Court Opinion

ID: 4585824
Source: CourtListenerOpinion
Date Created: 2020-11-12 20:09:29.232453+00
Date Added: 2024-06-11T13:47:48.799447
License: Public Domain

IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

                                September 2020 Term

                              _____________________                     FILED
                                                                   November 12, 2020
                                   No. 19-0572                          released at 3:00 p.m.
                              _____________________                 EDYTHE NASH GAISER, CLERK
                                                                    SUPREME COURT OF APPEALS
                                                                         OF WEST VIRGINIA

                        EQT PRODUCTION COMPANY,
                          Defendant Below, Petitioner

                                         v.

                    ANTERO RESOURCES CORPORATION,
                         Plaintiff Below, Respondent

       ___________________________________________________________

                   Appeal from the Circuit Court of Tyler County
                      The Honorable Jeffrey Cramer, Judge
                                Action No. 17-C-3

                               AFFIRMED
        _________________________________________________________

                             Submitted: October 13, 2020
                              Filed: November 12, 2020

David K. Hendrickson, Esq.                      Corey L. Palumbo, Esq.
Hendrickson & Long, PLLC                        Joshua A. Cottle, Esq.
Charleston West Virginia                        Bowles Rice LLP
Counsel for Petitioner                          Counsel for Respondent

JUSTICE WORKMAN delivered the Opinion of the Court.
                            SYLLABUS BY THE COURT

      1.     “A circuit court’s entry of a declaratory judgment is reviewed de novo.” Syl.

Pt. 3, Cox v. Amick, 195 W. Va. 608, 466 S.E.2d 459 (1995).

      2.     Where multiple leases, such as an oil and gas base lease and a top lease, exist

on the same property, the provisions of the West Virginia Recording Act, West Virginia

Code §§ 40-1-8 to -9 (2019), govern which lease has priority.

                                            i
WORKMAN, Justice:

              Petitioner EQT Production Company (also referred to as “EQT”) appeals the

order entered by the Circuit Court of Tyler County on January 3, 2019, and the amended

order entered on May 23, 2019, both granting respondent Antero Resources Corporation

(also referred to as “Antero”) partial summary judgment on its claim for declaratory

judgment. The sole issue raised on appeal is whether the circuit court erred by granting

summary judgment in favor of Antero on its declaratory judgment claim, concluding that

the Antero Top Lease takes priority over the EQT Base Lease, as amended, covering the

same property. Upon review of the parties’ briefs and arguments, the appendix record,

and the applicable law, we find no error committed by the circuit court’s decision and we

therefore affirm.

                         I. Facts and Procedural Background

              For purposes of this appeal, the facts are undisputed. The defendants below,

Larry W. Lemasters and Linda J. Lemasters (“the Lemasters”), own 100% of the oil and

gas within and underlying a certain tract of land containing 15.25 acres, located in

Ellsworth District, Tyler County, West Virginia, designated for tax assessment purposes as

Tax Map 23, Parcel 20 (“the Subject Property”). 1 On December 13, 2011, the Lemasters

executed and entered into an oil and gas lease with PetroEdge Energy, LLC, which covered

       1
        The property is also described in the deed of record located in the Office of the
Clerk of the County Commission of Tyler County.
                                            1
the Subject Property (hereinafter the “EQT Base Lease” or “Base Lease”). EQT was

assigned the Base Lease through certain mesne, or intermediate, conveyances.

               A Memorandum of the Base Lease (“Base Lease Memorandum”) was

recorded on January 12, 2012. 2 It provided that the primary term of the lease commenced

on December 13, 2011, and terminated five years thereafter, on December 13, 2016, unless

oil and gas was produced or capable of being produced on the Subject Property during the

primary term of the lease, or EQT was otherwise operating on the Subject Property in

search of oil and gas during the primary term. It is undisputed that EQT did not commence

operations to produce oil and gas during the primary term. Significantly, the terms of the

Base Lease did not grant EQT an express right of first refusal, right of renewal, or automatic

option to extend its primary term, and therefore the Base Lease Memorandum did not

operate to provide notice of any such right. See W. Va. Code § 40-1-8 (discussed infra in

greater detail).

               In 2016, prior to the expiration of the primary term of the Base Lease, the

Lemasters executed and entered into a written oil and gas lease with Antero (hereinafter

       2
         See W. Va. Code § 40-1-8 (2019) (providing for the recording of a memorandum
of a lease instead of the actual lease).

