OHIO VALLEY ENERGY SYSTEMS CORPORATION v. DL RESOURCES, INC.
Filing
114
MEMORANDUM OPINION & ORDER re 87 MOTION for Partial Summary Judgment filed by DL RESOURCES, INC., 92 Partial MOTION for Summary Judgment filed by OHIO VALLEY ENERGY SYSTEMS CORPORATION. Signed by Judge Mark A. Kearney on 11/30/2016. (dm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
OHIO VALLEY ENERGY SYSTEMS
CORPORATION
v.
CIVIL ACTION
NO. 15-29
DL RESOURCES, INC.
November 30, 2016
KEARNEY,J.
MEMORANDUM
After years of working together in owning and operating natural gas and oil wells, two
contracting parties are now disputing multiple aspects of their relationship. It is hard to discern
why they are fighting, but we are left with the debris of largely fact based disputes over money
requiring credibility findings. After working through a menu of disputes, we can pick out a
couple which can resolved as a matter of law. Their business relationship should be resolved by
experienced and prudent businesspersons recognizing the time value of revenue balanced against
increasing trial costs resulting in a fact finder not trained in their specialized business defining
their responsibilities. We are not there as yet and, in the accompanying Order, grant in part and
deny in part the cross-motions for summary judgment.
I.
Undisputed facts
DL Resources develops and operates oil and gas interests operating 695 natural gas and
oil wells. 1 Ohio Valley Energy Systems Corporation shares a working ownership interest in 233
of these Western Pennsylvania wells. 2
On November 2, 2000, the parties signed a Letter of Mutual Agreement establishing an
"Area of Mutual Interest" for developing and producing oil and natural gas in McKean and
Warren Counties. 3 In December 2000, DL and Ohio Valley signed a drilling and operating
agreement ("December 2000 Agreement"). 4 On May 17, 2001, DL and Ohio Valley signed eight
Form 610 model Form Operating Agreements ("May 2001 Agreements"). 5
Most of the
remaining facts material to the present issues are disputed.
II.
Disputed Issues
The Warrant 4912 dispute
The parties' first dispute is whether the December 2000 Agreement or the May 2001
Agreement governs their obligations relating to a well group called Warrant 4912. Ohio Valley
contends their obligations on Warrant 4912 are governed by the December 2000 Agreement,
while DL claims their obligations are governed by one of the eight May 2001 Agreements. 6
The December 2000 Agreement is missing exhibits defining the relevant contract area. It
provides DL, under an "oil and gas deed" attached as Exhibit A, "has certain rights to develop
wells and well locations identified on the map," attached as Exhibit B. 7 These exhibits are not
attached to the December 2000 Agreement, and the parties have not provided these exhibits. 8
Although the December 2000 Agreement fails to define a contract area, it contains an integration
clause: "This Agreement, including the Exhibits hereto, constitutes and represents the entire
understanding and agreement of the parties with respect to the subject matter hereof."9
The May 2001 Agreement defines the contract area as "all of the lands, oil and gas
leasehold interests and oil and gas interests intended to be developed and operated for oil and gas
purposes under this agreement. Such lands, oil and gas leasehold interests and oil and gas
interests are described in Exhibit A." 10 Exhibit A provides "[t]he lands subject to this Agreement
are set forth on Exhibit A-2." 11 Exhibit A-2 defines the relevant contract area broadly as the
2
premises situated within Warrant 4912 and other areas, with some specified exceptions not
relevant here:
This interest covers the premises situated in Warrant 4912, Hilton
Township, McKean County, Pennsylvania containing 1127 acres
more or less, bounded substantially as follows:
Now or formerly:
On the North by lands of Warrant 4911
On the South by lands of Warrant 4913
On the East by lands of Warrant 3412
On the West by lands of Warrant 5572 and Warrant 5556
The following existing wells: 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10 ... and
a five acre square with each well at the center of the square.
Warrant 4912 less and except that 120 acres contained within the
northwest comer ... and that acreage contained within a ten (10)
acre square surrounding one well drilled by Minard Run Oil
Company (Minard Run) on a portion of 4912. 12
Despite this specific language, Ohio Valley claims the May 2001 Agreements only apply to ten
wells Ohio Valley acquired from Whidbey Resources. 13
Disputes on books and records
The parties also dispute production of information. Both the December 2000 Agreement
and the May 2001 Agreement contain identical obligations of access to the Operator's books and
records: "Each party ... shall have access at reasonable times to information pertaining to the
development or operation [of the wells], including Operator's books and records relating
thereto." 14
Both agreements require the Operator, DL, to furnish certain information upon
request: "Operator, upon request, shall furnish each of the other parties with copies of all forms
or reports filed with governmental agencies, daily drilling reports, well logs, tank tables, daily
gauge and run tickets and reports of stock on hand at the first of each month." 15
3
Fee disputes.
Both the December 2000 Agreement and the May 2001 Agreements require Ohio Valley
pay DL operating/overhead fees. Under the December 2000 Agreement, Ohio Valley must pay
DL an operating fee of $150 "in lieu of any direct charges by [DL] for its services or the
provisions by [DL] of its equipment required for normal superintendence and maintenance of
wells." 16 The operating fee covers "all normal, regularly recurring operating expenses for the
production and sale of natural gas, including, without limitation, well-tending, routine
maintenance and adjustment, reading meters, recording production, pumping, maintaining
appropriate books and records, preparing reports to the Interest Holders and government
agencies, and collecting and disbursing revenues."
