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• New Bill - Marcellus Shale - Emergency Response "FASTER" Act - Spring 2011
• New Bill - Marcellus Shale OTJ Training Act - Spring 2011
• New Bill - Fracturing Responsibility and Awareness of Chemicals Act ("FRAC Act") - Spring 2011
• "Marcellus Shale: Update on Regulations, Case Law and Concerns," Mark J. Gesk, 2010.* - Winter 2010

* Acknowledgment
Wayman, Irvin & McAuley, LLC, acknowledges the contributions to the above Gesk Power Point materials provided by the Penn State Dickson School of Law, "Pa. Law Governing Natural Gas Exploration," from the Agricultural Law Resource and Reference Center, and Ross H. Pifer, J.D., LL.M., Director.

Minimum Royalties Act, 58 P.S. 33 (2009).
§ 33. Guarantee of minimum royalties A lease or other such agreement conveying the right to remove or recover oil, natural gas or gas of any other designation from lessor to lessee shall not be valid if such lease does not guarantee the lessor at least one-eighth royalty of all oil, natural gas or gas of other designations removed or recovered from the subject real property.

Kilmer v. Elexco, 2010 Pa. Lexis 517 (2010).
On Wednesday, March 24, 2010, the Pennsylvania Supreme Court, in a 6-0 decision, upheld a ruling by a Susquehanna County judge that validated lease agreements that subtract post-production costs from the calculation of landowner’s natural gas royalties. Several landowners desired to invalidate the leases they signed before the Marcellus Shale rush drove up area land values. The Landowners sued ElexCo Land Services Inc. and Southwest Energy Production Co. (“Gas Companies”) claiming that the leases were invalid because state law guarantees landowners a minimum one-eighth royalty from the production of oil and gas on their land. The case concerned the proper construction of the term “royalty” as used in the Guaranteed Minimum Royalty Act (“GMRA”), 58 P.S. § 33, which governs leases between Pennsylvania landowners and gas companies seeking to drill natural gas wells into Pennsylvania’s Marcellus Shale deposits. The GMRA requires that leases guarantee the landowner-lessor “at least one-eighth royalty of all oil, natural gas or gas of other designations removed or recovered from the subject real property.” Although the term “royalty” is not defined in the statute, the Court noted that many leases in the Commonwealth, including the leases before the Court, calculate royalties as one-eighth of the sale price of the gas minus one-eighth of the post-production costs of bringing the gas to market. The landowners filed for declaratory judgment seeking to void their leases, contending that this method of calculating royalties violates the GMRA. In an opinion authored by Justice Baer, the Court noted that developments in drilling technologies and the proximity of the Marcellus Shale to east coast energy markets has created a surge of interest in drilling in the area, in turn causing Gas Companies to offer much more lucrative lease terms to local landowners than they had in the past. As such, Landowners have started reviewing their older leases and questioning whether the terms provided therein comply with the GMRA. In March 2009, the trial court granted summary judgment in favor of the Gas Companies and denied the Landowners’ motion for summary judgment. The Landowners timely appealed to the Superior Court. However, because more than seventy suits were currently on hold pending the outcome of the appellate litigation in this case, the Gas Companies filed a petition asking the Supreme Court to exercise extraordinary jurisdiction to speed the resolution of this pure legal question of first impression, which was granted. In the present case, Landowners rejected the Gas Companies’ argument that the term “royalty” has developed a technical meaning in the oil and gas industry, and instead argued the Court should rely upon its ordinary definitions. According to the Landowners, the relevant determination should be the price at the point of sale, regardless of where the sale was made or the costs of getting to product from the wellhead to the point of sale. However, the Gas Companies contended that the plain language of the GMRA provides that the relevant point of reference is the moment the gas is removed from the ground, or in the wellhead. After considering both arguments, the Court held that it was required to interpret the valuation point which was most consistent with the language of the statute, requiring it to define the term “royalty.” In finding for the Gas Companies, the Court explained that the Statutory Construction Act instructed it to reject the common definition of “royalty” in favor of the definition it has acquired in the oil and gas industry. The Court noted that although the industry definition of “royalty” is not subject to the costs of production, post-production costs are generally deducted in the calculation of landowners’ royalties. Thus, the Court held that the GMRA should be read to permit the calculation of royalties at the wellhead, as provided by the net-back method in the leases, and therefore affirmed the trial court’s grant of summary judgment to the Gas Companies.

Valentino v. Range Resources, 2010 U.S.Dist. LEXIS 50692.
