Lutz v. Chesapeake Appalachia, L.L.C.

Citation717 F.3d 459
Decision Date29 May 2013
Docket NumberNos. 10–4538,11–3034.,s. 10–4538
PartiesRegis F. LUTZ; Marion L. Lutz; Leonard Yochman; Joseph L. Yochman; C.Y.V., LLC, Plaintiffs–Appellants, v. CHESAPEAKE APPALACHIA, L.L.C.; Columbia Energy Group; NiSource, Inc., Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

OPINION TEXT STARTS HERE

ARGUED:Robert C. Sanders, Law Office of Robert C. Sanders, Upper Marlboro, Maryland, for Appellants. Yvette Harmon, McGuireWoods LLP, New York, New York, for Appellees. ON BRIEF:Robert C. Sanders, Law Office of Robert C. Sanders, Upper Marlboro, Maryland, James A. Lowe, Lowe Eklund Wakefield & Mulvihill, Cleveland, Ohio, for Appellants. Yvette Harmon, Philip Goldstein, McGuire Woods LLP, New York, New York, Jonathan Blank, McGuire Woods LLP, Charlottesville, Virginia, for Appellees.

Before: GIBBONS, GRIFFIN, and DONALD, Circuit Judges.

OPINION

GRIFFIN, Circuit Judge.

Plaintiffs-appellants are the owners and lessors of royalty rights to natural gas produced in Trumbull and Mahoning Counties in Ohio. In September 2009, plaintiffs filed this putative class-action lawsuit, alleging that defendants-appellees—three interrelated energy companies 1 that entered into oil and gas leases with plaintiffs—deliberately and fraudulently underpaid gas royalties over a time period spanning more than a decade. Plaintiffs asserted breach of contract and five additional tort and quasi-contract claims and sought compensatory and punitive damages.

The district court dismissed plaintiffs' suit under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted. Plaintiffs now appeal the adverse judgment with respect to their breach of contract claim and the district court's order denying their motion to alter or amend the judgment or, in the alternative, for relief from judgment under Fed.R.Civ.P. 59(e) and 60, respectively. For the reasons that follow, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

I.

Plaintiffs are the lessors of interests in natural gas estates in tracts of land located in Ohio. In their class-action complaint,2 plaintiffs alleged that in 1985, Columbia Natural Resources, Inc. (“CNR”) and its corporate successors, defendants herein, began producing natural gas in several states in the Appalachian Basin. CNR entered into individual oil and gas leases with the owners of mineral rights in these states, including the named plaintiffs and members of the proposed plaintiff class. The leases typically required CNR to pay the lessor a royalty equal to 1/8th of the value of the gas produced each month. The monthly royalty was computed by multiplying the volumes produced by the market price of gas at the time of production and dividing that product by eight.

Plaintiffs alleged that [b]eginning in at least 1993,” CNR began to deliberately and fraudulently underpay the full gas royalty due its natural gas lessors, by (1) deducting post-production costs from the royalty payments, (2) calculating the monthly royalty payments using a price that was less than the market price of the gas at the time of production, and (3) calculating the monthly royalty payments using volumes that were less than the volumes actually produced.” To conceal the improper deductions, CNR allegedly falsified the monthly accounting statements on the check stubs attached to the royalty checks. CNR also purportedly used other methods to defraud the lessors, such as reducing the price of gas (the “rate”) used in the royalty formula by using the price it charged affiliate companies, who would then resell the gas for a profit at market prices.

Plaintiffs further alleged that, in addition to the improprieties described above, CNR and its successors defrauded lessors of the full royalty payments due them during a six-year period from 2000 to 2006, using yet another deceptive calculation method. In 1999 and 2000, CNR entered into two “forward sales” of gas with an off-shore entity called Mahonia II, pursuant to which CNR agreed to sell over ninety percent of all gas it produced to Mahonia II for a prospective six-year period in exchange for an up-front cash payment at a fixed price per dekatherm. In calculating the royalty payments during this period, CNR allegedly used the low, fixed gas price of under $3 a dekatherm set forth in the Mahonia II contracts, not the much higher market prices of as much as $16 a dekatherm, as required by the lease agreements. Plaintiffs averred that when Chesapeake became the lessee on the former CNR leases in November 2005, it continued the fraudulent practices of its corporate predecessor “until at least January of 2007, and perhaps to the present.”

