Filed: Feb. 25, 2014
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2553 TRANS ENERGY, INC., a Nevada Corporation; REPUBLIC PARTNERS VI, LP, a Texas limited partnership; REPUBLIC ENERGY VENTURES, LLC, a Delaware Limited Liability Company; PRIMA OIL COMPANY, INC., a Delaware Corporation, Plaintiffs - Appellees, v. EQT PRODUCTION COMPANY, a Pennsylvania Corporation, Defendant - Appellant. Appeal from the United States District Court for the Northern District of West Virginia, at Clarksburg. Fre
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2553 TRANS ENERGY, INC., a Nevada Corporation; REPUBLIC PARTNERS VI, LP, a Texas limited partnership; REPUBLIC ENERGY VENTURES, LLC, a Delaware Limited Liability Company; PRIMA OIL COMPANY, INC., a Delaware Corporation, Plaintiffs - Appellees, v. EQT PRODUCTION COMPANY, a Pennsylvania Corporation, Defendant - Appellant. Appeal from the United States District Court for the Northern District of West Virginia, at Clarksburg. Fred..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2553
TRANS ENERGY, INC., a Nevada Corporation; REPUBLIC PARTNERS
VI, LP, a Texas limited partnership; REPUBLIC ENERGY
VENTURES, LLC, a Delaware Limited Liability Company; PRIMA
OIL COMPANY, INC., a Delaware Corporation,
Plaintiffs - Appellees,
v.
EQT PRODUCTION COMPANY, a Pennsylvania Corporation,
Defendant - Appellant.
Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg. Frederick P. Stamp,
Jr., Senior District Judge. (1:11-cv-00075-FPS-JES)
Argued: December 12, 2013 Decided: February 25, 2014
Before WILKINSON and GREGORY, Circuit Judges, and John A.
GIBNEY, Jr., United States District Judge for the Eastern
District of Virginia, sitting by designation.
Affirmed in part and vacated in part by published opinion.
Judge Gregory wrote the opinion, in which Judge Wilkinson and
Judge Gibney joined.
ARGUED: W. Henry Lawrence, IV, STEPTOE & JOHNSON, PLLC,
Bridgeport, West Virginia, for Appellant. James C. Ho, GIBSON,
DUNN & CRUTCHER, LLP, Dallas, Texas; Stuart A. McMillan, BOWLES
RICE LLP, Charleston, West Virginia, for Appellees. ON BRIEF:
Amy Marie Smith, Bridgeport, West Virginia, John Joseph Meadows,
STEPTOE & JOHNSON, PLLC, Charleston, West Virginia, for
Appellant. James E. Scott, BOWLES RICE LLP, Charleston, West
Virginia; Ashley E. Johnson, GIBSON, DUNN & CRUTCHER LLP,
Dallas, Texas, for Appellees.
2
GREGORY, Circuit Judge:
This appeal arises from an action to quiet title. The
parties make competing claims of ownership to the gas rights
underlying a 3,800 acre plot of land located in northern West
Virginia known as Blackshere. The parties filed cross-motions
for summary judgment, and the district court ruled in favor of
the plaintiffs. The defendant, EQT Production Company (“EPC”),
appealed the district court’s decision on the merits, as well as
several of its procedural rulings. EPC also makes a new
argument on appeal, challenging whether subject matter
jurisdiction existed in the district court.
Finding no error in any of the district court’s decisions,
we affirm the judgment as to three of the four plaintiffs.
However, in order to retain jurisdiction, we exercise our
authority to dismiss plaintiff Republic Energy Ventures, LLC
(“REV”) from the case, and we vacate the judgment with respect
to that party.
I.
In 1892, John Blackshere and South Penn Oil Company (“South
Penn”), which would later become Pennzoil Products Company
(“Pennzoil”), entered into an oil and gas lease covering the
Blackshere property (the “Blackshere Lease” or “Lease”). The
transfer was recorded with the Wetzel County Clerk. In 1901 and
3
1902, South Penn entered into two indenture agreements with
Carnegie Natural Gas Company and Hope Natural Gas Company
(“Hope”). The indentures purported to sever South Penn’s gas
rights from its oil rights and allocate the gas rights to
Carnegie and Hope. 1 It is undisputed that these indentures were
never recorded.
