Wildcat Drilling, LLC v. Discovery Oil & Gas, LLC

Decision Date31 March 2022
Docket Number21 MA 0070
Citation2022 Ohio 1125
PartiesWILDCAT DRILLING, LLC, Plaintiff-Appellee, v. DISCOVERY OIL AND GAS, LLC, Defendant-Appellant.
CourtOhio Court of Appeals

Civil Appeal from the Court of Common Pleas of Mahoning County Ohio Case No. 15 CV 1959

JUDGMENT Affirmed.

Atty Molly K. Johnson, Johnson and Johnson, for Plaintiff-Appellee and

Atty David A. Detec, Atty. Thomas F. Hull II, Atty. Karly B. Johnson, Manchester, Newman & Bennett, LPA, The Commerce Building, Atrium Level Two, for Defendant-Appellant.

BEFORE: Carol Ann Robb, Gene Donofrio, David A. D'Apolito, Judges.

OPINION AND JUDGMENT ENTRY

Robb J.

{¶1} Defendant-Appellant Discovery Oil and Gas, LLC appeals the decision of the Mahoning County Common Pleas Court granting summary judgment for Plaintiff-Appellee Wildcat Drilling, LLC. In a prior appeal of this case, we applied common law indemnification requirements and held Discovery Oil was not entitled to indemnification for a fine paid to the Ohio Department of Natural Resources (ODNR) for brine use during drilling because Discovery Oil failed to provide Wildcat Drilling notice or an opportunity to defend before settling with ODNR.

{¶2} The Ohio Supreme Court remanded to the trial court with instructions to determine if the contract "evinces a clear intent to abrogate the common-law" requirements set forth in Globe Indemn. Co. v. Schmitt, 142 Ohio St. 595, 53 N.E.2d 790 (1944). On remand, the trial court answered this question in the negative and thus concluded Discovery Oil was not entitled to contractual indemnification for the fine. In the present appeal, Discovery Oil claims the parties intended to abrogate the common law indemnification requirement of notice before settlement and makes other arguments that are not relevant to the remanded issue. For the following reasons, the trial court's judgment is affirmed.

STATEMENT OF THE CASE

{¶3} Through a December 19, 2014 contract, Discovery Oil hired Wildcat Drilling to drill a well in Stark County beginning on December 31, 2014. Discovery Oil was to pay any invoice within ten days or notify Wildcat Drilling of any dispute within five days and timely pay undisputed portions of the invoice. The contract imposed indemnification obligations on Wildcat Drilling for fines and for other liabilities arising out of certain instances of pollution or contamination.

{¶4} In early January of 2015, an ODNR inspector determined brine water was illegally used in the drilling operation. Discovery Oil thereafter received a compliance notice but did not inform Wildcat Drilling due to a belief Wildcat Drilling's involvement would "escalate tensions with [ODNR] and be counter-productive to negotiating a favorable settlement"). (Def. S.J. Mot., Ellenis Affidavit).

{¶5} On February 13, 2015, Wildcat Drilling issued an invoice for $190, 350.37. On March 3, 2015, Discovery Oil attended a settlement meeting with ODNR (unbeknownst to Wildcat Drilling) and agreed to pay a $50, 000 fine. Wildcat Drilling learned of the issue weeks later. Discovery Oil refused to pay any part of the invoice until Wildcat Drilling agreed to indemnify it for the fine, but this request was refused by Wildcat Drilling.

{¶6} On July 27, 2015, Wildcat Drilling filed a breach of contract complaint against Discovery Oil for failing to pay the invoice. Discovery Oil's answer raised a set-off defense (based on indemnification for the fine paid to ODNR and attorneys' fees incurred in responding to ODNR's compliance notice). Discovery Oil's counterclaim alleged breach of contract (regarding the clauses on indemnification and compliance with all laws) and set forth a claim of civil liability for criminal conduct under R.C. 2307.60 and R.C. 2307.61.

{¶7} Both parties filed a summary judgment motion. In pertinent part, Discovery Oil said it was entitled to contractual indemnification while Wildcat Drilling emphasized the failure to provide notice of the ODNR compliance proceedings so they would have an opportunity to defend against the fine (and claimed the amount of the settlement was unreasonable).

{¶8} On January 5, 2017, the trial court granted summary judgment in favor of Wildcat Drilling on the unpaid invoice and granted summary judgment to Discovery Oil for indemnification. Discovery Oil was ordered to pay $190, 350.37 with credit for the indemnified amount (the $50, 000 fine plus $14, 150.09 for expenses incurred in the compliance proceedings) for a total judgment of $126, 200.28 (with prejudgment interest from February 23, 2015).

