State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals

• Decision Date: 21 January 2016
• Docket Number: Nos. 2014–0423,2014–1933.,s. 2014–0423
• Parties: The STATE ex rel. CLAUGUS FAMILY FARM, L.P. v. SEVENTH DISTRICT COURT OF APPEALS et al. Hustack et al., Appellants, v. Beck Energy Corporation, Appellee.
• Court: Ohio Supreme Court

145 Ohio St.3d 180

47 N.E.3d 836

2016 Ohio 178

The STATE ex rel. CLAUGUS FAMILY FARM, L.P.

v.SEVENTH DISTRICT COURT OF APPEALS et al.

Hustack et al., Appellants,

v.Beck Energy Corporation, Appellee.

Nos. 2014–0423

2014–1933.

Supreme Court of Ohio.

Submitted Dec. 15, 2015.

Decided Jan. 21, 2016.

Critchfield, Critchfield & Johnston, Ltd., Daniel H. Plumly, and Andrew P. Lycans, Wooster, for relator in case No. 2014–0423.

Michael DeWine, Attorney General, and Sarah Pierce and Tiffany Carwile, Assistant Attorneys General, for respondents in case No. 2014–0423.

Slater & Zurz, L.L.P., Richard V. Zurz Jr., and Mark A. Ropchock, Akron, for appellants in case No. 2014–1933.

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., Scott M. Zurakowski, William G. Williams, Gregory W. Watts, and Aletha M. Carver, Canton, for appellee in case No. 2014–1933 and intervening respondent in case No. 2014–0423.

Reed Smith, L.L.P., and Kevin C. Abbott ; and Brouse McDowell, L.P.A., and Clair E. Dickinson, Akron, in support of respondents in case No. 2014–0423 and urging affirmance in case No. 2014–1933 for amicus curiae XTO Energy, Inc.

Vorys, Sater, Seymour & Pease, L.L.P., John K. Keller, and Timothy B. McGranor, Columbus, in support of respondents in case No. 2014–0423 and urging affirmance in case No. 2014–1933 for amici curiae Ohio Oil and Gas Association, Enervest, Ltd., Artex Oil Company, Artex Energz Group, L.L.C., Sierra Buckeye, L.L.C., Eclipse Resources Corporation, and Hilcorp Energy Company.

Burleson, L.L.P., Kevin L. Colosimo, Kristin M. McCormish, Michael Vennum, and Daniel P. Craig, in support of intervening respondent in case No. 2014–0423.

FRENCH, J.

{¶ 1} These consolidated actions, an original action in this court and an appeal of a judgment of the Seventh District Court of Appeals, address the interpretation of a number of nearly identical oil and gas leases. The appeal challenges the Seventh District's interpretation of the leases in a class action. The original action seeks writs of prohibition and mandamus. In the original action, relator, Claugus Family Farm, L.P. ("Claugus Family"), an absent and unnamed plaintiff in the class action, challenges the Seventh District's order tolling the leases in the class action.

{¶ 2} We affirm the judgment of the court of appeals in case No. 2014–1933, because the leases set forth a definite period of ten years in which development must occur. We also deny a writ of mandamus or of prohibition in case No. 2014–0423 because Claugus Family had an adequate remedy in the ordinary course of law by moving to intervene in the appeal and because the Seventh District did not patently and unambiguously lack jurisdiction to issue an order tolling the leases pending appeal. Finally, we deny Beck Energy Corporation's motions to toll the terms of the leases.

Statement of Facts

Hustack v. Beck Energy Corp., case No. 2014–1933 ("the appeal")

{¶ 3} In September 2011, appellants, Larry A. and Lori Hustack, along with Clyde A. and Molly A. Hupp, who did not remain parties to the lawsuit when the complaint was amended, filed suit against appellee, Beck Energy Corporation, in the Monroe County Court of Common Pleas. The Hustacks are successors in interest to lessors who signed a lease known as a "Form G & T (83) lease" with Beck Energy in 2008. The lease contains blank lines for the lessors' names, for the period during which a well was to be commenced unless delay rental—that is, an amount paid to the landowner in lieu of development—was paid, for the amount of the delay rental, and for other information.

{¶ 4} The complaint sought a judgment declaring that the Form G & T (83) leases were void as against public policy and to quiet title. A subsequently amended complaint asserted claims on behalf of a class of over 400 Monroe County landowners ("the landowners") who had signed Form G & T (83) leases with Beck Energy.¹

{¶ 5} In February 2012, the landowners moved for summary judgment. In July 2012, the trial court granted summary judgment to the named plaintiffs, finding that the Form G & T (83) leases were void because they were leases in perpetuity in violation of Ohio public policy. Beck Energy appealed that judgment.

