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Law Articles by Topic
Business entities could lose their exclusive right to use their business names in Pennsylvania after December 31, 2011. To retain their rights, such business entities must file a Decennial Report by December 31, 2011 to inform the Pennsylvania Department of State that such business entities continue to operate.
Do You Need To Comply With The Red Flag Rules?
In November 2007, as part of its implementation of the Fair and Accurate Credit Transactions Act of 2003, the Federal Trade Commission (FTC) released a set of regulations, commonly called the “Red Flag Rules,” requiring certain entities to develop and implement policies and procedures to protect consumers from identity theft.
Are you like many business owners?
- A majority of closely held and family owned businesses will change hands within the next five years; but
- Many Business Owners may not have taken active steps to transition out of ownership.
(Step One)
"When a man does not know which harbor he is heading for, no wind is the right wind." So said Seneca almost 2,000 years ago. Today, speaking to business owners he might likely say, "Exit Planning for business owners must start with knowing your exit goals and objectives; otherwise, failure may be inevitable."
(Step Two)
For many owners, the answer to one question determines their eagerness and ability to leave their companies: "How much is my business worth?" This question is indeed critical and answering it is the second step of your seven-step Exit Plan.
(Step Three)
A number of years ago, I met with Diana Duff, the owner of Major Machining, Inc. (MMI), a machine shop. She wanted out. I suspected that her severe case of "early onset burnout" was due to the departure of her three-person management team six months earlier. These employees had not just left the company, they had set up a competing machine shop funded by the many MMI customers they took with them.
Employee Benefits
New Fee Disclosure Rules for Retirement Plans
Over the course of the last 20 to 30 years, the retirement plan industry has changed dramatically, with the 401(k) plan generally becoming the plan of choice, in lieu of the traditional pension plan. With this evolution, the arrangements under which plan service providers are compensated have become more complicated and more elusive. Often, fees are paid to providers not only from plan sponsors or participant accounts, but also from third parties. Recognizing this change in the retirement plan landscape, and under the rationale that plan sponsors and plan participants should understand the services for which they are paying, the amounts being paid, and the providers to whom they are being paid, the U.S. Department of Labor has been focusing on new fee disclosure rules for the past few years. These regulations have recently been finalized and are becoming effective in 2012
Government Postpones Effective Date of NonDiscrimination Regulations Under Health Care Reform
The Patient Protection and Affordable Care Act was signed into law by President Obama on March 23, 2010. The companion bill, the Health Care and Education Reconciliation Act, was signed into law on March 30, 2010. Together, these two laws are commonly referred to as the “Health Care Reform Law.” Without question, the Health Care Reform Law constitutes the most significant social reform law in decades, generally covering five different subject areas: (1) Insurance Market Reforms, (2) Employer Responsibilities, (3) Individual Responsibilities, (4) Insurance Exchanges, and (5) Revenue Raisers.
New Roth Conversion Rules For Retirement Plan Accounts
On September 27, 2010, President Obama signed the Small Business Jobs Act of 2010 into law. Included in the new law are provisions permitting participants in 401(k) plans to convert existing pre-tax accounts to after-tax Roth accounts within the plan. A summary of the new rules is as follows
In prior bulletins, we have provided information concerning the requirements applicable to group health plans under the Health Care Reform Law, including new nondiscrimination requirements. See Health Care Reform Summary: What Employers and Individuals Need to Know. Under the law, these nondiscrimination requirements were set to become effective as of the first day of the first plan year beginning after September 23, 2010 (e.g., January 1, 2011 for a calendar year plan).
Regulations on Grandfathered Health Plans Amended
On June 17, 2010, the Department of Health and Human Services, the Department of the Treasury, and the Department of Labor (collectively the "Agencies") published interim final regulations for group health plans and health insurance coverage relating to the status of grandfathered plans under the Patient Protection and Affordable Care Act ("PPACA" a/k/a the Health Law Reform Act). Houston Harbaugh previously published "Health Care Reform Summary: What Employers and Individuals Need to Know." In response to comments on these initial regulations, on November 15, 2010 the Agencies issued an amendment (the "Amendment") to these regulations which may assist group health plans in retaining their grandfathered status.
