Tera, LLC v. Rice Drilling D, LLC, 21 BE 0047
| Court | United States Court of Appeals (Ohio) |
| Writing for the Court | D'Apolito, P.J. |
| Citation | 2023 Ohio 273 |
| Parties | TERA, LLC, Plaintiff-Appellee, v. RICE DRILLING D, LLC ET AL., Defendants-Appellants. |
| Docket Number | 21 BE 0047 |
| Decision Date | 18 January 2023 |
2023-Ohio-273
TERA, LLC, Plaintiff-Appellee,
v.
RICE DRILLING D, LLC ET AL., Defendants-Appellants.
No. 21 BE 0047
Court of Appeals of Ohio, Seventh District, Belmont
January 18, 2023
Civil Appeal from the Court of Common Pleas of Belmont County, Ohio Case No. 17 CV 344
Atty. Charles H. Bean, Thornburg & Bean, Ohio 43950, Atty. Elizabeth L. Glick, Law Office of Elizabeth L. Glick, Ohio 43950, Atty. Richard A. Myser, Myser & Davies, Ohio 43912, and Atty. Craig J. Wilson, C.J. Wilson Law, LLC, Ohio 43026, for Plaintiff-Appellee and
Atty. John Kevin West, and Atty. John C. Ferrell, Steptoe & Johnson PLLC, Ohio 43215, and Atty. Melanie M. Norris, Steptoe & Johnson PLLC, 1233 Main Street, Suite 3000, for Defendants-Appellants Rice Drilling D, LLC and Gulfport Energy Corporation.
Atty. Anna G. Rotman, and Atty. Kenneth A. Young, Kirkland & Ellis, LLP, for Defendant-Appellant Rice Drilling D, LLC.
BEFORE: David A. D'Apolito, Gene Donofrio, Carol Ann Robb, Judges.
OPINION AND JUDGMENT ENTRY
D'Apolito, P.J.
{¶1} Appellants, Rice Drilling D, LLC ("Rice Drilling")[1] and Gulfport Energy Corporation ("Gulfport Energy"), Rice's working interest partner in six horizontal oil and gas wells in pooled units in Belmont County, Ohio (collectively "oil and gas companies"), appeal five judgment entries of the Belmont County Court of Common Pleas in this action by Tera, LLC ("Tera")[2] for willful trespass and conversion.[3] On June 3, 2020, on cross-motions for summary judgment, the trial court entered partial summary judgment in favor of Tera and against the oil and gas companies on Tera's claims for trespass and conversion. The trial court opined that the unambiguous language in the leases executed between Rice Drilling and Tera's predecessor-in-interest and Tera's sole member,
Thomas Shaw ("Shaw") reserves the subsurface rights to the Point Pleasant to the surface owner.
{¶2} On October 2, 2020, on cross-motions for summary judgment, the trial court entered partial summary judgment in favor of Tera and against the oil and gas companies on the issue of bad faith trespass. The trial court's entry of summary judgment on bad faith trespass is predicated upon the trial court's previous conclusion that the unambiguous language in the leases reserves the subsurface rights in the Point Pleasant to the surface owner.
{¶3} In a judgment entry issued on July 1, 2021, five days prior to the commencement of the jury trial on damages, the trial court imposed a discovery sanction on the oil and gas companies, which prohibited them from introducing evidence about the actual quantity of gas produced from the wells at issue or the actual price at which the gas sold. The July 1, 2021 judgment entry further prohibited the oil and gas companies from offering expert testimony or challenging the expert testimony offered by Tera based on "information [the oil and gas companies] had but did not provide to [Tera.]" As a consequence, the jury relied on actual production, rather than actual sales, to calculate damages. In the absence of evidence of actual sales, the trial court's sanction further allowed Tera's expert to calculate damages based on the price set by the New York Mercantile Index ("NYMEX"), which is set at the Henry Hub in Louisiana, rather than local indices, which are based on the price of natural gas in the Appalachian basin.
{¶4} On July 9, 2021, following the jury trial, the trial court issued a judgment on the verdict awarding total net damages in the amount of $40,129,357.62 ($42,129,916.62 minus $2,000,559.00 for royalties paid during the course of the leases) to Tera on the bad faith trespass claim. Finally, on October 21, 2021, the trial court overruled the oil and gas companies' motion for judgment notwithstanding the verdict ("JNOV") and for remittitur, which is predicated upon a series of evidentiary arguments that Tera failed to prove both the existence of damages to a reasonable scientific certainty, and the amount of damages actually incurred by Tera.
