Hills & Hollers, LLC v. Ohio Gathering Co.

• Decision Date: 02 July 2018
• Docket Number: No. 17 BE 0040,17 BE 0040
• Citation: 116 N.E.3d 801,2018 Ohio 2814
• Parties: HILLS AND HOLLERS, LLC, Plaintiff-Appellant, v. OHIO GATHERING COMPANY, LLC, Defendant-Appellee.
• Court: Ohio Court of Appeals

116 N.E.3d 801

2018 Ohio 2814

HILLS AND HOLLERS, LLC, Plaintiff-Appellant,

v.OHIO GATHERING COMPANY, LLC, Defendant-Appellee.

No. 17 BE 0040

Court of Appeals of Ohio, Seventh District, Belmont County.

Dated: July 2, 2018

Atty. Jerome W. Cook, Atty. Michael J. Meyer, Benesch, Friedlander, Coplan & Aronoff LLP 200 Public Square, Suite 2300, Cleveland, Ohio 44114 for Plaintiff-Appellant and

Atty. Kevin L. Colosimo, Atty. Christopher W. Rogers, Atty. Daniel P. Craig, Frost Brown Todd LLC, Union Trust Building, 501 Grant Street, Suite 800 Pittsburgh, Pennsylvania, 15219, for Defendant Appellee.

BEFORE: Carol Ann Robb, Gene Donofrio, Cheryl L. Waite, Judges.

OPINION AND JUDGMENT ENTRY

Robb, P.J.

{¶ 1} Plaintiff-Appellant Hills and Hollers, LLC appeals the decision of the Belmont County Common Pleas Court granting summary judgment in favor of Defendant-Appellee Ohio Gathering Company, LLC. Appellant argues it is entitled to enforce a clause in the addendum to the pipeline right of way agreement which said Appellee "shall be responsible for all other taxes, charges, and market enhancements charged to the flow of gas or liquids from the [named] well pad." Appellant believes the court applied the merger by deed doctrine and contends an exception to the doctrine applies; specifically, Appellant asserts the clause was independent and collateral to the right of way agreement. Appellant concludes the conveyance to Gulfport did not extinguish its right to enforce the clause as Appellant reserved the mineral rights. If this argument succeeds, Appellant contests the trial court's alternative holding and asserts Appellee's subsequent release of the right of way cannot eliminate its obligations to Appellant under the disputed clause. As we conclude Appellant's conveyance of the property eliminated its right to enforce the disputed clause in the right of way agreement, we need not reach the alternative argument on the release. The trial court's judgment is hereby affirmed.

STATEMENT OF THE CASE

{¶ 2} The sole member of Appellant Hills and Hollers, LLC is Scott Stronz. He entered into a lease with Gulfport Energy Corporation in 2011 over a 78.54 tract (and a smaller tract). He conveyed the property to Appellant in 2014. Five wells drawing from a pooled unit were located at the Stronz well pad which was on Appellant's property. Appellee Ohio Gathering Company, LLC was a midstream company who gathered gas (and liquids) from the wells, compressed it, and transported it to processing facilities.¹ Fees for the service were charged to the producer-lessee (Gulfport) who decreased the royalty to the lessor (Appellant) as a result.

{¶ 3} On March 27, 2015, Appellant executed a right of way agreement granting Appellee a pipeline right of way and an easement over the 78.54 acre tract. The recorded right of way agreement provided the grantee with the right "at any time to abandon and terminate all or any part of the right-of-way and easement rights granted herein, by filing a release of a same in the county records." The grant was binding on the grantor and grantee and "shall inure to the benefit of their respective heirs, executors, personal representatives, successors and assigns." The grantor agreed all consideration due for the right of way and easement had been received, except to the extent any consideration was due upon completion of construction. The agreement said the grantor's failure to comply with any covenant shall not be construed as a breach until the grantee gives written notice and the grantor fails to cure within 30 days.

{¶ 4} The recorded right of way agreement also said the grantee can elect to record the agreement or a memorandum of the agreement. The recorded right of way contained an integration clause (providing no other statements can add to or change the terms of the agreement, which was the entire agreement) and concluded by stating: "This Right of Way Agreement is made further subject to the terms and provisions contained in that certain unrecorded Addendum by and between GRANTOR and GRANTEE herein, executed of even date herewith."

{¶ 5} This incorporated addendum to the recorded right of way agreement was executed at the same time and specifically reiterated it "is made a part of" the right of way agreement. The heading directed it was not to be recorded. The addendum provided for payments of $36,000 for the grant of the right of way and $144,000 as damages for the construction and installation of the initial pipeline (with an estimated total footage of 2,400 feet). The location was defined by two attached exhibits. An additional payment of $180,000 was required before construction of a second pipeline.

