SWN Production Company, LLC v. BlueBeck, LTD

Filing 75

MEMORANDUM (Order to follow as separate docket entry) re 14 Amended Complaint, filed by SWN Production Company, LLC Signed by Honorable Malachy E Mannion on 10/10/2023. (gg)

Case 3:22-cv-00091-MEM-JFS Document 75 Filed 10/10/23 Page 1 of 25

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
SWN PRODUCTION COMPANY,
LLC,
Plaintiff
v.
BLUE BECK LTD.,
Defendant

:
:

CIVIL ACTION NO. 22-cv-91

:

(JUDGE MANNION)

:
:
MEMORANDUM

Presently before the court is Defendant’s Motion to Dismiss Plaintiff’s
Amended Complaint. Plaintiff SWN Production Company, LLC and
Defendant Blue Beck, Ltd., parties to an oil and gas lease on land in
Susquehanna County, have experienced certain disputes regarding their
agreement. Plaintiff brought this suit seeking declaratory relief with respect
to these disputes. (Doc. 14). Defendant has moved to dismiss. (Doc. 23).

I.

Background1
Plaintiff, a Delaware company with its principal place of business in

Texas, is an oil and gas exploration company. (Doc. 14 ¶¶7, 23). Defendant
In considering a motion to dismiss, the court considers only the facts
alleged in the complaint, exhibits attached to the complaint, and matters of
public record. Bruni v. City of Pittsburgh, 824 F.3d 353, 360 (3d Cir. 2016).
1

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is a New York corporation with its principal place of business in New York.
(Id. ¶20). Defendant entered as lessor an oil and gas lease (the “Lease”) with
Fortuna Energy Inc., the lessee, in September 2009. (Doc. 14-1). Fortuna
assigned the lease to Plaintiff in 2012; therefore, Plaintiff is now the lessee.
(Doc. 14 ¶¶15, 30).
A.) The Lease
The Lease covers land in Susquehanna County, Pennsylvania, and is
governed by Pennsylvania law. (Doc. 14 ¶34; Doc. 14-1 §27(e)). “[I]n all
circumstances,” the Lease is to be “construed against invalidation,
termination, or forfeiture.” (Doc. 14-1 §27(b)). A failure by Plaintiff to make
any royalty payments due under the Lease constitutes an event of default.
(Id. §26(a)). After receiving written disclosure of a failure to make royalty
payments, Plaintiff has 30 days within which to cure, and may be afforded
an additional 60 days if it has commenced the cure within 30 days and
continued to diligently cure. (Id. §26(b)). If Plaintiff fails to cure an event of
default within the time afforded, Defendant has the right to terminate the
Lease after ten days written notice to Plaintiff. (Id. §26(c)). But termination
would not take effect if Plaintiff cures the event of default within those ten
days. (Id.) The Lease also establishes a procedure under which the parties
must attempt in good faith to resolve any disputes. (Id. §27(k)).
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B.) Royalty Payments
The Lease provides for the payment of royalties from Plaintiff to
Defendant of twenty percent of the sales price of all oil and gas produced. 2
(Doc. 14-1 §6 & pg. 14). Plaintiff is required to make royalty payments within
90 days following the month of production. (Id. §6). Defendant has the right
to audit Plaintiff’s books, records, and accounts annually to verify the
accuracy of Plaintiff’s statements and check the amount owed to Defendant.
(Id. §27(c)).
C.) Dispute
Pursuant to the Lease’s dispute resolution provision, Defendant sent a
Notice of Dispute letter on October 5, 2021 asserting that Plaintiff had failed
to make royalty payments on four wells and a compression station. (Doc. 14
§66). Defendant sent an amended version of this letter sixteen days later.
(Id. §69). The parties agreed to meet to discuss these issues. (Id. §70).
Before this meeting, however, Defendant sent Plaintiff a Notice of Event
Default, again citing a failure to make royalty payments. (Doc. 14-3). The
Notice generally asserts that “Lessee has failed to pay all Royalties due to

The Lease provides the method for determining the sales price of oil
and gas and measuring the volume and/or heating value of oil and gas. (Doc.
14-1 pg. 14).
2