Health Care Reform Summary: What Employers and Individuals Need To Know
In spite of the breadth of the legislation, the new law left many questions to be answered via regulations to be issued by the Department of Health and Human Services (“HHS”), the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”). These agencies (collectively, the “Agencies”) are now beginning to fill in the gaps, with more guidance to come.
Physicians are receiving pink slips more than ever before. Hospitals and other practices are cutting back and changing business models. Many organizations employing physicians have seen this day coming and wrote their physician employment contracts in a way to give them greater leeway in terminating a physician, whether that termination is for cause or is part of a larger organizational restructuring. Ninety- or sixty-day notice provisions, with no cause needed, are no longer uncommon. Perhaps the physician has negotiated a severance payment in the event of termination prior to the end of the contract term. If a physician gets a termination or non-renewal notice, is there anything he/she can do if the employer followed the terms of the contract?
The National Labor Relations Board (NLRB) has been trying for many months now to require employers to post a notice in their workplaces informing employees of their rights under federal labor law. Due to public protests and court suits last year in response to the NLRB announcing its plan to require such a poster, the NLRB delayed the effective date for this new posting requirement from January 31, 2012 to April 30, 2012. We held off reporting this to you earlier because it was plain there might be further delays, particularly given that there are two different courts considering this issue at the same time. Due to the closeness of the April 30, 2012 deadline, we now write to let you know the following.
It is no secret that social media and the workplace are colliding, and this storm will likely get rougher before the skies clear. An argument can be made that social media is just another form of communication, and that the same laws that have guided employers in the past in dealing with employee discussions at the water cooler will apply to blogs and tweets and posts. However, social media has opened new doors. It has never been so easy to disseminate information to a large group of people so quickly. The key is in understanding how to apply the time-honored principles and some relatively new laws to the new issues created by social media, and how to proactively prepare for the issues that may result. Good written employment policies can avoid most of the likely problems in this area. Employers will need to carefully think through decisions regarding how much information they want to protect, how many restrictions they want to place on their employees, and a host of other issues before they draft policies to address social media.
The confirmation hearings for Supreme Court nominee Sonia Sotomayor serve as a backdrop for noting an overall change in the stability of employment law. For many years, the U.S. Supreme Court and Congress played complementary roles without much conflict. However, in the past year, the two bodies have disagreed more often, with Congress increasingly taking action to undo Supreme Court decisions on employment law subjects.
FMLA Legislative Changes and New EEO Post
On October 28, 2009, President Obama signed the 2010 National Defense Authorization Act (NDAA) that includes an expansion of the exigency and caregiver leave provisions for military families under the Family and Medical Leave Act of 1993 (FMLA).
The April tax filing season is not only a good time to take steps to avoid needless future tax costs by educating yourself about tax law requirements and opportunities; it is also a good time to avoid needless employment law claims and costs by educating your supervisors and managers. This is particularly true this year given the changes that have already occurred in several laws (e.g., the Americans with Disabilities Act, the Family and Medical Leave Act, and COBRA) and the increased ease of unionization that will occur if the Employee Free Choice Act, supported by the Obama administration, becomes law.
Legal changes, effective January 1, 2009, significantly expand the number of people covered by the law prohibiting employment discrimination on the basis of a person’s physical or mental disability. Congress has expressly directed the EEOC and the courts to open up the law’s protections to more people, overriding several pro-employer Supreme Court decisions to accomplish this. Employee claims will increase.
Supreme Court and Federal Law Updates In Employment Law
There has been a lot of activity in the employment law field in recent weeks, including numerous Supreme Court decisions, and a new employment discrimination federal statute. We provide the following summary on only a few noteworthy items, along with a brief word of advice on avoiding problems in these areas: Age Discrimination; Employee Benefit Plan Administration; Genetic Information Nondiscrimination Act of 2008; Minimum Wage Increase for Small Employers in Pennsylvania.