{¶5} In this appeal, the oil and gas companies advance six assignments of error. First, they assert that the trial court should have considered extrinsic evidence when interpreting the relevant provisions of the leases, because circumstances surrounding the
agreement give the plain language special meaning, and/or the language in the oil and gas leases is ambiguous. Second, the oil and gas companies argue that the trial court erred in its conclusion that the oil and gas companies engaged in bad faith trespass. In their third and fourth assignments of error, the oil and gas companies assert that the trial court abused its discretion when it failed to properly instruct the jury on the computation of damages, and when it denied the motion for JNOV, despite the fact that Tera failed to prove its damages to a reasonable degree of certainty. They further argue that the trial court erred as a matter of law when it refused to admit testimony establishing that Tera did not own a portion of the property during the timeframe for which Tera was awarded damages. Fifth, the oil and gas companies argue that the trial court erred as a matter of law when it allowed the jury to apply a multiplier to its award of actual damages, to bring the damages award to its present value. The oil and gas companies characterize the application of the pv-10 multiplier to the jury's actual damages award as prejudgment interest, which they assert is not within the province of the jury in Ohio. Finally, the oil and gas companies argue that the trial court abused its discretion in excluding their evidence regarding the quantity of damages, and restricting their ability to cross-examine Tera's damages expert, as a sanction for their failure to timely produce sales information.
{¶6} For the following reasons, the trial court's entries of summary judgment in favor of Tera on its bad faith trespass claim are affirmed. We further find that the trial court did not abuse its discretion when it excluded evidence of actual sales at trial based on the record. Next, we find that there exists substantial evidence in the record supporting the jury's award of both actual and future damages. We likewise affirm the jury's application of the pv-10 multiplier to the actual damages award in this case, as we conclude that it does not constitute an award of prejudgment interest. However, we reverse the amount of the compensatory damages award because it includes damages incurred while Shaw, not Tera, was the record owner of the surface. Accordingly, we affirm the judgment on the verdict with respect to Tera's entitlement to future damages and the amount of future damages, Tera's entitlement to compensatory damages, and the percentages attributable to the oil and gas companies. We reverse and vacate the judgment on the verdict in part and remand this matter for a jury trial limited solely to the amount of compensatory damages sustained by Tera.
FACTS AND PROCEDURAL HISTORY
{¶7} On December 31, 2013, Shaw entered into the first oil and gas lease with Rice Drilling at issue in this appeal. Shaw and Rice Drilling entered into the second lease at issue here on August 13, 2014. The leases are identical but for the property descriptions.
{¶8} The two leases govern the oil and gas companies' rights to the subsurface minerals in approximately 271 acres of property in Belmont County, Ohio. In 2016, a 31.31-percent interest in the leases was assigned from Rice Drilling to Gulfport Energy. Tera's property is included in three pooled units:
147.22 acres of Tera's property are in the Gold Digger Unit. There are two horizontal wells in the Gold Digger Unit: the Gold Digger 1 well and the Gold Digger 3 well. Tera's property constitutes 38.140217% of this unit.
2.76 acres of Tera's property are in the Son Uva Digger Unit. There are three wells in the Son Uva Digger Unit: the Son Uva Digger 1 well, the Son Uva Digger 3 well, and the Son Uva Digger 5A well. Tera's property constitutes .395271% of this unit.
0.09 acres of Tera's property are in the Gold Digger South 3 Unit. There is one well in the Gold Digger South 3 Unit, being the Gold Digger 6 well. Tera's property constitutes .03541681% of this unit.
(Joint Stipulation of Facts, ¶ 6.) Each of the wells began production in early 2015, with the exception of the Gold Digger 6, which began production in December of 2017.
{¶9} Article One of the leases, captioned "GRANT OF LEASE," reads, in pertinent part:
Lessor, in consideration of the payments described herein and the covenants and agreements hereafter contained, hereby leases and lets exclusively to the Lessee all the oil, gas, minerals and their constituents (not including coal) in the formations commonly known as the Marcellus
Shale and the Utica Shale, underlying the land described below for the sole purpose of exploring for, drilling, operating, producing and gathering the oil, gas, casinghead gasoline and all other gases and their respective vapors, liquid or gaseous hydrocarbons produced in association therewith other than as reserved unto Lessor below.
(Emphasis added)(Plaintiffs Trial Exhibit No. 1, p. 1.)
{¶10} The reservations section within Article One in each lease reads, in pertinent part:
The Lessor reserves all rights not specifically granted to Lessee in this Lease. Lessor specifically reserves the right to all products contained in any formation: (1) from the surface of the Leased Premises to the top of the formation commonly known as Marcellus Shale, (2) in any and all formations below the base of Marcellus Shale to the top of the formation commonly known as Utica Shale, and (3) in all formations below the base of the Utica Shale.
(Emphasis added)(Id, p. 2.)
{¶11} Although initially a matter of dispute, the geological expert retained by the oil and gas companies later conceded...
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