Shanesville Invs. LLC v. Eclipse Res. I, LP

• Decision Date: 14 December 2018
• Docket Number: Case No. 2:18-cv-237
• Citation: 358 F.Supp.3d 665
• Parties: SHANESVILLE INVESTMENTS LLC, et al., Plaintiffs, v. ECLIPSE RESOURCES I, LP, Defendant.
• Court: U.S. District Court — Southern District of Ohio

358 F.Supp.3d 665

SHANESVILLE INVESTMENTS LLC, et al., Plaintiffs,

v.ECLIPSE RESOURCES I, LP, Defendant.

Case No. 2:18-cv-237

United States District Court, S.D. Ohio, Eastern Division.

Signed December 14, 2018

David R. Hudson, Toledo, OH, Andrew J. Dorman, Reminiger Co., LPA, Cleveland, OH, Daniel L. Bey, Martin, Browne, Hull & Harper, PLL, Urbana, OH, for Plaintiffs.

Robert M. Stonestreet, Babst, Calland, Clements and Zomnir, P.C., Charleston, WV, Steven B. Silverman, Pro Hac Vice, Babst Calland Clements & Zomnir PC, Pittsburgh, PA, for Defendant.

OPINION AND ORDER

EDMUND A. SARGUS, JR., CHIEF UNITED STATES DISTRICT JUDGE

This matter is before the Court on the parties' cross motions for partial summary judgment. Defendant Eclipse Resources, I, LP ("Defendant") moves for summary judgment against Plaintiffs Shanesville Investments LLC and Graber Land LLC ("Plaintiffs") regarding the interpretation of a lease agreement between the parties. (ECF No. 20). In turn, Plaintiffs seek partial summary judgment against Defendant in favor of their lease interpretation. (ECF No. 22). For the reasons that follow, the Court GRANTS Defendant's motion (ECF No. 20) and DENIES Plaintiffs' motion (ECF No. 22).

I.

A. Factual Background

Plaintiffs are successors in interest to an oil and gas lease between Robert and Elizabeth Savage (collectively "Savages") and Anschutz Exploration Corporation ("Anschutz"). (Exhibit A, ECF No. 3-1). Plaintiff Shanesville Investments LLC ("Shanesville") owns a 72.355-acre property in Oxford Township, Guernsey County. (Exhibit B, ECF No. 3-2). Plaintiff Graber Land LLC ("Graber") owns 70.231 acres adjacent to Shanesville's property. (Exhibit C, ECF No. 3-3).

In 2008, the Savages signed a lease with Anschutz. (Exhibit A). In 2014, as successors in interest to the Savages, Plaintiffs signed identical amendments to the lease with Anschutz's successors in interest, Chesapeake Exploration, LLC ("Chesapeake"); CHK Utica, LLC ("CHK"); and Total E & P USA, Inc. ("Total"). (Exhibits D, ECF No. 3-4; Exhibit F, ECF No. 3-6). The amendments will be referred to as the "Shanesville Amendment" (Exhibit D) and the "Graber Amendment" (Exhibit F).

The parties to the amendments recorded memoranda on January 22, 2015, which will be referred to as "1st Shanesville Memorandum" (Exhibit E, ECF No. 3-5) and "1st Graber Memorandum" (Exhibit G, ECF No. 3-7). Plaintiffs, Chesapeake, CHK, and Total recorded subsequent memoranda on March 12, 2015, adding Total's signature. (Exhibit H, ECF No. 3-8; Exhibit I, ECF No. 3-9). The subsequent memoranda were titled "2nd Shanesville Memorandum" (Exhibit H) and "2nd Graber Memorandum (Exhibit I). Collectively, the Court will refer to the lease, lease amendments, 1st lease memoranda, and 2nd lease memoranda as the "Amended Lease."

B. Procedural History

On March 21, 2018, Plaintiffs initiated this lawsuit, alleging breach of contract and seeking a declaratory judgment. (Pls.' Compl., ECF No. 3).¹ First, Plaintiffs assert that Defendant breached the express terms of the Amended Lease by improperly deducting expenses before calculating Plaintiffs' royalty payments. (Pls.' Compl. ¶¶ 75–91). Specifically, Plaintiffs argue that Defendant sold extracted wellhead product to unaffiliated third parties for processing and subsequently deducted the costs of this processing from their royalty payments to Plaintiffs. (Id. ¶¶ 21–25). Plaintiffs contend this net cost calculation resulted in smaller royalty payments, preventing Plaintiffs from "enjoying the full benefits of their minerals and rights" under the Amended Lease. (Id. ¶ 30). According to Plaintiffs, Defendant continues "to improperly deduct costs from the royalty payments," despite previously refunding a portion of the deducted costs. (Id. ¶ 34).

Second, Plaintiffs seek a declaratory judgment that Defendant is not entitled to make deductions from gross proceed royalty payments. (Id. ¶ 94). In its Answer, Defendant denies that it underpaid royalties to Plaintiffs. (Def.'s Answer ¶ 4). Defendant asserts a counterclaim for declaratory judgment, arguing that its current calculation of royalties is proper under the Amended Lease. (Id. ¶ 11).

