Pavsek v. Wade, 18 MO 0024

• Decision Date: 09 December 2019
• Docket Number: No. 18 MO 0024,18 MO 0024
• Citation: 2019 Ohio 5250,136 N.E.3d 1283
• Parties: Thomas J. PAVSEK, Plaintiff-Appellant, v. Will WADE, Defendant-Appellee.
• Court: Ohio Court of Appeals

136 N.E.3d 1283

2019 Ohio 5250

Thomas J. PAVSEK, Plaintiff-Appellant,

v.Will WADE, Defendant-Appellee.

No. 18 MO 0024

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

Dated: December 9, 2019

Atty. David J. Wigham, Atty. Leighann K. Fink, Atty. John W. Breig, Jr., Roetzel & Andress, LPA, 222 South Main Street, Akron, Ohio, 44308 for Plaintiff-Appellant.

Atty. Daniel P. Corcoran, Atty. Kristopher O. Justice, Atty. Adam J. Schwendeman, Theisen Brock, 424 Second Street, Marietta, Ohio, 45750, for Defendant-Appellee.

BEFORE: Carol Ann Robb, Gene Donofrio, Cheryl L. Waite, Judges.

OPINION AND JUDGMENT ENTRY

Robb, J.

{¶1} Plaintiff-Appellant Thomas Pavsek (the lessor) appeals the decision of the Monroe County Common Pleas Court granting summary judgment to Defendant-Appellee Will Wade (the lessee). Appellant argues the trial court erred in ruling that the lessor must give notice with a demand for additional drilling in order to assert forfeiture of undeveloped acreage for breach of the implied covenant to reasonably develop applicable to the parties' oil and gas lease. If so, then Appellant contends the evidence showed a breach of the implied covenant and the propriety of lease forfeiture as a remedy. For the following reasons, we uphold the trial court's decision that notice with a demand for additional drilling was required, find any conditional issues moot, and affirm the trial court's judgment.

Statement of the Case

{¶2} Appellant Thomas Pavsek owns fifty acres in Monroe County, which he purchased in 1996. His predecessor executed an oil and gas lease in 1928 for two years "and as much longer as oil or gas is found in paying quantities thereon * * *." One well was drilled during the primary term and is still producing. In 1974, the original lessee assigned the lease to Appellee Will Wade (and two other Wades, who assigned their interests to Appellee in 1990). In May 2016, Appellant filed a complaint against Appellee seeking quiet title and a declaratory judgment that the lease terminated and was forfeited due to breach of the implied covenant to reasonably develop (and other covenants no longer at issue, such as paying quantities as to the existing well). Appellee filed an answer and a counterclaim asking for a declaration that the lease remained in effect.

{¶3} Appellant testified at deposition that he purchased the property in the 1990's for hunting and later built a cabin which receives free gas from the well (under the terms of the lease). He believed there should be more wells on the leased premises, noting there were four wells on some other property with a forty-acre lease. (Pavsek Depo. 41-42). He was not familiar with Ohio spacing requirements or the geology of the area and had not retained an expert on the issue at that time. (Pavsek Depo. 42-43). He said a drilling company offered him a lease with a signing bonus of $9,000 per acre in 2004, but he was busy, the market declined, and the offer was rescinded. (Pavsek Depo. 21-22). Appellant said he did not demand that Appellee develop additional wells or release the lease before filing the complaint. (Pavsek Depo. 33, 54). Appellee's affidavit confirmed the lack of a demand from Appellant for additional drilling. (Wade Aff.)

{¶4} Appellee testified at deposition that he owned 125 acres contiguous to the property on which the well was situated. In addition to the well on Appellant's land, Appellee owned six other wells on leaseholds touching his property. (Wade Depo. 187). As to the land subject to the lease, he originally considered drilling another vertical well but believed those who were drilling in similar circumstances were not having success. (Wade Depo. 185). He said he could afford to drill another similar vertical well to reach shallow formations (due to his personal abilities), but he believed the existing development of the shallow formations on the leased premises was already profitable and the existing well sufficiently served the leased property due to the care he used to operate it. (Wade Depo. 191-198). He said he has maintained the well's production by not getting "hoggish" and ensuring the sand does not dry out. (Wade. Depo. 191).

