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THI: PKNNSYI VAN1A BAU ASSOCIAT ION
Quarterly 147 PENNSYLVANIA'S NEW MEDICAL
MARIJUANA LAW: THE LEGAL
ROADMAP FOR A GROWING
INDUSTRY
161 FROM EXPUNGEMENT TO SEALING
OF CRIMINAL RECORDS IN
PENNSYLVANIA
171 THE TEN RULES OF CONSTRUCTION
FOR CASES INVOLVING TITLE
DISPUTES UNDER PENNSYLVANIA
OIL AND GAS LAW
183 PENNSYLVANIA'S APPELLATE
COURTS STRIKE OUT ON THEIR
OWN COLLATERAL ORDER PATH-
PART ONE
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w. Si
Your Other Partner
October 2016 • VOLUME LXXXVII, No. 4
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CONTENTS
PENNSYLVANIA'S NEW MEDICAL MARIJUANA LAW:
THE LEGAL ROADMAP FOR A GROWING INDUSTRY 147
Thomas G. Wilkinson, Jr.
FROM EXPUNGEMENT TO SEALING OF CRIMINAL
RECORDS IN PENNSYLVANIA 161
Sharon M. Dietrich
THE TEN RULES OF CONSTRUCTION FOR CASES INVOLVING
TITLE DISPUTES UNDER PENNSYLVANIA OIL AND GAS LAW 171
Joel R. Burcat
PENNSYLVANIA'S APPELLATE COURTS STRIKE OUT ON
THEIR OWN COLLATERAL ORDER PATH—PART ONE 183
Bruce P. Merenstein
The Pennsylvania Bar Association Quarterly (ISSN 0196-2051) is published four times
a year in January, April, July and October by the Pennsylvania Bar Association, 100
South St., P.O. Box 186, Harrisburg, PA 17108-0186. Subscription rates: $30 per year for
non-members. Periodicals postage rates paid at Harrisburg, PA and at additional
mailing offices.
POSTMASTER: Send address changes to The Pennsylvania Bar Association Quarterly,
P.O. Box 186, Harrisburg, PA 17108-0186.
ii
The Ten Rules Of Construction For Cases Involving Title
Disputes Under Pennsylvania Oil And Gas Law
By JOEL R. BURCAT,* Dauphin County ^ 4 Member of the Pennsylvania Bar g
TABLE OF CONTENTS
1. A MINERAL/OIL AND GAS LEASE IS A 7. A PARTY SEEKING TO TERMINATE A CONTRACT GOVERNED BY CONTRACT LEASE BEARS A HEAVEY BURDEN LAW PRINCIPLES 172 OF PROOF 179
2. A MINERAL LEASE IS NOT A LEASE 8. PENNSYLVANIA OIL AND GAS LAW IS GOVERNED BY LANDLORD/TENANT VERY OLD—AND VERY NEW. TO LAW 173 MAINTAIN STABILITY AND THE
3. WHEN INTERPRETING A LEASE, A STATUS QUO, THE PREFERENCE OF COURT WILL NOT APPLY "IMPLIED" THE COURTS IS TO PRESERVE PROVISIONS, EXCEPT IN RARE OLD LAW 180 CIRCUMSTANCES 174 9. THE PENNSYLVANIA COURTS ARE
4. THE COURTS DISFAVOR PAROL LOOKING FOR THE PRAGMATIC EVIDENCE (EXCEPT WHEN IT SOLUTION 181 SUITS THEM) 175 10. THE SUPREME COURT WILL EMBRACE
5. PENNSYLVANIA COURTS WILL DECIDE A LEGAL PRINCIPLE THAT IS A CASES SO THAT THE INTERPRETATION MINORITY POSITION, IF IT IS WILL PRESERVE AS MANY LEASES CONSISTENT WITH PENNSYLVANIA AS POSSIBLE 177 LAW 182
6. COURTS WILL INTERPRET PENNSYLVANIA LAW TO PRESERVE ANCIENT PRECEDENT 178
ABSTRACT
Oil and gas drilling famously began in 1859 with "Colonel" Edwin Drake's
well in Titusville, Pennsylvania. Fracturing of oil wells (a.k.a. "fracking") also
began in Pennsylvania—in 1865—with the invention by Colonel E.A.L. Roberts
of the Roberts Torpedo, a small incendiary device that was lowered into the bore
hole and used to fracture the column of rock to free up the oil and natural gas
present in the rock} Hydraulic fracturing using water and other fluids under
*Mr. Burcat is a Partner with Saul Ewirig LLP, Harrisburg, Pa. He is Co-Editor of THE LAW of OIL AND
GAS IN PENNSYLVANIA (PBt 2014 and 2d ed. 2016), and is Chairman of the Firm's Oil and Gas Practice
Group. For more information, go to www.GasAndOilLawyers.com. The author thanks his colleagues at
Saul Ewing LLP for helping with some of the case summaries contained in this article: Andrew T. Bockis,
Richard A. Guerra, Jr., Matthew M. Haar, Ayanna Lee-Davis, and Mary Elizabeth Schluckebier.The au
thor also is grateful to Lisa C. McManus, Esq., Vice-President, Legal & General Counsel of Pennsylvania
General Energy, LLC for her critique and suggestions.
