Court Opinion

ID: 4091556
Source: CourtListenerOpinion
Date Created: 2016-10-21 02:38:46.151348+00
Date Added: 2024-06-11T14:08:30.037719
License: Public Domain

J-A13021-16

                             2016 PA Super 228

BIRDIE ASSOCIATES, L.P., A                     IN THE SUPERIOR COURT OF
PENNSYLVANIA LIMITED PARTNERSHIP                     PENNSYLVANIA

                        Appellant

                   v.

CNX GAS COMPANY, LLC, A
CORPORTION, A/K/A CONSOLIDATION
COAL CO., A CORPORATION AND/OR
CONSOL PENNSYLVANIA COAL CO., A
CORPORATION

                        Appellees                  No. 1020 WDA 2015

                Appeal from the Order Entered June 4, 2015
           In the Court of Common Pleas of Washington County
                      Civil Division at No: 2010-8183

BEFORE: OLSON, STABILE, and MUSMANNO, JJ.

OPINION BY STABILE, J.:                          FILED OCTOBER 20, 2016

     At issue in this appeal from the June 4, 2015 order entered in the

Washington County Court of Common Pleas is “the recurring question of

whether an instrument captioned ‘Lease’ that transfers some interest in a

tract of coal is or is not in fact a sale of the coal.”   Trial Court Opinion

(“T.C.O.”), 6/4/15, at 1.   The trial court determined that the leases in

question constituted a sale and granted summary judgment in favor of

Appellees, CNX Gas Company, LLC a/k/a Consolidation Coal Co. and/or

Consol Pennsylvania Coal Co., and dismissed the complaint filed by

Appellant, Birdie Associates, L.P.   The trial court also denied Appellant’s
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motion for summary judgment.       Following review, we affirm the June 4,

2015 order.

     The underlying facts are not in dispute. As the trial court explained in

its opinion in support of its grant of summary judgment:

     In 1985, Ethel Spragg executed a document presented to her by
     Consol Land Development Company by which she agreed to
     “lease and let to lessees, its successors and assigns all of [her]
     undivided one-half interest in and to all of the Pittsburgh seams
     or measures of coal and all constituent products of such coal in
     and underlying” certain lands in Gilmore, Jackson, Springhill and
     Freeport Townships in Greene County, containing a total of
     289.81 acres. On the same day Joan Spragg Wermlinger and
     David L. Wermlinger, wife and husband, executed a substantially
     identical lease to the same lessee for the other one-half of those
     parcels of coal. All parties were represented by counsel. The
     instruments included the usual mining rights.

     The term of the lease was to be for 20 years, plus an option to
     renew prior to the termination of the original term, if prior to the
     termination of the original term the lessee tendered to the lessor
     a renewal charge of $100.00 per acre. The consideration for the
     transfer of coal and mining rights was to be three percent of the
     sale price of the coal, or 50 cents per ton, whichever was
     greater. During the original term and the extension thereof,
     lessee would pay to lessor the sum of $50.00 per acre per year
     as Advance Minimum Royalty, to be credited against tonnage
     royalties if and when produced. All such Advance Minimum
     Royalties have regularly been paid. The leases would have
     expired in 2005, but the lessee’s assignees tendered the renewal
     payment and, therefore, the leases run to 2025. Lessee and its
     assignees have always paid the Advance Minimum Royalty, but
     no coal has been mined from these tracts. [Appellant] alleges,
     and [Appellees] do not deny, that there are no current plans to
     mine the coal.

     [Appellant] . . . is the assignee of the original lessors, and
     [Appellees are] the assignee of the original lessees. In 2010
     [Appellant] filed a complaint containing counts alleging
     conversion, unjust enrichment and trespass, plus a demand for
     punitive damages. This complaint described how [Appellees

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       were] exploiting and marketing through a system of wells and
       pipeline the coal bed methane [CBM] produced from the subject
       coal, but was paying lessor nothing for it. CBM, as its name
       implies, is methane found in coal. It is doubtless a “constituent
       product” of coal. Title to CBM is vested in the owner of the coal.
       U.S. Steel v. Hoge, 468 A.2d 1380 (Pa. 1983). The 1985
       leases are silent as to CBM or to wells and royalties resulting
       from the sale of CBM.

T.C.O., 6/4/15, at 1-2.

       Following the close of discovery, both parties filed motions for

summary judgment.           Essentially, Appellant argued that Appellees were

producing gas from coal that was the subject of the leases and that the

leases violated the Guaranteed Minimum Royalty Act (“GMRA”), 58 P.S.