                                              2
the “Antero Top Lease” or “Top Lease”). 3 This lease was dated June 24, 2016, but made

effective December 14, 2016, immediately upon the expiration of the primary term of the

EQT Base Lease. 4 The Antero Top Lease covered the Subject Property for a primary term

of five years from the effective date. In consideration for the Lemasters’ execution of the

Top Lease, Antero paid them in two separate installments. The initial installment was for

5% of the total consideration for the Top Lease, or the amount of $2,478.13, which sum

was paid at the time of signing and which the parties agreed was sufficient consideration

to form a binding contract. The second installment was for the remaining 95% of the total

       The Court recognized the following definition of a “top lease” in Chesapeake
       3

Appalachia, LLC v. Hickman, 236 W. Va. 421, 781 S.E.2d 198 (2015):

                     Properly defined, a top lease is “a lease granted by a
              landowner, during the existence of a recorded mineral lease,
              which is to become effective if and when the existing lease
              expires or is terminated.” J. Zak Ritchie, “A Fresh Look at an
              Old Tort: Litigating Slander of Title in Mineral Disputes,” 115
              W.Va. L. Rev. 1097, 1118 (2013). See also, Patrick H. Martin
              and Bruce M. Kramer, 8 Williams & Meyers Oil and Gas Law
              1083 (2014) (A top lease is “[a] lease granted by a landowner
              during the existence of a recorded mineral lease which is to
              become effective if and when the existing lease expires or is
              terminated.”).

236 W. Va. at 438, 781 S.E.2d at 215.
       4
        It is undisputed that the Antero Top Lease did not preclude EQT from commencing
operations under the Base Lease during the primary term, which ended on December 13,
2016.
                                            3
consideration, or the amount of $47,048.38, which was subsequently mailed to the

Lemasters within fifteen business days of the effective date of the Top Lease. 5

              A Memorandum of the Antero Top Lease (“Top Lease Memorandum”) was

recorded August 30, 2016. The Top Lease Memorandum provided, in pertinent part:

              Lessor [the Lemasters] covenants and agrees that, as of the date
              Lessor executes this Lease, Lessor has not agreed to extend,
              amend, modify, or renew the Existing Lease [the Base Lease],
              or to take any action which would result in such extension,
              amendment, modification, or renewal of the Existing Lease,
              and Lessor further covenants and agrees that Lessor shall not
              enter into any such agreement or take any such action at any
              time after the date Lessor executes this Lease.

(Emphasis added). The Top Lease also provided:

              Lessor and Lessee [Antero] acknowledge that the lands
              described in this [Top] Lease are presently subject to Oil and
              Gas Lease dated December 13, 2011 and set to expire on
              December 13, 2016 . . . (the “Existing Lease”). This [Top]
              Lease is granted on Lessor’s reversionary interest in the leased
              premises and is hereby vested in interest, but, as subject to the
              Existing Lease, the interest covered by this [Top] Lease shall
              vest in possession upon the termination of the Existing Lease.

              Notwithstanding the express terms of the Antero Top Lease and the recorded

Top Lease Memorandum, the Lemasters and EQT entered into an Amendment and

Ratification of Oil and Gas Lease (the “Base Lease Amendment”), dated September 24,

       5
        It is undisputed that Antero timely tendered both payments to the Lemasters;
however, according to Antero, the Lemasters’ counsel returned the $47,048.38 payment to
Antero by letter dated January 31, 2017.
                                             4
2016, and recorded December 12, 2016. In the Base Lease Amendment, the Lemasters

and EQT agreed, inter alia, to extend the primary term of the Base Lease for an additional

five years.

              An EQT employee, Russell Greathouse, testified during a deposition that

multiple EQT employees, including John Damato, George Heflin and Becky Heflin, were

aware of the Antero Top Lease prior to EQT’s execution of the Base Lease Amendment.

Mr. Heflin testified that Mr. Greathouse and Steven Prelip, also an EQT employee, had a

copy of the Memorandum of Antero Top Lease. Mr. Heflin acknowledged that he knew

and understood that in the Antero Top Lease, the Lemasters had covenanted with Antero

not to voluntarily extend or amend the EQT Base Lease.

              On March 16, 2017, Antero filed an amended complaint against EQT and the

Lemasters in circuit court, asserting claims for breach of contract, intentional interference

with contractual relationship, declaratory judgment, and slander of title. Relevant to the

instant appeal, is Antero’s declaratory judgment count in which Antero asked the circuit

court to declare that: 1) the Base Lease Amendment was ineffective and invalid as to

Antero; 2) the Antero Top Lease was the only valid lease affecting the Subject Property,

and 3) the Base Lease Amendment was invalid or, in the alternative, subordinate to the

Antero Top Lease.