{¶ 6} A numbered list of "Special Conditions" in the addendum obligated Appellee to pay $20,000 for a temporary work area and $20,000 for use of an access road; set forth obligations concerning ditches, markers, clearing, grading, reseeding, cleaning, and installing through crops; and prohibited fishing, hunting, and most above-ground appurtenances. Among the special conditions was the following clause:

13. Real Estate Taxes and Other Expenses. Owner shall be responsible for the payment of all real estate taxes assessed against Owner's Property. If the applicable taxing authorities increase the taxable value of improvements upon the real estate as a result of the installation of the Pipelines, Grantee agrees to reimburse Owner for the amount of such increase directly attributable to the Pipelines and/or the Easements. Grantee shall be responsible for all other taxes, charges and market enhancements charged to the flow of gas or liquids from the Scott well pad or Stronz well pad. "

(Emphasis added) (hereinafter: the "charges to the flow of gas" clause).

{¶ 7} Pursuant to the terms of the agreement, Appellee paid $220,000 to Appellant for the initial pipeline (the sum of $144,000, $36,000, $20,000, and $20,000). Stronz said this pipeline was constructed after Appellant's sale of surface to Gulfport. He said the "Stronz well pad" began production before the execution of the March 27, 2015 right of way agreement. The "Scott well pad" was not built, and a second pipeline was not constructed under the agreement.

{¶ 8} On June 15, 2015, approximately 80 days after executing the right of way agreement, Appellant executed a limited warranty deed conveying to Gulfport the 78.54 acre parcel (and a 27.64 acre parcel) for $800,000. After excepting all previously conveyed coal and mining rights, Appellant's deed to Gulfport provided:

EXCEPTING AND RESERVING to the GRANTOR herein by this conveyance, all rights to the oil and gas below the surface of the subject land.

UNDER AND SUBJECT to any and all exceptions, reservations, restrictions, easements, rights of way, highways, estates, covenants and conditions apparent on the premises or shown by instruments of record.

{¶ 9} A purchase and sale agreement was executed the same day, providing for Appellant's sale and Gulfport's purchase of "the surface estate of the property, subject to the terms and condition set forth in this Agreement." It then specified the conveyance of:

the Property, together with all privileges, easements, rights of way and other appurtenant rights relating to the Property, and any existing structures or improvements located on the Property, excluding and reserving to [Appellant] any and all oil, gas, and mineral rights in the Property but specifically including all riparian rights running or otherwise associated with the Property. [Appellant] also reserves and retains the right to receive all sums payable to "Owner" with respect to the first and second pipeline damage payment under that certain Easement Agreement , between Hills and Hollers Farm, LLC (as "Owner) and Ohio Gathering Company, L.L.C. (as "Grantee") dated as of February 27, 2015. (Emphasis added.)²

An integration clause stated the document constituted the entire agreement, and a "No Merger" clause provided: "All warranties, representations, obligations, covenants and agreements contained herein shall survive the Closing and shall not be merged with any instruments delivered by Seller to Buyer at the Closing."

{¶ 10} On March 16, 2016, Appellant provided written notice to Appellee claiming breach of the "charges to the flow of gas" clause in the addendum to the right of way agreement. Appellant alleged, "hundreds of thousands of dollars have been withheld from the royalty stream" which were "taxes, charges and market enhancements charged to the flow of gas or liquids" from the pertinent well pad that were the responsibility of Appellee.³ On June 13, 2016, Appellee recorded a release of the right of way agreement, declaring it was releasing its rights in the agreement to the named grantor, "Gulfport Energy Corporation, successor in interest to Hills and Hollers Farm, LLC."

{¶ 11} Appellant filed a complaint against Appellee in October 2016 and an amended complaint on December 21, 2016, setting forth five causes of action: declaratory judgment, breach of the right of way agreement, accounting, fraud in the inducement, and quiet title. The allegations in Appellant's complaint retained on appeal focus on Appellant's desire to enforce the "charges to the flow of gas" clause in the addendum to the right of way agreement. Appellant alleged the clause was a personal covenant which prohibited Appellee from billing (Gulfport) for its services (gathering, compressing, transporting, etc.) charged to the flow of gas from the pertinent well pad; it was Gulfport, as the producer, who was actually billed by Appellee.

{¶ 12} Appellee filed an answer raising affirmative defenses, including: lack of standing as Appellant no longer owned the property subject to the right of way; lack of consideration as Appellant no longer owned the surface and the agreement was made due to Appellant's ownership of the surface; waiver by selling the property and failing to reserve the right to enforce the disputed provisions of the right of way; any real...