Royalty and Royalty Interests: Pennsylvania Guaranteed Minimum Royalty Act Implied Covenant of Good Faith and Fair Dealing

摘要

Plaintiff files suit in 2009 seeking to invalidate its 2002 lease for allegedly (GMRA) violating the provisions of the Pennsylvania Guaranteed Minimum Royalty Act (58 Pa. Stat. § 33). After being first removed to federal court and then remanded back to state court, the trial court enters judgment in favor of the lessees in large part due to the Pennsylvania Supreme Court's opinion in Kilmer v. Elexco Land Services, Inc., 605 Pa. 413, 990 A.2d 1147,175 O.&G.R. 226 (2010). Held: affirmed. Plaintiff argues that its lease does not have an express deduction clause as did the Kilmer lease and therefore is not covered by its holding. Plaintiff's argument is based on the lessee potentially paying less than required under the GMRA because of the vagueness of the royalty clause language. The court, however, applies the general Pennsylvania contract law principle mat all parties to a contract owe to each other an implied covenant or duty of good faith and fan-dealing, which will attach to the lessee's duty to pay royalty. Compliance with any statutory duty will thus become part of the implied covenant and restrain the lessee from violating the GMRA. Any such violation of the implied covenant will lead to a damage recovery and not a termination of the lease as is being sought in this case. As such, dismissal of the lessor's claims is appropriate.