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Mountaineer Minerals, LLC v. Antero Resources Corp.

United States District Court, N.D. West Virginia

August 10, 2017

MOUNTAINEER MINERALS, LLC, Plaintiff,
v.
ANTERO RESOURCES CORPORATION, a Delaware corporation formerly known as ANTERO RESOURCES APPALACHIAN CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING AS FRAMED PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

          FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE

         I. Background

         The plaintiff originally filed this civil action in the Circuit Court of Ritchie County, West Virginia. Thereafter, the defendant removed the action to this Court based on diversity jurisdiction. The plaintiff is Mountaineer Minerals, LLC, which alleges that it is the rightful owner of the Oil and Gas Marcellus Leasehold Rights (the “Marcellus Rights”), which arise from an oil and gas lease (the “Collins Lease”) dated June 11, 1919. The Collins Lease was recorded in Ritchie County, West Virginia, and executed by William J. Collins and Sarah Collins to E.D. Willis. The defendant is Antero Resources Corporation, a Delaware corporation that engages in the drilling and production of oil and gas wells in West Virginia and other states. The plaintiff claims that the defendant was not a bona fide purchaser of the Marcellus Rights because the defendant had actual notice of the ownership claim of Perkins Oil and Gas, Inc. (“Perkins”), the plaintiff's predecessor in interest to those rights.

         The complaint alleges that the dispute over ownership of the Marcellus Rights goes back to the July 20, 1985 assignment of the Collins Lease by Crude Oil and Gas, Inc. (“Crude”) to Monongahela Leasing, Inc. That assignment was recorded in Doddridge County, West Virginia, on July 31, 1985, but not recorded in Ritchie County, West Virginia, until August 2, 2013. Then, on October 3, 1986, Monongahela Leasing assigned the Collins Lease to P. D. Farr, II. That assignment was recorded in Ritchie County on October 7, 1986. On August 30, 1996, P. D. Farr, II assigned the Collins Lease to Ritchie Petroleum Corporation. That assignment was recorded on September 6, 1996 in Ritchie County. On July 19, 2004, Ritchie Petroleum assigned the Collins Lease to Perkins. That assignment was recorded in Ritchie County on July 21, 2004. On October 29, 2015, the plaintiff acquired an assignment from Perkins to the portion of the Collins Lease known as the Marcellus Rights. Thus, the only assignment of the Collins Lease not recorded in Ritchie County was the 1985 assignment from Crude to Monongahela Leasing.

         The complaint then alleges that Crude assigned the Collins Lease a second time on December 18, 2012. Their first assignment of the Collins Lease was to Monongahela Leasing in 1985, and this second assignment of the same lease was to Clarence E. Sigley, Sr. The complaint notes that Mr. Sigley notarized the signature for both parties when Crude first assigned the Collins Lease to Monongahela Leasing. The complaint states that, on the day Mr. Sigley acquired the Collins Lease, December 18, 2012, he immediately assigned his rights in the Collins Lease to the defendant. Both the assignment to and the assignment from Mr. Sigley were recorded in Ritchie County.

         Lastly, the complaint alleges that, on August 12, 2012, four months before the defendant acquired its assignment, the defendant's Administrative and Legal Manager, J. Kevin Ellis, sent an email acknowledging that Perkins was the rightful owner of the Collins Lease. For those reasons, the plaintiff claims that, on the date the defendant acquired its assignment, the defendant had actual notice that Perkins, not Crude, was the rightful owner of the Collins Lease. Thus, the plaintiff states that the defendant cannot be afforded bona fide purchaser protection under West Virginia law.

         At issue in this memorandum opinion are the parties' cross motions for summary judgment. ECF Nos. 52 and 54. After filing the cross motions for summary judgment and all responses and replies, the parties submitted to the Court a stipulation of undisputed facts regarding the chain of title of the Collins Lease. ECF No. 70. In the stipulation, the parties indicate their agreement to the chain of title beginning with the 1919 lease from William J. Collins and Sarah Collins to E.D. Willis and up to the 1979 assignment of the Collins Lease by Consumers Gas Utility Company to W.C.P. Partnership. That last assignment agreed to in the stipulation was recorded on September 22, 1982, in Ritchie County, West Virginia.

         For the reasons set forth below, the plaintiff's motion for summary judgment is granted as framed and the defendant's motion for summary judgment is denied.

         II. Cross Motions for Summary Judgment

         The parties have now filed cross motions for summary judgment, which are discussed in turn below. Both parties filed responses and replies to the respective motions for summary judgment.

