Oxford Oil Co. v. West , 2016 Ohio 5684 ( 2016 )

[Cite as Oxford Oil Co. v. West, 2016-Ohio-5684.]
STATE OF OHIO, BELMONT COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
THE OXFORD OIL COMPANY, )
N.K.A. ECLIPSE RESOURCES-OHIO, )
LLC )
PLAINTIFFS-APPELLANTS ) CASE NO. 13 BE 0031
)
VS. ) OPINION
)
BARRY M. WEST, et al. )
)
DEFENDANT-APPELLEE )
CHARACTER OF PROCEEDINGS: Civil Appeal from the Court of Common
Pleas of Belmont County, Ohio
Case No. 11 CV 435
JUDGMENT: Reversed and Remanded.
APPEARANCES:
For Plaintiffs-Appellants: Attorney William J. Taylor
Attorney David E. Northrop Attorney Scott D. Eickelberger
Attorney Clay K. Keller Kincaid, Taylor & Geyer
Babst Calland Clements and Zomnir, PC 50 North Fourth Street
One Cascade Plaza, Suite 1010 P.O. Box 1030
Akron, Ohio 44308 Zanesville, Ohio 43701-1030
Attorney John K. Keller For Defendant-Appellee:
Attorney John J. Kulewicz Attorney John A. Vavra
Attorney Timothy B. McGranor Attorney Joseph A. Vavra
Vorys, Sater, Seymour & Pease LLP Vavra Law Office
52 East Gay Street 132 West Main Street
P.O. Box 1008 St. Clairsville, Ohio 43950
Columbus, Ohio 43216-1008
JUDGES:
Hon. Mary DeGenaro
Hon. Gene Donofrio
Hon. Carol Ann Robb
Dated: September 6, 2016
[Cite as Oxford Oil Co. v. West, 2016-Ohio-5684.]
DeGENARO, J.
{¶1} Plaintiff-Appellant, The Oxford Oil Company, now known as Eclipse
Resources-Ohio, LLC (Oxford Oil), appeals the trial court judgment invalidating an oil
and gas lease with Defendants-Appellees Barry M. West, Stacey L. West, Brian K.
West, and Shelly West, asserting the trial court erred by concluding the Lease was a
no-term, perpetual lease that is void ab initio as against public policy.
{¶2} Pursuant to the Ohio Supreme Court's recent decision in State ex rel.
Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St. 3d 180,
2016-Ohio-178, 47 N.E.3d 836, the Lease is not perpetual; rather, it has a primary
term of a definite duration of five years—which allows for the payment of delay rental
payments only during the primary term—followed by a secondary term that extends
the Lease if certain conditions are met. Accordingly the judgment of the trial court is
reversed, and the matter remanded for further proceedings consistent with this
opinion.
Facts and Procedural History
{¶3} The Wests own a 97-acre parcel and entered into an oil and gas lease
with Oxford Oil in October 2006. The Lease has a habendum clause that provides a
primary term of five years, and a secondary term of indefinite duration that follows the
expiration of the primary term, to continue under terms defined in that clause. The
Lease also contains a delay rental provision, which gives Oxford Oil the option to
defer commencement for successive twelve-month periods by paying annual delay
rentals. The Lease goes on to expressly disclaim implied covenants.
{¶4} The Wests accepted all delay rental payments from Oxford Oil. While
the Lease still had approximately four months remaining in its primary term, Oxford
Oil attempted to enter the premises to commence operations for a well. However, the
Wests notified Oxford Oil that they would not allow access.
{¶5} Just before the primary term was set to expire, Oxford Oil filed a
complaint seeking the following relief: 1) an order requiring the Wests to comply with
the Lease by allowing Oxford Oil to enter the property to extract oil and gas; 2) a
declaration that the Lease is enforceable, valid and binding; and 3) an extension of
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the Lease term due to the Wests' refusal to allow access. The Wests filed an answer
and counterclaims asserting: 1) defective execution; 2) abandonment; 3) fraud; 4)
bad faith; 5) breach of implied duty to develop mineral rights; 6) prohibition of
assignment; 7) the Lease was void ab initio as a lease in perpetuity and contrary to
public policy; and 8) quiet title. Discovery commenced, depositions WERE taken and
filed.
