1. Firearms Trust, Gun Trusts and NFA Weapons Trusts
  2. Avoiding Extortionate "Preferential Transfer" Claims following Commercial Bankruptcies
  3. Problems Passing an "Instant Check"
  4. Firearms Law and Inheritance
  5. Financing your Litigation
  6. Fairness in Marcellus Shale Dealings

Fair Dealing in Obtaining Oil and Gas Rights

When it was discovered the removal of natural gas and hydrocarbon liquids from the Marcellus Shale and Utica Shale layers was commercially viable, it touched off something of a "gold rush." Of course, companies in the oil and gas industry became aware of the commercial value of gas rights at the levels of Marcellus and Utica share had value long before landowners. This prompted many representatives of gas companies to exploit their superior knowledge to obtain rights to the gas at a small fraction of their true value.

So what’s wrong with that?

It depends. Having superior knowledge in a business transaction does not, by itself, oblige the person with more information to disclose what he knows. However, where one possessed of superior knowledge misrepresents the situation it may be possible for a landowner to rescind the resulting agreement and either renegotiate the contract or deal with someone else. 

If nothing was done to mislead or deceive you when you were approached about leasing or purchasing your gas and oil rights, and if no treats or unfair pressure was applied, the mere fact you sold your property rights for a fraction of their value does not entitle you to renegotiate the arrangement. The fact you may now recognize you made a very bad deal does not matter.

On the other hand, courts will often set aside contracts that were entered into when one party relied upon false or misleading statements made by the other party, or if they were pressured to sell through express or implied threats. These are what are sometimes referred to as "fraud" and "coercion." 

Fraud, in its purest form, occurs when one person expressly misrepresents an important ("material") fact, for the purpose of causing another person to act upon the misinformation to his economic detriment. But "fraud" can also encompass many forms of deception, including suggestion, innuendo or even silence. The Pennsylvania Supreme Court has made it clear the exact form of the deception is not important: 

 

"A fraud consists in anything calculated to deceive, whether by single act or combination, or by suppression of truth, or suggestion of what is false, whether by direct falsehood or innuendo, by speech or silence, word of mouth, or look or gesture, and is any artifice by which person is deceived to his disadvantage."

 

Therefore, to afford one relief from an unfair contract based upon fraud, the misrepresentation does not always have to be an express statement or an outright lie. Representations which are literally true, but which are designed to, and do, create a false overall impression in the mind of the listener, will often entitle the cheated party rescind a contract and start over.

Fraud can result where one party possesses superior information regarding important facts, and conceals that information under circumstances where he has a duty to disclose. There are a variety of circumstances where such a duty of disclosure will arise. For example, one acting as your agent always has a duty of full disclosure. That duty also exists where a person represents he has special knowledge or experience, and asks you to rely upon his qualifications.

Similarly, where a "land man" or other industry representative makes representations that by themselves are literally true, but will be misleading unless there is full disclosure of all the facts, the law will impose a duty to tell everything necessary to avoid the creation of a false impression. One is simply not allowed to take advantage by telling part of the story and then withholding key information necessary to avoid the listener being mislead.

Specific misrepresentations which have been used by mineral interests to obtain property rights are too numerous and varied to even list. Examples include:

� Misrepresenting the true identity of the company seeking the property;

� Representing the rights would be held by a trusted company or entity, knowing the rights would presently be assigned to another with whom the landowner did not wish to deal;

� Misrepresenting the purpose for which the property was being acquired;

� Falsely representing the purchase price being offered would be "tax free;"

� Promising the surface of the land would not be disturbed, knowing the extraction process would be highly disruptive or destructive;

� Telling landowners there will be nothing toxic brought to the surface, knowing that fracking water, which is toxic, will be held in holding ponds on the surface;

� Telling a landowner they "probably don’t own" the gas, oil or mineral rights, but his company is prepared to pay some nominal amount anyway, "just to be sure;"

� Falsely reporting that "everyone else" in the area as leased or sold, the company does not really need the landowner’s property, but "just doesn’t want to see you get left out;"

� Telling land owners there was "no need to spend a lot of money on lawyers" to review a deal.

With respect to gas rights in particular, some unscrupulous "land men" will tell a land owner that if the landowner does not sell, the company will just drill on his neighbor’s property, and the landowner’s gas will "probably" be extracted without payment due to "seepage." The truth is, there are laws to protect landowners from the misappropriation of their gas by "migration" or "seepage," and any industry professional knows it.