1. J. M. Eaton, PETROLEUM: A HISTORY OF THE OIL REGION OF VENANGO COUNTY, PENNSYLVANIA, at 133 (J .P.
Skelly & Co., 1866) ("This explosion [from a torpedo] is supposed to distend the opening, enlarging the
veins, and preparing for the flow of the oil to the region of the pump."); see, e.g., John F. Carll, OIL WELL
RECORDS AND LEVELS, at 55 (Bd. of Comm'rs for the Second Pa. Geological Survey, 1877) (record of torpe
doing of Lynn Well, No. 2, Nov. 1867).
PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016 171
172 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
pressure to accomplish the same result began in the late 1940s.2 In 2004, in
Washington County, Pennsylvania, Range Resources drilled the first well to re
cover marketable amounts of natural gas from the MarceUus Shale formation.3
These advances enabled Pennsylvania to be at the forefront of an energy revolu
tion that continues to this day.
Pennsylvania's courts began examining the mining of minerals in the
Eigh teenth Century. Long before drilling and fracturing of oil and gas wells, the
courts ruled on proleptic cases dealing with title disputes relating to minerals.11
After 1859, however, the floodgates of litigation opened, and the courts of Penn
sylvania began reviewing many cases dealing with, in particular, title to minerals,
oil and natural gas.5 In addition, the courts also began
reviewing cases involving the impact of drilling on
neighbors and the environment.6
Now, in the early Twenty-First Century, rules of
construction can be divined from the case law that can
help predict the direction of Pennsylvania's courts re
garding a new case or factual scenario. It is not
enough to know the majority rules from other juris
dictions, as Pennsylvania relies on its own unique
rules. Instead, an evaluation of the facts of the case
against the following rules of construction will chart
a likely path for the eventual ruling by the courts.
1. A MINERAL/OIL AND GAS LEASE IS A CONTRACT
GOVERNED BY CONTRACT LAW PRINCIPLES
Some litigants have argued that mineral and oil and gas7 leases8 are different
than other contracts. The Pennsylvania Supreme Court however, has ruled that
mineral and oil and gas leases will be governed by basic contract law principles.
2. "Hydrofracturing... [wasl developed by the drilling industry in the late 1940's." United States Steel
Corporation v. Hoge, 468 A.2d 1380,1381 n.l (Pa. 1983).
3. Ross H. Pifer, Historical Background of Pennsylvania Oil and Gas Law, (cited as"Pifer"herein) chapter in
Joel R. Burcat & Stephen W. Saunders, THE LAW OF OIL AND GAS IN PENNSYLVANIA (PBI 2014) (cited as
"BURCAT & SAUNDERS" herein), at 9.
4. See e.g., Arthur Chambers v. Daniel Furry and Christian Furry, 1 Yeates 167,1792 WL 480 (Pa. 1792) (dis
pute over title to "soil, the stones, wood, or grass"); John Penn v. Matthew Divellin and John Musser, 2Yeates
309,1798 WL 516 (Pa. 1798) (lease reserved to the Penn family"the right of digging for ore, and the right
of fuel or coal, for the necessary buildings and lead works."at 1).
5. See e.g., Kiev v, Peterson, 41 Pa. 357 (1861) (dispute over petroleum rights); Funk v. Haldeman, 53 ft. 229
(1866) (dispute over rights to oil, coal and other minerals); Union Petroleum Co. v. Bliven Petroleum Co., 72
Pa. 173 (Pa. 1872) (dispute over title to land containing oil).
6. See, e.g., Collins v. Chartiers Valley Gas Co., 21 A. 147 (Pa. 1891) (judgment against natural gas driller for
negligent destruction of plaintiffs water well); Hauck v.Tide Water Pipe-Line Co., 153 Pa. 366,375-76 (1893)
("The escape of oil of a pipeline company... and its percolation through plaintiff's land, and destruction
of his springs, constitute a nuisance, and the company is liable for consequential damages, regardless of
negligence in permitting the oil to escape."); Pfeifferv. Brown, 30 A. 844 (Pa. 1895) (action for trespass could
be maintained against oil well driller who pumped salt water onto plaintiff's farm).
7. Pennsylvania, unlike any other state, has held that the term "minerals" does not include oil and gas.
This is based on the Dunham Rule, from Dunham and Shorttv. Kirkpatrick, 101 Pa, 36 (1882). The Rule was
reaffirmed in 2013, by the Supreme Court in Butler v. Charles Powers Estate, 65 A-3d 885 (Pa. 2013). See also:
T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261,268 (Pa. 2012); Seneca Res. Corp. v. S&T Bank, 122 A.3d
374, 380 (Pa. Super. 2015).
8. Leases for minerals (e.g. coal, metals, etc.) and oil and gas generally are similar and, in fact, are fee
simple determinable deeds. See Jacobs v. CNG Transmission Corp., 332 F.Supp.2d 759, 773 (W.D. Pa. 2004);
Jedlicka supra note 7, at 268; Seneca Res. Corp. v. S & T Bank, 122 A.3d at 380,
Application of the
Ten Rules of
Construction will
guide lawyers and
the courts as they
apply Pennsylvania's
common law of oil
and gas.
The Ten Rules Of Construction For Cases Involving Title Disputes Under PA Oil And Gas 173
The decisive recent case of T.W. Phillips Gas and Oil Co. v. Jedlicka9 sets out the
Pennsylvania rule. In Jedlicka, the defendants asserted that a lease with an explo
ration company had terminated because of the expiration of the habendum
clause.10 They argued that because the wells suffered a loss in 1959, the lease termi
nated. The case was reviewed by both the Superior and the Supreme Courts.