On September 7, 2018, Defendant moved for partial summary judgment in favor of its interpretation of royalty calculations under the Amended Lease. (ECF No. 20). That same day, Plaintiffs filed a cross motion for partial summary judgment on the interpretation of royalty calculations. (ECF No. 22). The parties filed simultaneous responses in opposition (ECF Nos. 24 and 25) and reply briefs (ECF Nos. 29 and 30). The parties' cross motions for partial summary judgment are ripe for review.

II.

Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The movant has the burden of establishing there are no genuine issues of material fact, which may be achieved by demonstrating the nonmoving party lacks evidence to support an essential element of its claim. Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Barnhart v. Pickrel, Schaeffer & Ebeling Co. , 12 F.3d 1382, 1388–89 (6th Cir. 1993). The burden then shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting Fed. R. Civ. P. 56 ). When evaluating a motion for summary judgment, the evidence must be viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co. , 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).

A genuine issue exists if the nonmoving party can present "significant probative evidence" to show that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Philip Morris Cos. , 8 F.3d 335, 339–40 (6th Cir. 1993). In other words, "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson , 477 U.S. at 248, 106 S.Ct. 2505, see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (concluding that summary judgment is appropriate when the evidence could not lead the trier of fact to find for the non-moving party).

III.

A. Rules of Contract Construction

The parties agree that Ohio law controls the instant action. Defendant analyzes the Amended Lease under Ohio law in its Motion for Summary Judgment. (Def.'s Mot. for Summ. J. at 4). In addition, Plaintiffs correctly note that "Ohio follows the rule that where a conflict of law arises in a case involving a contract, the law of the state where the contract is to be performed governs." Schulke Radio Prods., Ltd. v. Midwestern Broadcasting Co. , 6 Ohio St.3d 436, 438–439, 453 N.E.2d 683 (1983). Here, the contract is a lease agreement to be performed in Guernsey County, Ohio. Accordingly, Ohio law governs.

Defendant accurately states that "[i]n Ohio, an oil and gas lease is no different than any other contract." (Def.'s Mot. for Summ. J. at 4) (citing Phillips Exploration, Inc. v. Reitz , 2012 WL 6594915, at *3 (S.D. Ohio, Dec. 18, 2012) ) (in Ohio, "[a]n oil and gas lease is a contract subject to traditional rules of interpretation and construction"). See also Benzel v. Chesapeake Exploration, LLC , 2014 WL 4915566, at *4 (S.D. Ohio, Sept. 30, 2014) ("Under Ohio law ... oil and gas leases are contracts subject to the well settled rules of contract construction and interpretation").

Under Ohio law, the interpretation of written contract terms "is a matter of law for initial determination by the court." Absalom v. Hess Corp. , 2014 WL 12746847, at *3 (S.D. Ohio Jan. 2, 2014). See also Parrett v. Am. Ship Bldg. Co. , 990 F.2d 854, 858 (6th Cir. 1993) (applying Ohio law) ; Inland Refuse Transfer Co. v. Browning-Ferris Industries of Ohio, Inc. , 15 Ohio St.3d 321, 474 N.E.2d 271 (1984) ("If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined. However, if a term cannot be determined from the four corners of the contract, factual determination of intent or reasonableness may be necessary to supply the missing term").

When confronting an issue of contract interpretation, the Court must give effect to the intent of the parties. Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos. , 86 Ohio St.3d 270, 273, 714 N.E.2d 898 (1999). The Court presumes the intent of the parties will "reside in the language they choose to use in their agreement." Graham v. Drydock Coal Co. , 76 Ohio St.3d 311, 313, 667 N.E.2d 949 (1996). If the plain language does not confer a "definite legal meaning," then the contract is ambiguous. Westfield Ins. Co. v. Galatis , 100 Ohio St.3d 216, 219, 797 N.E.2d 1256 (2003).

In other words, "[a]mbiguity exists only when a provision at issue is susceptible to more than one reasonable interpretation." Lager v. Miller-Gonzalez , 120 Ohio St.3d 47, 50, 896 N.E.2d 666 (2008) (citing Hacker v. Dickman , 75 Ohio St.3d 118, 119–120, 661 N.E.2d 1005 (1996) ). The fact that a contract's enforcement will confer hardship on one or both parties is not evidence of ambiguity. Bondex Int'l Inc. v. Hartford Accident and Indemnity Co. , 667 F.3d 669, 677 (6th Cir. 2011) (citing Foster Wheeler Enviresponse, Inc. v. Franklin County Convention Facilities Authority , 78 Ohio St.3d 353, 362, 678 N.E.2d 519 (1997) ).

However, where a contract is ambiguous, the Court may consider extrinsic evidence to determine the parties' intent. Westfield , 100 Ohio St.3d at 219, 797 N.E.2d 1256 (citing Shifrin v. Forest City Enterprises, Inc. , 64 Ohio St.3d 635, 638, 597 N.E.2d 499 (1992) ). The Court may not alter a contract by interpreting extrinsic evidence as contrary to its express terms. Westfield , 100 Ohio St.3d at 219, 797 N.E.2d 1256 (citing Blosser v. Enderlin , 113 Ohio St. 121, 129, 148 N.E. 393 (1925) ("there can...