J-A13020-15


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

SANDRA L. FISHER, JEANNE E. BELL,                   IN THE SUPERIOR COURT OF
NANCY L. JORDAN, MARTHA J. KEENEY                         PENNSYLVANIA
AND JOHN R. CUNNINGHAM,

                           Appellees

                      v.

DONOVAN L. POWELL, D/B/A POWELL
SERVICES, L.P.,

                           Appellant                      No. 1689 WDA 2014


                Appeal from the Order September 19, 2014
              In the Court of Common Pleas of Greene County
                 Civil Division at No(s): A.D. No. 889, 2012


BEFORE: PANELLA, SHOGAN, and OTT, JJ.

MEMORANDUM BY SHOGAN, J.:                                  FILED JULY 07, 2015

      Donovan    L.    Powell,   doing   business    as    Powell   Services,   L.P.

(“Appellant”), appeals from the order entered on September 19, 2014, that

declared an oil and gas lease null and void and entered judgment in favor of

Sandra L. Fisher, Jeanne E. Bell, Nancy L. Jordan, Martha J. Keeney, and

John R. Cunningham (collectively “Appellees”) in this action to quiet title.

We affirm.

      The trial court set forth the relevant background of this case as

follows:

            On May 5, 2014, sitting without a jury, we heard the
      complaint of [Appellees] asking that we quiet title to a tract of oil
      and gas lands they own in Whiteley Township. Specifically, they
      ask that we declare a certain oil and gas lease dated October 30,
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     2006, and of record in Record Book 404 page 968 in the Office of
     the Recorder of Deeds of Greene County, to be “deemed
     abandoned and relinquished”. Complaint[, 8/28/12, at 6
     (unnumbered)].

           In 1967, Mary Louise Cunningham, widow, formerly known
     as Mary Louise John, conveyed to Harold F. VanDruff and
     Gertrude VanDruff 295.179 acres of land in Whiteley Township,
     reserving to herself the oil and gas. Complaint Ex. A.
     [Appellees] are the heirs of Mary Louise Cunningham. See Deed
     of Distribution dated March 15, 2006, Record Book 344 page
     312. In 2006, [Appellant] approached [Appellees] about a
     possible lease of their oil and gas. There were some discussions
     and then [Appellees] signed the “Oil and Gas Lease” dated
     October 30, 2006. For our purposes, the relevant language is as
     follows:

          2. This lease shall continue in force and the rights
          granted hereunder be quietly enjoyed by the Lessee
          for a period of Three (3) year(s) and so much
          longer thereafter as oil or gas or their constituents
          are produced or are capable of being produced on
          the premises in paying quantities, in the judgment of
          the Lessee, or as the premises shall be operated by
          Lessee in the search for oil and gas and as provided
          in Paragraph Seven (7) following. After Three (3)
          years an Annual Delay Rental of Fifteen ($15.00)
          Dollars per acre per year shall be paid to Lessor,
          which payment shall be made on the anniversary
          date of the lease.

          3. This lease, however, shall become null and void
          and all rights of either party hereunder shall cease
          and terminate unless, within twelve (12) months
          from the date hereof, a well shall be commenced or
          placed into production on the premises. A well shall
          be deemed commenced when preparations for
          drilling have been commenced. A well shall be
          deemed placed into production at such time as a well
          is producing gas in marketable [quantities]. A second
          well must be commenced or placed into production in
          the second twelve (12) months of the Lease on the
          same terms and conditions stated herein above.


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                                   ***
          8. In the event a well drilled hereunder is a
          producing well and the Lessee is unable to market to
          production therefrom, or should production cease
          from a well drilled on the premises, or should the
          Lessee desire to shut in producing wells, the Lessee
          agrees to pay the Lessor, commencing on the date
          one year from the completion of such producing well
          or the cessation of production, or the shutting in of
          producing wells, an advance royalty in the amount
          and under the terms herein above provided for delay
          rental until production is marketed and sold off the
          premises or such well is plugged and abandoned
          according to law.

           According to the “Addendum to the Lease”, [Appellees]
     were to receive $20,000.00 at signing, $10,040.00 on the first
     anniversary and $10,040.00 on the second anniversary. This
     money was paid. The Addendum provided for royalties of 20%,
     but no royalties have been paid. In 2010, [Appellant] tendered
     delay rental to [Appellees] which was not accepted.

