This article originally appeared in the February 3, 2017 edition of the Lawyers Journal.
Since the first Marcellus Shale well was drilled in 2004, tens of thousands of oil and gas leases have been negotiated across Pennsylvania. Non-lawyers sometimes play a prominent role in the leasing process. Yet it is illegal for a non-attorney to provide legal services in exchange for compensation. This creates a situation rife with the potential for the unauthorized practice of law.
This issue has not received much attention in the slew of litigation spawned by the rapid expansion of the natural gas industry in Pennsylvania, but a little known case provides insight into how Pennsylvania courts may tackle this question in the years to come.
The case of Capouillez v. Laurel Hill Game and Forestry Club et. al., No. 12-00005, (Lycoming County, 2013) involves a geologist who represented landowners in their lease negotiations with oil and gas companies. Mr. Capouillez had a unique contingency-based business model. Instead of charging fees for his services, he was compensated through his inclusion as a party to the lease that he secured. In this way, he would receive a share of any signing bonus and land rental payments, along with a permanent share of any oil and gas royalties once a lease entered into production.
A little background on oil and gas leasing is in order. A typical lease has a five year primary term during which the landowner receives rental payments while the gas company has the right to develop the property by drilling and operating a well. If the gas company does so, the lease is extended into the secondary term, which lasts until oil and gas are no longer produced in paying quantities. But if the property is not developed during the primary term, then the lease expires and the landowner is free to negotiate a new lease or to simply no longer lease the property at all.
One of Capouillez’s clients, the Laurel Hill Game and Forestry Club, ended up in litigation with Range Resources when the five year primary lease term expired before gas production had started. Yet Range Resources had begun to dig a well just a few hours prior to the expiration of the primary term. The resulting lawsuit concerned whether those efforts were sufficient to extend the lease into the secondary term.
Capouillez did not participate in that litigation and the parties settled out of court. The settlement led to negotiation of a new lease to which Capouillez was no longer included as a party. Capouillez sued his former client and Range Resources, arguing that the lease gave him a right to approve any revisions that affected his compensation. Laurel Hill then brought a counterclaim for the unauthorized practice of law.
The trial court ruled against Capouillez at summary judgment, reasoning that the lease only permitted him to approve revisions to the original lease, but did not grant him any right to participate in a subsequent one. More interesting, however, was the court’s finding that Capouillez had engaged in the unauthorized practice of law.
The trial court’s opinion listed the three areas that dominate legal activities: (1) advising clients on legal rights and obligations; (2) preparing documents for clients that require legal knowledge; and (3) appearing in public tribunals on behalf of a client. The Court found that Capouillez had taken actions consistent with the first two categories by representing landowners in connection with oil and gas leases, helping to draft the leases and advising clients on the contents of lease offers.
Capouillez maintained that he was merely acting as a landman and cited cases from Oklahoma, Louisiana and Texas to support his argument that a landman’s duties do not constitute the practice of law. Thus, Capouillez argued that if his activities were unlawful, so were the activities of landmen and even real estate agents involved in the negotiations concerning the sale of residential homes. The trial court found this argument unconvincing since Capouillez was not certified as a landman and had never worked as a landman for any company. The court specifically noted that its decision was limited in scope and “should not be interpreted as applying to all landmen working for the oil and gas industry, in particular landmen employed by oil and gas companies.” The court also found that while Capouillez had engaged in the unauthorized practice of law, recovery on the counterclaim was barred by the unclean hands doctrine since Laurel Hill had actually benefitted from Capouillez’s activities.
Capouillez appealed the result to the Superior Court, which affirmed the trial court’s ruling in a non-precedential decision found at No. 797 MDA 2013.
So what does all this mean? It means that persuasive authority exists in Pennsylvania for the proposition that non-attorneys cannot legally represent landowners in negotiations with oil and gas companies. Individuals who do so are subject to the penalties of 42 Pa.C.S. 2524, which include criminal prosecution and the potential assessment of attorneys’ fees in favor of any private party that obtains injunctive relief for the unauthorized practice of law.
For additional information contact Mark Hamilton.