Court Opinion

ID: 2799695
Source: CourtListenerOpinion
Date Created: 2015-05-08 23:07:53.504285+00
Date Added: 2024-06-11T11:29:33.250675
License: Public Domain

J-A07039-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

NORM’S, LTD.                                    IN THE SUPERIOR COURT OF
                                                      PENNSYLVANIA
                         Appellant

                    v.

ATLAS NOBLE, LLC, ATLAS RESOURCES,
LLC AND CHEVRON APPALACHIA, LLC
SUCCESSORS IN INTEREST TO ATLAS
AMERICA, INC., AND ATLAS
RESOURCES, INC.

                         Appellee                   No. 1377 WDA 2014

                 Appeal from the Order Entered July 30, 2014
               In the Court of Common Pleas of Mercer County
                    Civil Division at No(s): No. 2012-2919

BEFORE: BENDER, P.J.E., LAZARUS, J., and MUNDY, J.

MEMORANDUM BY MUNDY, J.:                                 FILED MAY 8, 2015

      Appellant, Norm’s, Ltd. (Norm’s), appeals from the July 30, 2014 order

granting the motion for summary judgment filed by Atlas Noble, LLC, Atlas

Resources, LLC, and Chevron Appalachia, LLC (collectively, Atlas), and

denying the partial motion for summary judgment filed by Norm’s.         After

careful review, we affirm.

      The following are the facts and procedural history of this case.

                  This is a dispute over an oil and gas lease.
            [Norm’s] is an Ohio limited liability company that
            owns approximately 99 acres in Sandy Creek
            Township, Mercer, County P[ennsylvania].      The
            property was (and remains) undeveloped and the
            family that owns Norm’s has only ever used the
            property for outdoor recreation, including hunting
J-A07039-15

            and camping.     On November 29, 2000, Norm’s
            entered into an Oil and Gas Lease [(Lease)] with []
            Atlas [to allow Atlas to drill wells and extract
            resources from Norm’s’ property].

Trial Court Opinion, 10/2/14, at 3 (italics in original) (citations omitted).

      The Lease provided that Norm’s would receive a 1/8th royalty for any

oil or gas extracted from the leased premises. Lease, 11/29/00, at ¶ 4. The

initial term of the Lease was 18 months, that would continue indefinitely as

long as “oil or gas or their constituents are produced or are capable of being

produced on the premises in paying quantities, in the judgment of [Atlas], or

as the premises shall be operated by [Atlas] in the search for oil or gas[.]”

Lease, ¶ 2. The Lease provided that it would terminate within three months

if Atlas did not commence a well on the premises, unless Atlas tendered a

“delay rental of $1,180.00 [] each year, payments to be made quarterly until

the commencement of a well.” Id. at ¶ 3. Atlas had the right to consolidate

the leased premises with other lands to form an oil and gas development.

Id. at ¶ 10.      The Lease provided that any well located on such a

development unit would be “deemed to be located upon the leased premises

within the meaning and for the provisions and covenants of this [L]ease[,]”

even if the well was not actually physically situated on the leased premises.

Id. In the event of consolidation, Norm’s would receive a proportion of its

1/8th royalty equal to the amount of the leased premises that comprise the

consolidated development unit. Id.

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                 On July 20, 2001, Atlas filed a Consolidation of
          Oil and Gas Leases with the [r]ecorder’s [o]ffice of
          Mercer County. This Consolidation created a single
          drilling production unit of 50 acres—Sapala Unit 4—
          by combining 10 of Norm’s 99 acres with 40 acres of
          the land owned by Walter and Hazel Sapala on the
          eastern border of Norm’s’ land. The Well Location
          Plat filed with the Consolidation of Oil and Gas
          Leases shows the well being located on the Sapalas’
          property. Another document indicates that Atlas
          compensated the Sapalas for having the well placed
          on their property.

                 Under [p]aragraph 10 of the Lease, Norm’s is
          entitled to 10/50ths of the 1/8 oil and gas royalty
          from Sapala Unit 4, or .025 of the royalties. A
          September 14, 2001 amended Oil Division Order
          prepared by Ergon Oil Purchasing, Inc. reflected this
          division of royalties. Norm’s received a copy of the
          Oil Division Order from Atlas.        Norm’s began
          receiving royalty checks on January 4, 2002. Norm’s
          has continued to receive monthly royalty checks
          based on the production from Sapala Unit 4 since
          that time.