         A. Plaintiff's Motion for Summary Judgment

         The plaintiff's motion alleges that, around April 2011, the defendant initiated negotiations with Perkins to purchase the Marcellus Rights in the Collins Lease, and that Perkins continued those negotiations with the defendant in good faith for a period of two years. A purchase sale agreement was finalized and executed by the parties on February 11, 2013, in which the defendant would purchase the Marcellus Rights from Perkins for $2, 785, 000.00. The plaintiff then alleges that well into the negotiation process, in December 2012, the defendant “arranged a plot” to purchase the entire Collins Lease from Crude for $867, 000.00. The plaintiff alleges that the defendant, in arranging this transaction, contacted Mr. Sigley, a third party, to acquire an assignment from Crude. Mr. Sigley was then to assign the lease to the defendant. The plaintiff alleges that the defendant financed this transaction by paying Mr. Sigley $500.00 per acre and paying Crude $1, 000.00 per acre.

         The plaintiff also alleges that the same representative for the defendant, Mr. Ellis, negotiated both the transaction between the defendant and Perkins and between the defendant and Crude. The plaintiff then alleges that Mr. Ellis continued negotiations with Perkins even after purchasing the assignment from Crude and, on February 11, 2013, signed the contract with Perkins in bad faith. The plaintiff states that, at the time the contract was executed, the defendant had neither informed Perkins that it had purchased an assignment from Mr. Sigley nor had recorded the assignment. Thus, the plaintiff claims that Perkins had no actual, constructive, or inquiry notice that the defendant was claiming an ownership interest in the Marcellus Rights at the time Perkins entered into the contract with the defendant. The plaintiff then contends that the defendant did not provide Perkins with a defect notice until March 22, 2013, the day after the defendant recorded its assignment from Mr. Sigley. In accordance with the defect cure procedure outlined in their February 11, 2013 contract, Perkins cured the defect in the chain of title by recording the assignment from Crude to Monongahela Leasing in Ritchie County. Nonetheless, the plaintiff contends that the defendant still refused to accept the legitimacy of the curative documents and continues to assert ownership of the Collins Lease. Lastly, the plaintiff claims that the defendant has resorted to self help by drilling at least ten horizontal wells on the Collins Lease.

         Accordingly, the plaintiff's motion argues that (1) the defendant had inquiry notice and is not a bona fide purchaser, (2) the defendant breached its February 11, 2013 contract with Perkins, and (3) the defendant has engaged in unfair dealing in negotiations for the purchase of the Marcellus Rights. In response, the defendant alleges that the plaintiff never pled claims asserting breach of contract or unfair dealing.

         B. Defendant's Motion for Summary Judgment

         The defendant's motion for summary judgment argues that the plaintiff is not entitled to declaratory judgment because it paid no consideration for and, thus, has an insufficient interest in the Marcellus Rights to the Collins Lease. The defendant notes that, by contract, the plaintiff is not obligated to pay Perkins for the Marcellus Rights unless a court determines that the plaintiff is the rightful owner of the Collins Lease.

         The defendant also argues that it nonetheless holds a superior title by virtue of its unbroken, recorded chain of title. The defendant claims that, as part of its due diligence in December 2012, Mr. Ellis obtained an ownership report on the Collins Lease showing that Crude owned the formation relevant to the defendant's interest in the Collins Lease, not Perkins. The December 2012 ownership report identified Crude as the owner below the Fifth Sand formation of the Collins Lease, which included the Marcellus formation that is thousands of feet below the Fifth Sand formation. The December 2012 ownership report identified Perkins as owning only the leasehold rights through the Fifth Sand formation, and not the Marcellus Rights below. The defendant further asserts that Perkins did not provide to the defendant (1) the 1985 assignment from Crude to Monongahela Leasing, which was only recorded in Doddridge County at the time of the defendant's due diligence or (2) the 1986 assignment from Monongahela Leasing to P. D. Farr, II.

         The defendant states that it did not obtain a copy of the 1985 assignment to Monongahela Leasing until the defendant sent a defect notice to Perkins. The defendant also states that Perkins did not record that assignment until after the defendant sent its defect notice, and that Mr. Sigley went to the Ritchie County courthouse to check that the Collins Lease was still in Crude's name before purchasing the Marcellus Rights from Crude. Thus, the defendant asserts that it had no reason to question the unbroken, recorded chain of title showing Crude with the leasehold rights below the Fifth Sand formation, which includes the Marcellus Rights. The defendant claims that Perkins's purported interest was explained by the record title showing it with only the leasehold rights through the Fifth Sand formation.

         III. A ...


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