In 1965, Hope conveyed all of its interests and rights to
any property in Wetzel County to Consolidated Gas Supply
Corporation (“Consolidated Gas”). The transfer, which was
recorded, did not reference the Blackshere Lease. Consolidated
Gas is a predecessor in title to EPC. 2 As a result, the parties
agree that EPC’s alleged interest in Blackshere’s gas rights
derives from any right in the property that Hope transferred to
Consolidated Gas by way of this 1965 conveyance.
On October 15, 1996, Pennzoil assigned its rights in the
Blackshere Lease to Cobham Gas Industries, Inc. (“Cobham”)
through an assignment and bill of sale (the “Assignment”). The
Assignment was recorded through a memorandum of assignment (the
“Memorandum”) filed with the Wetzel County Clerk.
1
Under the agreements, Hope received the rights to the vast
majority of the property, some 3,550 acres.
2
Consolidated Gas, after a series of name changes, conveyed
its interests to Eastern States Oil and Gas, Inc. in 1995.
Eastern States eventually became EPC.
4
On November 5, 2004, Cobham conveyed its interest in the
property (the “2004 Assignment”) to plaintiff Prima Oil Company,
Inc. (“Prima”) by way of a recorded transfer (the “2004
Confirmatory Assignment”). Prima is a wholly-owned subsidiary
of plaintiff Trans Energy, Inc. (“Trans Energy”). After the
2004 Assignment, Trans Energy assigned half of its portion of
the leasehold interest to plaintiff Republic Partners VI, LP
(“Republic Partners”). REV’s interest in the matter derives
from an overriding royalty interest in whatever production
Republic Partners obtains from the lease.
In 2011, Trans Energy was granted a permit by the West
Virginia Department of Environmental Protection to drill a new
gas well on the property. Prior to drilling the new well, Prima
discovered EPC’s alleged interest in the Lease resulting from
the unrecorded Hope indenture. The plaintiffs then filed this
action, seeking to quiet title to the Blackshere Lease and
requesting declarations that they have rightful title to the gas
rights underlying the property, and that Prima was a bona fide
purchaser for value (“BFP”) with no actual or constructive
knowledge of a competing interest in the property when it
acquired Cobham’s interest in 2004.
EPC answered and filed several counterclaims seeking a
declaration that it held superior title to Blackshere’s gas
5
rights, as well as tort claims for trespass, conversion, and
waste. 3
After significant discovery was undertaken by both sides,
EPC filed a motion for an extension of time to complete
discovery and to defer consideration of the plaintiffs’
anticipated motion for summary judgment. The parties then filed
cross-motions for summary judgment. The plaintiffs also filed a
motion in limine to exclude evidence of punitive damages.
On October 22, 2012, the district court informed the
parties by letter of its tentative rulings. The district court
stated its intention to (1) grant the plaintiffs’ motion for
summary judgment; (2) deny the defendant’s motion for summary
judgment; (3) deny the defendant’s motion for an extension of
time to complete discovery and to defer consideration of the
plaintiffs’ summary judgment motion; and (4) grant the
plaintiffs’ motion in limine to exclude evidence of punitive
damages. The court also advised the parties not to file any
further motions or pleadings with respect to the rulings
contained in the letter.
3
The plaintiffs then filed an amended complaint raising the
same tort claims and seeking compensatory damages but later
withdrew these claims.
6
The next day, EPC filed a motion for leave to file a
supplemental memorandum in support of its summary judgment
motion and against the plaintiffs’ summary judgment motion.
On November 26, 2012, the district court entered two
memorandum opinions in accordance with its tentative letter
rulings. In a thorough, well-reasoned opinion, the court
granted the plaintiffs’ motion for summary judgment, denied the
defendant’s motion for summary judgment, and denied the
defendant’s motion for leave to supplement the record. The
second opinion denied EPC’s motion for an extension of time to
complete discovery and to defer consideration of the summary
judgment motions, and granted the plaintiffs’ motion to exclude
punitive damages evidence. The court then entered final
judgment in favor of the plaintiffs, and this appeal followed.
