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Reynolds v. Ascent Resources & Marcellus, LLC

United States District Court, N.D. West Virginia

May 11, 2017




         On March 28, 2016, the plaintiff, Donald R. Reynolds (“Reynolds”), filed this action in the Circuit Court of Harrison County, West Virginia. On May 2, 2016, the defendant, Ascent Resources - Marcellus, LLC (“Ascent”), removed the case to this Court based on diversity (Dkt. No. 1). The parties have filed competing motions for summary judgment that are fully briefed and ripe for review. For the following reasons, the Court DENIES the motions (Dkt. Nos. 30; 31).

         I. BACKGROUND

         A. Factual Background

         Many of the facts in this case are not in dispute. Reynolds resides in Jane Lew, Harrison County, West Virginia (Dkt. No. 30-4 at 1). In April 2015, W. Travis McBain (“McBain”), an Ascent representative, contacted Reynolds regarding Ascent's interest in leasing certain of his oil and gas interests (Dkt. No. 12 at 1; 30-4 at 1). Ultimately, Reynolds agreed to lease Ascent his interest in oil and gas underlying a 561.61-acre tract known as the Milton Underwood No. 2 Farm, McClellan District, Doddridge County, West Virginia (“Milton tract”) (Dkt. No. 30-4 at 1).[1]

         Ascent prepared and provided a number of documents, dated June 8, 2015, including: 1) the Paid-Up Oil and Gas Lease (“Lease”), 2) the Memorandum of Oil and Gas Lease, and 3) the Order of Payment (collectively, the “Lease documents”) (Dkt. No. 21 at 2). The Paid-Up Oil and Gas Lease provides in relevant part as follows:

LEASING CLAUSE. Lessor hereby grants, leases, and lets exclusively to Lessee all the oil and gas . . . and their liquid or gaseous constituents, whether hydrocarbon or non-hydrocarbon, underlying the land herein leased . . . .
. . . .
(H) TITLE: If Lessee receives evidence that Lessor does not have title to all or any part of the rights herein leased, Lessee may immediately withhold payments that would be otherwise due and payable hereunder to Lessor until the adverse claim is fully resolved.[2] Lessor represents and warrants that there is no existing oil and gas lease which is presently in effect covering the Leasehold.
TITLE AND INTERESTS. Lessor hereby warrants generally and agrees to defend title to the Leasehold and covenants that Lessee shall have quiet enjoyment hereunder and shall have benefit of the doctrine of after acquired title.
. . . .
ENTIRE CONTRACT. The entire agreement between Lessor and Lessee is embodied herein and in the associated Order of Payment (if any).

(Dkt. No. 32-1 at 1-5). The associated Order of Payment includes the following agreements:

Ascent Resources - Marcellus, LLC will tender payment to the Lessor identified in the Paid Up Lease (“Lease”) as indicated herein by check within 45 days of its receipt of the original of this Order of Payment and the executed Lease. Payment is conditioned upon title to the property interests leased being confirmed satisfactorily to Ascent Resources - Marcellus, LLC, in its sole discretion. . . .
If Lessor owns more or less than the net interest defined herein, Ascent Resources - Marcellus, LLC may, without immediate notice to Lessor, increase or reduce the consideration payable hereunder proportionate to the actual interest owned by Lessor.
. . . If the Lease has not been surrendered or payment made by the specified due date, then Lessor shall notify Lessee in writing and Lessee shall have 30 days from receipt of such written notice to make payment or surrender the lease without any liability.
. . . Lessor agrees that payment made hereunder is final and will not seek to amend or modify the payment, or seek additional consideration based upon any differing terms which Ascent Resources - Marcellus, LLC has or will negotiate with any other lessor/oil and gas owner.

Id. at 13.

         In total, the Lease encompassed Reynolds's interest in eight parcels, including his interest in a certain 90.83-acre tract (“the Subject Interest”).[3] Id. at 12. Pursuant to the terms in the Order of Payment, Ascent agreed to pay Reynolds a signing bonus of $4, 100 per net acre, totaling $367, 775.237 (Dkt. Nos 30-5; 32-1 at 13). Reynolds executed the Lease documents on October 9, 2015, and returned them to Ascent (Dkt. Nos. 30-2 at 2; 30-4 at 2).

         Shortly thereafter, in late October 2015, McBain called Reynolds to inform him that Ascent had decided not to fund the lease for the Subject Interest because the West Virginia Department of Environmental Protection (“DEP”) “website indicated that a producing well was located on the parcel and for that reason the parcel was subject to an existing oil and gas lease” (Dkt. No. 15-4). On October 28, 2015, Ascent issued a check to Reynolds in the amount of $267, 956.34, which reflected that payment had been withheld for the Subject Interest (Dkt. Nos. 30-5; 32-14).[4]Reynolds received the check on October 30, 2015, and signed the lease obligation deposit receipt on November 2, 2015 (Dkt. Nos. 30-4 at 2; 32-13). He then cashed and deposited the check (Dkt. No. 32-4 at 5).

         Then, on November 9, 2015, Reynolds sent a letter to Ascent demanding that it execute and record a partial release of the Lease to reflect the fact that it had “failed to make payment” for the Subject Interest (Dkt. Nos. 30-4 at 4). Prior to receiving this demand letter on November 16, 2015, id. at 5, Ascent had recorded the Memorandum of Oil and Gas Lease (“Memorandum”) in the Office of the Clerk of the Commission of Doddridge County, West Virginia, on November 12, 2016 (Dkt. Nos. 30-2 at 4; 32-12 at 4). The Memorandum was “made and filed for the purpose of giving third parties notice of the existence of the Lease, ” but was “not intended as an amendment of the terms and conditions of the Lease” (Dkt. 32-12 at 1). As it is included in the Lease, the Memorandum includes the Subject Interest. Id. at 4.

         When Ascent did not respond to his first demand, Reynolds, by counsel, sent another letter to Ascent on February 4, 2016 (Dkt. Nos. 30-4 at 2; 30-6). Rather than again request a release, this second letter demanded that, because the recorded Memorandum reflected that Ascent had a leasehold in the Subject Interest, Ascent tender within 21 days “the agreed upon bonus compensation remaining to be paid in the amount of $99, 818.93" (Dkt. No. 30-6 at 1). Thereafter, on March 3, 2016, Ascent recorded a Partial Release of Oil and Gas Lease, which canceled the Lease in regard to the Subject Interest (Dkt. No. 4-1). Between receiving the $267, 956.34 check and the release of the Subject Interest, Reynolds did not take any steps to cure title or hire anyone to investigate the title and leasehold (Dkt. No. 34-1 at 4). Further, he has not “taken any steps to lease [the Subject Interest] to anyone else” (Dkt. No. 32-4 at 6).

         B. Procedural Background

         After Reynolds filed this action in the Circuit Court of Harrison County, West Virginia, claiming that Ascent had breached the parties' contract (Dkt. No. 1-1), Ascent removed the case to this Court and filed a motion to dismiss the complaint for failure to state a claim (Dkt. Nos. 1; 3). Reynolds responded to ...

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