17
Under the May 2001 Agreements, Ohio Valley must pay DL $250 per well per month in
"overhead." 18 DL may also charge Ohio Valley for a number of "direct charges."
19
These direct
charges are organized into fifteen categories: (1) ecological and environmental; (2) rentals and
royalties; (3) labor; (4) employee benefits; (5) material; (6) transportation; (7) services; (8)
equipment and facilities furnished by operator; (9) damages and losses to joint property; (10)
legal expense; (11) taxes;
(12) insurance; (13) abandonment and reclamation; (14)
communications; and ( 15) other expenditures. 20
Removal of an operator and right to partition.
The parties also dispute whether their Agreement allows removal of an operator. The
May 2001 Agreements contain stricken language, and the parties dispute whether they agreed to
this stricken language. 21 The stricken language includes involuntary removal of an operator and
granting the right to partition the wells. Ohio Valley argues DL presented Ohio Valley President
David Matak with only the signature pages of the May 2001 Agreements, which he signed. 22
4
Ohio Valley President Charles Masters argues the parties had a practice of initialing changes
within a written agreement. 23 DL disputes whether the parties had such a practice. 24
DL ~ limited liability.
The May 2001 Agreements limits liability of the operator, DL: "shall conduct all such
operations in a good and workmanlike manner, but it shall have no liability as Operator to the
parties for losses sustained or liabilities incurred, except such as may result from gross
negligence or willful misconduct." 25
Billing disputes.
The May 2001 Agreements limit Ohio Valley's time for challenging a billed charge or
expense where the non-operator fails to lodge a written objection:
[A]ll bills and statements rendered to Non-Operators by Operator
during any calendar year shall conclusively be presumed to be true
and correct after twenty-four (24) months following the end of any
such calendar year, unless within the said twenty-four (24) month
period a Non-Operator takes written exception thereto and makes
claim on Operator for adjustment. 26
Right to partition of the Southern Wells.
DL and Ohio Valley also share an interest in a group of wells they call the "Southern
Wells," or the Ferringer, Stiver, Musser, and Catfish #2 wells. 27 The parties agree these wells are
governed by the December 2000 Agreement even though the December 2000 Agreement does
not contain a contract area. 28 The December 2000 Agreement grants DL and Ohio Valley the
right to partition the wells, but only after the parties attempt to negotiate terminating the
agreement in good faith. 29
III.
Analysis
On January 20, 2015, Ohio Valley sued DL for partition, breach of contract, breach of
covenant of good faith and fair dealing, and injunctive relief with respect to a Well Group located
5
in McKean County, known as Warrant 4912. 30 On February 17, 2015, Ohio Valley filed its First
Amended Complaint, asserting the same claims but adding an additional 10 wells located within
Warrant 4912. 31
On March 10, 2015, DL filed an answer to Ohio Valley's First Amended
Complaint, which included a counterclaim based upon Ohio Valley's alleged failure to pay DL its
pro rata share of direct expenses and overhead charges under the parties' agreements. 32
On May 10, 2016, Ohio Valley filed a Second Amended Complaint, asserting nine
claims: (1) partition of Warrant 4912; (2) partition of the Southern Wells; (3) breach of the
December 2000 Agreement for failing to provide documentation, failing to operate the wells in a
good and workmanlike manner, and overcharging for gas and fuel; (4) breach of the May 2001
Agreements for failing to provide documentation, failing to operate the wells in a good and
workmanlike manner, and overcharging for gas and fuel; (5) partition of the wells governed by
the May 2001 Agreements; (6) breach of the covenant of good faith and fair dealing; (7)
injunctive relief in the form of removing DL as operator; (8) unjust enrichment for gas usage and
fuel surcharges; and (9) unjust enrichment for overcharging monthly fees. 33 On June 1, 2016,
DL filed an Answer to the Second Amended Complaint and reasserted its counterclaim against
Ohio Valley. 34
Both Ohio Valley and DL moved for summary judgment. 35
The parties agree the
December 2000 Agreement applies to the Southern Wells, but they dispute whether the
December 2000 Agreement or the May 2001 Agreements applies to the remaining wells.
We need a list to keep track of the variety of disputes and our holdings:
*
DL cannot claim breach of the December 2000 Agreement or request a partition
because it failed to provide evidence of the contract area. We accordingly grant DL's motion for
6
summary judgment on Count I (partition of Warrant 4912) and deny Ohio Valley's motion for
I
summary judgment on Count I. Count I is dismissed;
*
A genuine dispute of fact exists as to whether Ohio Valley is entitled to a partition
of the Southern Wells. We deny both parties' motions for summary judgment as to Count II
(partition of the Southern Wells);
*
Ohio Valley is bound by the stricken language in the May 2001 Agreements-
even though Ohio Valley President David Matak admits he only signed the signature pagesbecause Ohio Valley fails to adduce evidence of fraud. Because the stricken language granted
Ohio Valley the right to partition and the right to remove the operator under the May 2001
Agreements, we grant DL's motion for summary judgment as to Count V (partition of wells
governed by the May 2001 Agreements) and Count VII (injunctive relief) and deny Ohio
Valley's motion for summary judgment as to Count V. Counts V and VII are dismissed.
*
The May 2001 Agreement applies to Warrant 4912 based on its express terms. We
deny Ohio Valley's motion for summary judgment as to Count III (breach of the December 2000
Agreement) to the extent it seeks relief for breach of contract as to Warrant 4912 under the
December 2000 Agreement.
