Shamrock v. Cobra Res., LLC

• Decision Date: 13 June 2022
• Docket Number: S. 2020-T-0075,2020-T-0076
• Parties: Steven H. SHAMROCK, et al., Plaintiffs-Appellees, v. COBRA RESOURCES, LLC, Defendant-Appellant, and Steven H. Shamrock, et al., Plaintiffs-Appellants, v. Cobra Resources, LLC, Defendant-Appellee.
• Court: Ohio Court of Appeals

191 N.E.3d 1197

Steven H. SHAMROCK, et al., Plaintiffs-Appellees,

v.COBRA RESOURCES, LLC, Defendant-Appellant,andSteven H. Shamrock, et al., Plaintiffs-Appellants,

v.Cobra Resources, LLC, Defendant-Appellee.

NOS. 2020-T-0075

2020-T-0076

Court of Appeals of Ohio, Eleventh District, Trumbull County.

Decided: June 13, 2022

Ned C. Gold, Jr., The Gold Law Firm, 7011 East Market Street, Warren, OH 44484 (For Plaintiffs-Appellees/Plaintiffs-Appellants).

J. Michael Thompson, Henderson, Covington, Messenger, Newman & Thomas Co., LPA, 6 Federal Plaza Central, Suite 1300, Youngstown, OH 44503 (For Defendant-Appellant/Defendant-Appellee).

OPINION

MARY JANE TRAPP, J.

{¶1} In this consolidated appeal, Plaintiffs-appellants/appellees, Steven Shamrock ("Steven"), Victoria Shamrock ("Victoria") (collectively, "the Shamrocks"), and Emerald S. Enterprises, LLC ("Emerald") (collectively, "the plaintiffs"), and defendant-appellee/appellant, Cobra Resources, LLC ("Cobra"), appeal from the following judgment entries of the Trumbull County Court of Common Pleas: (1) the February 23, 2018, judgment entry granting summary judgment to Cobra on the plaintiffs’ claims and on Cobra's counterclaims against Emerald; (2) the August 23, 2019, judgment entry awarding damages to Cobra on its counterclaims against Emerald; and (3) the September 11, 2020, judgment entry granting summary judgment to the Shamrocks on Cobra's counterclaims.

{¶2} The plaintiffs assert five assignments of error, contending that the trial court erred (1) by finding that the mineral and surface estates of the property at issue in this case merged; (2) by finding that the "hereafter acquired" provision in the Shamrocks’ mortgage encompassed the property's mineral estate; (3) by failing to find that the oil and gas lease between Emerald and Cobra was invalid as a result of undue influence and unconscionability; (4) by awarding Cobra its legal fees and expenses in contravention of the American Rule; and (5) by denying their request to amend their pleadings.

{¶3} Cobra asserts three assignments of error, contending that the trial court erred (1) by granting summary judgment sua sponte to the Shamrocks on Cobra's counterclaims; (2) by granting summary judgment to the Shamrocks based on lack of direct privity when the Shamrocks waived lack of privity as an affirmative defense; and (3) by denying summary judgment to Cobra based on lack of privity because the relevant contractual provisions are real covenants that run with the land and because horizontal and direct privity exist.

{¶4} After a careful review of the record and pertinent law, we find as follows:

{¶5} The trial court did not err (1) by denying the plaintiffs’ request to amend their pleadings; (2) by finding that the mortgage's "hereafter acquired" provision encompassed the property's mineral estate; (3) by allegedly misapplying the doctrine of merger; (4) by failing to invalidate the oil and gas lease based on undue influence and/or unconscionability; (5) by granting summary judgment to the Shamrocks due to their alleged waiver of an affirmative defense; (6) by denying summary judgment to Cobra on its counterclaims against the Shamrocks; or (7) by awarding Cobra its legal fees and expenses incurred in defending against the plaintiffs’ claims.

{¶6} However, the trial court did err (1) by granting summary judgment sua sponte to the Shamrocks on Cobra's counterclaims and (2) by awarding Cobra its attorney fees and expenses incurred in prosecuting its counterclaims against Emerald.

{¶7} Thus, we affirm the trial court's February 23, 2018, judgment entry; reverse the trial court's September 11, 2020, judgment entry; and affirm in part and reverse in part the trial court's August 23, 2019, judgment entry. We remand this matter to the trial court for further proceedings consistent with this opinion.

Substantive Facts and Procedural History

{¶8} This matter involves disputes over the mineral rights to approximately 69.36 acres of real property located on Shafer Road in Champion Township, Trumbull County, Ohio ("the Shafer Road property").

Initial Conveyances; Mortgage

{¶9} In December 2002, the trustees of the Hentosh Family Revocable Living Trust ("the Hentosh trustees") conveyed the Shafer Road property to the Shamrocks via a general warranty deed. The Hentosh trustees expressly retained "all oil, gas and mineral rights" to the Shafer Road property.

{¶10} In June 2003, the Shamrocks borrowed funds from Geauga Savings Bank ("Geauga") and executed an "Open-End Mortgage and Security Agreement" ("the Geauga mortgage") encumbering several properties, including the Shafer Road property.