           [Appellant] has been in the oil and gas business since
     1986, mostly for Equitable, but recently on his own. In 2002, he
     heard from Greg Barbe, at that time, a Consolidation Coal
     Company (Consol) landman, that the company owned a well on
     the VanDruff farm known as the R.F. John Well 462 and that it
     might be interested in selling. After securing permission from
     VanDruff, [Appellant] inspected the well and believed it to be
     capable of producing gas in marketable quantities. He hired
     Greene County Gas and Oil, Inc., to bail the well and found it
     could produce six to eight mcf per day, but after another bailing
     session in 2003, production increased to about 14 mcf per day.
     He therefore offered to buy and Consol agreed to sell Well 462.
     The date of the assignment was November 30, 2006, one month
     after the date of the lease. At the moment of the Consol
     assignment, [Appellant] was, by his lights [sic], in compliance
     with the first part of Paragraph Three of the lease. He had a
     producing well on the land encumbered by the lease. By 2012,
     says [Appellant], the well was producing approximately 50 mcf
     per day, although no gas was going to market.

          There was also on the VanDruff farm a methane drainage
     borehole apparently drilled by Consol. On June 6, 2008,

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      [Appellant] accepted an assignment of this borehole from the
      VanDruffs. Ex. 120. [Appellant] says he examined the gas
      issuing from the borehole and estimated its production to be 70
      mcf (Powell Affidavit, October 3, 2013). He never measured the
      flow but relied on his experience with similar wells. He captured
      a sample on June 1, 2006, and had it analyzed by Gas
      Analytical, Inc. It proved to be a little high in nitrogen and
      oxygen, but if blended with the output of Well 462 would be of
      pipeline quality, in [Appellant’s] opinion. [Appellant] believed he
      had his second well. It is interesting to note that [Appellant]
      testified that even though he has owned as many as seven gas
      wells, he has never drilled any. His business seems to be
      reconditioning old wells.

            For years after the execution of the lease, and probably
      even before, [Appellant] worked diligently to market the gas.
      The problem of course is transportation. He attempted to
      reestablish a connection with Equitable Line 311, which had at
      one time carried the output of Well 462, but was refused
      because of the poor condition of the line. He inquired of
      Columbia and Dominion, but their pipelines were some distance
      away and intervening surface owners denied him permission to
      cross. Each one of these attempts involved negotiations with
      various individuals and companies. He even explored the
      possibility of moving the gas by truck. Ex. 21.

            Meanwhile, [Appellees] were waiting for their royalties. On
      February 4, 2009, Attorney Theron G. Noble, on behalf of
      [Appellees], wrote to [Appellant] and advised him that the lease
      was null and void for failure to produce and failure to complete
      two wells. On November 19, 2009, one of the lessors (the letter
      is unsigned), wrote to [Appellant] to point out there was no
      production of oil and gas and no activity to drill a second and
      therefore the lease was null and void. A second letter was sent
      on October 20, 2010, demanding evidence that there were two
      producing wells on the property. Finally, this action was
      commenced on August 28, 2012.

Trial Court Opinion, 8/5/14, at 1-5 (emphasis in original) (footnote omitted).

      As noted, Appellees filed the underlying action to quiet title on August

28, 2012.     In response, Appellant filed preliminary objections, and on


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September 21, 2012, Appellees filed an amended complaint.          Appellant

subsequently filed his answer and new matter, and on November 16, 2012,

Appellees filed their reply to new matter.   On August 19, 2013, Appellees

filed a motion for summary judgment that the trial court denied in an order

filed on January 13, 2014. The case proceeded to a two-day nonjury trial

that commenced on May 5, 2014. On August 5, 2014, the trial court found

Appellant in default of his obligations under Paragraph Three of the lease by

failing to produce a second well within the second twelve months of the

term. Trial Court Opinion, 8/5/14, at 8. Therefore, the trial court concluded

that the lease was “null and void.” Order, 8/5/14. Post-trial motions were

filed and denied, and on September 19, 2014, judgment was entered in

favor of Appellees. This timely appeal followed.

     On appeal, Appellant raises the following issues for this Court’s

consideration:

     1. Did the Trial Court properly place the burden of proof on
     [Appellant]?

     2. Did the Trial Court properly consider a claim of default of the
     Oil and Gas Lease because Well #2 was not proven to be capable
     of producing gas in paying quantities?

     3. Did the Trial Court properly reject the un-contradicted
     testimony of [Appellant], which had been elicited on cross-
     examination?

     4. Did the Trial Court properly terminate the Oil and Gas Lease
     when there had been substantial part performance?

     5. Did the Trial Court properly refuse to enter a non-suit after
     [Appellees’] case in chief when [Appellees] had offered no

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      testimony showing a failure to have two wells capable of
      production, but instead had elicited the un-contradicted
      testimony of [Appellant] on cross examination that there were
      two wells capable of production?

      6. Did the Trial Court properly disregard the substantial, and
      uncontradicted evidence that there were two wells producing in
      paying quantities?

Appellant’s Brief at 3-4.