                 On September 19, 2012, Norm’s initiated this
          lawsuit, seeking rescission of the Oil and Gas Lease,
          damages, and attorneys’ fees. Norm’s asserted that
          Atlas breached the Oil and Gas Lease by: (1) failing
          to get Norm’s’ approval for the placing of the well on
          the Sapalas’ property; and (2) failing to develop the
          entire 99 acres. Both sides filed cross-motions for
          summary judgment, and on July 30, 2014 th[e]
          [trial] [c]ourt granted [Atlas’ motion] and denied
          [Norm’s’ motion].

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Trial Court Opinion, 10/2/14, at 3-6 (italics in original) (citations omitted).

On August 22, 2014, Norm’s timely filed a notice of appeal.1

       On appeal, Norm’s raises the following issues for our review, which we

have reordered for our discussion.

              [1.] Whether the trial court erroneously granted
              summary judgment to [] Atlas [] as to its statute of
              limitations affirmative defense to Norm’s’ breach of
              contract claim, as the doctrine of equitable
              estoppel/tolling precludes [] Atlas [] from invoking
              the statute of limitations?

              [2.] Whether the trial court erred in concluding that
              [] Atlas [] had no contractual duty to obtain Norm’s’
              approval before placing the subject well on the
              Sapalas’ property?

                     A. Whether the trial court erred by refusing to
                     interpret sections 10 and 20 of the [] [L]ease
                     together under the contract principle of pari
                     materia, which would expand the meaning of
                     “leased premises” under the [L]ease to include
                     a production unit into which Norm’s’ property
                     may be consolidated, thereby requiring [] Atlas
                     [] to obtain Norm’s’ consent for the placement
                     of the well on Sapalas’ Property?

                     B. Whether the trial court, in reaching its
                     conclusion as to the meaning of the [L]ease,
                     erroneously relied on Norm’s’ corporate
                     designee’s lay understanding of the terms of
                     only section 20, as opposed to sections 10 and
                     20 construed together?

                     C. Whether the trial court erroneously based
                     its decision on a lease consolidation/production
____________________________________________

1
 The trial court and Norm’s have timely complied with Pennsylvania Rule of
Appellate Procedure 1925(b).

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                 unit provision of 640 acres under section 10 of
                 the “unmodified form lease,” which in fact the
                 [L]ease was specifically modified from 640
                 acres to 50 acres?

           [3.] Whether the trial court erred by failing to grant
           Norm’s declaratory judgment with respect to
           termination/recession of the [L]ease because of []
           Atlas[’] [] partial abandonment of the lease and the
           unconscionable nature thereof?

           [4.] Whether the trial court erred by failing to grant
           Norm’s’ summary judgment on its quiet title claim,
           as it is derivative of its breach of contract claim to
           which Norm’s’ is entitled to summary judgment?

           [5.] Whether the trial court erroneously granted
           summary judgment to [] Atlas [] as to Norm’s’ claim
           for breach of the implied covenant to develop?

                 [A.] Whether the trial court erred in holding
                 that said covenant was disclaimed under the
                 terms of the [L]ease?

                 [B.] Whether the trial court erred in holding
                 there was no breach of the implied covenant to
                 develop because [] Atlas [] failed to drill even
                 one well on Norm’s’ property and have only
                 included a mere 10 acres of Norm’s’ property
                 in a production unit?

Norm’s’ Brief at 4-5 (some capitalization removed).

     Our standard of review for an appeal from the grant of summary

judgment is as follows.

                 As has been oft declared by [our Supreme]
           Court, “summary judgment is appropriate only in
           those cases where the record clearly demonstrates
           that there is no genuine issue of material fact and
           that the moving party is entitled to judgment as a
           matter of law.” Atcovitz v. Gulph Mills Tennis
           Club, Inc., 812 A.2d 1218, 1221 (Pa. 2002); Pa.

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            R.C.P. No. 1035.2(1). When considering a motion
            for summary judgment, the trial court must take all
            facts of record and reasonable inferences therefrom
            in a light most favorable to the non-moving party.
            Toy v. Metropolitan Life Ins. Co., 928 A.2d 186,
            195 (Pa. 2007). In so doing, the trial court must
            resolve all doubts as to the existence of a genuine
            issue of material fact against the moving party, and,
            thus, may only grant summary judgment “where the
            right to such judgment is clear and free from all
            doubt.” Id. On appellate review, then,

                  an appellate court may reverse a grant of
                  summary judgment if there has been an error
                  of law or an abuse of discretion. But the issue
                  as to whether there are no genuine issues as
                  to any material fact presents a question of law,
                  and therefore, on that question our standard of
                  review is de novo. This means we need not
                  defer to the determinations made by the lower
                  tribunals.

