Court Opinion

ID: 866861
Source: CourtListenerOpinion
Date Created: 2013-05-07 18:46:33.400887+00
Date Added: 2024-06-11T09:06:45.631075
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 12-1533

MARTHA WELLMAN; CHARLES WELLMAN,

                 Plaintiffs - Appellants,

           v.

BOBCAT OIL & GAS, INC.,

                 Defendant – Appellee.

Appeal from the United States District Court for the Southern
District of West Virginia, at Huntington.  Robert C. Chambers,
Chief District Judge. (3:10-cv-00147)

Argued:   March 19, 2013                      Decided:   May 7, 2013

Before DUNCAN, FLOYD, and THACKER, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Jason Andrew Poling, Robert R. Waters, WATERS LAW GROUP,
Huntington, West Virginia, for Appellants. Matthew James Perry,
LAMP, ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington,
West Virginia, for Appellee.   ON BRIEF: Julie A. Warren, LAMP,
ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington, West
Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

                 Charles     and     Martha         Wellman       (“Appellants”       or   the

“Wellmans”) appeal an order by the district court declining to

invalidate an oil and gas lease granted to Bobcat Oil & Gas,

Inc. (“Appellee” or “Bobcat”).                         The district court concluded

that       the    lease    did     not    terminate         for   lack    of    natural    gas

production or due to missed or late rental payments.                             On appeal,

Appellants         contend       that     the       lease    automatically        terminated

because          Bobcat     failed       to       produce    natural      gas    in    paying

quantities and further failed to tender timely rental payments,

both of which they claim are required by the lease.                              They assert

that even though the lease provides for the payment of a “flat-

rate”      rental,        rather   than       a    “production-based”          royalty,    the

lease      nonetheless       requires         production,         and,   that,    therefore,

Bobcat’s alleged failure to satisfy this condition terminated

the lease.         We disagree.

                 Under longstanding West Virginia law, the quantity of

production is irrelevant to the expiration of the secondary term

of     a    mineral        lease     that     provides        for    “flat-rate”       rental

payments.          Moreover, the Wellmans’ claim that Bobcat forfeited

the lease by failing to tender certain rental payments fails on

the grounds of ratification and principles of equity.                                 For the

reasons detailed below, we affirm.

                                                   2
                                      I.

                                      A.

             On   May   17,   1933,   Ida   May   Dean   Purdue   (“Purdue”)

executed a lease with the Chartiers Oil Company (“Chartiers”),

in which Chartiers was given the right to extract oil and gas

from the mineral estate owned by Purdue, located on Gragston

Creek in Wayne County, West Virginia (the “Lease”).

             The “habendum,” or term, clause of the Lease provides:

     It is agreed that this lease shall remain in full
     force for the term of ten years from this date and as
     long thereafter as oil or gas, or either of them, is
     produced from the said land by the said party of the
     second part, its successors and assigns.

J.A. 44. 1    The Lease requires the lessee to pay to the lessors a

flat-rate rental of “$75 each three months in advance for the

gas from each and every well drilled on said premises . . . to

be paid each three months thereafter while the gas from said

well is marketed and used.”        Id. 2

     1
       Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
     2
       In contrast, the Lease provides for a 1/8th royalty on all
oil produced.

     We observe that mineral leases providing for the payment of
a flat-rate rental instead of a production-based royalty have
been disfavored in West Virginia as a matter of public policy
since 1982. See W. Va. Code § 22-6-8(a)(4), (b). Even so, the
Wellmans do not argue that the Lease is invalid for this reason.
See Wellman v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL
6415487, at *2, 5 (S.D.W. Va. Dec. 21, 2011) (noting that “the
(Continued)
                                       3
                                 B.

            On January 12, 1978, the Wellmans purchased the rights

as the lessor to the mineral estate from Purdue.         Chartiers sold

its rights under the Lease to PIP Petroleum (“PIP”), who in turn

sold the rights to Bobcat on March 10, 1993.      On March 31, 1993,

PIP notified the Appellants that it had sold its interest in the

mineral estate to Bobcat, and that beginning in January of 1994,

“all Flat Royalty payments will be made by Bobcat Oil & Gas

Company.”     J.A.   148.   On   January   10,   1994,    Bobcat   began

tendering the $75 flat-rate rental payments to the Wellmans on a

quarterly basis, as PIP had done previously.

