Hupp v. Beck Energy Corp., Nos. 12 MO 6

• Court: United States Court of Appeals (Ohio)
• Citation: 20 N.E.3d 732
• Decision Date: 26 September 2014
• Parties: Clyde HUPP, et al., Plaintiffs–Appellees, v. BECK ENERGY CORPORATION, Defendant–Appellant. and XTO Energy, Inc., Proposed Intervenor/Appellant.
• Docket Number: 13 MO 3,13 MO 2,Nos. 12 MO 6,13 MO 11.

20 N.E.3d 732

Clyde HUPP, et al., Plaintiffs–Appellees
v.
BECK ENERGY CORPORATION, Defendant–Appellant.
and
XTO Energy, Inc., Proposed Intervenor/Appellant.

Nos. 12 MO 6
13 MO 2
13 MO 3
13 MO 11.

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

Sept. 26, 2014.

20 N.E.3d 735

Richard V. Zurz, Jr., Mark A. Ropchock, Slater & Zurz, LLP, Akron, OH, James W. Peters, Peters Law Offices, Woodsfield, OH, for plaintiffs-appellees.

Scott M. Zurakowski, William G. Williams, Nathan D. Vaughan, Gregory W. Watts, Aletha M. Carver, Krugliak, Wilkins, Griffiths & Dougherty Co. L.P.A., Canton, OH, for defendant-appellant.

Clair E. Dickinson, Brouse McDowell, Akron, OH, Andrew J. Pollis, Cleveland, OH, Kevin C. Abbott, Reed Smith LLP, Pittsburgh, PA, William J. Taylor, Kincaid, Taylor & Greer, Zanesville, OH, for Proposed Intervenor/Appellant.

John K. Keller, Lija Kaleps–Clark, Vorys, Sater, Seymour & Pease LLP, Columbus, OH, Counsel for United Association of Plumber and Pipefitters, et al.

MARY DeGENARO, J., GENE DONOFRIO, J., and JOSEPH J. VUKOVICH, J.

Opinion

DeGENARO, P.J.

{¶ 1} Defendant–Appellant, Beck Energy Corp. (Beck), appeals the July 31, 2012, February 8, 2013 and June 10, 2013 judgments of the Monroe County Court of Common Pleas. Plaintiffs–Appellees are six named Monroe County oil and gas lessors (the named plaintiffs), together with a class of similarly situated Ohio lessors. Appellees, when referred to collectively herein, will be called “the Landowners.” Respectively, these three appealed judgments: (1) granted summary judgment in favor of the named plaintiffs; (2) granted the named plaintiffs' motion for class certification; and (3) more specifically defined the class, pursuant to a limited remand order from this court. These judgments generated three appeals: Case Nos. 12MO6, 13MO3 and 13MO11.

{¶ 2} Proposed Intervenor–Appellant, XTO Energy, Inc. (XTO), appeals the February 8, 2013 judgment of the Monroe County Court of Common Pleas, overruling its motion to intervene as a defendant, and generated a fourth appeal,

20 N.E.3d 736

Case No. 13MO2. All four appeals have been consolidated.

{¶ 3} In 13MO3, Beck argues that the trial court erred by certifying a class after it granted summary judgment on the merits because it violates the rule against one-way intervention, as well as by failing to hold a class certification hearing. In 13MO11, Beck asserts that the trial court abused its discretion by defining the class more broadly than that requested in the second amended class action complaint and motion for class certification. The trial court did not abuse its discretion by certifying the class after granting summary judgment on the merits because the rule against one-way intervention does not apply to Civ.R. 23(B)(2) classes. There was sufficient opportunity for factual development so as to permit a meaningful determination regarding the class action certification, thus rendering a hearing unnecessary. With regard to class definition, the trial court has discretion to modify the class, even sua sponte, and it did not abuse its discretion by defining the class as all Ohio lessors who executed a Form G & T 83 Lease with Beck, where Beck had neither drilled nor prepared to drill a well, nor included the property in a drilling unit.

{¶ 4} In 12MO6, Beck argues that the trial court erred by concluding that the leases at issue are void against public policy and that Beck violated the implied covenant to reasonably develop the leaseholds. The trial court misinterpreted the pertinent lease provisions and Ohio case law on the subject and erred in concluding the Lease is a no-term, perpetual lease that is void ab initio as against public policy. The Lease has a primary and secondary term, it is not perpetual. The trial court further erred in concluding the Lease was subject to implied covenants and that Beck breached the implied covenant to reasonably develop. Beck's remaining assignments of error in 12MO6 are moot.

