IN THE UNITED STATES DISTRICT COURT 


FOR THE WESTERN DISTRICT OF PENNSYLVANIA 


RONALD A. GATES AND CATHERINE ) 

T. GATES, 	 ) 

Plaintiffs, 	 ) 

) 

v. 	 ) C.A. 07-104 E 

) 

EXCO RESOURCES (pA), INC., ) 

) 

Defendant. ) 

OPINION 

COHILL, S. DJ. 

I. 	 BACKGROUND 

Plaintiffs Ronald A. Gates and Catherine T. Gates, who own a dairy farm in Corry, 

Pennsylvania, tiled a complaint in this action on May 9, 2007, seeking compensation for property 

damage, as well as unpaid taxes and royalties from defendant EXCO-Resources (PA), Inc. 

("EXCO"), to which the Gates had leased portions oftheir property to install gas wells and 

transmission lines. 

The plaintiffs seek compensation for several alleged breaches of agreements by EXCO. 

They allege that EXCO has failed to restore their property to its original condition, thereby 

reducing their property's value, and further, they seek compensation for royalties which they 

allegedly lost as a result ofinstallation of a gas compressor station. Plaintiffs seek an accounting 

for such unpaid royalties. Plaintiffs also allege that EXCO has not paid a royalty on gas not used 

by them, as well as a fee for the installation of certain transmission lines. In addition, they 

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contend that EXCO owes back taxes on a compressor station building for the years 2006 through 

2009. 

The parties consented to a non-jury trial. On August 17, 2009 the Court and counsel 

viewed the subject property. Our impressions of the property will be noted herein where 

appropriate. 

The next day, on August 18,2009, we conducted a one-day bench trial. Plaintiffs called 

two witnesses to the stand: 1) Plaintiff Ronald Gates; and 2) Raleigh Chesley, plaintiffs' expert 

witness on the appraisal of farmland. Defendant called three witnesses to the stand: 1) Adam 

Vincent, an EXCO employee and "land man" familiar with the corporate recordkeeping; 2) 

James Bourbeau, an independent petroleum "land man" who performed leasing services for the 

defendant from 2000 to 2005; and 3) Joseph Schwab, construction superintendent for EXCO. 

At the court's request, the parties submitted post-trial proposed Findings of Fact and 

Conclusions of Law, as well as responses thereto. 

In accordance with Fed. R. Civ. P. 52(a), we make the following Findings of Fact and 

Conclusions of Law. 

II. FINDINGS OF FACT 

1. The plaintiffs, Ronald A. Gates and Catherine T. Gates ("the Gates"), are husband and 

wife residing at 21167 Lindsey Hollow Road, Corry, Pennsylvania, 16407. 

2. Defendant EXCO Resources (PA), Inc. ("EXCO"Y is a corporation organized and 

IOn June 20, 2008, the original named Defendant, North Coast Energy, Inc. changed its 

name to EXCO-North Coast Energy, Inc.; on December 1,2009, EXCO-North Coast Energy, 

Inc. changed its name to EXCO-Resources (PA), Inc. 

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existing under the laws of the State of Delaware, with its principal place of business being 

located in Akron, Ohio. 

3. The Gates own three contiguous parcels ofland in Concord Township, Erie County, 

Pennsy lvania, which is near the city of Corry, Pennsylvania. One of those parcels consists of 100 

acres of land, another parcel contains approximately 75 acres, and the final parcel consists of 25 

acres. Their residence is located on the 100-acre parcel of land. See generally, PIs.' Exhibit 4 

(Ronald A. Gates' handwritten drawing (not to scale)). 

4. The 100- and 75-acre parcels (collectively, "the Subject Property" or "the 175-acre 

parcel") lie to the east ofLindsey Hollow Road, with that road forming its western border. The 

25-acre parcel lies immediately east of the 75-acre parcel and is contiguous with it. The 100 acre 

parcel is immediately south of the 75-acre parcel and is contiguous with it. 

5. The 25-acre parcel is wooded, while approximately 115 acres of the other 175 acres are 

wooded. Thus, about 60 acres (minus the area occupied by the residence and outbuildings) are 

devoted to pasture for a 100-head herd of dairy cows. Crops have not been grown since 1985. 

6. Portions of the Gates' property were passed down from generation to generation; some 

sections owned by the Gates family as far back as 1862. 

7. Ronald Gates began grazing cattle and producing dairy milk in early 1963; his father had 

been doing the same since the 1940's. 

8. Prior to any formal relationship between the parties, the Subject Property was converted 

from tillable land to pasture land to support plaintiffs' approximately 100 dairy cows. 

9. It is necessary to mow pasture land in order to keep the weeds (and other plants which 

cows will not eat) from going to seed. 

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10. Once converted to pasture land, and prior to any formal relationship between the parties, Mr. 

Gates was able to mow the pasture without difficulty, but for an occasional swampy area. 

