IN THE UNITED STATES DISTRICT COURT 

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

JANET E. MASCIANTONIO, et al., : CIVIL ACTION NO. 4:13-CV-797

:

Plaintiffs : (Chief Judge Conner)

:

v. :

:

SWEPI LP, :

:

Defendant :

MEMORANDUM

This breach of contract action presents a manifold dispute over the 

proper interpretation of a bonus payment provision in two separate but identical 

oil and gas leases executed by and between defendant SWEPI LP (―SWEPI‖) 

and two plaintiff groups of landowners: Janet E. Masciantonio and Martin J. 

Masciantonio, (―the Masciantonios‖); and Paul R. Latshaw and Paul B. Latshaw, 

(―the Latshaws‖), in their capacities as co-trustees of the Phyllis E. Latshaw 

Residuary Trust Created Under the Will of Phyllis E. Latshaw (―the Latshaw 

Trust‖). Before the court are the parties‘ respective cross-motions (Docs. 57, 60) 

for summary judgment pursuant to Federal Rule of Civil Procedure 56.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 1 of 48
2

I. Factual Background and Procedural History1

The Masciantonios and the Latshaw Trust jointly own two parcels of land, 

including the subsurface oil, gas, and mineral rights thereto. (Doc. 58 ¶ 9; see also

Doc. 43 ¶ 7; Doc. 45 ¶ 7).2 The contiguous parcels are located in Jackson Township, 

Lycoming County, and have abbreviated tax parcel numbers of 18-148-102 and 

18-149-115. (Doc. 58 ¶ 9; see Doc. 61 ¶ 6). The parties agree for purposes of the 

instant motions that the property has an assessed acreage of 1,036 acres, with tax 

parcel 18-148-102 encompassing 918 assessed acres and tax parcel 18-149-115 

encompassing 118 acres. (Doc. 61 ¶ 8; Doc. 65 ¶ 8; see also Doc. 58 ¶ 9). In 2006, 

plaintiffs leased the property‘s oil and gas rights to East Resources, Inc. (Doc. 61 

¶ 21; Doc. 65 ¶ 21). Plaintiffs‘ lease with East Resources expired on September 30, 

2011. (Doc. 61 ¶ 27; Doc. 65 ¶ 27). East Resources did not drill on the property 

during the primary term of its five-year lease. (Doc. 61 ¶ 26; Doc. 65 ¶ 26).

 

1 Local Rule 56.1 requires that a motion for summary judgment pursuant to 

Federal Rule of Civil Procedure 56 be supported ―by a separate, short, and concise 

statement of the material facts, in numbered paragraphs, as to which the moving 

party contends there is no genuine issue to be tried.‖ LOCAL RULE OF COURT 56.1. 

A party opposing a motion for summary judgment must file a separate statement 

of material facts, responding to the numbered paragraphs set forth in the moving 

party‘s statement and identifying genuine issues for trial. See id. Unless otherwise 

noted, the factual background herein derives from the parties‘ Rule 56.1 statements 

of material facts. (See Docs. 58, 61, 65, 69). To the extent the parties‘ statements are 

undisputed or supported by uncontroverted record evidence, the court cites 

directly to the statements of material facts.

2 SWEPI contests whether plaintiffs in fact own the subject property, (see

Doc. 69 ¶ 9), but produces no contrary evidence in support of its denial as required 

by Local Rule 56.1. See supra note 1 & discussion infra at 43-45.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 2 of 48
3

SWEPI is a limited partnership wholly owned by various subsidiary entities 

constituting Royal Dutch Shell PLC (―Shell‖). (See Doc. 58 ¶¶ 4-5; Doc. 69 ¶¶ 4-5). 

SWEPI acquired certain of East Resources‘ assets in 2010, but it is unclear from the 

parties‘ submissions whether plaintiffs‘ prior lease was among the assets acquired. 

(See Doc. 58 ¶ 18; Doc. 69 ¶ 18). After the East Resources lease expired, plaintiffs 

entertained competing offers to lease their oil and gas rights: one from Anadarko 

E & P Company, LP (―Anadarko‖), and one from SWEPI. (See Doc. 58 ¶¶ 15-47; 

Doc. 61 ¶¶ 37-52; Doc. 65 ¶¶ 37-52; Doc. 69 ¶¶ 15-47). Plaintiff Martin J. Masciantonio 

(―Masciantonio‖) acted on behalf of, and as the principal contact for, all plaintiffs

during these discussions. (Doc. 58 ¶ 3; Doc. 61 ¶ 45; Doc. 65 ¶ 45; Doc. 69 ¶ 3).

Negotiations began in approximately October 2011, when Anadarko offered 

to lease plaintiffs‘ oil and gas rights for $4,000 per net mineral acre and an eighteen 

percent (18%) royalty. (Doc. 58 ¶ 15; Doc. 69 ¶ 15). Masciantonio knew that SWEPI 

had acquired the assets of plaintiffs‘ former lessee, and he contacted SWEPI to 

determine whether it was interested in leasing plaintiffs‘ property. (Doc. 58 ¶ 19; 

Doc. 69 ¶ 19). Masciantonio contacted SWEPI because he believed plaintiffs‘ prior 

relationship with East Resources would result in ―an easier time‖ with the leasing 

process. (Doc. 61 ¶ 42; Doc. 65 ¶ 42). Thenceforth, Masciantonio communicated 

exclusively with Fred Piombino (―Piombino‖), a landman with Long Consulting 

Group, LLC, who represented SWEPI in the parties‘ lease negotiations. (See Doc. 

58 ¶¶ 7, 20; Doc. 61 ¶¶ 43-44; Doc. 65 ¶¶ 43-44; Doc. 69 ¶¶ 7, 20).

Piombino advised Masciantonio during an inceptive telephone conversation 

that SWEPI would agree to a lease with a five-year primary term, a $2,000 per acre 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 3 of 48
4

bonus payment, and a fifteen percent (15%) royalty. (See Doc. 61 ¶ 47; Doc. 65 ¶ 47). 

However, Piombino offered that the bonus payment would be remitted through an 

―alternative method,‖ i.e. a payment method other than cashier‘s check or certified 

check. (See Doc. 61 ¶ 47; Doc. 65 ¶ 47). Over the next few weeks, Piombino and 

Masciantonio also discussed the terms of an addendum which would supersede 

the terms of SWEPI‘s standard form lease. (Doc. 58 ¶ 21; Doc. 69 ¶ 21). Piombino 

provided Masciantonio with a form lease to review, in addition to a draft addendum 

and draft memorandum of lease. (See Doc. 58 ¶¶ 22-24; see also Doc. 69 ¶¶ 22-24). 

Masciantonio then suggested that Piombino travel to his family‘s home for 

additional negotiations.3 (See Doc. 61 ¶ 49; Doc. 65 ¶ 49).

 

3 SWEPI seeks a spoliation inference against plaintiffs as a result of 

Masciantonio‘s failure to preserve certain email communications with Piombino 

concerning the parties‘ negotiations. (See Doc. 62 at 32-33). Masciantonio testified 

that he communicated with Piombino and Anadarko representatives via email, but 

his computer ―crashed‖ approximately six months before his deposition, taking 

with it any preserved email correspondence. (Doc. 61-2, Masciantonio Dep. 168:12

-170:24 (June 3, 2015)). SWEPI describes Masciantonio‘s failure to preserve this 

electronic evidence as ―negligent destruction‖ thereof. (Doc. 62 at 33). The record 

does not support SWEPI‘s characterization of Masciantonio‘s actions, which appear 

to have been purely accidental. (See Doc. 61-2, Masciantonio Dep. 168:12-170:24, 

172:3-176:16). Courts presented with spoliation requests regularly decline to apply 

the inference when ―the party‘s conduct was no worse than negligent, or where the 

evidence was lost in the normal course of daily business or other similar activity.‖ 

Bozic v. City of Washington, 912 F. Supp. 2d 257, 270 (W.D. Pa. 2012) (collecting 

cases). In any event, the only prejudice SWEPI cites is an inability to discern ―the 

date or method of transmission‖ of certain documents to Masciantonio, information 

which has no evident bearing on the issues in dispute. (See Doc. 69 ¶¶ 22-24). 

Hence, the court will not apply a spoliation inference.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 4 of 48
5

On November 5, 2011, Piombino met in person with the Masciantonios and 

Paul R. Latshaw (―Latshaw‖) and presented two proposed paid-up oil and gas 

leases, addenda, and memoranda of lease. (Doc. 58 ¶ 26; Doc. 69 ¶ 26). SWEPI‘s 

preprinted leases and memoranda listed the property‘s acreage at 1,036 acres. 

(Doc. 58 ¶ 27; Doc. 69 ¶ 27). During the meeting, Masciantonio provided an

unrecorded survey to Piombino indicating that the property contains 1,144 acres. 

(Doc. 58 ¶ 28; Doc. 69 ¶ 28). Piombino crossed out the assessed acreage in the lease 

documents and handwrote 1,144 acres into the documents where applicable. (See

Doc. 58 ¶ 43; Doc. 69 ¶ 43). Masciantonio also showed Piombino a written offer from 

Anadarko to lease the property for $4,000 per acre. (Doc. 58 ¶¶ 35-36; Doc. 69 ¶¶ 35

-36). Ensuing negotiations resulted in SWEPI‘s agreement to lease the property at 

$4,000 per acre for the surveyed 1,144 acres, and a fifteen percent (15%) royalty. 

(See Doc. 61 ¶ 52; Doc. 65 ¶ 52). Plaintiffs were made aware prior to execution of the 

leases that the $4,000 per acre bonus payment would be made by ―bank draft.‖ (See

Doc. 61 ¶ 53; Doc. 65 ¶ 53).

The Masciantonios executed their lease, the addendum thereto, and a 

memorandum of lease during the November 5, 2011 meeting. (Doc. 58 ¶¶ 11-12; 

Doc. 61 ¶¶ 75-77; Doc. 65 ¶¶ 75-77; Doc. 69 ¶¶ 11-12). Latshaw executed the Trust‘s 

lease, addendum, and memorandum of lease at the same time. (Doc. 58 ¶¶ 11-12; 

Doc. 61 ¶¶ 78, 81-82; Doc. 65 ¶¶ 78, 81-82; Doc. 69 ¶¶ 11-12). Co-trustee Paul B. 

Latshaw signed the lease, addendum, and memorandum on or about November 10, 

2011. (Doc. 58 ¶ 13; Doc. 69 ¶ 13; see also Doc. 61 ¶ 80; Doc. 65 ¶ 80). Thereafter, 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 5 of 48
6

Masciantonio promptly informed Anadarko that plaintiffs had leased the property 

to SWEPI, ceasing competitive negotiations. (See Doc. 58 ¶ 47; Doc. 69 ¶ 47). 

SWEPI‘s attorney-in-fact, F.E. Stacy (―Stacy‖), signed the memoranda of 

lease on SWEPI‘s behalf. (Doc. 58 ¶¶ 66, 84; Doc. 69 ¶¶ 66, 84). SWEPI recorded the 

Masciantonio memorandum in Lycoming County on or about November 16, 2011, 

and recorded the Latshaw Trust memorandum on or about January 10, 2012. (Doc. 

58 ¶¶ 65, 83; Doc. 69 ¶¶ 65, 83). The recorded memoranda of lease announce to the 

public, including competitors, ―the existence of an Oil and Gas Lease‖ between the 

parties. (See Doc. 56-17 at 1; Doc. 56-18 at 1; Doc. 61 ¶ 136). Each memorandum 

states that the primary term of the lease is for a period of five years and that said 

term commenced on November 5, 2011. (See Doc. 56-17 at 1; Doc. 56-18 at 1).