*
Ohio Valley does not have the right to a partition of the leased wells or the leased
well assets. Although we already determined Ohio Valley does not have the right to partition
under the May 2001 Agreements and denied its motion for summary judgment as to Count V, we
also deny Ohio Valley's motion for summary judgment as to Count V (partition of wells based on
the May 2001 Agreements) to the extent it relies on the May 2001 Agreements to partition the
leased wells.
7
*
DL breached the December 2000 Agreement as to the Southern Wells by charging
for gas and fuel above the administrative fee.
We grant in part Ohio Valley's motion for
summary judgment as to Count III (breach of the December 2000 Agreement) to the extent it
seeks to enforce the December 2000 Agreement as to the Southern Wells.
We deny Ohio
Valley's motion as to Count IV (breach of the May 2001 Agreements) to the extent it claims
breach of the May 2001 Agreements for overcharging for gas and fuel. We grant in part DL's
motion for summary judgment as to Count IV to the extent Ohio Valley claims breach of the May
2001 Agreements for overcharging for gas and fuel;
*
We grant DL's motion for summary judgment as to Counts VIII and IX-unjust
enrichment claims-because an express contract exists. We deny Ohio Valley's motion as to
Count VIII. Ohio Valley's unjust enrichment claims under Counts VIII and IX are dismissed;
*
A genuine dispute of material fact exists as to whether DL breached the December
2000 Agreement (as to the Southern Wells) or the May 2001 Agreements (as to the remaining
wells) for failing to provide requested documentation.
We deny both parties' motions for
summary judgment under Count III (breach of the December 2000 Agreement) and Count IV
(breach of the May 2001 Agreements) to the extent Ohio Valley claims DL breached these
agreements for failing to provide documentation;
*
The requirement of gross negligence or willful misconduct only applies to
whether DL conducted its operations in a good and workmanlike manner. We deny DL's motion
for summary judgment on all claims to the extent DL claims Ohio Valley failed to provide
evidence DL engaged in gross negligence or willful misconduct;
8
*
We grant DL's motion for summary judgment as to Count VI (breach of covenant
of good faith) because this claim cannot be pled as an independent claim. Ohio Valley's breach
of covenant of good faith claim under Count VI is dismissed; and,
*
We find a genuine dispute of material fact as to whether Ohio Valley timely
objected to charges or expenses. We deny DL's motion for summary judgment as to all claims to
the extent it claims Ohio Valley is not entitled to damages beyond the two-year contractual
limitation.
1. Ohio Valley cannot base a breach of contract claim on the December 2000
Agreement except as to the Southern Wells.
To the extent Ohio Valley premises its claims on the December 2000 Agreement, these
claims fail-except as to claims pertaining to the Southern Wells-because Ohio Valley cannot
demonstrate the area governed by the December 2000 Agreement. "A party claiming breach of
contract must establish '(1) the existence of a contract, including its essential terms, (2) a breach
of a duty imposed by the contract and (3) resultant damages. "' 36 December 2000 Agreement
contains an integration clause. Nevertheless, Ohio Valley failed to provide essential terms of the
December 2000 Agreement-the contract area it governs. The December 2000 Agreement refers
to a deed and a map attached as exhibits, but the parties did not produce these exhibits during
discovery. As Ohio Valley failed to establish an essential term of the December 2000 Agreement,
it cannot establish DL breached the December 2000 Agreement. We deny Ohio Valley's motion
for summary judgment as to Counts I (partition) as it is premised on enforcing the December
2000 Agreement, and we grant DL's motion for summary judgment as to Count I.
Despite the lack of a defined contract area in the December 2000 Agreement, the parties
agree the December 2000 Agreement governs the Southern Wells.
9
2. We deny summary judgment as to a partition of the Southern Wells.
Ohio Valley contends it is entitled to a partition of the Southern Wells under the
December 2000 Agreement because it fulfilled its contractual obligations to negotiate
termination of the agreement in good faith. DL disputes whether the parties negotiated in good
faith.
There is a genuine dispute of material fact as to whether the parties negotiated in good
faith.
DL president David Bonacci swears Ohio Valley never contacted him in an effort to
negotiate terminating the December 2000 Agreement. 37 Ohio Valley president Charles Masters
swears Ohio Valley made a good faith effort to resolve outstanding claims and issues between
Ohio Valley and DL. 38 This conflicting testimony creates a genuine issue of material fact for
trial. We deny both parties' motions for summary judgment as to Count II (partition of Southern
Wells).
3. Ohio Valley is bound by the stricken language in the May 2001 Agreements.
Ohio Valley contends it is not bound by the stricken language in the May 2001
Agreements despite former Ohio Valley President David Matak's admission he signed the
signature pages of these agreements. We find Ohio Valley bound by the stricken language in the
May 2001 Agreements.
In Pennsylvania, "a contract is created where there is mutual assent to the terms of a
contract by the parties with the capacity to contract. " 39 "In ascertaining the intent of the parties to
a contract, it is their outward and objective manifestations of assent, as opposed to their
undisclosed and subjective intentions, that matter."40 "(A] party's signature to a contract is
designed to evidence his or her intention to be bound thereby." 41
10
"The requirement of
consideration as an essential element of a contract is nothing more than a requirement that there
be a bargained for exchange. " 42
"It is well established that, in the absence of fraud, the failure to read a contract before
signing it is 'an unavailing excuse or defense and cannot justify an avoidance, modification or
nullification of the contract'; it is considered 'supine negligence. "'43 Where a party signs a
document without alleging fraud, producing evidence "to show a lack of capacity to understand
the document signed," and asking "for an explanation of the contract language," the party "must
be held to the contract's terms." 44 "[A] party alleging fraud has the burden of proving the same
by clear and convincing evidence. " 45
Ohio Valley contends DL presented former Ohio Valley President David Matak only the
signature pages of the May 2001 Agreements, yet he signed them anyway. 46 His signatures
constitute objective manifestations of assent to the May 2001 Agreements, including the stricken
language.
