Harrison v. Cabot Oil & Gas Corp.

The Third Circuit Court of Appeals certified a question of Pennsylvania law to the Pennsylvania Supreme Court. In August 2007, Appellee Wayne Harrison entered into a lease with Appellant Cabot Oil & Gas Corporation, per which Cabot obtained the exclusive right to explore oil-and-gas resources on Harrison's property. In exchange, the company agreed to pay an initial bonus plus a one-eighth royalty on oil or gas successfully produced from the land. Approximately halfway through the primary lease term, Harrison and his wife commenced a civil action against Cabot in a federal district court, seeking a declaration that the lease was invalid. The Harrisons alleged the company had fraudulently induced Mr. Harrison to enter into the lease via an agent's representation that Mr. Harrison would never receive any more than $100 per acre as a threshold bonus payment from a gas producing company. The Harrisons learned of other landowner-lessors receiving higher payments. The Pennsylvania Court accepted certification from the Third Circuit to address whether the primary term of an oil-and-gas lease should have been equitably extended by the courts, where the lessor pursued an unsuccessful lawsuit challenging the validity of the lease. In its counterclaim, Cabot sought a declaratory judgment that, in the event the Harrisons' suit failed, the primary term of the lease would be equitably tolled during the period of time during which the suit was pending, and, concomitantly, the lease would be extended for an equivalent period of time beyond what was provided by its actual terms. The district court awarded summary judgment in Cabot's favor on the suit to invalidate the lease. The court, however, resolved the counterclaim in the Harrisons' favor, concluding that Pennsylvania law does not provide for equitable extensions of oil and gas leases under the circumstances. Cabot appealed, arguing that it would be deprived of the full benefit of the bargained-for terms of its contract with the Harrisons by their "meritless lease challenges." Cabot contended Pennsylvania law provided that a party repudiates a contract, and thus effectuates an essential breach, when he makes an unequivocal statement that he will not perform in accordance with his agreement. The Pennsylvania Supreme Court disagreed with Cabot's contention, holding that the Harrisons' lease challenge was not an anticipatory breach of the lease. "Our reluctance, in this respect, is bolstered by the Harrisons' observation that oil-and-gas-producing companies are free to proceed according to their own devices to negotiate express tolling provisions for inclusion in their leases. [. . .] Certainly, in light of the voluminous decisional law, such companies are on sufficient notice of the prospect for validity challenges to warrant their consideration of such protective measures. [ . . .] Our determination is only that, consistent with the prevailing substantive law of this Commonwealth, the mere pursuit of declaratory relief challenging the validity of a lease does not amount to such." View "Harrison v. Cabot Oil & Gas Corp." on Justia Law