Ricketts v. Everflow E., Inc.

• Decision Date: 29 June 2016
• Docket Number: No. 14 MA 0103.,14 MA 0103.
• Citation: 68 N.E.3d 165,2016 Ohio 4807
• Parties: Larry RICKETTS, et al., Plaintiffs–Appellants v. EVERFLOW EASTERN, INC., et al., Defendants–Appellees.
• Court: Ohio Court of Appeals

68 N.E.3d 165

2016 Ohio 4807

Larry RICKETTS, et al., Plaintiffs–Appellants

v.EVERFLOW EASTERN, INC., et al., Defendants–Appellees.

No. 14 MA 0103.

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

June 29, 2016.

Sean R. Scullin, Timothy J. Cunning, Scullin & Cunning LLC, Boardman, OH, Douglas B. Taylor, New Middletown, OH, for plaintiffs-appellants.

Daren S. Garcia, Steven A. Chang, Vorys, Sater, Seymour & Pease LLP, Columbus, OH, for defendants-appellees.

GENE DONOFRIO, P.J., CHERYL L. WAITE, CAROL ANN ROBB, JJ.

OPINION

WAITE, J.

{¶ 1} Larry Ricketts, Susan Ricketts, James Bryson, Joanne Bryson, Kenneth Yurco, Laura Yurco and Gregory Huber (collectively, "Appellants") appeal a decision by the Mahoning County Common Pleas Court to dismiss their complaint for declaratory judgment filed against Appellees, Everflow Eastern, Inc., Chesapeake Exploration, LLC and Total E & P USA, Inc.

{¶ 2} Appellants had filed a previous action for quiet title, breach of contract, fraud, negligence and bad faith on May 9, 2012, Mahoning County Common Pleas Court Case No. 12 CV 1379. The action was voluntarily dismissed on December 28, 2012 after Everflow filed a motion seeking to dismiss the complaint. Appellants subsequently filed the present declaratory judgment action, this time alleging: (1) expiration of the lease due to Everflow's breach based on allegations that the consolidation unit was "improperly formed and improperly filed"; (2) the lease violates public policy; (3) breach of implied covenants; and (4) failure of mutuality and consideration. Appellants do not address on appeal the dismissal of their mutuality and consideration claims. Hence, the trial court's decision as to these is affirmed.

{¶ 3} Appellants first argue that the trial court erred in determining the amended complaint stated no operative facts regarding their allegation that the Appellees' consolidation unit was "improperly formed and improperly filed." The trial court held that in the absence of any operative facts, a stand-alone legal conclusion failed to satisfy the basic pleading requirements of Civ.R. 8(A).

{¶ 4} Appellants next contend the trial court erred in holding that the disclaimer of implied covenants contained within the lease applied to the leases during their secondary term. Finally, Appellants argue the trial court erred in dismissing their claims that the leases should be declared expired at least with regard to any acreage not included in the consolidation unit. These two last contentions are based on their belief that the disclaimer of implied covenants can only apply during the primary term of their respective leases; a contention newly raised to this Court. As such, they are not properly brought before the Court of Appeals.

{¶ 5} An issue not addressed by the trial court, but timely raised as an affirmative defense by Appellees, is that Appellants' claims are barred based on the applicable statute of limitations. Appellants' claims are all based in contract. The statute of limitations governing breach of oil and gas claims is R.C. 2305.041, which became effective on April 6, 2007. This section changed the statutory limitations period in which to bring a claim for breach of a lease regarding oil or gas drilling to the eight-year period allowed for ordinary contractual actions. While an action alleging a breach of an express or implied provision concerning calculation or payment of royalties must be brought within four years consistent with the Uniform Commercial Code's statute of limitations for breach of contract involving the sale of goods (R.C. 2305.041 ; R.C. 1302.98 ; accord U.C.C. 2–725 ) an action alleging any other breach of the lease must be brought within the time specified in R.C. 2305.06 : eight years.

{¶ 6} The subject leases were executed in 1988. The consolidation unit at issue was recorded in 1991. This declaratory judgment action was filed in November of 2013 seeking the court's interpretation of specific provisions of the lease agreement relating to the consolidation unit. While styled as a declaratory judgment action, where the parties seek to have their rights and duties declared, the entire matter revolves around breach of contract claims, specifically, breach of an oil and gas lease contract. The statute of limitations specified in R.C. 2305.041, and even the ordinary contract statute of limitations, has long since passed for Appellants. Therefore, in accordance with Ohio law, we affirm the decision of the trial court based on the separate grounds that the matter is barred by the statute of limitations found in R.C. 2305.041.