Plaintiffs owned approximately 114 acres of land in Washington County, Pennsylvania located over a layer of Marcellus Shale. Defendant was interested in entering into lease agreements with local landowners to locate, produce and extract the natural gas located under the Marcellus Shale. Therefore, Defendant contacted Plaintiffs regarding entering into a lease agreement which would permit Defendant to produce oil and gas from the Plaintiffs’ property, and included a side agreement giving Plaintiffs a bonus payment. In their Complaint, Plaintiffs alleged that they executed a lease granting Defendant an exclusive interest in exploring, drilling, operating for, producing and removing all oil and gas from their real property in exchange for royalty payments. Plaintiffs also contended that pursuant to the side agreement, Defendant was contractually obligated to pay them a bonus of approximately Four Hundred Fifty-Seven Thousand Dollars ($457,000). Defendant countered that it was never obligated to pay the bonus amount because the side agreement did not constitute a binding contract. In support of this theory, Defendant contended that both the lease and the side agreement were merely Plaintiffs’ offers to Defendant, and second, that even if the side agreement could be construed as a contract, it contained a “management approval” clause amounting to a condition precedent that was not fulfilled. Defendant claimed that management sent Plaintiffs a letter notifying them that the lease had not been approved, and therefore the condition precedent had not been met. Plaintiffs responded by arguing that the “management approval of the lease” clause was a condition subsequent, or in the alternative, that if it is a condition precedent, it was fulfilled. Furthermore, Plaintiffs contended that the side agreement indicated that Defendant had ninety days to surrender the lease from the date in which Plaintiffs executed it. The court held that because there was no term in the side agreement which required signatures from management for the formation of a valid contract, and because there was no definition of “management approval,” Plaintiffs’ allegations that management approval had occurred, provided the requisite facts, if accepted as true, to set forth a breach of contract claim that was plausible on its face and permitted the court to infer more than a mere possibility that a contract existed. The court further stated that under Pennsylvania law, a lease of real property for a term of more than three years must be made in writing and signed by the parties creating the lease, 68 Pa. Stat. Ann. § 250.202, and here the lease was not signed by Defendants. However, the court noted that the statute of frauds was not an issue the court could consider during the motion to dismiss stage of litigation. Therefore, the court denied Defendants’ motion to dismiss.

Foundation Coal Resources Corp. v. Department of Environmental Protection, and Penneco Oil Co., Inc. 993 A.2d 1277 (Pa. Cmwlth. 2010)
Foundation Coal Resources Corporation, Pennsylvania Land Holdings Corporation, and Realty Company of Pennsylvania (“Foundation Coal”) petitioned the Commonwealth Court of Pennsylvania for review of the order of the Environmental Hearing Board (“EHB”), upholding the issuance of seven oil and gas well permits by the Pennsylvania Department of Environmental Protection (“DEP”) to Penneco Oil Company, Inc. (“Penneco”). The issues before the court were whether Foundation Coal had standing to file objections to the permits under Section 202 of the Oil and Gas Act as a “projected and platted but not yet being operated” coal mine and whether the DEP improperly issued the permits without the conditions Foundation Coal proposed in order to avoid undue interference or endangerment to its coal mines. Foundation Coal owned a massive coal reserve in Greene County, Pennsylvania, upon which it intended beginning mining operations to extract the coal. Penneco had approximately 20,000 acres of oil and gas leases in Greene County, a substantial portion of which intersected with Foundation Coal’s reserves. As such, in order to reach the oil and gas reserves, Penneco would had to drill through Foundation Coal’s proposed mine. Over a period of approximately two years, Penneco filed permit applications to drill seven new wells. In accordance with Section 201(b) of the Oil and Gas Act, Penneco identified Foundation Coal as the owner of underlying coal seams in the tract to be drilled, and provided it with maps of the proposed well locations. 58 P.S. § 601.201(b). However, Foundation Coal objected to the permits, claiming it had an “already projected and platted but not yet being operated” coal mine pursuant to Section 202(b) of the Act. 58 P.S. § 601.202(b). As Foundation Coal alleged that the wells could jeopardize the safety of its miners and that the wells could impose economic burdens on it, it asked that the DEP include special conditions with each permit. However, at the time it raised its objections, Foundation Coal had not submitted a coal mining activity permit application to the DEP for the disputed area. Regardless, the DEP held conferences to discuss Foundation Coal’s objections to the permits. At the end of the conferences, the DEP granted all of Penneco’s permit applications. Foundation Coal then appealed the DEP’s grant of Penneco’s permits to the EHB. The EHB concluded that the evidence showed that Foundation Coal did not establish that it had a “projected and platted but not yet operating” coal mine as set forth under Section 202 of the Oil and Gas Act, as it was “impossible to establish the boundaries of the proposed Foundation Mine with any certainty,” that for it to be considered as a "projected and platted but not yet operating" coal mine, the owner should have filed a technically complete coal mining application. Moreover, the EHB determined that the maps submitted by Foundation Coal as proof