Bell et al v. Magnum Land Services, LLC et al
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS MOTIONS FOR SUMMARY JUDGMENT (CASE NOS. 1:13CV33-1:13CV100, DKT. NOS. 109, 111, 113, CASE NOS. 1:13CV113-1:13CV115, DKT. NOS. 32 , 34 ). The Clerk is directed to enter a separate judgment order in this matter. Signed by District Judge Irene M. Keeley on 10/14/14. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
FLOYD BARBER, ET AL.,
CIVIL ACTION NOS. 1:13CV33 1:13CV100
CIVIL ACTION NOS. 1:13CV113 1:13CV115
MAGNUM LAND SERVICES, LLC,
RICHARD BELL, ET AL.,
MAGNUM LAND SERVICES, LLC,
MEMORANDUM OPINION AND ORDER GRANTING
DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT
[CASE NOS. 1:13CV33-1:13CV100, DKT. NOS. 109, 111, 113]
[CASE NOS. 1:13CV113-1:13CV115, DKT. NOS. 32, 34, 36]
judgment, one filed by each of the three defendants, Magnum Land
Services, LLC (“Magnum”), Belmont Resources, LLC (“Belmont”), and
Enerplus Resources (USA) Corporation (“Enerplus”). For the reasons
This case involves the mineral rights underlying approximately
8000 acres of land located in Preston County, West Virginia.
Because the mineral rights had not been severed from the surface
rights, the 129 individuals who owned or co-owned the parcels
individuals leased their mineral rights to Magnum, resulting in
lessors and Magnum, as well as the resulting leases now held by
Enerplus, are the subjects of this dispute.
On summary judgment,
the Court must determine if genuine issues of material fact exist
regarding (i) whether Magnum fraudulently induced the lessors to
execute the leases, and (ii) whether the lessors are entitled to
rescission of the leases based on unconscionability.
The Marcellus Shale, which runs through the Appalachian Basin,
is one of the largest sources of natural gas in the United States.
Although the energy industry has long been aware of pockets of gas
economical until the early 2000s.
During that period, companies
developed cost-effective means of collecting and producing the
natural gas -- to include hydraulic fracturing -- and quickly
realized the potential for enormous profits.1
As with all rapidly emerging industries, however, information
about the growth potential remained tightly controlled by the
companies that intended to capitalize on their insight. Of course,
the extent of their profits depended largely on the perceived value
of the rights to the natural gas.
The owners of those rights were,
oftentimes, rural landowners in Appalachia with limited knowledge
of the oil and gas industry.
It is within this context that the
events giving rise to these cases occurred.
In 2007, Edward Walker (“Walker”), a Michigan businessman with
experience in the oil and gas industry, formed Belmont for the
purpose of oil and gas exploration, specifically, the acquisition
of oil and gas leaseholds.
(Dkt. No. 115-2 at 6-7).2
Based on his
experience, he was keenly aware of the Marcellus natural gas play
He was also familiar with other players in the
industry, including Magnum, which performed “basic land work,” such
as “title, takeoff mapping, leasing, leasing activities, [and]
Id. at 25.
Until 2010, total natural gas production from the Marcellus Shale
did not top 2 billion cubic feet per day. By July 2014, companies were
producing more than 15 billion cubic feet per day. See Marcellus Region
Production Continues Growth, U.S. Energy Information Administration (Aug.
5, 2014), http://www.eia.gov/todayinenergy/detail.cfm?id=17411&src=email.
Unless otherwise noted, all citations to the record refer to
docket entries in case number 1:13CV33.
contacted Magnum with the goal of “[p]ut[ting] together acreage” in
Preston County; he asked Magnum to perform the title work and buy
Id. at 27.
Belmont would front the money for the
leases, and Magnum would execute them in its name and eventually
assign them to Belmont.
Belmont authorized Magnum to pay
owners twenty-five-dollar bonus payments per mineral net acre3 with
a one-eighth royalty on all gas extracted from their acreage.
Terence Goodell (“Goodell”), the founder of Magnum, would
receive a five percent stake in Belmont, a one percent overriding
royalty in the lease profits, fifty dollars per landman for every
day of work, and five dollars per acre with good title.
Id. at 31-
Throughout 2007 and 2008, Magnum acquired leases covering the
rights to 7562.63 mineral net acres in Preston County.4
Id. at 57.
Per their agreement, Magnum assigned the leases to Belmont in 2010.
Enerplus, realizing a gross profit of about $1666 per acre.
Shortly after the landowners signed leases with Magnum, word
spread that residents of surrounding counties were signing leases
Ten of the lessors received bonus payments in excess of twentyfive dollars per acre. (Dkt. No. 109-1 at 6-7).
The majority of the leases will expire in 2017.
(Dkt. No. 109-1
with substantially higher bonus payments. (Dkt. No. 115-3 at 115).
For example, David Colebank leased sixty-one mineral net acres to
Magnum in August 2007 for twenty-five dollars per acre.
109-1 at 6).
He later testified that, in the fall of that year, he
discovered that family members in neighboring Tucker County had
leased their mineral rights for upwards of two-thousand dollars per
(Dkt. No. 109-1 at 84-85).
After discussions with one another about their negotiations
with Magnum’s landmen, the Preston County lessors discovered a
In their sales pitches, the landmen had advised the
lessors that oil and gas companies could still collect gas under
non-leased acreage by drilling wells on neighboring properties.
