§ 16:81.Declaratory judgment—Lease expiration; bad-faith..., 1 West's Pa. Forms,...

1 West's Pa. Forms, Civil Procedure § 16:81

West's® Pennsylvania Forms | August 2017 Update

Civil Procedure
Charles B. Gibbons a0 , David Kraut a1 , John P. Edgar a2 , Douglas Frenkel a3 , Pocket Part By Charles B. Gibbons

Part IV. Complaints

Chapter 16. Real Estate and Real Estate Transactions
H. Marcellus Shale Actions

§ 16:81. Declaratory judgment—Lease expiration; bad-faith pooling

[Name of court]

[Name of county]

[Name of plaintiff]
v. Case No. [case number]
[Name of defendant]

COMPLAINT FOR DECLARATORY RELIEF

PURSUANT TO 42 Pa. C. S. A. § 7531, ET SEQ. AND
FOR COMPENSATORY AND PUNITIVE DAMAGES

PARTIES

1. Plaintiffs [name of plaintiff 1] and [name of plaintiff 2], husband and wife, reside at [address of plaintiff],
[name of city], Pennsylvania.

2. Upon information and belief, Defendant [name of defendant] (hereinafter “[name of defendant]”) is a
[name of state] limited-liability company, having an address of [address of defendant], [name of city],
[name of state].

3. Upon information and belief, Defendant [name of defendant] is engaged in the business of exploration,
development and production of oil and natural gas reserves from fields throughout the United States,
including the Marcellus Shale fields of the northeastern United States.

FACTS

4. On or about [date of lease], Plaintiffs executed a form “Oil and Gas Lease” with [name of third party]. A
copy of said “Oil and Gas Lease” is attached hereto as Exhibit [designation of exhibit].

5. Upon information and belief, Defendant [name of defendant] is a successor to [name of third party]'s
operating interests under the “Oil and Gas Lease” entered into by Plaintiffs and [name of third party].

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6. Upon information and belief, [name of third party], or an intermediate successor to [name of third
party]'s leasehold interests, assigned its interest in Plaintiffs' “Oil and Gas Lease” to Defendant [name
of defendant].

7. The “Oil and Gas Lease” set forth as Exhibit [designation of exhibit] is for oil, gas and constituents,
together with related rights, underlying real property owned by Plaintiffs in the [name of county], [name
of town] said real property being identified as tax map numbers [identification of numbers] consisting
respectively of [number of acres] acres.

8. By its terms, the “Oil and Gas Lease” set forth as Exhibit [designation of exhibit] granted the Lessee
thereunder oil and gas exploration and production rights, including exclusive rights for testing, drilling,
installing roads, pipelines, storage and appurtenant facilities necessary to oil and gas exploration,
production and transportation from the leasehold lands and from adjoining lands or neighboring lands.

9. The “Oil and Gas Lease” set forth as Exhibit [designation of exhibit] provided for a primary term of
10 years, commencing on [start date of lease], to be secured by the payment of “Delay Rental” in the
amount of $[dollar amount of payment] per mineral acre per year payable quarterly from [start date of
lease] until the commencement of royalty payments and credited upon royalties thereafter.

10. The “Oil and Gas Lease” set forth as Exhibit [designation of exhibit] further provided that the primary
term of 10 years would be extended for as long thereafter as “operations” were conducted on the leasehold
in search or production of oil, gas or their constituents, or a well capable of production was located on
the leasehold, or the leasehold was used for storage of gas or the production of stored gas, or other Lease
provisions for extension were met.

11. No drilling, exploration, production, transportation or storage operation sufficient to extend the Lease
has been conducted on the Plaintiffs' leasehold by the Lessee or any successor including Defendant [name
of defendant] during the primary term of the lease or thereafter.

12. The “Oil and Gas Lease” set forth in Exhibit [designation of exhibit] also provided that the leasehold
or portions thereof could be “unitized” with other lands pursuant to contract right or government
authorization.

13. The Commonwealth of Pennsylvania has adopted no statutory or regulatory unitization scheme or
process pertinent to drilling in the Marcellus Shale to date.

14. The “Unitization” provision of the Plaintiffs' “Oil and Gas Lease” permitted the Lessee to unitize all
or parts of the leasehold with other lands, contiguous or noncontiguous, so as to create “drilling or
production units” from which the Lessor would receive a proportional share of royalties.