Almost in passing, the Supreme Court reaffirmed Pennsylvania law that an oil
and gas lease is a contract that is to be interpreted in accordance with contract law
principles:
Furthermore, a lease is in the nature of a contract and is controlled by principles of contract law. It must be construed in accordance with the terms of the agreement as manifestly expressed, and"[t]he accepted and piain meaning of the language used, rather than the silent intentions of the contracting parties, determines the construction to be given the agreement."11
This rule has now been reaffirmed numerous times by the Pennsylvania courts.12
One federal district court has put a slight gloss on this principle to clarify that it ap
plies to oil and gas leases: "Pennsylvania oil and gas leases are governed by general
principles of contract interpretation."13
2. A MINERAL LEASE IS NOT A LEASE GOVERNED BY
LANDLORD/TENANT LAW
Some parties have noted that the term often utilized to convey oil and gas is an
"oil and gas lease." Thus, they have argued that perhaps the conveyance is not a fee
simple determinable deed governed by oil and gas law, but a lease governed by
landlord/tenant law. These parties have sought some of the protections afforded to
tenants under the Landlord and Tenant Act of 195114 and have claimed that the cor
responding statute of frauds requires a lease to be signed by both the lessor and the
lessee to be valid. The courts have taken the view, however, that (despite its name) a
mineral or oil and gas lease is not governed by landlord and tenant law; rather, it is
a fee simple determinable title to property.15
In Derrickheim Co. v. Brown,16 a case dealing with title to oil and gas land, the court
stated clearly:"[0]il and gas leases are not controlled by normal landlord and tenant
law."17
Nolt v. TS Calkins & Assoc.18 more recently reaffirmed that an oil and gas lease is
not governed by landlord and tenant law. The court held the conveyance was subject
9. Supra note 7.
10. "Typically, as herein, the habendum clause in an oil and gas lease provides that a lease will remain
in effect for as long as oil or gas is produced 'in paying quantities.' Traditionally, use of the term 'in
paying quantities' in a habendum clause of an oil or gas lease was regarded as for the benefit of
the lessee, as a lessee would not want to be obligated to pay rent for premises which have ceased
to be productive, or for which the operating expenses exceed the income."
Jedlicka, supra note 7, at 268 (citations omitted).
11. Id. at 267 (citations omitted).
12. Seneca Res. Corp. v. S &T Bank, 122 A.3d at 379; Humberston v. Chevron U.S.A., Inc., 75 A.3d 504, 509
(Pa. Super. 2013); Caldwell v. Kriebel Resources Co., LLC, 72 A.3d 611, 614 (Pa. Super. 2013).
13. Smith v. Steckman Ridge, LP, 38 F.Supp.3d 644, 651 (W.D. Pa. 2014) (citations omitted) (emphasis
added).
14. 68 P.S. §250.101 et seq. (2004).
15. Hite v. Falcon Partners, 13 A.3d 942 (Pa. Super. 2011); See Russell Schetroma, Understanding,
Interpreting and Shaping the Evolving Pennsylvania Oil and Gas Lease, chapter in BURCAT & SAUNDERS, at 88.
16. Derrickheim Company v. Brown v. Webber, 451 A.2d 477 (Pa. Super. 1982).
17. Id. at 479.
18. Nolt v. TS Calkins & Associations, LP, 96 A.3d 1042 (Pa. Super. 2014).
174 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
to the general statute of frauds, not the statute of frauds in the Landlord and Tenant
Act:
In making this argument, the Nolts turn a blind eye to case law rejecting the notion that oil and gas leases are governed by landlord/tenant legal principles ... Although the interpretation of oil and gas leases has proved to be"troublesome" for the courts of this Commonwealth ... the law has developed to provide that an oil and gas lease, despite the use of the term "lease," actually involves the conveyance of property rights.. .19
3. WHEN INTERPRETING A LEASE, A COURT WILL NOT APPLY
"IMPLIED" PROVISIONS, EXCEPT IN RARE CIRCUMSTANCES
It is now well-established that an oil and gas lease is a unique form of contract,
one that is guided by oil and gas law.20 That being the case, the meaning of the con
tract will be derived solely from the language in the lease and not through the use
of implied terms unless the lease itself calls for such interpretation or is ambiguous.
An oil and gas lease will be thoroughly read by the court to determine if it can
divine the intent of the parties and only as a last resort will it rely on implied con
ditions from outside of the four corners of the lease.
Caldwell v. Kriebel Resources Co.,21 illustrates this principle. In Caldivell, the plain
tiffs sought to terminate their oil and gas lease with Kriebel Resources for failure of
Kriebel to engage in drilling of the Marcellus Shale formation. In the alternative, the
plaintiffs sought to reform the parties' lease to apply to shallow gas only.22 The
plaintiffs did not dispute that Kriebel was producing gas from the shallow forma
tion on their property. They claimed, however, that as Kriebel had not conducted
any drilling activities or paid delay rentals for gas in the Marcellus Shale formation,
Kriebel breached an "implied duty to develop."23 The plaintiffs also argued that
Kriebel breached an implied duty to develop "in paying quantities" and that the
court should apply a good faith standard to that duty. The trial court dismissed the
complaint.
