In the Tennant v. Range Res. Appalachia decision issued on Sept. 21, 2021, Judge Hardy of the Western District of Pennsylvania determined that unless an oil and gas lease expressly shifted the burden to the defendant lessee, the plaintiff lessors bore the burden of proof on their claim of underpaid royalties.
Royalty addendum provision
Plaintiff lessors in Tennant brought a breach of contract claim against defendant lessee claiming underpayment of royalty payments because the lessee was deducting certain post-production expenses. The royalty addendum provision generally prohibited the deduction of post-production expenses, but did allow deduction of
any expenses incurred by Lessee for the purpose of enhancing the value of the oil and/or gas or other products produced … to receive a better price and any deductions from price [in certain categories] may be deducted … if they result in a net increase in the value of the oil and/or gas or other products produced ….
Plaintiff lessors framed their breach of contract claim as one where the lessee breached the lease by not demonstrating that the costs deducted resulted in a net increase in the value of the produced gas.
Who bore the burden of proof?
During discovery, plaintiff lessors admitted there was nothing in the lease expressly placing the burden on the lessee to prove that the deductions resulted in a net increase in value or requiring the lessee to demonstrate that information on a royalty statement. Plaintiffs also admitted they had no evidence showing that the activities for which deductions were taken did not result in a net increase in the value.
On cross-motions for summary judgment, the Court ruled in favor of the lessee on the ground that plaintiff lessors bore the burden of proof and were unable to satisfy that burden. Reaffirming the general principle that plaintiffs bear the burden to plead and prove the elements of a breach of contract claim, the Court looked at the lease to see whether it specifically required the lessee to prove the deductions resulted in a net increase in value. The Court found no such express requirement and rejected the idea that such a requirement was implied.
As a result, the lease was unambiguous and the burden was on plaintiffs to prove the alleged breach. Noting the discovery admissions, the Court — applying the law and the plain language of the lease — concluded summary judgment was appropriate for the lessee due to the plaintiffs’ failure to carry their burden.
The take-away here is to remember burden of proof issues when assessing potential dispositive motions. If you don’t have the burden, put your counterparty to the test. And if they have not come forward with sufficient evidence to meet that burden, consider a summary judgment motion on that basis.