Health Care Law
Physicians are receiving pink slips more than ever before. Hospitals and other practices are cutting back and changing business models. Many organizations employing physicians have seen this day coming and wrote their physician employment contracts in a way to give them greater leeway in terminating a physician, whether that termination is for cause or is part of a larger organizational restructuring. Ninety- or sixty-day notice provisions, with no cause needed, are no longer uncommon. Perhaps the physician has negotiated a severance payment in the event of termination prior to the end of the contract term. If a physician gets a termination or non-renewal notice, is there anything he/she can do if the employer followed the terms of the contract?
2013 Compliance Update - Start the Year on the Right Track!
A new year brings an opportunity to have a fresh start and, in the healthcare industry, there is no better fresh start than ensuring that your practice is operating in a manner that is consistent with the law. This bulletin will provide a short summary of the compliance issues that you will need to address in 2013.
CMS Publishes Final Rules For Stage 2 Meaningful Use
On September 4, 2012, the Centers for Medicare & Medicaid Services ("CMS") published the Final Rules for Stage 2 Meaningful Use (the "Final Rules"). The Final Rules are the next step in the Medicare and Medicaid Electronic Health Record Incentive Program (the "Incentive Program") to encourage the use of electronic health records. While Stage 1 Meaningful Use focused on becoming familiar with electronic health records, Stage 2 Meaningful Use is designed to enhance the interoperability of electronic health record systems with the goal of improving patient care and engaging patients to become involved in the process. You can find additional information about the Incentive Program, including summaries of the available incentive payments, here. CMS reports that since the program began in January of last year, more than 120,000 physicians and more than 3,300 hospitals have participated in the Incentive Program, resulting in payments of $6.6 billion in incentives.
On June 28, 2012, the Supreme Court of the United States handed down its much-anticipated decision in National Federation of Independent Business, et al. v. Sebelius, Secretary of Health and Human Services, et al, in which it predominantly upheld the constitutionality of the Patient Protection and Affordable Care Act (“ACA” aka the Health Care Reform Act). Four justices wrote opinions on the case with Chief Justice John Roberts delivering the opinion of the Court, Justice Ruth Ginsburg writing a concurring opinion, and Justices Antonin Scalia and Clarence Thomas delivering dissenting opinions. These opinions will certainly be scrutinized for years, if not decades to come.
Medicare Revalidation Program ExtendedThe Centers for Medicare and Medicaid Services (“CMS”) recently announced plans to extend its provider revalidation program through March 2015. Under this program, all Medicare providers and suppliers who enrolled in Medicare before March 25, 2011 will receive written notices from their Medicare Administrative Contractor (MAC) to revalidate their enrollment information within a deadline specified in the notice. Failure to submit the enrollment forms as requested may result in the deactivation of a provider’s Medicare billing privileges. The purpose of the revalidation requirement is to ensure that all records for providers and suppliers are accurate and up to date. Providers and suppliers should not attempt to revalidate their enrollment until after receipt of the MAC written notice but must be sure, when such notice is received, to revalidate within the timeframe provided.
On Business entities could lose their exclusive right to use their business names in Pennsylvania after December 31, 2011. To retain their rights, such business entities must file a Decennial Report by December 31, 2011 to inform the Pennsylvania Department of State that such business entities continue to operate.
Beginning this year, penalties are being assessed on physicians who have failed to initiate e-prescribing. Eligible professionals who have not implemented and employed a qualified e-prescribing system will have their Medicare payments reduced by 1.5% in 2013.
On May 31, 2011, the Department of Health and Human Services (“HHS”) proposed new regulations under the Health Insurance Portability and Accountability Act (“HIPAA”) that will grant patients the right to obtain more information from their health care providers regarding disclosures of their protected health information (“PHI”). Pursuant to these proposed rules, covered entities and business associates will be required to provide patients with an accounting of disclosures of PHI stored in an electronic health record, which have been made for treatment, payment and health care operations (“TPO”). In addition, patients will be able to request an access report informing patients who has accessed electronic PHI in a designated record set.