In 2008, several of the lessors met with counsel to discuss
their leases and the representations made by the Magnum landmen.
As a result of that meeting, their attorney sent a letter to
counsel for Magnum, explaining the following:
I am writing on behalf of several Preston County, West
They all leased their oil and gas
rights to Magnum in the summer of 2007.
Unfortunately, almost all of my clients were induced to
sign the leases, to their detriment, as a result of
inaccurate representations made by Magnum employees or
Moreover, the “bonus” payment and royalty
percentages that my clients received are very low
compared to subsequent payments that Magnum made to
Preston County landowners.
(Dkt. No. 109-1 at 8).
Days later, the attorney sent Magnum
another letter, stating: “Most of my clients . . . were paid
embarrassing low amounts for their valuable oil and gas rights
after being threatened with the loss of their natural gas if they
did not sign the leases.”
Id. at 9.
In November 2012, the lessors sued the defendants in the
Circuit Court of Preston County, West Virginia, alleging nine
The circuit court grouped related plaintiffs and divided
the case into seventy-one separate cases.
The defendants then
plaintiffs’ claims, including their claim for unconscionability.5
inducement, (ii) civil conspiracy between Magnum and Belmont, and
On July 3, 2014, each of the three defendants moved for
summary judgment on the remaining claims.
They argue that the
evidence does not support a prima facie claim for fraudulent
inducement, and that the claim is time-barred by the applicable
statute of limitations.
They contend that, without an underlying
Notably, the Court never addressed the merits of the plaintiffs’
claim that the leases are unconscionable. Rather, the Court determined
that West Virginia law does not permit a stand-alone cause of action for
unconscionability. (Case No. 1:13CV113, Dkt. No. 25). In any event, the
issue of unconscionability is addressed below in the context of the
plaintiffs’ claim for declaratory relief.
tort claim, the civil conspiracy claim also should fail.
the defendants urge the Court to reject the plaintiffs’ declaratory
claim for rescission of the leases because such a claim is timebarred by laches, and because the leases are not unconscionable as
a matter of law.
II. STANDARD OF REVIEW
answers, or other materials” show that “there is no genuine dispute
as to any material fact and the movant is entitled to judgment as
a matter of law.”
Fed R. Civ. P. 56(a), (c)(1)(A).
When ruling on
a motion for summary judgment, the Court reviews all the evidence
“in the light most favorable” to the nonmoving party.
Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d 846, 850 (4th Cir.
The Court must avoid weighing the evidence or determining
the truth and limit its inquiry solely to a determination of
whether genuine issues of triable fact exist.
Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986).
The moving party bears the initial burden of informing the
nonexistence of genuine issues of fact.
477 U.S. 317, 323 (1986).
Celotex Corp. v. Catrett,
Once the moving party has made the
necessary showing, the nonmoving party “must set forth specific
facts showing that there is a genuine issue for trial.”
Lobby, 477 U.S. at 256 (internal quotation marks and citation
omitted). The “mere existence of a scintilla of evidence” favoring
the nonmoving party will not prevent the entry of summary judgment;
the evidence must be such that a rational trier of fact could
reasonably find for the nonmoving party.
Id. at 248–52.
Fraud in the Inducement
The plaintiffs allege the following in support of their claim
for fraud in the inducement:
112. The Defendant [sic] Landmen came to the Plaintiffs’
residence[s] and fraudulently induced them to sign the
above referenced leases for inadequate consideration
based on false and fraudulent representations and
purposely and with a common scheme with all Defendants.
. . .
misrepresentations, Defendant [sic] Landmen stated to
Plaintiffs that if they did not execute the proffered
leases, the Defendants would be able to extract their gas
from under their land and Plaintiffs would receive no
(Dkt. No. 1-1 at 24) (emphasis added).
The plaintiffs seek
monetary relief in the form of compensatory and punitive damages.
Id. at 25.
Importantly, these allegations are limited to the actions of
Magnum and Belmont, not Enerplus.
Thus, even though the caption
allegations sustaining that claim against Enerplus provides a basis
on which to grant Enerplus summary judgment as to the plaintiffs’
claim for fraud in the inducement.
This leaves a claim for fraud in the inducement against Magnum
To sustain a fraud claim under West Virginia law, a
(1) that the act claimed to be fraudulent was the act of
the defendant or induced by him; (2) that it was material
and false; that plaintiff relied upon it and was
justified under the circumstances in relying upon it; and
(3) that he was damaged because he relied upon it.
Trafalgar House Const., Inc. v. ZMM, Inc., 567 S.E.2d 294, 300 (W.
Va. 2002); see also Tri-State Asphalt Prods., Inc. v. McDonough
Co., 391 S.E.2d 907, 763 (W. Va. 1990) (“‘Allegations of fraud,
when denied by proper pleading, must be established by clear and
convincing proof.’”) (quoting Syl. Pt. 5, Calhoun Cnty. Bank v.
Ellison, 54 S.E.2d 182 (W. Va. 1949)); Liberty Lobby, 477 U.S. at
252 (“[T]he inquiry involved in a ruling on a motion for summary
judgment . . . necessarily implicates the substantive evidentiary
standard of proof that would apply at the trial on the merits.”).