                                             5
              On March 28, 2017, EQT served its answer to the amended complaint and

counterclaim in which it asserted a declaratory judgment count asking the circuit court to

declare that the Base Lease, as amended, was the only lease in effect regarding the Subject

Property and that the Antero Top Lease was subject to the Base Lease and Base Lease

Amendment.

              On November 5, 2018, Antero filed a motion for partial summary judgment

on its claims for intentional interference with a contract and declaratory judgment. On

November 26, 2018, EQT filed a response in opposition and a cross-motion for summary

judgment on its counterclaim for declaratory judgment. Thereafter, by order entered

January 3, 2019, the circuit court granted Antero partial summary judgment and denied

EQT’s cross-motion for summary judgment. The circuit court determined that under the

West Virginia Recording Act (“Recording Act”), West Virginia Code §§ 40-1-8 to -9

(2019), the Base Lease and Base Lease Amendment are subject to the Antero Top Lease,

and the Antero Top Lease is the valid and existing oil and gas lease covering the Subject

Property. On May 23, 2019, the circuit court amended its January 3, 2019, order, finding

that its award of summary judgment in favor of Antero on its declaratory judgment claim

was a final order subject to immediate appellate review under Rule 54(b) of the West

                                            6
Virginia Rules of Civil Procedure. 6 This order, and the January 3, 2019, order form the

basis for the instant appeal.

                                 II. Standard of Review

              We begin by noting that “[a] circuit court’s entry of a declaratory judgment

is reviewed de novo.” Syl. Pt. 3, Cox v. Amick, 195 W. Va. 608, 466 S.E.2d 459 (1995).

Applying this standard of review, we examine the issue before us.

                                     III. Discussion

              The sole issue raised on appeal is whether the circuit court erred by granting

summary judgment in favor of Antero on its declaratory judgment claim, by concluding

that the Antero Top Lease takes priority over the EQT Base Lease, as amended, covering

the Subject Property. EQT argues that the circuit court’s order was in error because: 1)

EQT had the right to amend the Base Lease; 2) the conditions necessary for Antero’s Top

       6
         In its January 3, 2019, order, the circuit court also granted summary judgment to
Antero on its intentional interference of contract claim against EQT. The court determined
that in the Antero Top Lease, the Lemasters had agreed not to amend, to modify or to
otherwise extend the Base Lease, which covenant was also set forth in the Top Lease
Memorandum. The Court found that EQT had both constructive and actual knowledge of
the Lemasters’ agreement not to extend the Base Lease. Despite that actual knowledge and
notice, EQT intentionally entered into the Base Lease Amendment with the Lemasters and
injured Antero’s leasehold rights. In its May 23, 2019, order, the circuit court expressly
provided that only its determination of the declaratory judgment counts was subject to an
immediate appeal pursuant to Rule 54(b) of the West Virginia Rules of Civil Procedure.
Accordingly, the circuit court’s grant of summary judgment on the intentional interference
with a contract count is not before us in the instant appeal.
                                             7
Lease to become effective did not occur and, therefore, the Top Lease is subordinate to the

Base Lease; 3) the recording of the Top Lease did not render the Base Lease, as amended,

subordinate, and 4) the “no-modification clause” included in the Top Lease is

unenforceable and void as against public policy. 7 We reject EQT’s arguments.

              While EQT focuses on its “absolute right” to amend its Base Lease as the

controlling issue in this case, we find that the determinative issue is which lease – the Base

Lease, the Base Lease Amendment or the Top Lease – is superior or has priority. This

Court has recognized that leases are controlled by principles of contract law. As this Court

stated in Chesapeake Appalachia, 236 W. Va. 421, 781 S.E.2d 198 (2015), “[t]o be clear,

the leases at issue are to be construed like any other contract. An oil and gas lease (or other

mineral lease) [is] both a conveyance and a contract.” Id. at 434, 781 S.E.2d at 211; see

also Leggett v. EQT Prod. Co., No. 1: l3CV4, 2016 WL 297714, at *4 (N.D.W. Va. Jan.

22, 2016) (same); Iafolla v. Douglas Pocahontas Coal Corp., 162 W. Va. 489, 250 S.E.2d

128 (1978) (applying contract law to mineral lease). Under principles of contract, therefore,

EQT was free to amend its Base Lease, and the Lemasters had the right to enter into the

Top Lease with Antero.

