Bison Interests, LLC v. Antero Res. Corp.

854 S.E.2d 211

BISON INTERESTS, LLC, Defendant Below, Petitioner

v.ANTERO RESOURCES CORPORATION and CGAS Properties, L. P., Plaintiff and Defendant Below, Respondents

No. 19-0527

Supreme Court of Appeals of West Virginia.

Submitted: October 27, 2020

Filed: November 10, 2020

Frank E. Simmerman, Jr., Esq., Chad L. Taylor, Esq., Frank E. Simmerman, III, Esq., Simmerman Law Office, PLLC, Clarksburg, West Virginia, Attorneys for Petitioner.

W. Henry Lawrence, Esq., Ancil G. Ramey, Esq., Justin A. Rubenstein, Esq., Shaina L. Richardson, Esq., Steptoe & Johnson PLLC, Bridgeport, West Virginia, Attorneys for Respondent Antero Resources Corporation.

WORKMAN, Justice:

This is an appeal from the May 8, 2019, order of the Circuit Court of Harrison County granting summary judgment in favor of respondent Antero Resources Corporation ("Antero") in its action against petitioner Bison Interests, L.L.C. ("Bison") and CGAS Properties, L. P. ("CGAS"),¹ declaring that Bison is not entitled to an overriding royalty interest in the Marcellus shale formation underlying certain gas wells. The circuit court found that the issue of Bison's entitlement to an overriding royalty in the Marcellus shale production had not been finally adjudicated in prior litigation and therefore Antero's action was neither barred by res judicata or collateral estoppel, nor was Antero judicially estopped from advancing its claim. Accordingly, the circuit court granted declaratory relief to Antero, finding that "Turnkey Drilling Agreements" were incorporated by reference into certain warranty deeds of assignment, which agreements created a depth limitation to Bison's interests. Therefore, it declared that Bison had no entitlement to an overriding royalty interest in the Marcellus shale production underlying the subject leaseholds.

Upon careful review of the briefs, the appendix record, the arguments of the parties, and the applicable legal authority, we conclude that the declaratory judgment sought by Antero in this matter is barred by the doctrines of res judicata and judicial estoppel. We therefore reverse the circuit court's award of summary judgment to Antero and its declaration finding Bison is entitled to no overriding royalty interest within or underlying the 900-foot radii of the Clark and Ash well boreholes.

I. FACTS AND PROCEDURAL HISTORY

In 2012, Bison assigned Antero its interest in certain leaseholds including the subject Clark and Ash leases at issue herein. According to Antero, Bison retained the "wellbore interests" and an overriding royalty interest (or "override").² In March of 2015, Bison sued Antero for failure to pay the overriding royalty interest, alleging breach of contract, breach of fiduciary duty, unjust enrichment, and seeking an accounting and declaratory relief regarding the "rights and obligations" with respect to the leases (the "2015 litigation"). Antero filed a counterclaim, seeking interpleader relief, asserting that CGAS may have an interest in the overriding royalties and therefore it could not determine to whom the overriding royalty was owed. In its counterclaim, Antero took no position that Bison's interest was otherwise limited and stated that "Antero has no interest in the ownership of the overriding royalty interest." Approximately one year after the action was first filed, Bison amended its complaint to also challenge the manner in which Antero was calculating the overriding royalty, alleging that it was engaged in a hedging scheme upon which the royalties should have been calculated, but was instead paying royalties on the lesser production price, resulting in an underpayment of royalties.³

CGAS intervened in the 2015 litigation and reached an agreement with Bison wherein each company disclaimed a competing overriding royalty interest in certain leasehold acreage. CGAS agreed it had no right to overriding royalty payments in the Marcellus formation underlying a 900-foot radius of the specific Clark and Ash wells and Bison agreed it had no right to overriding royalty payments for gas produced outside of the 900-foot radii. Upon that agreement, the parties signed agreed consent orders resulting in CGAS’ dismissal from the case in August, 2016 (regarding the Clark Lease) and May, 2017 (regarding the Ash Lease) (the "CGAS/Bison Agreed Orders"), respectively.

