Jacobs v. Dye Oil, LLC
| Citation | 2019 Ohio 4085,147 N.E.3d 52 |
| Decision Date | 30 September 2019 |
| Docket Number | No. 18 MO 0020,18 MO 0020 |
| Parties | Teresa A. JACOBS et al., Plaintiffs-Appellants, v. DYE OIL, LLC et al., Defendants-Appellees. |
| Court | United States Court of Appeals (Ohio) |
Atty. John Burnworth, and Atty. Matthew Onest, Krugliak, Wilkins, Griffiths, and Dougherty, 4775 Munson Street, NW, P.O. Box 36963, Canton, Ohio 44735, for Plaintiffs-Appellants.
Atty. Craig Sweeney, and Atty. Aaron Bruggeman, Bricker and Eckler LLP, 258 Front Street, Marietta, Ohio 43215, for Defendants-Appellees.
BEFORE: David A. D'Apolito, Gene Donofrio, Carol Ann Robb, Judges.
OPINION AND JUDGMENT ENTRY
D'APOLITO, J.
{¶1} Plaintiffs-Appellants, Teresa A. Jacobs, Michael B. Jacobs, and Nicholas B. Jacobs, appeal the entry of summary judgment by the Monroe County Court of Common Pleas in favor of Defendants-Appellees, Dye Oil, LLC ("Dye Oil"), Janet Dye, Chuck Dye, Linda Dye Ludwig, Rebecca Ann Swecker, Unglaciated Industries, Inc. ("Unglaciated"), MNW Energy, LLC ("MNW"), and Triad Hunter, LLC ("Triad"), in this action for a declaratory judgment that an oil and gas lease expired on its own terms, due to lack of production in paying quantities and the payment of royalties, for breach of contract, breach of implied covenants, conversion and trespass. Appellants also appeal the denial of their cross motion for summary judgment that the oil and gas lease expired on its own terms, and their claim for conversion of oil and gas following the alleged expiration of the lease, as well as for attorney fees pursuant to R.C. 5301.09. For the following reasons, the judgment of the trial court is affirmed.
FACTS
{¶2} Appellants acquired ten acres of real estate located in Washington Township, Monroe County, Ohio, more specifically described as Parcel No. 29-0280130.000, by warranty deed recorded on December 1, 2010 ("Property" or "ten acres"). Appellants' predecessor-in-interest, Zillah Adams, entered into an oil and gas lease with Walter Dye and Victor Dye on October 1, 1979, which was recorded on April 27, 1982 in Volume 122, Page 993 of the Lease Records of Monroe County, Ohio ("Lease").
{¶3} The Lease encumbers approximately 73.20 total acres ("Leased Premises"), which includes the ten acres at issue in this appeal. The Lease reads, in pertinent part:
That the lessor does hereby grant unto the lessee for the term of two years (and so long thereafter as oil or gas is produced from the land leased and royalty or rentals paid by lessee therefor) the exclusive right to mine for and produce petroleum and natural gas from and the possession of so much of 73.20 acres of land in Washington Township, Monroe County, State of Ohio, as may be necessary therefor.
{¶4} Relevant to this appeal, the Lease contains a drilling clause, which provides that the Lease "is to be null and void and no longer binding on either party if a well is not commenced on the premises within 24 months from [October 1, 1979] * * *" The Lease also contains a free domestic gas clause, which reads "[i]f gas is found on the premises, the lessee is to have sufficient gas for fuel purposes in the operation of this lease; lessor is to have gas for one house thousand cu. ft. of gas [sic], free of charge." (Lease, p. 1.)
{¶5} According to a permit dated November 13, 1979, Walter and Victor Dye were authorized by the state to reopen a previously plugged oil and gas well on the Leased Premises – "Adams #1," API #34-111-2-1747-0000 ("Well"). Chuck Dye, Walter Dye's son, testified that Walter Dye drilled a new well in the place of the plugged well, and that the term "reopen" in the permit appears to have been a result of "confusion about terminology" on the part of Walter Dye. (Chuck Dye Depo., p. 96-97, 100.)
{¶6} On February 14, 1980, Walter and Victor Dye entered into an oil sales agreement with Main Star Oil Company. On March 29, 1980, Perfection Services, Inc. performed testing and completed a Radioactivity Log. According to the affidavits of Chuck Dye and Janet Dye, Walter Dye's wife and the individual responsible for maintaining records for Walter Dye and Dye Oil, sales of oil and gas from the Well commenced in the spring of 1980, shortly after the oil sales agreement was executed and the gas radioactivity log was completed.
