Rudolph v. Viking Int'l Res. Co.

• Citation: 2017 Ohio 7369,84 N.E.3d 1066
• Decision Date: 11 August 2017
• Docket Number: No. 15CA26.,15CA26.
• Parties: Victor H. RUDOLPH, Plaintiff–Appellant, v. VIKING INTERNATIONAL RESOURCES CO., INC., et al., Defendants–Appellees.
• Court: United States Court of Appeals (Ohio)

84 N.E.3d 1066

2017 Ohio 7369

Victor H. RUDOLPH, Plaintiff–Appellant,

v.VIKING INTERNATIONAL RESOURCES CO., INC., et al., Defendants–Appellees.

No. 15CA26.

Court of Appeals of Ohio, Fourth District, Washington County.

RELEASED: August 11, 2017

Michael D. Buell, Marietta, Ohio for Appellant.

Paul N. Garinger, Columbus, Ohio for Appellee Viking International Resources Co., Inc.John E. Triplett, Jr., Marietta, Ohio for Appellees Stonebridge Operating Co. LLC and RJ Operating Co.

DECISION AND JUDGMENT ENTRY

Harsha, J.

{¶ 1} Victor Rudolph sought a judgment declaring that the oil and gas lease on his property had expired by its own terms due to lack of production in paying quantities from 1998–2001. Rudolph also brought claims for abandonment and breaches of various implied covenants. Lessee Viking International Resources Co., Inc. sought summary judgment on all of Rudolph's claims on the grounds that they were barred by the applicable statutes of limitations and laches. The trial court granted Viking's motion, denied Rudolph's motion for partial summary judgment, and dismissed Rudolph's claims.

{¶ 2} Rudolph contends that the trial court erred when it determined that his declaratory judgment action and his claims for breaches of the implied covenants were barred by various statutes of limitations. The parties do not dispute that the well produced no oil or gas from 1998–2001. As a result, the lease expired by its own terms on December 31, 1999 after two years of non-production.

{¶ 3} We conclude that the trial court erred in finding that Rudolph's declaratory judgment claim was barred by the eight-year statute of limitations for written contracts in R.C. 2305.06. The applicable statute of limitations is the 21–year limitation for recovery of real estate in R.C. 2305.04. Rudolph filed his action in 2014, well within the 21–year period.

{¶ 4} Rudolph's three breach of implied covenant claims (develop the land, operate with care and diligence, and restore the surface) all arise from duties imposed by the lease and are based on non-production from 1998–2001. Those claims sound in contract and are subject to the statute of limitation in R.C. 2305.06 for actions on a written contract. Because those actions accrued on January 1, 2000, following the two-year non-production period, the 15–year statute of limitation in former R.C. 2305.06 applies, rather than eight-year statute of limitation that became effective in 2012. Rudolph had 15 years until January 1, 2015 to bring the breach of implied covenant claims. Because Rudolph filed his action in 2014, those claims are not barred by the statute of limitations.

{¶ 5} Rudolph also contends that the trial court misconstrued his allegation that he had not received royalty payments as a claim for unpaid royalties. He contends the allegation was not a separate cause of action but was alleged as factual support for his abandonment claim. The trial court determined that "any claims" for insufficient royalties are barred by the four-year statute of limitation in R.C. 2305.041 governing calculation and payment of royalties. We find no separate cause of action for unpaid royalties in Rudolph's pleadings. However, there is no reversible error because Rudolph is not prejudiced by having a claim he never asserted barred by the applicable statute of limitations.

{¶ 6} In sum Rudolph's claims for declaratory judgment and breaches of the implied covenants are not barred by the applicable statutes of limitations; and the trial court's misconstruction of his royalty allegations is harmless error. We sustain Rudolph's first assignment of error accordingly.

{¶ 7} Next Rudolph contends that the trial court erred when it applied the doctrine of laches to bar his claims for declaratory judgment and breach of implied covenant to develop land. We agree because Viking failed to establish the essential elements of a laches defense to Rudolph's declaratory judgment claim. The lease automatically expired for lack of production and the leasehold interest automatically reverted to Rudolph without the necessity of filing any action or asserting any right until a justiciable issue arose in 2012. Therefore, Viking failed to establish the first element of a laches defense: unreasonable delay in asserting a right.

{¶ 8} Looking to Rudolph's claim for breach of implied covenant to develop the land, even if we assume that Rudolph's 14–year delay is unreasonable and inexcusable, Viking presented no evidence that it suffered material prejudice from the delay. We sustain Rudolph's second assignment of error.

