Trans Energy, Inc. et al v. EQT Corporation

Filing 160

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' 90 MOTION FOR SUMMARY JUDGMENT, DENYING DEFENDANT'S 92 MOTION FOR DECLARATORY JUDGMENT AND FOR SUMMARY JUDGMENT, DENYING PLAINTIFFS' 114 MOTION TO STRIKE THE AFFIDAVIT OF MICHAEL G. KIRSCH, DENYING DEFENDANT'S 154 MOTION FOR LEAVE TO FILE A SUPPLEMENTAL MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR DECLARATORY JUDGMENT AND SUMMARY JUDGMENT AND IN OPPOSITION TO PLAINTIFFS MOTION FOR SUMMARY JUDGMENT AND DENYING AS MOOT PLAINTIFFS' 106 MOTION IN LIMINE TO EXCLUDE ALL UNRECORDED DOCUMENTS PURPORTING TO AFFECT RECORD TITLE, INCLUDING THE WORKING AGREEMENT AND PRECLUDE TESTIMONY REGARDING LORE AND LEGEND OF THE SOUTH PENN OIL COMPANY/HOPE NATURAL GAS COMPANY WO RKING AGREEMENT: ORDERED that this case be DISMISSED and STRICKEN from the active docket of this Court. Pursuant to Federal Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment. Signed by Senior Judge Frederick P. Stamp, Jr on 11/26/12. (jss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
TRANS ENERGY, INC.,
a Nevada corporation,
REPUBLIC PARTNERS VI, LP,
a Texas limited partnership,
REPUBLIC ENERGY VENTURES, LLC,
a Delaware limited liability company
and PRIMA OIL COMPANY, INC.,
a Delaware corporation,
Plaintiffs,
v.

Civil Action No. 1:11CV75
(STAMP)

EQT PRODUCTION COMPANY,
a Pennsylvania corporation,
Defendant.
MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT,
DENYING DEFENDANT’S MOTION FOR
DECLARATORY JUDGMENT AND FOR SUMMARY JUDGMENT,
DENYING PLAINTIFFS’ MOTION TO STRIKE
THE AFFIDAVIT OF MICHAEL G. KIRSCH,
DENYING DEFENDANT’S MOTION FOR LEAVE TO FILE A
SUPPLEMENTAL MEMORANDUM OF LAW IN SUPPORT OF ITS
MOTION FOR DECLARATORY JUDGMENT AND SUMMARY JUDGMENT AND IN
OPPOSITION TO PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND
DENYING AS MOOT PLAINTIFFS’ MOTION IN LIMINE TO EXCLUDE
ALL UNRECORDED DOCUMENTS PURPORTING TO AFFECT RECORD TITLE,
INCLUDING THE “WORKING AGREEMENT” AND PRECLUDE TESTIMONY
REGARDING “LORE AND LEGEND” OF THE SOUTH PENN OIL COMPANY/
HOPE NATURAL GAS COMPANY WORKING AGREEMENT
I.

Background

This civil action arises from the parties’ competing claims of
interest in the gas rights of a 3,800 acre plot of land located in
Wetzel and Doddridge Counties, West Virginia (“Blackshere”).

On

February 20, 1892, John Blackshere and South Penn Oil Company

(“South Penn”), which would later become Pennzoil Products Company
(“Pennzoil”), entered into an oil and gas lease covering Blackshere
(“the Blackshere Lease”), and recorded the lease in the office of
the Clerk of the County Commission of Wetzel County.

In 1901 and

1902, South Penn entered into indentures with Carnegie Natural Gas
Company (“Carnegie”) and Hope Natural Gas Company (“Hope”), which
purported to sever South Penn’s natural gas and oil rights in the
Blackshere Lease, giving Carnegie the gas rights to 250 acres of
Blackshere, and Hope the gas rights to the remaining acres of the
leasehold.

At the time that the indenture, or working agreement,

was entered into with Hope in 1902, Hope and South Penn were both
wholly-owned subsidiaries of Standard Oil Company.
these indentures were ever recorded.
defendant

EQT

Production

Company

Neither of

It is uncontested that

(“EPC”)

succeeded

Hope

and

Carnegie in whatever interest was conveyed to them by South Penn
through those unrecorded 1901 and 1902 indentures.

EPC owns and

operates two Marcellus Shale gas wells on the Blackshere property,
which are registered as operated by EPC with the West Virginia
Department of Environmental Protection (“WV DEP”).

2

In 1996, Pennzoil1 assigned its rights in the Blackshere Lease
to Cobham Gas Industries, Inc. (“Cobham”).

This assignment was

recorded in the office of the Clerk of the County Commission of
Wetzel County.

In 2004, Prima Oil (“Prima”), a wholly-owned

subsidiary of Trans Energy, Inc. (“Trans Energy”), acquired all of
Cobham’s interest in the Blackshere Lease through a Confirmatory
Assignment and Bill of Sale also recorded with the Clerk of the
County Commission of Wetzel County.

On December 1, 2008, by

conveyance recorded in the office of the Clerk of the County
Commission of Wetzel County, Trans Energy and Prima Oil assigned a
portion of their rights to the Blackshere Lease to Republic Energy
Ventures, LLC.
In early 2011, Trans Energy was granted a permit by the WV DEP
to drill a new Marcellus Shale gas well on the Blackshere property,
at which point Prima Oil and Republic Partners engaged counsel to
perform a title examination into its interest in the Blackshere
Lease.

This title examination yielded EPC’s competing interest in

the lease resulting from of the unrecorded Hope indenture.

