Eastham v. Chesapeake Appalachia, LLC
| Decision Date | 18 September 2013 |
| Docket Number | Case No. 2:12-cv-0615 |
| Parties | WILLIAM EASTHAM, et al., Plaintiffs, v. CHESAPEAKE APPALACHIA, LLC, Defendant. |
| Court | U.S. District Court — Southern District of Ohio |
OPINION AND ORDER
This matter is before the Court on the following filings:
(1) Plaintiffs' motion for summary judgment (ECF No. 35), Defendant's response to Plaintiffs' motion (ECF No. 38), and Plaintiffs' reply to Defendant's opposition (ECF No. 41); and
(2) Defendant's motion for summary judgment (ECF No. 33), Plaintiffs' response in opposition to Defendant's motion (ECF No. 37), and Defendant's reply to Plaintiffs' response (ECF No. 39).
For the reasons set forth in more detail in this Opinion and Order, the Court GRANTS the Defendant's motion for summary judgment and DENIES Plaintiffs' motion for summary judgment.
This case arises from a dispute over an oil and gas lease associated with property owned by Plaintiffs William and Frostie Eastham. Plaintiffs entered into an Oil, Gas, and Coalbed Methane Gas Lease (the "Lease") with Great Lakes Energy Partners, LLC ("Great Lakes") in April 2007. As consideration for the Lease, Plaintiffs received a bonus payment of $490.66 (tendollars per acre) and a 12.5 percent royalty interest on oil, gas, and/or coalbed methane gas extracted from the property and marketed. Great Lakes later assigned its interest in the Lease to Defendant Chesapeake Appalachia, LLC ("Chesapeake").
The dispute in this case centers on paragraph 19 of the Lease. Paragraph 19 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.
(ECF No. 33-1 at PageID# 178.)
On March 14, 2012, a date 26 days before the expiration of the Lease term, Chesapeake executed and recorded a Notice of Extension of Oil and Gas Lease. With the Notice, Chesapeake purported to invoke Paragraph 19 and extend the Lease under identical terms. Chesapeake also notified Plaintiffs that it had elected to extend the Lease for an additional five-year period pursuant to Paragraph 19. Upon filing the Notice of Extension, Chesapeake sent a check to Plaintiffs for $490.66, an amount identical to the original bonus paid to Plaintiffs in 2007 at the outset of the Lease. Chesapeake did not negotiate the terms upon which the Lease would continue.
Plaintiffs filed this lawsuit in June 2012 in the Court of Common Pleas of Jefferson County, Ohio. Chesapeake, an Oklahoma limited liability company, removed the action to this Court, invoking the Court's diversity jurisdiction under 28 U.S.C. § 1332(a). (ECF No. 1.) In the Amended Complaint before the Court, Plaintiffs seek a declaratory judgment that the "option language" in Paragraph 19 of the Lease is invalid and that the Lease expires at the close of thefive-year primary term. ( 1 Plaintiffs also seek a declaration under Ohio Rev. Code § 5301.01 quieting title to the oil and gas rights on their property. (Id. at ¶ 26.) For its part, Chesapeake instituted a counterclaim for declaratory judgment seeking, among other things, a declaration that Paragraph 19 of the Lease allows Chesapeake to extend the terms of the Lease for an additional term. Chesapeake's counterclaim also seeks a declaratory judgment that it validly extended the Lease under other clauses and/or under common law bases. (Counterclaim, ECF No. 7 at PageID# 57.)
The parties have filed cross motions for summary judgment on Plaintiffs' Complaint, each of them arguing for the Court to adopt their interpretation of Paragraph 19 of the Lease. The motions for summary judgment are fully briefed and the matter is ripe for this Court's adjudication.2
Summary judgment under Fed. R. Civ. P. 56 is appropriate "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The Court may therefore grant a motion for summary judgment if the nonmoving party who has the burden of proof at trial fails to make a showing sufficient to establish the existence of an element that is essential to that party's case. SeeMuncie Power Prods., Inc. v. United Tech. Auto., Inc., 328 F.3d 870, 873 (6th Cir. 2003) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)).