II.
A.
Although not raised below, EPC challenges on appeal whether
the district court had subject matter jurisdiction over the
case. Whether subject matter jurisdiction exists is a question
of law that we review de novo. In re Kirkland, 600 F.3d 310,
314 (4th Cir. 2010). The plaintiffs relied on diversity of
citizenship in filing the case in federal court. See 28 U.S.C.
§ 1332(a)(1). The case was originally filed against EQT
7
Corporation. 4 By mutual agreement of the parties, EQT
Corporation was substituted as a defendant by EPC, a
Pennsylvania company. It is undisputed that Trans Energy is a
Nevada Corporation and Prima is a Delaware Corporation. The
complaint identified Republic Partners as a citizen of Texas and
REV as a citizen of Delaware, thereby establishing complete
diversity. However, the plaintiffs now acknowledge that they
improperly alleged the citizenship of Republic Partners and REV
by referring only to the states in which those entities are
organized and do business. See Carden v. Arkoma Assocs., 494
U.S. 185, 195 (1990) (partnerships have citizenship of their
partners); Gen. Tech. Applications, Inc. v. Exro Ltda,
388 F.3d
114, 120 (4th Cir. 2004) (limited liability companies have
citizenship of their members).
A federal statute allows for the curing of jurisdictional
pleading defects on appeal. See 28 U.S.C. § 1653 (“Defective
allegations of jurisdiction may be amended, upon terms, in the
trial or appellate courts.”). In accordance with this, the
plaintiffs filed a motion to supplement the record with an
affidavit attesting to the Texas citizenship of each member of
Republic Partners. At oral argument, EPC conceded the accuracy
4
EQT Corporation is not to be confused with EQT Production,
the current defendant and to whom we refer as “EPC” throughout.
8
of this information. Accordingly, we grant the plaintiffs’
motion to supplement the record, and we find no jurisdictional
defect with respect to Republic Partners.
As to REV, the plaintiffs now concede that it includes
members who are citizens of Pennsylvania, the same as EPC. To
keep diversity of citizenship intact, the plaintiffs propose to
have REV dismissed as a party under Federal Rule of Civil
Procedure 21. See Newman-Green, Inc. v. Alfonzo-Larrain, 490
U.S. 826, 836 (1989) (holding that the courts of appeals have
the authority to dismiss a dispensable nondiverse party by
virtue of Rule 21). EPC argues, however, that REV is an
indispensable party under Rule 19 and cannot be dismissed.
Under Rule 19(b), when joinder of parties is not feasible
because of, among other things, nondiversity, a court must
decide whether “‘the action should proceed among the parties
before it, or should be dismissed’ because the absent party is
indispensable.” Yashenko v. Harrah’s NC Casino Co., LLC, 446
F.3d 541, 552 (4th Cir. 2006) (quoting Fed. R. Civ. P. 19(b)).
In making this determination, a court must evaluate:
first, to what extent a judgment rendered in the
person’s absence might be prejudicial to the person or
those already parties; second, the extent to which, by
protective provisions in the judgment, by the shaping
of relief, or other measures, the prejudice can be
lessened or avoided; third, whether a judgment
rendered in the person’s absence will be adequate;
fourth, whether the plaintiff will have an adequate
remedy if the action is dismissed for nonjoinder.
9
Id.
As an initial matter, we have previously admonished that
“[d]ismissal of a case is a drastic remedy, . . . which should
be employed only sparingly.” Teamsters Local Union No. 171 v.
Keal Driveaway Co.,
173 F.3d 915, 918 (4th Cir. 1999). Further,
the Supreme Court has stated that, “[o]nce a diversity case has
been tried in federal court, . . . considerations of finality,
efficiency, and economy become overwhelming.” Caterpillar, Inc.
v. Lewis,
519 U.S. 61, 75 (1996). Both directives strongly
caution against dismissing the case, which involved extensive
discovery and was pending before the district court for over a
year and a half.
