Kenney v. Chesapeake Appalachia, L.L.C.

• Decision Date: 30 March 2015
• Docket Number: No. 14 CO 24.,14 CO 24.
• Parties: Patrick R. KENNEY, et al., Plaintiffs–Appellants v. CHESAPEAKE Appalachia, L.L.C., et al., Defendants–Appellees.
• Court: D.C. Court of Appeals

31 N.E.3d 136

Patrick R. KENNEY, et al., Plaintiffs–Appellants

v.CHESAPEAKE Appalachia, L.L.C., et al., Defendants–Appellees.

No. 14 CO 24.

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

March 30, 2015.

Sean R. Scullin, Timothy J. Cunning, Scullin & Cunning LLC, Boardman, OH, for plaintiffs-appellants.

Kevin Abbott, Michael R. Traven, Robert B. Graziano, Stacey Jarrell, Roetzel & Andress, Columbus, OH, Justin Werner, Reed Smith, Reed Smith Centre, Pittsburgh, PA, for defendants-appellees.

CAROL ANN ROBB, J., CHERYL L. WAITE, J., and MARY DeGENARO, J.

OPINION

ROBB

, J.

{¶ 1} Plaintiff-appellants Patrick Kenney et al. (collectively referred to as “Appellants”) appeal the decision of the Columbiana County Common Pleas Court which granted summary judgment in favor of defendant-appellees Chesapeake Appalachia, L.L.C. (“Chesapeake Appalachia”) and Statoil USA Onshore Properties, Inc. (“Statoil”) (collectively referred to as “Appellees”). This appeal concerns the following language in paragraph 19 of various oil and gas leases: “Upon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants Lessee an option to extend or renew under similar terms a like lease.”

{¶ 2} Appellants argue that the clause did not create a legally binding offer as required for an option because there is no certainty as to the terms of an extension. They urge that “similar terms a like lease” applies to the word “extend” as well to the admittedly distinct word “renew” and dispute that the word “extend” by itself would necessarily mean on the exact same terms. We conclude that paragraph 19 plainly provides the lessee with the unilateral right to extend the contract on the same terms, including the durational term of five years.

{¶ 3} Appellants' second argument is that the trial court should have considered extrinsic evidence. They focus this argument on the allegation that industry custom was to obtain the lessor's signature on an extension. However, the evidence that the original lessee extended some leases by obtaining landowners' signatures did not establish that the language used in paragraph 19 had a special meaning or widespread use in the trade.

{¶ 4} Appellants' third argument is that the option was not actually exercised. In a letter and in a notice to be filed with the recorder's office, the lessee used the name “Chesapeake Exploration” instead of “Chesapeake Appalachia.” The checks issued to Appellants were written on the account of Chesapeake Operating, Inc. As no specific method for accepting the option was provided in the contract, this argument is overruled.

{¶ 5} Appellants' fourth argument is that Appellees prematurely exercised the option before the lease expired and that is akin to untimely exercise of the option. We conclude that the expiration of the lease was not a mandatory condition precedent to the ability to provide notice that an option is being exercised.

{¶ 6} For these and following reasons, Appellants' assignments of error are overruled, and the trial court's decision granting summary judgment in favor of Appellees is upheld.

STATEMENT OF THE CASE

{¶ 7} Appellants Patrick and Michelle Kenney, Joseph Calderone, and Roberta McClure, are landowners in Columbiana County. The Kenneys leased their minerals to Great Lakes Energy Partners, L.L.C. (“Great Lakes”) on February 16, 2007. Mr. Calderone leased his minerals on April 14, 2007 to the same company. On January 4, 2008, Ms. McClure leased her minerals to Range Resources Appalachia, L.L.C. (“Range Resources”), who had acquired as a subsidiary the remaining one-half of Great Lakes that it did not already own.

{¶ 8} In December 2011, Range Resources assigned all of its Columbiana County leases to Appellees (divided 77.365% to Chesapeake Appalachia and 22.635% to Statoil). When the five-year primary terms were about to end, letters were sent to Appellants, stating that the option to extend the primary term of the lease by an additional five years was being exercised. Checks for the new delay rentals were enclosed.

{¶ 9} Appellants did not cash the checks and filed suit against Appellees in April 2013, seeking in pertinent part to have the extensions declared invalid and the leases declared expired. Competing summary judgment motions were filed. The issues presented in the motions that remain on appeal revolve around the second sentence of paragraph 19 in the leases, which paragraph provides:

“19. 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 Lessee an option to extend or renew under similar terms a like lease. ”

(Emphasis added).

