Legal tip: Signatures on contracts are not necessary.
At least that was the argument made by a potential class of landowners who reached a settlement last week with an energy company that they alleged reneged on a deal to lease their properties for Marcellus Shale drilling.
A group of 230 people who executed approximately 137 oil and gas leases with Rex Energy covering about 7,200 acres in Westmoreland County, Pa., sued the company when they did not receive the pre-paid rental bonus payments set forth in the leases. They argued the leases they signed with Rex were valid even though Rex never signed them. Rex argued the leases were unenforceable until approved and executed by the company.
In Snyder v. Rex Energy I , a Westmoreland County judge ruled in favor of the landowners on the issue at the early preliminary objection stage. Settlement talks later ensued when the plaintiffs sought class certification and Judge Gary Caruso ended up certifying the class solely for the purpose of the settlement in which Rex has agreed to five-year leases, including bonus payments and royalties to the landowners.
The bonus payments consist of $2,500 per acre and then a 15 percent royalty fee. There has also been a $2.5 million cash fund set up, which will include $625,000 to pay out additional payments to class members depending on their individual situations. The remaining nearly $1.84 million will be used to pay attorney fees and costs, according to the settlement agreement.
The attorney fees will be divided among co-lead counsel David A. Borkovic of Jones Gregg Creehan & Gerace and Richard A. Finberg and additional counsel James S. Lederach. Aside from the $1.84 million, Caruso approved nearly $24,000 in expenses to be paid to the class out of the cash settlement fund and an additional $3,000 out of the fund be paid to each of the five lead plaintiffs for a total of $15,000. The settlement agreement estimated the total value of the settlement to be $14 million.
Rex said in a statement following the settlement that it has already seen 15 percent of the leases contemplated in the initial settlement agreement be excluded because of defects in the land titles or the landowners leasing with other companies.
The company said it has extended 114 lease offers to landowners who have not already leased with other parties. To date, the lease offers cover approximately 5,000 acres and, if accepted, provide for a maximum value of approximately $12.5 million in lease bonus payments, the company said.
According to the settlement agreement, plaintiffs Clyde J. Snyder, Janelle Snyder, William L. Snyder II, Ray E. White and Sandra K. White filed the proposed class action in Westmoreland County Common Pleas Court July 2009 against Rex Energy and its parent company, Rex Energy Corp.
The class was certified for purposes of the settlement to include all people who signed an oil and gas lease with Rex in 2008 related to property in the county for which Duncan Land & Energy served as land agent for Rex and for which the pre-paid rental or bonus payments were not paid.
In 2008, Rex hired Duncan to obtain leases principally for Marcellus Shale gas in the county. Several landowners executed the leases and returned them to Duncan. Although Rex accepted a number of the 2008 leases obtained by Duncan, it contended the leases were offers that it had a right to review and reject. Rex attempted to reject 137 of those leases and refused to pay the pre-paid rental or bonus payments set forth in the leases, according to the settlement agreement.
Rex filed preliminary objections, arguing, in part, that no contract existed because the company never signed the lease. The court overruled those objections Feb. 26, 2010, and the parties entered discovery. In January 2011, the plaintiffs filed a motion for class certification that was “vigorously opposed.” Settlement discussions ensued, according to the agreement.
Rex said in the agreement that it always acted properly and lawfully, that the claims are without merit and that it does not view the case as appropriate for class certification.
“Defendants state that they are entering into the settlement agreement solely to avoid the costs, expenses, burdens, distractions and uncertainties of further litigation,” the agreement explained.
Co-lead counsel Borkovic said there are a number of cases ongoing in the state that are similar to Snyder on the signature issue. He said there have been varying results on a few of the cases that have been resolved by a judge.
The Snyder plaintiffs argued in their brief in opposition to Rex’s preliminary objections that common sense and the law should dictate that a contract was entered when they signed leases prepared by Rex without making any changes to the lease. They argued this was an acceptance of the terms offered by Rex and a contract was therefore formed.
In his order overruling the preliminary objections, Caruso said these leases, unlike those in other cases, did not contain the express requirement that the company sign them.
“I agree with the plaintiffs’ contention that the Statute of Frauds, in this type of case, requires only the party making the lease or creating the estate, i.e., the lessor, to sign a lease,” Caruso said. “However, my research has failed to disclose a single case in Pennsylvania where the party seeking to enforce the agreement or lease was the lessor or the seller and had filed a cause of action against the lessee or buyer who never signed the writing.”
The judge suggested the parties research the issue further, but they instead reached a settlement, which Borkovic said was “a wonderful resolution that benefits everybody at this point in time.”
Plaintiffs additional counsel Lederach said the case came down to a “little known contractual concept that signatures aren’t required to bind people to a contract unless the contract itself expressly” requires them.
Lederach said oil and gas leases are very complicated instruments, but the law that underpins them is not.
“This represents nothing new,” Lederach said. “This is like pretty much ground, bedrock, fundamental real property law to my way of thinking.”
It is because these leases are reaching such high volume and dollar amount with the influx of Marcellus Shale activity that they are all of a sudden getting so much attention, he said.
Rex’s counsel, Mark D. Feczko of K&L Gates in Pittsburgh, said the company is pleased to have reached a settlement that is beneficial to both sides and is looking forward to focusing again on their core business — leasing and developing property in Pennsylvania.