Reynolds v. Ascent Resources - Marcellus, LLC.
Filing
19
MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS MOTION TO DISMISS 3 ANDPLAINTIFFS MOTION FOR JUDGMENT ON THE PLEADINGS 6 . Signed by District Judge Irene M. Keeley on 9/30/16. (jss) (Main Document 19 replaced on 9/30/2016) (jss). Modified on 9/30/2016 - removed blank page and regenerated NEF (jss).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
DONALD R. REYNOLDS,
Plaintiff,
v.
//
CIVIL ACTION NO. 1:16CV77
(Judge Keeley)
ASCENT RESOURCES — MARCELLUS, LLC,
Defendant.
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
On
March
28,
2016,
the
plaintiff,
Donald
R.
Reynolds
(“Reynolds”), filed this action in the Circuit Court of Harrison
County, West Virginia. On April 6, 2016, the Secretary of State
delivered process to an agent of the defendant, Ascent Resources Marcellus, LLC (“Ascent”), who, on May 2, 2016, timely removed the
action to this Court on the basis of diversity (Dkt. No. 1). On May
9, 2016, Ascent filed a motion to dismiss the complaint for failure
to state a claim (Dkt. No. 3), and Reynolds responded on June 1,
2016 (Dkt. No. 6). In his response, Reynolds also requested
judgment on the pleadings.1 Id. At a scheduling conference on July
5, 2016, the Court held Ascent’s motion to dismiss in abeyance and
ordered Reynolds to file an amended complaint by July 15, 2016
1
Reynolds’s request for judgment on the pleadings is
premature: Ascent has yet to file an answer. See Fed. R. Civ. P.
12(c).
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
(Dkt. No. 12). The Court also gave the parties an opportunity to
supplement briefing on the motion to dismiss. Id. Reynolds filed
his amended complaint on July 15, 2016 (Dkt. No. 15). The motion to
dismiss is now fully briefed and ripe for consideration. For the
following reasons, the Court DENIES Ascent’s motion to dismiss as
well as Reynolds’s motion for judgment on the pleadings.
BACKGROUND
The Court’s recitation of the facts is taken from Reynolds’s
amended complaint (Dkt. No. 12), which, at this stage, the Court
construes in the light most favorable to Reynolds. See De’Ionta v.
Johnson, 708 F.3d 520, 524 (4th Cir. 2013). Reynolds is a resident
of Harrison County, West Virginia, and Ascent is an Oklahoma LLC
licensed to do business in West Virginia. In April 2015, Reynolds
was
contacted
by
W.
Travis
McBain
(“McBain”),
an
Ascent
representative, about leasing Reynolds’s various interests in oil
and gas totaling 561.61 acres. This tract is known as the Milton
Underwood No. 2 Farm, McClellan District, Doddridge County, West
Virginia (“Milton tract”), and was leased to Clarence Mutschelknaus
on February 2, 2010 (the “Mutschelknaus lease”). McBain advised
Reynolds that the Mutschelknaus lease had expired by its terms on
February 10, 2015, because no well had been drilled during the
2
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
primary
term.
During
negotiations
with
Reynolds,
Ascent
consistently sought to lease Reynolds’s one-fourth interest in a
certain 90.83-acre tract (“Subject Interest”),2 which is included
in the Milton tract leased to Mutschelknaus.
Ascent prepared and provided a number of documents, dated June
8, 2015, including: 1) the Paid-Up Oil and Gas Lease, 2) the
Memorandum of Oil and Gas Lease, and 3) the Order of Payment (the
“Lease documents”) (Dkt. No. 15-1). On October 9, 2015, Reynolds
executed those documents and leased Ascent his interest in the
561.61-acre Milton tract. In the Lease, Reynolds “grants, leases,
and lets exclusively to Lessee all the oil and gas . . . underlying
the land herein leased, together with such exclusive rights as may
be necessary or convenient for Lessee, at its election, to explore
for, develop, produce, measure, and market production from the
Leasehold.” Id. at 1.
The Lease further provides as follows:
If Lessee receives evidence that Lessor does not have
title to all or any part of the rights herein leased,
Lessee may immediately withhold payments that would
otherwise be due and payable hereunder to Lessor until
the adverse claim is fully resolved. Lessor represents
2
Identified as Milton Underwood Farm, McClellen District,
Doddridge County, West Virginia, Assessor District and Tax Map and
Parcel Number 05-11-024.
3
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
and warrants that there is no existing oil and gas lease
which is presently in effect covering the leasehold.