were substantially undercut by the testimony of its own witnesses, who testified that the panels might even be increased and the fact that Penneco’s expert testified that widening the panels would completely realign the mine. In support of this determination, the EHB considered Penneco expert’s testimony, who stated that the only way to know if a specific well was going to impact the mine was to have detailed knowledge as to where the beginning and end of each panel would be located, and that Foundation Coal’s mining plans were a moving target without the necessary detail to qualify as a projected and platted coal mine. Additionally, the EHB determined that the actions of the DEP were reasonable in issuing the permits without Foundation Coal’s special conditions, and there was no legal requirement for the conditions to be included. Lastly, the EHB concluded that Foundation Coal failed to show that Penneco’s drilling would unduly interfere with or be necessary for safe operations at its future mine. On appeal, Foundation Coal argued that the EHB erred in holding that the mine was not a "projected and platted but not yet being operated" coal mine with standing to file objections to the permits under the Act. DEP and Penneco countered that the issue was moot, as Foundation Coal proceeded under Section 501 which allowed them to request a conference. Initially, the Commonwealth Court noted that Foundation Coal had the opportunity to set forth its arguments in favor of the special conditions, as though it had standing at the conferences as a “projected and platted but not yet being operated” coal mine. Upon review of the evidence, the court agreed with the EHB’s determination that the coal mine was not yet “projected and platted” within the meaning of the Act. Furthermore, the court did not find any error of law in the EHB’s determination that in order for a coal owner to be considered as a “projected and platted but not yet operating coal mine,” it had to have filed a “technically complete coal mining application.” Next, the Commonwealth Court found that the EHB was proper in holding that the DEP did not abuse its discretion by issuing permits without the special conditions requested by Coal Foundation pursuant to Section 601.201(e) of the Act, as there was ample evidence that either mining through a properly plugged well or mining around an unplugged or operating well could be done safely under the current statutory and regulatory framework. 58 Pa. Stat. Ann. § 601.201(e). The court noted that even assuming arguendo that the DEP had the authority to substitute different methods of plugging not provided specifically by statute, it had no obligation to do so where there was no showing that it was necessary for the safe operation of a mine. The court found that the EHB properly found that the DEP did not abuse its discretion by issuing the permits without the special conditions requested by Foundation Coal. Thus, the EHB’s decision was affirmed, and the DEP’s issuance of seven oil and gas well permits to Penneco was upheld.

Rodriguez v. Anadarko E & P Company, L.P., 2010 U.S. DIST. LEXIS 127188 (M.D. Pa. Dec. 1, 2010).
This consolidated action involved challenges to natural gas leases entered into at the beginning of the Marcellus Shale boom in Northeastern Pennsylvania. At issue were two leases entered into by Plaintiffs with Anadarko E & P Company (“Anadarko”) and Chesapeake Appalachia (“Chesapeake”), respectively. Plaintiff Rodriguez entered into a lease with Chesapeake in March of 2007, and Plaintiff Canfield entered into a lease with Anadarko in June of 2006. As a bonus for signing the lease, Plaintiffs were told by agents of each of the respective companies that they would be paid five dollars an acre for signing the lease, and the companies would never pay customers more than that amount. Since the leases were executed, Plaintiffs claimed that they learned that that statements made by the agents of the oil companies were false, and that some of their neighbors were paid more than five dollars per acre. In the first action, Plaintiffs alleged claims for fraudulent inducement, misrepresentation, undue influence, and declaratory judgment regarding the legality of the lease against Anadarko. In the second case, Plaintiffs alleged claims of fraudulent inducement, misrepresentation, tortious interference of a contractual relationship and declaratory judgment regarding the legality of the lease against Chesapeake. Both Defendants filed Motions to Dismiss the Complaints, and the Court determined that the Motions were ripe for adjudication. Initially, the Court noted: “while a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Rodriguez at 5 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)(internal citations omitted)). Thus, after the court has winnowed the conclusory allegations from those allegations supported by fact, it must review the claim to determine whether it is plausible. Id. at 6. As such, the Court then examined the legal sufficiency of the Amended Complaints against Chesapeake and Anadarko. Plaintiffs argued that the leases violated Pennsylvania’s Guaranteed Minimum Royalty Act (“GMRA”), 58 Pa. State. Ann. § 33, because the leases calculated the royalty by using the net-back method of calculation, instead of calculating it exclusive of post-production costs. The Court cited the Supreme Court of Pennsylvania’s decision in Kilmer v. Elexco Land Services, Inc., 990 A.2d 1147 (Pa. 2010), which upheld the royalty calculation provision in the Kilmer lease. The Court then noted that the terms of the lease in Kilmer were materially identical to the royalty provisions in the instant leases. Consequently, the Court held that the unanimous decision of the Supreme Court was dispositive of Plaintiffs’ claims for declaratory judgments. Moreover, the Court rejected the Plaintiffs’ argument that the lease provisions differed from those in Kilmer, as they