Court Opinion

ID: 3189477
Source: CourtListenerOpinion
Date Created: 2016-03-29 17:00:25.494819+00
Date Added: 2024-06-11T14:19:35.460320
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                      No. 15-1371
                                     _____________

                  DARLENE R. MCWREATH; ROBERT MCBRIDE;
                   KAREN LUNDIN; DEBORAH L. MCWREATH,
                                        Appellants

                                             v.

                     RANGE RESOURCES - APPALACHIA, LLC
                               _____________

                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                              (D.C. Civ No. 2-13-cv-00560)
                          District Judge: Hon. Nora B. Fisher
                                    ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  November 5, 2015
                                  ______________

             Before: FUENTES, JORDAN, and VANASKIE, Circuit Judges

                                 (Filed: March 29, 2016)
                                      ___________

                                        OPINION*
                                       ___________

VANASKIE, Circuit Judge.

       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
       Appellants Darlene McWreath, Deborah McWreath, Robert McBride, and Karen

Lundin (“the McWreaths”) appeal the District Court’s grant of summary judgment to

Appellee Range Resources-Appalachia, LLC (“Range”) on the McWreaths’ claim for an

accounting, as well as the District Court’s denial of leave to amend their Complaint. The

McWreaths assert that the oil and gas lease they entered into with Range does not apply

to the oil and gas produced from two wells drilled by Range that tapped into oil and gas

reserves partially owned by the McWreaths. The McWreaths claimed they were

cotenants in the oil and gas estate and sought an accounting of the oil and gas production

from these wells. For the reasons discussed below, we hold that the lease does indeed

apply to the oil and gas produced from the wells, and therefore, the McWreaths’ claims to

cotenant status and right to an accounting fail. We also conclude that the District Court

did not abuse its discretion in denying leave to amend because the McWreaths did not

submit a draft amended complaint, the request was untimely, and the amendment would

have been futile. Accordingly, we will affirm the District Court’s judgment.

                                             I.

       The McWreaths own an undivided partial interest in the oil and gas underlying

approximately 1,700 acres of real property in Washington County, Pennsylvania, which

they inherited as heirs to the Estate of David R. McWreath.1 The McWreaths do not have

any ownership interests in the surface rights of the property. On September 20, 2007, the

Estate entered into a lease agreement with Fortuna Energy, Inc., whereby the Estate

       1
        The McWreaths own a 33% interest in the oil and gas underlying approximately
1,332 acres and a 66% interest in the remaining 368 acres.
                                             2
granted Fortuna the exclusive rights to explore, develop, and produce the Estate’s

interests in the oil and gas. The terms of the lease stated that Fortuna would pay the

Estate an annual rental fee of $5.00 per mineral acre until oil and gas was produced, at

which time the Estate would receive royalty payments equal to 1/8th of the market value

of the oil and gas produced and sold, proportionate to their partial interest.

       Fortuna subsequently assigned the lease to Range, which then entered into leases

with the remaining two owners of partial interests in the oil and gas, thereby leasing

100% of the oil and gas interests underlying the property. Range also entered into a

surface consent agreement with the surface owner of the property that gave Range the

right to enter onto the surface of the property and drill wells for its oil and gas

exploitation. Thereafter, Range drilled the two Marcellus Shale wells on the property at

issue here.

       On March 6, 2013, the McWreaths filed this lawsuit in the Court of Common

Pleas of Washington County, Pennsylvania, and asserted claims for: (1) trespass, (2)

conversion, and (3) an accounting of the oil and gas production from the wells. Range

removed the case to the United States District Court for the Western District of

Pennsylvania based on the diversity of the citizenship of the parties. The McWreaths did

not allege that Range breached the terms of its lease, but rather asserted that the lease was

not applicable to oil and gas produced from these two wells. In their view, the lease only

gave Range the right to exploit their oil and gas interests when the drilling operations

were set up on an adjacent property and not on the surface directly above the McWreaths’

oil and gas interests. Because the McWreaths argued that these wells were not covered

                                               3
by the lease, they concluded that they were a cotenant in the oil and gas estate and were

entitled to a royalty equal to the gross revenue of any future sales of oil and gas produced

from these wells, proportionate to their partial interest.2

       The parties filed cross motions for summary judgment. The McWreaths conceded

that summary judgment should be entered against them on their trespass and conversion

claims, leaving only their accounting claim. The McWreaths, however, requested leave

to amend their Complaint to add a claim that sought to invalidate the lease with Range.