Additionally, “[f]raud cannot be predicated on a promise not
To make it available there must be a false assertion in
regard to some existing matter by which a party is induced to part
with his money or his property.”
Gaddy Eng’g Co. v. Bowles Rice
McDavid Graff & Love, LLP, 746 S.E.2d 568, 576 (W. Va. 2013)
(emphasis in original) (quoting Syl. Pt. 3, Croston v. Emax Oil
Co., 464 S.E.2d 728 (W. Va. 1995)).
Stated differently, “the
representation required, in order that there be actionable fraud,
must ordinarily relate to a past or existing fact, or to an alleged
past or existing fact, and not to future occurrences.”
Carolina Lumber Co., 73 S.E.2d 12, 17 (W. Va. 1952).
1. False Statement
It is axiomatic that fraud requires falsity.
defendants contend that the allegedly fraudulent statement was not
false when made.
Before determining whether the evidence of
extraction techniques and the corresponding law is helpful.
“It is well settled in West Virginia that one who owns
subsurface rights to a parcel of property has the right to use the
surface of the land in such a manner and with such means as would
be fairly necessary for the enjoyment of the subsurface estate.”
Whiteman v. Chesapeake Appalachia, LLC, 873 F. Supp. 2d 767 (N.D.W.
Va. 2012) (quoting Depeterdy v. Cabot Oil & Gas Corp., No. CA-97966-2, 1999 WL 33229744, at *2 (S.D.W. Va. Sept. 13, 1999)).
Exercising this right, companies may drill vertically on leased
land, and horizontally up to the boundaries of non-leased land.
When drilling near the boundary of non-leased property, the “rule
of capture” permits companies to extract gas that migrates from
beneath the non-leased land, across the boundary line, to the
company’s wellbore. See Energy Dev. Corp. v. Moss, 591 S.E.2d 135,
147 (W. Va. 2003) (quoting Powers v. Union Drilling, Inc., 461
S.E.2d 844, 849 (W. Va. 1995)) (defining the rule of capture).
The rule of capture applies primarily in the context of
expansive gas reservoirs, in which the gas easily flows to low
In the case of the Marcellus Shale, however, the
Rather, companies utilize hydraulic fracturing by
pumping fluid chemicals through the wellbore causing cracks in the
proppants, such as sand, into the fissures to prevent them from
A significant legal issue arises when the fluids or proppants
traverse the boundary line into non-leased property, or when the
“fracing” process creates cracks in the shale that creep into nonleased property and release a non-lessor’s gas.
Although the West
Virginia Supreme Court of Appeals has not addressed this issue, the
Supreme Court of Texas has held that “damages for drainage by
Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 17
In 2013, a court within this district rejected
Garza’s holding based on its prediction of how West Virginia’s
highest court would rule. Stone v. Chesapeake Appalachia, LLC, No.
5:12CV102, 2013 WL 2097397, at *6 (N.D.W. Va. Apr. 10, 2013),
vacated by Stone v. Chesapeake Appalachia, LLC, No. 5:12CV102, 2013
WL 7863861, at *1 (N.D.W. Va. July 30, 2013).
Virginia law on this issue remains unsettled.
Here, the plaintiffs allege the Magnum landmen told them, “if
they did not execute the proffered leases, the Defendants would be
able to extract their gas from under their land and Plaintiffs
would receive no consideration therefrom.”
(Dkt. No. 1-1 at 24).
attacked the plaintiffs’ claim for fraud in the inducement on the
ground that the allegedly false statement was not pleaded with the
particularity required by Fed. R. P. 9(b).6
As demonstrated, the
statement, as alleged, was ambiguous because it could have alluded
to any or all of several gas extraction techniques.
the alleged statement did refer to one of the techniques discussed
above, the plaintiffs would have faced difficulty in establishing
the falsity element of their claim.
For these reasons, the Court
was dubious about the claim’s viability.
During the initial hearing in this matter, counsel for the
plaintiffs recognized this uphill battle.
After treading through
the nuances of oil and gas law, he eventually represented that
“these [plaintiffs] were led to believe that [the oil and gas
companies] were going to run their laterals underneath, through
Rule 9(b) requires that, “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or
their property entirely and take their oil and gas, what was a
false statement, is a false statement and will always be a false
(Dkt. No. 93 at 75).
A wellbore that bottoms out on non-leased property is often
referred to as a “deviated well,” and such practice is universally
See, e.g., Garza, 268 S.W.3d at 14 (“The gas produced
through a deviated well does not migrate to the wellbore from
Continental Res., Inc. v. Farrar Oil Co., 559 N.W.2d 841, 844 (N.D.
1997) (defining a “subsurface trespass” as “[t]he bottoming of a
well on the land of another without his consent”).
for Belmont and Enerplus observed that “[a] lateral under your land
is a trespass.”
(Dkt. No. 93 at 71).
In their opposition brief on summary judgment, the plaintiffs
reaffirm their theory of fraudulent inducement: “[M]ost Plaintiffs
In fact, counsel for the plaintiffs made this representation
several times throughout the hearing.
(Dkt. No. 93 at 69) (“[M]y
understanding in both Stone and Garza is the laterals never went under
the adjoining property owner’s land and that is what the people in
Preston County were led to believe by many of these landmen would
happen.”); id. (“So in other words, just so we’re clear, that they could
establish a well on an adjoining property owner’s piece of property, go
vertically and then laterally underneath their property and take their
oil–-.”). Inasmuch as the plaintiffs seek to pursue a different theory
of fraudulent inducement, the doctrines of judicial estoppel and judicial
admission bar such a change of course. See Meyer v. Berkshire Life Ins.