both used the net-back method of calculation. Therefore, the Court granted Defendants’ Motions to Dismiss regarding the Plaintiffs’ claims with respect to the legality of the leases. Plaintiffs also alleged a variety of common law claims against Defendants in an effort to invalidate the lease agreements. With respect to these claims, the Court noted that the parol evidence rule generally prevents the introduction of extrinsic evidence to evaluate a written agreement. Id. at 8 (citing Kropa v. Cabot Oil & Gas Corp., 716 F. Supp. 2d 275, 178 (M.D. Pa. 2010)). However, the Court explained that when a party alleges a deficiency in the formation of a contract that would void its existence, the parol evidence is suspended. Id. (citing Kropa at 178). Thus, the Court determined that because the parol evidence rule did not dispose of these claims as a matter of law, it was required to consider the sufficiency of the factual allegations pled in light of the governing law. Upon examination of the Amended Complaints, the Court determined that the factual allegations often lacked specificity and particularity. Therefore, the Court granted the Plaintiffs fourteen (14) days to amend their remaining claims with specificity and particularity.

Mifflin Energy Corp. v. Atlas America, LLC, 2010 Pa. Dist. & Cnty., Dec. LEXIS 365 (Decided Dec. 14, 2010).
Plaintiff Mifflin Energy Corp. (“Mifflin”) owned oil and gas leases on approximately 3,000 acres of land in Greene County, Pennsylvania (hereinafter referred to as the “Property”). The issue before the court was the date upon which Defendant Atlas America, LLC (“Atlas”) exercised its option to trigger a drilling obligation provision of the parties’ Joint Venture Agreement (“Agreement”). Mifflin filed a Complaint for Declaratory Judgment requesting that the court enter judgment as follows: 1) declaring that the Agreement was lawfully terminated by Mifflin by written notice to Atlas; 2) enjoining Atlas from pursuing development or drilling of wells on the Property; 3) awarding costs to Plaintiffs; 4) granting such other relief as the court deemed appropriate. Mifflin then filed a Motion for Special and/or Preliminary Injunction. Upon consideration of the parties’ submissions, respective responses thereto and the entire record, the court entered an Order denying Mifflin’s Motion for Preliminary Injunction. This appeal followed. The Property consisted of several leases in Western Pennsylvania. Mifflin had the opportunity to participate in each well that was to be drilled by investing in and sharing in the profits. In exchange for the exclusive right to drill Marcellus Shale natural gas wells on the Property, Atlas agreed to pay Mifflin a bonus payment of $120 per acre, a “spud” fee of $10,000 for each vertical well drilled, and $20,000 for each horizontal well drilled. According to the drilling scheduled contained in the Agreement, Atlas had an obligation to drill one well in 2008 and, if it chose to pursue development of the Property, additional wells in the future upon appropriate notice and within specific periods. Initially, the court noted that there was no dispute that Atlas complied with the Agreement because it “spudded” the first well in December of 2008. A “spud” occurs upon the actual initiation of drilling, as opposed to preparation for drilling. Atlas completed drilling this particular well approximately one month later. Accordingly, as of that date, Atlas had the power to give notice to Mifflin of its intent to drill additional wells on the Property within six months. The Agreement provided that if Atlas failed to meet any of the its drilling requirements, Mifflin’s sole and exclusive remedy was to terminate the Agreement as to the drilling of any future wells by Atlas. On appeal, Mifflin contended that Atlas provided notice of its intent to drill additional wells in a letter to Mifflin dated January 20, 2009. This letter included the anticipated spudding date and an invitation to Mifflin to participate. However, Atlas contended that this was merely a “well proposal form” which was designed to comply with the “well proposal” provision only, and was not intended to trigger the “drilling schedule” paragraph of the Agreement. The record also demonstrated that several months after Atlas sent the well proposal form, Mifflin understood that Atlas had not yet intended to trigger the “drilling schedule” provision. Shortly thereafter, Atlas sent a formal notice to Mifflin of its intent to continue drilling additional wells. However, Mifflin responded that it believed that January, not June, was the date of Atlas’s formal notice. The court determined that Mifflin did not meet its burden of proving immediate and irreparable harm absent the entry of preliminary injunctive relief. The court concluded that under the circumstances of this case, it was reasonable to conclude that a balance of the hardships tipped in favor of denying preliminary injunctive relief. Accordingly, the court held that Mifflin did not face sufficient harm in the absence of an injunction to preserve the status quo until the final hearing on the merits of the case could be heard and decided. Moreover, the court determined that Mifflin was not likely to prevail on the merits that it lawfully terminated the Agreement. In support of its conclusion, the court determined that a reasonable interpretation of the Agreement favored Atlas’s position that it contained only minimum drilling requirements, and did not establish any maximum drilling requirements. Additionally, the court concluded that the relief sought was not reasonably suited to abate the allegedly offending activity, but was instead “extreme.” Lastly, the court held that there was no reason to believe that a denial of the preliminary injunction in this case adversely affected the public interest. Therefore, it determined that the court properly denied Mifflin’s Motion for Preliminary Injunction.