Eligible physicians (“EPs”) and eligible hospitals (“EHs”) will soon be able to receive incentive payments based on their “Meaningful Use” of electronic health records (“EHR”). The Centers for Medicare and Medicaid Services (“CMS”) recently released *screen shots* of the Attestation which EPs and EHs will need to complete in order to qualify for these incentive payments. The Attestation website will become active on April 18, 2011, and those who register for the Attestation at this time may begin receiving payments as early as May 2011.
CMS Proposes New Notice Requirements For Certain Certified Medicare Providers And Suppliers
On February 2, 2011, the Centers for Medicare & Medicaid Services ("CMS") proposed new regulations requiring certain certified Medicare providers and suppliers to inform Medicare beneficiaries of their right to file a complaint with the Quality Improvement Organization ("QIO") in the state where services are being provided. These new regulations are prompted by concerns that QIOs perform very few beneficiary complaint reviews because the beneficiaries are unaware of their right to file a complaint or lack the information necessary to do so.
The Patient Protection and Affordable Care Act (“PPACA”) contains new disclosure requirements for physicians who refer patients to imaging services provided in their offices under the in-office ancillary exception to the Stark law. Physicians are now required to both inform patients in writing that patients may obtain the service from a supplier other than the referring physician or someone in the physician’s group practice, and provide patients with a list of alternate suppliers.
Centers for Medicare & Medicaid Services (“CMS”) closed out 2010 by publishing an Advanced Notice of Proposed Rulemaking soliciting comments for new regulations implementing the Emergency Medical Treatment Active Labor Act (“EMTALA”). Specifically, CMS is anticipating new regulations regarding (i) the applicability of EMTALA to hospital inpatients, and (ii) the responsibilities of hospitals with specialized capabilities.
As mentioned in Monday’s Health Care Law Update, the Senate passed the Red Flag Program Clarification Act of 2010 (the “Act”), and a companion bill was then pending in the House. On Tuesday, the Act was approved by the House. The Act is now expected to be signed into law by President Obama before the January 1, 2011 Red Flags Rule enforcement deadline. The Act’s passage is being viewed as the first step in exempting healthcare providers from the Red Flags Rule requiring creditors to adopt identity theft detection policies.
On November 30, 2010, the Senate passed the Red Flag Program Clarification Act of 2010 (the “Act”). The Act’s passage is being viewed as the first step in exempting healthcare providers from the Red Flags Rule requiring creditors to adopt identity theft detection policies. By way of background, the Red Flags Rule was initially scheduled to go into effect on November 1, 2008, but has been subject to multiple delays resulting from industry complaints and lobbying, particularly from the American Medical Association. The Red Flags Rule is currently set to go into effect on January 1, 2011.
On March 23, 2010, the Patient Protection and Affordable Care Act (“PPACA” a/k/a the Health Law Reform Act) was signed into law. One of its lesser publicized provisions required the Centers for Medicare and Medicaid Services (“CMS”) to set forth a process for providers to self-disclose actual or potential violations of the Stark Law (also referred to as the “physician self-referral law”). On September 23, 2010, CMS complied with these requirements and published a self-referral disclosure protocol (“SRDP”) for health care providers to report actual or potential violations of the Stark Law and to resolve any overpayments related to the violations. The SRDP is designed to mimic the Office of Inspector General of the U.S. Department of Health and Human Services’ (“OIG”) Self-Disclosure Protocol which is already available to address actual or potential violations of the Anti-kickback Law.
On Federal grant monies have been awarded to Quality Insights of Pennsylvania to establish a Regional Extension and Assistance Center for Health Information Technology (Pa REACH) in western Pennsylvania. PA REACH will, over the next two (2) years, assist approximately 3,300 eligible western Pennsylvania primary care providers and community-based health centers seeking to adopt and meaningfully use electronic medical record systems. In addition to furnishing assistance in selecting and purchasing EMR systems, PA REACH will provide help with implementation, management and technical assistance as well as guidance on meeting federal guidelines for “meaningful use” requirements.
