Kaess v. Jay-Bee Oil & Gas, Inc.

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FRANCIS KAESS, Plaintiff, v. JAY-BEE OIL & GAS, INC., JAY-BEE PRODUCTION COMPANY, and BB LAND, LLC, Defendants.

CIVIL No. 1:22-CV-51 (KLEEH)

United States District Court, N.D. West Virginia

July 21, 2023

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [ECF NO. 30]

THOMAS S. KLEEH, CHIEF JUDGE

Pending before the Court is a motion for summary judgment filed by Defendant BB Land, LLC (“BB Land”). For the reasons discussed herein, the Court GRANTS IN PART and DENIES IN PART the motion.

I. FACTUAL BACKGROUND

Plaintiff owns certain mineral interests for approximately 103.5 acres in Pleasants County, West Virginia (the “Subject Property”) [ECF Nos. 1 at ¶ 18; 30-2 at 2]. His interest is subject to an oil and gas lease dated January 6 1979 (“the Base Lease”), to which BB Land is the successor-in-interest [ECF No. 30-1]. The Base Lease grants BB Land the right to drill and explore for and extract oil and gas “to the depth of 5000 feet or to the Oriskany Sand,” also referred to as the Marcellus Shale formation. Id. at 1. The Base Lease contains a provision for the payment of royalties which states:

In consideration of the premises the said Lessee covenants and agrees as follows:

1. To deliver to the credit of Lessors free of cost in the pipe lines to which he may connect his wells, the equal one-eighth (1/8) part of all oil produced and sold from the leased premises.

2. To deliver to the credit of Lessors free of cost in the pipe line to which he may connect his wells, the equal one-eighth (1/8) part of all gas produced and marketed from the leased premises, and the Lessors shall have the right to free gas from any such well or wells for hearing and lighting any building on or off the property, making their own connections therefor at their own risk and expense.

Id. at 2.

On May 19, 2016, Plaintiff and BB Land modified the Base Lease by entering into a Pooling Modification Agreement which added “certain voluntary pooling and unitization terms and conditions” [ECF No. 30-3 at 1]. Specially, the Pooling Modification Agreement added the following provision to the Base Lease:

POOLING AND UNITIZATION: Lesee, at its option is hereby given the right to pool or combine the acreage covered by this Lease or any portion thereof with other land, lease or leases in the immediate vicinity thereof, when in the Lessee's judgment it is necessary to advisable to do so in order to property develop and operate said premises in compliance with any lawful spacing rules which may be prescribed for the field in which this lease is situated by an duly authorized authority, or when to do so would, in the judgment of the Lessee, promote the conservation of the oil and gas in and under and that may be produced from said premises Lessee shall execute in writing an instrument identifying and describing the pooled acreage. The entire acreage so pooled in a tract or unit shall be treated, for all purposes except the payment of royalties on production from the pooled unit, as if it were included in this lease. If production is found on the pooled acreage, it shall be treated as if production is had from this lease, whether the well or wells be located on the premises covered by this lease or not. In lieu of royalties elsewhere herein specified, Lessor shall receive on production from a unit so pooled only such portion of the royalty stipulated herein as the amount of his/her acreage placed in the unit or his/her royalty interest therein on an acreage basis bears to the total acreage so pooled in the particular unit involved.

Id.

Around March 2018, BB Land began reporting production of oil and gas from the Subject Property which is included in the P2S unit. The Subject Property contributes 64.093 acres of the unit's 624.5024 acres.

Plaintiff alleges that BB Land has placed his share of production royalties in suspense and has improperly deduced post-production costs from his share. BB Land alleges that, because Plaintiff has never taken a share of production “in kind,” as the Base Lease contemplates, it has taken his share of production to market along with its share of production and, thus, is permitted to deduct post-production costs from Plaintiff's royalty payments.

II. PROCEDURAL HISTORY

Based on these facts, Plaintiff initiated this lawsuit against BB Land, Jay-Bee Oil & Gas, Inc., and Jay-Bee Production Company asserting three causes of action: (1) Payment Misallocation (against all Defendants); (2) Improper Deductions -Marcellus (unclear against whom - cites only “Defendant”); and Excessive Deductions - Utica (unclear against whom - cites only “Defendant”) [ECF No. 1 at 6-10].