The requirement of consideration is satisfied because both parties incurred legal
obligations under the agreements.
Ohio Valley fails to adduce clear and convincing evidence of fraud.
Ohio Valley
President Charles Masters speculates to the "possibility" of fraud. 47 He states "the signature
pages may have been attached to something we did not see or approve," but he admits he has no
evidence of fraud. 48 As Ohio Valley fails to satisfy its burden of demonstrating fraud by clear
and convincing evidence, it is bound to the May 2001 Agreement, including its stricken terms.
Ohio Valley President Charles Masters contends the parties did not agree to the stricken
language because the parties had a practice of initialing changes to written agreements. 49 DL
disputes whether the parties had such a practice. 50 Regardless of whether the parties had such a
practice, Ohio Valley is bound by President Matak's signature to the May 2001 Agreement
11
because the signature constitutes Ohio Valley's objective manifestation of assent to the May 2001
Agreement.
Because Ohio Valley is bound by the stricken terms, we deny Ohio Valley's motion for
summary judgment as to Count V (partition), and grant DL's motion with respect to Count V,
because the May 2001 Agreement-with the stricken terms-does not provide the right to
partition. We also grant DL's motion for summary judgment as to Count VII (injunctive relief)
because the May 2001 Agreement with the stricken terms does not permit involuntary removal.
4. The May 2001 Agreement applies to Warrant 4912.
Ohio Valley claims the May 2001 Agreements only apply to ten wells Ohio Valley
acquired from Whidbey Resources, and they do not apply to Warrant 4912. Ohio Valley's only
support for this assertion is Ohio Valley President Masters' bald allegation the May 2001
Agreements only apply to the Whidbey wells. Ohio Valley does not rely on the language of the
May 2001 Agreements themselves. The May 2001 Agreement defines the contract area as "the
premises situated in Warrant 4912," with some exceptions not relevant here. 51 Based on this
language, the May 2001 Agreement clearly applies to Warrant 4912.
5. Partition of the leased wells and their assets.
Ohio Valley contends the May 2001 Agreements have expired under their own terms to
the extent the oil and gas leases for these wells have terminated because the wells are no longer
producing. Ohio Valley argues because the May 2001 Agreements have expired, it is entitled to
a partition of these wells and their assets. DL contends the wells are now producing, and the
lessors either consented to any shut-in of the wells of DL resumed production for a period
sufficient to preserve the leases. DL also contends the parties' interest in the leases or in the
assets cannot be partitioned.
12
Article XIII of the May 2001 Agreements provides, "This agreement shall remain in full
force and effect as to the oil and gas leases and/or oil and gas interests .... [s]o long as any of
the oil and gas leases subject to this agreement remain or are continued in force as to any part of
the Contract Area, whether by production, extension, renewal, or otherwise." 52
Ohio Valley provided three leases. These leases generally provide the lease terminates if
the well fails to produce in paying quantities for a specified period of time. 53 While Ohio Valley
contends some wells have failed to produce in paying quantities, DL contends the wells were
shut in with consent of the lessors. 54 This raises a genuine factual dispute as to whether the
leases have terminated.
Nevertheless, even if the leases have terminated, Ohio Valley is not entitled to a partition.
"Partition is a possessory action; its purpose and effect being to give each of a number of joint
owners the possession he is entitled to or his share in severalty. "
55
"[T]he right to partition is an
incident of a tenancy in common." 56 Ohio Valley and DL share leasehold interests in the wells.
We cannot order partition of a lease or of assets; the right to partition applies only to jointly
owned property.
6. Breach of the December 2000 Agreement and the May 2001 Agreements
relating to gas usage and fuel surcharges.
Ohio Valley claims DL breached the December 2000 Agreement (as to the Southern
Wells) and the May 2001 Agreements (as to the remaining wells) by overcharging for gas usage
and fuel surcharges.
As to the May 2001 Agreement, DL argues the gas usage and fuel
surcharges are permissible transportation costs or otherwise chargeable under a catch-all
prov1s1on. DL does not expressly address Ohio Valley's argument DL overcharged under the
December 2000 Agreement with respect to the Southern Wells.
13
"Pennsylvania contract law begins with the 'firmly settled' point that 'the intent of the
parties to a written contract is contained in the writing itself. "' 57 If the parties' intent is clear, we
must rely on the contents of the agreement alone. 58 A contract is unambiguous if we "can
determine its meaning without any guide other than a knowledge of the simple facts on which,
from the nature of the language in general, its meaning depends." 59 If a contract's terms are
"ambiguous and susceptible of more than one reasonable interpretation," we may use extrinsic
evidence to resolve the ambiguity. 60 The ambiguity must be resolved by the jury. 61
December 2000 Agreement - gas usage and fuel surcharges
Under the December 2000 Agreement, Ohio Valley must pay DL an operating fee of $150
"in lieu of any direct charges by [DL] for its services or the provisions by [DL] of its equipment
required for normal superintendence and maintenance of wells. "
62
The operating fee covers "all
normal, regularly recurring operating expenses for the production and sale of natural gas,
including, without limitation, well-tending, routine maintenance and adjustment, reading meters,
recording production, pumping, maintaining appropriate books and records, preparing reports to
the Interest Holders and government agencies, and collecting and disbursing revenues." 63
The December 2000 Agreement unambiguously prohibits charges for gas and fuel,
because such charges are subsumed by the operating fee.
