Chesapeake Wins Judgment Over Blanket Assignment Dispute

A Pennsylvania state appeals court on Jan. 27 ruled that the Recorder of Deeds of Wayne County, Penn., did not have the authority to reject Chesapeake Energy subsidiary Chesapeake Appalachia LLC's attempt to combine 211 lease assignments into one document.

Chesapeake in 2010 filed a complaint against Ginger Golden, the Recorder of Deeds of Wayne County, saying Golden refused to record certain documents related to oil and gas leases in Wayne County. At issue were 211 leases subject to four multiple lease assignments held by Chesapeake subsidiary Chesapeake Appalachia.

In 2011, the trial court granted Chesapeake's motion for summary judgment, directing the Recorder to "record all documents that are within the scope of Pennsylvania's recording statutes," so long as they are "properly acknowledged and the appropriate statutory fee has been paid."

Golden had appealed Chesapeake's grant of summary judgment by the trial court. Golden asserted that her policy of rejecting multiple leases, or blanket assignments, is proper because of her inability to index the assignments due to the lessors of each underlying lease as required by Pennsylvania law.

Chesapeake argued that the Recorder is obligated to record documents as they are prepared and presented by the parties, and the Recorder cannot set a policy against recording multiple lease assignments.

The case, Chesapeake Appalachia LLC v. Ginger Golden, highlighted the issue of whether an individual recorder of deeds could create their own policy against blanket assignments.

The appeals court's decisions in this case could have broader implications for Recorders' offices across the state by limiting their ability to reject leases that don't meet their individual standards, according to Reed Smith, the Pittsburgh-based law firm that represented Chesapeake.

A number of recorders in the Commonwealth of Pennsylvania have a policy of not accepting multiple lease assignments or attempting to enforce this policy. This policy can make it more difficult for companies to get assignments recorded; this is especially critical in Pennsylvania, which is a race notice jurisdiction, meaning that whoever files ownership of property first has greater rights than those who file later.

Anything that slows down a company from registering lease assignments could be potentially damaging to their property rights, said Nicolle Bagnell, an attorney with Reed Smith who worked on the Chesapeake case. "If the Recorder doesn't have the authority [to refuse to accept multiple leases] but she is, she's impacting the rights of gas companies."

In the past three to four years, the volume of documents submitted for recording due to increased Marcellus shale exploration and production activity in Wayne County in eastern Pennsylvania has grown 30 percent. Chesapeake had recorded 3,391 oil and gas leases in Wayne County as of July 2010.

Reed Smith also represented a Chesapeake subsidiary in a separate case that was recently heard at the appellate level of the Pennsylvania court system. In that case, Reed Smith successfully argued that post production expenses applied to a lease did not violate the Pennsylvania Guaranteed Minimum Royalty Act (PGRMA).

While the landowner, Arthur Katzin, had conceded that a previous court case, Kilmer v. Elexco Land Services Inc., allows for the deduction of certain post-production costs from the royalty paid to lessors under the PGRMA, he contended that Chesapeake Central Appalachia might pay less than the royalty guaranteed under the PGMRA as the lease is vague regarding allowable deductions.

The court noted in its ruling that a one-eighth royalty was provided for Katzin in the lease between Katzin and Central Appalachia Petroleum, which indicates the parties intended to comply with the mandates of the PGMRA.

"In construing the lease, we must therefore imply a promise by Central Appalachia, and therefore its assignees such as Chesapeake Appalachia LLC, to comply with the mandates of the PGMRA."


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