{¶ 6} The landowners then filed a motion for class certification under Civ.R. 23(B)(2). On October 1, 2012, Beck Energy moved to toll the operation of the original leases. In February 2013, the trial court granted class certification under Civ.R. 23(B)(2), noting that 415 landowners in Monroe County and 200 to 300 landowners in other counties were affected.

{¶ 7} Beck Energy appealed the order certifying the class, and the court of appeals remanded for the trial court to define the class more clearly. The trial court redefined the class as all Ohio lessors subject to a Form G & T (83) lease with Beck Energy on whose land no preparations for drilling had occurred. The court also applied its entry granting summary judgment to all members of the class as it existed on September 29, 2011, the date an amended complaint asserted class claims. Beck Energy again appealed the class certification, but that appeal was unsuccessful, and Beck Energy has not sought further review of that issue. Hupp v. Beck Energy Corp., 2014-Ohio-4255, 20 N.E.3d 732, ¶ 76 (7th Dist.).

{¶ 8} In June 2013, the landowners unsuccessfully sought the trial court's approval of notice to the class and Beck Energy's list of the class of lessors.

{¶ 9} In July 2013, on Beck Energy's motion, the trial court tolled the leases of only the named plaintiffs pending the outcome of Beck Energy's appeal on the merits. Beck Energy appealed the tolling order.

{¶ 10} The Seventh District issued an order on September 26, 2013, modifying the trial court's tolling order to include all class members as of October 1, 2012, the date Beck Energy first moved to toll the terms of the leases.

{¶ 11} Exactly one year later, on September 26, 2014, the Seventh District held that the trial court had misinterpreted the lease provisions and Ohio case law and had erred in concluding that the Form G & T (83) lease was a perpetual lease that was void ab initio as against public policy. 2014-Ohio-4255, 20 N.E.3d 732, ¶ 104. The lease, according to the Seventh District, has a primary term of a definite duration and a secondary term that extends the lease if certain conditions are met, but allows the payment of delay-rental provisions only during the primary term. In addition, the Seventh District held that the trial court erred in concluding that the lease was subject to implied covenants and that Beck Energy had breached the implied covenant to develop. Id. at ¶ 122.

{¶ 12} The parties stipulated to tolling the leases between Beck Energy and the class pending a timely appeal to this court. The landowners then sought review of the Seventh District's judgment regarding the validity of the lease as well as the tolling of the leases of the unnamed class members. On January 28, 2015, we granted jurisdiction on only the following two propositions of law, see Hupp v. Beck Energy Corp., 141 Ohio St.3d 1454, 2015-Ohio-239, 23 N.E.3d 1196 :

[I.] An oil and gas lease which can be maintained indefinitely without development is a perpetual lease that is void as against public policy. That a lease purports to establish a fixed term is of no consequence if the duration of that term can be extended without development.

[II.] Where the express terms of an oil and gas lease effectively allow the lessee to postpone development indefinitely, and any stated time limits can be unilaterally extended by the lessee in perpetuity without any development, the lease is subject to an implied covenant of reasonable development notwithstanding a general disclaimer of all implied covenants.

State ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, case No. 2014–0423 ("the original action")

{¶ 13} Claugus Family, which was not a named plaintiff in the appeal, owns a tract of land in Monroe County. A prior owner of the land had signed a Form G & T (83) lease with Beck Energy. According to Claugus Family, during the first ten years of the lease on its property, no well was drilled, no oil or gas was produced, Beck Energy did not search for oil or gas, and Beck Energy expressed no intent regarding future production. Claugus Family claims that the lease expired on February 3, 2014.

{¶ 14} On September 30, 2013, in anticipation of the expiration of the Beck Energy lease, Claugus Family signed an oil and gas lease with Gulfport Energy Corporation ("Gulfport") for the same property. The Gulfport lease allowed 90 days for Gulfport to review the title to the property for defects and 180 days for Claugus Family to cure any title defects. Claugus Family asserts that Gulfport, upon being told of the tolling order in the appeal, informed Claugus Family that the tolling order was a title defect.

{¶ 15} Claugus Family then filed a complaint in this court naming the Seventh District Court of Appeals and three judges on that court as respondents. Beck Energy has been granted leave to intervene in the action.

{¶ 16} Claugus Family asserts that the order in the appeal tolled its lease with Beck Energy retroactively to October 1, 2012, without notice. Claugus Family claims that the tolling order negatively affected the value of its property, violated its right to due process, and violated the rights of other landowners and that it might expose the landowners to liability for breach of contract. Claugus Family claims that it had or has no plain and adequate remedy in the ordinary course of law.

{¶ 17} Claugus Family requests an order prohibiting the enforcement of portions of the September 2013 tolling order and an order vacating the order to the extent that it applies to Claugus Family as an unnamed class member. Beck Energy, on the other hand, claims that Claugus Family breached its lease by entering into the Gulfport lease because the Beck Energy lease prohibited the lessor from entering into any other...