Kropa v. Cabot Oil & Gas Corporation, 716 F. Supp. 2d 375 (M.D. Pa. 2010).
Defendant, an oil company, offered plaintiff-landowner a total of $1,275.00 as consideration for a lease, and told plaintiff it would never pay more per acre than this amount. Subsequently, plaintiff learned that his neighbors were paid more by defendant per acre for leases on their property. Plaintiff then filed a complaint in state court alleging fraudulent inducement and that the lease violated state law by requiring plaintiff to pay a portion of the production costs of any natural gas on his land before receiving the proceeds from any royalties from the gas. Following the removal of the case to federal court, defendant moved to dismiss. The court granted defendant’s motion in part and denied it in part, allowing plaintiff’s claims for fraudulent inducement and declaratory judgment to stand. Defendant then filed a Motion to Stay Proceedings, or in the alternative reconsideration of the order denying its Motion to Dismiss. The basis of defendant’s Motion to Stay was that the Pennsylvania Supreme Court was considering a petition seeking extraordinary jurisdiction to consider the proper interpretation of the Pennsylvania Minimum Royalty Act, which was at issue in plaintiff’s second claim. Upon review of the Supreme Court’s decision in Kilmer, the court granted defendant’s Motion as it related to the issue of whether the royalty agreement was valid under Pennsylvania law. With respect to the plaintiff’s fraudulent inducement claim, defendant argued that the parol evidence rule prevented the court from considering external evidence in evaluating the contract. The court concluded that defendant’s argument that the court found the written agreement between the parties to be fully integrated was only a part of the inquiry into whether the parol evidence rule should apply, and was not material to the issue of whether a contract actually existed between the parties. The court noted that here, the plaintiff alleged that no valid contract existed, because the defendant induced him to sign the contract through fraud. Consequently, the parol evidence rule did not apply because plaintiff did not ask the court to interpret the terms of the contract by using oral or written evidence outside that document. Accordingly, the court lifted the stay on this matter and granted the defendant’s Motion in part and denied it in part.

Lauchle v. The Keeton Group, 2011 U.S. Dist. LEXIS 23102 (M.D. Pa. 2011), filed March 8, 2011.
Pending before the Court were the parties’ Cross-Motions for Summary Judgment with respect to the Chief Defendants’ Counterclaims. The Chief Defendants moved the Court to grant judgment in their favor and equitably extend the terms of the Plaintiffs’ oil and gas leases. The material facts were not in dispute. Plaintiffs were landowners who entered into substantially identical oil and gas leases with the Keeton Group. Each lease had a primary term of five (5) years, and contained a provision which provided that if the lessees were producing oil or gas in paying quantities at the end of the lease term, the lease would automatically be extended for as long as such production continued. Sometime after the leases were entered into, the Plaintiffs filed actions seeking a declaration as to whether their leases were valid under Pennsylvania’s Guaranteed Minimum Royalty Act, 58 P.S. § 33 (hereinafter “Royalty Act”). As a result of these actions, the Chief Defendants ceased any drilling on the Plaintiffs’ lands and filed Motions to Dismiss. Following oral argument, this Court stayed the action pending the Pennsylvania Supreme Court’s decision in Kilmer v. Elexco Land Services, Inc., 2010 Pa. LEXIS 517 (Pa. 2010). The Court then issued an Order granting Defendant’s motions to dismiss and upholding the leases as valid. Following the Supreme Court’s decision, the Chief Defendants filed a Counterclaim against Plaintiffs. Plaintiffs’ immediately moved to dismiss based on their assertion that the leases were invalid under the Royalty Act. The issue presented to the Court in the instant action was one of first impression: essentially, the Chief Defendants contended that a lawsuit to invalidate an oil and gas lease constituted a repudiation of the lease, and therefore the proper remedy was an equitable extension of the lease term by the length of time the lawsuit was pending. In support of their contention, the Chief Defendants argued that the declaratory judgment actions forced them to forego operations due to the uncertainty of the leases, and they were denied the benefits of the leases as a result. Plaintiffs countered that it would be inequitable to require them to extend the leases merely because the Chief Defendants decided to voluntarily forego operations in the face of litigation over leases that the Chief Defendants drafted themselves. In its analysis, the Court noted that “as the parties and this Court are well aware, the discovery of the Marcellus Shale has revealed gaps in Pennsylvania’s jurisprudence on the various legal issues that arise from natural gas drilling projects.” Lauchle at 27. Thus, because the issue sub judice has not been considered by the Pennsylvania Supreme Court, it was the Court’s task to predict how the Supreme Court would rule. Thus, the Court turned to the Superior Court’s decision in Derrickheim Company v. Brown, 305 Pa. Super. 