      The relevant standard of review of a trial court’s decision in a nonjury

trial is as follows:

      Our review in a non-jury case is limited to whether the findings
      of the trial court are supported by competent evidence and
      whether the trial court committed error in the application of law.
      We must grant the court’s findings of fact the same weight and
      effect as the verdict of a jury and, accordingly, may disturb the
      non-jury verdict only if the court’s findings are unsupported by
      competent evidence or the court committed legal error that
      affected the outcome of the trial. It is not the role of an
      appellate court to pass on the credibility of witnesses; hence we
      will not substitute our judgment for that of the factfinder. Thus,
      the test we apply is not whether we would have reached the
      same result on the evidence presented, but rather, after due
      consideration of the evidence which the trial court found
      credible, whether the trial court could have reasonably reached
      its conclusion.

Kennedy v. Consol Energy Inc., ___ A.3d ___, 2015 PA Super 93, *12

(Pa. Super. 2015) (citations and quotation marks omitted).       Moreover, a

lease is in the nature of a contract, and it is controlled by principles of

contract law. T.W. Phillips Gas and Oil Co. v. Jedlicka, 42 A.3d 261, 267

(Pa. 2012) (citation omitted). The lease must be construed in accordance

with the terms of the agreement as manifestly expressed, and “the accepted

and plain meaning of the language used, rather than the silent intentions of

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the contracting parties, determines the construction to be given the

agreement.” Id. (citations omitted). The party seeking to terminate a lease

bears the burden of proof. Id. It is well settled that “[w]hen performance

of a duty under a contract is due, any nonperformance is a breach.”

Widmer Engineering, Inc. v. Dufalla, 837 A.2d 459, 467 (Pa. Super.

2003) (citing Restatement (Second) of Contracts § 235(2) (1981)).           “If a

breach constitutes a material failure of performance, then the non-breaching

party is discharged from all liability under the contract.” Id. However, if the

breach is an immaterial failure of performance, and the contract was

substantially performed, the contract remains effective. Id.

       While Appellant has presented six issues, we agree with the trial court

that there is, in fact, one overarching issue in this matter, and it involves the

termination provisions of Paragraph Three in the lease. Trial Court Opinion,

8/5/14, at 8. The language in Paragraph Three is clear and unambiguous.

Paragraph Three expressly provides that the lease shall become null and

void unless two wells are commenced or placed into production.           “A well

shall be deemed placed into production at such time as a well is producing

gas in marketable quantities.”           Oil and Gas Lease, 10/30/06, at ¶ 3.

Appellant argues that he is not in breach of the terms of the lease.1

____________________________________________


1
 Appellant claims in his brief that Appellees failed to provide notice of their
belief that he was in breach pursuant to Paragraph Sixteen of the lease.
Appellant’s Brief at 22. However, this claim is refuted by the record,
(Footnote Continued Next Page)


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      The trial court addressed Appellant’s argument as follows:

             [Appellees] argue that Paragraph Three of the lease,
      requiring two wells within 24 months of the date of the lease,
      overrides Paragraph Two, which sets a primary term of three
      years, and in any event by now over seven years have elapsed,
      with no production. [Appellant] responds that the lease obliges
      him only to place in production two wells which he has done,
      according to the definitions in the lease. Paragraph Three
      provides: “A well shall be deemed placed into production at such
      times as a well is producing gas in marketable quantities.”
      Paragraph Two also provides that the secondary term of the
      lease shall continue so long as “oil or gas . . . are produced or
      are capable of being produced on the premises in paying
      quantities, in the judgment of the Lessee.” Paragraph Eight of
      the lease further provides: “In the event a well drilled hereunder
      is a producing well and the Lessee is unable to market
      production therefrom . . . the Lessee agrees to pay the Lessor...
      an advance royalty in the amount . . . provided for delay rental
      until production is marketed and sold off of the premises . . . [.]”

            [Appellant’s] position is that the lease obligates him to drill
      no wells at all but only to place wells into production. A well
      becomes productive when it produces gas in marketable
      quantities, which is a judgment to be made by the Lessee alone.
      Furthermore, the lease authorizes him to shut in the wells
      indefinitely so long as he tenders a delay rental. He argues he is
      able to do this because there were in fact two wells on the
      premises at the time the [Appellees] signed the lease and even
      long before.


                       _______________________
(Footnote Continued)

because, as noted above, Appellees, on February 4, 2009, through Attorney
Theron G. Noble, wrote to Appellant and advised him that the lease was null
and void due to his failure to produce and failure to complete two wells.
Subsequently, on November 19, 2009, Appellees wrote to Appellant and
placed him on notice of his breach. Another letter was sent on October 20,
2010, demanding evidence that there were two producing wells on the
property. Finally, this action was commenced on August 28, 2012.
Accordingly, Appellant had sufficient notice, and his claim to the contrary is
meritless.