As mentioned, REV’s stake in the matter results from its
royalty interest in whatever production Republic Partners
obtains from the lease. REV is seeking to be dismissed from the
case, assured that its interests will be adequately represented
by the remaining plaintiffs, all of whom are related entities
seeking the same result. EPC, on the other hand, argues that
regardless of whether REV’s interests are protected, Rule 19(b)
concerns the interests of all the parties, not merely those of
the party proposed to be dismissed. See F. Rule Civ. P. 19(b)
(asking “to what extent a judgment rendered in the person’s
absence might be prejudicial to the person or those already
parties”) (emphasis added). In its answer to the complaint, EPC
10
asserted several counterclaims that included REV as a defendant.
It argues that it is entitled to have REV remain as a possible
defendant for its counterclaims should this Court reverse the
overall merits determination of the district court. Given our
decision, explained below, to affirm the district court’s ruling
in favor of the plaintiffs, this argument is functionally moot.
In any event, we note that the defendant has failed to show – or
even suggest – a single, tangible way in which it will be harmed
by REV’s absence. See Dore Energy Corp. v. Prospective Inv. &
Trading Co. Ltd., 570 F.3d 219, 232 (5th Cir. 2009) (“The
factors under Rule 19(b) are concerned with whether actual harm
to anyone’s interest will occur if the case proceeds absent
certain parties.”) (emphasis added). Instead, EPC merely states
generally that it has a right to have REV remain as a party
without addressing why the 19(b) factors weigh in favor of a
finding of indispensability. Having reviewed the parties’
arguments and the record, we are satisfied that there is no
reason to believe that any party will be harmed by REV’s
absence, or that the plaintiffs received an improper “tactical
advantage” by including REV as a party. See Parker v. Centre
Group Ltd. P’ship,
70 F.3d 1262 (4th Cir. 1995) (unpublished
table decision). Additionally, to the extent EPC is concerned
about not being sued in a separate state action filed by REV,
the plaintiffs have asked that REV be dismissed with prejudice.
11
Given these considerations, we deem this an appropriate case in
which to exercise our power under Rule 21 to dismiss REV from
the suit and preserve diversity among the remaining parties.
B.
Turning to the merits of the case, EPC raises three main
issues. First, it argues that the 1996 transfer from Pennzoil
to Cobham conveyed only the oil rights to the Blackshere Lease
and not the gas rights. Second, EPC contends that the district
court lacked a factual basis on which to find that Prima
received title to the lease by virtue of the 2004 Confirmatory
Assignment. Third, EPC argues that Prima had notice of its
competing claim at the time of the 2004 Assignment and was
therefore not a BFP. We address each issue in turn, utilizing a
de novo standard of review. Glynn v. EDO Corp., 710 F.3d 209,
213 (4th Cir. 2013) (“We review a district court’s grant of a
motion for summary judgment de novo, applying the same legal
standards as the district court.”).
1.
The defendant first argues that the language of the
Memorandum did not convey the gas rights to the Blackshere
Lease. Basic principles of West Virginia property law guide our
analysis on this issue. “A valid written instrument which
expresses the intent of the parties in plain and unambiguous
language is not subject to judicial construction or
12
interpretation but will be applied and enforced according to
such intent.” Syl. pt. 4, Zimmerer v. Romano, 679 S.E.2d 601
(W. Va. 2009). “In construing a deed, will, or other written
instrument, it is the duty of the court to construe it as a
whole, taking and considering all the parts together, and giving
effect to the intention of the parties wherever that is
reasonably clear and free from doubt . . . .” Syl. pt. 1, Maddy
v. Maddy,
105 S.E. 803 (W. Va. 1921).
The Memorandum states that Pennzoil, through the
Assignment, “did bargain, sell, transfer, assign and convey unto
[Cobham], all right, title and interest it may have in and to
certain oil and gas leases and 88 wells more particularly
described on EXHIBIT ‘A’ and EXHIBIT ‘B’, attached [t]hereto and
made a part [t]hereof.” Exhibit A is a list of leases
associated with the conveyance, including the Blackshere Lease.