The superior court recognized that an implied duty to develop exists, but only
when the landowner's compensation is limited to royalty payments. The lessee does
not have to drill wells if it continues to pay the landowner for the opportunity to de
velop oil and gas.24 In this case, the court determined that it would not recognize an
implied duty to develop all economically exploitable strata for two reasons. First, the
plaintiffs'lease contained a provision that prohibited any implied covenant. Second,
the lease fully expressed both parties' obligations. The lease provided that Kriebel
would pay delay rental payments if no gas was produced. The court determined that
it was not authorized to impose an implied duty on Kriebel in light of the contract's
language.
Citing to Hutchinson v. Sunbeam Coal Corporation,25 the court noted with approval
that:
19. Id. at 1046-47 (citations omitted).
20. Jedlicka, supra note 7, at 267.
21. Caldwell v. Kriebel Resources Co., LLC, 72 A.3d 611.
22. Id. at 613.
23. Id. at 614.
24. There are, of course, a number of ways that lessors can continue a lease without actually drilling
the lease or extracting gas, e.g. delay rental payments, shut-in rentals, fixed rental payments, etc. See,
Robert J. Burnett, Oil and Gas Lease Negotiations from the Lessor's Perspective, chapter in BURCAT & SAUNDERS,
at 133-34.
25. Hutchinson v. Sunbeam Coal Corporation, 519 A.2d 385 (Pa. 1986).
The Ten Rules Of Construction For Cases Involving Title Disputes Under PA Oil And Gas 175
The law will not imply a different contract than that which the parties have expressly adopted.To imply covenants on matters specifically addressed in the contract itself would violate this doctrine.26
Regarding the Caldwells' claim of breach of an implied duty to develop in paying
quantities, the court rejected the plaintiffs' argument that the term ought to be im
plied in all leases and noted that the parties in Jedlicka placed the term "paying
quantities" in their lease, which made the issue an interpretation of an express con
tract term and not an implied duty.27 Unlike the lease in Jedlicka, however, the lease
in Caldwell did not contain the phrase "in paying quantities/'The court therefore de
termined that it should not expand Jedlicka to include a good faith standard for all
aspects of the gas industry that affect natural gas production.28
4. THE COURTS DISFAVOR PAROL EVIDENCE
(EXCEPT WHEN IT SUITS THEM)
In the leading and most recent case, Yocca v. Pittsburgh Steelers Sports, Inc., the
Supreme Court stated the modern version of the parol evidence rule:
Where the parties, without any fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only, evidence of their agreement. All preliminary negotiations, conversations and verbal agreements are merged in and superseded by the subsequent written contract... and unless fraud, accident or mistake be averred, the writing constitutes the agreement between the parties, and its terms and agreements cannot be added to nor subtracted from by parol evidence.29
Exceptions to the parol evidence rule include: where a party avers that a term was
omitted from the contract because of fraud, accident, or mistake;30 and to explain or
clarify or resolve an ambiguity in the document.31 One limitation to this exception
is that:
while parol evidence may be introduced based on a party's claim that there was a fraud in the execution of the contract, i.e., that a term was fraudulently omitted from the contract, parol evidence may not be admitted based on a claim that there was fraud in the inducement of the contract, i.e., that an opposing party made false representations that induced the complaining party to agree to the contract.32
The case that most clearly articulates the Pennsylvania parol evidence rule as
applied in the oil and gas lease context is Humberston v. Chevron U.S.A., Inc.33 In
Humberston, plaintiffs-lessors brought a quiet title and trespass action against a
lessee and contractor hired to build a freshwater impoundment on the lessors' land.
The court of common pleas evaluated the lease and determined that the lease per
26. Kriebel, 72 A. 3d at 615 (citations omitted).
27. Jedlicka, supra note 7, at 276-77.
28. Caldwell, 72 A.3d at 616.
29. Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425,436 (Pa. 2004), (quoting Gianni v. Russell & Co., 126
A. 791,792 (Pa. 1924)). A discussion of the parol evidence rule may be found in Matthew A. Meyers, Where
Parties Have Manifested Their Intentions in a Pinal, Exclusive, and Fully Integrated Agreement, that Writing Will
be the Only Evidence of Their Agreement: Yocca v. The Pittsburgh Steelers Sports, Inc., 43 Duq. L. Rev. 497
(2005).
30. Yocca, 854 A.2d at 437.
31. Id.
32. Id. at 437 n.26 (citations omitted).
33. Humberston, 75 A.3d 504.
176 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
mitted the development sought by the lessees.34 The lessors argued that they ought
to be permitted to introduce parol evidence to interpret language in the lease.35The
trial court prohibited the introduction of parol evidence.
The superior court evaluated the lease and agreed with the trial court's conclu
sions and its reasoning.36 Relying on Yocca, the appeals court found that the intro
duction of parol evidence would be both improper and unnecessary. The court also
evaluated the integration clause in the lease. Noting that the clause stated that "the
entire agreement between the Lessor and Lessee is embodied herein [in the Lease]"
and that the integration clause specifically excluded any oral representations, the
court found that the integration clause supported the lessee's position.37
On the other hand, the federal courts, applying Pennsylvania law, have been
somewhat reluctant to apply Pennsylvania's parol evidence rule.38 What appears to
trouble the federal courts is the requirement that all pre-execution discussions be
tween the contracting parties are merged into the written agreement, including those
discussions that may involve fraud to induce the lessor to enter into the lease.