Co., 372 F.3d 261, 265 n.2 (4th Cir. 2004) (explaining that “deliberate,
clear[,] and unambiguous statements made by counsel may be considered
judicial admissions that bind the conceding party to the representations
made”) (alteration and emphasis in original) (internal quotation marks
and citation omitted); Lamonds v. Gen. Motors Corp., 34 F. Supp. 2d 391
(W.D. Va. 1999).
were led to believe that if the lease was not signed the Defendants
could extract their minerals through the use of ‘deviant [sic]
This was a false, material representation, as this has
never been the law in any jurisdiction.” (Dkt. No. 115-1 at 10).
Although their theory quiets any concerns regarding the falsity
element of their claim, a careful review of the record establishes
that the Magnum landmen told only ten of the 129 plaintiffs that
the drilling company could lawfully drill a deviated well under and
through their land.
Catherine Durr and Mark Carr provided a joint interrogatory
response that the landman told them the gas company “could go under
our land and get the gas without us knowing it and we would end up
(Dkt. No. 115-3 at 41).
Similarly, Allen and
Donna Goff provided an interrogatory response explaining that “[w]e
were led to believe that our gas could be taken even if we did not
sign, by drilling horizontally under our ground.”
Id. at 45.
According to the response of William and Lynn Sargent, “[h]e told
us that if we did not sign the lease that the company would be able
Id. at 72.
The response of John W. Shaffer explained
that “[h]e also stated that we might as well sign because if we
didn’t they would just go under us and take the gas anyway.”8
During his deposition, David Friend testified that the landman
told him the drilling company “could come underneath of my property
and pull the gas right out.”
(Dkt. No. 113-1 at 79; 115-3 at 138).
According to Junior Bolyard’s deposition testimony, “[t]hey said,
‘When they drill the well over next to you, they will just come
right under and get it.’” (Dkt. No. 115-3 at 150).
Murray testified during his deposition that he was told “if we
didn’t sign it, they would go under us and they would take our
mineral rights from under us.”9
Id. at 183.
2. Justified Reliance
Although ten plaintiffs passed the falsity screen, a prima
facie claim for fraud in the inducement also requires clear and
The Court notes that the plaintiffs’ answers to the defendants’
interrogatories, as contained in the record, do not comply with Fed. R.
Civ. P. 33(b)(5), which requires that “[t]he person who makes the answers
must sign them.” This raises significant doubt as to whether the Court
may consider the responses on summary judgment.
See Saria v.
Massachusetts Mut. Life Ins. Co., 228 F.R.D. 536, 539 (S.D.W. Va. 2005)
(“[T]he failure to provide client verification [to interrogatory
responses] undermines the dispositive motion process under Rule 56(c).”).
Although Richard Bell testified during his deposition that “[t]hey
would come in underneath of you from the neighbors and get it” (dkt. no.
115-3 at 166), he clarified that he did not recall the landman saying
“anything about drilling underneath [his] land or anything like that.”
Id. at 168. Similarly, Dorsey Bolyard suggested during her deposition
that, like coal companies, gas companies “come underneath your property”
id. at 158, but she then clarified that “[the landman] didn’t say how
they would take [her gas].” Id. at 160.
relying upon it.”
Trafalgar, 567 S.E.2d at 300.
The Court is not
persuaded that reliance was justified in this case.
As an initial matter, the evidence of record supports the
reliance element as to only four of the ten plaintiffs to whom the
statement was made.
David Friend testified that, “after thinking
about losing my gas and getting nothing from them, I told him that
I would lease to him.”
(Dkt. No. 113-1 at 79).
According to the
Sargents’ interrogatory response, they “did not feel like [they]
had any other option except to sign the lease” because of the
statement concerning deviated wells.
(Dkt. No. 115-3 at 72).
Finally, David Murray testified that “[t]hey were going to take our
gas anyway if we signed or not, so if they are going to take our
gas anyway, we might as well get something out of it.”10
justified in relying on such a blatant misrepresentation of the law
Junior Bolyard signed an affidavit swearing that “the primary
reason I signed the lease in dispute is because a Magnum landman told me
if I did not sign, my gas could be taken anyway.” (Dkt. No. 115-3 at
191). However, Bolyard had previously testified during his deposition
that he “probably would have” signed the lease even if the landman had
not said anything about taking his gas.
(Dkt. No. 122-1 at 3).
Therefore, the Court will not credit his affidavit. See Cleveland v.
Policy Mgmt. Sys. Corp., 526 U.S. 795, 806 (1999) (“[A] party cannot
create a genuine issue of fact sufficient to survive summary judgment
simply by contradicting his or her own previous sworn statement (by, say,
filing a later affidavit that flatly contradicts that party’s earlier
sworn deposition) without explaining the contradiction or attempting to
resolve the disparity.”).
of trespass and conversion. It is unreasonable to believe that the
law would permit gas companies to drill into anyone’s land and take
that person’s gas without his or her permission.11
Even if one did
unreasonable to believe that gas companies would spend money on
Finally, no reasonable person would accept
such a representation as true and sign the lease without first
looking into the validity of the statement or consulting someone
knowledgeable in the oil and gas field.