Upon

this discovery, the plaintiffs filed this civil action, seeking to
quiet title on the Blackshere Lease and requesting declarations

1

As alluded to above, South Penn acquired a controlling stake
in Pennzoil Company in 1925.
In 1963, South Penn merged with
Zapata Petroleum and Stetco Petroleum to become a new Pennzoil
Company. See Pennzoil Company, Encyclopedia Britannica Online,
http://www.britannica.com/EBchecked/topic/450222/Pennzoil-Company
(last visited October 18, 2012).
3

that plaintiffs have rightful title to the Blackshere Lease, that
South Penn/Pennzoil’s chain of title is unbroken and valid, that
Prima Oil was a bona fide purchaser for value (“BFP”) of the
Blackshere Lease and that Prima Oil had no actual, constructive or
record knowledge of any competing interest in the Blackshere
property when it acquired Cobham’s interest in the same.
EPC

answered,

and

also

filed

counterclaims

seeking

a

declaration that it has a superior right, title and interest in and
to the gas within and underlying the Blackshere property, and also
raising tort counterclaims for trespass, conversion and waste, and
requesting

compensatory,

treble

and

punitive

damages.

The

plaintiffs later filed an amended complaint which raised the same
tort claims and also sought damages.
Following the close of discovery, both the plaintiffs and EPC
filed cross motions for summary judgment.

The plaintiffs also

filed a motion to strike the affidavit of Michael G. Kirsch, filed
as an exhibit to EPC’s response to the plaintiffs’ motion for
summary judgment.

EPC filed a motion to extend discovery and the

plaintiffs filed two motions in limine.2
now fully briefed.

All of these motions are

On October 16, 2012, the parties, by counsel,

appeared before this Court for the pretrial conference in this
matter.

At this conference, all of the pending motions were

2

This Court has ruled upon the motion to extend discovery and
the first motion in limine to exclude reference to punitive damages
by separate memorandum opinion and order.
4

discussed. The plaintiffs also indicated their withdrawal of all
claims of adverse possession of the Blackshere property, and the
possible withdrawal of their tort claims for damages.

After this

conference, this Court asked the parties to clarify their positions
on their tort claims for damages.

The plaintiffs indicated that

they withdrew all tort claims for damages, and EPC indicated its
intent to maintain all of its claims and requests for damages.
This Court then contacted the parties by letter, informing them
generally

of

the

rulings

that

it

intended

to

make

in

this

memorandum opinion and order and directing all parties to refrain
from filing any further motions in this case.

Following the

sending of that letter, EPC filed a motion seeking leave to file a
supplemental memorandum of law in support of its motion for
declaratory judgment and summary judgment and in opposition to
plaintiffs’ motion for summary judgment.

All pending motions are

now ripe for this Court’s consideration.
For the reasons that follow, as a result of the plaintiffs’
withdrawal of its tort claims for damages, the plaintiffs’ motion
for summary judgment is granted.

EPC’s motion for declaratory

judgment and for summary judgment is denied.

EPC’s motion for

leave to file a supplemental memorandum of law in support of its
motion for declaratory judgment and summary judgment is denied. As
indicated at the pretrial conference in this case, the plaintiffs’
motion to strike the affidavit of Michael G. Kirsch is denied.

5

Finally, the plaintiffs’ remaining motion in limine to exclude
certain unrecorded documents and references thereto is denied as
moot.
II.

Applicable Law

Under Rule 56(c) of the Federal Rules of Civil Procedure,
A party asserting that a fact cannot be or is genuinely
disputed must support the assertion by:
(A) citing to particular parts of materials in the
record, including depositions, documents, electronically
stored
information,
affidavits
or
declarations,
stipulations . . . admissions, interrogatory answers, or
other materials; or
(B) showing that the materials cited do not
establish the absence or presence of a genuine dispute,
or that an adverse party cannot produce admissible
evidence to support the fact.
Fed. R. Civ. P. 56(c).
The party seeking summary judgment bears the initial burden of
showing the absence of any genuine issues of material fact.

See

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “The burden
then shifts to the nonmoving party to come forward with facts
sufficient to create a triable issue of fact.” Temkin v. Frederick
County Comm’rs, 945 F.2d 716, 718 (4th Cir. 1991), cert. denied,
502 U.S. 1095 (1992) (citing Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247-48 (1986)).

However, as the United States Supreme

Court noted in Anderson, “Rule 56(e) itself provides that a party
opposing a properly supported motion for summary judgment may not
rest upon the mere allegations or denials of his pleading, but
. . . must set forth specific facts showing that there is a genuine

6

issue for trial.”

Id. at 256.

“The inquiry performed is the

threshold inquiry of determining whether there is the need for a
trial -- whether, in other words, there are any genuine factual
issues that properly can be resolved only by a finder of fact
because they may reasonably be resolved in favor of either party.”
Id. at 250; see also Charbonnages de France v. Smith, 597 F.2d 406,
414 (4th Cir. 1979) (Summary judgment “should be granted only in
those cases where it is perfectly clear that no issue of fact is
involved and inquiry into the facts is not desirable to clarify the
application of the law.” (citing Stevens v. Howard D. Johnson Co.,
181 F.2d 390, 394 (4th Cir. 1950))).
In Celotex, the Court stated that “the plain language of Rule
56(c) mandates the entry of summary judgment, after adequate time
for discovery and upon motion, against a party who fails to make a
showing

sufficient

to

establish

the

existence

of

an

element

essential to that party’s case, and on which that party will bear
the burden of proof at trial.”

Celotex, 477 U.S. at 322.

Summary

judgment is not appropriate until after the non-moving party has
had sufficient opportunity for discovery.

See Oksanen v. Page

Mem’l Hosp., 912 F.2d 73, 78 (4th Cir. 1990), cert. denied, 502
U.S. 1074 (1992). In reviewing the supported underlying facts, all
inferences must be viewed in the light most favorable to the party
opposing the motion.

See Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986).

7

III.
A.

Discussion

Motions for summary judgment
i.

The competing claims of interest to the Blackshere Lease

Both parties’ claims to the gas rights under the Blackshere
Lease begin with the original 1892 oil and gas lease between the
John Blackshere and South Penn, which was duly recorded with the
office of the Clerk of the County Commission of Wetzel County.
However, the issues regarding proper title to the lease which have
led to this litigation began shortly thereafter. In 1901 and 1902,
South Penn entered into indentures with Carnegie and Hope, granting
these companies the gas rights to 250 acres and 3,550 acres of the
Blackshere leasehold respectively, with South Penn retaining the
oil rights to the same.