15. Pursuant to the “Unitization” clause of the Lease, “drilling, operations in preparation for drilling,
production, or shut-in production from the Unit, or payment of Royalty or Delay Rental” were to have
“the same effect on the terms of this lease as if the well were located on the Leasehold.”

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16. Upon information and belief, on [date of filing], at [time of filing] [a.m./p.m.], Defendant Oil & Gas
filed for recording with the [name of county] Recorder of Deeds a purported unitization declaration,
designated “Declaration of Pooling Red Unit.” A copy of a memorandum of the “Declaration of Pooling
Red Unit” is attached hereto as Exhibit [designation of exhibit].

17. Said “Declaration of Pooling Red Unit” purported to include Plaintiffs' leasehold in a unit known as
the “Red Unit.”

18. Upon information and belief, as against Plaintiffs, said “Declaration of Pooling Red Unit” was filed in
bad faith, on the very eve of expiration of the 10-year term of Plaintiffs' “Oil and Gas Lease” and with no
drilling, “operations” or other conduct sufficient to extend the Lease then having been performed either
on the leasehold lands or in the designated Unit.

19. Upon information and belief, at the time when said “Declaration of Pooling Red Unit” was executed
and recorded, Defendant [name of defendant] was aware, or should have been aware, that the Plaintiffs'
“Gas and Oil Lease” was about to expire, with no drilling, “operations” or other conduct sufficient to
extend the Lease having been conducted on the leasehold lands or in the designated Unit.

20. Upon information and belief, the Plaintiffs' leasehold cannot in good faith be deemed a part of the
“Red Unit” where, within the primary term of Plaintiffs' “Oil and Gas Lease,” Defendant conducted
no drilling, “operations” or other conduct sufficient to extend the Lease on the leasehold land or in the
designated Unit.

21. Upon information and belief, extension of Plaintiffs' “Oil and Gas Lease” based on Defendant's bad-
faith recording of the “Declaration of Pooling Red Unit” is contrary to the law and public policy of the
Commonwealth of Pennsylvania.

22. Defendant's conduct has clouded title to Plaintiffs' land and caused Plaintiffs to lose or jeopardize
opportunities to re-lease the land.

23. It is desirable and necessary that a judicial determination and declaration of the rights and other legal
relationships of the parties under the terms of the Plaintiffs' “Oil and Gas Lease,” Exhibit [designation
of exhibit], be had prior to either party's acting upon its understanding of the continuing validity of
the Lease, so as to prevent substantial injury to either party's rights and interests in the premises, the
leasehold, and the subsurface estate.

24. Plaintiff asks the court to enter a Judgment declaring that Lease is void, of no effect, and unenforceable
under the law of the Commonwealth of Pennsylvania.

25. Plaintiff further asks the court to award compensatory and punitive damages for breach of the covenant
of good faith and fair dealing, and for bad-faith slander of title under the law of the Commonwealth of
Pennsylvania.

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Declaratory Judgment Action Pursuant to 42 Pa. C. S. A. §§ 7531, et seq. The plaintiffs' “Oil and Gas Lease,”
Exhibit [designation of exhibit], is no longer in effect, as the primary term has expired and no operations
sufficient to extend the Lease have been conducted by the Lessee or its successor on the leasehold lands or
on premises properly unitized under the terms of the Lease.

26. Paragraphs 1. through 25 of the Plaintiff's Complaint are incorporated herein by reference as though
fully set forth.

27. This action is brought pursuant to the Pennsylvania Declaratory Judgment Act, 42 Pa. C. S. A. §§ 7531,
et seq.

28. The “Oil and Gas Lease” attached as Exhibit [designation of exhibit] states in pertinent part:

Leasing Clause. Lessor hereby leases exclusively to Lessee all the oil and gas and their constituents, whether
hydrocarbon or nonhydrocarbon, underlying the land herein leased, together with such exclusive rights as
may be necessary or convenient for Lessee, at its election, to explore for, develop, produce, measure, and
market production from the Leasehold, and from adjoining lands, using methods and techniques which
are not restricted to current technology, including the right to conduct geophysical and other exploratory
tests; to drill, maintain, operate, cease to operate, plug, abandon, and remove wells; to use or install roads,
electric power and telephone facilities, and to construct pipelines with appurtenant facilities, including data
acquisition, compression and collection facilities for use in the production and transportation of products
from the Leasehold and from neighboring lands across the Leasehold, and such rights shall survive the term
of this agreement for so long thereafter as operations are continued; to use oil, gas, and nondomestic water
sources, free of cost, to store gas of any kind underground, regardless of the source thereof, including the
injecting of gas therein and removing the same therefrom; to protect stored gas; to operate, maintain, repair,
and remove material and equipment.