11. There is a small pond on the Subject Property. 

12. Prior to 1998, the Gates had entered into some agreements whereby they had granted 

permission to EXCO and other gas companies to drill for gas on the Subject Property; by their 

terms, these leases (not at issue in this litigation) expired due to lack of drilling. 

13. In addition, in 1983 Columbia Gas was granted a 50 foot right of way for a transmission 

line to pass through the Gates' property along the electric line on the property. 

The 1998 Oil and Gas Lease and Wells No.1, 2, and 3 

14. In 1998, Mr. Gates was approached by David Stevens from EXCO, who expressed the 

company's interest in leasing for the drilling of gas wells. 

15. The Gates, as lessors, entered into an Oil and Gas Lease (the "Agreement") (Pls.'s Ex. 1) 

with defendant EXCO, as lessee, on February 18, 1998 with respect to the 100 and 75-acre parcel 

(hereinafter, "the 175-acre parcel"). The Agreement granted EXCO, the lessee, the right to 

remove oil and gas from the 175-acre parcel and an easement over the surface ofthe 175-acre 

parcel to do so. 

16. Mr. Gates testified that he carefully reviewed the contract terms and made numerous 

changes to the standard leasing agreement prior to signing the document; for example, he asked 

that the lease have a 3 year limit, rather than a 10 year limit (see paragraph 2), and furthermore, 

he requested that EXCO pay him the appropriate fee two years in advance. 

17. The Agreement (Plaintiffs' Ex. 1) contained a number of covenants. 

a. At paragraph 1, plaintiffs drew a line through the form lease the phrase "without 

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the payment of additional consideration pursuant to attendant pipeline-right-of-way grant(s);" 

thus, according to plaintiffs, plaintiffs wanted to ensure that defendant could not lay additional 

pipe, service and/or transmission lines to transport gas from other wells onto the 175 acres 

without the payment of additional consideration. 

b. At paragraph 4(B), EXCO agreed to pay plaintiffs a royalty for "the gas marketed 

and used offthe premises" from each well drilled on the Subject Property. The royalty was to be 

one-eighth the price paid to the defendant per thousand cubic feet of such gas. 

c. At paragraph 14 ofthe Agreement and at the sixth paragraph ofthe Addendum, 

(also dated February 18, 1998 and part ofPlaintiffs' Exhibit 1), EXCO agreed to reclaim the 

Subject Property "in accordance with state laws" to "as near normal condition as possible within 

six (6) months after completion ofwork on said well, weather permitting." 

d. At paragraph 6, plaintiffs were permitted to lay a pipeline to their house or their 

daughter's adjoining property; the first 300,000 cubic feet of gas taken each year was to be free 

of cost. 

e. At its Addendum, the Agreement provides that "all pipelines shall be buried at 

least thirty-six (36) inches below the surface of the ground." Mr. Gates insisted on the inclusion 

ofthis provision based on his experience with another party, Columbia Gas, whose agreement 

stipulated that a pipeline be buried 4 feet so as not to interfere with the appropriate plow depth. 

18. The first well was not drilled until February or March 2001. 

19. Prior to that time, on December 1, 2000 the Gates also executed an Affidavit of 

Noncompliance which was recorded with the Erie County Recorder of Deeds and which 

indicated that no oil or gas production had occurred on the property "for a long period oftime, if 

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ever," but that the February 18, 1998 Oil and Gas Lease with EXCO remained in full force and 

effect. 

20. There are three gas wells on the 175 Subject Property, named Well No.1, Well No.2, and 

Well No.3, which were drilled in reverse numerical order. 

a. Well No.3 was drilled in the southeast comer of the parcel in late February or early 

March 2001; Wells No. I and 2 were drilled in November-December 2001. 

b. Well No. I was drilled in the northeast comer of the parcel and Well No.2 in the 

approximate center ofthe parcel. PIs.' Ex. 4 ("X" marks). 

The 25 Acre Parcel 

21. In order to connect the three wells, EXCO and the Gates' entered into an agreement dated 

August 24, 2000 - a Pipeline Right of Way which granted EXCO an easement to install a 

transmission line over the 25-acre parcel ("the 25-acre transmission line"), not from the 

compressor to the meter station on the 175 acre property (which later occurred by other means), 

but over the back portion ofthe farm the 25-acre parcel. Def. 's Ex. C (unrecorded) and D 

(dated December 1,2000) (recorded). 

22. The gas from the three wells was transported over the 25 acre parcel and into an offsite 

meter station, from November 2001 through September 2002, without incident. 

23. The 25 acre transmission line is depicted in red on plaintiffs' Exhibit 4, and runs from 

well No.3 to Well No.2 to Well No.1 and then over the 25 acre parcel and apparently, into the 

"Gibas" property. 

