Oxford Oil Co. v. West
| Decision Date | 06 September 2016 |
| Docket Number | No. 13 BE 0031.,13 BE 0031. |
| Citation | 62 N.E.3d 195 |
| Parties | The OXFORD OIL COMPANY, n.k.a. Eclipse Resources–Ohio, LLC, Plaintiffs–Appellants, v. Barry M. WEST, et al., Defendant–Appellee. |
| Court | Ohio Court of Appeals |
David E. Northrop, Clay K. Keller, Babst Calland Clements and Zomnir, PC, Akron, OH, John K. Keller, John J. Kulewicz, Timothy B. McGranor, Vorys, Sater, Seymour & Pease LLP, Columbus, OH, William J. Taylor, Scott D. Eickelberger, Kincaid, Taylor & Geyer, Zanesville, OH, for plaintiffs-appellants.
John A. Vavra, Joseph A. Vavra, Vavra Law Office, St. Clairsville, OH, for defendant-appellee.
DeGENARO
, J.
{¶ 1} Plaintiff–Appellant, The Oxford Oil Company, now known as Eclipse Resources–Ohio, LLC (Oxford Oil), appeals the trial court judgment invalidating an oil and gas lease with Defendants–Appellees Barry M. West, Stacey L. West, Brian K. West, and Shelly West, asserting the trial court erred by concluding the Lease was a no-term, perpetual lease that is void ab initio as against public policy.
{¶ 2} Pursuant to the Ohio Supreme Court's recent decision in State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d 836
, the Lease is not perpetual; rather, it has a primary term of a definite duration of five years—which allows for the payment of delay rental payments only during the primary term—followed by a secondary term that extends the Lease if certain conditions are met. Accordingly the judgment of the trial court is reversed, and the matter remanded for further proceedings consistent with this opinion.
{¶ 3} The Wests own a 97–acre parcel and entered into an oil and gas lease with Oxford Oil in October 2006. The Lease has a habendum clause that provides a primary term of five years, and a secondary term of indefinite duration that follows the expiration of the primary term, to continue under terms defined in that clause. The Lease also contains a delay rental provision, which gives Oxford Oil the option to defer commencement for successive twelve-month periods by paying annual delay rentals. The Lease goes on to expressly disclaim implied covenants.
{¶ 4} The Wests accepted all delay rental payments from Oxford Oil. While the Lease still had approximately four months remaining in its primary term, Oxford Oil attempted to enter the premises to commence operations for a well. However, the Wests notified Oxford Oil that they would not allow access.
{¶ 5} Just before the primary term was set to expire, Oxford Oil filed a complaint seeking the following relief: 1) an order requiring the Wests to comply with the Lease by allowing Oxford Oil to enter the property to extract oil and gas; 2) a declaration that the Lease is enforceable, valid and binding; and 3) an extension of the Lease term due to the Wests' refusal to allow access. The Wests filed an answer and counterclaims asserting: 1) defective execution; 2) abandonment; 3) fraud; 4) bad faith; 5) breach of implied duty to develop mineral rights; 6) prohibition of assignment; 7) the Lease was void ab initio as a lease in perpetuity and contrary to public policy; and 8) quiet title. Discovery commenced, depositions WERE taken and filed.
{¶ 6} The parties filed and opposed reciprocal summary judgment motions on a variety of their respective claims. The trial court disposed of both motions on a limited basis, granting the Wests partial summary judgment, reasoning that the Lease was perpetual and thus void ab initio. The trial court entered judgment, finding no just reason for delay pursuant to Civ.R. 54(B)
, Oxford Oil appealed and the trial court stayed its judgment pending appeal.
{¶ 7} While this appeal was pending, this court held that another lease with substantially similar language was not a perpetual lease and thus valid in Hupp v. Beck Energy Corp., 2014-Ohio-4255, 20 N.E.3d 732 (7th Dist.)
That case was accepted for review by the Ohio Supreme Court; thus we stayed resolution of this case. Hupp was consolidated with another related case and on January 26, 2016, the Ohio Supreme Court, inter alia, affirmed this court's decision in Hupp, concluding the subject leases were valid—not void as against public policy. State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d 836
. The parties thereafter filed supplemental briefs addressing the impact of Claugus upon this appeal.
{¶ 8} Oxford Oil's first, second, fourth, fifth, and seventh assignments of error raise interrelated issues and will be discussed together for clarity of analysis:
{¶ 9} In its related third assignment of error, Oxford Oil asserts:
The Common Pleas Court erred by holding that an oil and gas lease in perpetuity is void ab initio as a matter of law.
{¶ 10} A trial court's summary judgment is subject to de novo review. Parenti v. Goodyear Tire & Rubber Co., 66 Ohio App.3d 826, 829, 586 N.E.2d 1121 (9th Dist.1990)
. Summary judgment is only proper when the movant demonstrates that, viewing the evidence most strongly in favor of the nonmovant, reasonable minds must conclude no genuine issue as to any material fact remains to be litigated and the moving party is entitled to judgment as a matter of law. Civ.R. 56. Further, “[t]he construction of written contracts and instruments of conveyance is a matter of law.” Graham v. Drydock Coal Co., 76 Ohio St.3d 311, 313, 667 N.E.2d 949 (1996), quoting Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (1978), paragraph one of the syllabus
{¶ 11} Oxford Oil contends partial summary judgment in favor of the Wests on their counterclaim must be reversed as the Lease had a defined primary term that had not yet expired, as well as a secondary term. The trial court based its decision that the Lease here was perpetual in duration, and thus void ab initio as against public policy, upon the Monroe County Common Pleas Court decision in Hupp v. Beck Energy that invalidated a similar oil and gas lease, termed the Form G & T 83 lease, for the same reasons. However, we reversed the trial court in Hupp and that decision was affirmed by the Ohio Supreme Court in Claugus, supra.
{¶ 12} In Claugus, the landowners argued that the inclusion of the delay-rental provision and the phrases “in the judgment of the Lessee” and “capable of being produced” rendered the lease perpetual and void ab initio as against Ohio's public policy. Id. at ¶ 19.
{¶ 13} The Ohio Supreme Court rejected these arguments, holding that the delay-rental provisions only applied during the primary term of the lease and could not be used by the lessee beyond that fixed primary term. Id. at ¶ 20–21, 24–25.
The Court further held that the phrases “capable of being produced” and “in the judgment of the Lessee” in the habendum clause of the lease did not render the lease perpetual, because these phrases only applied to an existing well drilled on the lease and could not be used by the lessee to unilaterally extend the lease without actual development. Id. at ¶ 24, 27–28. Accordingly, the Court held that the G & T 83 lease was valid and enforceable. Id. at ¶ 30.
{¶ 14} Thus, we must determine whether the language in this Lease is similar enough to the lease in Claugus such that the holding controls the resolution of this case.
{¶ 15} The habendum and delay rental clauses in Claugus stated respectively:
{¶ 16} Here, the habendum and delay rental clauses provide respectively:
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