173 (Pa. Super. 1982). The Court found it persuasive that the Derrickheim Court declined to equitably extend an oil and gas lease term after the conclusion of litigation that impacted the lease. The Court disagreed with the Chief Defendants’ argument that Derrickheim should not apply because the lessors commenced the suit, where in Derrickheim, the lessees commenced the action. However, the Court held that a “party-driven, bright line rule … would discourage lessors from bringing actions to determine the validity of the leases, since they would risk a finding that they had thus repudiated those agreements even in the event that the underlying actions proved unsuccessful.” Id. at 28-29. Additionally, the Court noted such a determination would likely dissuade lessors from bringing potentially meritorious actions. Accordingly, the Court held that “deeming these leases to have been repudiated under the circumstances of this case is both bad law and even worse public policy,” and refused to accept the Chief Defendants’ invitation to penalize the Plaintiffs. Id. at 29. As the Court determined that the Plaintiffs had not repudiated their leases when they filed the instant actions, the Court declined to equitably extend the lease terms to account for the period of time that these actions were pending. Thus, the Court granted the Plaintiffs’ Motions for Summary Judgment and denied the Defendants’ Motion for Summary Judgment. NOTE: in each case, the working interests of the Plaintiffs’ oil and gas leases were assigned to Chief Defendants.

Fairmont Supply Co. v. Cressman Tubular Products Co., 2011 U.S.Dist. LEXIS 24506 (W.D. Pa. 2011), filed March 10, 2011.
Defendants manufactured and/or supplied steel pipe and repeatedly solicited Plaintiffs to purchase steel tubing manufactured by Defendant ISMT, Ltd. (“ISMT”) for use in their Marcellus Shale drilling operations. ISMT, a company organized by the laws of the Republic of India, hired Defendant ThyssenKrupp-Mannex (“TKM”) to market its pipe to customers in the United States. Defendants held a meeting with Plaintiffs, where it was discussed how ISMT’s steel tubes could meet the needs of its customers in Pennsylvania. As a result of Defendants’ marketing efforts, Plaintiff, Fairmont Supply Co. (“Fairmont”) purchased pipe from Defendant, Cressman Tubular Products Co. (“Cressman”) and supplied it to Plaintiff, CNX Gas Co., LLC (“CNX”). After CNX incorporated the pipe into its gas well production pipeline, a hole was discovered at a depth which rendered the well shaft completely inoperable, as the hole could not be reliably repaired. Thus, at its request, Cressman was sent the remaining steel tubing to be delivered to a vendor for testing. After testing 1,577 pieces, it was determined that at least 277 did not comply with thickness specifications and could not be repaired. Consequently, Plaintiffs sought compensatory damages. Before the Court were two Motions to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Firstly, Cressman contended that CNX did not adequately plead a breach of contract claim. Cressman noted that CNX was a third-party beneficiary of the Fairmont-Cressman contract, and argued that Plaintiff’s Amended Complaint was devoid of any facts which supported this legal conclusion. The Court noted that the Pennsylvania Supreme Court has held that an entity is an intended third-party beneficiary if either the agreement itself indicates that the purported beneficiary is a third-party beneficiary, or if: (1) the recognition of the beneficiary’s right is appropriate to effectuate the intention of the parties and (2) performance satisfies an obligation of the promise to pay money to the beneficiary. Fairmont at 10 (citing Scarpitti v. Weborg, 609 A.2d 147 (Pa. 1992)). In the instant case, the Court noted that Cressman did not contend that CNX was not an intended third-party beneficiary, but instead argued that CNS failed to plead any facts in support of its conclusion that it was an intended third-party beneficiary and thus failed to allege a legally cognizable claim under Pennsylvania law. The Court disagreed, nothing that although the Amended Complaint does not allege that the Fairmont-Cressman contract specifically mentions CNX as a beneficiary, the facts contained in the Amended Complaint, if proven, could support a legal conclusion that CNX was a third-party beneficiary to the contract under Scarpitti, supra. Therefore, the Court determined that the Amended Complaint contained adequate factual allegations to support a breach of contract claim and denied Cressman’s Motion to Dismiss the Breach of Contract claim brought by CNX. Next, the Court considered Cressman’s