Martha Wellman v. Bobcat Oil & Gas, Inc.
Filing
UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 3:10-cv-00147. Copies to all parties and the district court/agency. [999102920]. [12-1533]
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 1 of 18
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1533
MARTHA WELLMAN; CHARLES WELLMAN,
Plaintiffs - Appellants,
v.
BOBCAT OIL & GAS, INC.,
Defendant – Appellee.
Appeal from the United States District Court for the Southern
District of West Virginia, at Huntington.
Robert C. Chambers,
Chief District Judge. (3:10-cv-00147)
Argued:
March 19, 2013
Decided:
May 7, 2013
Before DUNCAN, FLOYD, and THACKER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Jason Andrew Poling, Robert R. Waters, WATERS LAW GROUP,
Huntington, West Virginia, for Appellants. Matthew James Perry,
LAMP, ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington,
West Virginia, for Appellee.
ON BRIEF: Julie A. Warren, LAMP,
ODELL, BARTRAM, LEVY, TRAUTWEIN & PERRY, PLLC, Huntington, West
Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 2 of 18
PER CURIAM:
Charles
and
Martha
Wellman
(“Appellants”
or
the
“Wellmans”) appeal an order by the district court declining to
invalidate an oil and gas lease granted to Bobcat Oil & Gas,
Inc. (“Appellee” or “Bobcat”).
that
the
lease
did
not
The district court concluded
terminate
for
lack
of
natural
gas
production or due to missed or late rental payments.
On appeal,
Appellants
automatically
terminated
natural
in
because
contend
Bobcat
that
failed
the
to
lease
produce
gas
paying
quantities and further failed to tender timely rental payments,
both of which they claim are required by the lease.
They assert
that even though the lease provides for the payment of a “flatrate”
rental,
rather
lease
nonetheless
than
requires
a
“production-based”
production,
and,
royalty,
that,
the
therefore,
Bobcat’s alleged failure to satisfy this condition terminated
the lease.
We disagree.
Under longstanding West Virginia law, the quantity of
production is irrelevant to the expiration of the secondary term
of
a
mineral
payments.
lease
that
provides
for
“flat-rate”
rental
Moreover, the Wellmans’ claim that Bobcat forfeited
the lease by failing to tender certain rental payments fails on
the grounds of ratification and principles of equity.
reasons detailed below, we affirm.
2
For the
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 3 of 18
I.
A.
On
May
17,
1933,
Ida
May
Dean
Purdue
(“Purdue”)
executed a lease with the Chartiers Oil Company (“Chartiers”),
in which Chartiers was given the right to extract oil and gas
from the mineral estate owned by Purdue, located on Gragston
Creek in Wayne County, West Virginia (the “Lease”).
The “habendum,” or term, clause of the Lease provides:
It is agreed that this lease shall remain in full
force for the term of ten years from this date and as
long thereafter as oil or gas, or either of them, is
produced from the said land by the said party of the
second part, its successors and assigns.
J.A. 44. 1
The Lease requires the lessee to pay to the lessors a
flat-rate rental of “$75 each three months in advance for the
gas from each and every well drilled on said premises . . . to
be paid each three months thereafter while the gas from said
well is marketed and used.”
Id. 2
1
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
2
In contrast, the Lease provides for a 1/8th royalty on all
oil produced.
We observe that mineral leases providing for the payment of
a flat-rate rental instead of a production-based royalty have
been disfavored in West Virginia as a matter of public policy
since 1982. See W. Va. Code § 22-6-8(a)(4), (b). Even so, the
Wellmans do not argue that the Lease is invalid for this reason.
See Wellman v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL
6415487, at *2, 5 (S.D.W. Va. Dec. 21, 2011) (noting that “the
(Continued)
3
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 4 of 18
B.
On January 12, 1978, the Wellmans purchased the rights
as the lessor to the mineral estate from Purdue.