24. The 25 acre transmission line is not at issue in this case. 

25. As per the terms ofthe Pipeline Right-of-Way, the defendant agreed to and in fact, did 

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pay the plaintiffs $5.00 per rod for this transmission line. Plaintiffs were fully compensated for 

the approximately 300 rods used to install the transmission line. 

26. Mr. Gates testified that EXCO did a "good job" in laying and installing the 25 acretransmission line, which was buried at least 36 inches below the surface of the ground; 

furthermore, the ground was returned to the condition it was in prior to the installation of the 

transmission line. 

27. For the period of time from November 2001 through September 2002, the three wells 

were producing roughly two to four million cubic feet of gas per month and the Gates were 

receiving royalties totaling approximately two to three dollars per thousand cubic feet. 

Compressor Station in 2002 

27. Beginning in September of2002, EXCO expressed a desire to construct a compressor 

station on the SUbject Property. This would compress gas collected from Wells No.1, 2, and 3, 

as well as other wells drilled in the surrounding area. It would then transmit the collected gas to 

a meter station which would be placed by the defendant on the Subject Property 

28. On February 16, 2001, the Gates signed an Extension of Oil and Gas Lease, extending 

the February 18, 1998 lease to EXCO for a period of six weeks "and as long thereafter as oil and 

gas (including casing head gas) is produced from any well on the land covered by [the] lease." 

29. On September 10, 2002 the Gates executed an easement to allow EXCO to install a 

compressor on the 1 75-acre parcel. (Def.' s Ex. "A" and "G") 

30. The fourth paragraph of the September 10,2002 easement provides that EXCO "shall 

only have such obligations with respect to maintaining this easement as may be required by any 

and all applicable laws and regulations ..." 

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31. At the time, plaintiffs did not know that EXCO would use gas from the three wells to run 

the compressor; however, plaintiffs believed that they would receive a royalty for the gas used to 

operate the compressor station. Timothy Silker and David Stevens, both agents and/or employees 

of EX CO, represented to the plaintiffs that this would be the case. 

32. However, when the compressor station became operational, there was a decrease in the 

amount ofroyalty payments; production dropped by nearly fifty percent, even though the 

representatives from EXCO had predicted to the Gates' that their production would increase by 

fifty percent. 

33. A meter station was installed on the 175-acre parcel in November-December of2001; a 

compressor was installed on the same parcel in September of 2002. 

a. The compressor is located in the northern portion of the 175-acre parcel (marked 

"COMPRESSOR" on PIs.' Ex. 4). 

b. The meter station is located in the southwest comer, near Lindsey Hollow Road. 

(marked "METER" on PIs.' Ex. 4). 

34. On December 12,2002 EXCO and the Gates signed an agreement to the effect that 

EXCO would pay the Gates $1,000 each year for the compressor Easement, due on January 1 of 

each year. The $1,000 per year rental payment has been made each year since the granting ofthe 

compressor station easement, although some payments were late. 

35. Therefore, initially, when the parties first entered into their contractual relationship, the 

gas went from the wells through a pipeline that left the 175-acre parcel in its northeast comer and 

moved across the 25-acre parcel to a meter northeast ofthe 25-acre parcel. 

36. In late 2002 or early 2003 this was changed: the gas from the wells on the 175-acre 

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parcel owned by the Gates was moved through a pipeline to the compressor on 175-acre parcel 

along with gas from parcels of land owned by persons other than Mr. and Mrs. Gates, then 

through another pipeline to the meter station, which was also on the 175-acre parcel. 

37. The function served by the compressor has been to increase the pressure ofthe gas to 

enable its transmission to the facilities of a third party for sale by EXCO to that third party, while 

the function served by the meter station has been to measure the quantity of gas sold to the third 

party by EXCO. 

Permission to Lay Additional Transmission Lines 

38. EXCO needed a transmission line over the subject property which would transmit the 

compressed gas collected from the three wells (in addition to approximately 67 other wells 

located elsewhere in their system). 

39. EXCO relies upon the legal force oftwo alleged easements, purportedly signed by 

plaintiffs2 in December 2000: an easement purportedly granted by the Gates in a document 

entitled Pipeline Right of Way dated December 1,2000 (Defendant's Exhibit "E") and another 

dated December 11, 2000 (Defendant's Exhibit "F"). 

40. According to plaintiffs, these two alleged easements are not enforceable contracts for the 

following reasons: 

a. When James Bourbeau, an independent land man, arrived at the Gates' residence with a 

copy of Defendant's Exhibit E, in late 2000 (prior to when the wells were drilled), plaintiffs 

refused to sign this alleged agreement because: 

2 Both Plaintiffs' signatures appear on both these exhibits; Mr. Gates denied these were 

his signatures. Mrs. Gates did not testify. Of course, it would have been helpful to have an 

expert analyze them for accuracy. 