{¶7} Appellants contend that production could not have commenced prior to the expiration of the primary term, based on an undated Well Completion Report form (revised 7/27/81), which reads, in pertinent part:
DATE DRILLING COMENCED: 11/13/79
DATE DRILLING COMPLETED: 4/14/89
DATE PUT INTO PRODUCTION: NOT YET
{¶8} The Well was fracked in the spring of 1982 in order to increase gas production. On April 27, 1982, Walter Dye entered into a gas sales agreement with the River Gas Company.
{¶9} Victor Dye transferred any and all interest in and to the Lease to Walter Dye, by Assignment dated April 27, 2001, which was recorded on May 2, 2001. In exchange for Victor Dye's interest in the Lease, and his agreement to maintain and pump the wells subject to the Lease, Walter Dye agreed to a monthly payment of $500.00 to Victor Dye, and to provide free domestic gas to Victor and Georgie Dye's current residence for as long as they continued to reside there.
{¶10} Walter Dye later commingled gas from the Well with other oil and gas wells that he owned and operated, and sold the gas through a common meter, #W265, also known as the Ullman meter. By letter dated July 21, 2003, Lawrence P. Adams, the then-owner of the surface and minerals, authorized Walter Dye to sell natural gas through the Ullman Meter. From that point forward, gas from the Well has been sold through the Ullman meter, with 25% of the total gas production attributed to the Well.
{¶11} Walter Dye died testate on December 16, 2012 and his rights in and to the Lease passed to Janet Dye. On July 26, 2013, Janet Dye and her children – Chuck Dye, Linda Dye Ludwig, and Rebecca Ann Swecker, assigned the deep rights to MNW, but reserved the shallow rights. MNW, characterized by Chuck Dye as a "lease gathering company," subsequently assigned the deep rights to Triad. (Chuck Dye Depo. 135-136). On June 30, 2015, Janet Dye transferred the shallow rights by assignment to Dye Oil, which assigned them to Unglaciated on October 9, 2015.
{¶12} Relevant to this appeal, the chain of title to the surface of the Leased Premises is as follows:
{¶13} Pursuant to both the Adams Reservation and the reservation in the USA Deed, Appellees continued to pay royalties to the Adamses and their heirs and assigns after the Adamses sold the surface of the Property. The Adams Reservation expired by its own terms on May 31, 2011.
{¶14} Appellants offered the affidavits of Michael and Teresa Jacobs to establish that Walter Dye was aware in 2011 that Appellants had purchased the Property.
Both affiants describe a series of interactions with Walter Dye, which establish that he knew the Jacobses, and he was aware that they purchased the surface rights to the Property.
{¶15} Michael and Teresa Jacobs further averred that they verbally informed Walter Dye in the spring of 2012 that they "wanted gas from [the line running through their property]." Teresa Jacobs states that "[they] told [Walter Dye] [they] wanted free gas under the lease." (Affidavit of Teresa Jacobs ¶ 7). According to the Jacobses' affidavits, Walter Dye became agitated, and, according to Teresa Jacobs, Walter Dye told them that "he needed his gas for production." (Id. ) Michael Jacobs appears to concede that the Jacobses did not inform Walter Dye that the Adams reservation had expired in the spring of 2012, because Michael Jacobs admits that they "really did not understand the lease [at that time], except it said gas for one house." (Affidavit of Michael Jacobs Aff. ¶ 13).
{¶16} Michael Jacobs attests that Bill Knowlton, who was a friend of Chuck Dye and volunteered to approach him about Appellants' "situation," said that Chuck Dye "did not want to be bothered with [Appellants] until after his father died." (M. Jacobs Aff. ¶ 14.) The remainder of Michael Jacobs' affidavit does not explain whether the "situation" was the expiration of the Adams reservation, Appellants desire for free domestic gas, or Appellants' acquisition of the surface rights to the property.
{¶17} On February 24, 2012, Appellants recorded an affidavit, which documented their ownership of the mineral rights in the ten acres effective May 31, 2011. The affidavit reads, in pertinent part, "Know by this claim that we own all the oil and gas royalty, rentals, and leasing rights in and under the described as follows premises * * *."
{¶18} Roughly two years after Walter Dye's death, on January 21, 2014, Appellants sent a letter to Janet Dye, which states that the Jacobses own the ten acres and that the Adams reservation expired on May 30, 2011. The letter demands back royalties from that...
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