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Lessor in accordance with” various provisions of the Lease; it does not state
what amount is owed. (Id.).
The parties’ business representatives met as planned, but Defendant
did not specify the amount owed. (Doc. 14 §§75–76). Based on its own
review, Plaintiff determined that it had made errors in calculating the royalty
payment for three wells, but had correctly made payments on the other 16
wells. (Id. 14 §79–80). Plaintiff remedied these calculation errors and issued
a check to Defendant for the deficiency. (Id. §81–82). It responded to
Defendant’s Notice with a letter describing its review of the payments and its
attempt to cure. (Doc. 14-4). Defendant continued to assert that Plaintiff had
failed to make royalty payments. (Doc. 14-5). Plaintiff requested that
Defendant inform it of the amounts believed due, and Defendant responded
that Plaintiff already possessed the information required to cure. (Docs. 147, 14-8).
The parties entered into a tolling agreement effective December 15,
2021, in which they agreed to toll both the 30-day period for curing any
alleged events of default and the statute of limitations applicable to any
claims either party may have against the other. (Doc. 14-6). The tolling
agreement expired on January 15, 2022. (Id.; Doc. 14 ¶122).

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The amended complaint avers that there exist several “dueling
interpretations” of the Lease between the parties, such that “[a] declaration
by this court as to the correct interpretation of the Lease will assist the
parties.” (Doc. 14 ¶134). First, Plaintiff disputes that the events of default
identified in Defendant’s Notice of Event Default exist or have not been
cured. Second, Plaintiff interprets the lease as prohibiting Defendant from
asserting an event of default until after the 60-day dispute resolution time
frame provided by §27(k) of the Lease. (Id. ¶¶129–30). Third, according to
Plaintiff, Defendant interprets the Lease as permitting Defendant to terminate
any time it believes Plaintiff has failed to cure an event of default, while
Plaintiff reads it as allowing termination only if the parties agree that an event
of default has occurred or if there has been a final judicial declaration
regarding one. (Id. ¶¶135–37). Finally, Plaintiff “interprets the Lease as
requiring sufficient Notice of the amount of alleged Royalty underpayment”
to allow Plaintiff to cure. (Id. ¶155).
D.) Relief Requested
Plaintiff requests relief in the form of a declaration that:
(i) none of the purported Events of default exist or have not been
cured; and (ii) the Lease’s Section 26(b) & (c) cure period (30
+10 days) for an Event of Default requires disclosure of sufficient
detail, including the alleged amount of underpayment, that would
allow SWN Production the opportunity [to] cure; (iii) once the
Lessor engaged in the Dispute Resolution process under the
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Lease, it was required to allow the 60-day period for resolution
of disputes to run before it could send a Notice of an Event of
Default; (iv) there is no “occurrence” of an “Event of Default” that
would allow for forfeiture of the Lease until (a) the Lessor and
Lessee agree that an Event of Default has occurred or (b) there
has been a final judicial determination that an Event of Default
has occurred; and (v) the Lease’s cure period does not begin to
run until after the “occurrence” of an “Event of Default” has been
(a) agreed to by the Lessor and Lessee or (b) determined to exist
by a final judicial order.
(Doc. 14 at 37–38).
II.

