Youngs v. Old Ben Coal Co.

• Decision Date: 15 March 2001
• Docket Number: No. 00-2190,00-2190
• Citation: 243 F.3d 387
• Parties: (7th Cir. 2001) C. James Youngs, Plaintiff-Appellant, v. Old Ben Coal Company, Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 387

243 F.3d 387 (7th Cir. 2001)

C. James Youngs, Plaintiff-Appellant, v. Old Ben Coal Company, Defendant-Appellee.

No. 00-2190

In the United States Court of Appeals For the Seventh Circuit

Argued January 19, 2001

Decided March 15, 2001

Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. 97 C 148--Richard L. Young, Judge.

Before Flaum, Chief Judge, and Posner and Ripple, Circuit Judges.

Posner, Circuit Judge.

C. James Youngs, the owner of a 400-acre tract of land on which the Old Ben Coal Company has strip- mining rights, brought this diversity suit (governed by Indiana law) against Old Ben for breach of contract, lost after a bench trial, and appeals. Old Ben caused the four oil wells on the land to be plugged, and later, having removed all the surface coal, ceased its coal-mining activities. Youngs seeks specific performance of what it claims to be Old Ben's contractual obligation to restore the oil wells once Old Ben ceased its mining activities. Whether Youngs has such a right depends in the first instance on a series of contracts allocating rights in the tract in question.

A fee simple in mineral-bearing land is actually a bundle of separate property rights, or as they are sometimes called "estates," and the rights can be owned by different persons. In 1949, the then owner of the entire fee simple leased to Bernard Bouchie the oil and gas estate in the land, that is, the right to extract oil and gas. The lessee was actually one of Bouchie's predecessors, but that is one of a number of distracting and irrelevant details that we shall ignore in order to simplify our opinion. This 1949 lease is broadly worded and includes a grant to the lessee of "the right at any time to remove all machinery and fixtures placed on said premises, including the right to draw and remove casing" (that is, pipe). The estate itself, however, remained a part of the fee simple.

In 1956, the fee simple, with the exception of the oil and gas estate, was sold to Youngs. The sale was expressly subject to the 1949 lease of oil and gas rights. In addition, the deed required the buyer, that is, Youngs, along with his successors and assigns, in the event that he or they took any oil wells "out of production," "to restore . . . said wells to production in substantially the condition that . . . they were in prior to taking . . . them out of production."

In 1959 Youngs, whose fee-simple interest included the coal estate in the land, leased that estate, together with the coal estate in adjacent parcels owned by him, to Old Ben, subject to various encumbrances, including the 1949 oil lease and the restoration obligation in the 1956 deed. The 1959 lease expressly grants Old Ben the right to strip mine the property and hence to destroy the surface, destroy any structures (after due notice to their owner) on the surface, and destroy everything else down to the seam of coal to be mined, including any oil wells drilled pursuant to leases executed after this lease (that is, the 1959 coal lease). Youngs's exploitation of any other mineral estates in the property was expressly subordinated to Old Ben's rights under the lease.

Youngs did not own the oil and gas estate in 1959, because it had been excepted from the grant to him of the fee simple in 1956. But he acquired that estate in 1975 and shortly afterwards sold the fee simple in the 400-acre tract to Old Ben, while reserving as his predecessor had done the oil and gas estate. The reservation was expressly subordinated to Old Ben's rights under the 1959 coal lease.

The upshot is that from 1975 on, Old Ben owned all the estates in the tract except the oil and gas estate, which remained in Youngs's hands; and Bouchie was the lessee of that estate, operating the four oil wells.

The production from the oil wells dwindled. No oil was produced after March 1989, and the last royalty payment, made by Bouchie to Youngs for 1989, was for only $155. The previous year, 1988, it had been $163, down from $3,941 in 1983.

Old Ben wanted to strip mine the area occupied by the four wells, so in 1992, with the oil wells unused, it paid Bouchie, the lessee of the oil and gas estate under the 1949 lease, to remove the surface facilities (pumps, pipes, and storage tanks) and plug the wells. It then proceeded to strip mine the land formerly occupied by them. So far as appears, the price that Bouchie charged Old Ben for the removal did not include compensation for any loss of oil production. There was no such loss, because production had already ceased.

The strip mining of the areas occupied by the wells was completed at some time prior to 1995, the year that Youngs discovered that the wells had been plugged and demanded that Old Ben restore them. Old Ben refused, precipitating this suit.

