Eastham v. Chesapeake Appalachia, L.L.C.

• Decision Date: 06 June 2014
• Docket Number: No. 13–4233.,13–4233.
• Citation: 754 F.3d 356
• Parties: William EASTHAM and Frostie Eastham, Plaintiffs–Appellants, v. CHESAPEAKE APPALACHIA, L.L.C., Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

754 F.3d 356

William EASTHAM and Frostie Eastham, Plaintiffs–Appellants,

v.CHESAPEAKE APPALACHIA, L.L.C., Defendant–Appellee.

No. 13–4233.

United States Court of Appeals,Sixth Circuit.

Argued: May 1, 2014.

Decided and Filed: June 6, 2014.

ARGUED:Carl A. Frankovitch, Frankovitch, Anetakis, Colantonio & Simon, Weirton, West Virginia, for Appellants. James C. Martin, Reed Smith LLP, Pittsburgh, Pennsylvania, for Appellee. ON BRIEF:Carl A. Frankovitch, Kevin M. Pearl, M. Eric Frankovitch, Frankovitch, Anetakis, Colantonio & Simon, Weirton, West Virginia, for Appellants. Kevin C. Abbott, Reed Smith LLP, Pittsburgh, Pennsylvania, for Appellee.

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

OPINION

GRIFFIN, Circuit Judge.

In this diversity action, plaintiffs William and Frostie Eastham appeal the district court's grant of summary judgment in favor of defendant Chesapeake Appalachia, L.L.C. We affirm.

I.

The facts of this case are straightforward. On April 9, 2007, the Easthams entered into a lease with Great Lakes Energy Partners, LLC (Great Lakes), the predecessor-in-interest to Chesapeake. The lease granted Great Lakes the right to extract oil and gas from the Easthams' real estate, which consisted of 49.066 acres located in Jefferson County, Ohio. After the lease was signed, Chesapeake acquired the lease. In exchange for their oil and gas rights, the Easthams were granted a royalty of one-eighth of the oil and gas produced from the premises. The lease also specified that, until a well was “commenced on the premises,” the Easthams were entitled to “delay rental” payments of $10 per acre “to be made annually until the commencement of a well.” William testified that he received those payments (about $490) annually. The lease term was five years.

This appeal concerns the second sentence of Paragraph 19 of the lease, which states:

In consideration of the acceptance of this lease by the Lessee, the Lessor agrees for himself and his heirs, successors and assigns, that no other lease for the minerals covered by this lease shall be granted by the Lessor during the term of this lease or any extension or renewal thereof granted to the Lessee herein. Upon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants to Lessee an option to extend or renew under similar terms a like lease.

(Emphasis added.)

On March 14, 2012, Chesapeake filed a notice of extension of the oil and gas lease with the Jefferson County Recorder. Upon filing the notice of extension, Chesapeake sent the Easthams a letter stating that it had extended the lease on the same terms for an additional five years. The letter enclosed a delay rental payment for $490.66.

At their depositions, the Easthams testified regarding their understanding of the lease terms. In his deposition, William stated that Henry McGraw—defendant's leasing agent whom William previously knew—told him that the lease would be renegotiated after the initial five-year term. William also testified that, before filing the notice of extension, Chesapeake did not attempt to renegotiate the terms of the lease or make any attempt at all to communicate with the Easthams. William added that he “has a hard time reading” and accordingly did not read the lease. However, William conceded that he could have had someone read the contract to him before he signed it, but he did not do so. In addition, William testified that he did not feel pressured to sign the contract. Frostie also testified that she did not read the lease before signing it. She also stated that she was not pressured into signing the lease, and signed it because William advised her that it was a “good idea” to do so; Frostie described the $10 per acre rental payment as “a good deal at the time.”

On June 12, 2012, the Easthams filed a class action suit in Ohio state court in Jefferson County. The complaint sought a declaration that Paragraph 19 of the oil and gas lease expired at the end of the five-year term and that title to the oil and gas underneath the real estate should be quieted in the Easthams' favor. Specifically, the Easthams alleged that Paragraph 19 does not give Chesapeake the option to unilaterally extend the lease, but rather requires that the parties renegotiate the lease at the end of the initial five-year term. On July 11, 2012, Chesapeake removed the case to the federal district court based on diversity jurisdiction.