       7
        Because this argument concerns the intentional interference with a contract claim
which is not before us on appeal, we decline to address this argument. See supra note 6.

                                              8
              However, the issue of which lease has priority when multiple leases exist on

the same property is governed by the Recording Act, West Virginia Code §§ 40-1-8 to -9.

West Virginia Code § 40-1-8 provides for the recording of a memorandum of a lease

instead of the actual lease as follows:

                      Any contract in writing made in respect to real estate or
              goods and chattels in consideration of marriage; or any contract
              in writing made for the conveyance or sale of real estate, or an
              interest or term therein of more than five years, or any other
              interest or term therein, of any duration, under which the whole
              or any part of the corpus of the estate may be taken, destroyed,
              or consumed, except for domestic use, shall, from the time it is
              duly admitted to record, be, as against creditors and purchasers,
              as valid as if the contract were a deed conveying the estate or
              interest embraced in the contract. In lieu of the recording of a
              lease pursuant to this section, there may be recorded with like
              effect a memorandum of such lease, executed by all persons
              who are parties to the lease and acknowledged in the manner
              to entitle a conveyance to be recorded. A memorandum of lease
              thus entitled to be recorded shall contain at least the following
              information with respect to the lease: The name of the lessor
              and the name of the lessee and the addresses of such parties as
              set forth in the lease; a reference to the lease, with its date of
              execution; a description of the leased premises in the form
              contained in the lease; the term of the lease, with the date of
              commencement and the date of termination of such term, and
              if there is a right of extension or renewal, the maximum period
              for which, or date to which, the lease may be extended, or the
              number of times or date to which it may be renewed and the
              date or dates on which such rights of extension or renewal are
              exercisable. Such memorandum shall constitute notice of only
              the information contained therein.

(Emphasis added). The significance of the statutory requirement that a memorandum of

lease contain certain specific information set forth in the lease including, inter alia, the term

of the lease, the commencement and termination dates of the lease, and if there is a right

                                               9
of extension or renewal including specific details for such extension or renewal, is that this

type of information provides notice and basic fairness to other potential good faith

purchasers or “bona fide purchasers.” Syl. Pt. 5, Kourt Sec. Partners, LLC v. Judy’s

Locksmiths, Inc., 239 W. Va. 757, 806 S.E.2d 188 (2017) (“A bona fide purchaser is one

who actually purchases in good faith.” Syl. Pt. 1, Kyger v. Depue, 6 W.Va. 288 (1873).”);

see Trans Energy, Inc. v. EQT Prod. Co., 743 F.3d 895, 904 (4th Cir. 2014) (providing that

a bona fide purchaser is “‘one who purchases for a valuable consideration, paid or parted

with, without notice of any suspicious circumstances to put him on inquiry.” Stickley v.

Thorn, 87 W.Va. 673, 106 S.E. 240, 242 (1921). This rule protects good faith purchasers

who conduct due diligence prior to purchasing an interest in real property. See Gullett v.

Burton, 176 W.Va. 447, [451-52], 345 S.E.2d 323, 327 (1986).”); see also Syllabus, in

part, United Fuel Gas Co. v. Morely Oil & Gas Co., 101 W. Va. 83, 131 S.E. 716 (1926)

(“To be protected [under the Recording Statute] . . . against a prior unrecorded deed, one

must be a complete purchaser, must have had no notice of the prior contract or deed, and

have paid all the purchase money for the land purchased by him.” (emphasis added).

              Further, West Virginia Code § 40-1-9 provides:

                     Every such contract, every deed conveying any such
              estate or term, and every deed of gift, or deed of trust or
              memorandum of deed of trust pursuant to section two, article
              one, chapter thirty-eight of this code, or mortgage, conveying
              real estate shall be void, as to creditors, and subsequent
              purchasers for valuable consideration without notice, until and
              except from the time that it is duly admitted to record in the

                                             10
                county wherein the property embraced in such contract, deed,
                deed of trust or memorandum of deed of trust or mortgage may
                be.

Id. (emphasis added). Hence, where a real estate contract is unrecorded and purports to

convey real estate to a subsequent bona fide purchaser for valuable consideration without

notice, it is void. Id. Accordingly, we hold that where multiple leases, such as an oil and

gas base lease and a top lease, exist on the same property, the provisions of the West

Virginia Recording Act, West Virginia Code §§ 40-1-8 to -9 (2019), govern which lease

has priority.