{¶ 5} In Case No. 13MO2, XTO argues that the trial court abused its discretion by failing to permit it to intervene in the proceedings. However, in light of our resolution of Beck's assignments of error, XTO's appeal is moot.

{¶ 6} Accordingly, in Case Nos. 12MO6, 13MO3, and 13MO11, the trial court's class certification and definition judgments are affirmed, and its order granting summary judgment is reversed and remanded to the trial court for further proceedings, and Case No. 13MO2 is dismissed as moot.

Facts and Procedural History

{¶ 7} This case involves class action claims filed by the Landowners as oil and gas lessors, against Beck, an oil and gas lessee, seeking declaratory judgment and quiet title. On September 14, 2011, the suit began when a complaint was filed in the Monroe County Court of Common Pleas by four of the Landowners against Beck. On September 29 and 30, 2011, an amended and then a second amended class action complaint were filed. The second amended class action complaint removed the Hupps as plaintiffs, added several named plaintiffs, and asserted the claims as a class action. Further, the named plaintiffs alleged that they, along with approximately 400 additional landowners/lessors in Monroe County, executed essentially identical oil and gas leases with Beck, or are successors in interest to said lessors.

{¶ 8} The Landowners' Leases with Beck were form leases, known as the Form G & T 83 Lease, a preprinted oil and gas lease that left blank lines to be completed for the parties' names, addresses, date of execution, description of the leasehold, the delay rental term, and the amount of the delay rental payment. The Leases provided for a one-eighth (12%)

20 N.E.3d 737

royalty for the Landowners should wells be drilled and gas and oil produced.

{¶ 9} Most pertinent to this appeal are two Lease clauses. Paragraph two contains the habendum clause, which provides that the Lease will continue “for a term of ten years and so much longer thereafter as oil and gas or their constituents are produced or are capable of being produced on the premises in paying quantities, in the judgment of the Lessee, or as the premises shall be operated by the Lessee in the search for oil or gas * * *.” Paragraph three, the delay rental clause, provides that the Lease will terminate if a well was commenced within 12 months of the date of Lease execution, unless the lessee paid a specified delay rental.

{¶ 10} With regard to the named plaintiffs, they all own property in Monroe County subject to Form G & T 83 leases. Larry and Lori Hustack are successors-in-interest to land encumbered by an oil and gas lease entered into with Beck on August 14, 2008, presently covering 89.75 acres, with a primary term of ten years and specifies a delay rental payment of $108.00. Lawrence and Lieselotte Hubbard entered into a lease agreement with Beck on March 2, 2006, covering 55.06 acres, with a primary term of ten years and specifies a delay rental payment of $56.00. David Majors entered into a lease with Beck on October 11, 2005, covering 55 acres, and has a primary term of ten years and specifies a $55.00 delay rental payment.

{¶ 11} The named plaintiffs asserted: 1) that the Leases contained terms and conditions contrary to public policy, because they were allegedly leases in perpetuity without timely development; 2) that Beck had failed to prepare to drill or to actually drill any wells on their property: and 3) that Beck had breached a number of express and implied covenants including the covenant to reasonably develop the leaseholds. They asked the trial court to invalidate and declare the Leases void, and to quiet title in the encumbered real estate. No monetary damages were sought.

{¶ 12} In their second amended class action complaint the named plaintiffs sought certification of the class to be defined as “all landowners/Lessors of land in Monroe County, Ohio who were lessors under, or who are successors in interest of Lessors, under a standard form oil and gas lease with Beck Energy Corporation, where Beck Energy has neither drilled nor prepared to drill a gas/oil well, nor included the property in a drilling unit within the time period set forth in paragraph 3 of the lease or thereafter.”

{¶ 13} On November 9, 2011, Beck entered into a Purchase and Sale Agreement with XTO Energy, Inc., to sell the deep rights in the Beck leases, which covered oil and gas deposits below 3,860 feet, and on December 20, 2011, Beck assigned those rights to XTO. Beck retained an overriding royalty interest in the Leases, and, notably, agreed “to warrant and defend the title to the Assets hereby assigned unto Assignee against the claims of any party arising by, through, or under Assignor, but not otherwise.”

{¶ 14} On November 30, 2011, Beck filed a motion to dismiss alleging that the named plaintiffs' claims must fail because the plaintiffs failed to provide Beck with prior written notice of breach prior to commencing the lawsuit. The named plaintiffs opposed the motion, arguing, inter alia, that because the lease was allegedly void at the time they filed suit, they were not required to provide Beck with notice or an opportunity to cure prior to...