Factual History

{¶ 7} Appellants Larry and Susan Ricketts own a 13–acre parcel of land in Mahoning County and entered into an oil and gas lease with Everflow Eastern, Inc. ("Everflow") on April 15, 1988. Appellants James and Joanne Bryson own two parcels of land in Mahoning County totaling approximately 103 acres and entered into a lease with Everflow on February 3, 1988 on the first parcel, and March 2, 1988 regarding the second parcel. Appellants Kenneth and Laura Yurco own 9.656 acres in Mahoning County and entered into a lease with Everflow on March 2, 1988. Appellant Gregory Huber owns a parcel of land in Mahoning County of unspecified acreage and entered into a lease with Everflow on February 9, 1988.

{¶ 8} On November 27, 2013, some twenty-five and a half years after the execution of the leases and twenty-two years after the formation of the consolidation unit at issue, Appellants filed this action for declaratory judgment, alleging expiration of the lease, violation of public policy, breach of implied covenants and lack of mutuality and/or consideration.

{¶ 9} On February 11, 2014, Everflow filed a motion to dismiss pursuant to Civ.R. 12(B)(6) alleging, among other things, that, Appellants' claims were barred by the statute of limitations. A magistrate's decision was issued on June 9, 2014, granting Appellee's motion to dismiss. The magistrate did not address the statute of limitations argument, finding instead that: (1) Appellants did not support their allegation that the consolidation unit was improperly formed and improperly filed, in violation of Civ.R. 8(A) ; (2) the lease provisions as to the remaining acreage not included in the consolidation unit could not be declared expired merely because these acres were outside of the unit; (3) Appellants' contention that the leases violate public policy fails, as the exhibits attached to the complaint show an active well operates on the premises; (4) the leases disclaim all implied covenants; and (5) there was mutuality between the parties and the leases are supported by ample consideration.

{¶ 10} Appellants filed objections to the magistrate's decision. The trial court issued a judgment entry ultimately adopting the magistrate's decision. Appellants present three assignments of error for review.

ASSIGNMENTS OF ERROR

THE TRIAL COURT ERRED IN HOLDING THAT APPELLANTS' AMENDED COMPLAINT STATED NO OPERATIVE FACTS IN SUPPORT OF ITS ALLEGATION THAT THE GARVER UNIT WAS IMPROPERLY FORMED AND IMPROPERLY FILED. JUDGMENT ENTRY, JULY 29TH, AT 373–374.

THE TRIAL COURT ERRED IN HOLDING THAT THE DISCLAIMER OF IMPLIED COVENANTS APPLIED TO THE LEASES DURING THE SECONDARY TERM. JUDGMENT ENTRY, JULY 29TH, 2014, AT 375.

THE TRIAL COURT ERRED IN HOLDING THAT "[M]ERELY BECAUSE A PORTION OF [APPELLANTS'] PROPERTY WAS INCLUDED IN THE CONSOLIDATION UNIT IS NOT A VALID REASON TO DECLARE THE REMAINING ACREAGE

‘EXPIRED’ UNDER THE TERMS OF THE LEASE." JUDGMENT ENTRY, JULY 29TH, 2014, AT 374–375.

{¶ 11} In resolving a Civ.R. 12(B)(6) motion to dismiss, courts must accept the allegations in the complaint to be true. Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d 753 (1988). Further, the trial court may look only to the complaint to determine whether the allegations included within it are legally sufficient to state a claim. Hanson v. Guernsey Cty., Bd. of Commrs., 65 Ohio St.3d 545, 548, 605 N.E.2d 378 (1992). In order to grant a motion to dismiss pursuant to Civ.R. 12(B)(6), it must appear beyond a doubt that the plaintiffs can prove no set of facts that warrant relief. O'Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242, 327 N.E.2d 753 (1975), syllabus.

{¶ 12} In Velotta v. Leo Petronzio Landscaping, Inc., 69 Ohio St.2d 376, 433 N.E.2d 147 (1982), the Ohio Supreme Court held a Civ.R. 12(B)(6) motion to dismiss based on a violation of a statute of limitations should be granted only where the complaint conclusively shows on its face that the action is time barred. In order to conclusively demonstrate that the action is time barred, the allegations in the complaint must demonstrate both (1) the applicable statute of limitations, and (2) the absence of factors which would toll the pertinent statute, or make it inapplicable. Lindsey v. Schuler, 7th Dist. No. 11 MA 205, 2012-Ohio-3675, 2012 WL 3324270, ¶ 11.

{¶ 13} R.C. 2305.041 governs the applicable statute of limitations for oil and gas leases. It reads:

With respect to a lease or license by which a right is granted to operate or to sink or drill wells on land in this state for natural gas or petroleum and that is recorded in accordance with section 5301.09 of the Revised Code, an action alleging breach of any express or implied provision of the lease or license concerning the calculation or payment of royalties shall be brought within the time period that is specified in section 1302.98 of the Revised Code. An

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