Legal Standard
Defendant moves to dismiss Plaintiff’s amended complaint under

Federal Rules of Civil Procedure 12(b)(1), (6), and (7). (Doc. 23 at 2).
A. Rule 12(b)(1)
Rule 12(b)(1) provides for the dismissal of a complaint for lack of
subject-matter jurisdiction. A Rule 12(b)(1) motion can be a facial or factual
attack on subject-matter jurisdiction. Schuchardt v. President, 839 F.3d 336,
343 (3d Cir. 2016). For a facial attack, the court reviews only “the allegations
of the complaint and documents referenced therein and attached thereto, in
the light most favorable to the plaintiff.” Id. (quoting Gould Elecs. v. U.S., 220
F.3d 169, 176 (3d Cir. 2000)). “If, however, the defendant contests the
pleaded jurisdictional facts, ‘the court must permit the plaintiff to respond with
evidence supporting jurisdiction.’” Id. In any case, “[a] federal court’s
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obligation to assure itself that it has subject-matter jurisdiction over a claim
is antecedent to its power to reach the merits of that claim.” Finkelman v.
Nat’l Football League, 810 F.3d 187, 193 (3d Cir. 2016).
B. Rule 12(b)(6)
Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in
part, if the plaintiff fails to state a claim upon which relief can be granted. The
moving party bears the burden of showing that no claim has been stated,
Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005), and dismissal is
appropriate only if, accepting all of the facts alleged in the complaint as true,
the plaintiff has failed to plead “enough facts to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007).
C. Rule 12(b)(7)
Rule 12(b)(7) allows for dismissal of a complaint for failure to join a
party under Rule 19. Rule 19 requires the joinder of parties “subject to
service of process and whose joinder will not deprive the court of subject
matter jurisdiction” if:
(A) in that person’s absence, the court cannot accord complete relief
among existing parties; or (B) that persons claims an interest relating
to the subject of the action and is so situated that disposing of the
action in the person’s absence may: (i) as a practical matter impair or
impede the person’s ability to protect the interest; or (ii) leave an
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existing party subject to a substantial risk of incurring double, multiple,
or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1).

III.

Discussion
The court has jurisdiction over this matter under 28 U.S.C. §1332. The

Declaratory Judgment Act allows a federal court to provide the kind of
remedy Plaintiff seeks; it states:
In a case of actual controversy within its jurisdiction … any court
of the United States, upon the filing of an appropriate pleading,
may declare the rights and other legal relations of any interested
party seeking such declaration, whether or not further relief is or
could be sought. Any such declaration shall have the force and
effect of a final judgment or decree and shall be reviewable as
such.
28 U.S.C. §2201(a).
Yet this allowance does not expand federal courts’ subjectmatter jurisdiction. Travelers Ins. Co. v. Obusek, 72 F.3d 1148, 1153
(3d Cir. 1995) (citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S.
667, 671 (1950)). The Act’s application only to “controvers[ies],” taken
together with Article III’s limited grant of judicial power, has been
explained this way:
The difference between an abstract question and a “controversy”
contemplated by the Declaratory Judgment Act is necessarily
one of degree, and it would be difficult, if it would be possible, to
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fashion a precise test for determining in every case whether there
is such a controversy. Basically, the question in each case is
whether the facts alleged, under all the circumstances, show that
there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.
Maryland Cas. Co. v. Pac. Coal & Oil. Co., 312 U.S. 270, 273
(1941).
A. Justiciability
The

federal

judicial

power

extends

only

to

“Cases”