            Weaver v. Lancaster Newspapers, Inc., 926 A.2d
            899, 902-03 (Pa. 2007) (internal citations omitted).
            To the extent that this Court must resolve a question
            of law, we shall review the grant of summary
            judgment in the context of the entire record. Id. at
            903.

Summers v. Certainteed Corp., 997 A.2d 1152, 1159 (Pa. 2010) (parallel

citations omitted).

      In its first issue presented for our review, Norm’s contends that the

trial court erred in finding the statute of limitations barred its breach of

contract claim.   Norm’s’ Brief at 20.   Norm’s argues that the doctrine of

equitable estoppel and tolling precludes Atlas from invoking the statute of

limitations. Id. at 21. We disagree.

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       An action for breach of contract is subject to a four-year statute of

limitations. 42 Pa.C.S.A. § 5525(a)(7). Norm’s’ breach of contract claim in

its amended complaint avers that Atlas breached the Lease by failing to

obtain Norm’s’ approval or consent to the final location of the well on Sapala

Unit 4.     Norm’s’ Amended Complaint, 10/25/12, at ¶ 24.            While the trial

court noted that it was unclear when Atlas began drilling the well on Sapala

Unit 4, Atlas filed the consolidation of oil and gas leases in the Mercer

County recorder’s office on July 20, 2001. Trial Court Opinion, 10/2/14, at

8-9.   Further, Norm’s began receiving royalty checks from the extraction

activity on Sapala Unit 4 on January 4, 2002. Id. at 9. The trial court found

that as of January 4, 2002, Norm’s was aware that Atlas was producing oil

and gas from its property and that Atlas had not obtained Norm’s approval

of the well site.   Id.    Accordingly, Norm’s had four years from January 4,

2002, or until January 6, 2006, to bring a timely claim for breach of

contract.     Id.   The instant action, however, was not commenced until

September 19, 2012, over six years after the statute of limitations had

expired.      Therefore,    it   is   plainly   time-barred.   See   42   Pa.C.S.A.

§ 5525(a)(7).

       Nevertheless, Norm’s argues that Atlas was equitably estopped from

asserting the defense of the statute of limitations because Atlas did not

notify Norm’s of the consolidation or obtain Norm’s’ approval of the well

location. Norm’s’ Brief at 21. “It is the duty of the party asserting a cause

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of action to use all reasonable diligence to properly inform himself [or

herself] of the facts and circumstances upon which the right of recovery is

based and to institute suit within the prescribed period.”   Lange v. Burd,

800 A.2d 336, 339 (Pa. Super. 2002) (citation omitted), appeal denied, 818

A.2d 504 (Pa. 2003).      “If through fraud or concealment the defendant

causes the plaintiff to relax his or her vigilance or deviate from his or her

right of inquiry, the defendant is estopped from invoking the bar of the

statute of limitations.” Id., citing, Molineux v. Reed, 532 A.2d 792, 794

(Pa. 1987).     The defendant must make an affirmative act of fraud or

concealment upon which the plaintiff justifiably relies. Id. The plaintiff has

the burden of proving such fraud or concealment by clear and convincing

evidence. Id.

      Here, Atlas was not equitably estopped from invoking the statute of

limitations against Norm’s breach of contract claim. There is nothing in the

record to indicate that Atlas perpetrated an act of fraud or concealment that

caused Norm’s to relax its vigilance or deviate from its right of inquiry. See

Lange, supra. We agree with the trial court that by virtue of the royalty

checks Atlas began delivering on January 4, 2002, Norm’s was on notice that

oil or gas was being produced from Norm’s’ property. At that time, Norm’s

had a duty to undertake all reasonable diligence to investigate whether Atlas

was complying with the Lease. See id. Norm’s did not prove by clear and

convincing evidence that Atlas undertook any action to conceal its activity or

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alleged breach from Norm’s. See id. On the contrary, Norm’s had actual

knowledge that Atlas breached the contract because Atlas allegedly had not

sought Norm’s approval of the well location at that point.        Therefore, we

conclude the trial court did not err in concluding that Norm’s could not use

the doctrine of equitable estoppel to toll the statute of limitations.2

       In its last issue presented for our review, Norm’s contends the trial

court erred in concluding that Atlas did not breach the implied covenant to

develop. Specifically, Norm’s maintains, “Atlas [has] never drilled a well on

the [leased] [p]roperty and [has] used only a mere 10 acres as part of the

Sapala Unit.      Atlas [has] not further developed the remaining [leased]

[p]roperty, which constitutes approximately 90 percent of the acreage.”