The operating fee includes, "all
normal, regularly recurring operating expenses" for the production and sale of gas "in lieu of any
direct charges. " 64 Gas usage and fuel surcharges are "direct charges" covered by the operating
fee. A normal, regularly recurring expense of operating a well includes gas and fuel expenses
used to drive and operate vehicles and machinery.
The December 2000 Agreement
unambiguously permits Ohio Valley to pay $150 monthly per well for all normal operating costs.
DL cannot separately invoice Ohio Valley any direct charges for gas and fuel.
14
Because DL
directly charged Ohio Valley for gas and fuel, we grant in part Ohio Valley's motion for summary
judgment as to Count III to the extent it is based on enforcing the December 2000 Agreement as
to the Southern Wells. As Ohio Valley has not identified the amount of gas and fuel charges
attributable to the Southern Wells, we reserve the issue of the amount of damages for trial.
May 2001 Agreement- gas usage and fuel surcharges
Although gas usage and fuel surcharges are unambiguously included in operating fee
under the December 2000 Agreement, these charges are permissible direct charges under the
May 2001 Agreements. Under the May 2001 Agreements, Ohio Valley must pay DL $250 per
well per month in "overhead."65 DL may also charge Ohio Valley for a number of "direct
charges." 66 These direct charges are organized into fifteen categories: (1) ecological and
environmental; (2) rentals and royalties; (3) labor; (4) employee benefits; (5) material; (6)
transportation; (7) services; (8) equipment and facilities furnished by operator; (9) damages and
losses to joint property; (10) legal expense; (11) taxes; (12) insurance; (13) abandonment and
reclamation; ( 14) communications; and ( 15) other expenditures. 67 Transportation charges cover
"[t]ransportation of employees and Material necessary for the Joint Operations" with some
limitations not applicable here. 68 Because DL might expend fuel to transport employees or
material with a vehicle, the May 2001 Agreements unambiguously permit DL to directly charge
Ohio Valley for gas usage and fuel surcharges.
Even if the gas and fuel are not directly chargeable as transportation expenses, they are
directly chargeable as "other expenditures."
Under provision 15, "Other Expenditures" is
defined as "[a]ny other expenditure not covered or dealt with in the foregoing provision of this
[section] or in [the section governing overhead charges] and which is of direct benefit to the Joint
Property and is incurred by the Operator in the necessary and proper conduct of the Joint
15
Operations. " 69
Under the section governing "overhead" charges, Ohio Valley must pay DL
monthly overhead charges for producing wells, consisting of "compensation for administrative,
supervision, office services and warehousing costs." 70 Because Gas and fuel charges do not
constitute administrative, supervision, office services and warehousing costs, these charges
would be directly chargeable as other expenditures. We deny Ohio Valley's motion for summary
judgment as to Count IV to the extent it is based on improper gas usage and fuel surcharges
under the May 2001 Agreements, and we grant in part DL's motion for summary judgment as to
Count IV to the extent Ohio Valley claims breach of the May 2001 Agreements for overcharging
for gas and fuel.
7. Unjust enrichment
Ohio Valley argues even if we find DL did not breach the May 2001 Agreements as to
fuel and gas charges and the overcharge of monthly operating fees, DL has been unjustly
enriched. "By its nature, the doctrine of quasi-contract, or unjust enrichment, is inapplicable
where a written or express contract exists.'m As we held Ohio Valley and DL are bound by the
May 2001 Agreements, and those agreements define the parties' obligations as to monthly fees
and fuel and gas charges, Ohio Valley cannot pursue claims for unjust enrichment based on gas
and fuel charges or overcharge of monthly fees. We deny Ohio Valley's motion for summary
judgment as to charges for gas and fuel surcharges in Count VIII and grant DL's motion for
summary judgment as to Counts VIII and IX (overcharge of monthly operating fees).
8. Breach of the December 2000 Agreement and the May 2001 Agreement based
on failure to provide documents.
Ohio Valley claims DL breached both the December 2000 Agreement and the May 2001
Agreement by failing to provide documents as to how DL calculated its fees. DL counters the
Ohio Valley failed to follow the procedures outlined in the agreements.
16
Both agreements contain identical provisions regarding access to the Operator's books
and records: "Each party ... shall have access at reasonable times to information pertaining to
the development or operation [of the wells], including Operator's books and records relating
thereto." 72 The agreements also require the Operator, DL, to furnish certain information upon
request: "Operator, upon request, shall furnish each of the other parties with copies of all forms
or reports filed with governmental agencies, daily drilling reports, well logs, tank tables, daily
gauge and run tickets and reports of stock on hand at the first of each month." 73 While Ohio
Valley contends it "repeatedly" sought documentation, 74 DL counters Ohio Valley never properly
requested such documentation under the procedures in the agreements. 75
We find a genuine dispute of material fact as to whether Ohio Valley properly requested
documentation under the agreements, and whether DL breached by not providing requested
documentation. We deny Ohio Valley's motion for summary judgment as to Count III (breach of
December 2000 Agreement as to Southern Wells) and Count IV (breach of May 2001
Agreements as to remaining wells) to the extent they are based on the failure to provide
documents.