Thus, none of the
plaintiffs was justified in signing a lease with Magnum based on
the alleged statement concerning the lawfulness of deviated wells.
3. Statute of Limitations
elements of their claim for fraud in the inducement, the claim is
The Court agrees with the parties that W. Va. Code §
55-2-12 provides the applicable two-year limitations period.
Funeral Svcs. by Gregory, Inc. v. Bluefield Cmty. Hosp., 413 S.E.2d
79, 85 (W. Va. 1991), overruled on other grounds by Syl. Pt. 5,
Courtney v. Courtney, 437 S.E.2d 436, 437 (W. Va. 1993).
As to the
accrual date, West Virginia law provides that,
[w]here a cause of action is based on tort or on a claim
of fraud, the statute of limitations does not begin to
Even counsel for the plaintiffs
concept this is: “I think it’s oil and
capture never allowed somebody to go to
somebody’s property and take the oil and
acknowledged how elementary a
gas law 101 that the rule of
the center through–-underneath
gas.” (Dkt. No. 93 at 70).
run until the injured person knows, or by the exercise of
reasonable diligence should know, of the nature of his
injury, and determining that point in time is a question
of fact to be answered by the jury.12
Syl. Pt. 3, Stemple v. Dobson, 400 S.E.2d 561, 562 (W. Va. 1990)
“This objective test focuses upon whether a
reasonable prudent person would have known, or by the exercise of
reasonable diligence should have known, of the elements of a
possible cause of action.”
Dunn v. Rockwell, 689 S.E.2d 255, 265
(W. Va. 2009).
The Court has already determined that the plaintiffs exercised
no diligence, let alone reasonable diligence, by not inquiring as
to the truthfulness of the alleged misrepresentation before signing
misrepresented the law concerning deviated wells.
the plaintiffs felt pressured to sign immediately, a reasonable
The plaintiffs seize Stemple’s syllabus point to argue that the
Court may not determine the accrual date on summary judgment. However,
the Fourth Circuit has rejected such an interpretation, and has
determined that Stemple does not require submission of a statute of
limitations defense on undisputed facts to a jury. Childers Oil Co. v.
Exxon Corp., 960 F.2d 1265, 1272 (4th Cir. 1992).
See Slack v. Kanawha Cnty. Hous. & Redev. Auth., 423
S.E.2d 547, 553 (W. Va. 1992) (quoting Spitler v. Dean, 436 N.W.2d
308, 311 (Wis. 1989)) (“‘Plaintiffs may not close their eyes to
means of information reasonably accessible to them and must in good
faith apply their attention to those particulars which may be
inferred to be within their reach.’”).
reasonable diligence provides the limiting factor on the accrual of
claims. The plaintiffs offer no limiting principle. Instead, they
imply that their claim was timely for an indefinite period, so long
as fortuity did not trigger the two-year clock.
the law is, where one has means of knowledge of a fraud,
or sufficient notice to put him on inquiry, it is enough
to count time against him. . . . Where he has means of
knowing or ascertaining, where he is put on inquiry,
where ordinary prudence for his interests suggests that
he inquire, he must do so, or else time runs.
Herold v. Barlow, 36 S.E. 8, 13 (W. Va. 1900) (internal citation
This Court concludes that, under the objective standard, the
plaintiffs should have known about their claim for fraud in the
inducement well before November 2010.
Because they did not file
their complaint until November 2012, the claim is time-barred.
Indisputably, some of the plaintiffs met with an attorney by
August 2008, after which the attorney sent a letter to counsel for
Magnum, stating “almost all my clients were induced to sign the leases,
to their detriment, as a result of inaccurate representations made by
Magnum employees or agents.” (Dkt. No. 111-1 at 8).
In Count VII of their complaint, the plaintiffs allege that
“Magnum and Belmont in causing the Defendant Landmen to come to
Preston County, West Virginia, to fraudulently induce Plaintiffs to
sign the oil and gas leases set forth above was done maliciously,
obligations affecting the rights of the Plaintiffs.” (Dkt. No. 1-1
“A civil conspiracy is not a per se, stand-alone cause of
action; it is instead a legal doctrine under which liability for a
tort may be imposed on people who did not actually commit a tort
themselves but who shared a common plan for its commission with the
Dunn, 689 S.E.2d at 269 (italics in
original) (citing Kessel v. Leavitt, 511 S.E.2d 720, 754 (W. Va.
“It is the tort, and each tort, not the conspiracy, that
Id. (quoting Segall v. Hurwitz, 339 N.W.2d 333,
338 (Wis. App. 1983)).
Because the Court has dismissed the
underlying tort of fraud in the inducement, the plaintiffs’ claim
for civil conspiracy fails as a matter of law.
Even if the claim for fraud in the inducement were otherwise
viable, the plaintiffs have proffered no evidence to establish
West Virginia law defines a civil conspiracy as “a
accomplish an unlawful purpose or to accomplish some purpose, not
in itself unlawful, by unlawful means.”
Syl. Pt. 8, id. at 258.
Although the evidence establishes an arrangement between Magnum and
Belmont to aggregate mineral acreage in Preston County, it does not
demonstrate any concerted action by the two defendants to advise
landowners that deviated wells are lawful.14
Before addressing the defendants’ arguments opposing Count IX
of the plaintiffs’ complaint, the Court must determine the posture
of the claim.