Chartiers sold
its rights under the Lease to PIP Petroleum (“PIP”), who in turn
sold the rights to Bobcat on March 10, 1993.
On March 31, 1993,
PIP notified the Appellants that it had sold its interest in the
mineral estate to Bobcat, and that beginning in January of 1994,
“all Flat Royalty payments will be made by Bobcat Oil & Gas
Company.”
J.A.
148.
On
January
10,
1994,
Bobcat
began
tendering the $75 flat-rate rental payments to the Wellmans on a
quarterly basis, as PIP had done previously.
These requirements resulted in a total of 71 payments,
to be made from Bobcat to the Wellmans, beginning in January
1994 to the third quarter of 2011, when the record in this case
was closed.
Bobcat has presented proof indicating that all 71
payments were made, though the type of proof varies.
Of the 71
payments, 50 are evidenced by cancelled checks with Appellants’
signatures.
The remaining 21 payments are demonstrated by check
stubs, indicating the payment amount of $75 and the date upon
which the checks were written.
Of the 21 check stubs, 17 checks
are checks that the Wellmans admit they received beginning with
West
Virginia
legislature
cannot
overwrite
contracts, see, e.g., U.S. Const. art. 1, § 10”).
4
pre-existing
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 5 of 18
the first quarter of 2008 until the close of the record, but
elected not to cash.
At issue in this case is the alleged non-
payment of certain quarterly rental payments due before 2008, as
well
as
allegedly
late
or
missed
payments
due
in
2008
and
thereafter.
Regarding the allegedly late or missed payments due in
2008
and
thereafter,
Appellants
stopped
cashing
the
rental
checks they received from Bobcat after the fourth quarter of
2007, and assert that certain rental payments owed after that
time are either missing or late.
According to both parties, the
payment for the first quarter of 2008, which they agree for the
sake
of
argument
was
due
by
January
certified mail on November 27, 2007.
29,
2008,
was
sent
by
The parties disagree about
all later payments.
The next check appears in Bobcat’s check register for
the date of March 27, 2008, as payment for the second quarter of
2008.
when
The Wellmans claim that it was not sent until July 2008,
it
was
mailed
by
certified
mail.
Thus,
the
Wellmans
contend that at least one quarterly payment is missing or late,
and if it was late, all subsequent payments would be at least
one
quarter
late.
Bobcat
rental
responds
payments
check
tendered
register
all
Wellmans.
As noted, the record in the case was closed in the
5
been
its
indicates
third quarter of 2011.
have
that
to
the
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 6 of 18
C.
The
Wellmans
commenced
this
action
on
February
12,
2010, and filed an amended complaint on July 26, 2010, which
contains
five
common-law
counts:
duties;
(1)
(3)
breach
of
fraudulent
contract;
(2)
concealment
breach
of
of
mineral
extraction; (4) declaratory judgment that the Lease is null and
void
because
Appellee
did
not
produce
gas
from
the
mineral
estate on a consistent basis; and (5) negligent or intentional
trespass.
The Wellmans seek compensatory and punitive damages,
an injunction against further gas extraction, an accounting of
the mineral proceeds extracted, declaratory judgment that the
Lease is null and void, and attorney’s fees and costs.
On cross motions for summary judgment, the district
court
concluded
that
the
Lease
did
not
expire
breached and granted judgment in favor of Bobcat.
nor
was
it
See Wellman
v. Bobcat Oil & Gas, Inc., CIV.A. 3:10-0147, 2011 WL 6415487
(S.D. W.
Va.
Dec.
21,
2011)
(concluding
that
production
was
irrelevant to continuation of Lease); Wellman v. Bobcat Oil &
Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va. Feb.
14,
2012)
(finding
no
dispute
of
material
fact
indicating
defendant breached Lease through late or missing payments).
6
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 7 of 18
II.
We review de novo a district court’s order granting
summary judgment.
See Webster v. U.S. Dep’t of Agric., 685 F.3d
411, 421 (4th Cir. 2012).
III.
