Roberts v. Unimin Corp.

• Decision Date: 07 October 2016
• Docket Number: No. 1:15CV00071 JLH,1:15CV00071 JLH
• Citation: 214 F.Supp.3d 743
• Parties: Kathy ROBERTS and Karen McShane, Plaintiffs v. UNIMIN CORPORATION, Defendant
• Court: U.S. District Court — Eastern District of Arkansas

214 F.Supp.3d 743

Kathy ROBERTS and Karen McShane, Plaintiffs

v.UNIMIN CORPORATION, Defendant

No. 1:15CV00071 JLH

United States District Court, E.D. Arkansas, Northern Division.

Signed October 7, 2016

Benjamin R. Askew, John G. Simon, Kevin M. Carnie, Jr., The Simon Law Firm, P.C., St. Louis, MO, for Plaintiffs.

Barrett Moore, Robert D. Stroud, Blair & Stroud, Batesville, AR, for Defendant.

OPINION AND ORDER

J. LEON HOLMES, UNITED STATES DISTRICT JUDGE

This action concerns a mineral lease. Kathy Roberts and Karen McShane, currently the lessors, seek a declaratory judgment that the lease is terminable at will under Arkansas law. Unimin Corporation, the current lessee, filed a motion to dismiss for failure to state a claim on September 25, 2015. Document # 12. The Court denied the motion and pointed out that the issue was one of first impression for the Arkansas Supreme Court. Document # 25. Unimin then filed a motion for summary judgment on March 3, 2016, asking the Court to decide as a matter of law that the lease is not terminable at will. Document # 53. The plaintiffs filed a motion for partial summary judgment on March 17, 2016, asking the Court to decide that the lease is for an indefinite term and, therefore, terminable at will. Document # 56. The Court has reviewed extensive briefing from both parties and heard oral argument on October 5, 2016. For the following reasons, Unimin's motion for summary judgment is granted and the plaintiffs' motion is denied.

I.

A court should enter summary judgment if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; see also Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249–50, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) ; Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). A genuine dispute of material fact exists only if the evidence is sufficient to allow a jury to return a verdict for the nonmoving party. Anderson , 477 U.S. at 249, 106 S.Ct. at 2511.

II.

The lease at issue is the third in a series of leases dating back almost a century. In 1918, J.W. Williamson and Lizzie Williamson entered into a lease that granted Odell-Daly Material Company the right to mine the property for siliceous materials for a term of twenty years. The lease contained a royalty provision that provided:

For the first Five (5) years of said term the royalty shall be five (5) cents per ton on all materials shipped in crude form and three (3) cents per ton on all materials shipped in milled or pulverized form; that during the remainder of said term it is agreed that the royalty shall be five (5) cents per ton on all materials alike.

In 1934, J.W. Williamson entered into another lease for the property with similar royalty language: "Five cents (5¢) per ton on all material shipped, whether in crude form or shipped in milled or pulverized form." When J.W. Williamson died in 1943, he left the property to his two sons, Ray Williamson and Collie Williamson. Then in 1961, after Collie Williamson's death, a new lease was entered into between Ray Williamson and the devisees of Collie Williamson, as lessors, and the Silica Products Company, Inc. Unimin is the successor in interest to Silica. Kathy Roberts and Karen McShane now own the subject property and are assignees of the 1961 lease.

The 1961 lease provides for the following royalty structure:

1. In consideration of the premises, the Lessee covenants and agrees to pay to Lessor the following royalties of all materials mined from or hauled over, across or under the above described lands ... and shipped by Lessee whether in crude form or shipped in milled or pulverized form, which amount shall be net to Lessors;(a) Five (5) cents per ton for all siliceous materials mined or quarried from the [subject property];

(b) Two (2) cents per ton for all siliceous materials mined or quarried from lands other than the above [subject property] and hauled over, across or under the above [subject property] ...

(c) Provided, however, that lessee agrees to pay to Lessor a minimum royalty of five (5) cents per ton of twenty five (25%) per cent of all siliceous materials mined or quarried from or hauled over, across or under the property of Lessors: and the royalty paid on the siliceous materials mined or quarried from Lessors property shall be chargeable against this 25% minimum royalty.

The provision establishing the term of the 1961 lease states:

TO HAVE AND TO HOLD ... unto the lessee and to its successors and assigns for and during the term beginning the 1st day of March 1961 and ending the 31st day of January, 2007, and as long thereafter as mining and/or mining operations are prosecuted on [the subject property] and/or siliceous materials are hauled, transported over, across or under [the subject property] ....¹

This provision of the lease is called "the habendum clause" because it defines the mineral estate's duration. BLACK'S LAW DICTIONARY 838 (4th ed. 1968); Gulf Oil Corp. v. Southland Royalty Co. , 496 S.W.2d 547, 552 (Tex. 1973). The language at the center of this dispute is the "thereafter" clause, which provides that the lease continues so long as Unimin is mining or engaged in certain mining operations on the property. The plaintiffs contend that after January 31, 2007, the lease term became indefinite and, therefore, terminable at will. Unimin disagrees.

