NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P

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1 NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P ROBERT E. LIEBERUM, JOHN HENRY AND BETHANY HENRY, Husband and Wife, JAMES BEAVER AND KAREN BEAVER, Husband and Wife, LEON EISENMAN AND BETTY EISENMAN, Husband and Wife, JASON B. BEICHNER, JAMES BEICHNER AND MARCI BEICHNER, Husband and Wife, JAYSON E. KEISTER AND DEBORAH E. KEISTER, Husband and Wife, AURIE WEAVER AND TRACY WEAVER, Husband and Wife, DENNIS HILL, WALTER ROBERTSON AND CAROLL AARON, AND MICHAEL KNIGHT AND CYNTHIA KNIGHT, Husband and Wife, v. EXOTIC OIL & GAS, LLC AND EQT PRODUCTION COMPANY APPEAL OF EXOTIC OIL & GAS, LLC, IN THE SUPERIOR COURT OF PENNSYLVANIA Appellant No. 269 WDA 2012 Appeal from the Order entered on February 1, 2012 in the Court of Common Pleas of Clarion County, Civil Division, No CD 2010 THOMAS O. SHATTENBERG AND KATHLEEN M. SHATTENBERG, Husband and Wife, WALTER SHATTENBERG, MELVIN W. KAPP AND JOANNE M. KAPP, Husband and Wife, LEON EISENMAN AND BETTY EISENMAN, Husband and Wife, GIL B. STEELE AND ANNETTE E. STEELE, Husband and Wife, TODD E. BEICHNER, BRIAN K. MILLER AND DEANNA L. MILLER, Husband and Wife, CHARLES BAUGHMAN AND BARBARA BAUGHMAN, Husband and Wife, IN THE SUPERIOR COURT OF PENNSYLVANIA

2 EDWARD BROWN AND KATHY BROWN, Husband and Wife, MICHAEL BEARY AND SANDRA BEARY, Husband and Wife, DENNIS HILL AND/OR CHARLES MOTTER, v. EXOTIC OIL & GAS, LLC AND EQT PRODUCTION COMPANY APPEAL OF EXOTIC OIL & GAS, LLC, Appellant No. 270 WDA 2012 Appeal from the Order entered on February 1, 2012 in the Court of Common Pleas of Clarion County, Civil Division, No CD 2010 THE ESTATE OF KATHLEEN KAPP, BY AND THROUGH JOY KAPP, Executrix, DAVID OSTERBERG AND LINDA OSTERBERG, Husband and Wife, JAMES WOLFGONG AND BOBBI WOLFGONG, Husband and Wife, AND LARRY RAPP AND JOY RAPP, Husband and Wife, STEPHEN DAUGHERTY AND ELIZABETH DAUGHERTY, Husband and Wife, ROBERT ETZEL AND PAUL AND LINDA WINGARD, IN THE SUPERIOR COURT OF PENNSYLVANIA v. Appellant No. 271 WDA 2012 EXOTIC OIL & GAS, LLC AND EQT PRODUCTION COMPANY APPEAL OF EXOTIC OIL & GAS, LLC, Appeal from the Order entered on February 1, 2012 in the Court of Common Pleas of Clarion County, Civil Division, No CD

3 BEFORE MUSMANNO, WECHT and COLVILLE *, JJ. MEMORANDUM BY MUSMANNO, J. Filed April 11, 2013 Exotic Oil & Gas, LLC ( Exotic ) appeals from the Order granting declaratory relief and specific performance pursuant to oil and gas leases entered into by Robert E. Lieberum et al., Thomas O. Shattenberg et al., and the Estate of Kathleen Kapp et al. ( Plaintiffs ). We quash two of the appeals, and affirm the Order in the appeal at No. 270 WDA The pertinent facts and procedural history of this case are as follows. The Plaintiffs entered into oil and gas leases with Exotic between 2004 and See Amended Complaint in Equity (Robert E. Lieberum et al.), 10/6/10, at par. 14. The leases at issue provided in pertinent part as follows [Exotic] is hereby granted the exclusive right of drilling and operating the Property hereinabove mentioned for producing oil and gas by any means, and all rights necessary, convenient and incident thereto, including but not limited to, the right to inject gas, air, water, or other fluids into the subsurface strata of said land for the recovery of oil and gas; the right to drill new wells [and] recondition producing wells. See, e.g., Amended Complaint in Equity (Lieberum et al.), Exhibit A-1, par. 2 (Drilling Rights). Pursuant to the leases at issue, the Plaintiffs were entitled to a royalty equal to one-eighth part of all oil and gas produced and marketed from the leased premises. Id., par. 6 (Royalty). The leases further provided as follows * Retired Senior Judge assigned to the Superior Court