A.
We turn first to the Wellmans’ contention that the
Lease expired on its own terms because Bobcat ceased production
of
natural
gas
during
certain
identified
periods.
In
this
regard, they point to language in the term clause of the Lease
that appears to require Bobcat to produce.
Specifically, the
Wellmans direct our attention to the language stating that the
Lease continues “so long thereafter as oil or gas . . . is
produced from the . . . land.”
J.A. 44.
Bobcat responds that
this case is squarely controlled by West Virginia law, which
holds that a mineral lease providing for the payment of flatrate
rental
payments
rather
than
production
terminate due to a lack of production.
royalties
cannot
See Bruen v. Columbia
Gas Transmission Corp., 188 W. Va. 730, 426 S.E.2d 522 (1992).
We
agree
with
Appellee.
The
case
before
us
is
squarely
controlled by the Bruen decision and its antecedents.
The term clause in the Bruen lease extended the lease
“so long thereafter as oil or gas is produced from the land
leased and royalty and rentals paid by lessee therefore.”
7
Id.
Appeal: 12-1533
Doc: 31
at 552.
Filed: 05/07/2013
Pg: 8 of 18
In terms of royalty, the lease required a 1/8 royalty
on oil, a $200 annual rent for each gas well, and a $1200 yearly
advance payment to the lessee, from which all royalties were
subtracted.
terms
of
Id.
the
As the district court correctly observed, the
Bruen
lease
and
the
Lease
in
this
case
are
essentially the same, excepting the $1200 annual payment.
In Bruen, the owners of the mineral estate sued the
lessee, arguing that the mineral lease terminated because the
well did not “produce” during various periods between 1928 and
1971.
Id. at 524-25.
plaintiffs.
The jury returned a verdict for the
On appeal, the Supreme Court of Appeals of West
Virginia concluded that the trial court erred in instructing the
jury
that
“produced”
means
“produced
in
paying
quantities,”
because the quantity of production regarding the disputed lease
was immaterial.
Id. at 527.
The Bruen court first recognized the long-established
distinction between “flat-rate” and “production” mineral leases,
explaining:
In McGraw Oil Co. v. Kennedy, 65 W. Va. 595, 64 S.E.
1027 (1909), this Court spoke to the nature of a flatrate lease for oil and gas:
This lease does not limit its term by
requiring that oil or gas shall be found in
paying quantity, as leases usually do. It
says that the lease shall endure ‘five years
from this date and as long thereafter as oil
and gas, or either of them, is produced
therefrom by the party of the second part.’
8
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 9 of 18
So, this lease contains nothing in terms
allowing the lessor to end it because oil or
gas is not found in paying quantity.
65 W. Va. at 598, 64 S.E. at 1028 (emphasis supplied);
see also syl. pt. 1, id.
Similarly, in Bassell v. West Virginia Central Gas
Co., 86 W. Va. 198, 103 S.E. 116 (1920), the Court
again addressed a lease involving an annual rental per
well.
The rental bears no relation to the quantity
of gas contemplated or actually produced. It
was
compensation
fixed
in
advance
of
production
and
without
any
definite
knowledge as to what the production would
be. Hence, the rental reserved was the same
for wells of light production and wells of
heavy production.
86 W. Va. at 202, 103 S.E. at 117 (emphasis supplied).
In McCutcheon v. Enon Oil & Gas Co., 102 W. Va. 345,
135 S.E. 238 (1926), the Court said of flat-rate oil
and gas leases:
[T]he lease does not in terms say the well
must produce gas in ‘paying quantities' and
be marketed. Having no market, the lessee
had the right to shut the gas in and pay the
stipulated price.
It would be of little
concern to [the] lessor what was done with
the gas, if he gets his payments.
102 W. Va. at 354, 135 S.E. at 241 (emphasis
supplied).