Exhibit B lists both the leases and wells being transferred as
part of the sale. Exhibit B includes a “rights” column for each
of the wells, under which is indicated “oil,” “gas,” or “oil and
gas.” The rights columns for all the Blackshere Lease wells
indicate “oil.” EPC contends that Exhibit B lists not only the
wells being transferred but also the ownership rights of each
lease associated with those wells. Thus, because “oil” is the
only right associated with the Blackshere Lease wells, the
13
conveyance must have been intended to transfer only the oil
rights to Cobham.
We disagree with this reading, and instead adopt the
district court’s conclusion that the Memorandum unambiguously
establishes that Pennzoil transferred both oil and gas rights to
the oil and gas leases listed in Exhibit A, and that Exhibit B
simply lists the wells being transferred and the rights utilized
by those wells. First, the granting language of the memorandum
plainly states that the leases being transferred were “oil and
gas leases.” (emphasis added). There is no indication that any
of the leases were simply oil leases or simply gas leases.
Exhibit A lists the entire Blackshere Lease, as conveyed by John
Blackshere to South Penn in 1892. Nothing in the granting
language of the Memorandum or the list of leases in Exhibit A
indicates that the oil and gas rights were severed at any point.
Second, the Memorandum states that Pennzoil conveyed all of
its interest in and to “certain oil and gas leases and 88 wells
. . . .” (emphasis added). This indicates the transfer of two
distinct types of Pennzoil property: leases and wells. Exhibit
A, which does not include reference to any wells, is clearly a
list of the leases being transferred. Exhibit B, on the other
hand, offers particularized descriptions of each of the wells
and is properly understood as a list of the wells being
transferred and the type of production associated with each
14
well. The fact that some wells produced only oil in no way
limits the rights included in the leases. Moreover, the
defendant’s position requires reading Exhibit B in isolation and
ignoring the remaining language in the Memorandum and Exhibit A.
When, as it must be, the instrument is “construe[d] . . . as a
whole, taking and considering all the parts together,” Syl. pt.
1, Maddy, 105 S.E. at 803, it is clear that Pennzoil transferred
to Cobham all of its rights in a series of oil and gas leases,
as listed in Exhibit A – including the unsevered 1892 Blackshere
Lease – as well as its rights to the accompanying wells, as
listed in Exhibit B. We therefore affirm the district court’s
decision that the Memorandum unambiguously conveyed to Cobham
the gas rights in the Blackshere Lease.
2.
EPC next contends that because the plaintiffs failed to
offer the 2004 Confirmatory Assignment into the record the
district court lacked a factual basis on which to find that
Prima ever received title to the Blackshere Lease. As noted,
the 2004 Confirmatory Assignment recorded the sale of Cobham’s
interest in the Lease to Prima. In the proceedings below, the
plaintiffs purported to attach this document to their motion for
summary judgment; however, it is now apparent that they
mistakenly attached a different, unrelated instrument. EPC
avers that, without the 2004 Confirmatory Assignment, the
15
district court simply had no evidentiary basis for concluding
that Prima held an unbroken, recorded chain of title to the
Blackshere Lease.
This argument is easily rejected. EPC’s own expert
mentioned the 2004 Assignment in testifying that the plaintiffs
held an unbroken chain of title going back to the original 1892
lease. The witness, Arnold Schulberg, testified:
Q. And we were talking about what the record chain of
title shows regarding ownership of the Blackshere
lease and we were dealing with –- I think we got up
to Cobham; is that correct?
A. Yes.
Q. And what was your understanding after the Cobham?
A. We have an assignment from Cobham Gas Industries,
Inc., to Prima Oil Company, Inc.
Q. And do you know the date of that?
A. It’s, apparently, November 5th, 2004.
. . .
Q. Okay. Is it fair to say that based just on the
record title, that there is a chain directly from
the original lessor to Prima Oil?
A. Yes. There’s a chain.
Q. Based on the record?
A. Yes.
The plaintiffs’ expert also testified to the same effect,
stating that Prima held record title to the Blackshere Lease.