{¶6} The parties filed and opposed reciprocal summary judgment motions on
a variety of their respective claims. The trial court disposed of both motions on a
limited basis, granting the Wests partial summary judgment, reasoning that the Lease
was perpetual and thus void ab initio. The trial court entered judgment, finding no
just reason for delay pursuant to Civ.R. 54(B), Oxford Oil appealed and the trial court
stayed its judgment pending appeal.
{¶7} While this appeal was pending, this court held that another lease with
substantially similar language was not a perpetual lease and thus valid in Hupp v.
Beck Energy Corp., 2014-Ohio-4255, 20 N.E.3d 732 (7th Dist.) That case was
accepted for review by the Ohio Supreme Court; thus we stayed resolution of this
case. Hupp was consolidated with another related case and on January 26, 2016, the
Ohio Supreme Court, inter alia, affirmed this court's decision in Hupp, concluding the
subject leases were valid—not void as against public policy. State ex rel. Claugus
Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St. 3d 180, 2016-Ohio-
178, 47 N.E.3d 836. The parties thereafter filed supplemental briefs addressing the
impact of Claugus upon this appeal.
Perpetual versus Term Lease
{¶8} Oxford Oil's first, second, fourth, fifth, and seventh assignments of error
raise interrelated issues and will be discussed together for clarity of analysis:
The Common Pleas Court erred by ruling that the oil and gas
lease between the parties is a "no term" lease.
The Common Pleas Court erred by declaring that an oil and gas
lease with a secondary term of indefinite duration is a "no term" lease in
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perpetuity.
The Common Pleas Court erred by declaring that an oil and gas
lease with a secondary term of indefinite duration is void ab initio as
contrary to public policy.
The Common Pleas Court erred by declaring all oil and gas
leases with similar clauses void ab initio.
The Common Pleas Court erred by granting summary judgment
for the defendants.
{¶9} In its related third assignment of error, Oxford Oil asserts:
The Common Pleas Court erred by holding that an oil and gas
lease in perpetuity is void ab initio as a matter of law.
{¶10} A trial court's summary judgment is subject to de novo review. Parenti
v. Goodyear Tire & Rubber Co., 66 Ohio App. 3d 826, 829, 586 N.E.2d 1121 (9th
Dist.1990). Summary judgment is only proper when the movant demonstrates that,
viewing the evidence most strongly in favor of the nonmovant, reasonable minds
must conclude no genuine issue as to any material fact remains to be litigated and
the moving party is entitled to judgment as a matter of law. Civ.R. 56. Further, "[t]he
construction of written contracts and instruments of conveyance is a matter of law."
Graham v. Drydock Coal Co., 76 Ohio St. 3d 311, 313, 667 N.E.2d 949 (1996),
quoting Alexander v. Buckeye Pipe Line Co., 53 Ohio St. 2d 241, 374 N.E.2d 146
(1978), paragraph one of the syllabus
{¶11} Oxford Oil contends partial summary judgment in favor of the Wests on
their counterclaim must be reversed as the Lease had a defined primary term that
had not yet expired, as well as a secondary term. The trial court based its decision
that the Lease here was perpetual in duration, and thus void ab initio as against
public policy, upon the Monroe County Common Pleas Court decision in Hupp v.
Beck Energy that invalidated a similar oil and gas lease, termed the Form G & T 83
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lease, for the same reasons. However, we reversed the trial court in Hupp and that
decision was affirmed by the Ohio Supreme Court in Claugus, supra.
{¶12} In Claugus, the landowners argued that the inclusion of the delay-rental
provision and the phrases "in the judgment of the Lessee" and "capable of being
produced" rendered the lease perpetual and void ab initio as against Ohio's public
policy. Id. at ¶ 19.