Plaintiffs‘ leases are substantively identical. (See Docs. 56-15, 56-16). The 

first paragraph of each lease contains a ―granting clause,‖ which provides:

(1) LEASE – In consideration of the bonus consideration 

paid, the receipt of which is hereby acknowledged, and in 

further consideration of the covenants and agreements 

herein contained, Lessor does hereby grant, demise, lease 

and let exclusively to Lessee, its successors and assigns, 

the lands hereafter described for the purpose of exploring 

for, developing, producing and marketing oil, gas or other 

related substances produced in association therewith by 

all methods now known or hereafter known or hereafter 

discovered, in and under the following described land . . . 

(Doc. 56-15 at 1; Doc. 56-16 at 1). The leases set forth a primary term of five years. 

(See Doc. 56-15 at 1; Doc. 56-16 at 1). Each lease contains a ―surrender clause,‖ 

authorizing SWEPI to surrender the lease at any time ―by recording an appropriate 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 6 of 48
7

instrument of surrender in the proper county,‖ whereupon the lease and any rights, 

rentals, and obligations thereunder shall terminate. (Doc. 56-15 at 2; Doc. 56-16 at 

2). The leases state that no default may be declared against SWEPI for failure to

make payment or otherwise perform unless SWEPI ―shall refuse or neglect to pay 

or perform the same for sixty (60) days after having received written notice from‖ 

plaintiffs. (Doc. 56-15 at 3; Doc. 56-16 at 3). At plaintiffs‘ request, Piombino added 

a handwritten paragraph 19 to each lease, expressly incorporating the attached 

addenda. (See Doc. 58 ¶ 44; Doc. 69 ¶ 44; see also Doc. 56-15 at 3; Doc. 56-16 at 3).

The opening paragraph of each addendum declares that the terms thereof

supersede any inconsistent or conflicting terms in the leases. (See Doc. 56-15 at 6; 

Doc. 56-16 at 6). Paragraph 22 of the addenda discusses SWEPI‘s bonus payment 

obligation as contemplated by the granting paragraph:

22. Payment: In consideration for the attached paid-up Oil 

and Gas Lease, Lessee hereby agrees to pay Lessor: four 

thousand and 00/100 dollars ($ 4,000 .00) per net mineral acre. 

Payment shall be due within ninety (90) banking days of the 

Lessor presenting the Bank Draft to the financial institution 

of his/her/their choosing. All payment obligations are subject 

to title verification by Lessee. Said title verification shall be 

completed within the aforementioned ninety (90) banking day 

period[.]

(Doc. 56-15 at 8; Doc. 56-16 at 8). The italicized portions of the above-quoted 

language represent Piombino‘s handwritten additions to the addenda. The notice 

provision of each addendum differs slightly from its corresponding lease, providing

that, in the event SWEPI does not cure an alleged breach of the lease within sixty 

days of notice thereof, ―Lessor may, at its sole option, terminate this Lease as to all 

of the lease premises.‖ (Doc. 56-15 at 7; Doc. 56-16 at 7).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 7 of 48
8

Plaintiffs did not receive their bonus drafts during the November 5 meeting. 

(See Doc. 58 ¶ 67; Doc. 69 ¶ 67). Piombino mailed the Masciantonios‘ draft in the 

amount of $2,288,000 on November 17, 2011. (Doc. 58 ¶ 68; Doc. 61 ¶ 92; Doc. 65 ¶ 92; 

Doc. 69 ¶ 68). Masciantonio presented the draft to his bank on November 22, 2011. 

(Doc. 58 ¶ 70; Doc. 69 ¶ 70; see also Doc. 61 ¶ 98; Doc. 65 ¶ 98). SWEPI issued the 

Latshaws‘ draft in the amount of $2,288,000 on December 12, 2011, (Doc. 61 ¶ 101; 

Doc. 65 ¶ 101), but Piombino did not mail the draft until December 29, 2011. (See

Doc. 58 ¶¶ 74-76; Doc. 69 ¶¶ 74-76). Latshaw presented the draft to his bank on 

January 4, 2012. (Doc. 58 ¶ 78; Doc. 69 ¶ 78; see also Doc. 61 ¶ 105; Doc. 65 ¶ 105).

SWEPI thereafter learned that the acreage set forth on plaintiffs‘ verifiable 

title is 1,036 acres rather than the 1,144 acres assessed in the unrecorded survey 

submitted by Masciantonio. (See Doc. 61 ¶ 108; Doc. 65 ¶ 108; see also Doc. 58 ¶ 85; 

Doc. 69 ¶ 85). The parties agreed to reduce the leased acreage to 1,036 acres, but 

currently dispute whether Piombino or plaintiffs suggested the revision. (See Doc. 

58 ¶¶ 85-87; Doc. 61 ¶ 108; Doc. 65 ¶ 108; Doc. 69 ¶¶ 85-87). On January 23, 2012, 

Piombino met with plaintiffs at the Masciantonios‘ home to execute amendments 

reflecting the new acreage amount. (See Doc. 58 ¶¶ 86-88; Doc. 69 ¶¶ 86-88). The 

amendments establish the revised acreage and otherwise ratify the leases and 

memoranda ―in every respect.‖ (Docs. 56-42, 56-43). Stacy signed each amendment 

on SWEPI‘s behalf, and SWEPI recorded same on April 3, 2012. (Doc. 58 ¶ 93; Doc. 

69 ¶ 93). SWEPI returned the first drafts unpaid in light of the amendment. (See

Doc. 61 ¶ 111; Doc. 65 ¶ 111).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 8 of 48
9

Piombino presented the Masciantonios and Latshaws with new drafts in the 

amount of $2,072,000 each during his January 23 visit. (Doc. 58 ¶ 89; Doc. 69 ¶ 89; 

see also Doc. 61 ¶ 112; Doc. 65 ¶ 112). At plaintiffs‘ request, Piombino backdated the 

new drafts to November 5, 2011. (See Doc. 58 ¶ 90; Doc. 61 ¶ 114; Doc. 65 ¶ 114; Doc. 

69 ¶ 90). Plaintiffs presented the drafts to their bank, which forwarded them to 

SWEPI‘s bank for collection. (See Doc. 58 ¶ 92; Doc. 69 ¶ 92). On January 30, 2012, 

SWEPI‘s bank issued separate domestic collection letters to the Masciantonios and 

Latshaws, indicating that the drafts were due for payment no sooner than June 6, 

2012. (See Doc. 61 ¶¶ 122-23; Doc. 65 ¶¶ 122-23). Both the initial and replacement 

drafts contained the following language:

The payor shall have 90 banking days after receipt of this 

draft by the collecting bank, whether accompanied by 

other papers or not, for title examination and for payment. 

Neither forwarding bank nor payee(s) nor the grantor(s) of 

such lease or conveyance may demand return of this draft 

or any accompanying papers prior to expiration of the 

time fixed. Upon payment hereof collecting bank shall 

deliver this draft and any accompanying papers to payor 

and remit payment to forwarding bank. No liability for 

payment or otherwise shall be attached to any of the 

parties hereto.

(Docs. 56-38, 56-40, 56-44, 56-45).

In April of 2012, SWEPI representatives began internally discussing the 

possibility of rejecting plaintiffs‘ leases and voiding the bank drafts. (See Doc. 58

¶ 95; Doc. 69 ¶ 95). SWEPI‘s Rule 30(b)(6) designee, Lee Stockwell (―Stockwell‖), 

was charged with determining whether to surrender plaintiffs‘ leases. (Doc. 58 ¶ 95; 

Doc. 69 ¶ 95). Brad Hallam (―Hallam‖), a landman for Shell and one of Stockwell‘s 

principal advisors, emailed Stockwell on April 12, 2012, and raised the possibility 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 9 of 48
10

of ―not accept[ing] the leases and void[ing] the drafts.‖ (Doc. 58 ¶¶ 95-96; Doc. 69 

¶¶ 95-96). Hallam advised Stockwell, Stacy, and others that plaintiffs‘ leases were 

―acquired during the Texas Creek push at the end of 2011, and at the time [we] did 

not have knowledge of the competitor acreage surrounding it.‖ (Doc. 58 ¶ 98; Doc. 

69 ¶ 98). Hallam cited competitor acreage to the south and a ―geohazard running 

through the northern portion‖ of plaintiffs‘ property in recommending SWEPI 

surrender the leases. (Doc. 58 ¶¶ 98-102; Doc. 69 ¶¶ 98-102). Stockwell agreed and 

authorized Hallam to ―drop[] the acreage.‖ (Doc. 58 ¶ 103; Doc. 69 ¶ 103). Stockwell 

testified that he was unaware of any defect in plaintiffs‘ title and that the state of 

plaintiffs‘ title was not a factor in his surrender determination. (See Doc. 58 ¶¶ 104, 

109; Doc. 56-8, Stockwell Dep. 24:8-25:6, 28:7-30:12, 65:23-66:7 (June 5, 2015)).

On April 16, 2012, Kathryn E. Rogers, another attorney-in-fact for SWEPI, 

executed surrenders of both the Masciantonio and Latshaw leases. (Doc. 58 ¶ 114; 

Doc. 69 ¶ 114; see also Doc. 61 ¶ 125; Doc. 65 ¶ 125). SWEPI recorded the surrender 

documents on May 4, 2012, and provided plaintiffs with copies of the documents by 

letter dated May 7, 2012. (See Doc. 58 ¶¶ 115-16; Doc. 61 ¶¶ 126-27; Doc. 65 ¶¶ 126-27; 

Doc. 69 ¶¶ 115-16). Plaintiffs also received amended domestic collection letters for 

the drafts indicating that the leases were surrendered by SWEPI‘s land department. 

(Doc. 58 ¶ 117; Doc. 69 ¶ 117). Masciantonio wrote a demand letter to SWEPI dated 

May 17, 2012, expressing confusion as to why the Masciantonios‘ draft was canceled 

and urging SWEPI to cure the perceived breach within sixty days. (Doc. 56-46; see

Doc. 58 ¶ 118; Doc. 69 ¶ 118). SWEPI did not respond to the demand letter. (Doc. 58 

¶ 118; Doc. 69 ¶ 118).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 10 of 48
11

Plaintiffs commenced this action with the filing of a complaint (Doc. 1) for 

breach of contract on March 27, 2013, requesting identical awards of compensatory 

damages in the amount of $2,072,000. SWEPI moved (Doc. 6) to dismiss plaintiffs‘ 

complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). SWEPI argued that 

its obligation to pay the bonus drafts had not yet accrued at the time it surrendered 

the leases. (See Doc. 7 at 7-11; Doc. 13 at 6-13). Plaintiffs countered, in part, that 

the obligation to pay bonus consideration accrued immediately upon execution of 

the leases such that SWEPI‘s surrender did not extinguish its payment obligation. 

(See Doc. 10 at 17-18).

Following oral argument and supplemental briefing, Magistrate Judge 

Mehalchick issued a report (Doc. 20) recommending the court deny SWEPI‘s 

motion. Judge Mehalchick opined that both parties had presented reasonable 

interpretations of the addenda‘s payment provision, rendering the agreements

ambiguous. (See id. at 10-19). SWEPI objected to the report‘s reliance on legal 

theories not raised by the parties, (see Docs. 22-23), and the court remanded the 

motion to Judge Mehalchick for supplemental briefing limited to the issues raised 

by the report sua sponte. (See Doc. 24).

