Talmage v. Bradley

• Decision Date: 26 March 2019
• Docket Number: Case No. 2:17-cv-544
• Citation: 377 F.Supp.3d 799
• Parties: Ralph W. TALMAGE, AS TRUSTEE OF RALPH W. TALMAGE TRUST, et al., Plaintiffs, v. Jacqueline M. BRADLEY, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

377 F.Supp.3d 799

Ralph W. TALMAGE, AS TRUSTEE OF RALPH W. TALMAGE TRUST, et al., Plaintiffs,

v.Jacqueline M. BRADLEY, et al., Defendants.

Case No. 2:17-cv-544

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

Filed March 26, 2019

Randolph L. Snow, James M. Wherley, Jr., Whitney L. Willits, Black, McCuskey, Souers & Arbaugh, Canton, OH, for Plaintiffs.

Matthew W. Onest, Scott M. Zurakowski, Krugliak Wilkins Griffiths & Dougherty Co., Canton, OH, Bradley J. Benoit, Bracewell, LLP, Houston, TX, John R. Seeds, Dickie, McCamey & Chilcote, P.C., Anthony W. Jesko, Pittsburgh, PA, Lyle B. Brown, Alana Valle Tanoury, Steptoe & Johnson PLLC, Columbus, OH, Melanie Morgan Norris, Steptoe & Johnson, Wheeling, WV, for Defendants.

OPINION AND ORDER

GEORGE C. SMITH, JUDGE

Plaintiffs the Talmage and Haid Trusts initiated this lawsuit seeking a declaratory judgment to quiet title, asserting that their overriding royalty assignment is not subject to the 1994 Bradley Assignment, as well as a number of other claims. Defendants Jacqueline Bradley and the Estate of Ralph Bradley filed a Counterclaim against Plaintiffs and a Third-Party Complaint against Northwood Energy Corporation seeking to enforce the 1994 Bradley Assignment. This matter is now before the Court on Plaintiffs/Counterclaim Defendants' Motion for Partial Summary Judgment (Doc. 49) and Defendants/Third Party Plaintiffs' Motion for Partial Summary Judgment (Doc. 48). The Cross-Motions are fully briefed and ripe for review.¹ For the reasons that follow, Plaintiffs' Motion for Partial Summary Judgment is DENIED and Defendants/Cross-Claimants Motion for Partial Summary Judgment is GRANTED in part and DENIED in part .

I. BACKGROUND

In April 1994, TransAtlantic Energy Corp., TransAtlantic Management Company, and TransAtlantic Gas Marketing, Inc. (collectively, "TransAtlantic") assigned and conveyed various oil and gas leases, in whole or in part, and related oil and gas wells, to Eastern States Oil & Gas, Inc. ("Eastern") (the "TransAtlantic-Eastern Assignment"). (Doc. 33 at ¶ 10-11; Doc. 33-1; Doc. 35 at ¶ 10; Doc. 48-2, Deposition of Ralph Talmage ("Talmage Dep.") at 262-64; Doc. 48-3, Deposition of John DiFrangia ("DiFrangia Dep.") at 71–73 & Ex. 6). The TransAtlantic-Eastern Assignment concerned over 11,000 acres and 100 wells, including oil and gas leases located in Belmont, Monroe, and Noble Counties in Ohio that are specifically identified within Exhibit B to the TransAtlantic-Eastern Assignment (collectively referred to as the "Leases"). (Doc. 33-1 at Ex. B). The TransAtlantic-Eastern Assignment was recorded in Belmont, Monroe, and Noble Counties in Ohio. (Doc. 33, ¶¶ 13–15; Doc. 35, ¶¶ 13–15; Doc. 48-2 at 262–64). All of the Leases were described in one exhibit, meaning that leases covering properties in Belmont, Monroe, and Noble Counties were conveyed by one instrument. (Doc. 33-1; Doc. 33-2; Doc. 33-3; Ex. C).

TransAtlantic conveyed, generally, the following interests to Eastern: (1) 100% ownership of developed lease acreage within the Well Sites, and (2) 50% ownership of undeveloped lease acreage located outside of the Well Sites (subject to the retention of the Retained Wells and Retained Well Sites). (Doc. 33-1).

Shortly after it acquired the Leases, Eastern conveyed to Ralph L. Bradley, who was then an Eastern executive, a five percent (5%) overriding royalty interest in all of the Leases. (Doc. 33-4).² The Bradley overriding royalty interest (the "Bradley Override") was granted in an assignment (the "Bradley Assignment") which states in pertinent part as follows:

WHEREAS , Eastern States Oil & Gas, Inc., a Virginia corporation ("Assignor"), acquired certain oil and gas properties, including certain oil and gas wells and certain oil and gas leases, pursuant to an Assignment and Bill of Sale dated April 21, 1994 and recorded in Volume 5, Page 947 of the Lease Records of Monroe County, Ohio, and Volume 108, Page 278 of the Lease Records of Belmont County, Ohio, collectively called (the "Assignment"). The oil and gas wells existing as of the date of the Assignment are more particularly described in Exhibit A-1 of the Assignment (the "Wells"), and the oil and gas leases are more particularly described on Exhibit B of the Assignment (the "Leases"), which documents are incorporated herein by reference;

WHEREAS , Assignor desires to assign an overriding royalty interests to Ralph L. Bradley, subject to the terms and conditions set out hereinafter.