29. The “Oil and Gas Lease” attached as Exhibit [designation of exhibit] further states in pertinent part:

Lease Term. This lease shall remain in force for a primary term of 10 years from [start date of lease], and
for as long thereafter as prescribed payments are made, or for as long thereafter as operations are conducted
on the Leasehold in search of or production of oil, gas, or their constituents, or for as long as a well capable
of production is located in the Lease hold, or for as long as extended by provision herein, or for as long as
the Leasehold is used for the underground storage of gas, or for the production of stored gas.

30. The “Oil and Gas Lease” attached as Exhibit [designation of exhibit] further provides in pertinent part:

Payments to Lessor. Lessee covenants to pay Lessor, proportionate to Lessor's percentage of ownership,
as follows:

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(A) Delay Rental: To pay Lessor as Delay Rental, after the first year, at the rate of [text dollar amount of
payment] per net mineral acre per year payable quarterly in advance, beginning on [start date of lease], and
continuing thereafter until the commencement of Royalty payments.

31. The “Oil and Gas Lease” attached as Exhibit [designation of exhibit] further provides in pertinent part:

Unitization. Lessor grants Lessee the right to pool, unitize, or combine all or parts of the Leasehold with
other lands, whether contiguous or not contiguous, lease or unleased, whether owned by Lessee or by others,
at a time before or after drilling to create drilling or production units either by contract right or pursuant
to governmental authorization. Lessee is granted the right to change the size, shape, and conditions of
operation or payment of any unit created. Lessor agrees to accept and receive out of the production or
the revenue realized from the production of such unit, such proportional share of the Royalty from each
unit well as the number of Leasehold acres included in the unit bears to the total number of acres in the
unit. Otherwise, except for Free Gas, the drilling, operations in preparation for drilling, production from,
or payment for Royalty, Shut-in Royalty, or Delay in Marketing for a well on such a unit shall have the
same effect upon the terms of this Lease as if a well were located on the Leasehold. If the total unitized
Leasehold acreage is less than 50% of the total Leasehold acreage, Delay Rental will continue to be paid
on the nonunitized acreage.

32. The plain language and clear import of the “Lease Term” clause sets a primary term of 10 years, which
may be extended as long as the Lessee conducts “operations” on the Leasehold in search of, production
of, construction of a well capable of production of, storage of, or protection of oil or gas products, or
otherwise extends the Lease.

33. The plain language and clear import of the “Unitization” clause permit the Lessee to unitize leaseholds
to create “drilling or production units” to produce oil or gas products, for which the Lessor will receive
a proportional share of royalties.

34. The plain language and clear import of the “Unitization” clause permit, upon such unitization, extension
of the primary term of the Lease where the Lessee has engaged in “drilling, operations in preparation for
drilling, production from, or payment for Royalty … for a well” on lands within the unit.

35. The plain language and clear import of the several clauses of the “Oil and Gas Lease,” Exhibit
[designation of exhibit], set forth above, do not permit the Lessee to extend the primary term of the Lease
simply by executing and filing a unitization designation on the eve of expiration of the primary term of
the lease.

36. Under Pennsylvania law, payment or proffer of “delay rental” alone does not constitute conduct
sufficient to extend the primary term of plaintiffs' “Oil and Gas Lease.”

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37. Under Pennsylvania law the right of unitization under an “Oil and Gas Lease” includes an implied duty
of good faith, based, inter alia, on the timing of the recording of the “Declaration of Pooling Red Unit.”

38. In the circumstances of the instant Lease, the eve-of-expiration attempt of Defendant. to create a
purported unit including plaintiffs' leasehold lands, and/or to preserve the Plaintiffs' Lease on the eve
of expiration simply by filing the “Declaration of Pooling Red Unit” against it, without engaging in
“drilling” or “operations in preparation for drilling” cannot be deemed in good faith, and must be deemed
fraudulent, void and unenforceable as against Plaintiffs.