The District Court interpreted the lease and concluded that the lease was applicable to oil

and gas produced from the two wells. Because the lease covered the oil and gas

produced from these wells, the District Court held that the McWreaths did not have

cotenant status and granted summary judgment to Range on the McWreaths’ accounting

claim. Additionally, the District Court denied the McWreaths leave to amend their

Complaint. The McWreaths timely filed this appeal.

                                               II.

       The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(a). We

have appellate jurisdiction under 28 U.S.C. § 1291. Our review of the District Court’s

order granting summary judgment is plenary. Trinity Indus., Inc. v. Chi. Bridge & Iron

Co., 735 F.3d 131, 134 (3d Cir. 2013). We view the evidence “in the light most

favorable to the nonmoving party.” Id. at 134–35 (quoting Kurns v. A.W. Chesterton

       2
        It is uncontested that apart from the initial flow-back that was produced at the
time Range completed the wells—which Range compensated the McWreaths for under
the terms of the lease—neither well is currently producing any oil or gas.
                                               4
Inc., 620 F.3d 392, 395 (3d Cir. 2010)). Summary judgment is appropriate where the

movant establishes “that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). We review the

District Court’s denial of leave to amend for abuse of discretion. U.S. ex rel. Schumann

v. Astrazeneca Pharm. L.P., 769 F.3d 837, 849 (3d Cir. 2014).

                                              III.

                                              A.

       In Pennsylvania,3 an oil and gas lease “is in the nature of a contract and is

controlled by principles of contract law.” T.W. Phillips Gas & Oil Co. v. Jedlicka, 42
A.3d 261, 267 (Pa. 2012). Under Pennsylvania law, “as a general matter, interpretation

of a written agreement is a task to be performed by the court rather than a jury.” Am.

Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009) (citing Gonzalez v.

U.S. Steel Corp., 398 A.2d 1378, 1385 (Pa. 1979)); see also Standard Venetian Blind Co.

v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). In construing a contract, “[t]he

accepted and plain meaning of the language used, rather than the silent intentions of the

contracting parties,” will determine the construction of the agreement. T.W. Phillips Gas

& Oil Co., 42 A.3d at 267 (quoting J.K. Willison v. Consol. Coal Co., 637 A.2d 979, 982

(Pa. 1994)). Moreover, the “writing must be interpreted as a whole, giving effect to all its

provisions.” Atl. Richfield Co. v. Razumic, 390 A.2d 736, 739 (Pa. 1978).

       3
         Because this case arises under diversity jurisdiction, we will apply the
substantive law of the forum state, Pennsylvania. See Erie R.R. Co. v. Tompkins, 304
U.S. 64, 78 (1938). Moreover, the parties agree that Pennsylvania law applies to this
dispute.
                                             5
       A key provision in an oil and gas lease is the granting clause, which specifies what

rights the lessor is conveying to the lessee. See T.W. Phillips Gas & Oil Co., 42 A.3d at

267. Here, the granting clause states:

              [The McWreaths] hereby grant[] and lease[] exclusively to
              [Range] all oil and gas and their constituents, whether
              hydrocarbon or non-hydrocarbon, underlying the Leasehold,
              together with such exclusive rights as may be necessary or
              convenient for [Range], at its election, to explore for, develop,
              produce, measure and market production from the Leasehold,
              using methods and techniques which are not restricted to
              current technology . . . .

(Supp. App. 1.) (emphasis added.) We agree with the District Court that the granting

clause: (a) conveyed all of the McWreaths’ oil and gas rights in the property; (b) granted

Range the exclusive ability to explore for and produce oil and gas; and (c) authorized

Range to use any methods or techniques to do so.