NOW, THEREFORE , in consideration of the sum of One Dollar ($ 1.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, EASTERN STATES OIL & GAS, INC., a Virginia corporation, hereby does GRANT, BARGAIN, SELL, ASSIGN, TRANSFER AND CONVEY, subject to all of the provisions set out hereinafter, without warranty of title, either express or implied, unto RALPH L. BRADLEY ("Assignee") an overriding royalty interest of five percent (5%) of 8/8ths (the "ORRI") in and to all of the acreage subject [to] the Leases and in and to all oil and gas produced from, or allocated to, said Leases ,...

(Doc. 33-4 (emphasis added) ). This assignment was made with the following exceptions:

1. It is expressly understood that all of the producing Wells conveyed by the Assignment – which is all of the Wells save and except the non-producing Baker # 2 Well, Well ID WOM 12356 – are expressly excepted from this assignment of ORRI, it being the intention of the parties hereto that the ORRI provided for herein shall NOT apply to the producing wells acquired by Assignor under the Assignment, but shall apply to non-producing wells and future wells, subject to paragraph 2 below.

2. The ORRI shall NOT apply to the first well drilled by Assignor offsetting each of the producing Wells. By "offsetting", it is meant a well which is drilled to the same geologic formation as the subject Well.

3. In the event Assignor exercises the pooling rights (if any) contained in the Leases, the ORRI assigned herein shall be unitized and paid on a unitized basis.

4. In the event the leasehold estate of any of the Leases is less than 100%, the ORRI shall be proportionately reduced. In addition, in the event the working interest in the Leases assigned to the Assignor by virtue of the Assignment is less than 100%, the ORRI shall be proportionately reduced. It is expressly understood, however that any future assignment of working interest(s) by Assignor shall be made subject to the ORRI.

(Doc. 33-4).

The Bradley Assignment was recorded in Monroe County on December 28, 1994, and in Belmont Count on January 6, 1995. However, it was not recorded in Noble County. (See Doc. 33). In fact, in the body of the Bradley Assignment, there is no mention of Noble County. However, Ms. Bordelon, who was employed as an attorney with Eastern at the time the Assignment was made, stated that "it was a clerical error"; "I know of no reason we would not have assigned the override to Ralph in Noble County"; "[w]e assigned an override to Ralph on everything. And it appears to me that this was a mistake in not citing Noble. It should have. Why it was not, I don't remember. But I think the intention of this was to say if you want to look at the properties, here is a place you can go find that document." (Doc. 52-1, Bordelon Dep. at 95-97). Ralph Bradley owned the Bradley Override until March 20, 2017, when he assigned it to Jacqueline M. Bradley, his wife, and that assignment was thereafter recorded in Belmont, Monroe, and Noble Counties. (Doc. 33 at ¶ 24; Assignment of Bradley Override to Jacqueline M. Bradley). Ralph Bradley passed away on March 23, 2017.³

Following the TransAtlantic-Eastern Assignment, Eastern went through a series of mergers, name changes, and intercompany transfers. Eastern's interests in the Leases were ultimately transferred to NCL Appalachian Partners, LP ("NCL"). (Doc. 1, Compl. at ¶ 13). NCL then assigned its interests in the Leases to Northwood Energy (the "NCL-Northwood Assignment"). The NCL-Northwood Assignment provides that Northwood Energy acquired NCL's interest in the Leases subject to all overriding royalty interests which are of record. (Id. ). Specifically, the Assignment Bill of Sale and Conveyance states that Northwood Energy's newly-acquired interest was "expressly made subject to:"

(D) a proportionate part of all overriding royalty interests, restrictions, exceptions, reservations, burdens, encumbrances, conditions, limitations, interests, instruments, agreements and other matters, if any, which are of record in the state and county above named and which burden or affect the properties, rights or interests herein assigned.⁴

(Doc. 1-1, Compl. Ex. A). Additionally, included in the Purchase and Sale Agreement, Buyer (Northwood) had a right to conduct due diligence. In Section 8(1), "Prior to the closing Date, Seller will permit Buyer and its duly authorized representatives to have reasonable access to the premises and the books, contracts, commitments and records relating to the Assets." (Doc. 49-7, pp. 54–59). Ralph Talmage (Northwood's founder), however, testified that he never made a request to examine those records. (Doc. 47-2, Talmage Dep. at 228–29).

Around the same time, Northwood Energy was also preparing to acquire the 50% interest in the undeveloped portions of the Leases that TransAtlantic had retained. (Doc. 1 at ¶ 14; Doc. 1-2). Then, in 2012, Northwood Energy entered into a purchase and sale agreement with Gulfport covering various oil and gas leases and wells, including the Leases at issue in this case.

In February and March of 2010, prior to the sale of the Leases to Gulfport, Northwood Energy and Talmage received a series of emails from Joseph W. Haas, of Reserve Energy Exploration, wherein Mr. Haas detailed the terms of the Bradley Assignment and provided a copy. (Doc. 49-5–7, Talmage Dep., Exs. 29–32). Next, Northwood Energy received an email dated December 7, 2010, from another oil and gas company,...