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i) insofar as the gas would (as believed at that time) be transmitted over the 25 

acre parcel, there would instead be an easement to do S03; and 

ii) the draft easement (Exhibit E) contained the wrong property description 

(naming the location as "Spring Creek Township, Warren County" rather than the correct 

location, "Concord Township, Erie County." 

b. Mr. Gates testified that on or about November 25, 2000, Mr. Bourbeau arrived a 

second time with Defendant's Exhibit F, which plaintiffs refused to sign because they believed 

there was no reason to sign it, as previously explained. 

c. Plaintitrs version ofdefendant's Exhibits E and F are unsigned, and at some point 

unknown, Mr. Gates wrote on both ofthem: "THIS DOCUMENT IS A FORGERY. WE DID 

NOT SIGN ANYTHING FOR JIM BOURBEAU." PIs.' Exhibit 3. 

d. Mr. Adam Vincent could not explain why these two alleged agreements would be 

necessary for the same easement, nor could he explain why one was dated December 1, 2000 and 

another, December 11, 2000. 

e. Mr. Vincent also could not explain why both agreements, despite being dated ten days 

apart, were recorded at the Recorder ofDeeds ofErie County eight months apart. 

42. Mr. Gates testified, with a great degree of credibility, that he never signed Exhibits E and 

F; his signature appears on the documents but he explained that he was taught to sign his name 

3 The February 18, 1998 Oil and Gas Lease with respect to the 175-acre parcel, for 

example, provides that the lease is for "drilling" etc. for gas and conducting "such secondary or 

tertiary operations as may be required ... and to transport by pipelines or otherwise across and 

through said lands ... gas ... from the subject and other lands ... and of placing tanks, equipment, 

roads and structures thereon to procure and operate for said products ...." 

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"on the line" not above it. 

43. Mr. Gates was a credible witness with a sharp memory; he remembered in great detail 

each and every one of his interactions with representatives ofEXCO and all ofthe events 

described herein. 

44. Plastic transmission lines were installed between April and September of 2002. 

45. The plastic line was laid 36 inches deep, but its installation disrupted underground 

drainage and, according to the plaintiffs, defendant did not clean up or remove any stones from 

the disrupted area. 

46. EXCO later determined that the plastic line was not strong enough to transmit the 

compressed gas, and therefore, in April 2003, EXCO laid a second transmission line made of 

steel, again relying upon the allegedly forged easements. 

a. The plastic and steel pipelines were installed at different locations, "a couple hundred 

feet" apart at times, but approximately 100 feet apart most of their course; the steel line was west 

of the plastic line. 

b. The plastic line ran for a time through the wooded part ofthe Subject Property, while 

the steel line ran through the pasture. 

c. The areas disturbed by the excavation necessary to install the lines are between 12 and 

16 feet wide; there are two such strips on the property. 

d. One of the lines runs on one side of the pond, in the woods, and the other runs on the 

other side of the pond, in the pasture. 

47. The plaintiffs contend that EXCO improperly laid a plastic transmission line from the 

compressor station to the meter station, even though the defendant should have known that 

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defendant's Exhibits "E" and "F" were forgeries and that plaintiffs had expressly stated in the 

Agreement that ifdefendant wanted to lay transmission lines that carried gas from other wells, 

defendant had to compensate plaintiffs. 

48. According to Mr. Gates, EXCO damaged drain tile, did not reconnect the drain tile, failed 

to lay the steel pipe 36 inches deep, and failed to remove all of the rocks that were strewn about 

in installing both the plastic line and the steel line. 

a. After completion ofthe installation ofthe pipelines on the Gates' property, plastic 

drains were installed by EXCO at locations where there had been damage to the drain tiles which 

has been located on the Gates property before EXCO installed the pipelines. 

b. The court observed a small amount of standing water, unwanted thistle, an 

enlarged swampy area, and numerous rocks which we assume were included in the fill used by 

EXCO after the transmission lines were installed. 

c. Although there are some drainage problems on the Gates property at the present 

time, notably, near the access road on the north portion of the property on the way to the 

compressor site, it is not exactly clear to what extent these are attributable to the operations of 

EXCO. 

Roads 

49. EXCO built two access roads and a dirt tractor road on the subject property in order to 

allow it to serve the compressor and three wells. 

50. An access road surfaced with gravel was constructed by EXCO and serves the compressor 

and Well No.1, situated between Lindsey Hollow Road and those two installations, traveling 

east-west ("north access road") (marked with a grey line and small x's on Pls.'s Ex. 4) 

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51. EXCO built a second access road of the same nature, which serves Well No.3, traveling 

east-west from the Meter station area next to Lindsey Hollow Road east to Well No.3 (south 

access road")(also marked with a grey line and small x's on Pls.'s Ex. 4). 

52. A third dirt road starts about midway on the length ofthe north access road to the 

compressor and Well No.1 and travels (parallel to Lindsey Hollow Road) southwardly to Well 

No.2. 

Other matters 

53. On January 24, 2003 the Gates signed a "Houseline" release of EXCO relative to the 

installation of a pipeline to a house owned by them, located on the premises, which pipeline was 

to enable them to receive gas from the wells on the premises with no cost to them. 