       Despite the broad grant of rights conveyed in the granting clause, the McWreaths

contend that there is “no lease” here. They assert that the lease agreement between the

parties is a “Non-Surface Development Lease” that precludes Range from conducting

drilling activities on the surface estate directly above their subsurface oil and gas

interests.4 Because the McWreaths seek complete avoidance of the lease, they must

       4
         We reject at the outset, as the District Court did, any notion that the headings
“NON-SURFACE DEVELOPMENT” and “NON-DEVELOPMENT LEASE” are
relevant in ascertaining the parties’ intent. Paragraph 20 of the lease expressly states:
“The headings contained in this Lease are inserted for convenience of reference only and
shall not effect [sic] the interpretation or construction of any provision herein.” (Supp.
App. 4.)
                                              6
establish that the lease obligations are conditioned upon Range conducting its drilling

activities on property other than the surface estate.

       To meet their burden of showing that the lease is conditioned upon Range drilling

for oil and gas on property other than the surface estate, the McWreaths rely on

Paragraph 4 of the lease. This paragraph, in relevant part, provides:

              Lessor and Lessee acknowledge and agree that Lessee is not
              granted any right whatsoever to: (i) drill a well on any portion
              of the surface of the Leasehold; or (ii) install, construct or
              locate access roads or pipelines on any portion of the surface
              of the Leasehold. Accordingly, any lands that have been
              pooled, unitized or combined with all or a portion of the
              Leasehold in accordance with the terms of this Lease shall bear
              the burden of all surface development. . . .

(Supp. App. 2.) According to the McWreaths, the first sentence of this provision

indicates that the McWreaths intended to preclude Range from drilling on the surface

estate in order to reserve their own implied right to access and use the surface estate, as

the owner of subsurface oil and gas interests. Additionally, the McWreaths contend that

the phrase “any lands that have been pooled, unitized or combined with . . . the Leasehold

. . . shall bear the burden of all surface development” in the second sentence evidences

the parties’ intent to restrict the lease’s application to wells that were set up on adjacent

land. (Supp. App. 2.)

       Neither of these arguments is persuasive. In Pennsylvania, the owner of a

subsurface estate has an implied right to access and use the surface in order to access

what they own. See Belden & Blake Corp. v. Com., Dep’t of Conservation & Nat. Res.,

969 A.2d 528, 532 (Pa. 2009). This right, however, arises by operation of law and is

                                               7
attendant to the subsurface oil and gas. Id.; see Humbertson v. Chevron U.S.A., Inc., 75
A.3d 504, 511 (Pa. Super. Ct. 2013) (“[T]he law of this Commonwealth is that one who

has the right to remove subsurface minerals, also has the right to enter onto the surface

and to make reasonable use of a portion of the surface to retrieve his property.”).

Because the McWreaths conveyed all of their rights in the oil and gas to Range, they had

no implied right to access and use the surface. Accordingly, the first sentence of

Paragraph 4 cannot be reasonably interpreted as reserving any rights for the McWreaths.

Rather, this can only be reasonably interpreted as an acknowledgment that the lease did

not grant Range an express right to use the surface estate because the McWreaths did not

own any express right in the surface estate. This sentence does not, however, restrict

Range from obtaining the express right to use the surface estate from the owner of the

surface estate, as Range did here.

       Next, the phrase “any lands that have been pooled, unitized or combined with . . .

the Leasehold . . . shall bear the burden of all surface development,” (Supp. App. 2.),

must be read in conjunction with the lease’s provision on pooling and unitization. This

provision grants Range the sole discretion “to pool or unitize all or any portion of the

Leasehold with any other land or lands, whether contiguous or not contiguous.” (Supp.

App. 3.) Here, Range pooled contiguous property, consisting of the surface estate and the

remaining partial interests in the subsurface estate, with the Leasehold. The land that

Range pooled with the Leasehold—the surface estate—is bearing the burden of surface

development, as required by Paragraph 4. The McWreaths’ interpretation that this phrase

limits surface development to adjacent lands would only be reasonable if the lease

                                             8
allowed Range to pool the Leasehold only with adjacent lands. The express terms of the

lease, however, allow Range to pool the Leasehold with “any other land,” which in turn

must bear the burden of surface development. (Supp. App. 3.)