On February 17, 2009, President Obama signed the Health Information Technology for Economic and Clinical Health (HITECH) Act, which was a subpart of the stimulus bill. HITECH authorizes the Medicare and Medicaid programs to pay financial incentives to providers to adopt electronic health record (EHR) technology. Starting in 2011, physicians and hospitals that demonstrate meaningful use of a certified EHR system will be eligible to receive incentive payments equal to a percentage of their Medicare/Medicaid charges, subject to a maximum cap. After 2015, physicians and hospitals who are not using EHR systems will be penalized with reductions in their Medicare/Medicaid reimbursement.
In its January 21, 2009 opinion in Kosenske vs. Carlisle HMA, Inc. (no. 07-4616), the U.S. Court of Appeals for the Third Circuit overturned the dismissal of a whistleblower action filed under the False Claims Act. The case involved an exclusive arrangement between an anesthesiology group and a hospital that had been challenged under Stark and anti-kickback laws.
Litigation
If your customer declares bankruptcy, it can have more financial impact on your company than just a lost client. Read on to learn how a bankrupt customer may cost your company money.
Joint and Several Liability Can Cost You More Than Your Fair Share
If your company has been a defendant in a lawsuit where it was alleged that both your company and co-defendants were negligent in some fashion, you may be familiar with the legal doctrine of “joint and several liability.” In Pennsylvania, the concept of joint and several liability refers to the proportionate liability of two or more defendants to a plaintiff in the collection of an awarded judgment.
Marcellus Shale
Not Your Father’s Oil and Gas Lease
Horizontal Drilling Presents Unique Leasing Issues
The modern oil and gas lease is a sophisticated and complex legal instrument that has evolved over the last several decades. This evolution, however, has generally occurred within the “vertical well” context. Recent technological advances in horizontal drilling and hydraulic fracturing have resulted in unprecedented leasing activity throughout Pennsylvania. The advent of horizontal drilling has introduced new and unique concepts that the traditional vertical lease was simply not drafted to address. As a result, many landowners and gas operators throughout Pennsylvania have grown frustrated and disillusioned with their “vertical leases” that inadvertently hinder and delay horizontal drilling and hydrocarbon development. This unfortunate and troubling result could have been avoided had the parties simply tailored their leases to reflect the needs and challenges of horizontal drilling.
Marcellus Shale gas is not a mineral. What does this mean for lease-holders?
On April 24, 2013, the Pennsylvania Supreme Court issued its much anticipated decision in Butler v. Charles Powers Estate ("Butler II"). At issue in Butler II was whether a reservation of "minerals" in an 1881 deed included the Marcellus Shale gas. For more than 130 years, Pennsylvania law had long recognized that such a reservation did not include the oil and gas formations.[1] However, the 2011 decision of the Pennsylvania Superior Court in Butler suggested that the Marcellus Shale gas should be treated differently. See, Butler v. Charles Powers Estate, 29 A.3d 35 (Pa.Super. 2011) ("Butler I"). In Butler I, the Superior Court implied that since the Marcellus Shale is, in essence, a rock formation it should be treated as a "mineral" just like coal, iron and limestone. Relying on Pennsylvania's treatment of coalbed gas as precedent, the Superior Court further opined in Butler I that a reservation of "minerals" in a deed may possibly include the underlying shale formations and the natural gas trapped within the shale. Not so, said the Supreme Court. In Butler II, the Pennsylvania Supreme Court re-affirmed the long-standing principle of Pennsylvania law that a reservation of "minerals" in a deed does not include the oil and gas.
Can the payment of a shut-in royalty maintain an oil/gas lease indefinitely?
This is a familiar but troubling issue for a growing number of landowners throughout the Marcellus Shale fairway. Imagine you own 145 acres in Tioga County, Pennsylvania. You sign a lease with a modest signing bonus in 2007. You soon realize that your signing bonus is considerably less than your neighbor who signed after you. You contact the landman and inquire why. He tells you not to worry because a Marcellus well will soon be drilled on your property and the monthly royalties will be “tens of thousands” of dollars.
