Dennison Bridge, Inc. v. Res. Energy, L. L.C.
| Decision Date | 29 October 2015 |
| Docket Number | No. 14 HA 21.,14 HA 21. |
| Citation | 50 N.E.3d 242 |
| Parties | DENNISON BRIDGE, INC., Plaintiff–Appellant, v. RESOURCE ENERGY, L.L.C., et al., Defendants–Appellees. |
| Court | Ohio Court of Appeals |
Steven J. Shrock, Critchfield, Critchfield & Johnston, Ltd., Millersburg, OH, for Plaintiff–Appellant.
Gwenn S. Karr, Eckert Seamans Cherin & Mellott, LLC, Pittsburgh, PA, Christopher B. Wick, Hahn Loeser & Parks, LLP, Cleveland, OH, for Defendants–Appellees.
{¶ 1} Plaintiff–Appellant Dennison Bridge, Inc. filed an action in the Harrison County Common Pleas Court to have an oil and gas lease terminated. The trial court granted summary judgment in favor of Defendants–Appellees Resource Energy, L.L.C. (“Resource”) and CNX Gas Company L.L.C. (“CNX”) (collectively “Appellees”). The court found as a matter of law that Resource was reasonably diligent in resuming production after experiencing a mechanical issue with the well. We agree with Appellant's first argument that there remain genuine issues of material fact as to whether Resource was reasonably diligent in resuming production.
{¶ 2} Appellant's second argument claims the lease is void ab initio as a “no term” perpetual lease. Appellant acknowledges that recent cases out of this court have disposed of this issue. Appellant explains that the issue is raised to preserve it for further review. We maintain our holding in Hupp v. Beck Energy Corp. and the cases derived therefrom, and we conclude that the lease is not void.
{¶ 3} For the following reasons, the entry of summary judgment is reversed, and the case is remanded for further proceedings.
{¶ 4} In 1972, an oil and gas lease was executed for land in Harrison County now owned by Appellant. The habendum clause of the lease provides in pertinent part that the lease shall continue for ten years “and so much longer thereafter * * * as oil and gas or their constituents shall be found on the premises in paying quantities in the judgment of the Lessee * * *.” A well was drilled the same year the lease was executed, and the production of oil commenced.
{¶ 5} On March 19, 2012, Appellant filed a complaint (amended on June 13, 2012) against Appellees, who are the current lessees under the lease. Resource owns the shallow rights and operates the current well. CNX owns the deep rights. Appellant sought: a declaratory judgment that the lease terminated due to cessation of production in paying quantities in 2010 and that the lease was not a valid and legally binding lease; quiet title; specific performance to compel the removal of the wellhead equipment and the plugging of the well; and damages for conversion.
{¶ 6} Appellees filed motions for summary judgment. They urged in pertinent part that the cessation of production in paying quantities was temporary and they used reasonable diligence to resume production. Appellant responded and filed a partial motion for summary judgment on all claims except damages for conversion. Appellant argued that the length of time to resume production was unreasonable. Appellant alternatively claimed that the lease was contrary to public policy and void ab initio as a “no term” perpetual lease.
{¶ 7} All parties utilized the affidavit and deposition of Bobby Cayton, the Regional Operations Manager for Resource's parent company. Exhibits were incorporated into the affidavit. Cayton explained the efforts to repair the well and opined that in his experience in the industry, “given the circumstances, the time for repair was completely reasonable.” The following facts are derived from Cayton's statements.
{¶ 8} In February 2010, the well showed signs of a problem. On February 19, 2010, Resource hired a subcontractor to plow the snow from the area. (Aff. at ¶ 10; Exhibit C; Depo. at 28). It was ascertained that the issue did not lie on the surface and could not be fixed by the production foreman.1 A subcontractor performed diagnostic and remedial procedures on April 7, 2010, after winter was over. (Aff. at ¶ 13–15; Exhibit D; Depo. at 35, 37).
{¶ 9} First, the structural integrity of the well was tested with a water injection. (Aff. at ¶ 14). When no leaks manifested, a solvent was injected into the well to dissolve paraffin build up which can cause a “down hole” well pump to seize up. (Aff. at ¶ 15; Depo. at 35, 44). It takes “a few weeks to a few months” to ascertain whether the solvent worked, depending on the hardness of the paraffin. (Aff. at ¶ 16; Depo. at 44–45). Cayton assumed the production foreman went to the well periodically to check whether the solvent worked after the April 7, 2010 injection, as that is the typical procedure. (Depo. at 45–47).