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           We consider these arguments with certain guidelines. An
     oil and gas lease is a contract to be construed like any other
     contract. Willison v. Consolidation Coal Company, 637 A.2d 979
     (Pa. 1994). The judgment of the lessee is presumed to be in
     good faith[,] Colgan v. Forest Oil Company, 45 A. 119 (Pa.
     1899), at least until the operator shows clearly that he is not
     acting in good faith. Id.

           We pause here to review part of the procedural history of
     this case. The complaint was file[d] on August 28, 2012. An
     Answer and New Matter was filed on October 31, 2012.
     Discovery followed. On August 19, 2013, [Appellees] filed a
     Motion for Summary Judgment and a Brief in Support Thereof.
     On October 3, 2013, [Appellant] filed an “An Answer to Motion
     for Summary Judgment”, a Brief in Support Thereof, and the
     Affidavit of Donovan L. Powell. On January 13, 2014, we denied
     the Motion for Summary Judgment, because a key issue in these
     kinds of cases implicates the good faith of the lessee, and that
     concept is generally an improper one for disposition through
     summary judgment. Coy v. Ford Motor Credit Company, 618
     A.2d 1024 (Pa. Super. 1973).

            A comparison of [Appellant’s] Affidavit with his trial
     testimony opens a window on [Appellant’s] credibility and good
     faith. In his Affidavit he swore: “Currently, I have installed a two
     inch pipeline connecting the two existing wells to within twenty-
     five feet of the EQT Gathering, LLC., Pipeline 311.” The wells are
     approximately 2,500 feet apart. At trial, he testified that no such
     connection had been made and in fact displayed a picture of coils
     of plastic pipe which he said he intended to use for that purpose.
     This testimony was offered some seven months after his
     Affidavit. Falso in uno, Falsus in omnibus. If [Appellant] lied in
     his Affidavit, and it appears he did, what else is he lying about?
     The fact finder is free to reject even uncontradicted evidence,
     especially opinion evidence[,] Taliaferro v. Darby Township
     Zoning Hearing Board, 873 A.2d 807 (Pa. Cmwlth. 2005) and we
     specifically reject [Appellant’s] opinion that Well 2 is capable of
     producing gas in paying quantities. The evidence on this point
     rests entirely on his opinion, and we find it untrustworthy. As
     there is absolutely no corroborating testimony of the production
     of Well 2, and we are unable to accept [Appellant’s] word on the
     matter, we find he is [in] default of his obligations described in
     Paragraph 3 of the lease by failing to produce a second well
     within the second twelve months of the term.

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J-A13020-15



Trial Court Opinion, 8/5/14, at 5-8 (footnote omitted).

      In the argument portion of his brief, Appellant asks this Court to

ignore or reweigh the trial court’s credibility determinations. Appellant avers

that the determination as to whether there was production in marketable

quantities establishing the existence of two “wells” should have been based

upon his opinion alone, and because he testified as such, the trial court

erred. Appellant’s Brief at 23-24. However, as set forth above, the crucial

detail Appellant fails to address is the trial court’s conclusion that Appellant

was not credible in his testimony and lied in his affidavit.        Trial Court

Opinion, 8/5/14, at 8. As discussed earlier, it is not the role of an appellate

court to determine the credibility of a witness. Kennedy, ___ A.3d at ___,

2015 PA Super 93 at *12. Accordingly, we will not substitute our judgment

for that of the factfinder. Id. “Thus, the test we apply is not whether we

would have reached the same result on the evidence presented, but rather,

after due consideration of the evidence which the trial court found credible,

whether the trial court could have reasonably reached its conclusion.” Id.

      After review, we agree with the trial court as we have no basis upon

which to conclude that the trial court erred or abused its discretion in

assessing Appellant’s credibility. Appellant’s credibility, or lack thereof, was

fatal to his defense of Appellees’ claim that he breached the terms of the

lease. The lease required two wells producing in marketable quantities. Oil

and Gas Lease, 10/30/06, at ¶ 3. Appellees filed the underlying quiet title

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action because there was only one well on the property as the borehole was

not a well, and even if the borehole were deemed a well, it was not

producing in marketable quantities.          The trial court, concluding that

Appellant was not credible, also found that Appellant was not acting in good

faith, and thus, he breached the terms of the lease. Colgan v. Forest Oil

Company, 45 A. 119, 121 (Pa. 1899).

      Pursuant to our standard of review, we conclude the trial court’s

decision and its findings are aptly supported by the record.        Therefore,

because we agree with the trial court’s determination that Appellant

breached the terms of the lease, we discern no error in the trial court’s order

that declared the lease null and void and entered judgment in favor of

Appellees. Accordingly, we affirm the order.

      Order affirmed.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 7/7/2015




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