Court Cites Marcellus Shale in Jurisdiction Decision



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The United States District Court for the Middle District of Pennsylvania ('Court') recently declined to exercise jurisdiction over a declaratory judgment action in which the Court was charged with determining the validity of an oil and gas lease. In declining to exercise jurisdiction in Cabot Oil & Gas Corporation v. Carol Manning Jordan, 2010 U.S. Dist. LEXIS 36988 (M.D. Pa. 2010), the Court concluded that the legal questions raised were not settled under Pennsylvania law and should therefore be litigated in state court.

At issue was the validity of an oil and gas lease executed in 2008 between Cabot Oil & Gas Corporation (?Cabot?) and a private landowner. After the landowner returned the lease bonus check, Cabot requested that the Court declare the oil and gas lease legally valid and enforceable against the landowner. The landowner, in turn, claimed the lease was invalid because: (1) the individual who notarized the lease was a Cabot agent whose fee was contingent upon execution of the lease; (2) Cabot's representatives made false representations to her that induced her to execute the lease; and (3) Cabot failed to pay the bonus in a timely manner and in the correct amount.

As a result of the landowner's claims, the Court was required to determine whether a claim for fraudulent inducement based on a misrepresentation not related to subjects specifically addressed in the lease is barred by the parol evidence rule. In analyzing Pennsylvania law, the Court found major incongruities in the application of the rule. In prior cases, the Pennsylvania Supreme Court has held that the parol evidence rule only bars oral representations if the representations concern subjects specifically dealt with in the written contract and the contract is fully integrated. In another case, the Pennsylvania Supreme Court held that any misrepresentation of material fact confers a right to rescind a contract. Although inconsistent with each other, neither line of cases has been overturned.

In declining to exercise jurisdiction, the Court cited the rapid development of the Marcellus shale formation and the impact the exploration activity will have on the region?s landowners, lessee corporations, natural resources, and environmental matters. The Court reasoned that "any decision about corporate practices and/or landowner responsibility has potential broad impact on the matters of state law presented" and should first be determined by Pennsylvania state courts.

Patricia Proctor
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