An initial peculiarity about the suit is that the 1956 grant, by which Youngs acquired the 400-acre tract, required him to restore the oil wells after coal production ceased--yet the suit has him seeking to impose that obligation on Old Ben. The key date, however, from Youngs's point of view, is 1975, when he acquired the oil and gas estate and therefore became the obligee under the restoration clause. The purpose of that clause in the 1956 grant was to obligate the owner of the other rights in the land, including most importantly the right to strip-mine coal, to restore the oil wells, for the benefit of the owner of the oil and gas estate when the interfering uses, such as strip mining, ceased, so that the production of oil could resume. In 1975 Youngs became the owner of the oil and gas estate and thus the beneficiary of the restoration obligation. He argues that Old Ben, as the coal operator, became the obligor, since both the coal lease, which was the original source of Old Ben's rights, and the deed by which Old Ben acquired all the estates in the land except the oil and gas estate from Youngs in 1959, were expressly subject to the restoration obligation.

There are several fallacies in this argument. The first is that it overlooks Bouchie's rights. Youngs's acquisition, first of the 400-acre tract (1956) and then of the oil and gas estate in the tract (1975), were subject to Bouchie's preexisting rights conferred by the 1949 lease that he had obtained from the then owner of the oil and gas estate. Those rights, which later contracts to which Bouchie was not a party could not extinguish, included the right to demolish the oil wells with no obligation to restore them. So if when the oil wells ran dry Bouchie decided to demolish them Youngs could not object. But that is exactly what happened--when the oil wells ran dry, Bouchie decided to demolish them. True, he was persuaded to this decision by Old Ben's money. Bouchie had no incentive to incur the expense of removing the wells, other than those parts that might have salvage value, and perhaps there were none; Old Ben did, to enable it to strip mine the land that the wells occupied. And so the stage was set for a mutually advantageous deal between Bouchie and Old Ben.

We do not understand how Bouchie's right to remove the wells could be thought conditional on his deciding to do so exclusively for his own purposes rather than at the behest of someone else, who wanted to use the land that the wells occupied. Nothing in the 1949 lease would have prevented Bouchie from assigning the lease to Old Ben, which could then have hired Bouchie or anyone else to do the actual removal. Youngs could not have blocked that transaction, and what difference can it make that instead of bothering with an assignment Bouchie and Old Ben contracted directly for the removal of the wells? Youngs argues that under Indiana law an oil and gas lease lapses after one year of nonproduction, which in the case of Bouchie's lease would have been sometime early in 1989. The argument is unsound. After one year of nonproduction, the owner of the oil and gas estate can file a statement with the county recorder that the lease has expired. Ind. Code sec. 32-5-8-1; Wilson v. Elliott, 589 N.E.2d 259, 262 (Ill. App. 1992); Salmon v. Perez, 545 N.E.2d 21, 24 (Ill. App. 1989) ("the statute requires a one-year period of inactivity and a written request of the property owner before an oil and gas lease will become null and void"). But Youngs never did this. And so the lease was still in force in 1992 when Old Ben contracted with Bouchie for the removal of the wells.

Even if the lease had terminated in 1989, Bouchie would have been entitled to a reasonable time within which to exercise his right under it to remove the wells, a right that by its nature persists after the expiration of the lease by reason of nonproduction--the lessee cannot reasonably be required to exercise his right of removal while the wells are still producing. The lease authorized Bouchie to remove fixtures, machinery, and casing "at any time," a standard phrase in so-called "removal of equipment clauses" and one that courts have interpreted as authorizing the lessee to remove the equipment before or after the lease expires, so long as the removal is done within a "reasonable time." Hardy v. Heeter, 96 N.E.2d 682, 684 (Ind. App. 1951); Smith v. Mesel, 84 N.E.2d 477 (Ind. App. 1949); Michaels v. Pontius, 137 N.E. 579 (Ind. App. 1922); 4 Eugene Kuntz, A Treatise on the Law of Oil and Gas sec. 50.3, p. 293 (1990). Since there appears to be no more recoverable oil, and Youngs had indicated no intentions with regard to the use of the land after the end of oil production and strip mining, three years might well have been a reasonable time, though that we need not decide.

If the lease had terminated in 1989 and the wells had not been removed within a reasonable time thereafter, and if therefore they had been deemed abandoned and so had reverted to Youngs as the owner of the land to which they were affixed, Youngs might have a claim against Bouchie and Old Ben for having destroyed his...