and

“Controversies.” U.S. Const. art. III, §2. This constitutional limitation on
subject-matter jurisdiction is “essential to our system of separated powers.”
Toll Bros., Inc. v. Twp. of Readington, 555 F.3d 131, 137 (3d Cir. 2009).
“Courts enforce the case-or-controversy requirement through the several
justiciability doctrines,” which “include standing, ripeness, mootness, the
political-question doctrine, and the prohibition on advisory opinions.” Id.
“Article III denies federal courts the power to ‘decide questions that
cannot affect the rights of litigants in the case before them,’ and confines
them to resolving ‘real and substantial controversies admitting of specific
relief through a decree of conclusive character, as distinguished from an
opinion advising what the law would be upon a hypothetical state of facts.”
Lewis v. Cont’l Bank Corp., 494 U.S. 472, 477 (1990) (quoting North Carolina
v. Rice, 404 U.S. 244, 246 (1971)). “To satisfy Article III’s case or controversy
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requirement, an action must present (1) a legal controversy that is real and
not hypothetical, (2) a legal controversy that affects an individual in a
concrete manner so as to provide the factual predicate for reasoned
adjudication, and (3) a legal controversy so as to sharpen the issues for
judicial resolution.” Rhone-Poulenc Surfactants & Specialists, L.P. v. C.I.R.,
249 F.3d 175, 182 (3d Cir. 2001) (quoting Travelers Ins. Co. v. Obusek, 72
F.3d 1148, 1153 (3d Cir. 1995)).
Defendant contends that “there is no justiciable case or controversy”
because Plaintiff does not allege that Defendant has or has stated that it
intends to issue a Notice of Termination of the Lease. (Doc. 24 at 10). Plaintiff
in opposition posits that “if a dispute is ripe, it also satisfies the test for
justiciability,” and so proceeds to argue that the dispute is ripe. (Doc. 25 at
7–8). In reply, Defendant does not refute that proposition, but further asserts
that Plaintiff “seeks a classic advisory opinion.” (Doc. 26, at 1).
The general justiciability argument advanced in Defendant’s brief does
seem to be that Plaintiff has brought this action too soon—essentially, that
the case is unripe. See Plains All Am. Pipeline L.P. v. Cook, 866 F.3d 534,
539 (3d Cir. 2017) (“At its core, ripeness works to determine whether a party
has brought an action prematurely.”). As discussed below, the three-part test
for ripeness incorporates the prohibition on advisory opinions. Defendant
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further contends that its own “vague” (to use Plaintiff’s term) claims “do not
present the court with a developed or sharpened dispute.” (Doc. 26, at 2).
Whether the dispute is sufficiently developed or sharpened to allow judicial
disposition is also subsumed by ripeness. See Plains, 866 F.3d at 539
(“Various concerns underpin [ripeness], including … whether the facts of the
case are ‘sufficiently developed.’”). Accordingly, the parties’ arguments are
appropriately discussed as concerning ripeness, which is Defendant’s next
argument.
B. Ripeness
Federal subject-matter jurisdiction “extends only to claims that are ripe
for resolution.” Wayne Land & Min. Grp. v. Del. River Basin Comm’n, 894
F.3d 509, 522 (3d Cir. 2018). “The function of the ripeness doctrine is to
determine whether a party has brought an action prematurely, and counsels
abstention until such time as a dispute is sufficiently concrete to satisfy the
constitutional and prudential requirements of the doctrine.” Id. “[A] claim is
ripe for review if it is fit for judicial decision and withholding court
consideration of the issue would constitute a hardship to the parties.” Id.
Although “the parameters of ‘ripeness’ are difficult to define within the
context of declaratory judgment actions,” the Third Circuit has developed a

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three-factor method of analysis. 3 Travelers Ins. Co. v. Obusek, 72 F.3d 1148,
1154 (3d Cir. 1995) (citing Step-Saver Data Systems, Inc. v. Wyse
Technology, 912 F.3d 643, 646 (3d Cir. 1990)). This analysis examines (1)
“the ‘adversity of the interest’ between the parties to the action,” (2) “the
‘conclusiveness’ of the declaratory judgment,” and (3) “‘the practical help, or
utility’ of the declaratory judgment.” Id. The action is ripe if all three elements
are present. Id.

The court disagrees with Defendant’s assertion that this case does
not qualify for the Step-Saver test because it is a not First Amendment “free
speech” case involving a pre-enforcement challenge. Step-Saver itself was
not a First Amendment case, nor were other cases applying its test. 912 F.3d
at 646 (declaratory judgment suit seeking declaration that the defendants
were responsible for any liability imposed on the plaintiff from customer
suits); see also Travelers Ins., 72 F.3d at 1152 (declaratory judgment action
seeking determination of whether insurance company was obligated to pay
for certain care services under Pennsylvania law); Pittsburgh Mack Sales &
Serv., Inc. v. Int’l Union of Operating Eng’rs, 580 F.3d 185, 187 (3d Cir. 2009)
(seeking determination whether a union agreement was unenforceable as
violative of public policy); Am. States Ins. Co. v. Component Techs., Inc.,
420 F. Supp. 2d 373, 374 (M.D. Pa. 2005) (seeking clarification of an
insurer’s duties to defend and indemnify insured); AXIS Ins. Co. v. PNC Fin.
Servs. Grp., 135 F. Supp. 3d 321, 325 (“The Third Circuit’s test for the
ripeness in declaratory judgment actions comes from Step-Saver.”).
Peachlum v. City of York, 333 F.3d 429, 434 (3d Cir. 2003), relied on by
Defendant for this proposition, did say that “[a] First Amendment claim,
particularly a facial challenge, is subject to a relaxed ripeness standard.”
Peachlum did not say that the Step-Saver test was that relaxed standard. Id.
It also observed that the Step-Saver test “is tailored to address preenforcement actions,” as opposed to post-enforcement actions, but it did not
hold that the test is limited to pre-enforcement actions challenging the validity
of a statute. Id. at 435.
3