Failure to Pay Five Dollars Per Rod 

54. The August 24,2000 and December 1,2000 Pipeline Rights of Way relative to the 25­

acre parcel provided for the payment of"$5.00 per line rod, to be paid before such grant shall be 

used or occupied," for "the right to lay pipelines over and through the premises." Def.' sEx. C 

andD. 

55. Similarly, the December 1,2000 and December 11,2000 Pipeline rights of Way relative 

to the 175-acre parcel provide for the payment of$1.00 "and Five Dollars ($5.00) per line rod, to 

be paid before such grant shall be used or occupied," for "the right to lay pipelines over and 

through the premises." Def.'s Ex. E and F. 

56. On May 6, 2002 EXCO sent a check to the Gates in the amount of $1,187.27 for the two 

Pipeline Rights of Way; $238.00 was allocated to the 25-acre parcel and $949.27 to the 175-acre 

parcel. Def.'s Ex. H. Defendants claim that the $947.27 was payment for the installation of the 

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plastic and steel pipelines from the compressor to the meter. 

a. According to the plaintiffs, however, "although the easements relied upon by the 

defendant to lay said lines were never signed by plaintiffs the easements nonetheless called for 

the defendant to play [sic] plaintiffs $5.00 per rod used. The total amount ofrods for the two 

lines is approximately 320 rods. Accordingly, the plaintiffs are owed $1,600 for the rods laid for 

the aforementioned transmission lines." Plaintiffs Proposed Findings of Fact and Conclusions 

of Law (Doc. 42) at 8 (citations omitted).4 

b. Adam Vincent, defendant's agent, testified that the payment could not have been for 

the plastic and steel transmission lines and in fact, plaintiffs were not paid for the five dollars per 

rod for either the plastic pipe or steel line. 

c. This payment predates the installation ofthe compressor and the plastic and steel lines 

and therefore, could not have been payment for them. 

d. In all likelihood, this payment was for the original line, denoted in red on Plaintiffs 

Exhibit 1. 

Damages 

A. Unpaid taxes 

57. The defendant does not dispute that it must pay the real estate taxes which have been 

assessed against the compressor station building for the tax years 2006, 2008 and 2009. See 

Defendant's Post-Trial Proposed Findings of Fact and Conclusions of Law (Doc. 43) at 3. 

a. Adam Vincent testified on behalf ofthe defendant that the defendant has failed to pay 

the plaintiffs the real estate taxes associated with the compressor station building for calendar 

4 We note that this is the rate ($5.00 per rod) required by the Agreement as well. 

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years 2006, 2008 and 2009, although the defendant had paid the real estate taxes in 2004 and 

2005. 

b. There is no evidence indicating whether Mr. Gates notified EXCO of the amount of 

the 2006 taxes; on advice of counsel he did not cash a check sent to him for the 2007 taxes and it 

appears he did not notify EXCO of the amounts due and owing for the 2008 and 2009 taxes. 

c. The trial in this matter has put EXCO on notice of the amount of taxes in 2006 through 

2009 and those taxes have not been paid. 

d. The total tax owed is $868.36 ($217.09 x 4 years). 

B. Property Reclamation 

58. Various agreements are cited by the Plaintiffs in support of their claim that the defendants 

should return the Subject Property to the condition it was in prior to the installation of the wells 

and transmission lines. 

a. Paragraph 14 of the February 18, 1998 Oil and Gas Lease provides that "[EXCO] 

agrees to restore the premises in accordance with state laws." 

b. The fifth paragraph of the December 11,2000 Pipeline Right of Way provides that 

EXCO "will pay damages which may arise to crops and fences from the laying, maintaining, 

operating and final removing of [the] pipelines ...." 

c. The fourth paragraph ofthe September 10,2002 Easement provides that EXCO 

"shall only have such obligations with respect to maintaining this easement as may be required 

by any and all applicable laws and regulations ...." 

59. Prior to the commencement of EXeo's operations, there were portions ofthe 75 acres in 

pasture which could not be mowed because there were swampy areas; for example, the area south 

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of the access road to the compressor station. This area remains swampy but is deeper. 

60. Mr. Schwab visited the Subject Property at Mr. Gates' request and inspected the property 

for alleged drainage problems. Drain tiles were reconnected when found, and French drains were 

placed in the Steel pipeline excavation, in addition to a small spur from the steel pipe excavation 

to a dry ditch. 