On March 7, 2023, the Court granted in part and denied in part a motion to dismiss filed by Defendants [ECF No. 26]. The Court found that Count Three and part of Count One (related to a February 15 Lease) were subject to an arbitration agreement, and the Court stayed those counts pending their arbitration. The Court also dismissed all non-arbitration claims against Jay-Bee Oil & Gas, Inc. and Jay-Bee Production Company. As such, for purposes of deciding this motion, only BB Land remains as a defendant, and only Count Two and the rest of Count One remain for disposition.

III. STANDARD OF REVIEW

Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) .

Summary judgment is proper “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there [being] no ‘genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted).

IV. DISCUSSION

A. Plaintiff's Request for Extension

In BB Land's motion, it states that Plaintiff did not designate any experts by his March 10, 2023, deadline. Plaintiff apparently attempted to serve his expert report on May 2, 2023, which BB Land argues is untimely. BB Land also argues that Plaintiff failed to respond to BB Land's Request for Admission, which are now deemed admitted.

In response, Plaintiff states that the parties had different interpretations of the Court's order on the motion to dismiss. In its order, the Court wrote, “The Court STAYS resolution of Count Three and the portion of Count One relating to the February 15 Lease. The parties are DIRECTED to submit a filing with the Court when arbitration of these claims is complete.” Counsel for Plaintiff apparently interpreted this to mean that the entire case was stayed pending completion of arbitration. For this reason, Plaintiff did not response to BB Land's discovery requests and did not furnish its expert witness disclosure on time. Plaintiff also did not serve his own discovery requests during this time or communicate with BB Land about the mediation deadline.

Plaintiff writes that on May 1, 2023, BB Land communicated with Plaintiff, asking why no discovery responses had been furnished. It was at this moment that Plaintiff learned of the differing interpretations of the Court's order. Plaintiff then provided BB Land with an expert witness disclosure on May 2, 2023. Plaintiff now writes that it “seek[s] guidance on what the Court intended with respect to the language from its Order,” and, if the Court's intent aligns with Defendant's, moves the Court to grant Plaintiff an extension to provide BB Land expert disclosures and to provide extension for Plaintiff to answer BB Land's first set of discovery requests. Plaintiff also requests additional time to ascertain whether BB Land provided Plaintiff incorrect information during discovery and need to supplement.

Based on the record before it, the Court finds no good cause to issue the requested extension. The Court's order did not mention a stay of Count Two or the remainder of Count One. Further, the Court specifically cited precedent indicating that some claims can go to arbitration while other proceed in normal course. See Cabot Oil & Gas Corp. v. Beaver Coal Co., No. 16-0904, No. 150905, 2017 WL 5192490, at *8 (W.Va. Nov. 9, 2017) (“While it may seem counterintuitive to split claims for resolution, . . . the Federal Arbitration Act, 9 U.S.C. § 2, requires that if a lawsuit presents multiple claims, some subject to an arbitration agreement and some not, the former claims must be sent to arbitration - even if this will lead to piecemeal litigation.”). As such, Plaintiff's requests for extensions regarding its discovery responses and expert disclosures are denied. Defendant's requests for admissions are hereby deemed admitted.

B. Remainder of Count One

To date, BB Land has calculated Plaintiff's royalties based on the acreage he contributes to the P2S Unit. In Count One, he asserts that this is in error and his royalties should be “based upon production from the boundaries of the P2S6 Well itself” [ECF No. 1 at ¶ 41].

BB Land moves for summary judgment on this claim, asserting that the Pooling Modification Agreement unambiguously permits BB Land to calculate Plaintiff's royalties “based on a fraction, the numerator being ‘the amount of his/her acreage placed in the unit,' and the denominator being ‘the total acreage so pooled in the particular unit involved'” [ECF No. 30 at 6]. Thus, because “[t]he P2SU unit is comprised of 624.5024 acres, of which Plai...