks Cty., 15 A.3d 337, 342 (Pa. 2011) (quoting Shovel Transfer & Storage, Inc. v. Pa.
Liquor Control Bd.,
739 A.2d 133, 139 (Pa. 1999)). In this case, the lease cannot be
reasonably construed to condition its grant to Range on Range conducting its drilling
activities on adjacent property. Accordingly, we agree with the District Court that
Paragraph 4 does not contain language sufficient for the McWreaths to avoid the lease.
Furthermore, even assuming that Paragraph 4 could be interpreted as precluding
Range from drilling on the surface estate, Pennsylvania law would not support the
enforcement of such a restriction. Restrictions on property “are not favored by the law”
in Pennsylvania because they “interfere with an owner’s free use and enjoyment” of the
land.5 Vernon Twp. Volunteer Fire Dep’t, Inc. v. Connor, 855 A.2d 873, 879 (Pa. 2004).
Restrictions will typically only be enforced where “a party’s actions are in clear defiance
of the provisions imposed” and “the restriction is still of substantial value to the owners
of the restricted tract.”
Id. at 879–80. As the District Court in this case explained:
5
Although the oil and gas rights were conveyed by a lease, Pennsylvania courts
have stated that “an oil and gas lease, despite the use of the term ‘lease,’ actually involves
the conveyance of property rights.” Nolt v. TS Calkins & Assocs., LP, 96 A.3d 1042,
1046 (Pa. Super. Ct. 2014). As a result, “certain aspects of property law . . . are
necessarily brought into play.”
Id. (quoting McCausland v. Wagner,
78 A.3d 1093, 1100
(Pa. Super. Ct. 2013)); see also T.W. Phillips Gas & Oil
Co., 42 A.3d at 267.
9
Plaintiffs are seeking to enforce an alleged restriction on
Range’s use of the surface of land which they (Plaintiffs) do
not own on a theory that they retained an implied right to access
the surface of the property, despite their grant of all of their
partial oil and gas rights to the Lessee (Range) in ¶ 1 of the
Lease. Further, all other involved property owners (surface and
subsurface) have consented to Range using the property. Under
Pennsylvania law, the Lease should be interpreted in favor of
Range’s free and unrestrained use of the surface of the land
rather than precluding such use. It is also doubtful that
Plaintiffs could enforce their claimed restraint due to the
acquiescence of the surface owner and the cotenants in the
subsurface oil and gas rights, all of whom have expressly
agreed to Range’s activities.
(App. 26.) (internal citations omitted).
We concur with the District Court’s analysis. A restriction on using the surface
estate is of no value to the McWreaths because they do not own any express rights to the
surface estate and no longer have an implied right. Moreover, the owner of the surface
estate expressly agreed to allow Range to use the surface estate for drilling activities.
Accordingly, even if Paragraph 4 could be interpreted as precluding Range from using
the surface estate for drilling activities, the lease should be interpreted in favor of
Range’s free and unrestrained use in these circumstances.
For all the foregoing reasons, we conclude that the lease between the McWreaths
and Range contained an exclusive grant of all of the McWreaths’ subsurface oil and gas
interests and was not conditioned upon drilling activities taking place on property other
than the surface estate. Under the terms of the lease, Range had the right to exploit the
McWreaths’ oil and gas interests by drilling wells on the surface of the property directly
above the McWreaths’ subsurface estate. As a result, the McWreaths’ claim to cotenant
10
status necessarily fails, and they are not entitled to an accounting under Pennsylvania
law. Therefore, we will affirm the District Court’s grant of summary judgment in favor
of Range on Count Three of the Complaint.
B.