These indentures were not at the time, nor

have they ever been, recorded.

Decades after these unrecorded

indentures were created, Hope conveyed all of its interests,
rights,

and

titles

held

in

Wetzel

County,

West

Virginia

to

Consolidated Gas Supply Corporation (“Consolidated Gas”) on April
1, 1965.
of

the

This conveyance was recorded in the office of the Clerk
County

Court

of

Wetzel

County,

but

did

not

refer

specifically to any rights that Hope may have had in the Blackshere
Lease, rather referring generally to the transfer of all of the
rights held by Hope within Wetzel County.
the

gas

rights

in

Blackshere

derives

8

EPC’s chain of title to
from

any

right

that

Consolidated Gas may have received from Hope through this 1965
conveyance.
The plaintiffs’ claimed interest in the gas rights under the
Blackshere Lease comes as a result of an Assignment and Bill of
Sale (“Assignment”) entered into on October 15, 1996 by Pennzoil
(South Penn) and Cobham.

This assignment was recorded through a

Memorandum of Assignment and Bill of Sale (“Memorandum”) filed the
same day with the office of the Clerk of the County Court of Wetzel
County.

The Memorandum indicates that Pennzoil, through the

Assignment, “did bargain, sell, transfer, assign and convey unto
[Cobham], all right, title and interest it may have in and to
certain oil and gas leases and 88 wells more particularly described
on EXHIBIT ‘A’ and EXHIBIT ‘B’, attached [t]hereto and made a part
[t]hereof.”

The rights transferred by this Assignment, were

purchased in 2004 by Prima, which is a wholly-owned subsidiary of
Trans Energy.

A portion of the rights of Prima and Trans Energy

have been assigned to the Republic plaintiffs.
EPC contends both in its response to the plaintiffs’ motion
for summary judgment and in its motion for declaratory and summary
judgment, that the plaintiffs, while holding record title to the
oil rights under the Blackshere Lease, never obtained the gas
rights to Blackshere.

It argues that the Memorandum and the

Assignment between Pennzoil and Cobham unambiguously assign to
Cobham only the oil rights to the Blackshere Lease.

9

In the

alternative, EPC argues that Pennzoil never had the gas rights to
convey to Cobham, by virtue of the 1901 and 1902 Carnegie and Hope
indentures which, while unrecorded, can only be superseded under
West Virginia law by a BFP, for which status Prima does not
qualify.
ii.

Rights transferred to Cobham by Assignment and Bill of

Sale and recorded in Memorandum of Assignment and Bill of Sale
As quoted above, the Memorandum recorded by Pennzoil and
Cobham to memorialize the Assignment which transferred rights to
the Blackshere Lease transferred “all right title and interest
[Pennzoil] may have in and to certain oil and gas leases and 88
wells more particularly described in EXHIBIT ‘A’ and EXHIBIT ‘B’,
attached to and hereto made a part hereof.”

Page 2 of Exhibit A

lists the Blackshere Lease, the original lessee of the Lease, the
original date that the Lease was granted, and the record book and
page number where the Lease was recorded.

No notation is made as

to the Blackshere Lease in the remarks section of Exhibit A.

Page

1 of Exhibit B lists all wells associated with the Blackshere Lease
that are being conveyed to Cobham.

This exhibit notes the lease

number associated with the wells, the farm name where the wells are
located, the well numbers, the acreage of the leasehold and the
“rights” conveyed with the wells.

Under the “rights” section of

Exhibit B, all of the Blackshere wells are listed as “oil” only.
Other wells are listed as both oil and gas.

10

Both

parties

agree

that

the

Memorandum

is

clear

and

unambiguous on its face, and thus must be interpreted only by the
language of the document itself.3

See Syl. pt. 4, Zimmerer v.

Romano, 679 S.E.2d 601, 604 (W. Va. 2009).

EPC argues that, based

upon the notation of simply “oil” in the “rights” column of Exhibit
B to the Memorandum summarized above and the fact that other wells
are accompanied by a notation indicating both oil and gas, it is
clear that the Assignment did not convey gas rights under the
Blackshere Lease.

EPC maintains that Exhibit B indicates not only

the wells transferred under the Assignment, but also expresses the
rights to each of the leases which under which the wells operate.
Because “oil” is the only right listed as to the Blackshere Lease,
EPC urges, oil was the only right under the Blackshere Lease
conveyed to Cobham.
However, as the plaintiffs argue, and this Court finds, EPC’s
interpretation of the above language requires a reading of Exhibit
B in a vacuum and a blindness of the Memorandum as a whole.

3

Such

As noted above, the plaintiffs have filed a motion to strike
the affidavit of Michael G. Kirsch, filed as an exhibit to EPC’s
response to the plaintiffs’ motion for summary judgment, as it is
parol evidence which cannot be considered in the interpretation of
an unambiguous agreement. See Doganieri v. United States, 520 F.
Supp. 1093, 1097 (N.D. W. Va. 1981).
However, as this Court
indicated at the pretrial conference in this case, this motion is
denied, as this Court believes it appropriate to consider the
motion as this Court deems proper under its interpretation of the
law and facts of this case. That being said, this Court has not
considered this affidavit in its interpretation of the 1996
Memorandum of Assignment and Bill of Sale nor in its interpretation
of the 1996 Assignment and Bill of Sale.
11

a reading is improper.

See Syl. pt. 1, Maddy v. Maddy, 105 S.E.

