Court Denies Motion to Dismiss Fraudulent Inducement Claim in Natural Gas Lease Suit

by Michael A. Magee, Research Assistant
The U.S. District Court for the Middle District of Pennsylvania has granted in part and denied in part Cabot Oil & Gas Corporation’s (Cabot) motion seeking to dismiss a landowner’s complaint for the invalidation of a natural gas lease. Kropa v. Cabot Oil & Gas Corp., No. 3:08-cv-551, 2010 WL 2346587 (M.D. Pa. June 9, 2010). John Kropa (Kropa), the owner of fifty-one acres in Susquehanna County, claimed that he was fraudulently induced into executing a gas lease based on Cabot’s false claims regarding his land’s lease value. Kropa also claimed that the lease violated the Guaranteed Minimum Royalty Act (GMRA), 58 PA. STAT. § 33. In light of the Supreme Court’s decision in Kilmer v. Elexco Land Servs., Inc., 990 A.2d 1147 (Pa. 2010), the court dismissed Kropa’s GMRA claim. The court, however, denied Cabot’s motion to dismiss Kropa’s fraudulent inducement claim. Cabot argued that evidence of fraud was precluded by the parol evidence rule, which excludes facts beyond the written terms of a contract. The court disagreed and held that a valid contract must exist before the parol evidence rule applies. Evidence of fraud is permitted to contest the validity of a contract. For more information on natural gas issues, please visit the Agricultural Law Center’s Natural Gas Exploration Resource Area.