{¶11} In January 2004, the Hentosh trustees conveyed "all oil, gas, and mineral rights" relating to the Shafer Road property to the Shamrocks via a quit claim deed.

{¶12} The Shamrocks subsequently defaulted on their loan. Geauga foreclosed on its mortgage and purchased the Shafer Road property at a sheriff's sale in December 2007. The sheriff conveyed the Shafer Road property to Geauga pursuant to a "Deed on Decree of Order of Sale" recorded in April 2008. Geauga subsequently conveyed the Shafer Road property to Emerald via a limited warranty deed. Emerald's principal is Marlene Shamrock ("Ms. Shamrock"), who is Steven's mother.

Oil and Gas Leases

{¶13} In January 2011, Julie Wessling ("Ms. Wessling"), a leasing agent for Cobra Leasing, LLC ("Cobra Leasing"), visited Ms. Shamrock's home and offered to lease the oil and gas rights to the Shafer Road property. Ms. Shamrock later testified during her deposition that she informed Ms. Wessling that she had just undergone surgery; she was taking pain medication (i.e., Oxycontin ); and she did not believe she owned the mineral rights. Ms. Wessling later testified in her deposition that she did not recall talking to Ms. Shamrock about the property's title or being informed that Ms. Shamrock was on pain medication. Ms. Shamrock, on behalf of Emerald, ultimately signed a "Paid-Up Oil and Gas Lease" ("the Cobra lease") in favor of Cobra Leasing and received $400. The Cobra lease was recorded in February 2011. Cobra Leasing subsequently assigned the lease to Cobra.

{¶14} According to Steven, he was unaware that his mother had signed the Cobra lease. He believed that he and Victoria still owned the Shafer Road property's mineral estate because Geauga's mortgage only encumbered the surface estate and not the mineral estate that the Shamrocks subsequently acquired. Thus, after foreclosing on its mortgage, Geauga only obtained ownership of the surface estate, which it then transferred to Emerald.

{¶15} According to Steven, BP America Production Company ("BP") began purchasing "deep-well" rights throughout Trumbull County and other parts of northeast Ohio. In April 2012, the Shamrocks entered into an "Oil and Gas Lease" with BP regarding the Shafer Road property. Pursuant to this lease, BP agreed to pay the Shamrocks a signing bonus of $3,900 per acre, subject to BP's determination that the Shamrocks had defensible title.

{¶16} At the end of September 2012, BP sent a letter to the Shamrocks notifying them of two title defects it had identified. The first title defect was the existence of the Cobra lease. BP requested that the Shamrocks obtain a partial release from Cobra. The second title defect was a gap in the chain of title. Emerald, as the successor in interest to Geauga, was the current record title owner of the Shafer Road property. BP requested that the Shamrocks record an instrument conveying the Shafer Road property to themselves. BP informed the Shamrocks that they had 60 days from their receipt of the letter to clear all title defects at their own cost and expense. Upon expiration of the 60 days, BP had 20 days to elect to waive the title defects or decline the lease.

{¶17} According to Steven, he angrily confronted Ms. Shamrock about the Cobra lease and ordered her to "undo" it. According to Ms. Shamrock, she "went on a quest" and "frantically" tried to get Cobra to quickly release the Cobra lease. Following negotiations, Cobra eventually agreed to release its "deep well" rights in exchange for $30,000. On January 31, 2013, Ms. Shamrock tendered payment, and Emerald and Cobra entered into a "Settlement and Release Agreement." On the same day, Emerald and Cobra signed and recorded a "Partial Surrender and Cancellation of Oil and Gas Lease," pursuant to which Cobra surrendered its rights to "subsurface depths 100 feet below the base of the Clinton-Medina formation and all deeper formations" but retained all other rights under the Cobra lease.

{¶18} On February 8, 2013, Emerald conveyed to the Shamrocks via warranty deed "all of [its] interest to all minerals of every kind and description, including but not limited to oil and gas, underlying" the Shafer Road property. According to Steven, however, BP had rescinded its offer to pay the signing bonus because the cure period had expired.

The Litigation

{¶19} In 2016, the plaintiffs filed a complaint in the Trumbull County Court of Common Pleas, asserting claims against Cobra for promissory estoppel, extortion, slander of title, lost opportunity, interference with a business relationship, and breach of contract. The Shamrocks requested damages in the amount of $270,660 based on their inability to fulfill their agreement with BP. Emerald requested damages in the amount of $30,000 that Cobra "wrongfully extorted" and an order directing Cobra to release the Cobra lease.

{¶20} Cobra filed an answer, affirmative defenses, and counterclaims against the plaintiffs for breach of the warranty of title in the Cobra lease, breach of the covenant of quiet enjoyment in the settlement agreement, and breach of the release in the settlement agreement. Cobra alleged that the Cobra lease and the settlement agreement were binding on Emerald and "its successors." Cobra sought reimbursement of its costs, including attorney fees, in defending against the plaintiffs’ claims and in bringing its...