III.

Under Arkansas law, "a contract for an indefinite term is terminable at will" Magic Touch Corp. v. Hicks , 99 Ark. App. 334, 335, 260 S.W.3d 322, 324 (2007). The plaintiffs maintain that the lease became terminable at will after January 31, 2007, because it is impossible to determine when the lease will end. Conversely, Unimin insists that the term is determinable–the lease ends whenever Unimin ceases to engage in mining operations or haul and transport siliceous materials across or under the property. The issue is governed by Arkansas law. The Arkansas Supreme Court has never decided whether such a provision creates an indefinite term that is terminable at will, so as a federal court with diversity jurisdiction, this Court must predict the rule the Arkansas Supreme Court would adopt. See Chew v. American Greetings Corp. , 754 F.3d 632, 635 (8th Cir. 2014).

Courts are divided on the issue of whether "thereafter" clauses such as the one at issue here create an indefinite term. The Alabama Supreme Court has held that a provision stating the lease may be renewed "so long as there is recoverable coal remaining in the lands leased hereby" was so incapable of ascertainment that it rendered the lease void as a tenancy for years and created a tenancy-at-will. Linton Coal Co., Inc. v. S. Cent. Res., Inc. , 590 So.2d 911, 912 (Ala. 1991). See also Drummond Co., Inc. v. Walter Indus., Inc. , 962 So.2d 753, 775–76 (Ala. 2006) (applying the holding in Linton ). Similarly, the Eighth Circuit, applying Missouri law, has held that "a lease which is to end upon the happening of an event certain to occur but uncertain as to the time when it will occur, does not create a valid tenancy for years." Nat'l Bellas Hess, Inc. v. Kalis , 191 F.2d 739, 741 (8th Cir. 1951). But see Hecht v. Repetto , 33 S.W.2d 1021, 1023 (Mo. Ct. App. 1931) ("A lease may provide that it shall continue until the exhaustion of the mineral or clay covered by the lease. Under such provision in the lease, the term is limited to the time that plaintiffs, in good faith, continue the operations."). These decisions have the virtue of being consistent with the common understanding of what "indefinite" means. A lease with a "thereafter" clause such as the one at issue here will last for an unknown length of time, which logically means that its term is indefinite.²

The majority rule, however, is to the contrary. " ‘Mining leases form a distinct class of instruments, creating special and peculiar legal rights and relations. In their principal features they are not unlike other leases, but in their purpose and operation they approach more closely gas and oil leases and the courts generally apply the same rules of construction to them alike.’ " WILLISTON ON CONTRACTS § 50:57 (4th ed. 2016) (quoting Fremont Lumber Co. v. Starrell Petroleum Co. , 228 Or. 180, 364 P.2d 773, 774–75 (1961) ). It is common in oil and gas or mineral leases for the habendum clause to create a leasehold for a term of years followed by a provision stating that the "lease should continue thereafter as long as oil or gas [is] produced from the demised land in paying quantities ... This provision, commonly spoken of as the ‘thereafter’ or ‘paying quantities' clause, [is] the dominant principle of the modern habendum clause." 2 NANCY SAINT-PAUL, SUMMERS OIL AND GAS § 14:28 (3d ed. 2016). "[A] typical habendum clause states that the lease lasts for a relatively short fixed term of years (primary term) and then ‘as long thereafter as oil, gas, or other mineral is produced’ (secondary term)." Anadarko Petroleum Corp. v. Thompson , 94 S.W.3d 550, 554 (Tex. 2002). "Typically, ... the habendum clause in an oil and gas lease provides that a lease will remain in effect for as long as oil or gas is produced ‘in paying quantities.’ " T.W. Phillips Gas and Oil Co. v. Jedlicka , 615 Pa. 199, 42 A.3d 261, 268 (2012). "Under an habendum clause providing ‘[i]t is agreed that this lease shall remain in full force for a term of five years from this date, and as long thereafter as oil or gas, or either of them is produced from said land by the lessee, or the premises are being developed or operated,’ the primary term may be extended as long as either of the two conditions is met." WILLISTON ON CONTRACTS § 50:58 (4th ed. 2016) (citing Statex Petroleum v. Petroleum, Inc. , 308 F.2d 815, 818–19 (10th Cir. 1962) ). Most courts construe "thereafter" provisions as creating a determinable tenancy. See Tank v....