In viewing the evidence, the Court must draw all reasonable inferences in favor of the nonmoving party, which must set forth specific facts showing that there is a genuine issue of material fact for trial. Id. (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)); Hamad v. Woodcrest Condo. Ass'n, 328 F.3d 224, 234 (6th Cir. 2003)). The central issue is whether the evidence presents a sufficient disagreement to require submission to a trier of fact or whether it is so one-sided that one party must prevail as a matter of law. Hamad, 328 F.3d at 234-35 (quoting Anderson, 477 U.S. at 251-52)). In a contract dispute, summary judgment is appropriate when the contractual language is unambiguous, or, if the language is ambiguous, where extrinsic evidence leaves no genuine issue of material fact and permits contract interpretation of the agreement as a matter of law. See Int'l Union, United Auto., Aerospace and Agr. Implement Workers of Am. v. BVR Liquidating, Inc., 190 F.3d 768, 772 (6th Cir. 1999).
The primary issue contested between the parties is the interpretation of Paragraph 19 of the Lease. Both sides argue that Paragraph 19 is clear and unambiguous; the rub is that they reach different conclusions as to what the language means.
Ohio law governs the matter before the Court. When confronted with an issue of contract interpretation, a court's role is to effectuate the intent of the parties, which is presumed to reside in the language of the contract. Sunoco, Inc. v. Toledo Edison Co., 129 Ohio St. 3d 397, 2011-Ohio-2720, 953 N.E. 2d 285, at ¶ 37 (Ohio 2011). When the language of a written contract is clear, the court's inquiry goes no further than to the writing itself when ascertaining the intent ofthe parties. Id. "As a matter of law, a contract is unambiguous if it can be given a definite legal meaning." Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256, at ¶ 11 (Ohio 2003).
In assessing the meaning of a contract, common words used in the agreement will be given their ordinary meaning unless to do so would be manifestly absurd or some other meaning is clearly evidenced from the content of the instrument. Aultman Hosp. Ass'n v. Community Mut. Ins. Co., 46 Ohio St. 3d 51, 54, 544 N.E. 2d 920 (Ohio 1989) (quoting Alexander v. Buckeye Pipe Line Co., 53 Ohio St. 2d 241, 374 N.E. 2d 146 (Ohio 1978)). A court interpreting a contract must also give effect, if possible, to all of the words used; if one construction would make a particular term meaningless and it is possible to construe the term in such a way as to give it meaning and purpose, the latter must control. Foster Wheeler Enviresponse, Inc. v. Franklin Cty. Convention Facilities Auth., 78 Ohio St. 3d 353, 362, 678 N.E. 2d 519 (Ohio 1997) (quoting Farmers Natl. Bank v. Delaware Ins. Co., 83 Ohio St. 309, 94 N.E. 834 (Ohio 1911)).
Plaintiffs have taken the position that Chesapeake did not have a unilateral option to renew the Lease. Based on the language of Paragraph 19 of the Lease, Plaintiffs contend that Chesapeake was required to negotiate any extension or renewal of the original lease at the conclusion of the primary term. (
Chesapeake's primary argument is a plain language one. The final sentence of Paragraph 19 reads: "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." Applying contract interpretation principles to this language, Chesapeake argues that Paragraph 19 unambiguously grants it an option to either (1) extend the original terms of the Lease uponidentical terms or (2) renew a "like lease" under "similar terms." (Def.'s Mot. Summ. J., ECF No. 33 at PageID# 164.)
Chesapeake's interpretation heeds the use of the disjunctive "or" in the final sentence of Paragraph 19. Chesapeake argues that the use of the word "or" means that the terms "extend" and "renew" in Paragraph 19 mean different things and that a contrary interpretation would mean that including both terms would be superfluous. (Id. at PageID# 165.) Thus, the plain language of Paragraph 19 means that Chesapeake had the option to either extend the lease under the same terms or to renew it under similar terms. This interpretation, argues Chesapeake, is faithful to the language used in Paragraph 19 and the custom and practice of the oil and gas industry.
Plaintiffs argue that Paragraph 19's "plain and unambiguous language" grants to Chesapeake merely "a preferential right to acquire an extension/renewal of the Lease on the same terms and conditions the Lessor is willing to accept from a third party." ( That is, Plaintiffs say Paragraph 19 gives Chesapeake the option to enter into a "like lease" under "similar terms," but not the same lease under identical terms. Thus, Plaintiffs argue that Chesapeake's extension of the Lease upon the identical terms of the original five-year Lease was...
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