§ 33.3, because the leases did not guarantee the lessor a minimum royalty

of one-eighth of all gas removed from the property.1

       Appellees countered that the GMRA did not apply because the leases,

regardless of their designation as “leases,” were actually grants in fee and

that Appellees, as owner of the coal and its constituent parts, could sell the
____________________________________________

1
    The GMRA provides:

       A lease or other such agreement conveying the right to remove
       or recover oil, natural gas or gas of any other designation from
       the lessor to the lessee shall not be valid if the lease does not
       guarantee the lessor at least one-eighth royalty of all oil, natural
       gas or gas of other designations removed or recovered from the
       subject real property.

58 P.S. § 33.3. Royalty guaranteed (formerly cited as 58 P.S. § 33).

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CBM without any obligation to pay Appellant any amount other than that

stated in the leases, i.e., Advance Minimum Royalty payments and/or 3% of

the market value of the coal when sold.2

       By order entered on June 4, 2015, the trial court granted Appellees’

motion for summary judgment and dismissed Appellant’s complaint. In the

same order, the trial court denied Appellant’s motion for summary

judgment.      Appellant filed this timely appeal.   The trial court directed

Appellant to file a statement of matters complained of on appeal and

Appellant complied. In response, the trial court issued an order indicating

that Appellant’s issues were adequately addressed in its June 4 opinion and

order.    Appellant now presents the following five issues for this Court’s

consideration:

       1. Did the [t]rial [c]ourt err when it interpreted the 1985 coal
          [l]eases and failed to acknowledge at the time the [l]ease
          agreement was executed that the coal bed methane gas
          (“CBM”) as a “constituent product” of the coal was owned by
          Appellant when the [c]ourt came to the conclusion that the
          coal lease was a sale of the coal and the CBM and, thus,
          Appellees could produce the CBM contained in the coal
          without paying for the right to do so[?].

       2. Did the [t]rial [c]ourt err when it interpreted the [c]oal
          [l]eases and ignored the plain wording and meaning of the
          Pennsylvania Oil and Gas Act . . ., Section 1.3 Royalty
          guaranteed, which clearly states that a [l]ease or other such
          agreement conveying the right to remove or recover oil,
____________________________________________

2
  As noted by the trial court, Appellant did not contend Appellees failed to
make the required Advance Minimum Royalty payments due under the
leases of $50 per acre per year. T.C.O., 6/4/15, at 2.

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         natural gas or gas of any other designation from the lessor to
         the lessee shall not be valid if the [l]ease does not guarantee
         the lessor at least one-eighth royalty of all oil, natural gas or
         gas of other designations (CBM gas) removed or recovered
         from the subject real property, and the 1985 leases or other
         such agreement at issue did not guarantee Appellant a royalty
         for the right to remove CBM gas from the subject real
         property[?]

      3. Did the [t]rial [c]ourt err when it granted [s]ummary
         [j]udgment and dismissed the [c]omplaint when presented
         with the undisputed fact that in 29 years of the 40-year term
         [l]ease(s) (1985-2025) Appellees . . . had not mined one
         lump of coal and admitted that it had no intention of ever
         mining any coal (Appellee assigned its right to mine the coal
         to Murray Energy Corporation) during the 40-year term of the
         [l]ease(s) and has only used the [l]ease(s) to remove and
         recover the CBM gas without paying any royalty to Appellant
         as required by law[?]

      4. Did the [t]rial [c]ourt err as a matter of law in its
         interpretation of the plain meaning and intent of the parties
         to the 1985 [l]ease(s) and the plain meaning of [t]he
         Pennsylvania Oil and Gas Act . . . when it ruled that the coal
         [l]ease(s) acted as a sale and conveyance of both the coal
         and the CBM gas, and, therefore, no consideration by way of
         royalty is due on the CBM gas removed and recovered under
         the [l]ease(s) entered into[?]

      5. Did the [t]rial [c]ourt err when it refused to acknowledge the
         facts of record, i.e., the legal opinion of Wesley A. Cramer,
         Esq., along with the Covert/Wallace coal [l]ease, which is
         identical to Appellant’s coal [l]ease and the fact that Appellees
         entered into a CBM gas [l]ease with Covert/Wallace, that
         clearly demonstrate that Appellees know that they were
         required by law to pay a royalty to coal owners it had entered
         into [l]eases with when, in 2006, Appellees decided to remove
         and recover any CBM gas from the coal properties it had
         under [l]ease[?]