{¶ 10} When the injection did not solve the problem, the next step was to order a service rig from a third-party to pull the well equipment and to replace the down hole pump. However, an Authorization for Capital Expenditure (“AFE”) had to be approved before a rig could be scheduled. (Depo. at 49, 61–62). Estimates from third-party contractors (who have Master Services Agreements on file) must be obtained in order for the foreman to prepare the AFE. (Depo. at 51).
{¶ 11} Cayton stated that by the time it was ascertained the solvent did not work, Resource could not schedule a service rig for the 2010 season because the subcontractor books the jobs at the beginning of the year. (Aff. at ¶ 19–20; Depo. at 57, 69–70). Cayton explained that rig repair work generally does not take place in the winter due to safety issues (and laws with weight limits on some winter roads). (Depo. at 58–59, 62; Aff. at ¶ 21). Only high priority projects, such as those that impact the environment or threaten public safety, are undertaken in the winter. (Depo. at 62–63, 85; Aff. at ¶ 20). Cayton noted that the high priority examples he provided usually did not require a service rig. (Depo. at 63).
{¶ 12} In February 2011, the parent company of Resource was sold to Chevron, who required new Master Services Agreements with all subcontractors. (Depo. at 54–55, 87–88). New agreements with the three subcontractors eventually used to repair the well were entered into on: April 8, 2011 (the subcontractor who supplied the rig); June 21, 2011 (the subcontractor who performed access road work); and June 23, 2011 (the subcontractor who supplied the pump). (Aff. at ¶ 24–26; Exhibits E, F, G).
{¶ 13} On July 5, 2011, the subcontractor to supply the pump provided a work order. On July 22, 2011, the AFE was prepared by Resource and sent to the parent company for approval. The AFE was approved on August 2, 2011. The estimated cost was approximately $7,000, which was expected to be recouped within five months of fixing the well. (Depo. at 73). The repair project began on August 19, 2011 and was completed on August 25, 2011, on which date production resumed. (Depo. at 78).2
{¶ 14} On November 19, 2014, the trial court granted summary judgment in favor of Appellees. The trial court recited various facts and concluded that production did not cease for an unreasonable amount of time. The court found that much of the delay was caused by scheduling conflicts not under the control of Resource. The court held that Resource engaged in reasonable efforts to repair the well and to place it back into production. The trial court overruled Appellant's perpetual lease argument by citing the decision in Hupp, which this court released on September 26, 2014. See Hupp v. Beck Energy Corp., 7th Dist., 2014-Ohio-4255, 20 N.E.3d 732.
{¶ 15} Appellant filed a timely appeal to this court. Appellant lists one general assignment of error: “The trial court erred by granting Defendants–Appellees summary judgment.” Appellant specifies two issues: whether Resource acted with reasonable diligence as a matter of law and whether the lease violates public policy as a perpetual lease.
{¶ 16} Summary judgment can be granted only when there remains no genuine issue of material fact and, when construing the evidence most strongly in favor of the non-moving party, reasonable minds can only conclude that the moving party is entitled to judgment as a matter of law. Civ.R. 56(C). The movant has the initial burden to show that no genuine issue of material fact exists. Byrd v. Smith, 110 Ohio St.3d 24, 26–27, 2006-Ohio-3455, 850 N.E.2d 47, ¶ 10, citing Dresher v. Burt (1996), 75 Ohio St.3d 280, 294, 662 N.E.2d 264 (1996).
{¶ 17} The non-moving party then has a reciprocal burden. Id. The non-movant's response, by affidavit or as otherwise provided in Civ.R. 56, must set forth specific facts showing that there is a genuine issue for trial and may not rest upon mere allegations or denials in the pleadings. Civ.R. 56(E). In doing so, the non-movant can rely on the evidentiary material submitted by the movant rather than submitting independent evidentiary material. AAAA Ents., Inc. v. River Place Community Urban Redev. Corp., 50 Ohio St.3d 157, 161, 553 N.E.2d 597 (1990) ().
{¶ 18} Civ.R. 56 must be construed in a manner that balances the right of the non-movant to have a jury try claims and defenses that are adequately based in fact with the right of the movant to demonstrate, prior to trial, that the claims and defenses have no factual basis. Byrd, 110 Ohio St.3d 24, 850 N.E.2d 47, at ¶ 11, citing Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Doubts are to be resolved in favor of the non-movant. Leibreich v. A.J. Refrig., Inc., 67 Ohio St.3d 266, 269, 617 N.E.2d 1068 (1993). In determining whether there exists a genuine issue of material fact to be resolved, the court is to consider the evidence and all reasonable inferences to be drawn from that evidence...
To continue reading
Request your trial