803 (W. Va. 1921) (“In construing a deed, will, or other written
instrument, it is the duty of the court to construe it as a whole,
taking and considering all the parts together, and giving effect to
the intention of the parties wherever that is reasonably clear and
free from doubt[.]”). When reading the Memorandum in its entirety,
it is clear that Pennzoil transferred both oil and gas rights to
the oil and gas leases listed, and that Exhibit B simply lists the
wells transferred and the rights utilized by those wells.
Initially, the opening paragraph of the Memorandum, which
contains

the

so-called

“granting”

language

of

the

document,

indicates the transfer of interest in two distinct types of
Pennzoil property. First, Pennzoil transferred all of its interest
in and to “certain oil and gas leases.”
its interest to 88 wells.

Second, it conveyed all of

Following the statement of these two

distinct conveyances, the Memorandum indicates that the leases and
wells transferred are “more particularly described” on the two
exhibits which are attached thereto.

This granting language is

both telling on its own, and also informs the reading of the
language of Exhibits A and B.

The Memorandum indicates, with

regard to leases transferred to Cobham, that all of its interests
in all of the leases were transferred.

The Memorandum also,

importantly, asserts that all of the leases conveyed are “oil and
gas leases.”

There is no indication that any of the leases are

12

simply oil leases, or that any are simply gas leases.

On the

contrary, this language unambiguously indicates that all leases are
both oil and gas leases.

Such an assertion is not made about the

wells conveyed.
Having

thus

determined

that

the

granting

language

unambiguously indicates that Pennzoil has conveyed all of its
interests in two distinct in types of property, (1) “oil and gas
leases;” and (2) “wells,” the reading of Exhibits A and B is thus
informed. Exhibit A clearly lists all of the leases conveyed as it
refers only to information relating to the particular oil and gas
leases conveyed to the complete exclusion of information regarding
the particular wells conveyed.

In that exhibit, the entire

original Blackshere Lease granted to South Penn in 1892 by John
Blackshere, and recorded on page 547 of record book 35 in Wetzel
County, is listed among those transferred.

There is no indication

in this exhibit that anything but the entire Blackshere Lease so
recorded in 1892 was conveyed to Cobham through the Assignment.
Accordingly, this exhibit, read in conjunction with the granting
language in the memorandum, unambiguously indicates that the entire
Blackshere Lease -- an oil and gas lease -- was transferred to
Cobham.
Exhibit B on the other hand, clearly only lists all wells
transferred to Cobham by the Assignment and Bill of Sale.

This is

apparent initially because the first exhibit specifically refers

13

only to the leases conveyed, to the clear exclusion of information
regarding wells. As a result, based upon the granting language and
by

process

of

elimination,

Exhibit

B

must

more

particularly

describe only the wells transferred, to the exclusion of the leases
conveyed.

This further becomes clear because, while there is

general reference in Exhibit B to the leases with which the wells
are associated, this exhibit much more particularly describes
wells, while Exhibit A made no reference at all to wells. In
Exhibit B, all wells associated with the Blackshere Lease that were
transferred to Cobham are specifically listed by number, as well is
the acres of the Blackshere leasehold, and the “rights” of those
wells.

This Court does not find it necessary to determine the

reason why the parties to this memorandum chose to list “rights” in
this exhibit, because whatever that reason may have been, it cannot
be reasonably determined to indicate that the wells designated as
oil-only were so designated because Pennzoil only transferred the
oil rights to the leases to which they were affiliated. Exhibit A,
which clearly describes the leases conveyed, makes no reference to
any lease being “oil” only. It is also clear for the reasons above
that Exhibit B only refers to the wells conveyed and does not serve
to

describe

distinctly

the
from

leases
the

which

wells

were

within

conveyed
the

separately

granting

and

language.

Accordingly, this Court finds that the Memorandum clearly and

14

unambiguously indicates that Pennzoil conveyed both oil and gas
rights under the Blackshere Lease to Cobham.
iii. Prima’s Status as a BFP
However, EPC argues that, even if this is true, by virtue of
the 1901 and 1902 indentures, Pennzoil did not have the gas rights
under the Blackshere Lease to convey to Cobham in 1996. As a
result,

EPC

claims,

even

if

the

Memorandum

purports

to

unambiguously convey both oil and gas rights, EPC is the actual
holder of the gas rights under the Blackshere Lease.

It is true

that under West Virginia law, as EPC suggests, unrecorded written
contracts conveying rights to land are “as effective as a recorded
deed” against purchasers with notice of the unrecorded transfer.
Farrar v. Young, 230 S.E.2d 261, 265 (W. Va. 1976). However, there
is one limitation to this rule.

Such unrecorded transfers can be

invalidated by a BFP of the subject property.

See W. Va. Code

§ 40-1-9. The purpose of this limitation is to protect good faith,
bona fide purchasers who conduct due diligence prior to purchasing
land or an interest therein from “creditors of the grantor, and
against other persons to whom the grantor may have undertaken to
execute title papers pertaining to the land embraced in the
recorded instrument.”
251, 253 (1939).

Bank of Marlinton v. McLaughlin, 1 S.E.2d

EPC argues that Prima does not qualify as a BFP

because it had notice of EPC’s interest in the gas rights to

15

Blackshere. However, the plaintiffs contend, and this Court finds,
that Prima was a BFP without notice of EPC’s competing claim.
In order to qualify as a BFP without notice, one must purchase
an interest in real property for valuable consideration “without
notice of another’s claim to the property and without actual or
constructive notice of any defects in or infirmities, claims, or
equities against the seller’s title.” Black’s Law Dictionary, 1271
(9th ed. 2004).
faith.

In short, the BFP must purchase in actual good

Wolfe v. Alpizar, 637 S.E.2d 623 (W. Va. 2006).

In order

for a party alleging notice to a purchaser to successfully prove
the same, it must show that the purchaser was placed on actual,
constructive or inquiry notice from the record chain of title, from
open and visible use, or by some other means, of a competing
interest or defect in title.
(1968).