            These requirements resulted in a total of 71 payments,

to be made from Bobcat to the Wellmans, beginning in January

1994 to the third quarter of 2011, when the record in this case

was closed.    Bobcat has presented proof indicating that all 71

payments were made, though the type of proof varies.         Of the 71

payments, 50 are evidenced by cancelled checks with Appellants’

signatures.    The remaining 21 payments are demonstrated by check

stubs, indicating the payment amount of $75 and the date upon

which the checks were written.    Of the 21 check stubs, 17 checks

are checks that the Wellmans admit they received beginning with

West   Virginia   legislature   cannot   overwrite         pre-existing
contracts, see, e.g., U.S. Const. art. 1, § 10”).

                                  4
the first quarter of 2008 until the close of the record, but

elected not to cash.              At issue in this case is the alleged non-

payment of certain quarterly rental payments due before 2008, as

well    as    allegedly       late      or    missed     payments      due    in    2008    and

thereafter.

              Regarding the allegedly late or missed payments due in

2008    and    thereafter,         Appellants          stopped      cashing    the    rental

checks they received from Bobcat after the fourth quarter of

2007, and assert that certain rental payments owed after that

time are either missing or late.                      According to both parties, the

payment for the first quarter of 2008, which they agree for the

sake    of    argument      was    due       by   January     29,    2008,    was    sent    by

certified mail on November 27, 2007.                      The parties disagree about

all later payments.

              The next check appears in Bobcat’s check register for

the date of March 27, 2008, as payment for the second quarter of

2008.    The Wellmans claim that it was not sent until July 2008,

when    it    was    mailed       by    certified       mail.        Thus,    the   Wellmans

contend that at least one quarterly payment is missing or late,

and if it was late, all subsequent payments would be at least

one    quarter      late.      Bobcat         responds       that    its   check    register

indicates      all     rental          payments       have    been     tendered      to     the

Wellmans.       As noted, the record in the case was closed in the

third quarter of 2011.

                                                  5
                                              C.

             The     Wellmans       commenced       this   action     on    February       12,

2010, and filed an amended complaint on July 26, 2010, which

contains    five     counts:      (1)      breach    of    contract;       (2)    breach   of

common-law       duties;       (3)        fraudulent       concealment         of    mineral

extraction; (4) declaratory judgment that the Lease is null and

void    because      Appellee       did    not     produce   gas     from      the   mineral

estate on a consistent basis; and (5) negligent or intentional

trespass.       The Wellmans seek compensatory and punitive damages,

an injunction against further gas extraction, an accounting of

the mineral proceeds extracted, declaratory judgment that the

Lease is null and void, and attorney’s fees and costs.

             On cross motions for summary judgment, the district

court    concluded      that      the      Lease    did    not   expire        nor   was    it

breached and granted judgment in favor of Bobcat.                                See Wellman

v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL 6415487

(S.D. W.       Va.   Dec.   21,      2011)    (concluding        that    production        was

irrelevant to continuation of Lease); Wellman v. Bobcat Oil &

Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va. Feb.

14,    2012)    (finding       no    dispute        of    material      fact      indicating

defendant breached Lease through late or missing payments).

                                              6
                                      II.

             We review de novo a district court’s order granting

summary judgment.       See Webster v. U.S. Dep’t of Agric., 685 F.3d

411, 421 (4th Cir. 2012).

                                     III.

                                      A.

             We turn first to the Wellmans’ contention that the

Lease expired on its own terms because Bobcat ceased production

of   natural    gas   during   certain     identified    periods.      In   this

regard, they point to language in the term clause of the Lease

that appears to require Bobcat to produce.                  Specifically, the

Wellmans direct our attention to the language stating that the

Lease continues “so long thereafter as oil or gas . . . is

produced from the . . . land.”             J.A. 44.     Bobcat responds that

this case is squarely controlled by West Virginia law, which

holds that a mineral lease providing for the payment of flat-

rate   rental    payments   rather   than    production     royalties    cannot

terminate due to a lack of production.                See Bruen v. Columbia

Gas Transmission Corp., 188 W. Va. 730, 426 S.E.2d 522 (1992).

We   agree     with   Appellee.      The    case   before    us   is   squarely

controlled by the Bruen decision and its antecedents.

             The term clause in the Bruen lease extended the lease

“so long thereafter as oil or gas is produced from the land

leased and royalty and rentals paid by lessee therefore.”                    Id.

                                       7
at 552.       In terms of royalty, the lease required a 1/8 royalty

on oil, a $200 annual rent for each gas well, and a $1200 yearly

advance payment to the lessee, from which all royalties were

subtracted.       Id.    As the district court correctly observed, the

terms    of    the    Bruen   lease   and   the   Lease    in   this   case   are

essentially the same, excepting the $1200 annual payment.