In Cabot Oil & Gas Corp. v. Jordan,39 the plaintiff, Cabot, brought an action against
the defendant seeking a declaratory judgment that the oil and gas lease between the
parties was valid and binding. Defendant claimed the lease was invalid primarily
because Cabot's representatives made false representations to defendant that in
duced her to enter into the lease. After consideration, the court declined to exercise
jurisdiction over Cabot's complaint for declaratory judgment.
The court noted that federal district courts have discretion to deny jurisdiction
when a matter comes before the court that must be decided under state law and
"when the state law involved is close or unsettled."40 The court declined jurisdiction
rather than "meddle" in Pennsylvania law, which it found to be unclear and unset
tled, holding that"any decision about corporate practices and/or landowner respon
sibility has potential broad impact on the matters of state law presented and the
state courts should make such vital determinations."41
The issue also arose in federal court in Kropa v. Cabot Oil & Gas Corporation, in
which a gas rights lessor brought an action against the lessee, alleging that he was
fraudulently induced to enter into an oil and gas lease and seeking a declaratory
judgment that the lease was invalid.42 The lessor claimed the lessee's representative
told him that the lessee would "never pay any more than $25.00 per acre so he better
take the $25.00 per acre. . ."43 After learning that others received more money, the
lessor sued seeking to void the contract. The lessee moved to dismiss.
The court examined the integration clause of the lease and three writings that
were all a part of the contract at the time it was signed. One did not contain an in
tegration clause. The court refused to dismiss that portion of the claim dealing with
34. Pennsylvania law provides that "the task of interpreting a contract is generally performed by a
court rather than by a jury." Id. at 510 (quoting Maguire v. Ohio Casualty Ins. Co., 602 A.2d 893,894 (Pa. Super.
1992)).
35. Id.
36. Id. at 512.
37. Id. See also, Wright v. Misty Mountain Farm, LLC, 125 A.3d 814,818-19 (Pa. Super. 2015) (intent of par
ties must be shown from the language of the deed excepting oil and gas rights, not parol evidence).
38. See, e.g., Cabot Oil & Gas Corporation v. Jordan, 698 F.Supp.2d 474 (M.D. Pa. 2010); Kropa v. Cabot Oil
& Gas Corporation, 609 F.Supp.2d 372 (M.D. Pa. 2009).
39. Cabot Oil & Gas Corporation, 698 F.Supp.2d 474.
40. Id. at 476, quoting State Auto Insurance Companies, v. Summy, 234 F.3d 131,135 (3d Cir. 2001).
41. Id. at 479.
42. Kropa v. Cabot Oil & Gas Corporation, 609 F.Supp.2d 372 (M.D. Pa. 2009).
43. Id. at 372.
The Ten Rules Of Construction For Cases Involving Title Disputes Under PA Oil And Gas 177
the statement that the lessor would never be offered more than $25 since that part
of the claim was not covered by an integration clause;44 however, the court did dis
miss that part of the claim relating to fraudulent statements regarding the amount
of royalty since that was covered by an integration clause.45
In 2009 the Kropa court granted the defendant's motion to dismiss in part and de
nied it in part. The court then denied the defendant's motion for reconsideration,
finding that"the written agreement between the parties to be fully integrated is only
a part of the inquiry into whether the parol evidence rule should apply, and it was
not material to the issue of whether a contract actually existed between the par
ties."46 In arguing the motion to reconsider, the lessor alleged that no valid contract
existed because the lessee induced the lessor to sign the contract through fraud.The
lessor was not seeking an interpretation of the contract; rather, the lessor was seek
ing a ruling that no contract existed between the parties. The court held that evi
dence of fraud in the inducement suspends the parol evidence rule because fraud
prevents formation of a valid contract.47
5. PENNSYLVANIA COURTS WILL DECIDE CASES SO THAT THE
INTERPRETATION WILL PRESERVE AS MANY LEASES AS POSSIBLE
When evaluating a case, an important question to ask is: Will there be an impact
of this decision on a large number of leases? If the answer is yes, that suggests that
the court will seek to preserve as many leases as possible.
Kilmer v. Elexco Land Services, Inc.i8 is a good example of an outcome that pre
served the largest number of leases. Kilmer presented the Supreme Court with the
opportunity to review the term "royalty" and construe that term in the context of
Pennsylvania's Guaranteed Minimum Royalty Act ("GMRA").49 The GMRA governs
leases between landowners and gas companies seeking to drill natural gas wells in
Penn-sylvania and requires that leases guarantee the landowner-lessor "at least
one-eighth royalty of all oil, natural gas or gas of other designation removed or
recovered from the subject real property."50 The Court noted that the critical term
"royalty" is not defined by the GMRA.51
The Court noted that"numerous cases [were] pending in Pennsylvania trial courts
involving the same question" at the time the original complaint was filed before the
county court.52 It then went on to note that at the time the petition to exercise extra
ordinary jurisdiction was filed by the gas companies, "more than seventy suits were
currently on hold pending the appellate litigation in this case.. ,"53 At least one com
mentator claimed that "hundreds of landowners sought to invalidate their leases
under the theory that their leases do not comply with the GMRA."54
44. Id. at 378-79.
45. Id. at 379.
46. Kropa v. Cabot Oil Gas Corporation, 716 F.Supp.2d 375,379 (M.D. Pa., 2010).
47. Id. at 375 (quoting Mellon Bank Corporation v. First Union Real Estate Equity and Mortgage, Investments,
951 F.2d 1399,1408 (3d Cir. 1991)).
48. Kilmer v. Elexco Land Services, Inc., 990 A.2d 1147 (Pa. 2010).
49. 58 P.S. §33.3 (2015).