Appellant’s Brief at 6-8 (footnote omitted).

      As this Court has recognized:

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      When reviewing a trial court’s grant of summary judgment, our
      standard and scope of review are as follows:

         Our scope of review is plenary, and our standard of review
         is the same as that applied by the trial court.          Our
         Supreme Court has stated the applicable standard of
         review as follows: An appellate court may reverse the
         entry of a summary judgment only where it finds that the
         lower court erred in concluding that the matter presented
         no genuine issue as to any material fact and that it is clear
         that the moving party was entitled to a judgment as a
         matter of law. In making this assessment, we view the
         record in the light most favorable to the non-moving party,
         and all doubts as to the existence of a genuine issue of
         material fact must be resolved against the moving party.
         As our inquiry involves solely questions of law, our review
         is de novo.

      Reinoso v. Heritage Warminster SPE, LLC, 108 A.3d 80, 84
      (Pa. Super. 2015) (en banc) (additional citations omitted). With
      respect to the denial of summary judgment, “[w]e review the
      trial court’s denial of summary judgment for an abuse of
      discretion or error of law.” Ramsay v. Pierre, 822 A.2d 85, 90
      (Pa. Super. 2003).

Bezjak v. Diamond, 135 A.3d 623, 627 (Pa. Super. 2016).

      In its first issue, Appellant asserts trial court error for its interpretation

of the 1985 leases, for determining that the lease was a sale of coal and

CBM because the CBM, as a “constituent product,” was owned by Appellant.

A review of coal lease cases is instructive.

      Coal leases have been the subject of litigation in this Commonwealth

for well over a hundred years. In Smith v. Glen Alden Coal Co., 32 A.2d

227 (Pa. 1943), our Supreme Court recognized the established rule in

Pennsylvania “that the lease of coal in place with the right to mine and

remove all of it for a stipulated royalty vests in the lessee a fee.”        Id. at

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233.   Therefore, “if the fee to the severed coal is vested in the lessee no

interest in the coal as real property remains in the lessor and [] his only

interest therein is personal property.    The lessor’s interest in the lease is

properly termed a possibility of reverter.” Id.

       In Shenandoah Borough v. Philadelphia, 79 A.2d 433 (Pa. 1951),

cert. denied, 342 U.S. 821 (1951), our Supreme Court explained:

       To a great many people who do not live in coal counties, the
       aforesaid instrument having the usual terms and attributes of a
       lease, would seem to be a lease. Nevertheless the law is long
       and well settled in Pennsylvania that “[t]he grant of a right to
       mine coal in the lands of the lessor, and remove it therefrom,
       although the instrument may be called a ‘lease,’ is a grant of an
       interest in the land itself, and not a mere license to take the
       coal. The transaction . . . constituted a sale of the coal,
       conditioned upon its being removed within the period
       specified[.]” Lazarus's Estate, 145 Pa. 1, 8, 23 A. 372, 373
       [(1892)].

Id. at 436. More recently, the Court noted:

       The term “lease” is in some respects a misnomer. What is really
       involved is a transfer of an interest in real estate, the mineral in
       place. Hummel v. McFadden, 395 Pa. 543, 552, 150 A.2d
       856, 860 (1959); Shenandoah Borough v. Philadelphia, 367
       Pa. 180, 186–87, 79 A.2d 433, 436, cert. denied, 342 U.S. 821,
       72 S.Ct. 39, 96 L.Ed. 621 (1951). Common Pleas’ construction
       gives the transfer involved the characteristics of a fee simple
       determinable in the coal, which the lease severs from appellees’
       interest in the surface.

Hutchinson v. Sunbeam Coal Corp., 519 A.2d 385, 387 n.1 (Pa. 1986).

       Even more recently, this Court reviewed a coal lease in a case that

also involved extraction of CBM. In Kennedy v. Consol Energy, 116 A.3d

626 (Pa. Super. 2015), this Court examined U.S. Steel v. Hoge, 468 A.2d

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1380 (Pa. 1983). Although Hoge involved an oil and gas lease as well as a

coal lease, we find this Court’s conclusion regarding ownership of CBM

applicable to the case before us. This Court stated:

      We read Hoge as establishing the general rule that, when a coal
      severance deed is silent as to ownership of the coalbed methane,
      or does not expressly reserve coalbed methane from the coal
      conveyance or specifically define coalbed methane as a gas, the
      coalbed methane gas contained in the coal belongs to the owner
      of the coal.