Fanti v. Welsh, 161 S.E.2d 501, 505

Such knowledge is imputed upon the purchaser if it could

have acquired it through “the exercise of ordinary diligence.” Id.
Accordingly, if “a reasonably careful inspection of the premises”
or of the chain of title would have yielded knowledge of the
competing interest, “or where the grantee has knowledge of facts
sufficient to put a prudent buyer on inquiry,” he will be deemed to
have had knowledge of the competing interest and cannot be said to
be a BFP.

Id.

Here, EPC points to multiple circumstances which, it alleges,
should impute upon Prima knowledge of EPC’s competing interest in

16

the Blackshere Lease.

First, it asserts that the Memorandum

contained language that should have provided notice of “suspicious
circumstances sufficient to put [Prima] on inquiry notice of a
potential competing interest.”

ECF No. 109 *8.

Secondly, it

contends that EPC’s maintenance of two gas wells on the Blackshere
property should have been discovered through reasonable diligence,
and thus inquiry notice of EPC’s competing interest in Blackshere
should be imputed upon Prima.

EPC next says that Prima’s title

researcher, Richard L. Starkey, was aware of so-called “legend and
lore” regarding the severing of South Penn’s oil and gas rights
under the Blackshere Lease, but failed to take adequate steps to
discover whether or not such “legend and lore” was founded.
Finally, it is argued that the consideration paid by Prima to
Cobham in exchange for the Blackshere Lease was wholly insufficient
and such consideration demanded by Cobham should have placed Prima
on

notice

of

thereunder.

a

likely

deficiency

in

the

title

transferred

For the reasons that follow, this Court finds that

Prima was not on notice of the competing interest and could not
have obtained such notice through reasonable diligence.
a.

Alleged constructive notice in record chain of title

EPC contends that an inspection of the record chain of title
for

the

Blackshere

Lease

yields

a

number

of

“suspicious

circumstances” which create constructive notice of its interest in
the gas rights to Blackshere.

EPC specifically points to two

17

portions of the Memorandum between Pennzoil and Cobham.

First, it

is argued that the “rights” section of Exhibit B in the memorandum,
quoted and discussed extensively above, wherein the rights noted
for the Blackshere transfer are only listed as “oil” while other
listed transfers’ rights are listed as both oil and gas, provided
notice of a possible unrecorded interest in the gas rights to
Blackshere.

As a result, EPC argues, Prima was under a duty to

determine, through reasonable diligence, whether such an interest
existed.

For the reasons discussed above, this argument is not

persuasive.

This Court has already determined that Exhibit B of

the Memorandum only presents a schedule of wells transferred to
Cobham.

Thus, the reference to “oil” only would not put a later

purchaser on notice of a possible competing interest to the gas
rights under the lease, which were clearly conveyed along with the
oil rights in the granting language and in Exhibit A.
Secondly, EPC asserts that the reference within the first
paragraph of the Memorandum to the actual Assignment, which is the
complete agreement between the parties to the transfer, represents
further “suspicious circumstances” and created a duty for Prima to
inspect the Assignment.

West Virginia law requires the recording

of only a memorandum noting a transfer, rather than the entire
document

of

transfer.

Certain

specific

information

must

be

contained in the memorandum in order to qualify as a valid record
of the transfer, and “[s]uch memorandum shall constitute notice of

18

only the information contained therein.”
Accordingly,

future

purchasers

are

on

W. Va. Code § 40-1-8.
constructive

notice

of

anything referenced within the memorandum.
Also, under West Virginia law, if a reference within the
memorandum creates “‘reasonable grounds to believe that property
may have been conveyed in an instrument not of record’” the
purchaser

“may

be

charged

with

searches

beyond

the

record.”

Mancuso v. Meadowbrook Mall Co. Ltd P’shp, No. 1:06CV53, 2007 U.S.
Dist. LEXIS 23308 *15 (N.D. W. Va. Mar. 28, 2007) (quoting Eagle
Gas Co. v. Doran & Assocs., Inc., 387 S.E.2d 99, 102 (W. Va. 1989);
and see Pocahontas Tanning Co. v. St. Lawrence Boom & Mfg. Co., 60
S.E. 890, 893 (W. Va. 1908) (“That which fairly puts a party on
inquiry is regarded as sufficient notice, if the means of knowledge
are at hand; and a purchaser, having sufficient knowledge to put
him on inquiry, is deemed to be sufficiently notified to deprive
him of the character of an innocent purchaser.”).
Here, the relevant Memorandum specifically referenced the
Assignment as the actual document of transfer thus, pursuant to
West Virginia Code § 40-1-8, putting Prima on constructive notice
of that document.

EPC argues that, as a result, West Virginia law

requires that Prima look outside the record to the referenced
document in order to complete its reasonable due diligence.

In

support of this argument, EPC cites Mancuso, 2007 U.S. Dist. LEXIS
23308.

In that case, a court in this district found that a

19

purchaser was on notice of a possible unrecorded restrictive
covenant through a note in the recorded memorandum referencing “any
and all exceptions, reservations, restrictions, easements, rightsof-way and conditions as contained in prior deeds of conveyance in
this chain of title.”

Id. at *11.

However, in making this

argument, EPC misconstrues the requirements of West Virginia law,
and the holding of Mancuso.

In order to create a duty to further

inspect a possible competing interest, a reference within the
Memorandum must not only put the later purchaser on notice of an
unrecorded document, but also give him “reasonable grounds to
believe that” that unrecorded document may contain information
relating to a competing interest or deficiency in title. Eagle Gas
Co., 387 S.E.2d at 102.

In Mancuso, the language within the

memorandum did just that, as it directly referred to possible
“exceptions, reservations, restrictions . . .” which may have been
in place to limit the title transferred to the purchasers.
U.S. Dist. 23308 LEXIS at *11.

2007

The language of the Memorandum in

this case does not so indicate possible information regarding
competing interests or impediments, but rather generally refers to
the Assignment.

This Court does not believe that this reference

would have placed a reasonably prudent purchaser on notice of a
possible competing interest, and thus, no duty to look outside the
record to further investigate the same was created.