               In Bruen, the owners of the mineral estate sued the

lessee, arguing that the mineral lease terminated because the

well did not “produce” during various periods between 1928 and

1971.     Id. at 524-25.         The jury returned a verdict for the

plaintiffs.          On appeal, the Supreme Court of Appeals of West

Virginia concluded that the trial court erred in instructing the

jury    that    “produced”    means   “produced    in     paying   quantities,”

because the quantity of production regarding the disputed lease

was immaterial.         Id. at 527.

               The Bruen court first recognized the long-established

distinction between “flat-rate” and “production” mineral leases,

explaining:

       In McGraw Oil Co. v. Kennedy, 65 W. Va. 595, 64 S.E.
       1027 (1909), this Court spoke to the nature of a flat-
       rate lease for oil and gas:

               This lease does not limit its term by
               requiring that oil or gas shall be found in
               paying quantity, as leases usually do. It
               says that the lease shall endure ‘five years
               from this date and as long thereafter as oil
               and gas, or either of them, is produced
               therefrom by the party of the second part.’

                                        8
          So, this lease contains nothing in terms
          allowing the lessor to end it because oil or
          gas is not found in paying quantity.

     65 W. Va. at 598, 64 S.E. at 1028 (emphasis supplied);
     see also syl. pt. 1, id.

     Similarly, in Bassell v. West Virginia Central Gas
     Co., 86 W. Va. 198, 103 S.E. 116 (1920), the Court
     again addressed a lease involving an annual rental per
     well.

          The rental bears no relation to the quantity
          of gas contemplated or actually produced. It
          was   compensation   fixed  in    advance   of
          production    and   without    any    definite
          knowledge as to what the production would
          be. Hence, the rental reserved was the same
          for wells of light production and wells of
          heavy production.

     86 W. Va. at 202, 103 S.E. at 117 (emphasis supplied).

     In McCutcheon v. Enon Oil & Gas Co., 102 W. Va. 345,
     135 S.E. 238 (1926), the Court said of flat-rate oil
     and gas leases:

          [T]he lease does not in terms say the well
          must produce gas in ‘paying quantities' and
          be marketed. Having no market, the lessee
          had the right to shut the gas in and pay the
          stipulated price.    It would be of little
          concern to [the] lessor what was done with
          the gas, if he gets his payments.

     102 W. Va. at 354, 135 S.E. at 241 (emphasis
     supplied).   And in Ketchum v. Chartiers Oil Co., 121
     W. Va. 503, 506, 5 S.E.2d 414, 416 (1939), the Court
     distinguished a flat-rate lease from the “usual”
     lease: “Unlike the usual oil and gas lease, production
     of oil and gas in paying quantities is not expressly
     required for the extension of the instant lease beyond
     the fixed term.” (emphasis in original).

Bruen, 426 S.E.2d at 524-25 (alteration supplied).

                                9
           Addressing   the   lease    before   it,   the   Bruen    court

recognized,

     production in paying quantities is not what is
     “required by the terms of [the] lease as necessary to
     its continuation,” . . . . Rather, the type of lease
     involved in this case requires “flat” payments of
     rental in the amount of $1200 per year, regardless of
     production.

Id. at 525 (emphasis supplied).

           The Bruen court observed that its earlier decisions in

McGraw Oil and McCutchen “upheld leases when there was no paying

production, but both lessors received rental payments as though

there was paying production, and in the same amount.”               Id. at

526 (emphasis added).     In view of these principles, the Bruen

court held:

     [I]f an oil and gas lease contains a clause to
     continue the lease for a term “so long thereafter as
     oil or gas is produced,” but also provides for “flat-
     rate” rental payments, then quantity of production is
     not relevant to the expiration of the term of the
     lease if such “flat-rate” rental payments have been
     made by the lessee.

Bruen, 426 S.E.2d at 527 (emphasis supplied).

           In this case, the term clause of the Lease provides as

follows:

     It is agreed that this lease shall remain in full
     force for the term of ten years from this date and as
     long thereafter as oil or gas, or either of them, is
     produced from the said land by the said party of the
     second part, its successors and assigns.

                                  10
J.A. 44.         It may appear that this language, standing alone,

requires production of oil or gas.                   But precisely like the lease

in Bruen, the lease here “also provides for ‘flat-rate’ rental

payments. . . .”         Bruen, 426 S.E.2d at 527 (emphasis supplied).

That is, the Lease requires the lessee to pay the lessors “$75

each three months in advance for the gas from each and every

well drilled on said premises . . . to be paid each three months

thereafter while the gas from said well is marketed and used.”