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For this facial attack on subject-matter jurisdiction, the court considers
the facts alleged in the amended complaint and attached documents in the
light most favorable to Plaintiff. Schuchardt, 839 F.3d at 343.
a.) Adversity of Interests
Though a declaratory judgment action plaintiff “need not suffer a
completed harm to establish adversity of interests,” it “must demonstrate that
the probability of the future event occurring is real and substantial, of
sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.” Pittsburgh Mack Sales & Serv., Inc. v. Int’l Union of Operating
Eng’r, 580 F.3d 185, 190 (3d Cir. 2009). “[A] potential harm that is
‘contingent’ on a future event occurring will likely not satisfy this prong of the
ripeness test.” Id. Thus, in Step-Saver, there was no adversity of interest
because the plaintiff sought a judgment that the defendants were responsible
for any liability found in customer suits pending against the plaintiff—so its
harm was contingent on the result of those suits. 912 F.2d at 647–48.
Plaintiff here has identified the harm it seeks to avoid: termination of
the Lease. (Doc. 14 ¶183). It acknowledges that this has not happened yet,
but alleges that Defendant has “indicated a willingness to attempt to
terminate the Lease.” (Id.). The parties have adverse interests, Plaintiff
contends, because they disagree on royalty payments. (Doc. 25, at 11).
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But their disagreement alone does create adversity of interest. In
Travelers, the parties disagreed about payments the plaintiff insurance
company had already been making. 72 F.3d at 1155. And in Pittsburgh Mack,
the disputed withdrawal liability owed to a third-party had already been
demanded. 580 F.3d at 188. The parties in Travelers and Pittsburgh Mack
disagreed on who was liable for a certain expense—and that liability had
already been incurred. So the plaintiff in each was faced with the harm it
sought to avoid: a payment for which it believed it was not liable. The parties
here do not dispute that Plaintiff must pay Defendant royalties under the
Lease; they only disagree on whether Plaintiff has done so correctly. Plaintiff
is not faced with termination, for Defendant has not attempted to terminate
or expressed an intention to do so.
Rather, the potential harm here remains contingent. It requires that
Defendant choose to terminate, and that termination take effect after the tenday cure period. Defendant has only given a notice of default, and
termination is not the inevitable result of a notice of default. The parties may
yet reach an understanding about the royalty payments, or Defendant may
abandon this course. The facts alleged here are simply not enough to
demonstrate that the likelihood of harm is sufficiently real and immediate to
warrant a declaratory judgment. And at this point, it cannot be said that the
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parties’ interests are adverse, for they share the goal of profiting on the
Lease.
Plaintiff also highlights the reasoning of Marbaker v. Statoil USA
Onshore Properties, Inc., 801 Fed. Appx. 56, 60 (3d Cir. 2020), which
concluded that the parties’ interests “in the meaning of their arbitration
clauses became adverse … when they took opposing positions in their
ongoing arbitration.” The plaintiffs sought a declaration that their agreements
with the defendant permitted class arbitration, after they had already started
class arbitration and the defendant had asserted that it was not permitted.
Id. So the plaintiffs there faced the harm of being unable to proceed with
class arbitration, a potential harm that was real and immediate because the
defendants opposed their actual attempt to arbitrate as a class. Plaintiff here,
by contrast, has not come up against a refusal to continue the Lease. Indeed,
the Lease contemplates, and provides for, the possibility that the parties
might disagree or that a default might need curing. Defendant has merely
tried to employ these provisions. It has not taken the additional step of
attempting to terminate, nor has it demonstrated a plan to do so.
Typically, more is required indicating that harm is likely. For example,
adversity of interests existed in Heckman v. UPMC Wellsboro, 2021 WL
2826716, at *11 (M.D. Pa. 2021), where a declaration was sought regarding
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the enforceability of an employment agreement’s non-compete covenant,
because the defendant hospital, which formerly employed the plaintiff as a
physician, sent a cease-and-desist letter based on the covenant. Similarly,
adversity existed in a declaratory judgment action concerning another
employment agreement’s non-solicitation clause where upon the plaintiff’s
resignation, the defendant employer sent a letter stating that all legal
remedies would be sought in the event the plaintiff violated the provision.
Bradfield v. Heartland Payment Systems, LLC, 2018 WL 5784998, at *6
(D.N.J. 2018). Unlike these cases, no clear indication has been made here
that Defendant intends to attempt termination.
An action for declaratory judgment was justiciable in MedImmune, Inc.
v. Genentech, Inc., 549 U.S. 118 (2007), on which Plaintiff also relies, where
MedImmune received from Genentech a letter expressing its belief that a
MedImmune product was covered by a certain patent and that MedImmune
was thus required to pay it royalties. Id. at 121. Believing that patent neither
enforceable nor infringed by its product, MedImmune paid the demanded
royalties under protest and brought an action for declaratory judgment. Id.
The parties did not dispute that the case would be justiciable had
MedImmune refused to make royalty payments, since Genentech did not
contradict MedImmune’s allegation that the former would enjoin sales if the
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latter refused to pay. Id. at 128. The Court concluded that the fact that
MedImmune’s own act, paying the royalties, “eliminate[d] the imminent threat
of harm” did not cause the case to be non-justiciable. Id. at 128, 137. Unlike
MedImmune, Plaintiff here has not been forced to make payments under
protest. And Defendant does not concede that it plans to terminate. Plaintiff
is not faced with a similarly real and immediate choice between termination
and making disputed payments.
The other cases cited by Defendant demonstrate only that a dispute
over contract interpretation can be the subject of a declaratory judgment
action, not that such a dispute by itself creates adversity of interest. In
Korvettes, Inc. v. Brous, 617 F.2d 1021, 1024 (3d Cir. 1980), a live
controversy existed where the parties, who had started negotiating the
defendant’s severance pay, disputed the validity of an employment
agreement specifying compensation. There was also adversity in Expotech
Eng’g v. Cardone Indus., 2020 WL 1694543, at *7 (E.D. Pa. 2020), where
the parties took opposite views on the ownership of a copyright and the
defendant had filed a lawsuit putting the ownership in dispute the year
before. And the parties in Lehigh Coal & Navigation Co. v. Cent. R.R. of N.J.,
33 F. Supp. 362, 365 (E.D. Pa. 1940) disagreed about the scope of an
arbitration which had already begun; thus, it could not “be questioned that
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ultimately” the court would “be required to pass upon this controversy.” The
feared harm in these cases was more real and immediate than that here.
The plaintiff in Korvettes had been terminated and was negotiating his
severance, the parties in Lehigh had begun arbitration, and the previous
lawsuit involved in Expotech provided a clear indication of the threatened
harm. Absent from this case is a concrete event—like termination,
arbitration, or litigation—bringing a theoretical harm into reality.
As an example of a case where no adversity of interest existed,
McKenna v. PSS World Med., Inc., 2009 WL 2007116, at *1 (W.D. Pa. 2009)
involved a declaratory judgment action regarding the validity of restrictive
covenants in the plaintiff’s employment agreement. The court found that the
complaint there did not demonstrate that the probability of harm was real and
substantial because the plaintiff had not alleged that he had been offered or
had accepted employment with another company, or that the defendant had
attempted to enforce the restrictive covenant. Id. Likewise, where plaintiffs
challenged a Pennsylvania anti-takeover statute, this element was not
satisfied because no takeover had been attempted which would trigger the
statute and harm the plaintiffs. Armstrong World Indus. v. Adams, 961 F.2d
405, 415 (3d Cir. 1992). Similarly here, there is no factual allegation that

