United States District Court, N.D. West Virginia
ARNOLD K. RICHARDS and MARY L. RICHARDS, Plaintiffs,
EQT PRODUCTION COMPANY, Defendant.
MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS'
MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 31]
M. KEELEY UNITED STATES DISTRICT JUDGE
case involves claims for breach of contract and fraud related
to royalty payments for natural gas interests. The
plaintiffs, Arnold and Mary Richards (the
“Richards”), are owners of mineral interests in
Ritchie County, West Virginia. The Richards allege that the
defendant, EQT Production Company (“EQT
Production”), has failed to provide accurate
accountings of the gas removed from certain wells, including
the amounts received and costs deducted from royalties. The
complaint also alleges that EQT Production has breached the
express terms of the relevant leases and committed fraud by
improperly calculating royalties and making improper
deductions. EQT Production denies these allegations,
contending that its royalty payments to the Richards are in
compliance with the lease terms.
before the Court is the Richards' motion for partial
summary judgment on their breach of contract claim. For the
reasons that follow, the Court DENIES the
motion (Dkt. No. 31).
the facts in this case are not in dispute. Nonetheless, as
this is a dispositive motion filed by the plaintiffs, the
Richards, the Court reviews the evidence in the light most
favorable to EQT, the non-moving party. See Providence
Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d 846,
850 (4th Cir. 2000).
the Richards' claims relate to the payment of royalties
relating to three oil and gas leases (collectively, the
“Leases”) (Dkt. Nos. 41-2, 41-3, 41-4). EQT
Production, the sole lessee to the Leases, has the right to
develop and purchase gas from the Lease premises.
Id. at 1. The Leases include the following royalty
In Consideration of the Premises the said party of the second
part, covenants and agrees: 1st-to deliver to the credit of
the Lessors, their heirs or assigns, free of cost, in the
pipe line to which the Lessee may connect the wells ... the
equal one-eighth (1/8) part of all oil produced and saved
from the leased premises; and second, to pay ...
one-eighth (1/8) of the market price of the gas from each and
every gas well drilled on said premises, the product from
which is marketed and sold off the premises, said gas to be
measured by a meter.
Id. at 2 (emphasis added) (the “Royalty
Provision”); see also Dkt. Nos. 51-1; 51-2;
51-3. Although the Leases were amended in 2014 to allow for
pooling and unitization for horizontal drilling, the Royalty
Provisions have not been modified. Also relevant is a
provision, as follows:
“...if ‘casing head gas' (being gas produced
from oil wells) or any part thereof should be marketed and
sold by said Lessee, said Lessors shall receive one-eighth of
the market price of the gas and other by-products so marketed
Id. (the “By-Product Provision”).
2016, EQT drilled six horizontal wells on “Pullman
96," a well pad located on a tract adjacent to the Lease
premises. It is undisputed that these wells produce natural
gas from the leasehold estates. It is also undisputed that
EQT sells the natural gas produced from the wells to an
affiliate, EQT Energy, LLC (“EQT Energy”),
pursuant to a Base Contract for Sale and Purchase of Natural
Gas (“Gas Sales Contract”) (Dkt. No. 40-1 at 5).
Natural gas produced from the pooled acreage passes through
meters located at or near the pad and wellheads where,
pursuant to the Gas Sales Contract, EQT Energy takes custody
of the gas. EQT Energy then delivers and sells the gas to
third-party purchasers on the open market.
the Gas Sales Contract establishes a pricing formula whereby
EQT Energy pays EQT Production an amount equal to “the
first of the month index price applicable to the interstate
pipeline/gas gathering system into which the gas is
delivered, less gathering related charges, retainage, and any
other agreed to charges.” Id. To arrive at the
price for the point where the gas is sold to EQT Energy
(i.e., at the wellhead), EQT Production utilizes a
“work-back method, ” whereby certain
post-production expenses of gathering and compressing the gas
to a downstream market are deducted from the downstream index
price of the gas sold. The Richards' royalty payments are
then calculated based on the price where the gas is sold to
EQT Energy - the wellhead.
Richards filed their complaint on February 27, 2017, in the
Circuit Court of Ritchie County, West Virginia (Dkt. No.
1-1). EQT removed the case to this Court on April 3, 2017,
based on diversity of citizenship (Dkt. No. 1). The complaint
asserts four causes of action, including (1) failure to
properly account for royalties, (2) breach of contract, (3)
breach of fiduciary duties and negligence, and (4) fraud and
constructive fraud (Dkt. No. 1-1 at 14-17).
April 7, 2017, the Richards moved to remand the case (Dkt.
No. 3), and on April 10, 2017, EQT filed its answer, together
with a partial motion to dismiss Count Three of the complaint
for failure to state a claim (Dkt. No. 4-6). During a
scheduling conference on June 22, 2017, the Court denied the
Richards' motion to remand, and the parties stipulated to
the voluntary dismissal of the plaintiffs' claims for
breach of fiduciary duties and negligence. Following
discovery, the Richards moved for partial summary judgment on
their breach of contract claim (Dkt. No. 31). The motion is
now fully briefed and ripe for disposition.
STANDARD OF REVIEW
judgment is appropriate only “if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of
law.” Fed.R.Civ.P. 56(c). When ruling on a motion for
summary judgment, the Court reviews all the evidence
“in the light most favorable” to the nonmoving
party. Providence Square Assocs., L.L.C. v. G.D.F.,
Inc., 211 F.3d 846, 850 (4th Cir. 2000). The Court must
avoid weighing the evidence or determining its truth and
limit its inquiry solely to a determination of whether
genuine issues of triable fact exist. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986).
moving party bears the initial burden of informing the Court
of the basis for the motion and of establishing the
nonexistence of genuine issues of fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Once the moving party
has made the necessary showing, the non-moving party
“must set forth specific facts showing that there is a
genuine issue for trial.” Anderson, 477 U.S.
at 256 (internal quotation marks and citation omitted). The
“mere existence of a scintilla of evidence”
favoring the non-moving party will not prevent the entry of
summary judgment; the evidence must be such that a rational
trier of fact could reasonably find for the nonmoving party.
Id. at 248-52.
federal court exercising diversity jurisdiction is obliged to
apply the substantive law of the state in which it
sits.” Volvo Const. Equip. N. Am. v. CLM Equip.
Co., Inc., 386 F.3d 581, 599-600 (4th Cir. 2004) (citing
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79 (1938)).
In West Virginia, “[a] claim for breach of contract
requires proof of the formation of a contract, a breach of
the terms of that contract, and resulting damages.”
Sneberger v. Morrison, 776 S.E.2d 156, 171 ( W.Va.
2015) (citing Syl. Pt. 1, State ex rel. Thornhill Grp.,
Inc. v. King, 759 S.E.2d 795 ( W.Va. 2014)).
order to prevail on their motion for summary judgment, the
Richards must establish the following four elements:
“[T]he existence of a valid, enforceable contract; that
[they] ha[ve] performed under the contract; that [EQT] has
breached or violated its duties or obligations under the
contract; and that [the Richards] ha[ve] been injured as a
result.” See Exec. Risk Indem., Inc. v. Charleston
Area Med. Ctr., Inc., 681 ...