61. The plaintiffs had an expert report submitted by Raleigh 1. Chesley of Chesley 

Auctioneers. 

a. In his report, he stated that 50 of the 75 acres of open rolling land were affected by 

the underground drilling operation. 

b. He also said that EXCO damaged drain tiles, created roadways, and failed to 

replace the land into the condition it was which was to be used as crop land. 

c. According to Chesley, 25-30 acres no longer tillable (because of the disruption of 

underground farm tiling or tunneling) and this decreased the value by $400.00 per acre, or 

between $10,000 to $12,500. 

d. Approximately 20 acres is considered useless now, even as pasture land, which 

amounts to $16,000 in damage ($800.00 per acre). 

e. He concluded his expert report with certainty that the property can never be 

repaired to be used as tillable land, and the cost ofreparation would far outweigh the lessening of 

the property value. 

f. Consequently, Mr. Chesley opined that plaintiffs should be awarded between 

$26,000 to $28,500 for loss of property value. 

g. For the most part, however, the land was restored to its previous condition after 

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the completion of the installation ofthe pipelines and after EXCO made certain corrections. 

However, Mr. Gates testified as to certain damage to the property as a result of poor drainage, for 

example, in the area around the pond, he can no longer drive a mower over because the water 

level was raised, as well as other areas where the drain tiles were damaged. 

h. The defendant's expert, Joseph Schwab, filed a written expert report and testified 

that he had served as the EXCO pipeline supervisor on the Gates' property. He stated that Mr. 

Gates showed him areas on the subject property which had damaged clay field tile which 

occurred before EXCO installed the wells. Schwab opined that some areas not disturbed by 

EXCO contained more moisture than others and were comparable to those areas disturbed by 

EXCO. Mr. Schwab concluded that any alleged damage could be rectified by installing drain 

pipe to reduce the moisture in the soil. However, drain pipe installation is unnecessary to use the 

land for pasture or crops. 

C. Lost Royalties 

62. The plaintiffs contend that the operation of the compressor station has caused them to 

realize a noticeable loss in the royalties - approximately 50 percent of the amount they were 

previously receiving from the gas generated by the three wells on the Subject Property. 

63. Gas has been and is used to operate the compressor, some ofwhich is from the EXCO 

wells on the Gates property and some is from EXCO wells located on the land of others. 

64. Paragraph 4(B) of the February 18, 1998 Gas and Oil Lease states that a royalty will be 

paid "for the gas marketed and used off the premises." 

65. According to EXCO, gas used to run the compressor is not marketed and used offthe 

premises, and therefore, no royalty is due the plaintiffs. 

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66. Paragraph 6 ofthe February 18, 1998 Oil and Gas lease provides in part that: 

The Lessor may, at Lessor's sole risk and cost, lay a pipeline to any gas well on 

the premises or the adjoining property presently owned by Loretta M. Gates and 

take gas produced from said well for domestic use in dwelling house (sic) on the 

leased premises, at Lessor's own risk, subject to the use and the right of the 

abandonment of the well by the Lessee, and subject to any curtailments or shut-in 

by any purchaser of the gas. The first three hundred thousand cubic feet of gas 

taken each year shall be free of cost, but all gas in excess of three hundred 

thousand cubic feet of gas taken each year shall be paid for at the last 

premises or the field market rate, whichever is higher. Lessor to lay and 

maintain the pipeline and furnish regulators and other necessary equipment at 

Lessor's expense. Lessor shall also, at the request of the Lessee, install a meter to 

measure said gas. This privilege is upon the condition precedent that the Lessor 

shall subscribe to and be bound by the reasonable rules and regulations of the 

Lessee relating to the use of free gas, and Lessor shall maintain the said pipeline, 

regulators and equipment in good repair and free of all gas leaks and operate the 

same so as not to cause waste or unnecessary leaks of gas. 

67. Some of the gas not used by the Gates is used to operate the compressor and some is 

marketed by EXCO. 

68. Paragraph 15 of the Agreement provides that "[t]he Lessee shall have the privilege of 

using sufficient ... gas ... for operating the premises ..." Pis.' Ex. 1. 

69. According to EXCO, under paragraph 6 of the February 18, 1998 Oil and Gas Lease, the 

Gates are entitled to up to 300,000 cubic feet of gas each year at no cost to them, but they are not 

entitled to be paid for gas not used by them, except to the extent that they are entitled to a royalty 

on gas "marketed and used off the premises" by EXCO. 

70. The Agreement pre-dates the installation ofthe compressor station. 

71. Mr. Gates testified that EXCO representatives told him that he would be compensated for 

the gas that would be used to operate the compressor station. Plaintiffs have demanded an 

accounting of the gas used by the compressor station and thereafter, the appropriate amount of 

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royalties they are due and owing from the gas used to operate the compressor station. 

D. Lawn Mower 

72. Mr. Gates testified that he sustained damage to his mower of approximately $1,000.00 as 

a result of mowing the Subject Property and striking rocks strewn about along the areas where 

the plastic and steel transmission lines were laid; his testimony is the only evidence of this 

alleged damage. 

E. Extension 

73. Plaintiffs claim that they were not paid the $1.00 consideration called for in the Extension 

of Oil and Gas Lease (dated February 16, 2001,extending the Agreement). PIs.' Ex. 2. 