50. Id.
51. Kilmer, 990 A.2d at 1149.
52. Id. at 1151.
53. Id.
54. Benjamin F. Hantzal, Royalty on Sweet Gas or Sour Gas? The Supreme Court of Pennsylvania's
Interpretation of the Guaranteed Minimum Royalty Act to Permit Gas Companies to Deduct Post-Production Costs
from Royalty Payments Made to Landowners: Kilmer v. Elexco Land Services, Inc., 13 Duq. Bus. L.J. 273,285
(2011).
178 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
The Court recognized that while "the plain language of the GMRA clearly pro
vides that the lessor must receive a one-eighth royalty, it is silent regarding the
definition of the term royalty and the method for calculating the royalty."55 The con
cern was that the so-called net-back method—favored by the drillers—resulted in a
royalty less than one-eighth of the value of the gas. The Court assumed that the
General Assembly intended that the royalty should be calculated both at the well
head and at the point of sale and ruled that "the lease at issue only provides for the
lessor to share in the post-production costs, and charges the lessee with all the pro
duction costs."56 Thus the Court adopted the net-back method of calculating the
royalty and found for the gas companies.
The Supreme Court's decisions in Butler v. Charles Powers Estate57 and Herder
Spring Hunting Club v. Keller58 (discussed below), are also good examples of the prin
ciple that the courts will try to preserve as many leases as possible.
6. COURTS WILL INTERPRET PENNSYLVANIA LAW TO PRESERVE
ANCIENT PRECEDENT
Pennsylvania's courts developed a large body of case law in response to the
drilling that began in 1859. It has often been wondered whether the courts would
adhere to this court-made law that in some instances was over a century and a half
old.59 The answer is yes: the Pennsylvania Supreme Court recognizes the precedent
laid down by its predecessors and is loath to overturn it.60
An example is the Dunham Rule from 1882. In Dunham and Shortt v. Kirkpatrick,61
the Supreme Court ruled that in a real property transaction, a sale or reservation of
"minerals" does not convey or reserve the oil or gas. The Court based this determi
nation on "the common understanding of mankind" that oil is riot a mineral.62 A
later decision expanded the rule to include natural gas.63
The Court in Butler v. Charles Powers Estate explained the rule, attempting to put it
into the context of the impact of the rule on modern leases:
Thus, the Dunham Rule, a well-established and relied upon rule of property, continues to bind all situations in which a deed reservation does not expressly include oil or natural gas within the reservation. Indeed, such a conclusion was demanded by the long-standing jurisprudence of this Commonwealth concerning property law: 'A rule of property long acquiesced in should not be overthrown except for compelling reasons of public policy or the imperative demands of justice/6''
55. Kilmer, 990 A.2d at 1157.
56. Id. at 1158.
57. Butler v. Charles Powers Estate, 65 A.3d 885 (Pa. 2013).
58. Herder Spring Hunting Club v. Keller, 143 A.3d 358, (Pa. 2016), aff'g Herder Spring Hunting Club v. Keller,
93 A.3d 465 (Pa. Super. 2014).
59. See Pifer at 14 ("Does Pennsylvania case law from the 1800s and early 1900s remain good law?");
Saunders at 69 ("The continued viability of long-standing rules of law is being questioned as a result of
the markedly different methodology currently employed to extract oil and natural gas from unconven
tional shale formations."); Lester L. Greevy, Jr. & John A. Shoemaker, Shale Gas Ownership—Tax-Sale Titles:
An Historical Perspective of the Pennsylvania Title Wash, 85 Pa. Bar Ass'n Q. 106, 114 0uly 2014) (cited as
Greevy & Shoemaker herein) ("Because of the enormous amounts of money itwolved, various groups are
now putting forward new ideas as to why established rules of property should be retroactively upset").
60. See Pifer at 14 ("Generally speaking, early Pennsylvania oil and gas case law remains good law.").
61. Dunham, 101 Pa, 36.
62. Id. at 44.
63. Silver v. Bush, 62 A. 832, 833 (Pa. 1906).
64. Butler, 65 A.3d at 891-92.
The Ten Rules Of Construction For Cases Involving Title Disputes Under PA Oil And Gas 179
The scientific basis for the Dunham Rule arguably makes little or no sense. Nevertheless it has been the law of Pennsylvania, and disturbing this precedent
would disrupt virtually every mineral or oil and gas deed drafted since the 1880s.
Butler, which upheld the Dunham Rule, says that in Pennsylvania the legal presump
tion is that for private deed purposes oil and gas are not minerals (the gist of the
Dunham Rule). At the same time, the Court said that for private deeds, "minerals"
include only metallic minerals. This is contrary to the rule in virtually all other juris
dictions, the understanding of the mining industry and mining professionals, and
possibly a surprise to many who own or have sold"mineral"rights.65
As the Supreme Court itself noted,"innumerable private, real property transac
tions for nearly two centuries"in Pennsylvania have relied on the Dunham Rule "and
its longstanding progeny" when conveying or reserving minerals and oil and gas.66
Likewise, thousands of deeds and leases conveying Marcellus shale gas could have
been upset by a change in the Dunham Rule.67
7. A PARTY SEEKING TO TERMINATE A LEASE BEARS A HEAVY
BURDEN OF PROOF
Citing to a century-old Pennsylvania Supreme Court decision for support, Jeffer
son County Gas Co. v. United Natural Gas Co.,68 the Supreme Court in T. W. Phillips v.