4 Lessor may use up to 300,000 cubic feet of gas free of charge per calendar year to be used by Lessor as he sees fit on said leased premises at Lessor s own risk; provided [that] Lessor owns a dwelling house located on that part of the leased premises on which such well is located; subject, however to such well being capable of producing at least 300,000 cubic feet of gas per calendar year ; and subject, further, to the use, operation, pumping and right of abandonment by [Exotic] of its well(s) and pipelines on the leased premises..... Lessor understands and agrees that the use of and entitlement to the free gas shall be subject to the use, operation, pumping and right of abandonment by [Exotic] of its wells on said land. Id., par. 7 (Reserve Gas). The leases called for a primary term of two to three years and a secondary term of as long thereafter as the said property is operated by Lessee in the production of oil and gas. See id., Amended Complaint in Equity, at par. 15. The leases also contained the following provision, attached to each lease as Exhibit A In the event Lessee completes the initial well in accordance with the terms of this Lease Agreement, then, in that event, Lessor hereby grants Lessee a two (2) year option, commencing on the spudding date of the initial well, to drill and complete a second well upon the lease acreage. Should Lessee fail to drill the second well, this Lease Agreement shall become null and void. See id., Amended Complaint in Equity, Exhibit A-1, Oil and Gas Lease Agreement, Exhibit A

5 Pursuant to the leases, Exotic drilled wells and the Plaintiffs began using the gas reserved to them according to the lease provisions. After the Plaintiffs had used their reserved gas under the leases for three to five years, Exotic determined that it would be more economical for Exotic to extract the gas by using a vacuum system. Exotic claimed that, once a vacuum system was in place, it would be physically impossible for the Plaintiffs to continue to use the reserve gas. Exotic notified the Plaintiffs of its determinations. Consequently, the Plaintiffs commenced the instant actions seeking a judicial declaration that Exotic s vacuuming of the wells would constitute a breach of the leases, in that the Plaintiffs would no longer be able to obtain free gas. The Plaintiffs also sought an injunction prohibiting Exotic from vacuuming the wells. On September 28, 2011, the trial court determined, after a bench trial, that, [i]f no additional wells are drilled within two years, and there is no agreement as to the maximum capacity of the property to handle additional wells, all property not contained within the 1,000 feet [radius of a well drilled pursuant to the lease agreement], is released from the lease agreement, and the lease agreement is null and void as to those areas. Order, 9/28/11. The trial court also determined that Exotic had not abandoned or surrendered any right to oil or gas below the deepest depth drilled within the areas mentioned above; Exotic could not terminate - 5 -

6 Plaintiffs receipt of free gas by vacuuming the wells without breaching the terms of the lease agreements; and that Exotic was not required to abandon the production of oil and gas from Plaintiffs lands if it does not continue to provide free gas. Id. The Plaintiffs filed a Motion for post-trial relief. On February 1, 2012, the trial court issued a new Order, in which the trial court (1) denied the Plaintiffs request for declaratory relief concerning the oil and gas rights beneath the deepest depth drilled, vacated its prior opinion in this regard, and scheduled a hearing on that issue at Nos. 269 WDA 2012 (Lieberum) and 271 WDA 2012 (Estate of Kapp); (2) denied the Plaintiffs request that the trial court reverse its finding of mutual mistake as to Exhibit A of the leases; 1 and (3) granted the Plaintiffs request for declaratory relief and specific performance by requiring Exotic to abandon the production of oil and/or gas from Plaintiffs lands, and the leases shall become null and void if the lessee does not continue to provide free gas as specified in the leases. Order, 2/1/12. Exotic filed timely appeals in each of the three cases, and also filed an Application for determination of finality of the February 1, 2012 Order. The trial court denied Exotic s Application for determination of finality. On March 6, 2012, the trial court issued an Order stating that the trial court believed that Exotic s appeal was interlocutory, and indicating that a duplicate record 1 Exotic has not raised any issue with regard to this portion of the trial court s Order