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Defendant has attempted to terminate the Lease, only conclusory allegations
that it has threatened to.
Bell Atl. Corp. v. MFS Commc’ns Co., 901 F. Supp. 835, 844–49 (D.
Del. 1995) is also persuasive. The plaintiff there, alleging that the defendant
had threatened private antitrust enforcement action, sought a declaration
that it was not acting in violation of antitrust law. Id. at 839–40. The court
noted that the plaintiff had not presented evidence of an express threat by
the defendants, and found that the indirect statements presented did not
make the possibility of suit real or immediate. Id. at 844–45. It rejected the
plaintiff’s theories that the case was justiciable because the parties took
opposing positions or because there were no contingent facts on which the
action would be tried (as it would address the lawfulness only of plaintiff’s
past conduct). Id. at 845–47 (“[T]he simple assertion that the parties disagree
on a legal issue does not create adversity of interest or a justiciable
controversy.”). The court reasoned that “[s]imply because all of the facts that
could create liability have occurred does not demonstrate that present harm
is flowing from a feared … antitrust suit.” Id. at 847. 4 Here too, Plaintiff has
This reasoning is derived from the Third Circuit’s instructions in
Armstrong, 961 F.2d at 412. Discussing the adversity of interest element, the
court explained “a plaintiff need not suffer a completed harm to establish
adversity of interest between the parties. In some situations, present harms
will flow from the threat of future actions.” Id. (citations omitted).
4