20

Additionally, even assuming for the sake of argument that the
reference

to

the

Assignment

created

a

duty

to

inspect

the

Assignment document, this would not affect this Court’s overall
determination that Prima was without notice of EPC’s competing
interest in the gas rights to Blackshere, because, as with the
Memorandum’s general reference to the Assignment, an inspection of
the

Assignment

would

not

yield

any

information

which

could

constitute “reasonable grounds to believe that property may have
been conveyed in an instrument not of record.”
S.E.2d at 102.

Eagle Gas Co., 387

EPC argues that such reasonable grounds exist in

the language within the Assignment which notes that “a portion of
[the transferred] Land and Wells are subject to certain contractual
obligations

with

either

Producing Company.”4
require

a

contractual

purchaser

CNG

Transmission

Corporation

or

CNG

This notation, EPC argues, is sufficient to
to

obligations

inquire
the

further

Assignment

into

refers.

exactly
This

what
Court

disagrees.
The notation upon which EPC relies simply generally refers to
preexisting contractual obligations applicable to some of the land
and wells transferred by the Assignment. There is no indication of
the type of “contractual obligations” which may bind some of the
subject land and wells, nor does it give any information regarding

4

CNG Transmission Corporation is a predecessor-in-interest of

EPC.
21

which land and wells are bound thereto.

“Contractual obligations”

could mean any number of things, and this notation does not provide
any

inclination

that

these

obligations

may

include

competing

interests to the rights under any of the oil and gas leases
transferred under the assignment.

Further, a large number of oil

and gas leases, and an even larger number of wells were transferred
to Cobham via the Assignment, and a subsequent purchaser of a
single oil and gas lease contained therein is given no guidance as
to which leases and wells may be affected by these amorphous
“contractual obligations.”

Accordingly, this general notation is

insufficient to create a reason to believe that a competing
interest may exist, and it is beyond the realm of “common prudence
and ordinary diligence” to require later purchasers to proceed into
a

further

investigation

into

such

non-specific

references

to

possible contractual obligations that may bind the land in which
the purchaser seeks to gain an interest.

Mancuso, 2007 U.S. Dist.

LEXIS 23308 *16 (internal quotation marks omitted).
Finally, EPC asserts generally that Prima’s due diligence into
the record title was cursory and unreasonably superficial.

As

such, it maintains, Prima cannot be deemed a BFP, and must be held
to the standards of caveat emptor, or buyer beware.
argument also misconstrues West Virginia law.

However, this

As described above,

in determining whether a purchaser qualifies as a BFP, courts must
impute all knowledge upon that purchaser which could have been

22

obtained through reasonable diligence in researching the title
history of the land in which the purchaser is attempting to obtain
an interest.

See Fanti, 161 S.E.2d at 505.

This rule is not one

which requires a purchaser to engage in due diligence and punishes
him for failing to do so by denying him BFP status regardless of
whether such diligence would have yielded notice of a competing
interest.

Rather, this body of law simply holds that, whether or

not a purchaser engages in reasonable diligence, he cannot claim
ignorance to any notice which would have resulted from said
diligence.

Id.

If the potential for notice does not exist, no

notice can be imputed upon the purchaser.

Here, there is nothing

within the record chain of title of Blackshere which could have put
Prima on notice of the possible existence of EPC’s interest.

As

stated above, nothing in the 1996 Assignment or Memorandum would
indicate that a competing interest in Blackshere existed. Further,
all recorded documents that exist within EPC’s chain of title,
originating from the unrecorded 1902 indenture, cannot be located
in tracing the title of the Blackshere Lease, as the 1902 indenture
was not recorded, and the 1965 deed between Hope and Consolidated
Gas Supply Corporation fails to note the 1902 indenture, the
original Blackshere Lease, or even to specifically reference the

23

Blackshere property at all.5

Accordingly, no such knowledge can be

imputed upon Prima.
b.

Alleged inquiry notice in the existence of EPC wells

on Blackshere
EPC further argues that Prima was on inquiry notice of EPC’s
competing interest in the gas rights under the Blackshere Lease
through the existence of EPC wells on the property at the time that
Prima purchased its interest in Blackshere. Inquiry notice is
defined by West Virginia law as notice resulting from “knowledge or
information of facts sufficient to put a prudent man on inquiry as
to the existence of some right or title in conflict with that which
he is about to purchase.”
890.

Syl. pt. 4, Pocahontas Tanning, 60 S.E.

Like constructive notice, inquiry notice of any competing

interest is imputed upon a purchaser when any such facts as abovedescribed could have been recognized through reasonable physical
inspection of the premises. See Bailey v. Banther, 314 S.E.2d 176,
181 (W. Va. 1983).

However, the inquiry into this type of notice

also requires a determination as to whether a “reasonable” physical
inspection would have resulted in the discovery of others’ possible
claim[s] to the property, or whether such discovery would have
required an inspection that is beyond the realm of reasonableness.

5

As indicated above, the 1965 deed, simply noted the transfer
of all of Hope’s interests in Wetzel County. It made no specific
reference to Blackshere, nor to any other lease located therein.
24

See Pocahontas Tanning, 60 S.E. at 893; and Mancuso, 2007 U.S.
Dist. LEXIS 23308 at *16.
The Blackshere leasehold consists of 3,800 acres of property.
At the time of the Cobham/Prima transfer, EPC or its predecessors
operated two gas wells thereon, and Cobham operated 27 wells.6
According

to

unrefuted

and

unchallenged

deposition

testimony

offered by William Woodburn, Prima’s representative, Blackshere
contains dozens of access roads leading to different wells, is not
developed, and is entirely “wooded [and] steep” with “no access.”
ECF No. 107 Ex. A *18-19, 47.

It is also described as “about six

square miles of dense forest.”7

ECF No. 91 *15 n.11.