On April 25, 2013, Chesapeake filed a motion for summary judgment asserting that the plain text of Paragraph 19 gave it the option to unilaterally extend the lease and that the Easthams' interpretation of Paragraph 19—that the term of the lease expired at the end of the five-year term and any renewal required a renegotiation by the parties—was unsupported. The Easthams filed a cross-motion for summary judgment, arguing: (1) under Ohio law, oil and gas leases must be construed against the lessee; (2) the plain language of Paragraph 19 required Chesapeake to negotiate a new “like lease” with “similar terms,” and accordingly Chesapeake could not unilaterally extend the existing lease under its old terms; (3) in the alternative, Paragraph 19 is ambiguous and therefore the court could examine extrinsic evidence of the parties' intent, which favored the Easthams; and (4) Chesapeake's interpretation of Paragraph 19 created an unconscionable result and was void as against public policy.

The district court agreed with Chesapeake, granting summary judgment in its favor and denying summary judgment to the Easthams, concluding that under the plain language of the lease, Paragraph 19 gave Chesapeake two options: either to extend the lease under its existing terms or renegotiate under new terms. The Easthams timely appealed.

II.

We review de novo a district court's grant of summary judgment. Parsons v. City of Pontiac, 533 F.3d 492, 499 (6th Cir.2008). Summary judgment is proper where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When determining whether the movant has met this burden, we view the evidence in the light most favorable to the nonmoving party. Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., 477 F.3d 854, 861 (6th Cir.2007).

III.

A.

On appeal, the Easthams repeat their principal argument from the district court that Paragraph 19 is ambiguous. We disagree.

Under Ohio law, “[w]hen confronted with an issue of contract interpretation, [a court's] role is to give effect to the intent of the parties.” Sunoco, Inc. (R&M) v. Toledo Edison Co., 129 Ohio St.3d 397, 953 N.E.2d 285, 292 (2011). To that end, courts should

examine the contract as a whole and presume that the intent of the parties is reflected in the language of the contract. In addition, [courts should] look to the plain and ordinary meaning of the language used in the contract unless another meaning is clearly apparent from the contents of the agreement. When the language of a written contract is clear, a court may look no further than the writing itself to find the intent of the parties.

Id. Courts may examine extrinsic evidence to ascertain the parties' intent only if the contract is ambiguous. Shifrin v. Forest City Enters., 64 Ohio St.3d 635, 597 N.E.2d 499, 501 (1992).

A contract is ambiguous where it cannot be given a “definite legal meaning.” Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 797 N.E.2d 1256, 1261 (2003). Put another way, “[a]mbiguity exists only when a provision at issue is susceptible of more than one reasonable interpretation.” Lager v. Miller–Gonzalez, 120 Ohio St.3d 47, 896 N.E.2d 666, 669 (2008); see also11 Williston on Contracts § 30:5 (4th ed.). However, as the Ohio Supreme Court has cautioned, “[o]nly when a definitive meaning proves elusive should rules for construing ambiguous language be employed. Otherwise, allegations of ambiguity become self-fulfilling.” State v. Porterfield, 106 Ohio St.3d 5, 829 N.E.2d 690, 692–93 (2005).

The Easthams argue that the phrase “extend or renew under similar terms a like lease” in Paragraph 19 is ambiguous because it is reasonably susceptible to more than one interpretation. Specifically, the Easthams assert that there is another reasonable construction of Paragraph 19 in addition to that of the district court: namely, that Paragraph 19 “provides an option to the Lessee to enter into a ‘like lease’ ‘under similar terms' ” and “[s]ince the terms of any extension or renewal entered into pursuant to the option were deliberately left open by the use of the terms ‘similar’ and ‘like,’ Paragraph 19 required the parties to enter into a new agreement based on terms and conditions acceptable to both parties.” The Easthams argue that the phrase “under similar terms” can reasonably be understood to modify both the terms “extend” and “renew”; accordingly, the Easthams conclude that “it is completely reasonable to interpret Paragraph 19 to provide an option to ‘extend under similar terms a like lease’ or to ‘renew under similar terms a like lease.’ ” We disagree with the Easthams' interpretation of the contract. For the following reasons, we conclude that the only reasonable construction of Paragraph 19 is the one accepted by the district court—that Paragraph 19 gives defendant two options: (1) to extend the lease on the same terms as the existing lease; or (2) to renegotiate for a “renew[ed]” “like lease” on “similar terms.”

First, the Easthams' ambiguity argument turns on an assumption that options to “extend” are synonymous with options to “renew.” Under Ohio law, they are not. In State ex rel. Preston v. Ferguson, 170 Ohio St. 450, 166 N.E.2d 365, 371 (1960), the Ohio Supreme Court specifically held that:

[A] distinction must be made between contracts containing options to ‘renew’ for a given term or terms and those containing options to ‘extend’ for a given term. A contract containing an option to renew has the effect of granting a right...