Judge Mehalchick issued a second report (Doc. 31) on July 21, 2014, again 

opining that the payment provision of the lease addenda is susceptible to multiple 

reasonable interpretations: under the first, SWEPI‘s bonus payment obligation was 

not yet due at the time it surrendered the leases; under the second, SWEPI‘s bonus 

payment obligation accrued upon execution of the leases, or at a reasonable time 

thereafter, such that SWEPI was bound to pay the bonuses at the time of surrender. 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 11 of 48
12

(See id. at 14-20). In reaching the latter interpretation, Judge Mehalchick likened 

the term ―bank draft‖ as used in the addenda to a ―teller‘s check‖ in the context of 

the Uniform Commercial Code (―UCC‖), concluding that tender of the bonus drafts 

operates the same as tender of cash. (Id. at 17-20). SWEPI objected for a second 

time and reasserted many of the same challenges, including that a conditional draft 

is not a ―negotiable instrument‖ subject to the UCC. (Doc. 33). SWEPI also argued 

that oil and gas industry custom and usage support its interpretation of the lease, 

and its interpretation alone. (See id. at 8-12).

The undersigned denied SWEPI‘s motion by order (Doc. 34) dated 

September 9, 2014. In adopting Judge Mehalchick‘s recommended disposition, the 

court did not directly endorse either of the interpretations identified by the report. 

(See id. at 3 n.2). Rather, the court observed that SWEPI‘s interpretation relied 

heavily on broad statements of industry custom which had yet to be substantiated,

such that resolution of purported ambiguities in the lease agreements must await 

summary judgment. (See id.) On November 17, 2014, with SWEPI‘s consent (Doc. 

41-21), plaintiffs filed an amended complaint (Doc. 43), adding a claim for fraudulent 

inducement.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 12 of 48
13

Following a period of discovery, the parties timely filed the instant crossmotions (Docs. 57, 60) for summary judgment, together with supporting papers. 

(Docs. 56-72). The motions are fully briefed and ripe for disposition.4

II. Legal Standard

Through summary adjudication, the court may dispose of those claims that 

do not present a ―genuine dispute as to any material fact‖ and for which a jury trial 

would be an empty and unnecessary formality. FED. R. CIV. P. 56(a). The burden of 

proof tasks the non-moving party to come forth with ―affirmative evidence, beyond 

the allegations of the pleadings,‖ in support of its right to relief. Pappas v. City of 

Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); see also Celotex Corp. v. Catrett, 

477 U.S. 317, 322-23 (1986). This evidence must be adequate, as a matter of law, to 

 

4 The court notes the pendency of a class action asserting similar breach of 

contract claims against SWEPI in the United States District Court for the Western 

District of Pennsylvania. On September 14, 2015, Chief Judge Joy Conti Flowers 

certified a class of plaintiffs comprising persons who, on or after March 14, 2009, 

executed an oil and gas lease with SWEPI and in exchange received a bonus draft 

which ―was neither paid nor replaced by a subsequently issued draft.‖ Walney v. 

SWEPI LP, No. 1:13-CV-102, 2015 WL 5333541, at *28-29 (W.D. Pa. Sept. 14, 2015). 

The Walney addenda do not appear to contain a provision dictating the procedure 

for bonus payments. See id. at *1-7. That payment provision is central to the 

instant dispute and materially distinguishes this case from Walney. Moreover, the 

Walney class definition presently includes only form leases ―labeled  ̳PA Paid Up 

Lease Rev. 06.09.2011.‘ ‖ Id. at *28. The Masciantonio and Latshaw leases are 

labeled ―PA Paid Up Lease Rev. 05.01.2011.‖ (Doc. 56-15 at 1; Doc. 56-16 at 1). In an 

exercise of caution, the court convened a conference call with counsel to ascertain 

the impact of Walney, if any, on this action. (See Doc. 78). Counsel confirmed the 

matters to be distinct. In the interim, plaintiffs in Walney moved to amend the class 

definition to include both the 06.09.2011 lease version and the 05.01.2011 version 

signed by the Masciantonios and Latshaws. See Walney, No. 1:13-CV-102, Doc. 117. 

That motion is pending, and a hearing thereon is scheduled for August 11, 2016. 

See id. at Doc. 121. Nonetheless, plaintiffs‘ counsel advised the court during the 

conference call that her clients intend to opt out of the Walney class should that 

court expand the class definition to include plaintiffs‘ claims.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 13 of 48
14

sustain a judgment in favor of the non-moving party on the claims. See Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. 

Zenith Radio Corp., 475 U.S. 574, 587-89 (1986). Only if this threshold is met may 

the cause of action proceed. See Pappas, 331 F. Supp. 2d at 315.

Courts are permitted to resolve cross-motions for summary judgment 

concurrently. See Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir. 2008); see

also Johnson v. Federal Express Corp., 996 F. Supp. 2d 302, 312 (M.D. Pa. 2014); 10A 

CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 2720 (3d ed. 

2014). When doing so, the court is bound to view the evidence in the light most 

favorable to the non-moving party with respect to each motion. FED. R. CIV. P. 56; 

Lawrence, 527 F.3d at 310 (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 

(3d Cir. 1968)).

III. Discussion

The parties‘ diametric Rule 56 arguments center on the issue of SWEPI‘s 

obligation, if any, to pay bonus consideration. SWEPI raises myriad defenses to 

contract formation and enforceability. SWEPI also suggests that, per industry 

custom, any obligation to fund the bonus drafts was deferred for ninety days 

pending title verification, during which time SWEPI could surrender the leases

without liability; in essence, SWEPI contends that the leases were wholly voidable

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 14 of 48
15

during the ninety-day period for title verification.5 Plaintiffs maintain that the 

leases and attendant bonus payment obligations were valid and enforceable upon 

execution and that SWEPI was contractually bound to pay the bonuses when it 

surrendered the leases.

Pennsylvania substantive law governs this diversity action. See Lafferty v. 

St. Riel, 495 F.3d 72, 76 (3d Cir. 2007) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 

78 (1938)). Under Pennsylvania law, an oil and gas lease is considered to be of the 

same nature as a contract. See T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 

267 (Pa. 2012) (citing Willison v. Consol. Coal Co., 637 A.2d 979, 982 (Pa. 1994)); 

Hutchinson v. Sunbeam Coal Corp., 519 A.2d 385, 389-90 (Pa. 1986). Hence, the

instant dispute is controlled by the same principles which govern Pennsylvania 

contract law. See Jedlicka, 42 A.3d at 267 (citing Willison, 637 A.2d at 982).

A. Contract Formation

SWEPI asserts an incipient challenge to the proper formation and 

enforceability of the leases. SWEPI‘s argument is twofold: first, that payment of the 

bonus drafts is the sole consideration for the leases, without remittance of which the 

leases must fail for want of consideration; and second, that the leases are subject to 

a condition precedent to formation and are ineffective unless and until SWEPI 

 

5

In resolving SWEPI‘s motion to dismiss, (see Doc. 31 at 12), the court 

observed that exercise of a surrender clause terminates the existing contractual 

relationship between lessor and lessee but does not relieve the lessee from its duty 

to perform obligations already incurred. See Aderhold v. Oil Well Supply Co., 28 A. 

22, 23 (Pa. 1893); 4-6 PATRICK H. MARTIN & BRUCE M. KRAMER, WILLIAMS & MEYERS,

OIL AND GAS LAW § 680.4 (2015); 3 NANCY SAINT-PAUL, SUMMERS OIL AND GAS § 25.4 

(3d ed. 2015). Plaintiffs agree with this established principle. (Doc. 59 at 33-34).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 15 of 48
16

verifies title to the subject property. (Doc. 62 at 9-11). Plaintiffs counter that the 

leases became effective and bound all parties upon execution, as evidenced by 

SWEPI‘s own exercise of the right to surrender thereunder. (See Doc. 59 at 8-15). 

The court will address SWEPI‘s contract formation arguments seriatim.

1. Consideration

The party relying on a contract‘s existence bears the burden of proving 

proper formation. See Legendary Art, LLC v. Godard, 888 F. Supp. 2d 577, 584 

(E.D. Pa. 2012) (quoting Edmondson v. Zetusky, 674 A.2d 760, 764 (Pa. Commw. Ct. 

1996)). Under Pennsylvania law, a contract is formed when parties thereto ―reach a 

mutual understanding, . . .exchange consideration, and . . . delineate the terms of 

their bargain with sufficient clarity.‖ Weavertown Transp. Leasing, Inc. v. Moran,

834 A.2d 1169, 1172 (Pa. Super. Ct. 2003). Consideration is a fundamental element 

of an enforceable contract. Pennsy Supply, Inc. v. Am. Ash Recycling Corp. of Pa., 

895 A.2d 595, 600 (Pa. Super. Ct. 2006) (quoting Stelmack v. Glen Alden Coal Co., 14 

A.2d 127, 128 (Pa. 1940)); see also Moran, 834 A.2d at 1172. Whether a contract is 

supported by adequate consideration is a question of law for the court. See Crown 

Coal & Coke Co. v. Powhatan Mid-Vol Coal Sales, L.L.C., 929 F. Supp. 2d 460, 470 

(W.D. Pa. 2013) (quoting Pennsy Supply, 895 A.2d at 601).

Consideration exists when a contract contemplates an exchange of acts, 

forbearances, or promises which are of ―benefit to the promisor or . . . detriment to 

the promisee.‖ Pennsy Supply, 895 A.2d at 600 (quoting Moran, 834 A.2d at 1172). 

Consideration must be squarely bargained for by the parties to the agreement. Id.

(quoting Stelmack, 14 A.2d at 129). The detriment incurred represents ―the  ̳quid 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 16 of 48
17

pro quo‘, or the  ̳price‘ of the promise, and the inducement for which it was made.‖ 

Crown Coal & Coke Co., 929 F. Supp. 2d at 469 (quoting Stelmack, 14 A.2d at 128

-29).

SWEPI identifies the bonus consideration acknowledged by the leases‘ 

granting paragraph as the exclusive consideration supporting the parties‘ agreed 

exchange. As noted supra, the granting paragraph provides, in pertinent part, that 

the agreement is made ―[i]n consideration of the bonus consideration paid, the 

receipt of which is hereby acknowledged.‖ (Doc. 56-15 at 1; Doc. 56-16 at 1). SWEPI 

suggests that its unilateral failure to pay or tender the bonus consideration renders 

the leases null ab initio for ―absence of . . . consideration.‖ (Doc. 62 at 9-10).

SWEPI‘s defense conflates the consideration element of the parties‘ 

transaction with its post-formation performance obligation. Subject only to title 

verification, SWEPI promised to pay bonus consideration in exchange for its right 

to possess, explore, and develop plaintiffs‘ subsurface oil and gas estate. (See Doc. 

56-15 at 1, 8; Doc. 56-16 at 1, 8). Hence, SWEPI‘s consideration is its promise to 

perform—not performance itself. (See Doc. 56-15 at 1, 8; Doc. 56-16 at 1, 8). This 

formulation, consisting of a promise inducing a detriment and a detriment inducing 

a promise, represents valid consideration under Pennsylvania law. See Pennsy 

Supply, 895 A.2d at 600-01.

SWEPI posits in a related argument that the granting paragraph requires

an immediate exchange of consideration, rather than an exchange of a promise for 

performance, failure of which invalidates the leases from the outset. (See Doc. 62 

at 9-10). Stated differently, SWEPI perceives that ―it is the actual payment of the 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 17 of 48
18

amount per acre that is the consideration, not the promise to pay it,‖ such that 

SWEPI‘s election not to pay the bonuses at execution precludes formation of a 

binding contract. (Id. at 8). SWEPI maintains that to construe the granting 

paragraph to constitute a promise to pay at a later time would effectively rewrite 

the leases. (See id.)