Jedlicka ruled that,"a party seeking to terminate a lease bears the burden of proof/'69
The Supreme Court in Jefferson County had evaluated the plaintiff's efforts to ter
minate an oil and gas lease. It appears that the plaintiff had acquired the property
after the defendant had leased it and then sought to have the lease declared either
terminated or repudiated. The trial court held that the law "imposed upon [the
plaintiff] the duty of proving a forfeiture either by reason of termination of the ten
ancy or repudiation of the terms of the agreement, or from some other cause."70
The Court in Jefferson County cited to an Eighteenth Century Pennsylvania
Supreme Court decision which placed the burden of proof on the party seeking to
terminate a lease (for land, not oil and gas): "[S]ince the case of Penn v. Divellin, 2
Yeates, 309, a landlord, in order to support his ejectment, must show a forfeiture of
the lease."71
If nothing else, the provenance of the principle that the burden of proof is on the
party seeking to overturn the lease is ancient and well-accepted under Pennsylvania
law. As the superior court's decision in Herder Spring has shown, the burden of proof
is a heavy burden.72
65. See Pifer at 14 ("Pennsylvania's Dunham rule—creating a presumption that oil and gas are not'min
erals' for purposes of title—is an excellent example of common law that is unique to Pennsylvania."). See,
e.g., Murray v. Allard, 43 S.W. 355,359 (Tenn. 1897); Moore v. Indian Camp Coal Co. v. Emma Coal Co., 80 N.E.
6, 7 (Oh. 1907); Texas Co. v. Daugherty, 107 Tex. 226, 234-35 (1915); Callahan v. Martin, 43 P.2d 788,791 (Cal.
1935). Indeed, Justice Saylor, in his concurring opinion in Butler, found the Dunham Rule to be "cryptic,
conclusory, and highly debatable." Butler, 65 A.3d at 899-900 (Saylor, J., concurring).
66. Butler, 65 A.3d at 897.
67. See, e.g., Pechin Leasing LLC. v. Garland, 2013 WL 11250213 (Pa. Super. 2013), applying the Dunham
Rule as the reservation in the deed was for "all mineral rights," thus it did not reserve oil and gas.
68. Jefferson County Gas Co. v. United Natural Gas Co., 93 A. 340 (Pa. 1915).
69. Jedlicka, supra note 7, at 267.
70. Jefferson County Gas and Oil Co., 93 A. at 341.
71. Id.
72. Herder Spring Hunting Club, 93 A.3d at 473 (the application of the burden of proof "may be seen as
being unduly harsh.").
180 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
8. PENNSYLVANIA OIL AND GAS LAW IS VERY OLD—AND VERY
NEW. TO MAINTAIN STABILITY AND THE STATUS QUO, THE
PREFERENCE OF THE COURTS IS TO PRESERVE OLD LAW
Title to minerals has been the subject of leases and deeds since the Eighteenth
Century in Pennsylvania.73 Rules that directly impact title to oil and gas include the
Dunham Rule (1882), the burden of proof rule (1915),74 and the rule disallowing the
use of equitable extension of a lease.75 Parties and commentators have questioned
whether these ancient court-made rules would withstand the rigors of time.76
The Butler Court probably best expressed the reason for continuing these ancient
principles:
Indeed, such a conclusion [maintaining the Dunham Rule] was demanded by the long-standing jurisprudence of this Commonwealth concerning property law: "A rule of property long acquiesced in should not be overthrown except for compelling reasons of public policy or the imperative demands of justice."77
The Pennsylvania Supreme Court's recent decision in Herder Spring Hunting Club
v. Keller, while not technically an oil and gas lease case (it deals with "title washing"
of lands containing mineral rights), demonstrates again how the courts will rely on
old law to preserve the status quo.78 At issue was whether a 1935 tax sale to "un
seated" (i.e. undeveloped) land resulted in transfer of the entire property or merely
the surface rights. The factual history of the matter is complex. In 1894, the Kellers'
ancestors had purchased the property at a tax sale. Then, in 1899 they sold the sur
face rights to the Becks, "reserving the subsurface rights to themselves through an
extensive reservation that indisputably covered the natural gas at issue (in 2016)." It
appears that they failed to provide notice to the county commissioners of this trans
fer, so, as far as the county commissioners knew, they were still assessing taxes on
the entire property. During the Depression, the county commissioners acquired the
property through yet another tax sale in 1935. In 1941, the commissioners sold the
property to Mr. Herr, whose widow sold the property to Herder Spring in 1959.
Herder Spring subsequently entered into several oil and gas leases which were duly
recorded.
In 2008, Herder Spring brought an action to quiet title against the Kellers, assert
ing that the 1935 tax sale extinguished the Kellers' 1899 reservation of subsurface
rights. Interpreting various Acts of 1804,1806, and 1815, the Supreme Court ruled in
July 2016 that the tax sale of 1935 did extinguish the Kellers' ancestors' reservation
of subsurface rights.