                In the instant case, according to the original terms of the EQT Base Lease,

which were duly recorded in the Base Lease Memorandum, the Base Lease expired on

December 13, 2016, unless oil or gas was produced on the Subject Property during the

primary term of the lease or EQT was otherwise operating on the Subject Property. It is

undisputed that neither of these events occurred; therefore, it was impossible for Antero to

have had actual or constructive notice of any right of EQT to extend the Base Lease beyond

its primary term because other than the two events described above occurring, no such right

existed.

                In summary, Antero entered into the Top Lease with the Lemasters on June

24, 2016, prior to the expiration of the term of the EQT Base Lease, and recorded the Top

Lease Memorandum August 30, 2016, in compliance with West Virginia Code § 40-1-8.

According to West Virginia Code § 40-1-9, Antero was a bona fide purchaser under the

                                             11
terms of the Top Lease because it had no notice of the EQT Base Lease extending beyond

its original term of December 13, 2016. 8 All that Antero knew or could have known from

the recorded EQT Base Lease Memorandum was that the EQT Base Lease expired on

December 13, 2016. See Eagle Gas Co. v. Doran & Assocs., Inc., 182 W. Va. 194, 197,

387 S.E.2d 99, 102 (1989) (“In general a party without actual notice may rely upon record

titles in the office of the clerk of the county commission of the county in which the land is

located. W. Va. Code, 40-1-9 [1963].”). As a matter of fact, EQT did not even seek to

extend the primary term of its Base Lease with the Lemasters for another five-year period

until after the Antero Top Lease Memorandum was recorded. As the record reflects, the

Base Lease Amendment was dated September 24, 2016, and was not recorded until

December 12, 2016. Because Antero’s Top Lease Memorandum was recorded before

EQT’s Base Lease Amendment, Antero’s Top Lease has priority over EQT’s Base Lease

and Base Lease Amendment. See Heck v. Morgan, 88 W. Va. 102, 106 S.E. 413, 417 (1921)

(where subsequent lessee claimed he was a bona fide purchaser without notice of a lessee

       8
         EQT also argues that Antero had no “present property interest” conveyed by the
Top Lease, and therefore the Top Lease “was not in effect at the time” EQT amended its
Base Lease to extend its primary term.” According to EQT “[n]either the existence nor
recording of the Top Lease, or language within that Top Lease purporting to preclude
modification of the Base Lease (the ‘no modification clause’),” acted to preclude EQT from
preserving its interest in the property. This argument is without merit. Pursuant to its terms,
the Antero Top Lease was a binding contract upon its signing; it provided that “it hereby
vested in interest, but as subject to the Existing Lease[,]” as of the date the Top Lease was
executed. Further, the Lemasters and Antero agreed the initial installment paid by Antero
to the Lemasters was “sufficient consideration to form a binding contract between Lessor
and Lessee.”

                                              12
under a prior lease, which was not recorded, the Court agreed with the argument that his

lease took priority over the prior lease, but disagreed with the facts, stating “[t]he defendant

. . . claims that he was a purchaser for value in good faith, and without notice of the

plaintiffs rights under the lease which had been theretofore executed to him by Morgan,

and that therefore his rights under the lease executed to him by Morgan in September, 1919,

are superior to the rights of the plaintiff, and this would be correct if the facts justified this

conclusion, for under our recording statutes the plaintiffs lease would be void as to a

purchaser for value in good faith without notice.”). 9

               Based upon a straightforward application of the Recording Act, we conclude

that the circuit court did not err in declaring that the EQT Base Lease and Base Lease

Amendment are subject to the Antero Top Lease, and the Antero Top Lease is the valid

and existing oil and gas lease covering the Subject Property.

       9
         See Rorex v. Karcher, 224 P. 696, 697-98 (Okla. 1923) (holding that “[t]here was
no provision in the lease contract granting an extension or right of extension to the lessees,
and any extension procured by the lessees was subject to the rights of intervening third
persons. Prior to the time the extension was procured, the rights of the plaintiff intervened
by reason of his lease, and any extension granted after the execution of the lease to the
plaintiff was taken subject to the rights of the plaintiff under his lease.”); see also Willan
v. Farrar, 124 N.W.2d 699 (Neb. 1963) (finding that actions taken by a base lease lessee
subsequent to the execution of a top lease does not affect the rights of a top lessee.).
                                               13
                                 IV. Conclusion

          For the foregoing reasons, we affirm the orders of the Circuit Court of Tyler

County.

                                                                            Affirmed.

                                        14