Id. at 3. As reflected in the Order of Payment, Ascent agreed to
pay Reynolds a signing bonus of $4,100 per net acre, totaling
$367,775.27. Such payment was to be made by Ascent “within 45 days
of its receipt of the original of [the] Order of Payment and the
executed Lease,” but “[p]ayment [was] conditioned upon title to the
property interests leased being confirmed satisfactorily to Ascent
. . . in its sole discretion.” Id. at 13. In addition, the Order of
Payment
provided
that
Ascent
could
“reduce
the
consideration
payable . . . proportionate to the actual interest owned” if
Reynolds owned less that the interest defined. Id. Further, “[i]f
the Lease has not been surrendered or payment made by the specified
due date, then Lessor shall notify Lessee in writing and Lessee
shall have 30 days from receipt of such written notice to make
payment or surrender the lease without any liability” (Dkt. No. 153 at 4).
On October 30, 2015, Reynolds received a check from Ascent in
the amount of $267,956.34, which reflected that payment had been
withheld for the Subject Interest. Thereafter, on November 9, 2015,
Reynolds mailed a letter to Ascent, which it received on November
16, 2015, demanding that it release the Subject Interest because of
4
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
non-payment (Dkt. No. 15-2). Prior to receiving that demand, on
November 12, 2015, Ascent recorded the Memorandum of Oil and Gas
Lease, with reference to the Paid-Up Oil and Gas Lease as well as
the Subject Interest.3
On February 4, 2016, Reynolds sent Ascent another letter, this
time demanding payment for the Subject Interest in the amount of
$99,818.93 (Dkt. No. 15-3). On March 3, 2016, Ascent recorded a
release of the Subject Interest (Dkt. No. 4-1). By letter dated
March 8, 2016, McBain advised Reynolds, contrary to McBain’s prior
representations, “that a producing well was located on the parcel
and for that reason the parcel was subject to an existing oil and
gas lease” (Dkt. No. 15-4). Prior to receiving the demand for
payment, Ascent did not place Reynolds on “notice of any title
defect which would place Plaintiff Reynolds in breach of his
obligation under the lease contract to warrant title,” nor did it
demand that he “warrant or defend title to the subject oil and gas
interests” (Dkt. No. 15 at 4).
Reynolds
claims
that
he
“has
performed
all
obligations
pursuant to the Paid-Up Oil and Gas Lease and Order of Payment,”
3
The Memorandum of Oil and Gas Lease was recorded in the
Office of the Clerk of the County Commission of Doddridge County,
West Virginia, in Lease Book 414 at page 56.
5
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
but that Ascent has breached the contract by failing “to pay the
total agreed upon consideration.” Id. at 5. In support, Reynolds
avers that he “has never received any royalty payment or royalty
statement . . . identifying a producing well” on the Milton tract,
and that “[t]he Mutschelknaus lease expired under its o[w]n terms
on February 2, 2015, for failure to drill a well within the five
(5) year primary term.” Id. According to Reynolds, Ascent received
all intended benefits from the contract when it recorded the
Memorandum of Oil and Gas Lease on November 12, 2015, thus waiving
its right to withhold payment as provided in the Lease.
STANDARD OF REVIEW
Fed. R. Civ. P. 12(b)(6) allows a defendant to move for
dismissal on the grounds that a complaint does not “state a claim
upon which relief can be granted.” When reviewing the sufficiency
of a complaint, a district court “must accept as true all of the
factual allegations contained in the complaint.” Anderson v. Sara
Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007) (quoting Erickson v.
Pardus, 551 U.S. 89, 94 (2007)). “While a complaint . . . does not
need detailed factual allegations, a plaintiff’s obligation to
provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires
more than labels and conclusions, and a formulaic recitation of the
6
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted). A
court is “not bound to accept as true a legal conclusion couched as
a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986).
In order to be sufficient, “a complaint must contain ‘enough facts
to state a claim to relief that is plausible on its face.’”
Anderson, 508 F.3d at 188 n.7 (quoting Twombly, 550 U.S. at 547).
“A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). A motion to dismiss “does not
resolve contests surrounding the facts, the merits of a claim, or
the applicability of defenses.” Republican Party of N.C. v. Martin,
980 F.2d 943, 952 (4th Cir. 1992).
In deciding on the motion, the court need not confine its
inquiry
to
the
complaint;
it
may
also
consider
“documents
incorporated into the complaint by reference, and matters of which
a court may take judicial notice.” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007). “A copy of a written
instrument that is an exhibit to a pleading is a part of the
pleading for all purposes.” Fed. R. Civ. P. 10(c). The court may
7
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
also consider documents attached to the motion to dismiss, so long
as they are integral to the complaint and authentic.” Philips v.