The plaintiffs originally brought the claim under
the West Virginia Uniform Declaratory Judgments Act, W. Va. Code §
55-13-1, et seq., and seek a declaration from the Court that “the
oil and gas leases referenced above be declared null and void due
(Dkt. No. 1-1 at 32).
The plaintiffs also
have clarified that “[their] declaratory judgment claim seeks to
rescind the subject leases currently owned by the defendant,
(Dkt. No. 117-1 at 18).
originally filed in state court under state law is converted to a
claim under the federal Declaratory Judgment Act, 28 U.S.C. § 2201,
See First Nationwide Mortg. Corp. v. FISI Madison,
In an effort to save their civil conspiracy claim, the plaintiffs
point to evidence suggesting that the landmen were agents of Belmont and
Magnum. But see Cook v. Heck’s Inc., 342 S.E.2d 453, 460 (W. Va. 1986)
(“Agents and employees of a corporation cannot conspire with their
corporate principal or employer where they act in their official
capacities on behalf of the corporation and not as individuals for their
individual advantage.”) (internal quotation marks and citation omitted).
LLC, 219 F. Supp. 2d 669, 672 n.1 (D. Md. 2002).
“[f]ederal standards guide the inquiry as to the propriety of
declaratory relief in federal courts.”
White v. Nat’l Union Fire
Ins. Co., 913 F.2d 165, 167 (4th Cir. 1990).
The United States
Supreme Court has long held that declaratory judgment is warranted
only “between parties having adverse legal interests.”
Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (quoting Maryland
Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
Because Magnum and Belmont no longer hold any interest in the
disputed leases, they are not adverse parties within the scope of
the plaintiffs’ claim for declaratory relief.
See Holmes v.
Chesapeake Appalachia, LLC, No. 5:11CV123, 2012 WL 3647674, at *7
(N.D.W. Va. Aug. 23, 2012) (“[B]ecause defendant Miller is not a
party to the contracts which are the subjects of the declaratory
judgment actions . . . she is not sufficiently ‘interested’ in the
claims to allow the plaintiffs to assert declaratory judgment
claims against her.”).
Therefore, the Court lacks jurisdiction to
entertain a declaratory judgment claim between the plaintiffs and
either Magnum or Belmont with respect to any rescission of the
leases. See Powell v. McCormack, 395 U.S. 486, 512-13 (1969) (“[A]
federal district court lacks jurisdiction over the subject matter
. . . if it is not a ‘case or controversy’ within the meaning of
that phrase in Art. III.”).
against Enerplus, the current leaseholder.
Enerplus contends that
the Court’s prior dismissal of the plaintiffs’ stand-alone claim
Although the Court determined that Mountain
State College v. Holsinger, 742 S.E.2d 94 (W. Va. 2013) precludes
an independent claim for unconscionability, West Virginia does
recognize unconscionability as a basis for the rescission of
See Syl. Pt. 8, Brown v. Genesis Healthcare Corp., 729
S.E.2d 217, 221 (W. Va. 2012) (“If a court, as a matter of law,
finds a contract or any clause of a contract to be unconscionable,
the court may refuse to enforce the contract . . . .”).
the plaintiffs’ claim seeking rescission of the leases remains
viable, notwithstanding the Court’s prior ruling.
1. Restoration Rule
overlooked a fundamental prerequisite:
The rule that he who seeks equity must do equity requires
that any person demanding the rescission of a contract to
which he is a party must restore or offer to restore to
the other party whatever he may have received under the
consideration or benefit.
Nat’l Life Ins. Co. v. Hanna, 7 S.E.2d 52, 54 (W. Va. 1940)
(emphasis in original) (internal quotation marks and citation
omitted); accord In re APA Assessment Fee Litig., __ F.3d __, No.
13-7032, 2014 WL 4377770, at *13 (D.C. Cir. Sept. 5, 2014) (“[A]
party seeking rescission must restore the other party to that
party’s position at the time the contract was made.”) (internal
quotation marks and citation omitted); Summers v. Travelers Ins.
Co., 109 F.2d 845, 847 (8th Cir. 1940) (recognizing that the
restoration rule “requir[es] a restoration of the status quo as a
condition precedent to such rescission”).
“He who would terminate
or avoid a contract by [rescission] must restore everything of
value he received by virtue of it.”
Myers v. Cook, 104 S.E. 593,
596 (W. Va. 1920); see also Newman v. Kay, 49 S.E. 926, 931 (W. Va.
1905) (discussing a case in which the cross-claim for rescission
was dismissed partly because there was “no tender or offer of
repayment of any money received”).
Here, most of the plaintiffs received thousands of dollars in
bonus payments in exchange for leasing their mineral rights to
(Dkt. No. 109-1 at 6-7).
Yet they have neither pleaded
nor proffered any evidence that they have returned or offered to
return the money.
Moreover, Enerplus represents that, “[t]o this
(Dkt. No. 121 at 4).
From an equitable perspective,
this Court would be hard-pressed to rescind the leases while
permitting the plaintiffs to keep their substantial bonus payments.
restoration precludes rescission.
Notwithstanding the above, the Court will address any claim
that the leases are unconscionable and that the bonus payments were
In Brown, the West Virginia Supreme Court of Appeals set
out the principles governing a court’s determination of whether a
contract is unconscionable. See Syl. Pts. 4-13, 729 S.E.2d at 22022.