74. The Extension of Oil and Gas lease states that it is granted "for and in consideration of 

One Dollar, in hand paid, the receipt whereof is hereby acknowledged." 

F. Meter Station 

75. The plaintiffs claim that they should be paid for the land that the meter station occupies. 

76. According to EXCO, the provisions ofthe December 11,2000 Pipeline Right of Way and 

the provisions of the February 18, 1998 Oil and Gas Lease authorized EXCO to install the meter 

station on the 175-acre parcel. Moreover, all payments due with respect to those two payments 

have been made by EXCO to the Gates. Therefore, the Gates are not entitled to any award of 

damages relating to the installation ofthe meter station. 

III. CONCLUSIONS OF LAW 

Plaintiffs Ronald A. and Catherine T. Gates are citizens ofthe Commonwealth of 

Pennsylvania. Defendant EXCO Energy, Inc. is a citizen ofthe States of Delaware and Ohio. 

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The amount in controversy in this action exceeds the sum of $75,000, exclusive of 

interest and costs. This court therefore has original jurisdiction of this action, since the matter in 

controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and it is 

between citizens of different States. 28 U.S.C. § 1332(a). 

Pennsylvania law requires that a plaintiff seeking to proceed with a breach of contract 

action must establish "(1) the existence of a contract, including its essential terms, (2) a breach of 

a duty imposed by the contract[,] and (3) resultant damages." Ware v. Rodale Press, Inc.,322 

F.3d 218,225 -226 (3d Cir. 2003), citing CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053, 1058 

(pa. Super. 1999). To prove damages, a plaintiff must give a factfinder evidence from which 

damages may be calculated to a "reasonable certainty." ATACS Corp. v. Trans World 

Communications, Inc., 155 F.3d 659, 668 (3d Cir.1998). "At a minimum, reasonable certainty 

embraces a rough calculation that is not 'too speculative, vague or contingent' upon some 

unknown factor." Id. at 669 (quoting Spang & Co. v. United States Steel Corp., 519 Pa. 14,545 

A,2d 861, 866 (1988). 

The plaintiff bears the burden ofproof as to damages, and the question ofdamages may 

not be submitted to a fact-finder if a plaintiff fails to meet the burden. Vrabel v. Commonwealth, 

84 A.2d 585 (Pa. Cmwlth. 2004 ). Yet if the facts afford a reasonably fair basis for calculating 

how much a plaintiff may be entitled to, such evidence cannot be regarded as legally insufficient 

to support a claim for compensation. Kaczkowski v. Bolubasz, 421 A.2d 1027, 1030 (Pa. 1980). 

At the outset, we note that the defendant does not dispute that it owes plaintiffs $868.36 

in unpaid taxes which have been assessed against the compressor station building for tax years 

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2006 through 2009. An appropriate order will be entered. 

As for royalties on the gas taken from wells on their property and used to operate the 

compressor, we agree with EXCO that the Gates are not entitled to the payment of such royalties. 

Paragraph 4(B) ofthe February 18, 1998 Oil and Gas Lease (the legal enforceability of which 

plaintiffs do not dispute) states that a royalty will be paid "for the gas marketed and used offthe 

premises." We find that common sense and the plain meaning ofthese words dictate a conclusion 

that gas used to operate the compressor is not "gas marketed and used offthe premises." Mr. 

Gates claims that he was told that the compressor would increase production and therefore, 

increase the amount ofroyalties they would receive; such extraneous evidence must be 

disregarded. Where the contract or agreement is unambiguous, parole evidence of prior 

inconsistent terms or negotiations is inadmissible to demonstrate intent of the parties. Mellon 

Bank, N.A. v. Aetna Business Credit, Inc., 619 F .2d 1001, 1010 (3d Cir .1980). A contract is 

ambiguous if, after hearing evidence presented by the parties, the court determines that objective 

indicia exist to support the view that the "terms of the contract are susceptible of different 

meanings." Teamsters Indus. Employees Welfare Fund v. Rolls-Rovce Motor Cars. Inc" 989 

F .2d 132, 135 (3d Cir.1993). Furthermore, we note that the Agreement states that "this 

instrument contains and expresses all of the agreements and understandings ofthe parties in 

regard to the subject matter thereof;" the easement to allow EXCO to install the compressor 

states that "[t]his agreement embodies all ofthe understandings and promises of the parties and 

there is not any contrary or additional understanding that shall survive the execution of this 

document." Def.'s Ex. A. Moreover, the provisions of paragraph 6 of the Agreement (which 

addresses the Gates' right to three hundred thousand cubic feet of gas each year at no cost to 

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them) does not entitle them to be paid for gas not used by them (except to the extent that they are 

entitled to a royalty on gas "marketed and used offthe premises" by EXCO, which we have 

found does not apply to the operation of the compressor). This provision says nothing about 

paying them for any unused gas. We therefore also find that the Gates are not entitled to an 

accounting ofroyalties to which they have no legal right. 