Norm’s’ Brief at 25 (citation omitted). After careful review, we conclude that

the language of the Lease precluded implying a duty to develop on Atlas.

       Our Supreme Court has explained, “Pennsylvania law recognizes an

implied covenant [to develop] but also recognizes that the specific

____________________________________________

2
  Given our conclusion that Norm’s is time-barred from bringing a breach of
contract action, we need not address Norm’s’ second issue that the trial
court erred in interpreting the contract. Similarly, we need not address
Norm’s’ third or fourth issues, which Norm’s admits are derivative of its
breach of contract claim. See Norm’s’ Brief at 31, 34 (acknowledging its
declaratory judgment claim and quiet title claim are derivative of its breach
of contract claim).    Likewise, given our conclusion that the breach of
contract claim is time-barred, we conclude Norm’s cross-motion for
summary judgment, seeking entry of judgment in its favor on its claims for
breach of contract, declaratory judgment, and quiet title, must fail.

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agreement of the parties may preclude the application of the doctrine.”

Jacobs v. CNG Transmission Corp., 772 A.2d 445, 455 (Pa. 2001).

            An implied covenant to develop the underground
            resources appropriately exists where the only
            compensation to the landowner contemplated in the
            lease is royalty payments resulting from the
            extraction of that underground resource. Where,
            however, the parties have expressly agreed that the
            landowner shall be compensated if the lessee does
            not actively extract the resource, then the lessee has
            no implied obligation to engage in extraction
            activities. Thus, so long as the lessee continues to
            pay the landowner for the opportunity to develop
            and produce oil or gas, the lessee need not actually
            drill wells. At the point where that compensation
            ceases due to the expiration of the term of the lease,
            or pursuant the terms of the lease itself, the lessee
            then has an affirmative obligation either to develop
            and produce the oil or gas or terminate the
            landowner’s contractual obligations. As this Court
            stated in McKnight v. Manufacturers’ Natural
            Gas Co., 23 A. 164, 166 (Pa. 1892): “The defendant
            cannot hold the premises and refuse to operate
            them.”

Id.

      In this case, the terms of the Lease preclude the imposition of an

implied covenant to develop under Jacobs.           The Lease provides two

compensation schemes for Norm’s depending on Atlas’ drilling activity.

Norm’s is entitled to a royalty payment if Atlas extracts oil or gas from the

leased premises. Alternatively, if Atlas is not actively extracting oil or gas,

Atlas still must compensate Norm’s in the form of a quarterly “delay rental”

payment. The language of the Lease provides that it continues “indefinitely”

as long as Atlas is making one of those payments. Accordingly, we will not

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impose an implied duty to develop on Atlas because it is precluded by the

terms of the Lease, which provide that Norm’s would be compensated a

“delay rental” fee if Atlas was not extracting oil or gas. See id.

      Additionally, Norm’s acknowledges that Atlas was actively operating a

well on the consolidated Sapala Unit 4 and was paying Norm’s royalties for

the extraction of oil or gas from that well. Under the terms of the Lease,

this well is deemed to be located upon the leased premises.          See Lease,

11/29/00, at ¶ 10. By the terms of the Lease, one well on any portion of the

99 acres, providing Norm’s royalties, is sufficient to allow the Lease to

continue indefinitely. We will not impose a covenant to develop that differs

from the express terms of the Lease. See Jacobs, supra. To the extent

that Norm’s is arguing Atlas has a duty to completely develop and extract all

exploitable resources on the leased premises, there is no provision of the

Lease that imposes such a duty and we will not imply it for the above

reasons. See Caldwell v. Kriebel Res. Co., LLC, 72 A.3d 611, 615 (Pa.

Super. 2013) (declining to “impose an implied duty on the lessee to develop

[all economically exploitable] strata [of natural gas] in light of the language

contained in their contract[, and] particularly in light of the fact that the

[lessee is] producing gas pursuant to the [a]greement[.]        [Lessee] would

also receive delay rentals if no gas were produced[]”), appeal denied, 81

A.3d 74 (Pa. 2013).     Therefore, Norm’s cannot recover for Atlas’ alleged

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breach of an implied duty to develop because the Lease’s specific language

precludes the imposition of such a duty.

     Accordingly, we conclude that the trial court did not err in granting

summary judgment in favor of Atlas. See Summers, supra. Therefore, we

affirm the July 30, 2014 order granting summary judgment in favor of Atlas

and denying Norm’s’ cross-motion for partial summary judgment.

     Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 5/8/2015

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