9. The May 2001 Agreements' requirement of gross negligence or willful
misconduct only applies to whether DL conducted its operations in a good
and workmanlike manner.
DL argues it is entitled to summary judgment on all claims because the May 2001
Agreements limit the operator's liability to liabilities resulting from its gross negligence or
willful misconduct. Ohio Valley counters the limitation of liability in the May 2001 Agreements
applies only to DL's requirement to operate the wells in a good and workmanlike manner.
The May 2001 Agreements contain an exculpatory clause limiting liability of the
operator, DL. The exculpatory clause provides the operator "shall conduct all such operations in
17
a good and workmanlike manner, but it shall have no liability as Operator to the other parties for
losses sustained or liabilities incurred, except such as may result from gross negligence or willful
misconduct." 76
The Court of Appeals of Texas in Cone v. Fagadau Energy Corporation reviewed this
same provision and found the gross negligence or willful misconduct requirement only applies to
the operator's requirement to conduct operations in a good and workmanlike manner. 77 In Cone,
the operator argued it could not be liable for breaching the agreement based on overcharging the
non-operator because the non-operator failed to allege the operator engaged in gross negligence
or willful misconduct. 78 The Court of Appeals rejected this argument, reasoning the language
requiring gross negligence or willful misconduct "immediately follows" the language requiring
the operator to conduct operations in a good and workmanlike manner, and the operating
agreement specifically stated what the operator could charge. 79 The court held "[t]he gross
negligence/willful misconduct requirement applies to any and all claims that the operator failed
to conduct operations in a good and workmanlike manner." 80
We are persuaded by this
reasoning and similarly conclude the gross negligence/willful misconduct requirement only
applies to claims DL failed to conduct operations in a good and workmanlike manner.
To the extent Ohio Valley contends DL failed to conduct operations in a good and
workmanlike manner, we leave the issue of whether DL's conduct amounted to gross
negligence/willful misconduct to the jury. Gross negligence is "a form of negligence where the
facts support substantially more than ordinary carelessness, inadvertence, laxity, or indifference.
The behavior of the defendant must be flagrant, grossly deviating from the ordinary standard of
care." 81 The gross negligence determination is normally for the jury, "but may be removed from
consideration by a jury and decided as a matter of law only where the case is entirely free from
18
doubt and there is no possibility that a reasonable jury could find gross negligence." 82 At this
juncture, we lack sufficient information about the Ohio Valley's claims for us to find no
possibility a reasonably jury could find gross negligence. We deny DL's motion for summary
judgment to the extent DL claims Ohio Valley failed to provide evidence DL engaged in gross
negligence or willful misconduct.
10. Good faith and fair dealing
DL argues Ohio Valley's claim for good faith and fair dealing fails as a matter of law
because ( 1) Pennsylvania has not recognized an independent covenant of good faith in the
context of an oil and gas contract between an operator and a working interest owner; (2) no
separate cause of action is permitted based upon an alleged breach of the covenant of good faith;
and (3) the covenant cannot be used to circumvent or alter the express terms of the parties'
contract. 83 Ohio Valley counters DL violated the covenant of good faith and fair dealing by: (a)
not providing information and documents to Ohio Valley; and (b) not expending appropriate
resources to pump the wells and doing only the absolute minimum under the Agreements while
charging Ohio Valley each month.
"[E]very contract imposes upon the parties a duty of good faith and fair dealing in the
performance and enforcement of the contract. " 84 "[A] breach of the covenant of good faith and
fair dealing is a breach of contract action, not an independent action for breach of a duty of good
faith. " 85 "Pennsylvania law does not recognize a separate breach of contractual duty of good
faith and fair dealing where said claim is subsumed by a separately pled breach of contract
claim." 86
The covenant of good faith and fair dealing "attaches to existing contractual obligations;
it does not add new contractual duties." 87 The covenant imposes a duty which "infuses the
19
parties' performance of their express contractual obligations. " 88 While "a complete catalogue of
types of bad faith is impossible," bad faith may "include: evasion of the spirit of the bargain, lack
of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to
specify terms, and interference with or failure to cooperate in the other party's performance." 89
We agree with DL a breach of the covenant of good faith and fair dealing cannot be plead
as an independent claim. We grant DL's motion as to Count VI. Nonetheless, because Ohio
Valley pled breach of contract claims, Ohio Valley can rely on those separately pled claims for
the bases of its claim DL breached the covenant of good faith and fair dealing. We find a
genuine dispute of material fact as to whether DL breached the covenant of good faith and fair
dealing. If DL did in fact obtain consent from the lessors of the wells to close the wells but
continued to charge Ohio Valley fees and charges as if the wells were producing, this raises a
question of fact as to whether DL evaded the spirit of the bargain. Finally, to the extent Ohio
Valley seeks relief based on DL's alleged failure to provide documentation, this claim is
subsumed by its breach of contract claim.
11. Two-year limitation
DL argues it is entitled to summary judgment on all claims to the extent Ohio Valley
seeks damages beyond the two-year contractual limitation in the May 2001 Agreements placed
upon objections to charges and statements. Ohio Valley counters it could not contest the fees
charged because DL withheld documents needed to dispute the charges. 90
Article I, Section 4 of the Accounting Procedures to the May 2001 Agreements limits the
time period for challenging a billed charge or expense where the non-operator fails to lodge a
written objection:
[A]ll bills and statements rendered to Non-Operators by Operator
during any calendar year shall conclusively be presumed to be true
20
and correct after twenty-four (24) months following the end of any
such calendar year, unless within the said twenty-four (24) month
period a Non-Operator takes written exception thereto and makes
claim on Operator for adjustment. 91
There is a genuine dispute of material fact as to whether Ohio Valley lodged written
objections to fees or expenses.