The doctrine of unconscionability means that, because of
an overall and gross imbalance, one-sidedness or lopsidedness in a contract, a court may be justified in
refusing to enforce the contract as written. The concept
of unconscionability must be applied in a flexible
manner, taking into consideration all of the facts and
circumstances of a particular case.
Syl. Pt. 4, id. at 220.
Contracts are subject to rescission if
they are “both procedurally and substantively unconscionable.”
Syl. Pt. 9, id. at 221. “Procedural unconscionability is concerned
with inequities, improprieties, or unfairness in the bargaining
“Substantive unconscionability involves unfairness in the contract
itself and whether a contract term is one-sided and will have an
overly harsh effect on the disadvantaged party.”
Syl. Pt. 12, id.
Syl. Pt. 9, id.
The plaintiffs’ argument of procedural unconscionability is
plaintiffs have testified that, in signing leases with Magnum, they
relied on the false statement concerning trespassory deviated
As a result of this allegedly deceptive practice by the
landmen, these several plaintiffs lacked a meaningful alternative
to leasing their mineral rights.
See McGinnis v. Cayton, 312
S.E.2d 765, 777 (W. Va. 1984) (listing several bases for procedural
unconscionability, including “absence of meaningful choice” and
recognizes that Magnum was the only company offering to lease the
plaintiffs’ mineral rights in 2007 and 2008.15
Thus, regardless of
plaintiffs had only two alternatives: either (i) refuse to lease to
Magnum and earn nothing, or (ii) lease to Magnum and accept the
bonus payment it offered.
Although the few plaintiffs to whom the deceptive statement
allegedly was made might have held out for a better offer, that
decision would have required a high degree of risk and speculation
about the natural gas market.
The plaintiffs’ repeated assertion
that they “were virtually uninformed as to the circumstances of oil
and gas leasing” belies the notion that a long position on natural
Indeed, the only evidence of higher bonus payments is hearsay.
Moreover, if higher bonus payments were being offered, the leases in
question would not be subject to procedural unconscionability because the
plaintiffs would have had meaningful alternatives to Magnum’s twenty-five
dollar bonus payments.
gas constituted a “meaningful choice.”16
(Dkt. No. 117-1 at 20).
Therefore, any procedural unconscionability was minimal and will
The plaintiffs offer two primary grounds for the substantive
unconscionability of the leases.17
First, they argue that the one-
eighth royalty payments are unconscionable.
standard within the oil and gas industry.
(Dkt. No. 1-1 at 28).
See, e.g., Syl. Pt. 10,
Estate of Tawney v. Columbia Natural Res., LLC, 633 S.E.2d 22, 24
(W. Va. 2006) (recognizing that a lessor’s royalty amount is
Moreover, the West Virginia State Legislature has
placed its imprimatur on one-eighth royalty payments in the context
of issuing drilling permits.
See W. Va. Code § 22-6-8(e).
Second, the plaintiffs point to Magnum’s gross profit margin
from the sale of the leases to Enerplus, and conclude accordingly
that the bonus payments they received were necessarily unfair.
This Court has no reason to believe that per se inequity results
The plaintiffs also suggest that the gap between their knowledge
of the industry and Magnum’s knowledge of the industry amounted to
That knowledge gap would have existed
irrespective of the leasing company and the amounts it paid. See Troy
Mining Corp. v. Itmann Coal Co., 346 S.E.2d 749, 754 (W. Va. 1986) (“In
most commercial transactions it may be assumed that there is some
inequality of bargaining power . . . .”) (quoting Ashland Oil, Inc. v.
Donahue, 223 S.E.2d 433, 440 (W. Va. 1976)).
Although the plaintiffs argue that the operational terms of the
leases are “overly harsh,” the Court has no way to evaluate this argument
since the leases are not included in the record on summary judgment.
proportional relationship to its purchase costs.
Cf. Bennett v.
Behring Corp., 466 F. Supp. 689, 698 (S.D. Fla. 1979) (“A contract,
fair when entered into, does not thereafter become unconscionable
simply because a great many other persons enter into identical
contracts with defendant thereby increasing defendants’ profits.”).
More importantly, the plaintiffs’ ipse dixit fails to account for
(i) any costs incurred by Belmont other than the bonus payments,
and (ii) any value Belmont added to
the group of leases it
eventually sold to Enerplus.
In addition to bonus payments and other incidental costs,
Belmont had to pay Magnum for its services and divest equity to
Goodell, Magnum’s principal.
Moreover, Belmont added substantial
value from Enerplus’s perspective by acquiring numerous individual
leaseholds that covered a vast area of continuous mineral acreage.
Both of these factors account for much of Belmont’s gross profit.
landowners higher bonus payments during the time in question, it is
altogether possible that, based on market fluctuations and other
factors, those same companies earned even higher profits than did
Thus, no legally cognizable inequity resulted from the
bonus payments the plaintiffs received from Magnum.
Mining Corp. v. Itmann Coal Co., 346 S.E.2d 749, 753 (W. Va. 1986)
(“[I]t is not the province of the judiciary to try to eliminate the
inequities inevitable in a capitalist society.”).
Even if the plaintiffs had a legally sustainable claim for
equitable relief, it is time-barred by laches.