Federal Court in Scranton Rules That Litigation
Filed By Landowner Did Not "Repudiate" the Lease
Continuing a trend that puts Pennsylvania at odds with most oil/gas jurisdictions, the federal court in Scranton recently ruled that an unsuccessful suit filed by a landowner challenging the validity of the underlying oil/gas lease did not warrant equitable extension of the lease's primary term. In Harrison v. Cabot Oil & Gas Corp., 2012 WL 3542382 (M.D. Pa. August 14, 2012), the gas producer argued that its lease should be equitably extended for a period of time equal to the length of the litigation. Due to uncertainty caused by the landowner's lease challenge, the gas producer had voluntarily ceased all development on the subject property. The gas producer requested that the federal court apply the "doctrine of repudiation" and extend the primary term so as to avoid expiration of the lease. The District Court rejected this request and ruled that the doctrine is not recognized in Pennsylvania.
Federal Court Rules that Assignment of Oil/Gas Lease May Not Extinguish Liability of Original Lessee
Landowners are often alarmed and angered when they receive word that the oil/gas lease they executed several years ago, after months of intense and personal negotiations, has been assigned to an unknown, unfamiliar gas operator. This anxiety is amplified when the landowner’s phone calls or letters go unanswered, the royalty checks are late or are not made at all and the once well-maintained well pad site is now overgrown and in a state of disrepair. Can the landowner seek redress against the original gas operator? A federal court in Pittsburgh recently addressed this issue and suggested that the assignment of an oil/gas lease may not relieve the original gas operator from liability. This decision could impact thousands of leases throughout the Commonwealth of Pennsylvania. Given the potential impact of this decision, landowners and gas operators alike should carefully review the assignment clauses in their leases and re-evaluate liability risks in light of the federal court’s opinion in Rice v. Chesapeake Energy Corp., et al., 2012 WL 3144318 (W.D. Pa., August 1, 2012).
Federal Court in Pittsburgh Allows Lease Cancellation Suit to Move Forward
Throughout Pennsylvania it is not uncommon to encounter gas wells that were drilled over 100 years ago. These ancient wells were drilled pursuant to oil/gas leases that often pre-date the turn of the century. In many cases, the original lessee only drilled a single well and never developed the remaining acreage under the lease. Can that single well drilled in the 1920’s now hold an entire 200 tract of land? This is a common and troubling issue for landowners throughout the Commonwealth. In a recent decision of the federal district court in Pittsburgh, the trial court recognized this hardship and allowed a lease cancellation suit filed by the landowner to move forward.
Who's Entitled to Free Gas?
Suppose you purchase a 100 acre farm in Armstrong County. You are told that the property is subject to an old gas lease but that the farmhouse receives “free gas” from the lone shallow well on the property. Several months after moving into the farmhouse, you receive a notice from the gas company advising you that the supply of free gas will be terminated in thirty (30) days. There is no indication, however, that the existing well will be plugged or shut-in. The gas company tells you that the free gas was a benefit only afforded to the original landowner who signed the lease. Can the gas company now unilaterally terminate the free gas but still maintain the old lease?
Preliminary Operations Not Enough To Extend Lease Into Secondary Term
In a recent decision, the Arkansas Court of Appeals concluded that conducting preliminary drilling operations was not enough to extend the lease into the secondary term. The Arkansas Court of Appeals in Petrohawk Properties, LP v. Heigle, ___ S.W.3d ____, 2011 WL 5562654 (Nov. 16, 2011) ruled that the parties' lease required the gas operator to be engaged in both drilling operations and the production of natural gas at the end of the primary term. Because the gas operator's drilling operations had not yet resulted in actual production, the Petrohawk court determined that the subject leases expired. While the Petrohawk decision is not binding on Pennsylvania courts, the rationale adopted by the Petrohawk panel could impact the interpretation of similar lease clauses throughout the Commonwealth.
Non-Production During Secondary Term Results in Termination of Lease
In a recent decision, the Washington County Court of Common Pleas granted a landowner's request to terminate a ninety-one year old oil/gas lease due to non-production. In Wilson v. Equitable Gas Company, (No. 2009-6503 Washington County, August 31, 2011), the trial court held that a five-year gap in production was sufficient to automatically terminate the lease. As explained below, this decision could impact hundreds of non-producing leases across the Commonwealth.
