Birdie Assocs., L.P. v. CNX Gas Co.

149 A.3d 367

2016 PA Super 228

Birdie Associates, L.P., A Pennsylvania Limited Partnership, Appellant

v.CNX Gas Company, LLC, a Corporation, a/k/a Consolidation Coal Co., a Corporation and/or Consol Pennsylvania Coal Co., a Corporation, Appellees

No. 1020 WDA 2015

Superior Court of Pennsylvania.

Argued May 17, 2016

FILED OCTOBER 20, 2016

Reargument Dismissed November 18, 2016

Elizabeth M. Tarasi and Louis M. Tarasi, Jr., Pittsburgh, for appellant.

Rodger L. Puz, Pittsburgh, for appellees.

BEFORE: OLSON, STABILE, and MUSMANNO, JJ.

OPINION BY STABILE, J.:

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 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 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 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, 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:

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. , 347 Pa. 290, 32 A.2d 227 (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...