Kennedy, 116 A.3d at 633.

      Appellant   argues   that   this   Court   rejected   as   outdated   the

“Pennsylvania Doctrine,” i.e., that a coal lease automatically constitutes a

sale in fee, in Olbum v. Old Home Manor, Inc., 459 A.2d 757 (Pa. Super.

1983).   We find Olbum factually distinguishable and inapposite.       In that

case, landowners sued to recover payments for strip-mining their property

under a four-year lease that called for set monthly payments over the term

of the lease. When the mining company determined further mining was not

economically justified after fourteen months, they ceased making payments

called for in the lease. In that case, it was the landowners who sought a

ruling that the lease was a sale so they could collect royalties for the

remainder of the lease term. Finding that the lease did not constitute a sale,

this Court explained:

      We reject the use of the “Pennsylvania Doctrine” as unjustified.
      The assumption that a lease of land for coal mining operations
      amounts to an automatic “sale in place” of the coal is long out-
      dated:

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       Not every agreement for the mining of coal, however, amounts
       to a sale of the coal in place. “A contract regarding coal in place
       may be a sale absolute, a conditional sale, a lease in the
       ordinary expression of that term, or a mere license to make and
       remove the minerals.” Hummel v. McFadden, 395 Pa. 543,
       150 A.2d 856, [8]61 (1959) and cases cited therein.

       The Hummel court stressed that the “unrestricted dominion”
       contractually given to the miners in that case was the factual
       basis for a holding that the contract represented a sale of the
       coal in place.

       The most cursory reading of the contract in the instant matter
       shows that the appellant-landowners executed a document
       carefully tailored to protect their land, their interests in the land
       and in the coal payments. In particular, we note that the
       agreement in question, unlike the agreement in Hummel was
       limited to a term of four (4) years. In short, without lengthy
       discussion of the matter, we conclude that the instant case
       should be decided on the general law of contracts, and we
       approach the matter from that posture.

Id. at 760 (emphasis in original).

       Despite Appellant’s suggestion to the contrary, Olbum did not abolish

the so-called Pennsylvania Doctrine.              Rather, the case stands for the

proposition that while a coal lease does not automatically convey a sale of

the coal in place, the conveyance may be a sale, depending on the language

of the contract.      Here, the leases conveyed all interest in coal and its

constituent products for a period of twenty years, now forty years by

extension.    Leases, 4/15/85, at 1.3          The leases conveyed the right to the

coal and its constituent products “together with the right to mine and
____________________________________________

3
  The inclusion of a term of years does not defeat the characterization of a
lease as a sale. See, e.g., Shenandoah Borough, supra, 79 A.2d at 436.

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remove all of said coal and the free and uninterrupted right and right-of-way

into, through and under the said land . . . .” Id. at 2.   After outlining other

rights, the lease provides, “It is understood and agreed that the rights

hereinbefore mentioned are in enlargement and not in restriction of the

rights incidental to the mineral estate and ownership of said coal.”        Id.

Further, Appellant “warrant[ed] generally the title to the Leased Premises

and Lessee’s quiet enjoyment of the same and agree[d] that Lessee, at its

option, may discharge any tax, mortgage, other lien, or encumbrance

suffered or permitted upon or against the Leased Premises.” Id.

      In addition to the interests and rights conveyed, the leases provide for

payment to Appellant of an annual per-acre advance minimum royalty,

regardless of whether any coal was mined. Appellees agreed to payment of

tonnage royalties for all coal mined, receiving a credit for advance minimum

royalties based on coal mined. Appellees also assumed the obligation to pay

all taxes assessed against the premises and to indemnify and save harmless

Appellant from all claims arising out of Appellees’ negligence.

      Based on the language of the lease, the trial court appropriately

determined that the lease constituted a sale of coal and its constituent

products and rejected Appellant’s claim of ownership of the CBM.         As the

trial court explained, the leases in question clearly conveyed the “interest in

and to all of the Pittsburgh seams or measures of coal and all constituent

products of such coal in and underlying” the various lands in Greene County.

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T.C.O., 6/4/15, at 1. Further, CBM “is doubtless a ‘constituent product’ of

coal.”     Id. at 2.    We find the trial court’s conclusion in these regards

consistent with applicable case law.           We find no error in the trial court’s

interpretation of the leases, and specifically its determination that CBM is a

constituent product to which Appellees were entitled without additional

payment to Appellant. Therefore, Appellant’s first issue fails.