SWEPI‘s construction would require the court to examine the granting 

paragraph in isolation, separate from subsequent provisions governing manner of 

and timing for payment. Paragraph 22 of the addenda, which ―supersede[s]‖ any 

conflicting terms in the leases, explains that payment of the bonus consideration 

will be delayed: that SWEPI ―agrees to pay‖ a sum of $4,000 per net mineral acre 

to plaintiffs and said bonus is payable ―within ninety (90) banking days of the 

Lessor presenting the Bank Draft to the financial institution‖ of their choosing. 

(Doc. 56-15 at 6, 8; Doc. 56-16 at 6, 8). The parties agree that payment is subject to at 

least one condition—title verification—rendering payment on execution a practical 

impossibility. (See Doc. 56-15 at 8; Doc. 56-16 at 8; see also Doc. 58 ¶ 62; Doc. 69 

¶ 62). To construe the granting paragraph as requiring contemporaneous payment

to actuate the transaction would render that paragraph entirely inconsistent with 

the balance of the leases. Such a construction flouts the maxim that all provisions 

of a contract must be read together and ―given effect.‖ Camp Ne‘er Too Late, LP v. 

SWEPI, LP, No. 4:14-CV-1715, 2016 WL 2594186, at *18, __ F. Supp. 3d __ (M.D. Pa. 

2016) (quoting Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462, 469 

(Pa. 2006)).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 18 of 48
19

It is the exchange of a bargained-for promise, not the immediate exchange 

of the value envisioned thereby, which constitutes SWEPI‘s consideration for 

the leases sub judice. The court declines SWEPI‘s invitation to invalidate the 

agreements solely by reason of its own declination to exchange the promised

consideration. The parties‘ oil and gas leases are sufficiently supported by valid 

and adequate consideration under Pennsylvania law.6

2. Condition Precedent to Formation

SWEPI also implies that the title verification condition included within the 

addenda operates as a condition precedent to formation of the contracts, such that 

the leases are ineffective and nonbinding unless and until SWEPI verifies plaintiffs‘ 

title. (See Doc. 62 at 10-11). The Superior Court of Pennsylvania flatly rejected this 

argument in Cardinale v. R.E. Gas Development LLC, 74 A.3d 136 (Pa. Super. Ct. 

2013).

The Cardinale lease documents included a provision conditioning the 

lessee‘s payment obligation on ―its inspection, approval of the surface, geology and 

title‖ of plaintiffs‘ property. Id. at 139. The conditions were set forth in an order of 

payment, id., an instrument often employed in lieu of bank drafts in Pennsylvania. 

(See Doc. 72-1 ¶¶ 16-17). Like SWEPI, the lessee argued that the inspection 

 

6

In light of the court‘s finding that the promised bonuses represent 

adequate consideration, the court will not determine as a matter of law whether 

alternate consideration supports the leases. Nonetheless, the court notes that each 

lease also requires SWEPI to pay monthly royalties to plaintiffs from any profitable 

oil and gas production during the primary term. (See Doc. 56-15 at 1; Doc. 56-16 at 

1). At least one court has opined that royalty payments may constitute sufficient 

consideration to support an oil and gas lease. See Irish Oil & Gas, Inc. v. Riemer, 

794 N.W.2d 715, 721-22 (N.D. 2011).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 19 of 48
20

and approval language established a condition precedent to formation of a valid 

contract. See Cardinale, 74 A.3d at 141. The Superior Court acknowledged that 

conditions precedent ―can relate directly to the existence of an actual agreement,‖ 

but concluded that such conditions more often limit only the duty of performance. 

Id. (citing Vill. Beer & Bev., Inc. v. Vernon D. Cox & Co., Inc., 475 A.2d 117, 122 (Pa. 

Super. Ct. 1984)). The court found that the title inspection and approval language 

conditioned performance under the lease, not formation thereof. See id.

The Superior Court‘s rationale applies with equal force to the instant leases. 

The addenda are unequivocal that it is SWEPI‘s ―payment obligations,‖ not the 

effectiveness or validity of the leases, which are ―subject to title verification.‖ (Doc. 

56-15 at 8; Doc. 56-16 at 8). This language plainly conditions SWEPI‘s performance 

obligation but does not impact valid formation of the parties‘ lease agreements.

B. Contract Interpretation

The sum and substance of the parties‘ dispute concerns issues of contract

interpretation. The foremost consideration in interpreting contracts, including oil 

and gas leases, is determining the contracting parties‘ intent. See Hutchinson, 519 

A.2d at 389-90. Such interpretation generally is a question of law, tasking the court 

to discern the respective parties‘ intents ―as manifestly expressed‖ through the 

prism of the written agreement itself. Willison, 637 A.2d at 982.

Pennsylvania contract interpretation principles begin with the ―firmly 

settled‖ proposition that the intent of the contracting parties should be gleaned 

from the writing itself. Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 

79, 92 (3d Cir. 2001) (quoting Krizovensky v. Krizovensky, 624 A.2d 638, 642 (Pa.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 20 of 48
21

Super. Ct. 1993)). The court must be guided by the plain meaning of the language 

employed by the parties rather than their ―silent intentions.‖ Jedlicka, 42 A.3d at 

267. However, when a portion of a lease is ambiguous, the court may examine 

extrinsic evidence to resolve the ambiguity. Hutchinson, 519 A.2d at 390.

A contract is ambiguous when its terms are ―reasonably susceptible of 

different constructions and capable of being understood in more than one sense.‖ 

Mason v. Range Res.-Appalachia LLC, 120 F. Supp. 3d 425, 440 (W.D. Pa. 2015) 

(quoting Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa. 2004)). In determining whether 

ambiguity exists, courts consider the language of the contract itself, any alternate

meanings proposed by the parties, and the objective evidence offered in support of 

the proposed constructions. See Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 

F.2d 1001, 1011 (3d Cir. 1980). Under Pennsylvania law, it is the court‘s obligation to 

determine whether an agreement is ambiguous. See Hutchinson, 519 A.2d at 390. 

A court may grant summary judgment on issues of contractual interpretation if the

disputed terms are ―subject to only one reasonable interpretation.‖ Emerson Radio 

Corp. v. Orion Sales, Inc., 253 F.3d 159, 163-64 (3d Cir. 2001) (quoting Arnold M. 

Diamond, Inc. v. Gulf Coast Trailing Co., 180 F.3d 518, 521 (3d Cir. 1999)). 

When the court finds a contract to be ambiguous, it may consider extrinsic 

or collateral evidence to resolve the ambiguity. See Hutchinson, 519 A.2d at 390. 

Conflicts in extrinsic evidence must be resolved by a jury. See id. Importantly, a 

term is not rendered ambiguous merely because the parties disagree on the proper 

interpretation. See Stewart v. SWEPI, LP, 918 F. Supp. 2d 333, 341-42 (M.D. Pa. 

2013) (quoting Baney v. Eoute, 784 A.2d 132, 136 (Pa. Super. Ct. 2001)).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 21 of 48
22

This court has previously noted that oil and gas leases employ certain ―terms 

unique to . . . their genre.‖ (Doc. 31 at 11 (quoting Burlew v. Talisman Energy USA 

Inc., 940 N.Y.S.2d 781, 786 (N.Y. Sup. Ct. 2011))). Such leases represent a property

conveyance ―within a highly technical and well-developed industry,‖ such that 

industry concepts are necessary considerations when interpreting the leases‘ terms. 

Jacobs v. CNG Transmission Corp., 332 F. Supp. 2d 759, 772 (W.D. Pa. 2004). A

court should not consider the terms of such agreements in isolation, but rather 

must construe them ―with due regard to the known characteristics‖ of the 

particularized nature of the oil and gas industry. Camp Ne‘er Too Late, 2016 WL 

2594186, at *18 (citing Franklin Sugar Ref. Co. v. Howell, 118 A. 109, 110 (Pa. 1922)); 

Roe v. Chief Expl. & Dev. LLC, No. 4:11-CV-816, 2013 WL 4083326, at *5 (M.D. Pa. 

Aug. 13, 2013) (same); Good Will Hunting Club, Inc. v. Range Res., Inc., No. 4:11-CV

-1152, 2012 WL 722614, at *3 (M.D. Pa. Mar. 1, 2012) (same).

An ambiguous oil and gas lease will generally be construed against its 

drafter, typically the lessee oil and gas company. See, e.g., Mason, 120 F. Supp. 3d 

at 440 (citing Jacobs, 332 F. Supp. 2d at 773-74 & n.6; Pomposini v. T.W. Phillips Gas 

& Oil Co., 580 A.2d 776, 778 (Pa. 1990)). This rule of construction yields when there 

exists sufficient extrinsic evidence to clarify the ambiguous language. See id. at 440 

(citing Jacobs, 332 F. Supp. 2d at 774). When ambiguity renders a lease susceptible 

to multiple interpretations, one being ―reasonable in light of industry practices‖ 

and the other being ―implausible and inconsistent with‖ those practices, the court 

may narrowly construe the lease in the manner most consistent with established 

industry practice. Jacobs, 332 F. Supp. 2d at 791-92 (citing Babb v. Clemensen, 687 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 22 of 48
23

A.2d 1120, 1121-23 (Pa. Super. Ct. 1996); Pomposini, 580 A.2d at 778; Daset Mining

Corp. v. Indus. Fuels Corp., 473 A.2d 584, 592 (Pa. Super. Ct. 1984)). Against this 

landscape, the court must interpret the terms of the parties‘ lease agreements.

1. The Leases’ Essential Terms

The parties disagree over which documents, and thus which terms, comprise 

their agreement. Plaintiffs and SWEPI rely extensively on the terms of the oil and 

gas leases themselves, as well as the addenda thereto, and do not dispute that these 

documents together comprise part of the parties‘ contract. (Docs. 59, 62). Terms

central to the parties‘ dispute—the granting, surrender, and payment paragraphs

—are contained within these documents. (Docs. 56-15, 56-16). Plaintiffs appear not 

to dispute that the memoranda of lease, executed on the same day as the leases and 

addenda, similarly form part of the parties‘ agreement. (See Doc. 59 at 14-15; Doc. 

67 at 2).

SWEPI submits that the court should also consider the language of the bank 

drafts, issued several weeks after execution of the leases, in divining the parties‘ 

intent.

7

 (See Doc. 62 at 5 & n.2; Doc. 72 at 3-5; see also Doc. 62 at 13 & nn. 11-12). 

In particular, SWEPI encourages the court to consider the drafts‘ ―no liability‖

 

7

In her report and recommendation, Magistrate Judge Mehalchick declined 

to consider the ―no liability‖ language, finding that the ―drafts were not tendered 

contemporaneously with the lease[s], nor even close in time,‖ such that the court 

could not consider them at the preliminary Rule 12(b)(6) stage. (Doc. 31 at 8 n.3, 22 

(citing Kropa v. Cabot Oil & Gas Corp., 609 F. Supp. 2d 372, 376-77 (M.D. Pa. 2009))). 

Judge Mehalchick nonetheless observed arguendo that the additional ―no liability‖ 

language precludes independent action on the draft itself but does not condition

—or, as SWEPI would have it, vitiate—existing obligations otherwise arising under 

the leases. (See id.)

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 23 of 48
24

language in support of its contention that SWEPI was free to walk away from the 

leases without payment of the bonus consideration at any time during the ninety

-day banking period. (See Doc. 72 at 4-5).

Several instruments prepared for purposes of a single transaction may be 

considered together even if the instruments are executed separately and at different 

times. See Sw. Energy Prod. Co. v. Forest Res., LLC, 83 A.3d 177, 187 (Pa. 2013). 

Crucial to this proposition is that the parties intended the instruments to constitute 

a single, unified contract, rather than distinct agreements. See id. Separate 

instruments intended as one agreement will often be obvious supplements to one 

another, either expressly by incorporation or implicitly by essential substance. 