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not alleged facts indicating a real and immediate threat of termination. And
adversity of interest is not created by the parties’ disagreement or by the fact
that the payments in dispute have already occurred.
For these reasons, the court concludes that the adversity of interest
element is not present in this case. Its review of Step-Saver’s application in
other cases convinces the court that Plaintiff’s factual allegations do not
demonstrate that the probability of termination is sufficiently real and
immediate to warrant declaratory judgment.
b.) Conclusiveness
The absence of adversity makes this case unripe, but the court also
notes that the first declaratory judgment sought here would not be
conclusive. Conclusiveness “goes to whether the parties’ rights will be
definitively decided by a declaratory judgment.” Step-Saver, 912 F.3d at 649
n.9. This factor “also addresses the extent to which further factual
development of the case would facilitate decision, so as to avoid issuing
advisory opinions, or whether the question presented is predominantly legal.”
NE Hub Partners v. CNG Transmission Corp., 239 F.3d 333, 344 (3d Cir.
2001).
The first declaration Plaintiff seeks is one that Plaintiff has not
defaulted, or failed to cure any default, how Defendant says it has. Such a
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declaration would only define the parties’ rights as to the payments made so
far. It is unlikely to settle going forward the issue of royalty payment
calculation. Unlike “predominantly legal questions,” which “are generally
amenable to a conclusive determination in the preenforcement context,”
Plains, 866 F.3d at 543, the question here is predominantly factual. The
parties do not raise a precise question of contract interpretation regarding
royalty payments whose answer would conclusively define their rights on this
issue.
c.) Utility
Finally, a declaratory judgment “must be of some practical help to the
parties.” Travelers, 72 F.3d at 1155. This requirement stems from the
Declaratory Judgment Act’s purpose “to clarify legal relationships so that
plaintiffs (and possibly defendants) could make responsible decisions about
the future.” Id.
The declarations Plaintiff seeks would have utility by resolving the
parties’ disagreements regarding existing default and contract interpretation.
As the parties navigate this ongoing dispute, such declarations would
provide guidance on their rights in relation to an event of default—which is a
prerequisite for termination. The declarations would thus be of practical help
to the parties.
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Based on its analysis under Step-Saver, the court concludes that
because adversity of interest does not exist, this declaratory judgment action
is not ripe.
C. Exhaustion of Dispute Resolution Provision
Defendant also argues that Plaintiff has not exhausted the dispute
resolution procedure set forth in §27(k) of the Lease, which requires a period
of 60 days following a notice of dispute before a party can initiate court
action. (Docs. 24 at 10; 14-1 §27(k)). Although Defendant styles it as an
argument about ripeness, this affirmative defense does not concern subjectmatter jurisdiction. 5
Taking the amended complaint’s factual allegations as true, the court
concludes that Defendant has not established that this defense warrants
dismissal. 6 Defendant notes that the 60-day period ended three days after
the filing of Plaintiff’s complaint if measured from the October 21, 2021 notice
of dispute and accounting for the tolling agreement. (Doc. 24, at 12). Plaintiff