         Appellant’s second issue claims trial court error for ignoring the

provisions of the Pennsylvania Oil and Gas Act, 58 P.S. § 33.3, that

invalidate an oil and gas lease that does not provide a minimum one-eighth

royalty of all oil, natural gas or gas recovered from the subject property.

Appellant is not entitled to relief on this issue. We have already determined

that the trial court correctly classified the leases in question as a sale. As

such, Appellant does not own the coal or the CBM, a constituent product of

the coal. Again, “the coalbed methane gas contained in the coal belongs to

the owner of the coal.” Kennedy, 116 A.3d at 633. Therefore, the Oil and

Gas Act is not applicable.4 Appellant’s second issue fails.

         In its third issue, Appellant asserts trial court error for granting

summary judgment despite the fact Appellees “have not mined one lump of

coal and admitted that they had no intention of ever mining any coal” and

____________________________________________

4
 We note our agreement with Appellees that Appellant did not assert a claim
under the Pennsylvania Oil and Gas Act in its complaint. Appellees’ Brief at
21-22.

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were using the leases solely to remove CBM without paying royalties

required by law.      Appellant’s Brief at 21.   Initially, as we noted above,

Appellees were not under any obligation to pay royalties for CBM separate

and apart from any royalties that might be due Appellant as advance

minimum royalties under the lease.       Royalties aside, it is clear under the

leases that Appellees were not under any obligation to mine any coal. The

leases provided for annual advance minimum royalties.          Those royalties

would be applied as a credit against any tonnage royalties due. The leases

did not include any provisions mandating mining of coal. Rather, the leases

conveyed the rights to any coal and constituent products to Appellees and

provided for payments to Appellant determined by the amount of coal

mined, if any, and advance minimum royalties, regardless of whether coal

was actually mined.

      Once again, Appellant is basing an argument on their erroneous

conclusion that the there was no sale of coal, only the right to mine the coal,

and that the unmined coal remained the property of Appellant. Appellant’s

Brief at 22. We find no error of law in the trial court’s grant of summary

judgment, despite the fact Appellees have not mined any coal.

      Appellant next argues that the trial court erred in its interpretation of

the leases in light of the Pennsylvania Oil and Gas Act (GMRA) by ruling that

the leases constituted a sale of coal and CBM gas such that no CBM royalties

were due Appellant.       At issue here are only the two leases between

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Appellant and Appellees, not any other leases involving Appellees. The trial

court correctly ruled that the leases were, in actuality, sales of coal and

constituent products. As stated above, the Pennsylvania Oil and Gas Act is

not relevant to the sale. Appellant’s fourth issue fails.

       In Appellant’s fifth and final issue, Appellant argues that the trial court

erred by refusing to acknowledge the legal opinion of Wesley A. Cramer,

Esq.,5 and the Covert/Wallace leases6 under which Appellant maintains

Appellees are paying CBM royalties to the lessors.          Once again, Appellant

looks to the provisions of the GMRA for support. As the trial court stated,

“[Appellant’s] reliance on the [GMRA] is misplaced. As we have seen, these

“Leases” are actually grants in fee and therefore [Appellant] has no interest

in any constituent element of the coal, including CBM.” T.C.O. 6/4/15, at 7.

Appellant’s fifth issue lacks merit.

____________________________________________

5
  Appellant suggests the February 23, 2005 letter from Attorney Cramer,
counsel for Appellees, puts forth an incorrect statement of Pennsylvania law
by advising Appellees that no separate agreement is necessary for Appellees
to operate a CBM well on the subject property and that Appellees had
absolute dominion over the coal and coal constituent products, including
CBM.     As we have already determined, we believe it is Appellant’s
interpretation that is incorrect.
6
  The Covert/Wallace leases are two separate “Coalbed Methane Gas Leases”
entered into between Appellee, CNX Gas Company, and the Coverts and the
Wallaces in July 2005. Appellees have not entered into a separate coalbed
methane gas leases with Appellants. The Covert/Wallace methane gas
leases are irrelevant to the leases at issue before us.

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     Finding no merit in any of Appellant’s issues, we affirm the trial court’s

June 4, 2015 order granting summary judgment in favor of Appellee and

dismissing Appellant’s complaint as well as the trial court’s denial of

Appellant’s motion for summary judgment.

     Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 10/20/2016

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