See, e.g., id.; Alder Run Land, LP v. Ne. Nat. Energy LLC, No. 3:13-222, 2014 WL 

1758141, at *4 (W.D. Pa. Apr. 30, 2014) (quoting Neville v. Scott, 127 A.2d 755, 757 

(Pa. Super. Ct. 1956)). Nonetheless, instruments which ―do not in terms refer to 

each other‖ may be considered together when they are plainly part of a single 

business transaction. Alder Run Land, LP v. Ne. Nat. Energy LLC, 622 F. App‘x 

164, 168 (3d Cir. 2015) (nonprecedential), aff‘g Alder Run Land, LP, 2014 WL 

1758141.

8

The court agrees with SWEPI that the drafts are integral to the parties‘ 

transaction and it will consider the language of the bonus drafts in interpreting the 

parties‘ lease agreements. Neither the leases nor the drafts expressly incorporate

 

8 The court acknowledges that nonprecedential decisions are not binding 

upon federal district courts. Citations to nonprecedential decisions herein reflect 

that the court has considered the panel‘s ratio decidendi and is persuaded by same.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 24 of 48
25

the terms of the other, but each draft plainly refers to a corresponding lease and the 

property conveyed in connection therewith. (See Docs. 56-38, 56-40, 56-44, 56-45). 

Moreover, the lease addenda reference payment by ―Bank Draft,‖ implicitly 

acknowledging that the forthcoming instruments would become part and parcel of 

the parties‘ exchange. (See Docs. 56-15, 56-16). Under these circumstances, the 

leases, addenda, memoranda, and bank drafts represent constituent parts of a 

single business transaction. The court will consider all of these documents in the

interpretive analysis that follows.

2. The Parties’ Proposed Interpretations

The parties offer antipodean interpretations of the lease documents and 

SWEPI‘s attendant obligations. SWEPI maintains that its duty to pay the bonus 

consideration did not accrue until ninety days after plaintiffs presented the bank

drafts to their respective financial institutions such that, when SWEPI surrendered 

the leases before expiration of the ninety-day period, it had no pending obligation to 

plaintiffs. Per contra, plaintiffs contend that SWEPI incurred an obligation to pay 

the bonuses immediately upon execution of the leases, subject only to satisfactory 

verification of title. Both parties submit extrinsic evidence in further support of 

their respective interpretations.

The court held at the Rule 12 stage that SWEPI‘s construction of its bonus

obligation is one reasonable interpretation of the leases. However, in denying 

SWEPI‘s motion to dismiss, the court remarked that much of SWEPI‘s argument 

rested on broad statements of industry custom regarding use of ―bank drafts‖ and 

an assumption that this custom, if established, would be read into and modify the 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 25 of 48
26

language of the parties‘ leases. (See Doc. 34 at 3 n.2). The court also concluded that 

plaintiffs‘ proffered interpretation—that the payment paragraph governs when, not 

whether, payment is due—is objectively reasonable. The court will now measure 

the reasonableness of the parties‘ divergent constructions against the fully 

developed Rule 56 record.

a. Plaintiffs’ Proposed Interpretation

Plaintiffs‘ proposed interpretation derives from a literal and methodical 

reading of the payment paragraph. That paragraph comprises four sentences, the 

first of which expresses assumption of an extant obligation by SWEPI, to wit: ―In 

consideration for the attached paid-up Oil and Gas Lease, [SWEPI] agrees to pay

Lessor: four thousand and 00/100 dollars ($ 4000 .00) per net mineral acre.‖ (Doc. 

56-15 at 8 (first emphasis added); Doc. 56-16 at 8 (first emphasis added)). The 

second sentence describes the manner, means, and deadline for payment of the 

obligation incurred: ―Payment shall be due within ninety (90) banking days of the 

Lessor presenting the Bank Draft to the financial institution of his/her/their 

choosing.‖ (Doc. 56-15 at 8; Doc. 56-16 at 8). The third sentence adopts the present 

tense to impose a title verification condition—―All payment obligations are subject 

to title verification by Lessee.‖—suggesting that the obligation assumed in the first 

sentence is immediate and not deferred as SWEPI posits. (See Doc. 56-15 at 8 

(emphasis added); Doc. 56-16 at 8 (emphasis added)). The fourth sentence requires 

that ―[s]aid title verification shall be completed within the aforementioned ninety 

(90) banking day period.‖ (Doc. 56-15 at 8; Doc. 56-16 at 8). The plain language of 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 26 of 48
27

the payment provision supports plaintiffs‘ contention that SWEPI‘s payment 

obligation accrued upon execution.

9

Plaintiffs‘ interpretation produces a result which is ―fair, customary, and 

such as prudent [persons] would naturally execute.‖ See Jacobs, 332 F. Supp. 2d at

774 (quoting Burns Mfg. Co. v. Boehm, 356 A.2d 763, 766 n.3 (Pa. 1976)). SWEPI 

concedes that the leases bound plaintiffs upon execution and instantly granted

SWEPI the right to explore and develop plaintiffs‘ property. (See Doc. 68 at 10 n.5). 

The recorded memoranda of lease state that the leases‘ primary term commenced 

on November 5, 2011. (Docs. 56-17, 56-18). If the leases are not read to contemplate 

an immediately binding payment obligation upon SWEPI, subject only to approval 

of title, SWEPI is free to speculate with plaintiffs‘ interests and possess plaintiffs‘ 

land without reciprocation. Rules of contract interpretation counsel against such 

inequitable results when a competing interpretation makes the agreement both 

―rational and probable.‖ Jacobs, 332 F. Supp. 2d at 774 (quoting Boehm, 356 A.2d 

at 766 n.3).

SWEPI asserts that the ―no liability‖ clause printed on the bank drafts 

defeats plaintiffs‘ proposed interpretation. The final sentence of the bank drafts 

 

9 The court acknowledges that this analysis departs from the rationale

undergirding the magistrate judge‘s finding of ambiguity at the Rule 12(b)(6) stage. 

Magistrate Judge Mehalchick focused on the parties‘ use of the term ―Bank Draft‖ 

and commented that, under the UCC, the drafts might reasonably be construed as 

cash-equivalent negotiable instruments deemed paid upon tender. (Doc. 31 at 17

-20). Ostensibly, plaintiffs now concede that the leases and drafts are subject to a 

condition, such that the negotiable instrument analysis no longer applies. (See Doc. 

59 at 8 n.1). Obviously, this does not foreclose the court‘s consideration of alternate 

constructions unexplored at the Rule 12(b)(6) stage. (See Doc. 34 at 3 n.2).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 27 of 48
28

states: ―No liability for payment or otherwise shall be attached to any of the parties 

hereto.‖ (Docs. 56-38, 56-40, 56-42, 56-44). As the court observed in resolving 

SWEPI‘s motion to dismiss, the ―no liability‖ language most logically pertains to the 

draft itself, precluding independent litigation thereon. (See Doc. 31 at 22; see also

Docs. 56-38, 56-40, 56-42, 56-44).

The majority of courts presented with this question have reached the same 

result. In Smith v. Arrington Oil & Gas, Inc., 664 F.3d 1208 (5th Cir. 2012), the Fifth 

Circuit Court of Appeals rejected a lessor‘s argument that ―no liability‖ language on 

a draft issued contemporaneous with lease execution allowed it ―to  ̳walk away‘ for 

any reason prior to . . . paying on the drafts.‖ Id. at 1213-15. Instead, the panel held 

that Arkansas‘ principles of contract interpretation—which, like Pennsylvania law, 

task courts to ―give effect‖ to all terms of a contract—require a construction that

allows the ―no liability‖ provision to coexist with obligations otherwise created by 

the underlying lease. See id. State and federal courts in Louisiana likewise have 

held that a ―no liability‖ clause must be read in tandem with the leases, rather than 

as an escape clause from obligations arising thereunder. See Davis v. Meagher Oil 

& Gas Props., Inc., No. 08-1638, 2010 WL 819403, at *4 (W.D. La. Mar. 4, 2010); St. 

Romain v. Midas Expl., Inc., 430 So.2d 1354, 1357-58 (La. Ct. App. 1983). But see

Spellman v. Lyons Petroleum, Inc., 709 S.W.2d 295, 296-98 (Tex. App. 1986).

The court finds the ratio decidendi of the Fifth Circuit and the Louisiana 

courts to be persuasive and most consistent with Pennsylvania‘s rules of contract 

interpretation. See Smith, 664 F.3d at 1213-15; Davis, 2010 WL 819403, at *4; St. 

Romain, 430 So.2d at 1357-58. To hold otherwise would directly contravene the 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 28 of 48
29

established principle that all terms of an agreement should be construed together,

giving full and fair effect to each provision. See Jacobs, 332 F. Supp. 2d at 790-91. 

Accordingly, the court rejects SWEPI‘s intimation that its inclusion of a ―no 

liability‖ clause on after-issued bank drafts independently voids its obligations 

or unilaterally invalidates the leases.

SWEPI lastly remonstrates that plaintiffs‘ position regarding accrual at 

execution is belied by the fact that the parties subsequently agreed to reduce the 

leased acreage, amending the amount of bonus consideration due. (See Doc. 68 

at 15-16). SWEPI offers no authority to support its contention that a mutual and 

backdated modification of an accrued obligation operates to void same. (See id.) As 

plaintiffs correctly stress in rebuttal, ―it is well settled that a written agreement may 

be modified by a subsequent . . . agreement.‖ (Doc. 71 at 18 (quoting Elliott-Lewis 

Corp. v. York-Shipley, Inc., 94 A.2d 47, 49 (Pa. 1953))). SWEPI‘s argument that 

modification of the drafts dissolved its payment obligation is meritless.

Plaintiffs‘ proposed interpretation of the addenda‘s payment provision 

is loyal to contextual language and consistent with the balance of the lease 

documents. The opening sentence of the payment provision reasonably articulates 

a present obligation to pay bonuses, with the balance of the paragraph dictating the 

manner and means of payment subject to a single condition. (Doc. 56-15 at 8; Doc. 

56-16 at 8). For these reasons, the court concludes that plaintiffs‘ interpretation of 

the lease documents—under which SWEPI could only refuse to honor the bonus 

drafts if it found a title defect—is reasonable.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 29 of 48
30

b. SWEPI’s Proposed Interpretation

The court next turns to SWEPI‘s proposed interpretation of the leases, by

which SWEPI contends that it could dishonor the drafts for any reason, or for no 

reason at all, until the ninety-day banking period expired. (See Doc. 62 at 11-12). 

Beyond a summary assertion that its view ―is objectively reasonable,‖ (id. at 12), 

SWEPI identifies no substantive support within the lease documents themselves 

to suggest that its bonus obligation did not accrue immediately. As noted supra, 

the inceptive sentence of the payment paragraph purports to create an existent 

obligation to remit payment of $4,000 per net mineral acre to plaintiffs, subject only 

to the condition of title verification. (Doc. 56-15 at 8; Doc. 56-16 at 8). The semantic 

structure of the paragraph—consisting of SWEPI‘s unequivocal agreement to pay 

and a description of the time and manner in which it must do so—simply does not 

support a deferred accrual theory.10

Nor do principles of contract interpretation strengthen SWEPI‘s position. To 

hold that no obligation accrues until ninety days post-presentment would render

other language in the leases and drafts superfluous. Specifically, the payment 

paragraph provides that SWEPI‘s obligation to pay the bonus draft is conditioned 

upon ―title verification.‖ (Doc. 56-15 at 8; Doc. 56-16 at 8). The bank drafts as well 

state that the ninety-day banking period is ―for title verification and for payment.‖ 

 

10 Although the court found SWEPI‘s construction to be reasonable at the 

Rule 12(b)(6) stage of proceedings, the undersigned expressly observed that the 

bulk of SWEPI‘s theory was contingent on ―broad statements of industry custom 

and practice which are not yet substantiated by a factual record.‖ (Doc. 34 at 3 n.2). 

