Bd. of Educ. Toronto City Sch. v. Am. Energy Utica, LLC

• Decision Date: 03 February 2020
• Docket Number: No. 18 JE 0025,18 JE 0025
• Parties: BOARD OF EDUCATION TORONTO CITY SCHOOLS et al., Plaintiffs-Appellees, v. AMERICAN ENERGY UTICA, LLC, et al., Defendants-Appellants.
• Court: Ohio Court of Appeals

152 N.E.3d 378

2020 Ohio 586

BOARD OF EDUCATION TORONTO CITY SCHOOLS et al., Plaintiffs-Appellees,

v.AMERICAN ENERGY UTICA, LLC, et al., Defendants-Appellants.

No. 18 JE 0025

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

Dated: February 3, 2020

Atty. Andrew Douglas, Mazanec, Raskin & Ryder Co., 175 South Third Street, Suite 1000, Columbus, Ohio 43215; Atty. Lee E. Plakas, Atty. Gary A. Corroto, Atty. Joshua E. O'Farrell, Atty. Lauren A. Gribble, 220 Market Avenue South 8th Floor, Canton, Ohio 44702 for Plaintiffs-Appellees and

Atty. Kevin L. Colosimo, Atty. Daniel P. Craig, Frost Brown Todd, LLC, Union Trust Building, 501 Grant Street, Suite 800, Pittsburgh, Pennsylvania 15219; Atty. Scott Beckmen, CKR Law, P.O. Box 271064, Flower Mound, Texas 75027 for Defendants-Appellants.

BEFORE: Carol Ann Robb, Gene Donofrio, David A. D'Apolito, Judges.

OPINION AND JUDGMENT ENTRY

Robb, J.

{¶1} Defendant-Appellant Ascent Resources Utica LLC (and related entities) appeal the decision of the Jefferson County Common Pleas Court granting summary judgment in favor of Plaintiff-Appellees Board of Education Toronto City Schools and other landowners on their contractual claims based on oil and gas leases in which the lessee was Great River Energy LLC, a land broker hired by Appellant to enter into leases in the area. First, Appellant argues it was not a party to the leases and the principles of agency law did not bind it to any contractual obligations on title work or signing bonuses, stating a disclosed principal is not bound where the other party chose to enter a contract in the agent's name. This argument is overruled as the trial court correctly held that Appellant was the principal who became a party to the contract when its authorized agent entered the contract on its behalf.

{¶2} Second, Appellant contests the trial court's conclusion that because notice of a title defect was not provided by the contractual deadline, the landowners were entitled to the signing bonus on all acres listed in the lease even if a landowner did not own the minerals or was unable to lease them due to a pre-existing lease. We reverse the summary judgment on this ground and conclude the plain language of the order of payment attached to the lease did not automatically require payment for all listed acreage upon a missed deadline. Rather, a breach of the title review clause requires a showing of damages. As the case did not reach that stage due to the trial court's summary judgment on contract interpretation, we hereby remand.

{¶3} Finally, we conclude certain rulings (such as deeming a matter admitted or denying leave to amend an answer) were not erroneous, and we conclude other rulings (finding non-movant's evidence on affirmative defenses did not create a genuine issue for trial) are moot due to our reversal of the underlying summary judgment. For the following reasons, we reverse the trial court's judgment and remand for further proceedings consistent with this opinion.

Statement of the Case

{¶4} In 2015, a group of landowners sued Ascent Resources Utica LLC (fka American Energy Utica LLC) and American Energy Partners LP (collectively "Appellant") and Great River Energy LLC ("GRE") asserting various claims including breach of contract. GRE was retained by Appellant as its land services agent and was named as the lessee in the 2013 oil and gas leases. When the leases were executed, the landowners were all represented by the same law firm who negotiated on their behalf as a group (which included other lessors who are not part of this suit).

{¶5} The complaint alleged the order of payment incorporated into each lease provided 120 days from receipt of the signed lease documents for GRE to tender the signing bonus for all acreage encompassed in the lease (even if there was no title or there was an existing lease) or to timely identify a title defect (and surrender the lease if the defect was not timely cured by the landowner within 90 days). The complaint said the landowners were not provided with notice of a title defect within 120 days, they gave notice of non-payment (which provided the lessee 30 days to tender payment), and they did not receive payment. The plaintiffs allegedly fell into three groups: (1) group one never received a notice of a title defect; (2) group two received untimely notice of a title defect and then allegedly cured the defect within the 90-day period; and (3) group three received untimely notice of a title defect.