And in Ketchum v. Chartiers Oil Co., 121
W. Va. 503, 506, 5 S.E.2d 414, 416 (1939), the Court
distinguished a flat-rate lease from the “usual”
lease: “Unlike the usual oil and gas lease, production
of oil and gas in paying quantities is not expressly
required for the extension of the instant lease beyond
the fixed term.” (emphasis in original).
Bruen, 426 S.E.2d at 524-25 (alteration supplied).
9
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Addressing
the
lease
Pg: 10 of 18
before
it,
the
Bruen
court
recognized,
production in paying quantities is not what is
“required by the terms of [the] lease as necessary to
its continuation,” . . . . Rather, the type of lease
involved in this case requires “flat” payments of
rental in the amount of $1200 per year, regardless of
production.
Id. at 525 (emphasis supplied).
The Bruen court observed that its earlier decisions in
McGraw Oil and McCutchen “upheld leases when there was no paying
production, but both lessors received rental payments as though
there was paying production, and in the same amount.”
526 (emphasis added).
Id. at
In view of these principles, the Bruen
court held:
[I]f an oil and gas lease contains a clause to
continue the lease for a term “so long thereafter as
oil or gas is produced,” but also provides for “flatrate” rental payments, then quantity of production is
not relevant to the expiration of the term of the
lease if such “flat-rate” rental payments have been
made by the lessee.
Bruen, 426 S.E.2d at 527 (emphasis supplied).
In this case, the term clause of the Lease provides as
follows:
It is agreed that this lease shall remain in full
force for the term of ten years from this date and as
long thereafter as oil or gas, or either of them, is
produced from the said land by the said party of the
second part, its successors and assigns.
10
Appeal: 12-1533
Doc: 31
J.A. 44.
Filed: 05/07/2013
Pg: 11 of 18
It may appear that this language, standing alone,
requires production of oil or gas.
But precisely like the lease
in Bruen, the lease here “also provides for ‘flat-rate’ rental
payments. . . .”
Bruen, 426 S.E.2d at 527 (emphasis supplied).
That is, the Lease requires the lessee to pay the lessors “$75
each three months in advance for the gas from each and every
well drilled on said premises . . . to be paid each three months
thereafter while the gas from said well is marketed and used.”
J.A. 44.
rate
Because the Lease provides for the payment of a flat-
rental
whether
to
high,
the
low,
Wellmans,
the
or
--
zero
quantity
is
of
utterly
production
irrelevant
-for
determining whether the secondary term of the Lease expired,
again assuming the payments are, in fact, made.
See Bruen, 426
S.E.2d at 527; see also McCutcheon, 135 S.E. at 241 (“It would
be of little concern to [the] lessor what was done with the gas,
if he gets his payments.”).
Accordingly, we conclude that the
district court did not err by determining that the quantity of
production is irrelevant to the continuation of the Lease.
B.
Appellants
Lease
by
failing
to
also
contend
tender,
required rental payments.
or
that
by
Bobcat
tendering
forfeited
late,
the
certain
In support, they claim that certain
rental payments were not made: one in 2003 and three in 2006.
11
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 12 of 18
Appellants also raise the argument that certain royalty payments
were missing or late after the last quarter of 2007.
1.
Allegedly Missing or Late Payments Before 2008
As noted, the Lease provides for quarterly flat-rate
payments of $75.00, paid “in advance,” for natural gas produced
from the leasehold estate.
The parties agree that 71 total
payments were due from the point at which Bobcat acquired the
Lease to the close of the record in this case, that is, from
January 1994 to the third quarter of 2011. 3
The
Wellmans
now
seek
rescission
based
on
late
or
missing checks from various points between 1995 and 2006, but
they
cashed
many
periods of delay.
royalty
checks
during
and
after
any
such
Indeed, the Wellmans concede they received
and cashed the royalty payments for the four quarters of 2007 -after earlier payments were alleged to be late or missing.