DL contends the Ohio Valley did not submit any written
objections to fees or expenses until January 8, 2014. 92 Current Ohio Valley President Charles
Masters swears Ohio Valley "has been making written objections to fees since at least 2003."93
We deny DL's motion for summary judgment on all claims based on the two-year contractual
limitation in light of this genuine dispute of material fact.
IV.
Conclusion
We grant DL's motion for summary judgment as to Counts I, V, VI, VII, VIII, and IX,
dismissing Ohio Valley's claims for partition of Warrant 4912, partition based on the May 2001
Agreements, breach of the covenant of good faith and fair dealing, injunctive relief, and unjust
enrichment. We grant in part DL's motion for summary judgment as to Count IV (breach of the
May 2001 Agreements) to the extent Ohio Valley claims breach of the May 2001 Agreements for
overcharging for gas and fuel. We deny DL's motion for summary judgment as to Count II
(partition of the Southern Wells).
We also grant in part Ohio Valley's motion for summary judgment as to Count III (breach
of the December 2000 Agreement) to the extent it seeks to enforce the December 2000
Agreement as to the Southern Wells. We deny Ohio Valley's motion for summary judgment as to
the remaining claims.
1
ECF Doc. No. 104, ~ 1.
2
ECF Doc. No. 104, ~ 2.
21
3
ECF Doc. No. 107, ~~ 8-9; ECF Doc. No. 104, ~ 14.
4
ECF Doc. No. 107, ~ 16.
5
ECF Doc. No. 107, ~ 17.
6
ECF Doc. No. 107, ~ 16.
7
ECF Doc. No. 90-5, at p. 1.
8
ECF Doc. No. 104, ~ 50.
9
ECF Doc. No. 90-5, at p. 10.
10
ECF Doc. No. 90-12, at p. 4.
II
12
ECF Doc. No. 90-12, at p. 21 (italics supplied and emphasis omitted).
13
ECF Doc. No. 95, ~ 29.
14
ECF Doc. No. 90-5, at pp. 11-12; ECF Doc. No. 76-4, at p. 12.
15
ECF Doc. No. 90-5, at p. 12; ECF Doc. No. 76-4, at p. 12.
16
ECF Doc. No. 90-5, at p. 4.
17
ECF Doc. No. 90-5, at p. 4.
18
ECF Doc. No. 90-6, at p. 68.
19
ECF Doc. No. 90-6, at p. 66.
20
ECF Doc. No. 90-6, at pp. 67-68.
21
ECF Doc. No. 107, ~ 72.
22
ECF Doc. No. 107, ~ 63.
23
ECF Doc. No. 107, ~ 73.
24
ECF Doc. No. 107, ~ 73.
25
ECF Doc. No. 104, ~ 76.
22
26
ECF Doc. No. 90-6, at p. 65.
27
ECF Doc. No. 107, ii 23.
28
ECF Doc. No. 107, ii 23.
29
ECF Doc. No. 106, at p. 24.
30
ECF Doc. No. 107, ii 3.
31
ECF Doc. No. 107, ii 4.
32
ECF Doc. No. 104, ii 11.
33
ECF Doc. No. 76.
34
ECF Doc. No. 107, ii 7.
35
Summary judgment is proper when there is no genuine dispute of material fact and the movant
is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(a). A dispute as to a material fact is
genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving
party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On a motion for summary
judgment, the court must consider the "underlying facts and all reasonable inferences therefrom
in the light most favorable to the party opposing the motion." Slagle v. Cnty. of Clarion, 435 F.3d
262, 264 (3d Cir. 2006) (citations omitted). If the movant carries its initial burden of showing the
basis of its motion, the burden shifts to the non-moving party to go beyond the pleadings and
point to "specific facts showing that a genuine issue exists for trial." Celotex Corp. v. Catrett,
477 U.S. 317, 323-24 (1986). In other words, the non-moving party "must present more than just
bare assertions, conclusory allegations or suspicions to show the existence of a genuine issue."
Podobnik v. US. Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005) (citation and internal quotation
marks omitted). Summary judgment must be granted against a non-moving party who fails to
sufficiently "establish the existence of an essential element of its case on which it bears the
burden of proof at trial." Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 265 (3d Cir. 2014).
"This standard does not change when the issue is presented in the context of cross-motions for
summary judgment." Auto-Owners Ins. Co. v. Stevens & Ricci Inc., 835 F.3d 388, 402 (3d Cir.
2016) (quoting Appelmans v. City of Phi/a., 826 F.2d 214, 216 (3d Cir. 1987)). "When both
parties move for summary judgment, '[t]he court must rule on each party's motion on an
individual and separate basis, determining, for each side, whether a judgment may be entered in
accordance with the Rule 56 standard."' Auto-Owners Ins. Co., 835 F.3d at 402 (quoting lOA
Charles Alan Wright et al., Federal Practice & Procedure§ 2720 (3d ed. 2016)).
36
Ruthrauff, Inc. v. Ravin, Inc., 914 A.2d 880, 888 (Pa. Super 2006).
37
ECF Doc. No. 107-1, ii 10.
23
38
ECF Doc. No. 95, i-135.
39
Shovel Transfer and Storage, Inc. v. Pennsylvania Liquor Control Bd., 739 A.2d 133, 136 (Pa.
1999).