Subsurface trespass - Can they take the gas under my property without a lease?
This is a familiar yet troubling question. Imagine that you own 150 acres in southwestern Pennsylvania. You have received offers from several prominent gas producers but have not yet signed a lease. Your neighbor, however, did sign a Marcellus lease a few years ago. A typical Marcellus well pad site was erected about 600 yards from your property line. Hydraulic fracturing operations are now complete and the horizontal well is now producing 15 mcf of gas per week. You were told that the horizontal well bore - which is approximately 6,000 feet below the ground - does not encroach or cross your surface boundary. Nonetheless, you are concerned that your neighbor could be draining gas from underneath your property. If so, can you stop your neighbor from taking "your" gas? As with many oil/gas issues, the answer to this question is based on a unique aspect of oil/gas law: the rule of capture.
Adverse Possession – Can Surface Owner Acquire Title to Gas Formations by Mere Passage of Time?
Gas operators have been drilling gas wells throughout this Commonwealth for over a hundred years. As a result, the Pennsylvania countryside is littered with tens of thousands of gas wells.[1] Many of these older wells, unfortunately, are no longer producing gas and have long been abandoned by the gas operator. To make matters worse, the gas operator has disappeared or is no longer in business. Who owns these older, non-producing wells? More importantly, who now owns the remaining natural gas underlying the surface estate? A recent decision of the federal court in Pittsburgh suggests that the mere passage of time will not vest ownership of an unproductive formation in the surface owner.
The Accommodation Doctrine: Balancing The Interests Of The Surface Owner And The Mineral Owner
As the rush to access the Marcellus Shale formation continues, landowners throughout the Commonwealth are learning that their properties may be the next location for a horizontal well site. Given the lucrative signing bonuses being offered, this is welcomed news to some landowners. For those landowners who do not own the underlying mineral formations, however, this news can be troubling and disconcerting. Such uncertainty is well-founded.
Temporary Cessation of Production: How much time does a producer have under Pennsylvania law?
The modern producing gas well is a sophisticated and complex piece of equipment. The basic well head itself consists of several meters, valves and other components, each of which is under constant stress and pressure. In addition to the well head, the producing gas well will be connected to an active network of gathering and transmission pipelines. Proper maintenance is a necessary and ongoing activity at any well site. Such maintenance, however, often requires the producer to take the well temporarily out of production. Moreover, unexpected breakdowns can and do occur over the life of a well. These breakdowns inevitably also take the well out of production.
The Pennsylvania Superior Court recently addressed the issue of whether the mere payment of delay rentals can extend a gas lease beyond its primary term. In Hite v. Falcon Partners, et al., 2011 WL 9632 (January 4, 2011), the Superior Court rejected the gas producer’s argument that a non-producing lease can be preserved indefinitely simply by making delay rental payments. In siding with the landowner, the Superior Court affirmed the trial court’s cancellation of the non-producing lease and sent a clear warning to gas operators throughout the Commonwealth. Following Hite, there is no question that the so-called “automatic termination rule” is alive and well in Pennsylvania. As such, landowners and gas operators alike should carefully review the Hite decision and its potential impact on non-producing leases.
Over the last 18 months natural gas operators from all over the world have converged on Western Pennsylvania. Their goal has been to secure new leases from landowners holding valuable mineral rights in the deeper Marcellus Shale formation. This rush to access the Marcellus Shale is now creating tension between landowners with existing oil/gas leases and their respective lessees. The royalty payments generated from these older, shallow well leases pale in comparison to the large signing bonuses and high-volume royalties associated with deeper Marcellus wells. As such, many of these landowners are now trying to “get out” of their existing leases and sign new, potentially more lucrative, Marcellus leases.
Real Estate and Finance
Many manufacturing enterprises are able to finance their purchase or construction of new facilities at tax-exempt interest rates. This financing method, done through a public authority, organized for this purpose, but with the borrower's customary banking relationships, will significantly lower borrowing costs.
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