J.A. 44.       Because the Lease provides for the payment of a flat-

rate    rental    to    the    Wellmans,       the    quantity   of    production    --

whether       high,    low,    or     zero    --     is   utterly     irrelevant    for

determining whether the secondary term of the Lease expired,

again assuming the payments are, in fact, made.                       See Bruen, 426

S.E.2d at 527; see also McCutcheon, 135 S.E. at 241 (“It would

be of little concern to [the] lessor what was done with the gas,

if he gets his payments.”).                  Accordingly, we conclude that the

district court did not err by determining that the quantity of

production is irrelevant to the continuation of the Lease.

                                             B.

              Appellants       also    contend       that   Bobcat     forfeited    the

Lease    by    failing    to    tender,       or     by   tendering    late,   certain

required rental payments.              In support, they claim that certain

rental payments were not made: one in 2003 and three in 2006.

                                             11
Appellants also raise the argument that certain royalty payments

were missing or late after the last quarter of 2007.

                                            1.

              Allegedly Missing or Late Payments Before 2008

               As noted, the Lease provides for quarterly flat-rate

payments of $75.00, paid “in advance,” for natural gas produced

from the leasehold estate.                The parties agree that 71 total

payments were due from the point at which Bobcat acquired the

Lease to the close of the record in this case, that is, from

January 1994 to the third quarter of 2011. 3

               The    Wellmans    now   seek      rescission      based   on    late   or

missing checks from various points between 1995 and 2006, but

they       cashed    many    royalty    checks     during    and    after      any   such

periods of delay.             Indeed, the Wellmans concede they received

and cashed the royalty payments for the four quarters of 2007 --

after earlier payments were alleged to be late or missing.

               We agree with the district court that this acceptance

negates       any     need   to   resolve        the   disputed     issues     of    fact

regarding       the    defects    in    earlier        payments    inasmuch     as     the

Wellmans’ acceptance of the 2007 payments ratified any breach

       3
       The Wellmans believe that the payments are due on the 29th
day of January, April, July, and October of each year, but
Bobcat disputes that any specific payment schedule is required
by the terms of the Lease.

                                            12
that may have occurred before that time.                      Under the doctrine of

ratification, the district court correctly concluded that the

Wellmans     are    prevented    from     now       claiming      that    any   defective

payment due before 2008 voided the Lease.

             In     general,    ratification          occurs,       and    there      is   no

breach     justifying       rescission,       “so    long    as    the    injured      party

elects to treat the contract as continuing.”                             Atl. Bitulithic

Co.   v.   Town     of   Edgewood,      137    S.E.    223,        225    (W.   Va.   1927)

(internal citations omitted).                 Additionally, West Virginia law

specifically        prohibits     a     lessor        from        accepting     imperfect

performance under a lease on an ongoing basis, then complaining

of the accepted breach.           See Ohio Fuel Oil Co. v. Greenleaf, 99

S.E. 274, 279–80 (W. Va. 1919) (“It has been held repeatedly

that, where the continuance of a lease such as this depends upon

the payment of money by a certain time, any conduct upon the

part of the lessor which would indicate that the time of payment

might be extended, or conduct on his part indulging the lessee

in making such payment, would estop him from claiming that the

lessee’s rights had ceased.”).

             When     the    Wellmans     accepted          the    quarterly       payments

throughout     2007,     they    ratified       any    defects       in    payments        due

before that time and may not now claim that such defects justify

cancelling the Lease.           Thus, we are left with the question of

                                          13
whether any post-2007 missing or late payments are sufficient to

terminate the Lease.

                                         2.

              Allegedly Missing or Late Payments After 2007

              Appellants      stopped    cashing       the    rental     checks      they

received from Bobcat after the fourth quarter of 2007.                               They

complain, however, that certain of these post-2007 payments were

missing or late.            Because it is undisputed that the Wellmans

decided not to cash any of these checks, the only evidence of

their    issue     or    timeliness      is    provided        by   Bobcat’s      check

register,      and,     for   some     payments,       certified       mail    records.

Appellants neither presented any records of the checks nor did

they offer any evidence as to when they received the checks.

              As   noted,     Appellants      assert    that    quarterly       royalty

payments are due on January, April, July, and October 29 of each

year.     Although      Bobcat      disputes   that     the    Lease    requires     any

specific payment schedule, because both parties have used these

dates    to   calculate       the    timeliness    of    the    payments       for   the

purpose of this case, we also use them for reference. 4                       Guided by

these “due dates,” the parties submitted charts indicating when

     4
       We offer no opinion as to whether the Lease establishes
these payment dates.

                                         14
quarterly royalty checks for 2008–2012 have been due, written,

and received.

              We   look   first   to    the    payments    beginning     with    the

payment due on January 29, 2008.                The parties agree that this

first quarter 2008 payment was due in January 29, 2008, and was

sent   on   November      27,   2007,   by    certified    mail.      The   parties

disagree about all later payments.