contention that Fairmont did not have a breach of contract claim because the alleged breaches were not breaches of Fairmont’s alleged contract. Fairmont claimed a breach of contract occurred when the goods did not conform to Fairmont’s or the American Petroleum Institute’s (“API’s”) standards. The Court noted that the Uniform Commercial Code (“the Code”) governs transactions of this kind. See generally 13 Pa.C.S.A. § 2101 et seq. Based in large part on the allegation that Cressman assured Fairmont that ISMT would provide a product that would conform to the latest API standards, the Court found that Fairmont adequately pled facts sufficient, if proven, to demonstrate that the parol evidence did not conflict with the terms of the Fairmont-Cressman contract and, if proven, may supplement or explain the course of performance, course of dealing or usage. Thus, the Court denied Cressman’s Motion to Dismiss Fairmont’s Breach of Contract claim, noting that it is premature to definitively rule whether such parol or extrinsic evidence will be considered by the Court. The Court then considered Cressman’s Motion to dismiss CNX’s Breach of Express Warranty Claim. From the outset, the Court noted that Pennsylvania law on the enforcement of an express warranty by a third party is set forth in Goodman v. PPG Industries, Inc., 849 A.2d 1239 (Pa. Super. 2004). In that case, the Superior Court of Pennsylvania held that third parties may enforce express warranties only under circumstances where an objective fact-finder could reasonably conclude that: (1) the party issuing the warranty intends to extend the specific terms of the warranty to the third party (either directly or through an intermediary); and (2) the third party is aware of the specific terms of the warranty, and the identity of the party issuing the warranty. Id. at 18-19 (citing Goodman at 1246). Based upon Goodman, the Court found that CNX did not adequately assert an express warranty existed between it and Cressman, as it fell short of meeting the second prong. Therefore, the Court granted Cressman’s Motion, but without prejudice to allow Plaintiffs the opportunity to amend their pleading. With respect to Cressman’s Motion to Dismiss Plaintiffs’ Breach of Implied Warranty claim, the Court noted that under the Code, a breach of implied warranty arises only when the seller, at the time of contracting, had good reason to know: “(1) any particular purpose for which the goods are required; and (2) that the buyer is relying on the skill or judgment of the seller to select or furnish suitable goods.” 13 Pa.C.S.A. § 2315. The Court further noted that Pennsylvania law does not require privity to exist between the seller and purchaser in order for the implied warranty to attach. See French v. Commonwealth Associates, 980 A.2d 623, 633 (Pa. Super. 2009). The Court determined that the Plaintiffs’ Amended Complaint demonstrated that Cressman repeatedly solicited Plaintiffs to purchase pipes manufactured by ISMT for use in Marcellus Shale drilling, and therefore Plaintiffs adequately pled that Cressman knew the particular purpose for which the pipe was required. However, the Court determined that nowhere in the Amended Complaint did Plaintiffs provide any facts upon which the legal conclusion was based. Thus, the Court granted Cressman’s Motion to Dismiss with respect to the Breach of Implied Warranty claim, but without prejudice to allow Plaintiffs the opportunity to amend the pleading. Lastly, the Court considered the Motions filed by TKM. Defendant TKM filed a Motion to Dismiss all Breach of Express Warranty Claims. TKM contended that Plaintiffs failed to allege that a contract existed between them and TKM and therefore, TKM cannot be held liable for breach of express warranty. However, the Court noted that under Pennsylvania law, a contract made by an agent, acting within the scope of his delegated authority, may be considered a contract with the principal. Id. at 21-22 (citing O’Donnell v. Union Paving, 182 A. 709, 710 (Pa. Super. 1936)). Thus, the Court found that Plaintiffs pled that Cressman acted as TKM’s agent at all material times. However, Plaintiffs did not provide any specific facts which would support this conclusion. Therefore, the Court granted TKM’s Motion to Dismiss the Breach of Warranty claims but without prejudice to allow Plaintiffs the opportunity to amend. Lastly, the Court considered TKM’s Motion to Dismiss all Breach of Implied Warranty Claims. Here, the Court noted that the implied warranty applies to all contracts unless it is excluded under Section 2316 of the Code. Although TKM conceded that it had a contract to supply the pipe which ultimately reached Plaintiffs, nowhere in the Amended Complaint did Plaintiffs provide any facts that they relied on the skill or judgment of Defendants to furnish suitable goods. Thus, the Court granted TKM’s Motion to Dismiss the breached of implied warranty claims. However, consistent with the other portions of the Court’s Opinion, the dismissal was granted without prejudice.