The Kellers argued that the notice requirement placed on them violated due
process.79 But, the Court found that the notice requirements must be looked at in
terms of what was applicable at that time and not now:
As this Court has found the notice provision of the Act of 1815 to be reasonable given the difficulties of ascertaining ownership information relating to unseated
. landowners and the protection provided by the redemption period, we will not
73. John Penn v. Divellin, 2Yeates at 309.
74. Jefferson County Gas Co., 93 A. at 341.
75. Harrison v. Cabot Oil & Gas Corporation, 110 A.3d 178 (Pa. 2015).
76. See Pifer at 14 ("Does Pennsylvania case law from the 1800s and early 1900s remain good law?");
Greevy & Shoemaker at 114 ("Because of the enormous amounts of money involved, various groups are
now putting forward new ideas as to why established rules of property should be retroactively upset.").
77. Butler, 65 A.3d at 891-92 (citations omitted).
78. Herder Spring Hunting Club, 143 A.3d at 358.
79. Id. at 375.
The Ten Rules Of Construction For Cases Involving Title Disputes Under PA Oil And Gas 181
upset that conclusion based on preconceived notions of what is reasonable in the age of the Internet. Accordingly,... we conclude that the process of providing notice under the Act of 1815 complies with the dictates of those cases, which recognize that a government entity is not 'required to undertake extraordinary efforts' in p 1*0viding notice.80
Considering the vast number of acres of unseated land over nearly 150 years of
tax sales subject to title washing, particularly in the northern and western parts of
Pennsylvania, in which the oil, gas and minerals were reunited with the surface, it is
apparent that the Court is working hard to maintain the status quo by preserving
Pennsylvania's ancient law of title washing.81
However irrational or unscientific an old rule may appear, thousands of leases po
tentially affecting millions of acres of land may be impacted if the courts were to up
end ancient property rules. This would create instability and upend the legal status
quo, which is and ought to be intolerable to the courts. Consequently, where there
is an ancient rule of property that has been relied upon in the transfer and creation
of property rights, the courts likely will not overturn the ancient rule.82
9. THE PENNSYLVANIA COURTS ARE LOOKING FOR THE
PRAGMATIC SOLUTION
Pennsylvania's Supreme Court often takes a pragmatic approach to the resolution
of cases before it. The surest way to attempt to divine an outcome is to determine the
most pragmatic resolution of the case.
In Butler, the Court explicitly noted that innumerable transactions could be at
stake if it overturned the Dunham Rule.83 Likewise, Kilmer was not based on ancient
law but had the potential to impact many leases.The Supreme Court first noted that
"numerous cases [were] pending in Pennsylvania trial courts involving the same
question" at the time the original complaint was filed before the court of common
pleas.84 Also, the Court noted that "more than seventy suits were currently on hold
pending the appellate litigation in this case and [petitioners fear] that uncertainty
would stymie economic development. . ,"85 In Herder Spring, the Court acknowl
edged that the "courts interpreting Pennsylvania law have a long history of accept
ing the concept of a tax sale reuniting severed estates of unseated property and per
fecting previously defective titles."86
The decisions in Butler, Kilmer, and Herder Spring—on very different legal grounds—
resulted in similar outcomes: the decisions prevented numerous parties from com
ing forward and challenging their leases, which would have had an untold effect on
the validity of mineral rights and leases in Pennsylvania and would have clogged
the courts for years as they sorted out the numerous legal challenges that likely
would have been filed.
80. Id. at 378 (citations omitted).
81. Even though in its conclusion it understates the huge impact of its decision.
82. See Saunders at 84 ("Although Pennsylvania's oil and gas jurisprudence is currently old and
underdeveloped, existing case law does provide a sound footing upon which a unique Pennsylvania law
can be developed that will achieve the prime goal of any legitimate legal regime—consistency and
predictability.").
83. Butler, 65 A.3d at 897.
84. Kilmer, 990 A.2d at 1151.
85. Id.
86. Herder Spring Hunting Club, 143 A.3d at 368.
182 PENNSYLVANIA BAR ASSOCIATION QUARTERLY | October 2016
10. THE SUPREME COURT WILL EMBRACE A LEGAL PRINCIPLE
THAT IS A MINORITY POSITION, IF IT IS CONSISTENT
WITH PENNSYLVANIA LAW
The Pennsylvania courts are not adverse to taking a position in oil and gas matters
that no other court in the nation embraces. Thus an additional rule of construction
is that the Pennsylvania courts will not adopt a position merely because it is the
majority rule.
For example, Pennsylvania has held to the Dunham Rule even though, as one com
mentator has stated, "[t]he vast majority of jurisdictions consider a transfer of all
minerals presumptively to include natural gas, unless the conveying instrument as
a whole produces ambiguity."87
Another oil and gas case in which Pennsylvania adopted the minority approach
is Harrison v. Cabot Oil and Gas Corp.88 In Harrison, the Court refused to adopt the
equitable extension doctrine allowing for the extension of a lease term while a
lessor challenges the lease's validity in court, even though that is the rule in the
majority of other jurisdictions.
This article has identified Rules of Construction relating to oil and gas title dis
putes based on the guidance of the courts from the earliest cases in the Common
wealth to the present, which should be applicable well into the future.
87. Mark T. Wilhelm, 'All' is Not Everything: The Pennsylvania Supreme Court's Restriction of Natural Gas
Conveyances in Butler v. Charles Powers Estate ex rel. Warren, 59 Vill. L. Rev. 375, 384 (2014), and cases cited
therein. See also/ Pifer at 14 ("Pennsylvania's Dunham rule—creating a presumption that oil and gas
are not 'minerals' for purposes of title—is an excellent example of common lam that is unique to
Pennsylvania.")
88. Harrison, 110 A.3d 178.