The court concluded that interpretive determinations necessarily must await 

summary judgment.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 30 of 48
31

(Docs. 56-38, 56-40, 56-42, 56-44). This condition on payment is rendered mere 

surplusage by SWEPI‘s interpretation, under which it could purportedly dishonor 

the drafts for any reason at all. Rules of contract interpretation counsel courts to 

avoid interpretations that reduce clear contract terms to superfluity. See Jacobs, 

332 F. Supp. 2d at 789-91 (citing W. Pa. Gas Co. v. George, 28 A. 1004 (Pa. 1894)).

SWEPI instead looks beyond the leases and asseverates that its position

―comports with case law from Pennsylvania and other states as well as industry 

custom and usage.‖ (Doc. 62 at 13). Courts may consider industry practice and 

precedent in measuring the reasonableness of a party‘s proposed interpretation 

of purportedly ambiguous contract terms. See Camp Ne‘er Too Late, 2016 WL 

2594186, at *18 (citing Franklin Sugar Ref. Co., 118 A. at 110); Roe, 2013 WL 

4083326, at *5 (same); Good Will Hunting Club, 2012 WL 722614, at *3 (same); see

also Mellon Bank, 619 F.2d at 1013. The party asserting that custom defines a 

particular contract term bears the burden of demonstrating that such custom ―is 

notorious, well-established and reasonable.‖ Leslie v. Pennco, Inc., 470 A.2d 110, 

113 (Pa. Super. Ct. 1983).

The court first addresses SWEPI‘s contention that it is ―common practice in 

the oil and gas industry in Pennsylvania to use a bank draft for payment of the lease 

 ̳bonus,‘ by which the payment obligation does not accrue until the expiration of a 

certain time period.‖ (Doc. 62 at 16-17). SWEPI cites a passage from Williams & 

Meyers’ Oil & Gas Law, a leading industry treatise, as support for its position:

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 31 of 48
32

A common practice in the oil and gas industry is for a 

lessee to give a bank draft for bonus money for execution 

of a lease. The draft is not payable for a period of time, 

say thirty or sixty days. The agreement or draft itself 

often indicates payment is subject to ―approval of title.‖ 

This gives the lessee the time and opportunity to check 

title to determine if it is really getting what it is paying for. 

If title is not satisfactory, the lessee can simply dishonor 

the draft and not have the burden of bringing an action 

for return of the money. But, the lessee also has the 

opportunity to back out of a deal if it decides the deal was 

not so good as it first appeared or if industry conditions 

have changed. It may be that a dry hole came in on the 

adjacent tract before the draft was presented. Or the 

lessee may have tried to market the lease to someone else, 

and failing in that decides to dishonor the draft. Timely 

mailing or tender of bonus money may be necessary to 

make effective or continue the effectiveness of the lease.

(Id. at 17 (quoting WILLIAMS & MEYERS, OIL AND GAS LAW § 666)). SWEPI 

highlights Williams & Meyers’ comment that drafts allow a lessee to ―back out of a 

deal‖ for any reason at all as establishing that, solely by employing the term ―bank 

draft,‖ SWEPI was able to bind plaintiffs without incurring a reciprocal obligation. 

(See id.) SWEPI‘s selective quotation ignores language following the above excerpt 

which notes that ―the language of the bonus provision‖ is crucial to determining 

whether or when a lessee will be bound by its promise to pay. See WILLIAMS &

MEYERS, OIL AND GAS LAW § 666. Thus, SWEPI‘s selective citation to the Williams 

& Meyers treatise does not afford the sweeping protection that SWEPI seeks.

SWEPI also directs the court to an industry law institute article, which 

observes: ―If the landowner wants the lease and the promise to pay the bonus to be 

immediately binding, the landowner should insist on a cashier‘s check or company 

check rather than a draft.‖ (Doc. 62 at 19 (quoting Jesse R. Pierce, The Use and 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 32 of 48
33

Perils of Sight Drafts in Leasing Transactions, 59 ROCKY MTN. MIN. L. INS. 28-1, 

§ 28.03[2] (2013))). This same authority cautions that the particular language chosen 

by the parties is critical in determining the existence and extent of a lessee‘s

obligation thereunder. See Pierce, supra, at §§ 28.02[2], 28.03[1]. Indeed, the Pierce 

article offers an equal admonition to lessees, warning that a title approval clause 

alone may not create an ―escape valve‖ absent additional language permitting the 

lessee to void the entire transaction for any reason. See id. at § 28.03[1]. For the 

best likelihood of achieving a liability-free transaction, Pierce recommends 

inclusion of a title verification condition, a surrender clause, and a caveat that, in 

the event lessee neither pays nor surrenders by the due date, ―the Lessee shall have 

5 business days from receipt of . . . written notice to make payment or surrender the 

lease without any liability.‖ Id. (emphasis added). The Pierce article negates

SWEPI‘s assertion that bank drafts ipso facto preclude liability otherwise accrued 

under a lease.

Finally, SWEPI submits affidavits executed by two of its landmen, James Ian 

Haney (―Haney‖) and Thomas Rielly (―Rielly‖), as well as Pennsylvania oil and gas 

attorney Lisa McManus (―Attorney McManus‖), as support for its argument that 

SWEPI was unbound by the leases and could reject the drafts for any reason. (Doc. 

61-29; Doc. 61-30; Doc. 72-1). The Haney and Rielly affidavits confirm that it is 

―typical‖ for payment by draft to ―allow[] for a period of time prior to payment‖ and 

be ―conditioned on certain requirements being met,‖ with examples of frequently 

used conditions including: ―approval of the lease by management, review of title, 

approval of title, etc.‖ (Doc. 61-29 ¶¶ 9-12; see Doc. 61-30 ¶¶ 10-11). This evidence is 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 33 of 48
34

merely consistent with the leases‘ statement that SWEPI‘s ―payment obligations are 

subject to title verification.‖ (Doc. 56-15 at 8; Doc. 56-16 at 8; see also Docs. 56-38, 

56-40, 56-42, 56-44).

Attorney McManus extends her opinion further, opining broadly that a 

lessee may dishonor a draft within the time for payment without liability being 

imposed on the lessee. (Doc. 72-1 ¶¶ 2, 17).11 But Attorney McManus‘s discussion 

of the use of drafts is not as absolutory as SWEPI suggests. Like SWEPI‘s landmen, 

Attorney McManus endorses the proposition that payment by bank draft is often

―contingent upon the satisfaction of conditions.‖ (Id. ¶ 14). In past practice, she 

advised her landowner clients against accepting drafts ―because a draft would 

generally allow the lessee to renege on the lease by dishonoring the draft.‖ (Id. ¶ 17 

(emphasis added)). Attorney McManus also notes that, in her experience, ―no 

protest‖ or ―no liability‖ language printed on a draft provides the lessee with an 

unmitigated ―out‖ from the lease without liability to fund the draft. (Id. ¶ 21). In 

closing, Attorney McManus observes that, based upon the language of the lease and 

her understanding of the risk of nonpayment associated with drafts in the industry, 

 

11 As background to her opinion, Attorney McManus makes the general 

observation that the Pennsylvania oil and gas industry accords distinct treatment 

to the term ―bonus.‖ According to Attorney McManus, a ―bonus‖ in Pennsylvania 

represents the aggregate of delay rentals that would be due under a lease‘s primary 

term, rather than a signing bonus paid for execution of the lease. (See Doc. 72-1 

¶¶ 1, 15). Attorney McManus opines that, given this distinction, a Pennsylvania 

oil and gas bonus is not payable upon execution and is ―contingent upon the 

satisfaction of conditions.‖ (Doc. 72-1 ¶ 14; see also Doc. 72 at 4). At this juncture, 

the parties no longer dispute that payment by draft can be conditioned, or that the 

drafts were in fact subject to a condition in this case. (See Doc. 59 at 8 n.1). The 

effect of the contractual condition, not its existence, is the matter of contention.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 34 of 48
35

she ―would have advised the plaintiffs that . . . this lease did not bind the lessee to 

pay them.‖ (Id. ¶ 23; see also id. ¶ 24).

Attorney McManus‘s affidavit establishes only that payment by bank draft is 

often ―heavily‖ conditioned, such that a likelihood ―of loss of the lease to lessors‖ 

exists. (Id. ¶ 23; see also id. ¶ 19). To be sure, her admonitions are justified: as other

industry evidence forewarns, minor modification to lease language may drastically 

limit, or eliminate, a lessee‘s obligation. See Pierce, supra, at §§ 28.02[2], 28.03[1]; 

WILLIAMS & MEYERS, OIL AND GAS LAW § 666. It is the language of the leases,

however, not the mere fact of payment by draft, which effects that result. Attorney 

McManus‘s general observations are unavailing when, as here, contracting parties 

adopt unique language to mitigate the risks she emphasizes. (See generally Doc. 

72-1). Thus, Attorney McManus‘s affidavit simply reaffirms the principle delineated 

in Williams & Meyers and in the Pierce article: the precise language employed by 

the parties necessarily governs their respective rights and obligations. (See id.

¶¶ 2, 21).

In sum, the Rule 56 record simply does not substantiate SWEPI‘s Rule 12 

portrayal of an industry custom whereby a lessor‘s agreement to accept payment 

by bank draft allows a lessee—in every instance, and without regard for contract 

language—to reject the lease and to dishonor a tendered draft for any reason. 

To the contrary, the bulk of SWEPI‘s evidence supports the opposite conclusion:

careful contract draftsmanship defines when certain obligations accrue and when, 

or whether, a party may be relieved of those obligations. See Pierce, supra, at 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 35 of 48
36

§§ 28.02-03; see also WILLIAMS & MEYERS, OIL AND GAS LAW § 666. On the issue of 

industry custom, SWEPI‘s probata and allegata are at fatal variance.

SWEPI lastly catalogues case law from within the Commonwealth and 

elsewhere, urging that the assemblage demonstrates widespread judicial adoption 

of its proposed definition of the term ―bank draft.‖ (See Doc. 62 at 14-16; Doc. 68 at 

13-14). A cursory review of the several decisions relied on by SWEPI reveals their 

holdings to be inapposite.

Only one Pennsylvania case presents in a similar substantive posture. In

Mickel Drilling Partners v. Cabot Oil & Gas Corp., No. 3:11-CV-61, 2012 WL 4953081 

(M.D. Pa. Oct. 16, 2012) (Caputo, J.), lessee Cabot Oil and Gas Corporation (―Cabot‖)

executed acknowledgments of payment to plaintiffs which provided: ―Subject to . . . 

approval of title, [Cabot] will pay, within 60 days of receipt of the subject Oil and 

Gas Lease, properly executed, the sum of $95,925.00, which represents the bonus 

consideration.‖ Id. at *2-3. The parties executed leases, but within sixty days of 

execution, Cabot sent plaintiffs a letter terminating the agreement pursuant to a 

surrender clause. Id. at *3. In holding that Cabot was not obligated to pay the 

bonuses, the court observed: ―Cabot . . . was not required to make the bonus 

payments within sixty days unless it approved the title. Cabot did not approve the 

title and instead terminated the lease.‖ Id. at *8 (emphasis added). Thus, Mickel 

Drilling stands only for the unexceptional proposition that when payment is 

conditioned on title verification, and title is not verified, the lessee cannot be 

compelled to pay the bonus. See id.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 36 of 48
37

SWEPI then directs the court‘s attention to two related federal district court 

decisions applying North Dakota law: Kaufman v. Chesapeake Energy Corp., No. 

