Hildebrand v. EQT Prod. Co., 1046 WDA 2016

165 A.3d 969

Jon C. HILDEBRAND and Ellen L. Hildebrand, his wife, Appellants

v.EQT PRODUCTION COMPANY; Equitrans, L.P., Bryan A. Long and Courtney R. Long, his wife, and Max W. Schinkovec, Appellees

No. 1046 WDA 2016

Superior Court of Pennsylvania.

Argued March 28, 2017

Filed June 8, 2017

Robert J. Burnett, Pittsburgh, for appellants.

Donald D. Saxton, Jr., Washington, for Schinkovec, appellee.

BEFORE: OLSON, STABILE, and STRASSBURGER, JJ.^*

OPINION BY STABILE, J.:

Appellants, Jon C. Hildebrand and Ellen L. Hildebrand (together "Hildebrand" or "Appellants"), appeal from the order entered on June 24, 2016 in the Court of Common Pleas of Greene County, granting summary judgment in favor of Max Schinkovec ("Schinkovec") and EQT Production Company and Equitrans, L.P. (together "EQT") in this declaratory judgment action involving oil and gas leases. The trial court's June 24, 2016 order was based in significant part on two prior orders and opinions from the same court dated May 20, 2014 (denying Appellants' motion for summary judgment) and January 29, 2015 (granting summary judgment in favor of Schinkovec and EQT and dismissing Counts I and II of Appellants' three-count complaint).¹ The claims against Appellees, Bryan A. Long and Courtney R. Long (together "Long"), were also dismissed by virtue of the trial court's orders. Following considered review, we reverse and remand.

In this appeal from the grant of summary judgment, Appellants present five issues for our consideration:

1. Did the Honorable Trial Judges err as a matter of law or abuse their discretion in concluding that the Lease Modifications amended and nullified the Non–Apportionment Language contained in the Hupp Lease, thereby essentially converting it into an "apportionment lease," by in particular, failing to interpret Paragraph 5 of the Hildebrand Modification as a "lesser interest clause" and instead requiring that production royalties generated from the Hupp lease be paid to all owners of the oil and gas interests encumbered by the Hupp Lease in proportion of their interests?

2. Did the Honorable Trial Judges err as a matter of law or abuse their discretion by holding that the Lease Modifications nullified/amended the Non–Apportionment Language contained in the Hupp lease given that the Long and Schinkovec Modifications did not contain language similar to Paragraph 5 of the Hildebrand Modification?

3. Did the Honorable Trial Judges, particularly Judge Nalitz pursuant to his misunderstanding of the makeup of the Unit and the nature of the Hildebrands' claims, err as a matter of law or abuse their discretion in concluding that the Lease Modifications amended the Non–Apportionment Language contained in the Hupp Lease and required a share of the production royalties to be apportioned to Schinkovec, given that the Schinkovec oil and gas tract was not, and has not ever been "pooled" in the Unit?

4. Did the Honorable Trial Judges err as a matter of law or abuse their discretion in granting EQT and Schinkovec's Motions for Partial Summary Judgment on the basis of the law of the case doctrine and Judge Nalitz's flawed Opinion and Order of May 24, 2010?

5. Upon ruling that the Lease Modifications amended and nullified the Non–Apportionment Language contained in the Hupp Lease, did the Honorable Trial Judges err as a matter of law or abuse their discretion by applying Pennsylvania's "apportionment rule," as stated in Wettengel v. Gormley, 160 Pa. 559, 28 A. 934 (1894), to the subject horizontal wells drilled by EQT?

Appellants' Brief at 8–10. Because Appellants' issues are interrelated, we shall consider them together.

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).

Birdie Associates, L.P. v. CNX Gas Company, LLC, 149 A.3d 367, 371 (Pa. Super. 2016) (quoting Bezjak v. Diamond, 135 A.3d 623, 627 (2016) ).