{¶9} Both parties appealed to this court, and the appeals were consolidated. Discovery Oil filed four assignments of error, one of which argued the trial court should have allowed the statutory claim to proceed as they demonstrated Wildcat Drilling's civil liability for a criminal act. As to the appeal by Discovery Oil, this court overruled the assignments of error and affirmed the summary judgment in favor of Wildcat Drilling. Wildcat Drilling, LLC v. Discovery Oil & Gas, LLC, 2018-Ohio-4015, 121 N.E.3d 65, ¶ 52 (7th Dist.).

{¶10} Wildcat Drilling's assignment of error contested the trial court's order to indemnify Discovery Oil for the fine because they were not provided notice before the settlement meeting. They argued this deprived them of the opportunity to defend against an unreasonable agreed fine, citing the requirements set forth in the Supreme Court's Globe case. Discovery Oil responded by arguing the Globe requirements applied to common law indemnification, not contractual indemnification.

{¶11} We concluded Discovery Oil was not entitled to indemnification because Wildcat Drilling "was not notified of the ODNR meeting or given the opportunity to appear at the meeting." Id. at ¶ 69. As to Wildcat Drilling's appeal, we reversed the summary judgment and modified the damage award to eliminate the credit for indemnification. Id. at ¶ 71. Discovery Oil appealed our December 28, 2018 decision to the Ohio Supreme Court.

Supreme Court Remand

{¶12} The Supreme Court accepted the following proposition of law "Contractually-negotiated indemnification clauses are not subject to the common law Globe indemnification requirements." Wildcat Drilling, LLC v. Discovery Oil & Gas, LLC, 164 Ohio St.3d 480, 2020-Ohio-6821, 173 N.E.3d 1156, ¶ 10. The issue before the Court was said to be whether the Globe requirements (for determining indemnification rights after a settlement without the indemnitor's involvement) "apply when the parties' rights are governed by a contract that includes an indemnification provision." Id. at ¶ 11.

{¶13} In the cited Globe case, the Court observed an indemnitee's voluntary payment after a settlement does not negate the right to indemnification if: (1) proper and timely notice was given to the indemnitor; (2) the indemnitor was legally liable to respond; and (3) the settlement was fair and reasonable. Globe Indemn. Co. v. Schmitt, 142 Ohio St. 595, 53 N.E.2d 790 (1944). The Supreme Court applied the requirements in later cases and now considers them "common-law requirements in Ohio." Wildcat Drilling, 164 Ohio St.3d 480 at ¶ 13 (expressed in the lead opinion and recognized in the third opinion).

{¶14} As reviewed in more detail below, the resulting Supreme Court opinions in Wildcat Drilling were split along various lines: (1) lead opinion where three justices reversed and remanded to trial court with instructions; (2) dissenting in part but also concurring in judgment only as this justice wished to remand on a different issue; (3) dissenting opinion where two justices wanted to reverse and allow indemnification; and (4) dissenting opinion where one justice wanted to affirm our decision finding there was no right to indemnification in this case. Four justices agreed the Globe requirements may apply to contractual indemnification depending on the language in the agreement. Id. at ¶ 13 (the lead opinion, where three justices said the intent to abrogate the common law must be clear), ¶ 44 (the fourth opinion, where a justice said the intent to abrogate the common law must be done "expressly, not impliedly").

{¶15} The lead opinion concluded a contractual indemnification clause in a contract does not abrogate the common law requirements unless the intent to do so is "clearly indicated." Id. at ¶ 14. "If the language used in the parties' contract evinces a clear intent to abrogate the common-law Globe Indemn. Co. requirements, the contract should be applied as written and the indemnitor must indemnify the indemnitee under the terms of the agreement." Id. at ¶ 14. These justices explained this does not mean the contract must contain an "explicit rejection of the common law" in order to abrogate the common law set forth in Globe. Id. at ¶ 16 (and this does not mean the common law can supplant negotiated terms). They rejected the third opinion's assumption the parties intended to abrogate the common law from the mere existence of a contractual indemnification clause. Id.

{¶16} As to the contract at issue, the lead opinion made the following observation: "The contract here does not say unequivocally that Wildcat and Discovery intended to abrogate Ohio's common-law indemnification requirements. Nor does it say that Discovery can voluntarily settle a claim without first giving Wildcat notice of the claim or that Discovery can settle a claim for any amount it chooses, even if that amount is unreasonable." Wildcat Drilling, 164 Ohio St.3d 480 at ¶ 15. However, the opinion then said "talismanic or magical language" is not required in order to abrogate the common law because the parties' intent is determined by the contractual language. Id. These justices declined to decide in the first instance whether the...

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