Alleged Breach of Oil and Gas Leases

Frank Kosir, Jr.
fk@muslaw.com

Cardinale, et al v. R.E. Gas Development, LLC, et al; 2013 PA Super 146, 2013 Pa. Super. LEXIS 1149 (2013)

This matter addressed the issue of whether property owners alleging a breach of oil and gas leases had pled a Complaint sufficient to survive demurrer.  Lucinda A. Cardinale and Iola Hugney, on their own behalf and on behalf of all those similarly situated (“Lessors"), filed a three count class action complaint against R.E. Gas Development, LLC (“R.E. Gas”) and Rex Energy Corporation (“Rex Energy”) (“Lessees”). The Complaint set forth causes of action in breach of contract, tortious interference with contract and civil conspiracy alleging that, in 2008, R.E. Gas, a subsidiary of Rex Energy, entered into Marcellus Shale gas leases with the Lessors by which it agreed to, inter alia, pay an up-front bonus of $2,500.00 per acre which it has since failed to pay.  In response, Lessees filed Preliminary Objections in the nature of a demurrer asserting that, since the individual leases each included an “Order of Payment” stating that all payments under the leases were “subject to (lessee’s) inspection, approval of the surface, geology and title,” the parties had not entered into a binding contract and no bonus payments were due.  The trial court sustained the Preliminary Objections, and dismissed the Complaint with prejudice.

On appeal, our Superior Court reversed.  In issuing its ruling, the court noted that, in reviewing the dismissal of a matter on demurrer, its standard of review requires a review of the record in a light most favorable to the appellant Lessors.  As such, the court examined all of the documents that comprised the alleged lease and found that the documents identified the parties, described the lands included, set forth an effective date, stated the specific uses that the Lessees could make of the lands, and provided for the unconditional payment of the per-acre bonus.  Furthermore, a review of the Order of Payment found language supporting a conclusion that the parties intended for the document to be construed separate from the lease itself.  Therefore, the record contained sufficient evidence of the existence of a contract between the parties so as to survive a demurrer, and the trial court had erred in dismissing the Lessors’ Complaint on Preliminary Objections.