During discovery in August, 2017, Bison moved to compel a title report from Antero pertaining to the Ash lease acreage; in opposing its production, counsel for Antero made certain statements which Bison contends was an acknowledgment that Bison is entitled to an overriding royalty interest in the Marcellus shale. In particular, Antero's written response to the motion stated that the title documents "involve issues already resolved in this litigation by entry of the [CGAS/Bison Agreed Orders]" and are "irrelevant to the remaining claims in this litigation." It stated further that the title documents "go to the point of ownership of the Ash Lease acreage, which was already settled by [the CGAS/Bison Agreed Orders]." Further, Antero's counsel stated at oral argument on the motion that "[t]he issue that was presented originally ... was the ... borehole assignment, who owns the Marcellus at the bottom of the borehole? ... The parties now agree that Bison owns the entire hole [.]" (emphasis added). The motion to compel was denied.

Also during the discovery phase of the 2015 litigation, Antero claims that it first received the "Turnkey Drilling Agreements" (the "Agreements") which were referenced in certain warranty deeds of assignment involving the subject leases. It maintains that only upon receiving the Agreements did it become aware of purported depth limitations which it now claims limit Bison's overriding royalty interests to the shallower Benson Sands and not the Marcellus shale. The Agreements were not recorded and Antero contends that it was provided merely a "sample" of such agreements during its due diligence, which sample did not contain the purported depth-limiting language. At trial, Bison's managing member admitted that he did not previously provide the Agreements to Antero, but that Antero did not press the issue before consummating the transaction.

The parties proceeded to trial on the breach of contract, breach of fiduciary duty, and constructive fraud claims. The court reserved the declaratory judgment aspect of the 2015 litigation until after trial.⁴ The jury found in favor of Bison on the breach of contract claim and awarded damages of $55,375.63 against Antero.⁵

Post-trial, Bison filed a motion to resolve its declaratory judgment claim "concerning the ‘hedge’ pricing issue.’ " Antero also filed a motion for declaratory judgment, apparently asking the court to determine whether Bison was entitled to overriding royalties for production from the Marcellus shale underlying the 900-foot radii of the Clark and Ash wells—the same declaration it seeks in the instant action.⁶ Judge Christopher J. McCarthy, who presided over the 2015 litigation, entered an order (the "McCarthy order") ruling on the hedge pricing issue advanced by Bison, but declining to resolve the Bison overriding royalty issue requested by Antero. The order states:

Antero also urges this Court to interpret the terms of the agreements between Bison and CGAS Properties, L.P., and their respective predecessors in interest, to determine Bison's entitlement to royalties on Marcellus Shale production by Antero from the Ash and Clark Leases. Third parties to a contract between two private citizens generally cannot sue to obtain a declaration as to validity of such a contract or to raise questions as to its construction. See § 55-13-2, but see Shobe v. Latimer, 1979, 162 W.Va. 779, 253 S.E.2d 54. Further, in the instant case, one of the parties, CGAS Properties, L.P., whose entitlement under the agreements would be directly affected, is no longer a party to this case and, thus, would not have the opportunity to be heard on the issue. The Court, therefore declines to address this issue in the instant action.

(emphasis added). With respect to Bison's motion, the circuit court determined that the overriding royalty was to be determined based on the "hedge pricing ultimately realized by Antero." Neither this order, nor the jury verdict, was appealed.

Contemporaneous with the 2015 litigation, Bison (and/or related companies) was involved in federal litigation with Antero regarding rights of first refusal pertaining to the subject leases. Bison asserts that in those federal proceedings, and subsequent to the trial of the 2015 litigation, Antero made statements to the effect that the 2015 litigation culminated in an understanding and/or determination that Bison was entitled to an overriding royalty interest in the Marcellus production. Bison notes Antero's statements in various filings that "the jury [in the 2015 litigation] accepted [Bison's] ... position that it is entitled to an overriding royalty interest by virtue of the Assignment ... of Marcellus rights to Antero as part of its disposition of the breach of contract claim" and that "[Bison] represented and the Court in the State Court Action accepted that [Bison] has an overriding royalty interest in Antero's production on the Subject Leases, which allowed [Bison] to recover damages from Antero based on a breach of contract claim[.]" Antero was represented by the same counsel in the federal proceedings as the case at bar.

Approximately six months after entry of the McCarthy order, in November 2018, Antero filed the instant litigation seeking a declaratory judgment as to the ostensibly unanswered question from the 2015 litigation: whether Bison is entitled to an overriding royalty interest in the Marcellus shale production underlying the Clark and Ash well boreholes. Antero moved for summary judgment, arguing that the Agreements were incorporated by reference into the warranty deeds of assignment and contained depth-limiting language, thereby limiting Bison's...