1:12-CV-87, 2012 WL 4442799 (D.N.D. Sept. 25, 2012) and Kuhn v. Chesapeake 

Energy Corp., No. 1:12-CV-86, 2012 WL 4442798 (D.N.D. Sept. 25, 2012). In both 

cases, landowners alleged that the lessee breached its obligation to fund orders of 

payment issued as bonus consideration in exchange for oil and gas leases. See

Kaufman, 2012 WL 4442799, at *1; Kuhn, 2012 WL 4442798, at *1. But the lessee‘s

orders adopted the protective language recommended by the Pierce article: the 

lessee ―promised to pay the bonuses within sixty days or surrender the Lease‖ 

without liability. See Kaufman, 2012 WL 4442799, at *4 (emphasis added); Kuhn, 

2012 WL 4442798, at *3-4 (emphasis added). The court concluded that the lessee 

had reserved the ―absolute right to surrender‖ without payment obligation by 

employing the limiting language in the lease documents. See Kaufman, 2012 WL 

4442799, at *4; Kuhn, 2012 WL 4442798, at *3-4. Quite clearly, Kaufman and Kuhn

are factually distinct from the instant matter.

SWEPI also cites Martin v. Turner Oil & Gas Properties, Inc., No. 1:11-CV

-102, 2013 WL 1183786 (D.N.D. Mar. 21, 2013). The Martin court observed in dicta 

that it was ―not unsympathetic with the [landowners‘] argument that [the lessee] 

was able to bind them for a certain period of time and speculate with their interests 

without having paid anything. However, this is the program that they signed up 

for.‖ Id. at *6 n.8. The court further remarked that the landowners‘ circumstances

were of their own making, and yet ―another good example of why mineral owners 

would be well-advised to consult with an attorney‖ before executing an oil and gas 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 37 of 48
38

lease. Id. SWEPI‘s reliance on Martin is misplaced: the drafts in Martin included 

both management approval and title verification conditions, neither of which had 

been satisfied. See id. at *4-6 & n.8.

Quite simply, courts have not adopted the sweeping definition of ―bank draft‖ 

suggested by SWEPI. Like SWEPI‘s record evidence, the decisions uniformly 

confirm that specific language chosen by the contracting parties dictates their 

respective obligations on a case-by-case basis. See, e.g., Mickel Drilling, 2012 WL 

4953081, at *8; Kaufman, 2012 WL 4442799, at *4; Kuhn, 2012 WL 4442798, at *3-4; 

see also Pierce, supra, at §§ 28.02[2], 28.03. The court finds that neither industry 

custom nor case law support SWEPI‘s circumventive interpretation of the parties‘

lease agreements.12

 

12 SWEPI also contends that plaintiffs‘ ―subjective understanding‖ of any 

payment obligations arising under the lease comports with SWEPI‘s interpretation, 

such that ―no other plausible interpretation exists.‖ (Doc. 62 at 12-13). SWEPI

mischaracterizes plaintiffs‘ testimony. Masciantonio testified that he understood 

the surrender clause to mean that SWEPI could terminate the lease at ―any time . . . 

without regard to me.‖ (Doc. 56-3, Masciantonio Dep. 203:10-204:5 (June 3, 2015)). 

However, Masciantonio also explained that, although he ―didn‘t like the surrender 

clause,‖ he agreed to it based on his understanding that the clause pertained to 

drilling and other activities but would not impact the bonus payment. (See id.

257:19-258:20). SWEPI cites no evidence that Masciantonio or Latshaw understood 

the mere fact of payment by bank draft to mean that SWEPI could refuse to pay the 

bonuses for any reason or no reason at all. The record reflects the reverse: both 

plaintiffs testified to their belief that SWEPI could only refuse payment if its title 

search revealed plaintiffs did not own the land, including the oil and gas rights, as 

warranted. (See id. 250:17-251:11, 259:1-8, 287:1-7, 289:9-290:3, 292:2-15); Doc. 56-4, 

Latshaw Dep. 41:9-43:4, 44:19-25, 53:22-54:8, 103:2-5) (July 8, 2015)).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 38 of 48
39

C. Breach of Contract

The language of the lease agreements sub judice is plain and unambiguous,

susceptible of only one reasonable interpretation: SWEPI was bound to pay bonus 

consideration upon execution of the leases, subject only to the condition of title 

verification. (See Doc. 56-15 at 8; Doc. 56-16 at 8). This construction is consistent 

with Pennsylvania‘s law of contract interpretation, as well as principles of logic and 

fairness. See Jacobs, 332 F. Supp. 2d at 774 (quoting Boehm, 356 A.2d at 766 n.3). 

SWEPI‘s obligation accrued at the time of execution and survives notwithstanding

SWEPI‘s surrender of the leases in May of 2012. See supra at 26-29. Consequently, 

the court is compelled to determine whether nonpayment of the drafts constitutes a 

breach of the parties‘ oil and gas leases.

Pennsylvania law requires plaintiffs pursuing a claim for breach of contract 

to demonstrate the existence of a contract, including its essential terms; defendant‘s

breach of a duty imposed by those terms; and resultant damages. See Roth v. Cabot 

Oil & Gas Corp., 919 F. Supp. 2d 476, 494 (M.D. Pa. 2013) (citing Omnicron Sys., Inc. 

v. Weiner, 860 A.2d 554, 564 (Pa. Super. Ct. 2004); CoreStates Bank v. Cutillo, 723 

A.2d 1053, 1058 (Pa. Super. Ct. 1999)). In a threefold challenge to plaintiffs‘ breach 

of contract claim, SWEPI argues that: first, ―issues with title‖ prevent satisfaction of 

the condition precedent, (see Doc. 62 at 23-24); second, the frustration of purpose 

doctrine relieves its duty to perform, (see Doc. 72 at 6 n.7); and third, with respect to 

the Latshaw Trust, the Latshaws failed to provide notice of default as required by 

the lease, limiting recovery to the Masciantonios alone, (see id. at 24 n.14).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 39 of 48
40

1. Condition Precedent to Performance

It is undisputed that SWEPI‘s obligation to pay the bonus consideration is 

conditioned upon ―title verification by [SWEPI].‖ (Doc. 56-15 at 8; Doc. 56-16 at 8). 

The fourth sentence of the payment paragraph outlines SWEPI‘s obligation in this 

regard: ―Said title verification shall be completed within the aforementioned ninety 

(90) banking day period.‖ (Doc. 56-15 at 8; Doc. 56-16 at 8). Hence, the payment 

paragraph accomplishes two objectives: (1) it conditions SWEPI‘s duty to fund the 

presented drafts on verification of title and (2) it places an affirmative obligation on 

SWEPI to accomplish title verification within ninety banking days. 13 (See Doc. 56-

15 at 8; Doc. 56-16 at 8). The parties dispute the meaning of ―title verification‖ in 

debating the scope of the condition precedent. (See Doc. 62 at 23-24; Doc. 67 at 12; 

Doc. 72 at 10).

SWEPI asserts broadly that ―the only evidence of record about the reason(s) 

for surrender is that title was the reason.‖ (Doc. 62 at 23-24). SWEPI presents no 

evidence tending to show that plaintiffs‘ respective title interests are defective or

otherwise invalid. (See id.) SWEPI contends that it decided to surrender the 

leases because certain tracts of land adjoining the southern border of plaintiffs‘ 

 

13 To the extent SWEPI suggests that its obligation to confirm title was 

discretionary, such that SWEPI could wantonly refuse to investigate plaintiffs‘ title 

and dishonor the drafts on that basis, its argument is controverted by the plain 

language of the payment provision, which requires that title verification ―shall be 

completed‖ within the stated time period. (Doc. 56-15 at 8 (emphasis added); Doc. 

56-16 at 8 (emphasis added)). Of the courts to have reached this question, the 

majority hold that the lessee is obligated to undertake some investigation in order 

to refuse payment under a title approval clause. See Pierce, supra, at § 28.02[2] 

(collecting cases).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 40 of 48
41

property were already leased to competitors and a geohazard exists in the northern 

portion of plaintiffs‘ property. (See id.) SWEPI relies exclusively on its senior land 

representative, attorney Benjamin Irwin (―Attorney Irwin‖), to support its position 

that geology and competition are permissible bases to dishonor the drafts. (Doc. 68 

at 16-19). Attorney Irwin avers that the phrase ―title examination‖ in the oil and gas 

industry encompasses not only verification of a lessor‘s title to the leased property, 

but also examination of ―the surrounding parcels to determine whether SWEPI is 

able to put together enough contiguous acreage so as to be able to develop the 

target formation.‖ (Doc. 68-3 ¶¶ 6-8). Plaintiffs rejoin that ―title verification‖ can 

only be fairly construed to mean verification of plaintiffs‘ title to the property that 

plaintiffs intend to lease. (Doc. 67 at 21).

The court notes as a threshold matter that SWEPI‘s Rule 56 materials all 

pertain to the phrase ―title examination‖ rather than ―title verification.‖ (See Doc. 

68 at 16-19; Doc. 68-3 ¶¶ 6-8; Doc. 72 at 11). This distinction alone compels rejection 

of SWEPI‘s arguments, as SWEPI does not endeavor to establish that the phrase 

―title verification‖ encompasses the sweeping and discretionary considerations 

enumerated in its land representative‘s definition of ―title examination.‖ (See Doc. 

68-3 ¶¶ 6-8). Consequently, the Rule 56 evidence offers SWEPI no support.

Nor does SWEPI‘s strained definition of ―title verification‖ find foothold

elsewhere. The dictionary definition of both terms plainly supports the narrow 

construction proposed by plaintiffs. ―Verification‖ is defined as ―the state of being 

verified,‖ or ―the act or process of verifying,‖ with its root ―verify‖ being defined as 

―to prove, show, find out, or state that (something) is true or correct.‖ MERRIAMCase 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 41 of 48
42

WEBSTER‘S COLLEGIATE DICTIONARY (11th ed. 2009). Title, in turn, is defined as ―the 

legal link between a person who owns property and the property itself.‖ BLACK‘S 

LAW DICTIONARY (10th ed. 2014). And ―good title,‖ as warranted in plaintiffs‘ leases, 

is that which is ―legally valid or effective,‖ ―clear,‖ or ―marketable.‖ Id. The plain 

language of the condition precedent, per definitionem, directs SWEPI to measure

the existence and the state of plaintiffs‘ title to the property leased.

14

The language of the leases does not suggest that the parties intended to 

broaden the phrase ―title verification‖ to include a review of title to neighboring 

properties or an assessment of the geology underlying plaintiffs‘ land. Industry 

case law reveals that, when lessees impose such additional contingencies on 

bonus payment, they do so intentionally and unambiguously, with such language

as: ―subject to . . . inspection, approval of the surface, geology and title,‖ Cardinale, 

74 A.3d at 141, or ―subject to . . . approval of title and . . . management approval of 

the lease,‖ Valentino v. Range Res-Appalachia, LLC, No. 09-1615, 2010 WL 2034550, 

at *2, 5-6 (W.D. Pa. May 21, 2010). The court declines to retrospectively expand the 

language chosen by SWEPI‘s draftsmen to effectively include such geology and 

approval clauses.

 

14 SWEPI summarily contends that a narrow view of ―title verification‖ builds

surplusage into the leases because a person cannot convey what they do not own. 