Butler v. Powers Estate, et.al., 2011 Pa. Super. LEXIS 2710.
Appellee-property owners (“Property Owners”) filed an Action to Quiet Title in the Court of Common Pleas of Susquehanna County, Pennsylvania. Appellant-heirs (“Heirs”) to an estate, filed a Motion for Declaratory Judgment. The Property Owners filed Preliminary Objections, which were sustained in the nature of a demurrer and dismissed the Heirs’ Request for Declaratory Judgment. The Property Owners were the owners in fee simple of Two Hundred and Forty-Four (244) acres of land in Apolacon Township, Pennsylvania. The deed to the land contained the following exception, reserving: One half the minerals and Petroleum Oils to said Charles Powers his heirs and assigns forever together with all and singular the building […] and also all the estate right, title interest property claimed and demand whatsoever there unto belonging on or in any wise appertaining in law equity or otherwise however of in to or out of the same… The Property Owners filed a Complaint to Quiet Title, naming the Heirs and alleging that they owned the land in fee simple, including the ownership of all “minerals and petroleum oils” based on adverse possession. The Property Owners then filed an affidavit stating that the identities of the Heirs were unknown and filed a Motion for Publication, which was granted. Approximately two months later, the Property Owners filed a Motion for Judgment because the Heirs failed to file any pleadings. The Heirs eventually surfaced and the Property Owners filed a Motion for a Continuance. The Heirs later filed for a declaratory judgment, claiming the reservation of rights in the deed’s exception included Marcellus shale gas and disputing the Property Owners’ claim of adverse possession. Following its determination that the Heirs had standing, the trial court sustained the Property Owners’ Preliminary Objections in the nature of a demurrer and dismissed the Heirs’ request for declaratory judgment that the natural gas was included in the reservation of the deed. The Heirs filed the instant appeal, raising the following issue: whether the trial court erred in determining that the reservation in the chain of title to the surface land currently owned by the Property Owners did not include a reservation of one half of such unconventional Marcellus Shale gas as might be found under the land. On appeal, the Heirs argued that the Property Owners’ predecessors intended to distinguish surface rights from subterranean rights by way of the exception in the Property Owners’ deed. They further asserted that Marcellus shale is a mineral consistent with the reservation of rights in the Property Owners’ deed, because a mineral is “any inorganic object that can be removed from soil and used for commercial purposes.” Moreover, the Heirs contended that no Pennsylvania decision has decided that mineral rights exclude Marcellus shale. Additionally, the Heirs argued that the Pennsylvania Supreme Court has held that a reservation in a deed reserving “minerals” without any specific mention of natural gas or oil creates a rebuttable presumption that the grantor did not intend for “minerals” to include natural gas or oil. The Heirs further attempted to distinguish the present facts from previous Pennsylvania Supreme Court cases. Specifically, the Heirs averred that the Supreme Court’s definition of “minerals” was created after the deed at issue, and therefore the scrivener could not have anticipated that Pennsylvania would depart from past precedent and impose a new interpretation of the term minerals. Therefore, the Heirs relied upon the principle that “whoever owns the shale, owns the gas,” citing a case in which our Supreme Court stated that the gas that is present in coal belongs to the owner of the coal, and coal bed gas that migrates into surrounding property belongs to the owner of the surrounding property. The Heirs suggested that Marcellus shale gas is similar to coal in that both contain natural gas that can only be extracted by hydrofracturing. The Court held that the Supreme Court’s previous decisions did not end its analysis absent a more sufficient understanding of whether: (1) Marcellus shale constitutes a “mineral”; (2) Marcellus shale gas constitutes the type of conventional natural gas contemplated in the Supreme Court’s previous decisions; and (3) Marcellus shale is similar to coal to the extent that whoever owns the shale, owns the gas. Because the Court was unable to say with certainty that the Heirs did not have a cognizable claim, it determined that the parties should have the opportunity to obtain the appropriate experts to determine whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed’s reservation. Therefore, the Court reversed the decision of the trial court and remanded it to the trial court for further proceedings.