We agree with the district court that this acceptance
negates
regarding
any
the
need
to
defects
resolve
in
the
earlier
disputed
payments
issues
inasmuch
of
as
fact
the
Wellmans’ acceptance of the 2007 payments ratified any breach
3
The Wellmans believe that the payments are due on the 29th
day of January, April, July, and October of each year, but
Bobcat disputes that any specific payment schedule is required
by the terms of the Lease.
12
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 13 of 18
that may have occurred before that time.
Under the doctrine of
ratification, the district court correctly concluded that the
Wellmans
are
prevented
from
now
claiming
that
any
defective
payment due before 2008 voided the Lease.
In
breach
general,
justifying
ratification
rescission,
“so
occurs,
long
and
the
as
there
injured
elects to treat the contract as continuing.”
Co.
v.
Town
of
Edgewood,
137
(internal citations omitted).
specifically
prohibits
a
S.E.
223,
is
no
party
Atl. Bitulithic
225
(W.
Va.
1927)
Additionally, West Virginia law
lessor
from
accepting
imperfect
performance under a lease on an ongoing basis, then complaining
of the accepted breach.
See Ohio Fuel Oil Co. v. Greenleaf, 99
S.E. 274, 279–80 (W. Va. 1919) (“It has been held repeatedly
that, where the continuance of a lease such as this depends upon
the payment of money by a certain time, any conduct upon the
part of the lessor which would indicate that the time of payment
might be extended, or conduct on his part indulging the lessee
in making such payment, would estop him from claiming that the
lessee’s rights had ceased.”).
When
throughout
the
2007,
Wellmans
they
accepted
ratified
any
the
quarterly
defects
in
payments
payments
due
before that time and may not now claim that such defects justify
cancelling the Lease.
Thus, we are left with the question of
13
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 14 of 18
whether any post-2007 missing or late payments are sufficient to
terminate the Lease.
2.
Allegedly Missing or Late Payments After 2007
Appellants
stopped
cashing
the
rental
checks
they
received from Bobcat after the fourth quarter of 2007.
They
complain, however, that certain of these post-2007 payments were
missing or late.
Because it is undisputed that the Wellmans
decided not to cash any of these checks, the only evidence of
their
issue
register,
or
and,
timeliness
for
some
is
provided
payments,
by
Bobcat’s
certified
mail
check
records.
Appellants neither presented any records of the checks nor did
they offer any evidence as to when they received the checks.
As
noted,
Appellants
assert
that
quarterly
royalty
payments are due on January, April, July, and October 29 of each
year.
Although
Bobcat
disputes
that
the
Lease
requires
any
specific payment schedule, because both parties have used these
dates
to
calculate
the
timeliness
of
the
payments
purpose of this case, we also use them for reference. 4
for
the
Guided by
these “due dates,” the parties submitted charts indicating when
4
We offer no opinion as to whether the Lease establishes
these payment dates.
14
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 15 of 18
quarterly royalty checks for 2008–2012 have been due, written,
and received.
We
look
first
to
the
payments
payment due on January 29, 2008.
beginning
with
the
The parties agree that this
first quarter 2008 payment was due in January 29, 2008, and was
sent
on
November
27,
2007,
by
certified
mail.
The
parties
disagree about all later payments.
The next check appears in Bobcat’s check register for
the date of March 27, 2008 (“second quarterly payment”), which
it claims was both issued and mailed around that date.
The
Wellmans insist that they did not receive the second quarterly
payment
until
sometime
in
July
2008,
certified mail -- nearly one quarter late.
when
it
arrived
by
Bobcat disputes this
account, noting that its check register indicates that separate
checks were issued in both March and July of 2008, for the
second and third quarters of 2008.
what
they
believe
actually
The Wellmans do not explain
happened
to
the
checks
issued
in
March and July of 2008, but simply list the check issued March
27, the second quarterly payment, as corresponding to the July
2008 certified mailing.
Based on these calculations, according
to the Wellmans, the March 2008 and all subsequent quarterly
payments are at least one quarter late.