40
Ingrassia Const. Co. v. Walsh, 486 A.2d 478, 483 (Pa. Super. 1984).
41
Germantown Sav. Bank v. Talacki, 441 Pa. Super. 513, 522, 657 A.2d 1285, 1289 (1995)
(quoting Petrie v. Haddock, 119 A.2d 45 (Pa. 1956)).
42
Cobaugh v. Klick-Lewis, Inc., 561 A.2d 1248, 1250 (Pa. Super. 1989).
43
Germantown Sav. Bank v. Talacki, 657 A.2d 1285, 1289 (Pa. Super. 1995) (quoting Standard
Venetian Blind Co. v. American Emp. Ins. Co., 469 A.2d 563, 566 (Pa. 1983)).
44
Germantown Sav. Bank v. Talacki, 441 Pa. Super. 513, 522, 657 A.2d 1285, 1289-90 (1995)
(quoting Provco Leasing Corp. v. Safin, 402 A.2d 510 (Pa. Super. 1979)).
45
In re Estate of Boardman, 2013 PA Super 300, 80 A.3d 820, 823 (2013) (quoting Moser v.
DeSetta, 589 A.2d 679, 682 (Pa. 1991)).
46
ECF Doc. No. 107, i-163.
47
ECF Doc. No. 105-4, at p. 163-64.
48
ECF Doc. No. 105-4, at p. 163-64.
49
ECF Doc. No. 107, i-173.
50
ECF Doc. No. 107, i-173.
51
ECF Doc. No. 90-12, at p. 21 (emphasis omitted).
52
ECF Doc. No. 76-4, at p. 17.
53
ECF Doc. No. 94-16, at p. 5.
54
ECF Doc. No. 107, i-!i-179-81.
55
Bargo v. Kuhns, 98 A.3d 686, 690 (Pa. Super. 2014) (quoting Fry v. Stetson, 87 A.2d 305, 307
(Pa. 1952)).
56
Id. (quoting Bernstein v. Sherman, 902 A.2d 1276, 1278 (Pa. Super. 2006)).
24
57
Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 92 (3d Cir. 2001) (quoting
Krizovensky v. Krizovensky, 624 A.2d 638, 642 (Pa. Super. 1993)).
58
Id.
59
Id. at 94.
60
Id. at 93.
61
Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009).
62
ECF Doc. No. 90-5, at p. 4.
63
ECF Doc. No. 90-5, at p. 4.
64
ECF Doc. No. 90-5, at p. 4 (emphasis added).
65
ECF Doc. No. 90-6, at p. 68.
66
ECF Doc. No. 90-6, at p. 66.
67
ECF Doc. No. 90-6, at pp. 67-68.
68
ECF Doc. No. 90-6, at p. 67.
69
ECF Doc. No. 90-6, at p. 67.
70
ECF Doc. No. 90-6, at p. 68.
71
Ne. Fence & Iron Works, Inc. v. Murphy Quigley Co., 933 A.2d 664, 669 (Pa. Super. 2007)
(quoting Lackner v. Glosser, 892 A.2d 21, 34 (Pa. Super. 2006)).
72
ECF Doc. No. 90-5, at pp. 11-12; ECF Doc. No. 76-4, at p. 12.
73
ECF Doc. No. 90-5, at p. 12; ECF Doc. No. 76-4, at p. 12.
74
ECF Doc. No. 107, ~ 32.
75
Id.
76
ECF Doc. No. 104, ~ 76.
77
Cone v. Fagadau Energy Corp., 68 S.W.3d 147, 155 (Tex. App. 2001).
78
Id.
25
79
Id.
80
Id.
81
Albright v. Abington Mem 'l Hosp., 696 A.2d 1159, 1164 (Pa. 1997) (quoting Bloom v. Dubois
Reg'l Med. Ctr., 597 A.2d 671, 679 (Pa. Super. 1991)).
82
Walsh v. Borczon, 881 A.2d 1, 9 (Pa. Super. 2005) (quoting Albright v. Abington Mem 'l Hosp.,
696A.2d 1159, 1165 (Pa. 1997)).
83
ECF Doc. No. 88, at p. 22.
84
Liazis v. Kosta, Inc., 618 A.2d 450, 454 (Pa. Super. 1992) (quoting Germantown Mfg. Co. v.
Rawlinson, 491A.2d138, 148 (Pa. Super. 1985)).
85
Hanaway v. Parkesburg Grp., LP, 132 A.3d 461, 471 (Pa. Super. 2015) (quoting LSI Title
Agency, Inc. v. Evaluation Servs., 951 A.2d 3 84, 391 (Pa. Super. 2008).
86
Simmons v. Nationwide Mut. Fire Ins. Co., 788 F. Supp. 2d 404, 409 (W.D. Pa. 2011) (citing
LSI Title Agency, Inc. v. Evaluation Services, Inc., 951 A.2d 384, 391 (Pa. Super. 2008)).
87
Hanaway v. Parkesburg Grp., LP, 132 A.3d 461, 471-72 (Pa. Super. 2015).
88
Hanaway v. Parkesburg Grp., LP, 132 A.3d 461, 4 72 (Pa. Super. 2015).
89
Somers v. Somers, 613 A.2d 1211, 1213 (Pa. Super. 1992) (quoting Restatement (Second) of
Contracts,§ 205(d)).
90
ECF Doc. No. 107, ii 32.
91
ECF Doc. No. 90-6, at p. 65.
92
ECF Doc. No. 89, ii 83.
93
ECF Doc. No. 90-6, at p. 65.
26
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