7 would be prepared so that the trial court could continue to proceed with these cases. 2 Exotic raises the following issues on appeal 1. Would vacuuming the wells constitute a breach of the terms of the Leases? 2. Alternatively, assuming that vacuuming the wells would constitute a breach of the Leases, then is termination of the Leases an appropriate remedy therefor? Brief for Appellant at 2. Before considering the merits of these issues, we must determine if this appeal is properly before us. Pursuant to the Pennsylvania Rules of Appellate Procedure, an appeal may be taken as of right from a final order of the lower court. Pa.R.A.P. 341(a). A final order is defined as any order that (1) disposes of all claims and of all parties; or (2) is expressly defined as a final order by statute; or (3) is entered as a final order pursuant to subdivision (c) of this rule. (c) Determination of finality. When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim or when multiple parties are involved, the trial court or other governmental unit may enter a final order as to one or more but fewer than all of the claims and parties only upon an 2 On July 5, 2012, the Plaintiffs filed a Motion to dismiss in this Court. This Court, per curiam, denied the Motion to dismiss without prejudice to raise the issue before this panel. The Plaintiffs have raised the issue of whether the Order on appeal is interlocutory in their brief. See Brief for Appellees at

8 express determination that an immediate appeal would facilitate resolution of the entire case. Such an order becomes appealable when entered. In the absence of such a determination and entry of a final order, any order or other form of decision that adjudicates fewer than all the claims and parties shall not constitute a final order. Pa.R.A.P. 341(b), (c) (emphasis added). The Declaratory Judgment Act provides that courts of record shall have the power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. 42 Pa.C.S.A A declaration may be either affirmative or negative in form and effect, and such declarations shall have the force and effect of a final judgment or decree. Id. A partial declaration of the parties rights, status, or legal relations, under the Declaratory Judgment Act, which does not ultimately decide whether the party is entitled to the full relief requested, is considered interlocutory and not appealable. United States Organizations for Bankruptcy Alternatives, Inc. v. Dep t of Banking, 26 A.3d 474, 479 (Pa. 2011); cf. Consolidation Coal Co. v. White, 875 A.2d 318, 325 (Pa. Super. 2005) (holding that, in a declaratory judgment action, where the trial court has fully adjudicated the claims as between and among the named parties by ruling that there is no conceivable legal theory under which the [a]ppellants could prevail[,] the trial court s order is final and appealable). In the instant case, at Nos. 269 and 271 WDA 2012, the Plaintiffs presented additional claims, upon which the trial court has not ruled, relating to Exotic s failure to drill a second well on the leased premises and the rights - 8 -

9 to the deepest depth drilled with regard to the existing wells. See Amended Complaint in Equity (Estate of Kapp), Count I; Amended Complaint in Equity (Lieberum et al.), Count I. Therefore, based on the above-cited authority, we conclude that Exotic s appeals at Nos. 269 and 271 WDA 2012 must be quashed as the Orders appealed in those cases constitute only a partial declaration of the parties rights, status, or legal relations. Unlike the appeals at Nos. 269 and 271 WDA 2012, the Order on appeal at No. 270 WDA 2012 constitutes a full adjudication of the parties claims. In No. 270 WDA 2012, the Plaintiffs 3 have set forth no additional or alternative claims. See Amended Complaint in Equity for Declaratory Relief and Injunction (Shattenberg et al.). Thus, we will review the merits of Exotic s issues on appeal at No. 270 WDA Our standard of review in a declaratory judgment action is limited to determining whether the trial court clearly abused its discretion or committed an error of law. We may not substitute our judgment for that of the trial court if the court s determination is supported by the evidence. Additionally, [w]e will review the decision of the lower court as we would a decree in equity and set aside the factual conclusions of that court only where they are not supported by adequate evidence. The application of the law, however, is always subject to our review. Minnesota Fire and Cas. Co. v. Greenfield, 805 A.2d 622, 625 (Pa. Super. 2002) (citations omitted). 3 Hereinafter, the term Plaintiffs refers to the plaintiffs in the Shattenberg et al. action