{¶5} Appellee noted a state geologist told him this was a good area for this type of well and the wells he owned were some of the best for their age (from the 1920's). (Wade Depo. 195). He did not conduct testing of the geological formations and did not consult an expert besides the state geologist who was impressed with the current production from the old well. (Wade Depo. 182, 196). Appellee could not estimate the amount of oil or gas that could have been produced with another vertical well on the leased land but said there was not much drilling in the area from the time he bought the property until after new horizontal technology was introduced locally. (Wade Depo. 182, 184, 195). At that time, he sought to reach deeper formations through horizontal drilling, but Appellant would not sign the requested instruments; he also said Appellant has "always been hostile to drilling on" his land. (Wade Depo. 176, 178-179, 184, 192).

{¶6} A tax map was used by Appellant's counsel to attempt to elicit testimony from Appellee that the 50 acres subject to the lease was actually 42 acres separated from 8 acres by 33 acres not subject to the lease. The lease described the property in a manner suggesting the 50-acre leasehold was one contiguous plot of land, and Appellee's testimony suggested he was unaware the 50 acres he leased was not contiguous. (Depo. 32, 156, 170-171, 203).¹

{¶7} On August 17, 2018, Appellee filed a motion for summary judgment. Regarding the implied covenant of reasonable development, Appellee argued: Appellant's failure to provide notice demanding further development barred the claim for forfeiture; there was no evidence a reasonably prudent operator would have drilled an additional well; and Appellant was not entitled to forfeiture for breach of the implied covenant (as the express terms of the lease specified forfeiture for other reasons, such as failing to pay delay rentals, and damages were inadequate).

{¶8} On this same day, Appellant filed a motion to extend the case management schedule, expressing an intent to start looking for an expert. Appellee replied with a motion to maintain the case management schedule and to exclude expert testimony, citing to Appellant's discovery violations and the failure to disclose an expert before Appellee filed for summary judgment. On September 5, 2018, the trial court denied Appellant's motion to extend the case management schedule, noting the May 17, 2018 entry (which set the discovery due date for July 20, 2018) expressly said there would be no further extensions. (This is not challenged on appeal.)

{¶9} Appellant's September 7, 2018 opposition to summary judgment argued: notice with a demand was not a condition precedent to asserting forfeiture for breach of implied covenant, especially where a long period of time had passed; an expert was not required to show the covenant was breached; and forfeiture is an appropriate remedy (as the Supreme Court has permitted lease partial forfeiture for breach of an implied covenant and Appellee's deposition testimony suggested damages could not be reasonably calculated).

{¶10} Although the trial court denied the requested extension of the case management schedule, Appellant cited his expert's affidavit. (The affidavit is not attached to the memorandum opposing summary judgment but is attached to Appellant's September 7, 2018 response to a motion to exclude the expert opinion.) The expert stated: a permit for a new well (at the depth of the existing well) would require ten acres of land; with this spacing, four similar wells could have been drilled on the 42 acres; a reasonable producer who acquired the lease in 1974 (and lasting until 2010 when development of Utica shale started) would have tested or drilled a similar (or deeper) well on the 42 acres; and based on the recorded production from the existing well and the parcel separating the two parts of leased land, it was unlikely the existing well was producing from the 42 acres.

{¶11} On October 31, 2018, the trial court granted Appellee's summary judgment motion. After explaining why the well was producing in paying quantities (which is not challenged on appeal)² , the court addressed the claim seeking (partial) lease forfeiture (as to the undeveloped acreage) due to breach of the implied covenant of reasonable development. The court said Ohio law provides a lessee a reasonable period of time to commence drilling operations after receiving notice from the lessor that he desires additional drilling, citing Landers v. Ohio Oil Co. , 24 Ohio N.P. (N.S.) 65 (1921). It was concluded that Appellant was not entitled to bring the action because this condition precedent was not satisfied.

{¶12} Alternatively, the court quoted law from this district stating: the lessee's duty to develop territory and drill additional wells was left to the lessee's good faith judgment; his judgment is properly influenced by financial interests; and it is largely a matter for expert testimony based on the surrounding conditions. See Weisant v. Follett , 17 Ohio App. 371 (7th Dist.1922). The trial court concluded there was no genuine issue of material fact and found Appellant was not entitled to lease forfeiture for breach of the implied covenant. Appellant filed a timely notice of appeal.

General Law: Summary Judgment & Implied Covenant

{¶13} We review the granting of summary judgment de novo. Comer v. Risko , 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8. Summary judgment can be granted when no genuine issue of material fact remains and reasonable minds can only conclude the moving party is entitled to judgment as a matter of law. Civ.R. 56(C). The movant has the initial burden to show there is no genuine issue of material fact. Byrd v. Smith , 110 Ohio St.3d 24, 2006-Ohio-3455, 850...