My mother used to give us good advice. For example: Don’t lie … do your homework. Sabella v. Appalachian Development Corporation agrees with my mother.
Sabella bought minerals in 1997 under 66 acres in Warren County, Pennsylvania, on which the Haners had two producing wells (under a 144-acre lease from the Harveys). They weren’t paying royalties to Sabella. When given the chance in a 2008 meeting, Mr. Haner did not tell Sabella that his wells produced Sabella’s minerals. Haner then went “all in”, elected not to conduct a title search, drilled more wells, and never paid Sabella.
Limitations and the Discovery Rule
Sabella sued in 2010 for ejectment, conversion and trespass. The Haners asserted that the suit was barred by a two-year limitations statute. Sabella pled the discovery rule: The statute of limitations may be delayed by the plaintiff’s ignorance of his injury and its cause until such time as he could or should have discovered it by the exercise of reasonable diligence.
The court determined that Sabella had used reasonable diligence by taking reasonable efforts to examine the property for oil and gas production. A witness who resided on the secluded, wooded property testified that it was virtually impossible to see wells from the road. For his part, Sabella believed that he did not have the right to trespass on the property to investigate, so he did little else other than investigate from the road.
Does the Objective Test Allow For a Subjective Factor?
Reasonable diligence is determined by an objective standard. Sabella became legally blind between his acquisition of the property and his suit. The Haners argued that such a party-specific consideration could never play into the inquiry. The court disagreed, citing the flexibility of the rule. His impairment was a factor in whether or not he exercised reasonable diligence.
Trespass - Good Faith or Bad Faith?
As in most states, a Pennsylvania good-faith trespasser owes to the injured party, in effect, the trespasser’s net profits. The bad-faith trespasser is liable for all monies derived from the trespass without offset for the cost of generating those monies here, drilling costs and operating expenses.
The court of appeal determined that when Sabella recorded his mineral deed in official public records the Haners were put on constructive notice of his ownership. Pennsylvania’s constructive notice statute imputes knowledge of a fact to a person if he knows the fact or has reason to know it. This includes notice by recording in the public record. The Haners were bad-faith trespassers. The court determined that oil and gas lessees, such as the Haners, are purchasers for purposes of the recordation statute because, upon discovery and production of oil, the lease conveys a potential and definite fee simple determinable. It appears from the discussion that this issue is a new one for Pennsylvania courts.
About That Homework …
The Haners were required to exercise due diligence in their acquisition of their lease from the Harveys. If they had done so, they would have learned of Sabella’s ownership of the minerals under the 66 acres. Because constructive notice of Sabella’s ownership was imputed to the Haners by statute, they lost their claim to bona fide purchaser status.
Mr. Haner should have listened to my mother.