The record

shows that, in its title investigation prior to purchasing its
interest in Blackshere from Cobham, Prima spent several days
conducting a visual inspection of a large portion of the property,
and some of the Cobham wells thereon.8
under

the

circumstances,

size

and

This Court believes that,
topography

described

and

unchallenged by EPC, the visual inspection undertaken by Prima was

6

The record in this case indicates conflicting numbers in this
regard.
In any event, the record shows that the plaintiffs’
predecessors operated between 27 and 29 wells on Blackshere at the
time that Prima purchased its interest therein.
7

According to the plaintiffs, to put the size of Blackshere
into perspective, the leasehold property is approximately 1/4 the
size of Manhattan. See ECF No. 91 *15 n. 11.
8

Plaintiffs assert that Prima devoted several days to
“visiting wells, reviewing the gathering lines for production, and
exploring about five (5) miles of the leasehold.” ECF No. 91 * 16.
25

reasonable, and it would not be reasonable for due diligence to
require a purchaser of an interest in the Blackshere Lease to
visually inspect the entire leasehold property.

It is clear that

Prima took a view of the property prior to purchasing an interest
therein.

It toured a large portion of the land and inspected a

number of wells.

Without reason to believe that others were

operating wells on the property, and on a property the size and
character of Blackshere, it is highly likely that a reasonable
inspection of the leasehold property would not yield a discovery of
EPC’s wells.

Further, there has been no allegation nor evidence

presented that Prima actually discovered EPC’s wells and did
nothing to further investigate their existence.

Therefore, EPC’s

two operating wells on the property are not sufficient to create
inquiry notice of their claim of interest.

Further, while EPC

argues that the existence of its wells on Blackshere are easily
found through a search on the WV DEP website, without inquiry or
constructive notice of a competing interest to the gas rights to
Blackshere creating a duty to further investigate the same, Prima
was under no duty to search the WV DEP website.
c.

Alleged inquiry notice in “legend and lore”

EPC further argues that Richard Starkey, Prima’s attorney who
conducted the due diligence regarding the acquisition of the
Blackshere Lease, was aware through “legend and lore” in the
industry of oil and gas leases in northern West Virginia, that

26

South Penn had at some point severed its oil rights from its gas
rights in a number of oil and gas leases in the area.
107 Ex. 1 *12.

See ECF No.

This knowledge, it asserts, is “sufficient to put

a prudent man on inquiry as to the existence of some right or title
in conflict with that which he is about to purchase.”
Pocahontas Tanning, 60 S.E. 890.

Syl. pt. 4

However, this argument neglects

to address the entirety of Mr. Starkey’s testimony.

While he

admitted that he learned of this so-called “legend and lore”
sometime in the 1980s, he also stated that he had never seen any
agreement which would support this “legend,” and that, in his
thirty years working in the oil and gas industry in northern West
Virginia, he had “never once” seen the alleged severance “applied
to anything I have worked on.”

ECF No. 107 Ex. 1 *12.

Mr. Starkey

testified that he has worked on a number of big fields in the
relevant area, including “hundreds of leases [and that the alleged
severance] doesn’t apply to any of them.”

Id.

It appears clear to this Court that, while the knowledge of
Mr. Starkey may very well be imputed upon his client, Prima, Mr.
Starkey’s knowledge of the “legend and lore” relating to South
Penn’s severance of its oil and gas rights under a number of leases
in the northern West Virginia area was insufficient to constitute
inquiry notice of a competing interest in the gas rights of
Blackshere. See Morgan-Gardner Elec. Co. v. Beelick Knob Coal Co.,
112 S.E. 587, 591 (W. Va. 1922) (“The law imputes to the principal,

27

and charges him, with all notice or knowledge relating to the
subject matter of the agency which the agent acquires or obtains
while

acting

as

such

agent

and

within

the

scope

of

his

authority[.]”); and see Dorr v. Camden, 46 S.E. 1014, 1017 (W. Va.
1904) (explaining that attorneys are the agents of clients and are
subject to the same standards of agency law as is any other agent.)
Mr. Starkey’s deposition testimony makes clear that, even
though he was aware of “legend and lore” regarding a “secret”
agreement between South Penn and Hope to bifurcate oil and gas
rights

under

a

number

of

leases,

he

also

asserted

that

his

extensive experience in the industry had shown him that this
“legend” was without merit, as he had never seen a document
memorializing such an agreement, and had never seen the agreement
applied to a single lease, out of the hundreds with which he had
worked.

Under Pocahontas Tanning, “vague rumor or mere surmises

are insufficient in themselves” to create inquiry notice.
at 893.

60 S.E.

Mr. Starkey’s knowledge and experience told him that what

he had heard about the secret agreement was just that. Accordingly,
his knowledge of the legend and lore was insufficient to create
inquiry notice in this case.
d.

Alleged inquiry notice in consideration paid by

Prima for the Blackshere Lease
Finally, EPC asserts that the consideration paid to Cobham by
Prima for the rights to the Blackshere Lease was so insufficient

28

that it should have placed a prudent purchaser on inquiry notice as
to a competing interest or an otherwise defective title.

EPC

claims that Prima paid just $250,000.00 to Cobham in 2004 for the
Blackshere Lease, but the plaintiffs assert that in addition to the
$250,000.00, Cobham also received 250,000 shares of Trans Energy.
EPC compares this consideration with the fact that, in 2007, Prima
contemplated

investing

$6,000,000.00

into

construction of a Marcellus Shale gas well.

the

property

for

It contends that this

evidences the gravity of the deficiency of the consideration paid,
and of the value of the property if Prima had acquired the gas
rights free of outside claims.
EPC

notes

that,

while

consideration

is

not

generally

questioned in a BFP inquiry, because the BFP test only requires
that

“valuable

consideration”

be

given

for

a

property,

when

consideration is so inconsistent with the value of an interest
sought to be purchased, courts often consider the same in the
context of notice.

