US District Court, M.D. Pennsylvania, No. 3:11cv514, August 27, 2013: Conservation easement’s prohibition of industrial or commercial activity unambiguously bans fracking.

At issue was whether the wording of a conservation easement was ambiguous regarding prohibition of surface activity by plaintiff Stockport Mountain (Stockport) for natural gas hydraulic fracturing (fracking). Defendant Norcross Wildlife Foundation, Inc. (Norcross) brought a motion for summary judgment.  The federal court’s standard of review was under Pennsylvania law, which is to first look to the contract language to determine the parties’ intent and to enforce unambiguous language. Also, the court recognized the Pennsylvania statute that instructs courts interpreting conservation easements to construe the terms of those easements liberally. 32 PA. CONS. STAT. ANN. § 5055(c)(2). Although in a summary judgment decision, courts must examine the facts in the light most favorable to the party opposing the motion (Stockport), the question whether a contract is ambiguous is a question of law so the burden of proof to show the necessary indefiniteness of meaning was on Stockport, as the party claiming that ambiguity exists. The court granted Norcross’ motion for summary judgment.

Norcross’s argument was that section 4 of the conservation easement was unambiguously broad enough to ban fracking without mentioning it by name. The pertinent part of that section read:

“4. Prohibited Uses. The following activities and uses are expressly prohibited:

“a) All uses and activities in the Conservation Reserve Areas, except as permitted under Section(s) 4(m) and 5(b). . . .

“c) Industrial or commercial uses of any kind, including commercial recreation, except home occupations that do not involve more than two outside employees, and do not involve outside storage of materials or supplies, equipment or products. . . . This is intended to also prohibit commercial structures of any kind, including any commercial communication devices, signs or billboards.”

Stockport countered that other sections of the easement, when read together with section 4, create an ambiguity as to natural gas activity.

As to the meaning of the words in section 4, the court held that they have their “ordinary meaning,” as defined in Merriam-Webster Dictionary Online, http://www.merriam-webster.com/dictionary/ (last visited Aug. 22, 2013). The key words in section 4 were defined by Webster and the court as follows:

“Commercial”: “occupied with or engaged in commerce or work intended for commerce.”

“Commerce”: “the exchange or buying and selling of commodities on a large scale involving transportation from place to place.”

“Industrial”: “of or relating to industry”

“Industry”: “systematic labor especially for some useful purpose or the creation of something of value,” or, industry is alternatively defined as “a distinct group of productive or profit-making enterprises.”

The court understood Stockport’s activities as commercial because they include a lease … to obtain rental payments and royalties; division of proceeds from the sale and transportation of a commodity; and the use of commercial traffic and the erection of temporary commercial structures. The court understood Stockport’s activities as industrial because they include the use of machinery in a systematic effort to generate a marketable commodity produced via the systematic efforts of employees operating machinery.

Stockport had three theories arguing that other sections of the easement create an ambiguity in section 4 when read together with it.

First, Stockport pointed to section 5 of the easement, which reserves for the landowner the “right to engage in or permit or invite others to engage in, all uses of the Property not expressly prohibited herein.” The court found no ambiguity created by section 5, writing, “the proposed natural gas activities fall under the common meaning of commercial and industrial activity, and such activity is categorically prohibited in section 4(c) of the easement. Thus, the proposed natural gas drilling activity cannot be reserved for Stockport under section 5 because such activity is already proscribed in section 4(c).”

Second, Stockport argued that the easement is ambiguous because some commercial and industrial activities, such as limited timbering and quarrying, are allowed. The court rejected this theory, saying that the structure of section 4 is to set out a general prohibition on commercial and industrial activity while exempting certain home occupations, limited timbering and limited quarrying. The court wrote, “Rather than creating ambiguity, the exemption of certain activities from section 4′s prohibitions indicate that the easement’s drafters intended to prohibit all commercial or industrial activities not specifically exempted.”

Third, Stockport tried to say that the absence of an explicitly prohibition against natural gas drilling creates an ambiguity. The court found it would be unreasonable to require conservation easements to enumerate every conceivable prohibited activity in order to prohibit them.

Turning from the words actually used in the contract or easement, the court (following Pennsylvania courts) examined “objective, extrinsic evidence” to assess the easement for ambiguities. It said Stockport failed to put forward any piece of objective, extrinsic evidence to support its contentions.

The court also rejected Stockport’s argument that the parties couldn’t have intended to prohibit natural gas drilling because they could not have know of the feasibility of shale gas production when they executed the conservation easement. The court wrote, “The law does not require that parties to a conservation easement consider every possible use of property before it can be prohibited. Rather, the law requires that the court accept the plain meaning of the easement language used, and not ‘the silent intentions of the contracting parties, [to] determine[] the construction to be given [to] the agreement.’ [citation omitted] The court cannot overlook the categorical prohibition in section 4(c) simply because the parties did not envision a boom in natural gas drilling.”

The court awarded Norcross attorneys’ fees and costs, because a section of the conservation easement specifically provides:

“Any costs incurred by Grantee in enforcing the terms of this Easement against Grantor, including, without limitation, costs of suit, except witness fees and attorneys’ fees, . . . shall be borne by Grantor. If Grantor prevails in any action to enforce the terms of this Easement, Grantor’s costs of suit, including without limitations, attorneys’ fees, shall be borne by Grantee.”

Decision available at http://www.mitchellwilliamslaw.com/wp-content/files_mf/scan_attachment29.pdf or by searching for the case name at http://courtweb.pamd.uscourts.gov/courtweb/CourtWeb.aspx.

In a prior decision this court had denied a summary judgment to Norcross, at that time finding additional discovery of fats by the parties was needed to decide whether the easement language was or was not ambiguous.