Additionally, the plaintiffs offered into evidence a written
description of Prima’s complete chain of title that specifically
referenced the 2004 Assignment. Clearly then, the evidence
provided an adequate basis for the district court’s conclusion
16
that Cobham conveyed to Prima its interest in the Lease via the
2004 Assignment. The defendant has not directly challenged the
validity of the evidence regarding the 2004 Assignment, and
instead merely relies on a clerical error of the plaintiffs in
attaching the wrong document to their motion. Considering the
actual evidence that made it into the record, which is clear, we
reject EPC’s argument on this point.
3.
EPC’s third and final argument is that Prima was not a BFP
in 2004 because it had notice of EPC’s competing claim to
Blackshere’s gas rights. Under West Virginia law, unrecorded
written contracts, such as the 1901 and 1902 indentures that
purported to sever the gas rights underlying the property, are
“as effective as a recorded deed” against purchasers with notice
of the unrecorded transfer. Farrar v. Young, 230 S.E.2d 261,
265 (W. Va. 1976). As a result, even if Prima can demonstrate
record title to the gas rights, EPC might nevertheless have a
claim as the rightful holder of those rights.
Importantly, though, the rule regarding unrecorded
transfers also provides that such transfers are invalid as
against BFPs. See W. Va. Code § 40-1-9. A BFP is “one who
purchases for a valuable consideration, paid or parted with,
without notice of any suspicious circumstances to put him on
inquiry.” Stickley v. Thorn, 106 S.E. 240, 242 (W. Va. 1921).
17
This rule protects good faith purchasers who conduct due
diligence prior to purchasing an interest in real property. See
Gullett v. Burton, 345 S.E.2d 323, 327 (W. Va. 1986). A party
alleging notice to a purchaser must show that the purchaser was
placed on actual or constructive notice of the competing claim
or defect in title. Fanti v. Welsh,
161 S.E.2d 501, 505 (W. Va.
1968). Such knowledge is imputed to the purchaser if it could
have been acquired through “the exercise of ordinary diligence.”
Id. “[T]he burden of proving notice to a purchaser for value is
upon him who alleges it.” Alexander v. Andrews,
64 S.E.2d 487,
491 (W. Va. 1951).
EPC asserts a variety of theories under which knowledge of
its competing interest should be imputed to Prima. First, it
contends that language in the Memorandum and the Assignment
ought to have put Prima on notice of a potential competing
claim, thereby triggering a duty to conduct a title search
beyond the record. This is a reference to a form of
constructive notice known as inquiry notice. Inquiry notice
exists “when a prospective buyer has reasonable grounds to
believe that property may have been conveyed in an instrument
not of record . . . .” Eagle Gas Co. v. Doran & Assocs., Inc.,
387 S.E.2d 99, 102 (W. Va. 1989). In such cases, purchasers
must “use reasonable diligence to determine whether such
previous conveyance exists.”
Id.
18
EPC contends that because language within the Memorandum
referenced the Assignment itself, Prima was charged with
inspecting that document as well. West Virginia’s recording
statute requires only the filing of a memorandum noting a
transfer of real property and not the actual assignment itself.
See W. Va. Code § 40-1-8. As such, a memorandum normally
constitutes the complete notice of a transfer and is all that
prospective purchasers need review in order to satisfy due
diligence. However, several West Virginia cases have held that
in certain circumstances, references in the memorandum to a
competing interest may require the purchaser to conduct further
review outside the record. See In re Restaurant Assocs.,
L.L.C., No. 1:06CV53,
2007 WL 951849, at *4 (N.D. W. Va. Mar.
28, 2007) (holding that if there exist “reasonable grounds to
believe th[e] property may have been conveyed in an instrument
not of record” the purchaser “may be charged with searches
beyond the record”) (quoting Eagle Gas
Co, 387 S.E.2d at 102);
see also Syl. pt. 1, Pocahontas Tanning Co. v. St. Lawrence Boom
& Mfg. Co.,
60 S.E. 890 (W. Va. 1908) (“Whatever is sufficient
to direct the attention of a purchaser to prior rights and
equities of third parties, so as to put him on inquiry into
ascertaining their nature, will operate as notice.”).