Of course, a misrepresentation might not be deliberate. It could be the result of a miscommunication or a genuinely mistaken belief on the part of the speaker. "Land men" are not usually lawyers, and are not always familiar with local laws or conditions. This will lead some company representatives to say things that he does not actually know are true, even though he might not know they are false, either.

The law will hold people accountable if they purport to be knowledgeable and make affirmative representations without actually knowing what they are talking about. There is a duty to investigate before making claims, and where statements are made with reckless indifference to the truth the law will often treat the misrepresentation in the same way it would treat a deliberate lie.

In their zeal to obtain property rights, representatives of mineral interests will sometimes combine false representations with express or implied threats. Extreme examples have included:

� A threat to run a rail line within ten feet of a farmer’s home, coupled with a statement the company was under no duty to fence the track or take other measures to protect the farmer’s children;

� Threats to bulldoze landowner’s homes to open mines and get at minerals;

� Telling landowners the water on their land would be poisoned whether the property owner would sell or not.

Such outrageous conduct has not only afforded land owners relief from the contracts they signed, but has resulted in the imposition of punitive damages as well.

More typically, the threats will be subtle, and couched in conditional language such as "probably" or "like as not." These are nevertheless threats, and may constitute sufficient misrepresentation and coercion to avoid a contract.

One of the more common threats is the suggestion that if the landowner refuses to sell, the company will "probably" take the land by eminent domain, and the landowner will ultimately be paid less than is being offered. This is a lie. Private oil and gas developers do not have the power of eminent domain. Even if they did, a landowner would nevertheless be entitled to the fair value of his or her property if it is taken, not just whatever is offered. Of course, land companies to not generally offer land owners substantially more than the fair value of their property rights to begin with.

Another threat is the suggestion that unless the land owner negotiates an acquisition, the law grants the mineral company the right to run roads or place equipment wherever they please. In truth, although easements for roads or equipment will be implied if necessary to extract oil, gas or minerals, there is always a requirement that interference with surface rights be limited to that which is reasonably necessary.

Threats of undue interference with the landowner’s future use of the property may be literally false, as when the threatened activity is precluded by zoning or other laws, or the company does not actually intend to engage in such activity. Those same threats may also be misleading, as where the threatened activities by the company might lawfully be carried out, but the company man neglects to mention such actions would entitle the land owner to compensation.

Of course, landowners have certain obligations as well. If the truth about a representation is known to you, or readily ascertainable with a reasonable effort on your part, you will not be allowed to claim you were deceived. You will be obliged to get a lawyer to verify legal representations made to you (except where those representations were made by a lawyer, including a lawyer representing the acquiring company). You will also be held to knowledge of that which is in public land records, and to otherwise exercise reasonable self-protective care.

On the other hand, where the means of obtaining information are not equal between parties, positive representations made by one who possesses superior information may, in the eyes of the law, be reasonably relied upon by the other. For example, if one professing to be a geologist or have a geologists’ report tells a farmer that tests show there is "most likely" only a modest amount of gas under his property, the farmer is not expected to do his own seismic data survey.

If you believe you were mislead into selling your gas rights for much less than other people are getting in your area, you might have a claim. There are, however, time limits within which one must act to obtain relief. These include statutes of limitation, as well as other legal doctrines which will preclude the assertion of a claim with the passage of time. The longer one waits to act, the more likely an otherwise valid claim will be precluded.

Whether you are entitled to relief from an onerous or unfair contract you entered into months or years ago will depend upon the specific facts and circumstances of your particular case. Every case is different, and a seemingly small fact can make a big difference. The legal doctrines involved can be very technical, and it is often not clear to a layman they have a case, even though they are sure they have been cheated. This is one area where you should definitely consult an attorney experienced at proving fraud.

We at Greystone Legal Associates have years of experience evaluating and litigating claims of fraud, misrepresentation and deceit. We also have substantial experience litigating claims under the Eminent Domain Code, local zoning laws, and various consumer protection statutes that might figure into a case to set aside an unfair sale or a lease.

If you feel you were unfairly induced to sell your gas, oil or mineral rights for a fraction of their value, give us a call. We will be able to help determine whether the law will afford you any relief, and, if so, we can prosecute your claim.

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