See, e.g., Shacket v. Roger Smith Aircraft

Sales, Inc., 651 F. Supp. 675, 692 (N.D. Ill. 1986).
This Court agrees that, as a general rule, when consideration
paid is significantly less than the value of a property, notice of
a deficiency in title may be imputed upon the purchaser.

However,

in this case, EPC’s argument disregards the unique circumstances of
recent significant developments in the oil and gas industry in
northern West Virginia, which greatly changed the value of gas

29

leases in the area between the years of 2004 and 2007.

As the

plaintiffs point out, in 2004, purchasers of oil and gas leases in
northern West Virginia could only rely upon the United States
Geological Survey (“USGS”) estimations that 1.9 trillion cubic feet
of recoverable Marcellus Shale gas existed in the area.
No. 113 * 14.

See ECF

Therefore, the value of gas leases like Blackshere

at that time was hypothetical, at best.

Throughout the years

following Prima’s acquisition of the Blackshere Lease, as the
parties are well aware, that hypothetical value has steadily grown
into an actuality, and has done so at a level not foreseen by even
the

USGS

estimations;

at

present,

the

estimated

recoverable

Marcellus Shale gas is at around 141 trillion cubic feet.

Id.

With this unique background in mind, along with the fact that
EPC has not entered into the record any evidence of the fair market
value for oil and gas leases in Wetzel County, West Virginia in
2004, this Court cannot find that a legitimate issue of material
fact exists regarding whether the consideration paid by Prima in
2004 was so low that it should have put it on notice of a
deficiency in title to the Blackshere Lease.

As such, this Court

must find that Prima was a BFP of the Blackshere Lease and that it
is the rightful owner of both the oil and gas rights thereto.

As

noted above, the plaintiffs have withdrawn all other common law
claims for damages, and thus, the plaintiffs’ motion for summary
judgment is granted.

30

B.

Motion for leave to supplement motion for declaratory judgment

and for summary judgment
As noted in the background of this case outlined above, this
Court

contacted

following

the

the

parties

pretrial

to

this

conference

to

civil

action

inform

them

by

letter

that

the

plaintiffs’ motion for summary judgment would be granted, and
directing the parties to refrain from filing any further motions.
See ECF No. 153. The following day, despite this Court’s direction
in this regard, EPC filed a motion for leave to file a supplemental
memorandum of law in support of their motion for declaratory
judgment and for summary judgment, and in opposition to the
plaintiffs’ motion for summary judgment. In support of this motion,
EPC asserts that, pursuant to a motion to compel which was granted
in their favor by United States Magistrate Judge James E. Seibert
following the deadline for the filing of dispositive motions, a
second

deposition

of

William

F.

Woodburn,

Prima’s

corporate

representative, was conducted on October 14, 2012. EPC further says
that the deposition revealed information which EPC argues affects
the above analysis regarding whether Prima qualified as a BFP.
This Court was clear in its letter to the parties dated
October 22, 2012 that it had reached all necessary decisions
regarding the cross motions for summary judgment, and that no more
motions were to be filed by either party. EPC’s motion for leave to
supplement its motion for summary judgment was filed following that

31

direction, and in contravention thereof. Further, as the motion for
leave

to

supplement

indicates,

the

second

deposition

of

Mr.

Woodburn was conducted on October 14, 2012; more than one week
prior to this Court’s letter directing the parties to file no
further motions. As such, EPC was not entirely precluded from
presenting to the Court the information that it obtained in this
deposition, but could have provided this Court with the deposition
transcript at any time during the week following the deposition. In
fact, EPC presented argument at the pretrial conference which made
use of the deposition testimony now sought to be added to the
record. Accordingly, because this motion was untimely and filed in
violation of this Court’s clear direction against filing further
motions, EPC’s motion for leave to supplement its motion for
summary judgment is denied.
That being said, this Court has nonetheless reviewed and
considered EPC’s offered supplemental memorandum of law, as well as
the plaintiffs’ response memorandum. Following this review, this
Court concludes that, regardless of its decision regarding EPC’s
motion for leave to file the supplemental memorandum, the argument
and evidence presented therein do not change any of the above
opinions and determinations of this Court.
All of the evidence that EPC says was revealed in the second
deposition of Mr. Woodburn relates to the extent of the due
diligence performed by Prima prior to its purchase of its interest

32

in the Blackshere Lease. As is discussed at length above, this
Court has found that Prima was not on sufficient notice of any
possible competing interest in Blackshere in order to create a duty
to conduct further research. Further, as is also discussed above,
this Court has found that, even if such research would have been
conducted in the course of Prima’s due diligence efforts, it would
not have yielded any further information to put Prima on notice of
EPC’s competing interest. Accordingly, the level of due diligence
actually performed by Prima in its purchase of its interest in the
Blackshere Lease does not affect this Court’s ultimate decision
that Prima was without notice of any potential competing interest
in the Blackshere gas rights at the time that it purchased its
interest in the Blackshere Lease.
IV.

Conclusion

For the reasons stated above, the plaintiffs’ motion for
summary judgment (ECF No. 90) is GRANTED.

The plaintiffs’ motion

to strike the affidavit of Michael G. Kirsch (ECF No. 114) is
DENIED.

EPC’s motion for declaratory judgment and for summary

judgment (ECF No. 92) is DENIED.

EPC’s motion for leave to file a

supplemental memorandum of law in support of its motion for
declaratory judgment and summary judgment and in opposition to
plaintiffs’ motion for summary judgment (ECF No. 154) is denied.
The

plaintiffs’

motion

in

limine

to

exclude

all

unrecorded

documents purporting to affect record title, including the “working

33

agreement” and preclude testimony regarding “lore and legend” of
the

South

Penn

Oil

Company/Hope

Natural

Agreement (ECF No. 106) is DENIED AS MOOT.

Gas

Company

Working

Accordingly, it is

ORDERED that this case be DISMISSED and STRICKEN from the active
docket of this Court.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein. Pursuant to Federal
Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment
on this matter.
DATED:

November 26, 2012

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

34