       “[A]n act or event designated in a contract will not be construed as a condition

unless that clearly appears to be the intention of the parties.” Lesko v. Frankford Hosp.-

Bucks Cty., 15 A.3d 337, 342 (Pa. 2011) (quoting Shovel Transfer & Storage, Inc. v. Pa.

Liquor Control Bd., 739 A.2d 133, 139 (Pa. 1999)). In this case, the lease cannot be

reasonably construed to condition its grant to Range on Range conducting its drilling

activities on adjacent property. Accordingly, we agree with the District Court that

Paragraph 4 does not contain language sufficient for the McWreaths to avoid the lease.

       Furthermore, even assuming that Paragraph 4 could be interpreted as precluding

Range from drilling on the surface estate, Pennsylvania law would not support the

enforcement of such a restriction. Restrictions on property “are not favored by the law”

in Pennsylvania because they “interfere with an owner’s free use and enjoyment” of the

land.5 Vernon Twp. Volunteer Fire Dep’t, Inc. v. Connor, 855 A.2d 873, 879 (Pa. 2004).

Restrictions will typically only be enforced where “a party’s actions are in clear defiance

of the provisions imposed” and “the restriction is still of substantial value to the owners

of the restricted tract.” Id. at 879–80. As the District Court in this case explained:

       5
        Although the oil and gas rights were conveyed by a lease, Pennsylvania courts
have stated that “an oil and gas lease, despite the use of the term ‘lease,’ actually involves
the conveyance of property rights.” Nolt v. TS Calkins & Assocs., LP, 96 A.3d 1042,
1046 (Pa. Super. Ct. 2014). As a result, “certain aspects of property law . . . are
necessarily brought into play.” Id. (quoting McCausland v. Wagner, 78 A.3d 1093, 1100
(Pa. Super. Ct. 2013)); see also T.W. Phillips Gas & Oil Co., 42 A.3d at 267.
                                              9
              Plaintiffs are seeking to enforce an alleged restriction on
              Range’s use of the surface of land which they (Plaintiffs) do
              not own on a theory that they retained an implied right to access
              the surface of the property, despite their grant of all of their
              partial oil and gas rights to the Lessee (Range) in ¶ 1 of the
              Lease. Further, all other involved property owners (surface and
              subsurface) have consented to Range using the property. Under
              Pennsylvania law, the Lease should be interpreted in favor of
              Range’s free and unrestrained use of the surface of the land
              rather than precluding such use. It is also doubtful that
              Plaintiffs could enforce their claimed restraint due to the
              acquiescence of the surface owner and the cotenants in the
              subsurface oil and gas rights, all of whom have expressly
              agreed to Range’s activities.

(App. 26.) (internal citations omitted).

       We concur with the District Court’s analysis. A restriction on using the surface

estate is of no value to the McWreaths because they do not own any express rights to the

surface estate and no longer have an implied right. Moreover, the owner of the surface

estate expressly agreed to allow Range to use the surface estate for drilling activities.

Accordingly, even if Paragraph 4 could be interpreted as precluding Range from using

the surface estate for drilling activities, the lease should be interpreted in favor of

Range’s free and unrestrained use in these circumstances.

       For all the foregoing reasons, we conclude that the lease between the McWreaths

and Range contained an exclusive grant of all of the McWreaths’ subsurface oil and gas

interests and was not conditioned upon drilling activities taking place on property other

than the surface estate. Under the terms of the lease, Range had the right to exploit the

McWreaths’ oil and gas interests by drilling wells on the surface of the property directly

above the McWreaths’ subsurface estate. As a result, the McWreaths’ claim to cotenant

                                              10
status necessarily fails, and they are not entitled to an accounting under Pennsylvania

law. Therefore, we will affirm the District Court’s grant of summary judgment in favor

of Range on Count Three of the Complaint.

                                              B.