10 Exotic first contends that vacuuming the wells would not constitute a breach of the leases. Exotic argues that the following language of the leases authorizes it to vacuum the wells on the leased premises and to cease providing Plaintiffs with free gas 2. Drilling Rights. Lessee is hereby granted the exclusive right of drilling and operating the Property hereinabove mentioned for producing oil and gas by any means, and all rights necessary, convenient and incident thereto. Brief for Appellant at 6 (citing Oil and Gas Lease Agreement, Robert E. and Linda P. Lieberum, dated 11/2/04). 4 Exotic also cites the following language of the leases in support of its contention Lessor understands and agrees that the use of and entitlement to the free gas shall be subject to the use, operation, pumping and right of abandonment by Lessee of its wells on said land. See, e.g., Oil and Gas Lease Agreement (Walter C. Shattenberg, and Thomas O. and Kathleen M. Shattenberg, dated 12/24/05). [T]he object in interpreting instruments relating to oil and gas interests, like any written instrument, is to ascertain and effectuate the 4 This language is present in some, but not all of the leases at issue in No. 270 WDA 2012 (Shattenberg et al.). In some of the leases at No. 270 WDA 2012, the following language is present [Exotic is t]o have and to hold the [leased] premises for the sole and only purpose of testing, drilling and operating for oil and gas in any underlying strata therein by any means and withdrawing therefrom by any means oil or gas produced from the same, for the term of one year, and as long thereafter as oil or gas is produced in paying quantities. See, e.g., Oil and Gas Lease Agreement (Walter C. Shattenberg, and Thomas O. and Kathleen M. Shattenberg, dated 12/24/05)

11 intention of the parties. Szymanowski v. Brace, 987 A.2d 717, 720 (Pa. Super. 2009) (citation omitted). In interpreting a contract, the ultimate goal is to ascertain and give effect to the intent of the parties as reasonably manifested by the language of their written agreement. When construing agreements involving clear and unambiguous terms, this Court need only examine the writing itself to give effect to the parties understanding. This Court must construe the contract only as written and may not modify the plain meaning under the guise of interpretation. Id. at 722 (citation and emphasis omitted). The terms of a contract are ambiguous if they are reasonably or fairly susceptible of different constructions and are capable of being understood in more than one sense, or if the language is obscure in meaning through indefiniteness of expression. State Farm Fire & Cas. Co. v. PECO, 54 A.3d 921, 928 (Pa. Super. 2012). Where the terms of a contract are ambiguous, the court may construe the terms against the drafter and consider extrinsic evidence in so doing. Rekun v. Pelaez, 976 A.2d 578, 581 (Pa. Super. 2009). In the instant case, the leases state that the Plaintiffs use of and entitlement to free gas shall be subject to the use, operation, [and] pumping by Exotic. However, it is not clear whether this phrase means that Plaintiffs shall allow Exotic to perform those functions in order to be entitled to free gas, or whether the phrase means that Exotic may use and operate its well in any fashion, as Exotic appears to argue herein. The trial court in this case did not specifically address whether it found the language of the

12 leases ambiguous. See Trial Court Opinion, 2/1/12, at 2-3 (wherein the trial court discussed whether it should grant the Plaintiffs specific performance). Nevertheless, based on the above authority, we conclude that it is proper, in reviewing Exotic s claim on appeal, to consider extrinsic evidence such as the evidence adduced at trial. At trial, Walter Shattenberg and other Plaintiffs testified that they entered into the lease agreement with Exotic [p]rimarily for the free gas. N.T., 7/28/11, inter alia, at 6, 30, 47. Jeff Dougherty ( Dougherty ), Exotic s representative, testified that the Plaintiffs all wanted free gas, and it was important to them. Id. at 109. Plaintiff Michael Beary ( Beary ) testified that Dougherty told Beary that the subject to operation and pumping clause of the lease meant that there could be some temporary interruptions in supplying free gas to remove fluids and make repairs to the well. Id. at Beary further testified that Dougherty told him that, as long as there was sufficient pressure on any well on Beary s property, Beary would have free gas. Id. at 32. In addition, we note that courts construing language similar to that of the oil and gas leases in this case have held that the lessors were entitled to specific performance of the requirement to provide free gas, and that a lessee may not operate its well in a manner that would violate that requirement of the lease. See Pittsburgh & W. Va. Gas Co. v. Nicholson, 105 S.E. 784, 785 (W.Va. 1921) (holding, in a case with similar