              The next check appears in Bobcat’s check register for

the date of March 27, 2008 (“second quarterly payment”), which

it claims was both issued and mailed around that date.                           The

Wellmans insist that they did not receive the second quarterly

payment     until    sometime     in    July    2008,     when   it    arrived    by

certified mail -- nearly one quarter late.                 Bobcat disputes this

account, noting that its check register indicates that separate

checks were issued in both March and July of 2008, for the

second and third quarters of 2008.               The Wellmans do not explain

what   they    believe    actually      happened   to   the   checks    issued    in

March and July of 2008, but simply list the check issued March

27, the second quarterly payment, as corresponding to the July

2008 certified mailing.           Based on these calculations, according

to the Wellmans, the March 2008 and all subsequent quarterly

payments are at least one quarter late.                     The district court

concluded, however, that the Wellmans’ version of events in this

regard has little support in the record.                  See Wellman v. Bobcat

                                         15
Oil & Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va.

Feb. 14, 2012).

            We need not wade into this particular factual dispute

because if we assume the second quarterly payment was either

never issued or was late, the result would remain the same;

neither circumstance is sufficient to justify cancellation of

the Lease under West Virginia law.              That is, for the sake of

argument we can view the second quarterly payment as missed, in

which case the third quarterly payment made in July 2008 and all

subsequently payments were timely.             Alternatively, we can view

the   second     quarterly   payment    as   simply   tendered    one   quarter

late, in which case all following payments were correspondingly

one quarter late.      Adopting either view of the facts, the single

missed payment or correspondingly late quarterly payments are

simply     insufficient      to   justify    cancelling    the     Lease   and

declaring Bobcat’s leasehold estate forfeit.

            The state supreme court has long expressed a “general

disfavor    of    forfeitures     in   contractual    matters[]   within   the

context of oil and gas lease rental clauses. . . .”                 Warner v.

Haught, Inc., 329 S.E.2d 88, 95 (W. Va. 1985).             The Warner court

explained as follows:

      The failure to make stipulated quarterly payments on
      the well is not ground for declaration of a forfeiture
      of the lease, in the absence of a clear and
      unequivocal stipulation that such failure to pay will
      forfeit.   We have many times declared, following the

                                        16
       rule   formulated  when  chancery  courts   came  into
       existence, that equity will never lend its aid to
       enforce a forfeiture.   Never to declare or enforce a
       forfeiture, nor divest an estate or title for
       violation of a condition subsequent, is an invariable
       rule of equity, if there be a legal remedy.      Under
       such circumstances, a court of equity utterly declines
       to touch the case, and leaves the party to his legal
       remedies. “Equity abhors a forfeiture.”

       Plaintiffs had their legal remedy for the enforcement
       of the quarterly payments, and in the answer defendant
       proffers to pay, upon an ascertainment of the amount,
       claiming that plaintiffs should account for the gas
       used from the well in one of the houses, which use was
       not authorized in the lease contract.       The lease
       cannot be forfeited because of nonpayment of the
       quarterly payments, under the circumstances shown by
       the evidence.

Id. 329 S.E.2d at 95-96 (quoting McCutcheon, 135 S.E. at 241)

(citations omitted and emphasis supplied).                See also Bethlehem

Steel Corp. v. Shonk Land Co., 288 S.E.2d 139, 142 (W. Va. 1982)

(“The right to forfeit must be clearly stipulated for in terms,

else it does not exist.         Every breach of a covenant or condition

does not confer it upon the injured party.                      It never does,

unless it is so provided in the instrument.                Such breaches are

usually compensable in damages, and, if a forfeiture has not

been   stipulated   for,   it    is   presumed     that   the    injured     party

intended to be content with such right as is conferred by the

ordinary    remedies.”     (citing      Peerless    Carbon      Black   Co.    v.

Gillespie, 105 S.E. 517 (W. Va. 1920))).

           In this case, the Lease does not contain a “clear and

unequivocal   stipulation”       that    the   lessee’s    failure      to    make

                                        17
quarterly    rental       payments   will    result    in   forfeiture.      See

Warner, 329 S.E.2d at 95-96.           Accordingly, even if we credited

the Wellmans’ allegations regarding the single missed payment or

late     payments    that    correspondingly        followed,    the   evidence

presented    is     far   from   sufficient    to     justify   cancelling   the

Lease.     Id.      Therefore, under these facts, the Lease remains

valid.

                                       IV.

            For     the    foregoing   reasons,       the   judgment    of   the

district court is

                                                                       AFFIRMED.

                                       18