{¶ 9} Next Rudolph contends that the trial court erroneously granted summary judgment to Viking on the abandonment claim because Viking presented no evidence of the intentions of the predecessor lessees during the years of non-production. Rudolph also argues that the trial court did not construe the evidence and inferences arising from the evidence in his favor and thus overlooked the existence of a genuine issue of material fact. Rudolph presented the affidavits of three witnesses containing facts that conflicted with Viking's summary judgment evidence. When Rudolph's evidence is construed most strongly in his favor it raises genuine issues of material fact concerning whether the well had been abandoned. However, because the lease terminated on December 31, 1999 and the leasehold interest automatically revested with Rudolph, his abandonment claim is arguably moot. But because the trial court dismissed Rudolph's claim for breach of the implied covenant to restore the surface (plug well/reclaim property) based on its erroneous determination of the abandonment claim, we reverse the trial court's dismissal of the breach of that implied covenant claim. We sustain Rudolph's third assignment of error.

{¶ 10} Rudolph also contends that the trial court erred when it addressed the merits of his claim for breach of implied covenant to operate with care and diligence. Rudolph argues that Viking sought judgment solely on the statute of limitations ground; the parties had presented no evidence or arguments on the underlying merits of this claim. Therefore, Rudolph contends that the trial court's sua sponte determination of the merits of that claim deprived Rudolph of due process.

{¶ 11} Under Rudolph's first assignment of error we held that the trial court improperly applied a four-year statute of limitations to bar his claim for breach of implied covenant to operate with care and diligence and that the 15–year statute governing a written contract applied. However, the trial court alternatively decided this claim on its merits. But the record contains no evidence that the parties moved for summary judgment on the merits of this claim. Thus, the trial court erred in deciding this claim without affording Rudolph procedural due process. We sustain Rudolph's fourth assignment of error.

{¶ 12} Finally, Rudolph contends that the trial court erred when it denied his motion for summary judgment on his declaratory judgment action. The undisputed evidence in the record shows the well had no production from 1998 to 2001. Therefore, the lease expired by its own terms on December 31, 1999. The only arguments Viking made to contest summary judgment were its laches and statute of limitations defenses, which we have already determined do not bar Rudolph's declaratory judgment claim. We sustain Rudolph's fifth assignment of error.

{¶ 13} We reverse the trial court's judgment.

I. FACTS & PROCEDURAL HISTORY

{¶ 14} In 1994 Rudolph acquired land in Washington County, Ohio that was subject to an oil and gas lease granted by a previous owner on October 11, 1978. The lease term provided:

TO HAVE AND TO HOLD * * * for the term of two years from the date hereof, and as much longer as oil, gas or gasoline can be produced in paying quantity, or the rental paid thereon, paying for or yielding to the lessor the one-eighth part of all oil produced * * * one-eighth of the surplus gasoline * * * or one-eighth proceeds * * * payable to the lessor semi-annually. Should a well be found producing gas only, then the lessor shall be paid * * * one-eighth (1/8) of field market price so long as gas is sold therefrom, payable quarterly when so marketed. * * * Provided that this lease shall become null and void unless a well shall be commenced on the premises within Twelve months from the date hereof, or unless lessee shall pay lessor at the rate of Two ($2.00) Dollars per acre/year in advance for each addition year such commencement of said well is delayed.

One well, the Quick # 1 Well, was drilled and produced oil and/or gas in accordance with the primary term of the lease. After a series of conveyances not at issue, Stonebridge acquired the working interest in and operated the well and drilling unit. In 2003 Viking acquired the remaining leasehold interest, which included a 3.125% override interest. Rudolph retained the mineral rights, but transferred the surface rights to the real property in 2010.¹

{¶ 15} In June 2012, Rudolph received an oil and gas division order from Stonebridge dated June 1, 2012. Because Rudolph believed the lease had terminated by its own terms due to nonproduction, he did not sign and return the order.

{¶ 16} On March 11, 2014, Rudolph filed a complaint against Viking, Stonebridge and others who may have an interest in the oil and gas lease, alleging that the well produced no oil or gas between 1998 and 2001, and therefore the lease expired by its own terms. Rudolph alleged that he had received no royalty payments for many years and the well produced no oil or gas from 1998 through 2001. He sought a declaratory judgment that the lease expired (count I) and brought claims for abandonment (count II) and breaches of the implied covenant to reasonably develop the premises for oil and gas purposes (count III), the implied covenant to operate the well with care and diligence (count IV), and the implied covenant to restore the surface by plugging the well and...