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Bounty Minerals, LLC v. EQT Production Co.

United States District Court, N.D. West Virginia

June 7, 2018

BOUNTY MINERALS, LLC, Plaintiff,
v.
EQT PRODUCTION COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTIONS TO DISMISS [DKT. NO. 25] [1]

          IRENE M. KEELEY, UNITED STATES DISTRICT JUDGE.

         During a joint scheduling conference in these consolidated cases on March 12, 2018, the Court GRANTED in part and DENIED in part the defendant's motions to dismiss. This Memorandum Opinion and Order explains the Court's reasoning in support of that decision.

         I. BACKGROUND

         The facts are taken from the amended complaints and, as they must be, are construed in the light most favorable to the plaintiff. See De'Lonta v. Johnson, 708 F.3d 520, 524 (4th Cir. 2013). On November 6, 2017, the plaintiff, Bounty Minerals, LLC ("Bounty"), filed two related cases in the Circuit Court of Monongalia County, West Virginia, against the defendant, EQT Production Company ("EQT") (Dkt. No. 1-3). EQT is the record lessee of two tracts in which Bounty owns a mineral interest, but Bounty alleges that the relevant leases have terminated for lack of production. (Dkt. No. 15 at 2-5). The complaints make claims for relief based on the alleged lease terminations, including 1) declaratory judgments that the relevant leases and their amendments have terminated, 2) ejectment, 3) slander of title, 4) breach of the implied covenant of further exploration, and 5) breach of the implied covenant of development.

         EQT removed the cases to this Court on December 18, 2017, based on the Court's diversity jurisdiction (Dkt. No. 1). On December 26, 2017, EQT moved to dismiss the complaints (Dkt. No. 5). When Bounty filed amended complaints on January 12, 2018 (Dkt. No. 15), the Court denied EQT's motions to dismiss as moot (Dkt. No. 16). Then, on January 16, 2018, EQT moved to dismiss Bounty's amended complaints (Dkt. No. 17). At a joint scheduling conference on March 12, 2018, the Court consolidated the cases and granted in part and denied in part EQT's motions (Dkt. No. 34).

         II. STANDARD OF REVIEW

         Fed. R. Civ. P. 12(b)(6) allows a defendant to move for dismissal on the grounds that a complaint does not “state a claim upon which relief can be granted.” When reviewing a complaint, the Court “must accept as true all of the factual allegations contained in the complaint.” Anderson v. Sara Lee Corp., 508 F.3d 181, 188 (4th Cir. 2007) (quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)). “While a complaint . . . does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted).

         A court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). “[A] complaint must contain ‘enough facts to state a claim to relief that is plausible on its face.'” Anderson, 508 F.3d at 188 n.7 (quoting Twombly, 550 U.S. at 547). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A motion to dismiss “does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992).

         In deciding the motion, the court need not confine its inquiry to the complaint; it may also consider “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). “A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.” Fed.R.Civ.P. 10(c). The court may also consider documents attached to the motion to dismiss, so long as they are integral to the complaint and authentic.” Philips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

         III. DISCUSSION

         A. Termination for Lack of Production

         In Counts One through Three of the amended complaint, Bounty seeks a declaratory judgment that the relevant leases and their amendments have terminated for lack of production and are no longer enforceable, as well as an order ejecting EQT from the tracts at issue. (Dkt. No. 15 at 5-6). In its motion to dismiss, EQT argues that, under West Virginia law, “production is irrelevant when determining whether a lease with a flat-rate provision or a shut-in royalty provision is abandoned or terminated" (Dkt. No. 26 at 5). Given that Bounty has not offered a compelling reason to depart from existing precedent in West Virginia and the Fourth Circuit, the Court agrees with EQT that Bounty's claims for declaratory relief and ejectment fail as a matter of law.

         1. Applicable Law

         The controlling West Virginia precedent on this matter is Bruen v. Columbia Gas Transmission Corp., 426 S.E.2d 522 ( W.Va. 1992). The habendum clause in that case provided that the lease would be "for the term of ten years (and so long thereafter as oil or gas is produced from the land leased and royalty and rentals paid by lessee therfore)." Id. at 523 (emphasis supplied in original). The lease provided for an enumerated royalty for oil, as well as an "annual rent of $200 for each gas well ‘from the time and while the gas is marketed." Id. Critically, the lease also contained the following "flat-rate" provision:

Lessee agrees to pay Lessor Twelve Hundred Dollars ($1200.00) per year net rental until the royalties and rentals reserved in this lease exceed that amount unless lease be surrendered before said time as above provided.

Id. at 524.

         Although the lessee, Columbia Gas, faithfully tendered the $1200 annual "net rental, ” the lessors alleged that the lease had terminated due to an "alleged failure to produce oil and gas in paying quantities." Id. at 523. The Supreme Court of Appeals rejected the lessors' argument, concluding that the "quantity of production is irrelevant" in the case of a flat-rate lease. Id. at 524-25 (citing Goodwin v. Wright, 255 S.E.2d 924 ( W.Va. 1979); Ketchum v. Chartiers Oil Co., 5 S.E.2d 414 ( W.Va. 1939); McCutcheon v. Enon Oil & Gas Co., 135 S.E. 238 ( W.Va. 1926); Bassell v. West Virginia Central Gas Co., 103 S.E. 116 ( W.Va. 1920); McGraw Oil Co. V. Kennedy, 64 S.E. 1027 ( W.Va. 1909)). The court further reasoned that the express terms of the lease did not require any particular amount of production, but instead required "‘flat' payments of rental in the amount of $1200 per year, regardless of production." Id. at 525 (emphasis in original). The court held unequivocally:

If an oil and gas lease contains a clause to continue the lease for a term "so long thereafter as oil and gas is produced, " but also provides for "flat-rate" rental payments, then quantity of production is not relevant to the expiration of the term of the lease if such "flat-rate" ...

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