Concealed Oil and Gas Rights Are Marital Property Subject to Equitable Distribution

A recent unpublished decision of the Superior Court of Pennsylvania confirms that oil and gas rights, not disclosed in the discovery or inventories of the divorcing spouses, nevertheless must be considered when dividing marital property in equitable distribution.

In Welsh v. Welsh, No. 237 WDA 2012 (June 19, 2013), the Superior Court affirmed the decision of the Washington County judge. In that case, husband and wife filed inventories in which they listed their log home and 32 acres of farm land as marital property, but did not list oil and gas rights. Twice Wife served discovery requests seeking documents “related to oil and gas rights, leases and/or exploration,” and twice husband answered, “None.” During seven days of master’s hearings over a period of two years, no testimony or evidence was presented about oil and gas rights. The master’s report awarded the log home and farm land to husband, with a compensatory payment to wife. No mention was made of any oil or gas rights.

Wife filed exceptions to the master’s report and, prior to argument, presented a petition to include oil and gas rights, alleging for the first time that husband was engaging in negotiations with Range Resources (a leading shale gas producer) to lease subsurface rights beneath the farm land. The Washington County judge granted the motion, and after argument of exceptions, entered a final order directing husband to enter into a gas rights lease, which would be considered as marital property. Husband appealed, arguing that wife had waived the issue by failing to raise it in her inventory, before the close of the evidentiary record, and/or in her exceptions to the master’s report. Husband also argued that wife’s motion abrogated a trial stipulation in which the parties agreed to the value of the farm land.

On appeal, the Superior Court affirmed the trial court’s decision, but not necessarily his reasons. For instance, the Washington County judge held that the gas rights need not be listed separately from the farm land in the parties’ inventories, because the gas rights were not previously severed from the fee simple. The author of the Superior Court’s decision, Judge Donohue, disagreed. Yet, Judge Donohue held that wife’s failure to list the gas rights separately could not inure to the husband’s benefit.

The Superior Court speculated that both spouses might have thought the gas rights insignificant when they filed their inventories, citing Anderson v. Anderson, 822 A.2d 824 (Pa. Super. 2003), in which both spouses omitted antiques from their inventories. The Court in that case found that the wife who had omitted the antiques from her inventory lacked clean hands to preclude husband from including their value in the marital estate.  In other words, where there is a mutual mistake by both parties in describing the nature and value of marital property, the court may correct the mistake at a later stage of the divorce proceeding. The pretrial procedural rule, Pa.R.C.P. 1920.33(d)(1), bars the parties from introducing evidence of property that is not identified in their inventories and pretrial statements “except upon good cause shown.”

Husband attempted to distinguish Anderson by pointing out that wife had not, as in Anderson, presented evidence of the omitted property’s value before the closing of the evidentiary record. The Court pointed out that parties have a duty to amend their discovery responses if they were wrong when made or subsequently become wrong due to changed circumstances. In other words, husband should have produced documents to show that he was negotiating with Range Resources in response to the document request that he had previously answered with “None.”

The Court also held that wife’s motion to include the gas rights in the marital estate was made reasonably promptly, so her failure to raise the issue in her exceptions was not fatal. In short, husband could not benefit from concealing or delaying his negotiations with the gas producer.