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Gregory G. Poulos, et al v. LBR Holdings, LLC

Gregory G. Poulos, et al v. LBR Holdings, LLC

Case No. 
15-0907
Type of Proceeding: 
Appeal from the Circuit Court of McDowell County, West Virginia, Judge Booker T. Stephens
Issues: 

Did the trial court err in its findings, after a bench trial, that ambiguity existed in the language of a 1938 deed as to whether the term “gas” included an intention by the grantors to convey coal bed methane gas and that the circumstances of the time would dictate that the grantors did not, in fact, intend to convey coal bed methane gas by that ambiguous language?

Background: 

On May 27, 1938 two ownership groups affiliated with the Rogers Brothers Coal Company conveyed an interest in several parcels of property located in McDowell County, W.Va. and Buchanan County, Va. to a third ownership group.  Respondent LBR Holdings, LLC is the successor in interest to the two granting groups, and it owns 100% of the coal rights and 75% of the oil and gas rights underlying the subject property.  The Petitioners are the successors in interest to the outstanding 25% oil and gas interest.  EQT Production and GeoMet, Inc. drilled and operated coal bed methane gas wells on the property.  The royalties that would be attributable to the 25% oil and gas interest have been held in escrow.  A Buchannan County, Va court found that the 1938 deed language included a conveyance of coal bed methane gas as it related to the properties located in Virginia.  In the West Virginia case, testimony at trial provided that historically coal bed methane gas was a nuisance and hazard.  The trial court found that commercial coal bed methane gas wells did not really exist until 1988.  The trial court relied on Energy Development v. Moss, which made similar findings and supported a case-by-case analysis to determine what the parties intended when such deed language involving coal bed methane case was involved.  As such, the trial court ruled that the parties to the 1938 deed could not and would not have contemplated that coal bed methane case would be included in a conveyance of “gas.”

Positions of the Parties: 

Petitioner’s Position:

The Petitioners find fault with the trial court’s finding that the term “gas” is ambiguous.  Essentially, the Petitioners argue that the term gas is clear and direct and could be nothing but a conveyance of all the gas underlying the property.  They argue that the Energy Development v. Moss decision was improper and that brighter lines need to be drawn.  They believe that the 1938 deed is unambiguous and that there was sufficient facts demonstrated at trial to show that coal bed methane wells were in existence prior to 1938.  The Petitioners alleged that Moss is factually distinguishable and simply wrong.

Respondent’s Position:

The Respondents follow the trial court’s ruling and assert that the “gas is gas” argument has already been considered and rejected by the Supreme Court in the Energy Development v. Moss case.  They believe that this state has consistently marked a distinction between coal bed methane gas and other gases, which supports the finding of ambiguity and the need to examine the intent of the parties.  As such, it was appropriate to take in to consideration the realities of the industry in 1938 to find that there is no way that coal bed methane could have been considered as a part of the grant of gas rights.

Amicus Briefs:

This case includes three amicus briefs.  Two briefs were filed on behalf of the Respondent’s position and one on behalf of the Petitioner’s.  The West Virginia Surface Owners Association filed on behalf of the Respondent espousing the virtues of the reasoning under the Energy Development v. Moss decision and its continued application.  Natural Resource Partners, LP and the West Virginia Coal Association filed a brief on behalf of the Respondents as well.  They agreed that the case-by-case analysis set forth in Moss was superior and that there should be no rigid rule of ownership.  The West Virginia Royalty Owners Association filed in support of the Petitioner’s position and argued that the next step from Moss must be taken and the court clearly can rule that gas is gas and that there is no ambiguity in such language.  This would, it believes, eradicate all uncertainty about ownership.

Probable Impact: 

This is one of several cases the court has heard or will hear this term regarding the meaning of historical oil and gas conveyance language.  The court has placed this opinion on its Rule 19 oral argument docket which is designed to deal with: (1) cases involving assignments of error in the application of settled law; (2) cases claiming an unsustainable exercise of discretion where the law governing that discretion is settled; (3) cases claiming insufficient evidence or a result against the weight of the evidence; (4) cases involving a narrow issue of law; and (5) cases in which a hearing is required by law.

This case is interesting as it is a dispute involving two gas owners.   Prior cases involving coal bed methane ownership have been between coal owners and gas owners.  While one group in this case owns 100% of the coal rights, this case, as presented, is directed at the dispute between the parties in their role as “oil and gas” owners.  This case could simply affirm the Energy Development v. Moss decision.  I think it is unlikely the Supreme Court will take the opportunity to finally resolve the coal bed methane ownership issue based on the facts of this case.  This case is, however, an interesting case to follow given the factual findings and the deed construction issues at play.

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