The parties do not suggest that there are issues of material fact in dispute here. Rather, Appellants challenge the trial court's interpretation of various leases and lease modifications entered into between lessee EQT (and its predecessor² ) and lessors Hildebrand, Schinkovec and Long. The three lessors own neighboring properties that were once owned by A.H. Hupp and Emma M. Hupp and were leased to EQT in 1928 ("Hupp Lease"). Ultimately, Hildebrand filed a declaratory judgment action asking the trial court to declare that EQT had wrongly paid royalties to Schinkovec. Hildebrand also requested an accounting to determine the sums improperly paid or placed in a suspense account pending resolution of the dispute. The trial court determined that Schinkovec was entitled to the sums received and paid into the suspense account and held that Hildebrand was not entitled to an accounting.

The relevant lease provisions, presented in chronological order, are as follows:

The Hupp Lease provides, in pertinent part:

In case of a conveyance of all or a part of the premises leased, Lessee may continue to pay delay rentals to Lessor until furnished with a certified or sworn copy of any such deed of conveyance and other documents or proof to enable Lessee to identify land conveyed as being all or part of leaseland, or on written note of any such conveyance, may hold all installments of delay rental and other payments until furnished with such copy and other documents and proof, and shall apportion the delay rental, in case of any decision, according to acreage, and shall deliver all royalty oil and gas well rental to the owner or owners of the particular tract of land upon which the well is located.

Hupp Lease at 3 (emphasis added). The Hupp lease covered 96 acres and provided for an initial term of five years and a secondary term for as long as the land was operated by the lessee in search of, or in the production of, oil and gas. Id. The lease was modified in 1951 to permit gas storage. The parties agree that the 1951 amendment has no bearing on the apportionment of royalties at issue in this case. See Trial Court Opinion ("T.C.O."), 5/20/14, at 2.

In 2009, the Hupp Lease was again modified with four separate lease modifications between EQT and the current owners of the Hupp tract, Hildebrand, who owns 88.897 acres of oil and gas and 75.897 acres of surface; George and Rebecca Schmidt (together "Schmidt"), who own 13 surface acres but no oil and gas interests below their property; Long, who owns one acre of oil and gas as well as surface; and Schinkovec, who owns 5.853 acres of oil and gas as well as surface. The Hildebrand Modification, which was prepared by EQT, erroneously indicated that the acreage subject to the Hupp Lease was 75.66 acres based on the surface acreage controlled by Hildebrand³ while the remaining three modifications correctly recognized the full 96 acres subject to the Hupp Lease.

All four of the 2009 lease modifications include a provision entitled, "Pooling and Unitization," which permitted EQT at any time "to pool or unitize all or any part of parts of the leased premises or rights therein with any other land in the vicinity thereof ... to create units of such size and surface as Lessee may desire, but containing not more than 640 acres[.]" Hildebrand Lease Modification at ¶ 2; Schmidt, Long and Schinkovec Lease Modifications at ¶ 2 b. Paragraphs 2 and 2 b also provided:

There shall be allocated to the portion of the leased premises included in any pooling such proportion of the actual production from all lands so pooled as to such portion of the leased premises, computed on an acreage basis, bears to the entire acreage of the lands so pooled. The production so allocated shall be considered for the purpose of payment or delivery of royalty to be the entire production from the portion of the leased premises included in such pooling in the same manner as though produced from such portion under the terms of this lease.

Id.⁴

The following provision appears in the Hildebrand Lease Modification only:

In the event the lessor herein should own less than the entire undivided fee simple in the property subject to the original oil and gas lease, then any royalties or rentals accruing under this lease, if any, shall be reduced proportionally; and if the production from the lands embraced in this lease, or any part thereof, is subject to any royalty or interest in production other than the royalty provided herein, then such interest in production shall be deducted from the Lessor's royalty or other share of production herein specified.

Hildebrand Modification at ¶ 5.

EQT issued a Notice of Unitization of "Hildebrand # 1 Unit" on January 19, 2011, comprised of 346.71 acres of land, including 76.15 acres of lands subject to the Hupp Lease. EQT acknowledged that the 76.15 acres of Hupp Lease lands pooled into Hildebrand # 1 Unit included 75.15 acres owned by Hildebrand and the single acre owned by Long. No Schinkovec property was included in the unit....