Under the Federal Rules of Civil Procedure, “[t]he court should freely give leave
[to amend a complaint] when justice so requires.” Fed. R. Civ. P. 15(a)(2). Nonetheless,
a district court may deny leave to amend a complaint where “it is apparent from the
record that (1) the moving party has demonstrated undue delay, bad faith or dilatory
motives, (2) the amendment would be futile, or (3) the amendment would prejudice the
other party.” Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000). Additionally, the failure
to submit a draft amended complaint “is fatal to a request for leave to amend.” U.S. ex
rel. Zizic v. Q2Administrators, LLC,
728 F.3d 228, 243 (3d Cir. 2013) (quoting Fletcher-
Harlee Corp. v. Pote Concrete Contractors, Inc.,
482 F.3d 247, 252 (3d Cir. 2007)).
Here, the McWreaths sought to add a declaratory judgment action based on the
allegation that a Code of Conduct was not presented when the lease was signed in 2007.
The McWreaths, however, failed to submit a draft amended complaint in the almost five
months between when they first raised the issue and when the District Court denied their
request. This failure “is fatal to a request for leave to amend.” See Q2Administrators,
LLC, 728 F.3d at 243; Fletcher-Harlee
Corp., 482 F.3d at 252;
Lake, 232 F.3d at 374.
Furthermore, the McWreaths first raised the issue of amending their Complaint fourteen
months after the expiration of the deadline established in the District Court’s pretrial
scheduling order. See E. Minerals & Chems. Co. v. Mahan,
225 F.3d 330, 340 (3d Cir.
11
2000) (“We conclude that the District Court acted well within its discretion when it
denied Eastern’s motion to amend the complaint six months after the amendment and
joinder deadlines had expired . . . .”). Finally, the McWreaths’ amendment would have
been futile because the four-year limitations period for declaratory judgment actions
arising out of contract had run by the time the McWreaths commenced this lawsuit in
2013. See 42 Pa. C.S. § 5525; Algrant v. Evergreen Valley Nurseries Ltd. P'ship, 126
F.3d 178, 181–82 (3d Cir. 1997); see also In re NAHC, Inc. Sec. Litig.,
306 F.3d 1314,
1332 (3d Cir. 2002) (holding that an amendment was futile because the claims would be
barred by the statute of limitations). Accordingly, we conclude that the District Court did
not abuse its discretion in denying leave to amend.
IV.
For the forgoing reasons, we will affirm the District Court’s judgment of January
26, 2015.
12
Darlene McWreath, et al. v. Range Resources-Appalachia, LLC (No. 15-1371)
JORDAN, Circuit Judge, concurring specially in the judgment.
While I agree with my colleagues on the merits of this case, I would find the entire
appeal waived because the McWreaths failed to properly argue for their right to an
accounting in their opening brief. It is well-settled in our Circuit that “[a]n issue is
waived unless a party raises it in its opening brief.” Laborers’ Int’l Union of N. Am.,
AFL-CIO v. Foster Wheeler Energy Corp., 26 F.3d 375, 398 (3d Cir. 1994). In the
proceedings below, the McWreaths’ complaint averred that their lease with Range was
invalid and identified three grounds for recovery: trespass, conversion, and accounting.
The McWreaths voluntarily dismissed the trespass and conversion claims, leaving only
their accounting claim. The District Court determined the lease to be valid and
concluded that Pennsylvania law provided no basis for an accounting under any of the
theories put forward by the McWreaths.
The McWreaths opening brief in this appeal challenged the validity of their lease
with Range, but it did not address in any fashion why the invalidity of that lease would
grant them a right to an accounting. Indeed, there is not a single reference to
“accounting” anywhere in that brief. The McWreaths attempted to cure that waiver by
filing a “supplemental brief” after Range had filed its answering brief and identified the
opening brief’s deficiency. We do not consider arguments made for the first time in a
reply brief, In re Surrick, 338 F.3d 224, 237 (3d Cir. 2003), and similarly we ought not
consider new arguments made in a supplemental filing that is the functional equivalent of
1
an extra reply brief. (The McWreaths also filed a reply brief after they submitted their
“supplemental brief.”) Therefore, because the McWreaths’ opening brief failed to argue
the only appealable issue in this case, I believe the appeal is waived in toto and we should
not reach the merits.
2