In In re Restaurant, the recording memorandum noted that
the transfer was “subject to any and all exceptions,
19
reservations, restrictions, easements, rights-of-way and
conditions as contained in prior deeds of conveyance in this
chain of title.” 2007 WL 951849, at *4. One of the prior deeds
within the chain of title referenced unrecorded covenants.
Id.
The court reasoned that the purchasers should have inquired
further about the unrecorded deeds, given that the record
specifically mentioned their existence.
Id. at *5.
This case is readily distinguishable from In re Restaurant.
Although the Memorandum mentioned the Assignment, unlike in In
re Restaurant it did not reference other documents containing
information about competing interests. The Memorandum merely
mentions the Assignment in passing, noting that the Assignment
was the actual transfer document. Without more, there was
nothing to raise Prima’s suspicions about a possible competing
claim and give it cause to consult beyond the record.
Accordingly, we agree with the district court that the reference
in the Memorandum would not have placed a reasonably prudent
purchaser on notice of EPC’s competing claim.
Furthermore, even assuming that the language of the
Memorandum created a duty to consult the actual Assignment,
nothing within the Assignment indicated the existence of a
competing ownership claim. The Assignment contains the
following provision: “a portion of [the transferred] Land and
Wells are subject to certain contractual obligations with either
20
CNG Transmission Corporation or CNG Producing Company.” 5
Contrary to EPC’s assertions, this notation is insufficient to
require a purchaser to inquire further about the nature of these
contractual obligations. There is no indication that the term
“contractual obligations” referred to potential ownership
interests in the gas rights to Blackshere, nor does the language
state which of the many leases and wells conveyed along with
Blackshere might have been subject to such obligations. We deem
these non-specific references to contractual obligations
insufficient to cause a reasonable buyer to conduct a further
investigation outside the record. 6
EPC also argues more generally that Prima’s title inquiry
was unreasonably cursory and fell short of due diligence. Prior
to purchasing its interest in the property from Cobham in 2004,
Prima retained attorney Richard Starkey to investigate
Blackshere’s chain of title. Although Mr. Starkey testified
that he conducted only an “abbreviated” review, he did consult
5
CNG Transmission Corporation is a predecessor-in-interest
of EPC.
6
EPC also reiterates its argument, addressed above, that
the “rights” section of Exhibit B, which listed only “oil”
rights for Blackshere’s wells, indicated that the transfer did
not include the gas rights. From this, EPC contends that Prima
was on notice of at least the possibility of a competing claim
and therefore should have engaged in additional inquiry. For
the same reasons explained above, EPC’s argument on this point
is not compelling.
21
the relevant county records to ensure that Cobham had obtained
good title from Pennzoil in 1996. Regardless of the
extensiveness of Mr. Starkey’s review, however, no amount of
searching would have revealed EPC’s competing claim, since it is
undisputed that the 1901 and 1902 indentures were never
recorded. As the district court noted, a purchaser is not
punished for failing to conduct due diligence when all
reasonable inquiries would nevertheless have failed to uncover a
competing claim. 7 That is exactly the situation here, and,
accordingly, knowledge of EPC’s claim cannot be imputed to
Prima.
EPC offers three final arguments for why Prima had notice
of EPC’s competing claim and is not a BFP. First, EPC asserts
that Mr. Starkey was aware of the “legend and lore” among mining
interests in northern West Virginia that gas rights to large
tracts of property had been severed in the early 20th century
and transferred to Hope. 8 This argument has no legal
7
EPC’s argument that had Prima consulted Hope’s chain of
title it would have discovered the 1965 conveyance between Hope
and Consolidated Gas is irrelevant given that the 1965 deed does
not mention the Blackshere Lease.
8
Mr. Starkey’s knowledge may be imputed to Prima. See
Morgan-Gardner Elec. Co. v. Beelick Knob Coal Co., 112 S.E. 587,
591 (W. Va. 1922) (“The law imputes to the principal, and
charges him, with all notice or knowledge relating to the
subject matter of the agency which the agent acquires or obtains
(Continued)
22
significance. See Pocahontas Tanning, Inc., 60 S.E. at 893
(explaining that “vague rumor or mere surmises are insufficient
in themselves” to create constructive notice). While Starkey
admitted having knowledge of these rumors, he testified that in
thirty years of working in the oil and gas industry in the area
he had never seen the alleged severance applied. Such non-
specific conjecture is clearly insufficient to constitute
constructive notice of a competing interest.