{¶6} Appellant was said to be liable because GRE procured the leases as Appellant's agent at the direction and for the benefit of Appellant under an agreement whereby GRE would tender the signing bonus and legal fees payable under each lease after receiving the money from Appellant and GRE would subsequently assign the lease to Appellant. Both the bonus and the legal fees were calculated based on the acreage listed in each lease. (The lease terms are set forth in part two under the first assignment of error.)

{¶7} Appellant filed a motion to dismiss asserting it was not obligated under the lease because it was a disclosed principal and the lease named only the agent as the lessee meaning the landowners chose to contract with the agent alone. On December 12, 2016, the trial court denied Appellant's motion to dismiss.

{¶8} In the meantime, the landowners filed a motion for summary judgment (on August 29, 2016). They urged Appellant was bound by the lease with GRE under agency law and the duty to tender the full signing bonus became absolute if the title work was not completed within 120 days. Affidavits from the landowners attested they did not receive notice of a title defect within the 120-day period and they were not paid for all acreage listed in the lease.

{¶9} Appellant's response in opposition to summary judgment reiterated the agency argument, claiming it was not bound by GRE's lease. Appellant also asserted the signing bonus was not automatic upon expiration of the title deadline because: the lease allowed the lessee to reduce the consideration paid based on the true net interest owned by the lessor; the lease conditioned payment upon title being confirmed satisfactorily to GRE in its sole discretion; a lack of ownership is more than a title defect; a lease is unenforceable without consideration, which was not excused by a clause stating there is no warranty of title; the lease did not take effect until payment of the bonus; the title review process in the order of payment was akin to an option contract which was never accepted by payment of the full signing bonus; and after the 120-day period expired without payment or notice of a title defect, the lease lapsed and the landowners were free to lease to another.

{¶10} Appellant filed a list of affirmative defenses, pointing out that it had not yet filed an answer due to its pending motion to dismiss. After the motion to dismiss was overruled, Appellant's answer (filed in January 2017) explained Appellant would tender the bonus payment to GRE for payment of the signing bonus to a landowner to the extent the landowner had good title to the oil and gas interests listed in the order of payment. The answer reviewed issues with certain interests attempted to be leased, such as lack of ownership and pre-existing leases. It said the tendered payments corresponded to the unencumbered acreage owned and pointed to "corrective" documents signed by some landowners.

{¶11} On March 23, 2017, the trial court granted the landowners' motion for summary judgment as to Appellant's contractual obligations. On the issue of agency, the court applied law stating the principal itself becomes a party to a contract made on its behalf by its authorized agent. The court pointed to the Master Land Services Contract with GRE's parent company (Orange Energy Consultants LLP), which stated the services to be provided to Appellant included: "negotiating for the acquisition of mineral rights, negotiating agreements that provide for the exploration and for production of minerals, conducting lease availability checks, title research, mineral take-offs, acquisition due diligence, lease and/or pipeline right-of-way negotiations, title curative and representation at State and/or Federal Lease sales." The court referred to correspondence showing Appellant instructed Orange Energy to take the leases under the GRE name in order to portray local connections, and the court cited an advertisement approved by Appellant which instructed landowners interested in leasing with American Energy Partners to contact GRE with whom it was acting in partnership. The court concluded Appellant was bound under agency principles.

{¶12} On the issue of contract interpretation and Appellant's duties under the lease, the court found the order of payment clearly and unambiguously: required payment or notice of a title defect within 120 days; provided an opportunity to cure a defect within 90 days of the notice; allowed surrender only if there was timely notice of a title defect plus an inability to cure within the cure period; and required full payment within 30 days of the lessor's notice of non-payment or to surrender by the due date. The court concluded the obligation to pay the full signing bonus became absolute once GRE failed to provide written notice of a title defect within 120 days and the obligation to pay was not dependent on a landowner's title.

{¶13} The court left the matter of breach and damages for subsequent summary judgment proceedings or trial. Notwithstanding the trial court's decision in favor of the landowners, Appellant filed a motion for summary judgment as to one landowner, arguing he did not own the minerals and suffered no injury. In response, the landowners pointed out that the trial court already rejected this argument in the March 23, 2017 decision, which found a landowner was entitled to full payment under the terms of the lease if the title review period expired without notice of a title...