“[W]ithin the Third Circuit a court may consider an affirmative defense
on a Rule 12(b)(6) motion to dismiss if the bar established by the defense is
‘apparent on the face of the complaint.’” Irish v. Ferguson, 970 F. Supp. 2d
317, 353 (M.D. Pa. 2013) (quoting Bethel v. Jendoco Constr. Corp., 570 F.2d
1168, 1174 (3d Cir. 1978).
6
“In civil cases, the burden of proof rests upon the party who asserts
the affirmative of an issue.” Porter Twp. Initiative v. East Stroudsburg Area
Sch. Dist., 44 A.3d 1201, 1209 (Pa. Super. Ct. 2012).
5

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responds that the period should instead be measured from October 5, 2021,
when Defendant sent its first dispute letter. (Doc. 25, at 15). Neither letter is
in the record. Taking the Plaintiff’s factual allegation regarding the October
5, 2021 letter as true, (Doc. 14 ¶66), the court concludes that this action was
brought outside of §27(k)’s 60-day period.
D. Joinder of Required Parties
Defendant lastly argues that under Rule 19(a) Plaintiff was required to
join the other royalty owners being paid a royalty from the wells drilled on the
leased premises, because these owners will be harmed if Plaintiff abandons
the wells, which Plaintiff alleges Defendant will attempt to require it to do
upon termination. (Docs. 24 at 14; 14 ¶¶62, 138). Defendant bolds
subsection (i) of Rule 19(a)(1)(B), suggesting that disposition of this
declaratory judgment action would impair or impede the other royalty owners’
ability to protect their interests. Defendant also relies on Janney Montgomery
Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 409 (3d Cir. 1993), which
endorsed the proposition that “joinder of an absent party is compulsory under
Rule 19(a)(2)(i) if the federal litigation would have a preclusive effect against
the absent party in subsequent state litigation.”
Defendant does not explain how the declaratory judgment Plaintiff
seeks would have a preclusive effect against any absent parties. The
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requested declarations relate only to the Lease between Plaintiff and
Defendant, so it is not clear how they would preclude others. There is no
allegation that Defendant has entered identical leases with these absent
royalty owners.
Defendant also argues that not joining the absent royalty owners would
lead to a multiplicity of lawsuits upon termination of the Lease. While lawsuits
may result if, as Plaintiff alleges, Defendant attempts to require Plaintiff to
plug or abandon the wells, those suits would involve a different dispute than
this one, which involves a lease between two parties.
While these absent parties may have interests in the wells, disposition
of this action regarding rights under the Lease between Plaintiff and
Defendant will not affect these interests. The declarations sought by Plaintiff
only pertain to events of default and the resulting right to terminate the Lease,
not to the right of Defendant to force abandonment of wells on the leased
premises. These third-party rights to receive royalty payments are not at
issue in this action, and so the other royalty owners’ ability to protect their
interests will not be impeded by disposition in their absence. Therefore,
Defendant has not shown that Plaintiff has failed to join required parties.

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IV.

CONCLUSION
The court concludes that this declaratory judgment action does not

present a case or controversy as required by Article III because it is not ripe.
Therefore, it must be dismissed for lack of subject-matter jurisdiction.
For these reasons, Defendant’s Motion to Dismiss Plaintiff’s Amended
Complaint, (Doc. 23), will be GRANTED. Plaintiff’s Amended Complaint,
(Doc. 14), will be DISMISSED without prejudice. An appropriate order will
follow.

s/ Malachy E. Mannion

MALACHY E. MANNION
United States District Judge
DATE: October 10, 2023
22-91-01

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