With respect to the plaintiff s claim that they are entitled to $1,000 for the damage to their 

mower, the only evidence of such damage is the testimony of Ronald Gates. He stated that ifhe 

hits a rock with the mower, it will result in a "thousand dollar repair bill." We will find in favor 

of the defendant with respect to these alleged damages because Mr. Gates has not provided a 

receipt for a repair bill or other such documentation sufficient to meet his burden of proving 

damages. Although Mr. Gates was credible, he appeared to be speculating. 

We find that the evidence that the Pipeline Rights of Way were forged (Def.'s Ex. E and 

F) was insufficient to meet plaintiffs heightened burden, see De Lage Landen Fin. Servo Inc. V. 

Urban Partnership, 903 A.2d 586 590 (Pa. Super. 2006), although the facts and circumstances 

around their alleged execution are suspicious. Nevertheless, it is clear that the Gates were not 

paid the requisite and customary $5.00 per rod. The total amount of rods for the two lines is 

approximately 320 rods. Accordingly, the plaintiffs are owed $1,600 for the rods laid for the 

aforementioned transmission lines. 

With respect to plaintiffs claim that they are entitled to $1.00 consideration called for in 

the Extension of Oil and Gas Lease, we find in favor ofthe defendants. The third paragraph of 

the February 16,2001 Extension of Oil and Gas lease clearly states that it is granted "for and in 

consideration of One Dollar, in hand paid, the receipt whereof is hereby acknowledged." We did 

not find Mr. Gates' testimony that he had not been paid the $1.00 to be credible. 

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The Plaintiffs argue that they should be compensated for the land that the meter station 

occupies, but have not met their burden by showing they did not grant permission, nor have they 

shown what value we should attribute to any such lost "damages." Even so, we find that in the 

December I I, 2000 Pipeline Right of Way plaintiff clearly granted EXCO permission "to install, 

maintain, operate, repair, replace and remove meters and meter runs for measurement of gas from 

adjoining and adjacent lands." Def.'s Ex. E and F. In the alternative, we note that the 

Agreement provides that the lease is for "drilling" etc. for gas and conducting "such secondary or 

tertiary operations as may be required ... and to transport by pipelines or otherwise across and 

through said lands ... gas ... from the subject and other lands ...and of placing tanks, equipment, 

roads and structures thereon to procure and operate for said products ...." 

Plaintiffs claim that EXCO has not returned the Subject Property to the condition that it 

was in prior to the laying ofthe plastic and steel lines running from the compressor station to the 

meter station. It is clear that rocks in the area near the service lines have prevented Mr. Gates 

from mowing, and that tile drains were damaged; these occurrences, in tum, have rendered 

certain areas incapable of being returned to pasture land. (No crops were being grown on the 

parcels in the question during the time EXCO has had easement over those parcels to conduct oil 

and gas production operations and, therefore, the Gates are not entitled to recover damages for 

any crop damage.) EXCO has an obligation independent of the Pennsylvania Oil and Gas Act to 

restore the Gates' land to its previous condition after the completion of the installation of the 

pipelines, given its obligation "to repair and maintain the portions of the servient estate and the 

improvements used in the enjoyment ofthe servitude that are under the beneficiary's control, to 

the extent necessary to ... prevent unreasonable interference with the enjoyment ofthe servient 

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estate." Restatement (Third) of Property: Servitudes § 4.13; Ephrata Area School District v. 

County of Lancaster, 886 A.2d 1169 (Pa. Cmwlth. 2005). We agree with a portion of Raleigh 

Chesley's opinion, approximately 20 acres ofthe Subject Property were rendered almost unable 

to be used again, thereby decreasing the value of each acre by $800 each, for a total of 

$16,000.00. According to Mr. Chesley, this amount of damage is typical of any gas production 

operation because ofthe construction of roads and well sites. Defendants take that estimate to 

mean that the plaintiffs cannot therefore recover for these typical losses; we find that his opinion 

lends credence to the accuracy of plaintiffs loss computation. 

However, we do not agree that another 25-30 acres has been reduced in value from 

$1,200.00 per acre to $800.00 per acre due to the damage to drain tile. Mr Schwab visited the 

Subject property in April 2003 and inspected the wet spots on the property that were allegedly 

the result of damaged drain tile. EXCO laid French drains in portions of the steel pipeline 

excavation, and a small spur was installed. We note that even today, there are wet areas where 

EXCO has not performed any work, and there are wet areas where EXCO had performed work. 

Our inspection ofthe property does not align with Mr. Chesley'S estimates of the amount of acres 

affected (an amount he obtained from Mr. Gates) (we saw very minimal damage), and to find 

otherwise would be speculation on our part. 

An appropriate Order will be entered. 

Date: i, ].../JII) 


MaUrIce B. Cohill, Jr. 


Senior United States District Court Judge 


cc: record counsel 

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