Next, EPC argues that its operation of two gas wells on the
property constituted constructive notice of its claim. Notice
may be established when a reasonable physical inspection of the
premises would have yielded information of a competing claim.
See Bailey v. Banther, 314 S.E.2d 176, 181 (W. Va. 1983).
Representatives from Prima toured the property prior to the 2004
Assignment, spending several days visiting Cobham well sites and
traversing numerous access roads and found no sign of EPC’s two
wells. This is unsurprising given the nature of the property,
which consists of 3,800 acres of heavily forested, undeveloped
land. As such, we agree with the district court that Prima
conducted due diligence in its inspection of the site and that
while acting as such agent and within the scope of his
authority[.]”).
23
EPC’s operation of the two wells did not amount to constructive
notice of its competing claim.
Lastly, EPC argues that Prima purchased its interest at
such a discount that it must have known it was getting something
less than clean title to the entire estate. Prima paid $250,000
and 250,000 shares of Trans Energy stock for rights to the
Lease, which EPC compares with the $6,000,000 Prima later spent
to build a new well on the property. To the extent that
purchase price may be considered in determining BFP status under
West Virginia law, see Wetzel v. Watson, 328 S.E.2d 526, 530 n.
4 (W. Va. 1985) (“[a] valuable consideration, however small, if
bargained for in good faith in the absence of fraud will be
sufficient to sustain a contract”), we again agree with the
district court that unique circumstances in the price and
estimated abundance of natural gas in the region offer a
reasonable explanation for any increased value of the Lease
rights. 9 With this background in mind, we hold that the purchase
price fails to establish constructive notice.
For all these reasons, we affirm the district court’s
decision that Prima was a BFP in 2004 and therefore holds
9
In 2004, the United States Geological Survey estimated
that 1.9 trillion cubic feet of gas existed in Blackshere’s
surrounding region. According to the plaintiffs, a recent
estimate is 141 trillion cubic feet.
24
superior title to the Blackshere Lease by virtue of its
unbroken, recorded chain of title.
C.
EPC has also challenged a number of the district court’s
procedural rulings. Specifically, EPC contests the denial of
its motion for an extension of time to complete discovery and
defer consideration of the plaintiffs’ summary judgment motion,
and the denial of its motion for leave to file a supplemental
brief in support of its summary judgment motion and against the
plaintiffs’ summary judgment motion. 10 We review both rulings
for abuse of discretion, reversing only if there is a clear
abuse of discretion or the real possibility that a party was
unfairly prejudiced by the decisions. See Ingle ex rel. Estate
of Ingle v. Yelton, 439 F.3d 191, 195 (4th Cir. 2006); Strag v.
Bd. of Trs., Craven Cmty. Coll.,
55 F.3d 943, 954 (4th Cir.
1995). We have reviewed the parties’ arguments and the record
and find that we are in agreement with the decisions of the
district court, as explained in its two opinions on the matters.
See Trans Energy, Inc. v. EQT Prod. Co., No. 1:11cv75,
2012 WL
5906649 (N.D. W. Va. Nov. 26, 2012); Trans Energy, Inc. v. EQT
Prod. Co., No. 1:11cv75,
2012 WL 5906603 (N.D. W. Va. Nov. 26,
10
The defendant also challenges the grant of the
plaintiffs’ motion in limine to exclude any evidence or argument
of punitive damages. In light of our ruling on the merits in
favor of the plaintiffs, we need not consider this issue.
25
2012). Accordingly, we affirm the denial of the defendant’s
motions.
III.
For the foregoing reasons, we affirm the district court’s
grant of summary judgment in favor of Trans Energy, Republic
Partners, and Prima, but vacate the judgment with respect to
REV, whom we dismiss with prejudice. We also affirm the
district court’s challenged procedural rulings.
AFFIRMED IN PART AND
VACATED IN PART
26