Pitt Cty. Mem’l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).
APPLICABLE LAW
In order to state a claim for breach of contract, Reynolds
must
allege
facts
sufficient
to
support
the
following:
“the
existence of a valid, enforceable contract; that the plaintiff has
performed under the contract; that the defendant has breached or
violated its duties or obligations under the contract; and that the
plaintiff has been injured as a result.”
Exec. Risk Indem., Inc.
v. Charleston Area Med. Ctr., Inc., 681 F. Supp. 2d 694, 714
(S.D.W. Va. 2009) (citing 23 Williston on Contracts § 63:1 (Richard
A. Lord, ed., 4th ed. West 2009)). “The elements of a contract are
an offer and an acceptance supported by consideration.” Dan Ryan
Builders, Inc. v. Nelson, 737 S.E.2d 550, 556 (W. Va. 2012).
“To sufficiently state a claim for breach of contract, a
plaintiff must allege in his complaint ‘the breach on which the
plaintiffs
found
their
action
.
.
.
[and]
the
facts
and
circumstances which entitle them to damages.’” Id. (quoting White
v. Romans, 3 S.E. 14, 16 (W. Va. 1887)). In addition, the plaintiff
must “show that he has complied with the contract himself, . . .
8
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
and, if the evidence shows that he has not complied with the terms
of the contract, and has not been prevented or relieved therefrom
as aforesaid, he will be denied a recovery from the breach of
same.” Charleston Nat’l Bank v. Sims, 70 S.E.2d 809, 813 (W. Va.
1952) (quoting Jones v. Kessler, 126 S.E. 344 (W. Va. 1925)).
ANALYSIS
In its motion to dismiss, Ascent argues that Reynolds has
failed to sufficiently plead both that he performed under the
contract and that Ascent breached the contract. After careful
consideration of the amended complaint and the parties’ arguments,
however, the Court concludes that Reynolds has alleged sufficient
facts to “state a claim to relief that is plausible on its face.”
Anderson, 508 F.3d at 188 n.7 (quoting Twombly, 550 U.S. at 547).
The amended complaint contains factual support for each element of
his breach of contract claim.
First, the amended complaint clearly alleges the existence of
a valid, enforceable contract. It avers that after Ascent offered
to lease certain of Reynolds’s interests in oil and gas, Reynolds
and Ascent “entered into a written Paid-Up Oil and Gas Lease, with
a Memorandum of Oil and Gas Lease thereof, and an Order of Payment
contract” (Dkt. No. 15 at 1-2). These documents are attached to the
9
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
complaint as exhibits and support Reynolds’s claim that Ascent
agreed
to
tender
payment
as
consideration
for
leasing
his
interests. See Dan Ryan Builders, Inc., 737 S.E.2d at 556.
Second, based upon a careful reading of the amended complaint,
the
Court
performed
finds
sufficient
under
the
factual
contract.
The
allegations
Court
takes
that
the
Reynolds
factual
allegations in the pleading as truthful and views them in the light
most favorable to the non-moving party. De’Ionta, 708 F.3d at 524.
The Lease states as follow: “Lessor represents and warrants that
there is no existing oil and gas lease which is presently in effect
covering the leasehold” (Dkt. No. 15-1 at 3). Reynolds claims that
he fulfilled his obligations under this provision because he “never
received any royalty payment or royalty statement” concerning a
producing well on the Subject Interest, and “[t]he Mutschelknaus
lease expired under its o[w]n terms on February 10, 2015[,] for
failure to drill a well within the five (5) year primary term.”
(Dkt. No. 15 at 5).4
4
In addition, Reynolds alleges that he fulfilled his
obligations under the Order of Payment, which stated that “[i]f the
Lease has not been surrendered or payment made by the specified due
date [45 days], then Lessor shall notify Lessee in writing and
Lessee shall have 30 days from receipt of such written notice to
make payment or surrender the lease without any liability” (Dkt.
No. 15-3 at 4). Because Ascent did tender payment to Reynolds
10
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
Whether “exclusive title is something that Plaintiff simply
cannot grant,” as Ascent argues, is not an appropriate inquiry at
this stage (Dkt. No 16 at 3). The question is not whether Reynolds
actually did perform under the contract or whether he was capable
of performing under the contract; a motion to dismiss “does not
resolve contests surrounding the facts, the merits of a claim, or
the applicability of defenses.” Martin, 980 F.2d at 952. Ascent
will have the opportunity to make such arguments in a motion for
summary judgment. Rather, the proper inquiry is whether Reynolds
has alleged sufficient facts in his amended complaint to plausibly
support his legal assertion that he fulfilled his obligations under
the
contract.