WHEREFORE, Plaintiffs respectfully requests, pursuant to 42 Pa. C. S. A. § 7531, et seq., that this
honorable court declare that the “Oil and Gas Lease” set forth as Exhibit [designation of exhibit] has
expired and is of no effect, and that the “Declaration of Pooling Red Unit” set forth as Exhibit [designation
of exhibit] is unenforceable as against Plaintiffs under the terms of Plaintiffs' Lease and the laws of the
Commonwealth of Pennsylvania; and upon such Declaration grant Plaintiffs costs and such other relief as
the court deems just.

COUNT II.
Slander of Title
Under Pennsylvania Law

39. Paragraphs 1. through 38 of the Plaintiffs' Complaint are incorporated herein by reference as though fully
set forth.

40. Upon information and belief, in recording the “Declaration of Pooling Red Unit” on [date of record],
Defendant [name of defendant] was aware that the primary term of Plaintiffs' “Oil and Gas Lease” of
[date of lease] was about to expire without Defendant having conducted sufficient “operations” on the
leasehold land or the unitized lands to extend the term of the Lease.

41. Upon information and belief, Defendant recorded the “Declaration of Pooling Red Unit” despite its
knowledge and awareness that the primary term of the Plaintiffs' Lease was about to expire and that no
“operations” sufficient to extend the term had been conducted.

42. Defendant recorded the lease to fraudulently, intentionally, willfully, and deliberately cloud Plaintiffs'
title to their property, and to fraudulently, intentionally, willfully, and deliberately deprive plaintiffs of
the full use and enjoyment thereof.

43. Alternatively, Defendant recorded the lease negligently, in disregard of the foreseeable consequence of
injury to Plaintiff and Plaintiff's property.

44. As a result of Defendant's fraudulent, intentional or negligent conduct, Plaintiffs have incurred or will
incur substantial costs to have the “Declaration of Pooling Red Unit” canceled and discharged from
record as against Plaintiffs' leasehold lands.

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45. As a result of Defendant's fraudulent, intentional or negligent conduct, Plaintiffs' title to the leasehold
lands has been clouded, and Plaintiff has lost or jeopardized opportunity to re-lease the land.

WHEREFORE, Plaintiffs demand judgment against Defendant [name of defendant] in an amount to be

proven at trial, together with interest and all further costs incurred by Plaintiff in order to cancel and
discharge the Lease from the record. In addition, Plaintiffs seek punitive damages against Defendant for
bad-faith conduct in the recording of the “Declaration of Pooling Red Unit”

COUNT III.
Breach of Contract

46. Paragraphs 1. through 46 of the Plaintiffs' Complaint are incorporated herein by reference as though fully
set forth.

47. Under Pennsylvania law, every contract imposes upon each party a duty of good faith and fair dealing
in its performance and its enforcement.

48. Under Pennsylvania law, bad-faith performance includes such practices as evasion of the spirit of the
bargain, lack of diligence, willful rendering of imperfect performance, and abuse of a power to specify
terms.

49. Upon information and belief, Defendant's recording of the “Declaration of Pooling Red Unit” on the
eve of expiration of Plaintiffs' “Oil and Gas Lease,” without conducting or commencing “operations”
sufficient to extend the terms of the Lease, violated the covenant of good faith and fair dealing implicit
in the lease, inter alia, in evading the spirit of the bargain, lack of diligence and willfully imperfect
performance, and abuse of the terms of the Lease.

50. Under Pennsylvania law, a contract also imports, by the “doctrine of necessary implication,” an
agreement by the parties to do and perform those things that according to reason and justice they should
do in order to carry out the purpose for which the contract was made and to refrain from doing anything
that would destroy or injure the other party's right to receive the fruits of the contract.

51. Upon information and belief, Defendant's recording of the “Declaration and Notice of Pooled Unit, Red
Unit,” on the eve of expiration of the primary term of Plaintiffs' “Oil and Gas Lease,” without conducting
or commencing “operations” sufficient to extend the Lease terms, violated the dictates of reason and
justice in the execution and performance of the contractual power of unitization.