The district court
concluded, however, that the Wellmans’ version of events in this
regard has little support in the record.
15
See Wellman v. Bobcat
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 16 of 18
Oil & Gas, Inc., CIV.A. 3:10-0147, 2012 WL 484089 (S.D. W. Va.
Feb. 14, 2012).
We need not wade into this particular factual dispute
because if we assume the second quarterly payment was either
never issued or was late, the result would remain the same;
neither circumstance is sufficient to justify cancellation of
the Lease under West Virginia law.
That is, for the sake of
argument we can view the second quarterly payment as missed, in
which case the third quarterly payment made in July 2008 and all
subsequently payments were timely.
the
second
quarterly
payment
as
Alternatively, we can view
simply
tendered
one
quarter
late, in which case all following payments were correspondingly
one quarter late.
Adopting either view of the facts, the single
missed payment or correspondingly late quarterly payments are
simply
insufficient
to
justify
cancelling
the
Lease
and
declaring Bobcat’s leasehold estate forfeit.
The state supreme court has long expressed a “general
disfavor
of
forfeitures
in
contractual
matters[]
context of oil and gas lease rental clauses. . . .”
Haught, Inc., 329 S.E.2d 88, 95 (W. Va. 1985).
within
Warner v.
The Warner court
explained as follows:
The failure to make stipulated quarterly payments on
the well is not ground for declaration of a forfeiture
of the lease, in the absence of a clear and
unequivocal stipulation that such failure to pay will
forfeit.
We have many times declared, following the
16
the
Appeal: 12-1533
Doc: 31
Filed: 05/07/2013
Pg: 17 of 18
rule
formulated
when
chancery
courts
came
into
existence, that equity will never lend its aid to
enforce a forfeiture.
Never to declare or enforce a
forfeiture, nor divest an estate or title for
violation of a condition subsequent, is an invariable
rule of equity, if there be a legal remedy.
Under
such circumstances, a court of equity utterly declines
to touch the case, and leaves the party to his legal
remedies. “Equity abhors a forfeiture.”
Plaintiffs had their legal remedy for the enforcement
of the quarterly payments, and in the answer defendant
proffers to pay, upon an ascertainment of the amount,
claiming that plaintiffs should account for the gas
used from the well in one of the houses, which use was
not authorized in the lease contract.
The lease
cannot be forfeited because of nonpayment of the
quarterly payments, under the circumstances shown by
the evidence.
Id. 329 S.E.2d at 95-96 (quoting McCutcheon, 135 S.E. at 241)
(citations omitted and emphasis supplied).
See also Bethlehem
Steel Corp. v. Shonk Land Co., 288 S.E.2d 139, 142 (W. Va. 1982)
(“The right to forfeit must be clearly stipulated for in terms,
else it does not exist.
Every breach of a covenant or condition
does not confer it upon the injured party.
unless it is so provided in the instrument.
It never does,
Such breaches are
usually compensable in damages, and, if a forfeiture has not
been
stipulated
for,
it
is
presumed
that
the
injured
party
intended to be content with such right as is conferred by the
ordinary
remedies.”
(citing
Peerless
Carbon
Black
Co.
v.
Gillespie, 105 S.E. 517 (W. Va. 1920))).
In this case, the Lease does not contain a “clear and
unequivocal
stipulation”
that
the
17
lessee’s
failure
to
make
Appeal: 12-1533
Doc: 31
quarterly
Filed: 05/07/2013
rental
Pg: 18 of 18
payments
result
will
Warner, 329 S.E.2d at 95-96.
in
forfeiture.
See
Accordingly, even if we credited
the Wellmans’ allegations regarding the single missed payment or
late
payments
presented
Lease.
is
Id.
that
far
correspondingly
from
sufficient
to
followed,
justify
the
evidence
cancelling
the
Therefore, under these facts, the Lease remains
valid.
IV.
For
the
foregoing
reasons,
the
judgment
of
the
district court is
AFFIRMED.
18
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?