       Under the Federal Rules of Civil Procedure, “[t]he court should freely give leave

[to amend a complaint] when justice so requires.” Fed. R. Civ. P. 15(a)(2). Nonetheless,

a district court may deny leave to amend a complaint where “it is apparent from the

record that (1) the moving party has demonstrated undue delay, bad faith or dilatory

motives, (2) the amendment would be futile, or (3) the amendment would prejudice the

other party.” Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000). Additionally, the failure

to submit a draft amended complaint “is fatal to a request for leave to amend.” U.S. ex

rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 243 (3d Cir. 2013) (quoting Fletcher-

Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007)).

       Here, the McWreaths sought to add a declaratory judgment action based on the

allegation that a Code of Conduct was not presented when the lease was signed in 2007.

The McWreaths, however, failed to submit a draft amended complaint in the almost five

months between when they first raised the issue and when the District Court denied their

request. This failure “is fatal to a request for leave to amend.” See Q2Administrators,

LLC, 728 F.3d at 243; Fletcher-Harlee Corp., 482 F.3d at 252; Lake, 232 F.3d at 374.

Furthermore, the McWreaths first raised the issue of amending their Complaint fourteen

months after the expiration of the deadline established in the District Court’s pretrial

scheduling order. See E. Minerals & Chems. Co. v. Mahan, 225 F.3d 330, 340 (3d Cir.

                                             11
2000) (“We conclude that the District Court acted well within its discretion when it

denied Eastern’s motion to amend the complaint six months after the amendment and

joinder deadlines had expired . . . .”). Finally, the McWreaths’ amendment would have

been futile because the four-year limitations period for declaratory judgment actions

arising out of contract had run by the time the McWreaths commenced this lawsuit in

2013. See 42 Pa. C.S. § 5525; Algrant v. Evergreen Valley Nurseries Ltd. P'ship, 126
F.3d 178, 181–82 (3d Cir. 1997); see also In re NAHC, Inc. Sec. Litig., 306 F.3d 1314,

1332 (3d Cir. 2002) (holding that an amendment was futile because the claims would be

barred by the statute of limitations). Accordingly, we conclude that the District Court did

not abuse its discretion in denying leave to amend.

                                             IV.

       For the forgoing reasons, we will affirm the District Court’s judgment of January

26, 2015.

                                            12
Darlene McWreath, et al. v. Range Resources-Appalachia, LLC (No. 15-1371)
JORDAN, Circuit Judge, concurring specially in the judgment.

       While I agree with my colleagues on the merits of this case, I would find the entire

appeal waived because the McWreaths failed to properly argue for their right to an

accounting in their opening brief. It is well-settled in our Circuit that “[a]n issue is

waived unless a party raises it in its opening brief.” Laborers’ Int’l Union of N. Am.,

AFL-CIO v. Foster Wheeler Energy Corp., 26 F.3d 375, 398 (3d Cir. 1994). In the

proceedings below, the McWreaths’ complaint averred that their lease with Range was

invalid and identified three grounds for recovery: trespass, conversion, and accounting.

The McWreaths voluntarily dismissed the trespass and conversion claims, leaving only

their accounting claim. The District Court determined the lease to be valid and

concluded that Pennsylvania law provided no basis for an accounting under any of the

theories put forward by the McWreaths.

       The McWreaths opening brief in this appeal challenged the validity of their lease

with Range, but it did not address in any fashion why the invalidity of that lease would

grant them a right to an accounting. Indeed, there is not a single reference to

“accounting” anywhere in that brief. The McWreaths attempted to cure that waiver by

filing a “supplemental brief” after Range had filed its answering brief and identified the

opening brief’s deficiency. We do not consider arguments made for the first time in a

reply brief, In re Surrick, 338 F.3d 224, 237 (3d Cir. 2003), and similarly we ought not

consider new arguments made in a supplemental filing that is the functional equivalent of

                                               1
an extra reply brief. (The McWreaths also filed a reply brief after they submitted their

“supplemental brief.”) Therefore, because the McWreaths’ opening brief failed to argue

the only appealable issue in this case, I believe the appeal is waived in toto and we should

not reach the merits.

                                             2