{¶ 10} Appellants argued that the language “under similar terms a like lease” applied to “extend” as well as to “renew” and thus renegotiation (as opposed to unilateral exercise) was required. They stated the option was not a valid offer as it was too uncertain. They also claimed that the option was exercised prematurely and by the wrong Chesapeake entity. Finally, Appellants stated that the original lessees' practice was to renegotiate extensions. They provided various examples of extensions signed by Columbiana County lessors in favor of Great Lakes or Range Resources.

{¶ 11} On April 3, 2014, the trial court granted summary judgment in favor of Appellees. The trial court agreed with a federal district court that considered this same clause and concluded that it unambiguously provided an option to extend the lease on the same terms without renegotiating (or an option to renew under similar terms a like lease). Citing Eastham v. Chesapeake Appalachia LLC, S.D. Ohio 2:12–CV–0615, 2013 WL 5274576 (Sep. 18, 2013)

. The trial court also agreed with the federal court's statement that the language does not create a condition precedent requiring the lessee to wait until the lease expired before announcing the exercise of the option. As the trial court found no ambiguity, the court refused to consider extrinsic evidence.

{¶ 12} Appellants filed the within appeal. They assert four assignments of error, all involving paragraph 19 of the lease. Before delving into these assignments, we set forth general, introductory law pertinent to the case.

GENERAL LAW

{¶ 13} We review the propriety of granting summary judgment de novo. See Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8

. Summary judgment can be rendered if, after construing the evidence in a light most favorable to the non-movant, it appears that reasonable minds can only come to one conclusion which is adverse to the non-movant. Civ.R. 56(C). Therefore, legal issues, such as the plain language of a contract, are properly addressed by way of summary judgment practice. See

Peters v. Tipton, 7th Dist. No. 07HA3, 2008-Ohio-1524, 2008 WL 850125, ¶ 9–10.

{¶ 14} When interpreting a contract, the court must give effect to the intent of the parties to the agreement which is presumed to be mirrored in the language used therein. Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256 ¶ 11

. Words and phrases are given their common and ordinary meanings unless another definition is clearly evident in the contract itself or there would be manifest absurdity. Shifrin v. Forest City Ent., Inc., 64 Ohio St.3d 635, 638, 597 N.E.2d 499 (1992)

. “As a matter of law, a contract is unambiguous if it can be given a definite legal meaning.” Westfield, 100 Ohio St.3d 216, 797 N.E.2d 1256, at ¶ 11.

{¶ 15} If the court cannot decipher the plain language of the contract, then the fact-finder can consider extrinsic evidence to resolve the ambiguity and ascertain the parties' intent. Id. at ¶ 11–13. And, where the written contract is standardized and between parties of unequal bargaining power, any ambiguities are strictly construed against the drafter and in favor of the non-drafting party. Id. at ¶ 13.

{¶ 16} It has been stated that an option contract involves an offer to perform an act and a binding agreement to leave the offer open for a particular period, which does not become a contract until accepted. See, e.g., Plikerd v. Mongeluzzo, 73 Ohio App.3d 115, 122, 596 N.E.2d 601 (3d Dist.1992)

. The option itself is said to be unilateral. It binds one side without binding the other. The potential accepting party can withdraw any time prior to his acceptance, but the offering party cannot withdraw from the option. Id.

{¶ 17} Appellants note that an offer to enter a contract should be definite and certain, citing Mr. Mark Corp. v. Rush, Inc., 11 Ohio App.3d 167, 169, 464 N.E.2d 586 (8th Dist.1983)

. Appellants then conclude that the elements of the offer in an option must be definite. In general, an offer cannot be accepted to form a contract unless the terms of the contract are reasonably certain. Id., citing Restatement of the Law 2d, Contracts (1981) 92, Section 33. The terms are reasonably certain if they provide a basis for determining a breach and for remedying the breach. Id. The fact that one or more terms of a proposal are left open or uncertain may show that the item is not intended to be understood as an offer. Id.

{¶ 18} “The more important the uncertainty, the stronger the indication is that the parties do not intend to be bound; minor items are more likely to be left to the option of one of the parties or to what is customary or reasonable.” Id. (quoting comment f). However, in many cases, an option is merely a collateral offer to keep open for a specified period the main offer, whose terms are already detailed in the contract. Howick v. Lakewood Village Ltd. Partnership, 3d Dist. No. 10–08–20, 2009-Ohio-1921, 2009 WL 1110829, ¶ 38

, citing Ritchie v. Cordray, 10 Ohio App.3d 213, 215, ...