(Doc. 68 at 16-17). This contention is without merit. The precondition authorizes 

SWEPI to consider both ownership and the state of plaintiffs‘ title, to include 

determining whether the title is free and clear of encumbrances and defects.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 42 of 48
43

SWEPI‘s claim that ―title verification‖ includes elements beyond plaintiffs‘ 

own title is unsupported by law, fact, or reason.

15

 The court concludes that SWEPI 

could only dishonor the drafts for reasons related to plaintiffs‘ title, either a lack

thereof or defects therein. As a consequence, the Rule 56 inquiry narrows 

considerably: the court must determine whether genuine disputes of material fact 

remain concerning SWEPI‘s efforts to verify plaintiffs‘ title and the results thereof. 

As the party claiming breach, plaintiffs bear the burden of proving satisfaction of 

the precondition. See McDermott v. Party City Corp., 11 F. Supp. 2d 612, 620-21 

(E.D. Pa. 1998) (citing Mellon Bank, 619 F.2d at 1007-08).

Plaintiffs produce abundant proof of title in support of their claim. The 

record contains deeds for each of the subject properties in plaintiffs‘ names, the 

authenticity of which SWEPI does not appear to dispute. (Docs. 56-10, 56-11; see

also Doc. 43 ¶ 8; Doc. 45 ¶ 8). Masciantonio thoroughly traced the history of the 

deeds through several generations of his wife‘s family during his deposition. (Doc.

56-3, Masciantonio Dep. 22:21-25:3). In its answer to plaintiffs‘ amended complaint, 

SWEPI admits that plaintiffs own the subject property and the oil and gas rights 

thereto. (Doc. 43 ¶ 7; Doc. 45 ¶ 7). SWEPI‘s Rule 56 papers attempt to reclaim its

admission based on the parties‘ agreed acreage reduction, but the record is devoid 

of evidence to support SWEPI‘s insinuation that plaintiffs‘ title may be defective or 

 

15 Plaintiffs also suggest that SWEPI‘s interpretation of the title verification 

condition is inconsistent with the covenant of good faith and fair dealing, which 

plaintiffs argue must be read into every oil and gas lease. (See Doc. 67 at 15-19). 

The court has held that the plain language of the condition controls this dispute 

and that SWEPI‘s expanded interpretation thereof is unreasonable as a matter of 

law. Hence, the court does not determine whether the covenant of good faith and 

fair dealing applies to Pennsylvania oil and gas leases.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 43 of 48
44

invalid. (See Doc. 69 ¶ 9). To be clear, the court finds that there are no disputed 

facts concerning plaintiffs‘ title to the leased property.

Moreover, the evidence concerning SWEPI‘s title verification efforts reflects 

that SWEPI did in fact review and verify plaintiffs‘ title. SWEPI acknowledges that 

those efforts led to an agreed downward reduction in acreage for the second-issued 

bank drafts to reflect acreage amounts coinciding with plaintiffs‘ ―verifiable title.‖ 

(Doc. 61 ¶ 108; see Doc. 56-3, Masciantonio Dep. 277:21-278:6). SWEPI avers that it

discovered the geohazard and neighboring competitor acreage in the course of

―perform[ing] its obligations under the Bonus Provision of the Lease to verify title.‖ 

(See Doc. 62 at 23-24; Doc. 69 ¶ 98). These concessions defeat SWEPI‘s sub silentio

intimation that verification did not occur.

SWEPI does not so much as allege that plaintiffs‘ title was defective in 

explaining its reasons for dishonoring the drafts. (See Doc. 62 at 23-24; Doc. 68; see

also Doc. 45 ¶ 7). Stockwell, testifying on SWEPI‘s behalf, made no reference to 

plaintiffs‘ title or any lack thereof when discussing SWEPI‘s reasons for surrender 

of the leases; instead, Stockwell identified the apparent geohazard and competitor 

ownership of adjacent tracts as the exclusive reasons for surrender. (See Doc. 56-8, 

Stockwell Dep. 24:8-25:6, 28:7-30:12). When asked directly by plaintiffs‘ counsel, 

Stockwell testified that he does not recall title issues being part of his surrender 

calculus whatsoever. (Id. 65:23-66:7).

The record contains a dearth of evidence from which a trier of fact could

reasonably conclude that plaintiffs‘ title is defective or that SWEPI dishonored 

plaintiffs‘ bonus drafts as a result of those defects. SWEPI could surrender the 

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 44 of 48
45

leases at any time and for any reason, but SWEPI could only dishonor the bonus 

drafts if it found title to be invalid or defective. SWEPI fails to demonstrate any 

genuine dispute for trial in response to plaintiffs‘ ample evidence in satisfaction of 

the title verification condition. On this record, plaintiffs are contractually entitled to 

the bonus payments contemplated by the leases.

16

2. Notice of Default

In a cursory final salvo, SWEPI argues that the Latshaws failure to provide 

pre-suit notice of default is fatal to their breach of contract claim. (Doc. 62 at 24 

n.14; Doc. 72 at 11). The leases each contain a default provision, as follows: ―No 

default shall be declared against the Lessee for failure to make payments . . . unless 

 

16 Inasmuch as SWEPI sees fit to perfunctorily raise the defense of frustration 

of purpose for the first time in a reply brief footnote, the court responds in kind. 

(See Doc. 72 at 6 n.7). A party generally may not raise an affirmative defense for the 

first time in a reply brief at the Rule 56 stage. See, e.g., Kenepp v. Am. Edwards 

Labs., 859 F. Supp. 809, 816 (E.D. Pa. 1994) (citing Kleinknecht v. Gettysburg Coll., 

989 F.2d 1360, 1374 (3d Cir. 1993)). The court rejects SWEPI‘s defense for this 

reason. In the exercise of caution, the court also rejects SWEPI‘s frustration 

defense as wholly without merit. SWEPI characterizes the singular purpose of the 

parties‘ leases as ―commercially-viable development of natural gas‖ and suggests 

that this purpose was entirely and unpredictably foreclosed by a geohazard running 

through the northern portion of the property and an inability to acquire competitorowned leases to the south. (See Doc. 72 at 6 n.7). This tortured construction is 

refuted by the leases‘ language, which envisages both exploration for and

development of oil and gas. (See Doc. 56-15 at 1; Doc. 56-16 at 1). Pennsylvania 

courts apply the frustration of purpose doctrine ―sparingly.‖ IMAX Corp. v. Capital 

Ctr., No. 1:15-CV-378, 2016 WL 108045, at *5, __ F. Supp. 3d __ (M.D. Pa. 2016). It 

will operate to void a contractual obligation only when an unexpected, intervening 

event occurs after execution of the contract that substantially frustrates its purpose. 

See id. It is not enough to invoke the doctrine that a transaction ―has become less 

profitable . . . or even that [a party] will sustain a loss.‖ Hiriam Hicks, Inc. v. 

Synagro WWT, LLC, 867 F. Supp. 2d 676, 698-99 (E.D. Pa. 2012) (quoting 

RESTATEMENT (SECOND) OF CONTRACTS § 265 comment a). SWEPI submits no 

evidence to establish that it did not know or could not have known of the potential 

presence of geohazards on plaintiffs‘ property or competitor-owned leases in the 

vicinity before executing the leases in November of 2011. (Doc. 72 at 6 n.7).

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 45 of 48
46

the Lessee shall refuse or neglect to pay or perform the same for sixty (60) days 

after having received written notice from Lessor.‖ (Doc. 56-15 at 3; Doc. 56-16 at 3). 

The addenda, which the parties agree ―supersede the printed terms of the lease,‖ 

contain a similar notice requirement:

If Lessee violates, fails to perform, or breaches any material 

terms, covenants, or conditions in this lease, Lessor shall 

notify Lessee in writing of such violation, failure, or breach. 

Lessee shall have a period of sixty (60) days from the date of 

its receipt of Lessor‘s written notice, in which to remedy 

the material violation, failure, or breach. If Lessee fails or 

refuses to remedy the material violation, failure, or breach 

within the prescribed time period, Lessor may, at its sole 

option, terminate this Lease as to all of the lease premises.

Doc. 56-15 at 7; Doc. 56-16 at 7). SWEPI contends that the Masciantonios‘ letter 

demanding payment of the bonus consideration is insufficient to put SWEPI on 

notice of the Latshaw plaintiffs‘ separate but related claim. (See Doc. 62 at 24 n.14).

At the outset, the court rejects SWEPI‘s assertion that ―no facts in the 

record‖ establish that the Latshaws authorized Masciantonio to act on behalf of 

their Trust. (Doc. 72 at 12). This position is inconsistent with SWEPI‘s admission 

that Masciantonio ―acted on behalf of and as the principal point of contact‖ for all 

plaintiffs concerning the leases. (Doc. 58 ¶ 3; Doc. 69 ¶ 3). SWEPI itself states that 

Masciantonio ―served as the main point of contact for‖ plaintiffs in their dealings 

with SWEPI. (Doc. 61 ¶ 45). Indeed, Masciantonio gave his deposition testimony in 

this case on behalf of both the Masciantonios and the Latshaw Trust, with no 

apparent objection from SWEPI. (See Masciantonio Dep. 12:17-16:8). The 

unequivocal Rule 56 record establishes that Masciantonio acted on behalf of all 

plaintiffs in matters concerning the subject leases.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 46 of 48
47

Alternatively, SWEPI‘s surrender of the leases defeats the provenance and 

substance of the notice requirement. Such provisions aim to provide the party 

purportedly in default with an opportunity to cure before the non-defaulting party 

can bring suit to invalidate a lease. See, e.g., Linder v. SWEPI, LP, 549 F. App‘x

104, 108 (3d Cir. 2013) (nonprecedential); McWreath v. Range Res.-Appalachia, LLC, 

81 F. Supp. 3d 448, 472 (W.D. Pa. 2015). In the instant case, SWEPI‘s simultaneous 

surrender and breach nullified the notice provision itself and vitiated its purpose. 

SWEPI‘s failure to respond to Masciantonio‘s demand letter reveals that SWEPI, 

too, considered the notice provision and any responsive obligation to be a nullity 

upon surrender. The court declines SWEPI‘s final entreaty to immunize it from 

proven contractual liability.

IV. Conclusion

Established principles of contract interpretation resolve this dispute. Upon 

execution of the lease documents, SWEPI accrued an extant obligation to pay bonus 

consideration of $4,000 per acre to plaintiffs in exchange for SWEPI‘s reciprocally 

immediate right to explore and to develop plaintiffs‘ subsurface estate. (Doc. 56-15 

at 1, 8; Doc. 56-16 at 1, 8). The lease language conditions this obligation on ―title 

verification‖ alone. (Doc. 56-15 at 8; Doc. 56-16 at 8). Uncontroverted record 

evidence establishes that the Masciantonios and the Latshaw Trust jointly hold 

title to the subsurface estate, in satisfaction of the condition precedent, and that 

SWEPI dishonored the drafts for reasons entirely unrelated to title. See supra at 

39-45. The court holds that there is no genuine dispute that SWEPI breached its 

contractual obligation to plaintiffs.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 47 of 48
The court will grant plaintiffs‘ motion (Doc. 57) and deny SWEPI‘s motion 

(Doc. 60) pursuant to Federal Rule of Civil Procedure 56.17 An appropriate order 

shall issue.

/S/ CHRISTOPHER C. CONNER 

Christopher C. Conner, Chief Judge

United States District Court

Middle District of Pennsylvania

Dated: July 15, 2016

 

17 Plaintiffs‘ fraudulent inducement claim in Count II is raised in the 

alternative. (Doc. 67 at 22). In light of the court‘s disposition of plaintiffs‘ breach 

of contract claim, the court will dismiss plaintiffs‘ fraudulent inducement claim.

Case 4:13-cv-00797-CCC Document 80 Filed 07/15/16 Page 48 of 48