“Laches is delay
which operates prejudicially to another person’s rights.” Brand v.
Lowther, 285 S.E.2d 474, 482 (W. Va. 1981) (citations omitted).
“The equitable doctrine of laches is based upon the maxim that
equity aids the vigilant and not those who slumber on their
Maynard v. Bd. of Educ., 357 S.E.2d 246, 253 (W. Va.
1987); see also Banker v. Banker, 474 S.E.2d 465, 477 (W. Va.
Unlike a statute of limitations defense, “the controlling
element of the equitable defense of laches is prejudice, rather
than the amount of time which has elapsed without asserting a known
right or claim.” Id.
Indeed, “laches is sustainable only on proof
of two elements: (1) lack of diligence by the party against whom
the defense is asserted, and (2) prejudice to the party asserting
West Virginia v. Abbot, 418 S.E.2d 575, 578 (W. Va.
1992) (citations omitted).
“The burden of proving unreasonable
delay and prejudice is upon the litigant seeking relief.” Province
v. Province, 473 S.E.2d 894, 905 (W. Va. 1996).
More than four years elapsed between the signing of the leases
in 2007 and 2008 and the filing of the plaintiffs’ complaint in
Moreover, the record in this case is replete with evidence
suggesting that a reasonable prudent person who signed a lease
during the time in question should have known soon thereafter that
his or her bonus payment was far less than payments received by
others in the community.
For instance, in September 2008, attorneys were advertising
their services in connection with signing oil and gas leases.
(Dkt. No. 109-1 at 11).
As previously noted, some of the Preston
County lessors consulted those same attorneys.
Id. at 8-9.
in June 2008, the Preston County Journal ran an article titled
“Landowners distressed with agreements.”18
Id. at 67.
2008, the same newspaper ran advertisements for “an informative
meeting on Oil and Gas leasing.”19
Id. at 12-14.
Finally, the West
Virginia Surface Owners’ Rights Organization hosted a meeting on
August 14, 2008, and “encouraged [landowners] to attend to learn
more about their rights.”
Id. at 15.
More telling are the plaintiffs’ own deposition testimonies.
For example, Gary Bowman testified that he knew someone who signed
“a couple weeks after” he did and received a bonus payment of $1500
(Dkt. No. 109-1 at 51).
Brad Castle testified that he
knew he “could have gotten more” within weeks of signing.
No. 109-1 at 53-55).
Gordon Cathell knew “within a year” that
Gary Conner testified that, several months after he signed, he
read a newspaper article about landowners signing leases for bonus
payments of up to five-thousand dollars per acre. (Dkt. No. 109-1 at 8889).
Jim Noce attended this meeting.
(Dkt. No. 109-1 at 152).
“[he] didn’t get a good deal for [his] oil and gas lease.”20
No. 109-1 at 75).
This evidence, and the rest of the record in the case,
demonstrates that, even under a subjective standard, many of the
plaintiffs knew of any disparity in bonus payments soon after
signing leases with Magnum.
See Syl. Pt. 2, Phillips v. Piney Coal
& Coke Co., 44 S.E. 774, 774 (W. Va. 1903) (“A court of equity will
not assist one who has slept upon his rights and shows no excuse
prudent person charged with inquiry notice certainly should have
known about any disparity in bonus payments shortly after 2008.
See Powderidge Unit Owners Ass’n v. Highland Props., Ltd., 474
S.E.2d 872, 883 (W. Va. 1996) (“Courts, like the Deity, are
frequently moved to help those who help themselves.”) (internal
quotation marks and citation omitted).
Thus, it is clear that the
plaintiffs slumbered on their rights by not filing a complaint
until November 2012.
See Blue v. Hazel-Atlas Glass Co., 147 S.E.
22, 25 (W. Va. 1929) (“While delay in the assertion of a right may
not within itself be sufficient to defeat it,  it does raise a
presumption of intent to abandon the cause of action.
nonaction tends to cast doubt on the existence of the right.”).
The depositions noted are representative of nearly all the
plaintiffs who were deposed. (Dkt. No. 109-1 at 18, 20-21, 27, 38, 42,
44, 84-85, 99-100, 108, 126, 130, 142-43, 151, 177).
As to prejudice, Enerplus spent millions of dollars acquiring
the leases from Belmont, and has been prevented from developing the
leaseholds and recouping its investment because of the instant
Moreover, it is highly doubtful that Enerplus would
have purchased the leases from Belmont in 2010 if the plaintiffs
had filed timely lawsuits before then.
evidence to remove any dispute that the equitable defense of laches
declaratory relief is time-barred.
The plaintiffs have not proffered sufficient evidence to
support a prima facie claim for fraud in the inducement. Moreover,
the claim is time-barred.
Without an underlying tort claim, their
claim for civil conspiracy fails as a matter of law.
plaintiffs have offered no evidence to sustain a claim for civil
conspiracy between Magnum and Belmont.
Finally, the claim for
declaratory relief seeking rescission fails because the plaintiffs
failed to comply with the rule of restoration, the leases are not
unconscionable, and the claim is time-barred.
For these reasons,
the Court GRANTS the defendants’ motions for summary judgment.
It is so ORDERED.
Memorandum Opinion and Order to counsel of record, and to enter a
separate judgment order.
DATED: October 14, 2014.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
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