13 facts, that the lessors were entitled to specific performance of the free gas clause in their leases; if the operation of a gas well results in a violation of the covenant to provide free gas, such operation is not proper, unless the lessee provides the lessors with free gas from another source); Bassell v. West Va. Central Gas Co., 103 S.E. 116, 118 (W.Va. 1920) (same). We find this reasoning persuasive. Based on the testimony at trial, demonstrating that the Plaintiffs entered into the lease agreements mainly based on the consideration of free gas, as well as the above-cited authority, we conclude that Exotic s first claim on appeal lacks merit. Exotic next contends that termination of the leases was not an appropriate remedy, even if there was a breach of the leases. Exotic contends that the breach, if any, was an immaterial breach. Brief for Appellant at Exotic asserts that, based on the language of the leases, the Plaintiffs could not have reasonably expected the free gas to continue indefinitely. See id. at In this argument, Exotic basically repeats its prior argument, which we have already discussed and found to lack merit, i.e., that the language of the leases allows Exotic to cease providing free gas to the Plaintiffs as a result of the changes to its pumping operations. For the reasons previously stated, we conclude that this claim lacks merit. Exotic also contends that the royalty payments to the Plaintiffs, rather

14 than the free gas, were the chief consideration for the Leases. Id. at 12. As we previously discussed herein, the record does not support this claim. The record instead shows that the receipt of free gas was the chief reason for the Plaintiffs decisions to enter the lease agreements. See N.T., 7/28/11, inter alia, at 6, 30, 47, 109. Accordingly, Exotic s claim in this regard lacks merit. Exotic also asserts that the Plaintiffs can be adequately compensated for the loss of free gas. The trial court discussed this contention and held as follows Counsel for Exotic at argument stated that damages provided a full cure". He argued that most of the Plaintiffs could be furnished gas by another gas provider [UGI] and Exotic could compensate the Plaintiffs for it. The Plaintiffs who could not get gas in this fashion could get another fuel and Exotic could reimburse them for it as well as all related costs. But assume that Exotic does not pay, or starts paying and then stops. The Plaintiffs would be left with a suit for damages, but Plaintiffs could not sue for future damages as there would be no way to determine fuel costs in the future and no way to determine exactly how long the lease would continue. Under the terms of the lease, free gas lasts only so long as gas is being produced on the property. There is no way to determine exactly how long production on the property will continue. There is also no way to know what the price of gas will be in the future. Therefore, there would have to be multiple suits by multiple Plaintffs on multiple occasions in order to adequately compensate the Plaintiffs for the loss of free gas, which we already noted was the primary consideration for the Plaintiffs to enter the leases. While it is correct that Exotic can effect a complete cure by the expenditure of money in almost every instance, as usual, the devil is in the details. If Exotic is required to specifically perform the contract by purchasing gas from another source and providing it to the Plaintiffs, the remedy is simple, sure and certain, in other words, a full cure. But, if the Plaintiffs are required to obtain the gas

15 themselves and sue Exotic for damages to get reimbursement they may be embroiled in a nightmare of litigation that makes any meaninful compensation for the lost "free gas illusory. Our Courts have long held that uncertainty in computing damages and requiring a multiplicity of suits are adequate reasons to grant specific performance. Finley v. Aiken, 1 Grant 83, 1854 WL 6163; Ralston v. Ihmsen, 54 A. 365 (Pa. 1903). Here, granting specific performance will eliminate the possibility that Plaintiffs will not have a feasible remedy and will cost [Exotic] only the money that would be due to the Plaintiffs if a proper damage remedy could be provided, and in the few cases where an alternate source of natural gas is not available [Exotic] will have to provide an alternate-energy source acceptable to the Plainfffs or not include those few wells in the vacuum system. Trial Court Opinion, 2/1/12, at 2-4 (unpaginated). We conclude that the trial court did not err or abuse its discretion in this determination. See Clark v. Pennsylvania State Police, 436 A.2d 1383, 1385 (Pa. 1981) (holding that an action for damages is an inadequate remedy when there is no method by which the amount of damages can be accurately computed or ascertained); Strank v. Mercy Hosp. of Johnstown, 117 A.2d 697, 698 (Pa. 1955) (holding that equity may afford relief where the measure of damages cannot be formulated because the damages are necessarily speculative and indeterminate). After reviewing Exotic s remaining three claims, see Brief for Appellant at 15-16, we conclude that they lack merit for reasons already stated in this Memorandum

16 The appeals at Nos. 269 and 271 WDA are quashed; the Order at No. 270 WDA is affirmed