The
Court
declines
to
consider
the
various
allegations in briefing on the motion to dismiss regarding topleasing
and
current
production
that
may
include
the
Subject
within the 45-day period, the determinative issue here appears to
be whether Ascent had the right to withhold payment for the Subject
Interest. To the extent that Reynolds was required to provide
notice after the 45-day period, he did so when he demanded payment
on February 4, 2016 (Dkt. No. 15 at 4). The fact that Ascent
released their interest upon this notification by Reynolds (Dkt.
No. 4-1) does not foreclose his allegation that Ascent breached the
contract by refusing to pay for the Subject Interest, which he
claims was no longer subject to the Mutschelknaus lease.
11
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
Interest.5
Contrary
to
Ascent’s
representations
that
the
Mutschelknaus lease is held by production, Reynolds alleges in his
amended complaint that the prior lease of the Subject Interest has
expired for failure to drill a well, as evidenced by the fact that
he has not received any payments (Dkt. No. 15 at 5). His allegation
that the Mutschelknaus lease expired supports the fact that “there
is no existing oil and gas lease which is presently in effect
covering the leasehold,” as Reynolds represented in the Lease
documents (Dkt. No. 15-1 at 3).
Third, Reynolds has sufficiently pleaded that Ascent “has
breached or violated its duties or obligations under the contract.”
Exec. Risk Indem., Inc., 681 F. Supp. 2d at 714. Reynolds claims
that Ascent was obligated to pay him the entire signing bonus to
which the parties agreed, that he demanded payment of that money,
and that Ascent has failed to fully compensate him for the leased
interests,
despite
the
fact
that
5
Reynolds
has
fulfilled
his
Aside from McBain’s letter to Reynolds, which references
“the DEP website” (Dkt. No. 15-4), and the fact that Ascent chose
to withhold payment for the Subject Interest, there is no evidence
before the Court at this early stage to indicate unequivocally that
Reynolds breached his obligations by failing to deliver title as
contemplated in the Lease documents. The only document that Ascent
chose to provide the Court in this regard is the Mutschelknaus
lease, which Reynolds alleges has expired.
12
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
obligations under the contract (Dkt. No. 15 at 2-3). Ascent argues,
in essence, that it could not have breached the contract because it
had “sole discretion” to determine whether title to the Subject
Interest was satisfactory (Dkt. No. 16 at 4-5).
It is not apparent from the Lease documents, however, that
Ascent had “sole discretion” to partially deny payment under the
contract if the Subject Interest was provided by Reynolds with
completely clear title. Although it is true that Ascent reserved
the right to surrender the Lease at any time or to lower payment
consistent with Reynolds’s actual ownership (Dkt. No. 15-1 at 13),
it does not follow that, if Reynolds fulfilled his obligations
under
the
contract,
as
he
alleges,
Ascent
had
the
right
to
unilaterally nullify the contract with regard to only the Subject
Interest. Ascent’s argument in this regard depends largely on the
presumption that Reynolds did not perform, but as discussed above,
whether Reynolds actually performed is not the issue; he has
pleaded sufficient facts to support the allegation that he did.
Finally, Reynolds has sufficiently pleaded that he incurred
damages as a result of Ascent’s breach. Not only did he receive
$99,818.93 less than the consideration agreed upon, but Ascent also
recorded a Memorandum of Oil and Gas Lease, which included the
13
REYNOLDS v. ASCENT RESOURCES — MARCELLUS, LLC
1:16CV77
MEMORANDUM OPINION AND ORDER DENYING
DEFENDANT’S MOTION TO DISMISS [DKT. NO. 3] AND
PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS [DKT. NO. 6]
Subject Interest (Dkt. No. 15 at 5-6). Reynolds claims that this
recordation gave Ascent all its intended benefits under the Lease
documents without tendering full payment to him, id. at 5, with the
detrimental effect to Reynolds that others may view Ascent as the
current Lessee of the Subject Interest. Indeed, the Memorandum
itself has the stated “purpose of giving third parties notice of
the existence of the Lease,” with all of the described properties,
including the Subject Interest (Dkt. No. 15-1 at 9). Therefore, the
Court finds that Reynolds has pleaded sufficient facts to state a
facially plausible claim for relief.
CONCLUSION
After carefully considering the issues raised by the parties,
for the reasons discussed, the Court DENIES Ascent’s motion to
dismiss (Dkt. No. 3). Reynolds’s motion for judgment on the
pleadings is also DENIED as untimely (Dkt. No. 6).
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: September 30, 2016.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?