Plaintiffs' complaint asserted state-law claims for: (1) breach of contract; (2) common law fraud; (3) conversion; (4) unjust enrichment; (5) civil conspiracy and joint venture; and (6) indemnification and assumption of liability. Plaintiffs also sought punitive damages. Defendants moved to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiffs' breach of contract claims were time-barred under Ohio law and the remaining counts were not independently actionable because they arose solely out of contractual duties. Plaintiffs then filed a first amended complaint and corrected first amended complaint without seeking leave to amend. Defendants moved to strike the amended complaints, and plaintiffs responded with a motion for leave to file their corrected first amended complaint.

On June 18, 2010, following oral argument and supplemental briefing, the district court issued a memorandum opinion and order granting defendants' motions and denying plaintiffs' motion. ( See also Lutz v. Chesapeake Appalachia, LLC, No. 4:09CV2256, 2010 WL 2541669 (N.D.Ohio June 18, 2010) (unpublished)). The district court dismissed plaintiffs' original complaint in its entirety, holding that plaintiffs' breach of contract claim was time-barred by Ohio's four-year statute of limitations, ORC § 2305.041, and that none of plaintiffs' tort and quasi-contract claims were separate and distinct from the underlying contract action because they did not allege any obligations apart from those imposed by the leases. In a subsequent order, the court denied plaintiffs' motion to alter or amend the judgment or, in the alternative, for relief from the judgment. ( See also Lutz v. Chesapeake Appalachia, LLC, No. 4:09CV2256, 2010 WL 4823225 (N.D.Ohio Nov. 22, 2010) (unpublished)).

Plaintiffs timely appeal the district court's orders. In their appellate brief, they challenge only the district court's dismissal of their breach of contract claim. Thus, any objections to the court's dismissal of their tort and quasi-contract claims, or to the denial of their motion for leave to amend the complaint, are deemed abandoned. Severe Records, LLC v. Rich, 658 F.3d 571, 578 n. 6 (6th Cir.2011); Johnson v. City of Detroit, 446 F.3d 614, 618 n. 3 (6th Cir.2006).

II.

We review de novo the district court's order dismissing plaintiffs' complaint pursuant to Rule 12(b)(6). Metz v. Unizan Bank, 649 F.3d 492, 496 (6th Cir.2011). In doing so, we construe the complaint in a light most favorable to plaintiffs, accept all plausible well-pled factual allegations as true, and draw all reasonable inferences in plaintiffs' favor. Ohio Police & Fire Pension Fund v. Standard & Poor's Fin. Servs., LLC, 700 F.3d 829, 835 (6th Cir.2012). “Despite this liberal pleading standard, we may no longer accept conclusory legal allegations that do not include specific facts necessary to establish the cause of action.” Id. (citation and internal quotation marks omitted). “Rather, the complaint has to ‘plead [ ] factual content that allows the court to draw the reasonable inference that the defendant[s are] liable for the misconduct alleged.’ Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). “If the [plaintiffs] do ‘not nudge[ ] their claims across the line from conceivable to plausible, their complaint must be dismissed.’ Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Generally, a motion under Rule 12(b)(6), which considers only the allegations in the complaint, is an “inappropriate vehicle” for dismissing a claim based upon a statute of limitations. Cataldo v. U.S. Steel Corp., 676 F.3d 542, 547 (6th Cir.2012). However, dismissal is warranted if “the allegations in the complaint affirmatively show that the claim is time-barred.” Id. “Because the statute of limitations is an affirmative defense, the burden is on the defendant to show that the statute of limitations has run,” and [i]f the defendant meets this requirement then the burden shifts to the plaintiff to establish an exception to the statute of limitations.” Campbell v. Grand Trunk W. R.R. Co., 238 F.3d 772, 775 (6th Cir.2001); see also Evans v. S. Ohio Med. Ctr., 103 Ohio App.3d 250, 659 N.E.2d 326, 329 (1995) (“The bar of the statute of limitations is an affirmative defense ... upon which the defendant bears the burden of proof at trial.”).

In this diversity case, we are obliged to apply the substantive law of the forum state, Ohio, in accordance with the controlling decisions of its highest court. Metz, 649 F.3d at 496. If the highest court has not yet addressed the precise issue at hand, we must predict how the court would rule by looking to all the available data,” including intermediate appellate decisions. Berrington v. Wal–Mart Stores, Inc., 696 F.3d 604, 608 (6th Cir.2012) (citation and internal quotation marks omitted).

III.

The parties do not dispute that the applicable statute of limitations governing plaintiffs' contract claim is ORC § 2305.041, which became effective on April 6, 2007, and changed the limitations period for the breach of a lease for oil or gas drilling from the fifteen-year...

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