52. Defendant's recording of the “Declaration and Notice of Pooled Unit, Red Unit” purporting to include
a portion of Plaintiffs' leasehold, despite the lack of “operations” sufficient to extend the Lease, is in bad
faith, in clear and willful violation of the parties' contract, the covenant of good faith and fair dealing,
and the doctrine of implied necessity.

53. As a matter of public policy, should Defendant be permitted to extend the primary term of Plaintiffs' “Oil
and Gas Lease” by the simple expedient of filing a unit “Declaration” without taking good-faith steps to

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commence “operations” on the unitized lands, the rights of lessors and the integrity of their leaseholds
will be diminished.

54. As a result of Defendant's bad faith and willful conduct, Plaintiff will lose or jeopardize an offer to re-
lease his leasehold land to another operator.

55. By reason of the foregoing, Plaintiffs demand judgment against Defendant Oil & Gas in an amount to
be proven at trial, together with interest and all further costs incurred by Plaintiffs in order to cancel and
discharge the “Oil and Gas Lease” from the record.

56. In addition, Plaintiffs seek appropriate punitive damages against Defendant for bad faith and willful
conduct.

WHEREFORE, Plaintiffs demand judgment against defendant as follows:

1. Declaration that the “Oil and Gas Lease” dated [date of lease] has expired, and is void and of no effect
and that the “Declaration of Pooling Red Unit” is unenforceable as against Plaintiffs.

2. Compensatory damages for slander of title and breach of the duty of good faith and fair dealing in an
amount to be proven at trial, together with interest, costs and fees incurred in the recovery of good title
to the leasehold lands.

3. Punitive damages in an appropriate amount for bad faith in the recording of the Lease.

4. Compensatory damages for breach of covenant of good faith and fair dealing in favor of plaintiffs in the
amount of $[dollar amount of damages], together with interest, costs and fees.
Respectfully submitted,
_____________
[Name of attorney for plaintiffs]
Attorney for Plaintiffs

Notes

Commentary

A breach of the covenant of good faith and fair dealing is a breach of contract action, not an independent
action for breach of a duty of good faith. LSI Title Agency, Inc. v. Evaluation Services, Inc., 2008 PA
Super 126, 951 A.2d 384 (2008). The implied covenant of good faith and fair dealing attaches to existing
contractual obligations; it does not add new contractual duties. Hanaway v. Parkesburg Group, LP, 2015
PA Super 263, 132 A.3d 461 (2015), appeal granted in part, 138 A.3d 608 (Pa. 2016). In essence, the duty to
act in good faith and deal fairly infuses the parties' performance of their express contractual obligations. In
determining whether there has been a breach of contract, the court evaluates the conduct of a party through
the lens of good faith and fair dealing. Hanaway v. Parkesburg Group, LP, 2015 PA Super 263, 132 A.3d
461 (2015), appeal granted in part, 138 A.3d 608 (Pa. 2016).

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With slight variances depending upon context, good faith is understood to mean “faithfulness to an agreed
common purpose and consistency with the justified expectations of the other party; it excludes a variety
of types of conduct characterized as involving ‘bad faith’ because they violate community standards of
decency, fairness or reasonableness.” Restatement (Second of Contracts § 205, Comment a. In Cable &
Associates Ins. Agency, Inc. v. Commercial Nat. Bank of Pennsylvania, 2005 PA Super 186, 875 A.2d 361,
364 (2005) (quoting Gorski v. Smith, 2002 PA Super 334, 812 A.2d 683,710 (2002), the court defined the
duty of good faith as ‘[h]onesty in fact in the conduct or transaction concerned.”

Delaware case law, frequently consulted by Pennsylvania tribunals in business cases, has defined “fair
dealing” as a commitment to deal fairly in the sense of consistently with the terms of the parties' agreement
and its purpose. Likewise, “good faith” does not envision loyalty to the contractual counterparty, but rather
faithfulness to the scope, purpose and terms of the parties' contract. Gerber v. Enterprise Products Holdings,
LLC, 67 A.3d 400 (Del. 2013).

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Footnotes
a0 Member Of The Pennsylvania Bar
a1 Member Of The Pennsylvania Bar
a2 Member Of The Pennsylvania Bar
a3 Member Of The Pennsylvania Bar; Practice Professor Of Law, University Of
Pennsylvania Law School; General Editor And Contributing Author.

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Works.

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