{¶13} The Ohio Supreme Court rejected these arguments, holding that the
delay-rental provisions only applied during the primary term of the lease and could
not be used by the lessee beyond that fixed primary term. Id. at ¶ 20-21, 24-25. The
Court further held that the phrases "capable of being produced" and "in the judgment
of the Lessee" in the habendum clause of the lease did not render the lease
perpetual, because these phrases only applied to an existing well drilled on the lease
and could not be used by the lessee to unilaterally extend the lease without actual
development. Id. at ¶ 24, 27-28. Accordingly, the Court held that the G & T 83 lease
was valid and enforceable. Id. at ¶ 30.
{¶14} Thus, we must determine whether the language in this Lease is similar
enough to the lease in Claugus such that the holding controls the resolution of this
case.
{¶15} The habendum and delay rental clauses in Claugus stated respectively:
2. This lease shall continue in force and the rights granted
hereunder be quietly enjoyed by the Lessee for a term of ten years and
so much longer thereafter as oil and gas or their constituents are
produced or are capable of being produced on the premises in paying
quantities, in the judgment of the Lessee, or as the premises shall be
operated by the Lessee in the search for oil or gas and as provided in
paragraph 7 following.
3. This lease, however, shall become null and void and all rights
of either party hereunder shall cease and terminate unless, within ____
months from the date hereof, a well shall be commenced on the
premises, or unless the Lessee shall thereafter pay a delay rental of
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____ Dollars each year, payments to be made quarterly until the
commencement of a well. A well shall be deemed commenced when
preparations for drilling have been commenced.
Claugus at ¶ 23.
{¶16} Here, the habendum and delay rental clauses provide respectively:
All of the above described [oil and gas] rights shall extend for a
term of FIVE (5) years and so much longer as oil, gas or their
constituents are produced or are capable of being produced in paying
quantities (in the sole opinion of Lessee) or as long as gas is stored or
gas, air, brine or any other substance is injected as provided herein or
operations and/or transportation is maintained on all or any part of the
[Leased premises].
Lessee shall commence operations for a well on the premises by
December 25, 2006, or pay Lessor delay rental of FOUR HUNDRED
EIGHTY FIVE dollars ($485.00) each year, payable annually in
advance. The first annual payment shall be due on December 25, 2006
and shall give the Lessee the privilege of deferring the commencement
of a well for TWELVE (12) months following the due date. * * * [T]he
commencement of a well may be further deferred for periods of the
same number of months successively during the term of the lease. * * *
{¶17} The Lease herein is substantially similar to the Claugus lease validated
by the Ohio Supreme Court. In fact, the delay rental provision language in the Lease
more clearly contradicts a perpetual interpretation insofar as it explicitly states that
the delay-rental clause only applies "during the term of the lease." (Emphasis added.)
In Claugus, the delay rental provision was not as clear, thus the Court relied on case
law interpreting delay-rental provisions to apply only during the primary term of a
lease. Claugus at ¶ 25, citing Brown v. Fowler, 65 Ohio St. 507, 63 N.E. 76 (1902);
and Jacobs v. CNG Transm. Corp., 332 F. Supp. 2d 759, 786 (W.D.Pa.2004).
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{¶18} Accordingly, the Lease is not a perpetual lease that is void as against
public policy pursuant to Claugus. Rather, the Lease has a primary term of a definite
duration of five years—which allows for the payment of delay rental payments only
during the primary term—followed by a secondary term that extends the lease if
certain conditions are met. Thus, Oxford Oil's first, second, fourth, fifth, and seventh
assignments of error are meritorious.
{¶19} Finally, Oxford Oil attacks the trial court's conclusion that, as a general
matter, perpetual oil and gas leases are void ab initio. The Ohio Supreme Court
clarified that "long-term leases of mineral rights under which there is no development
of the land are void as against public policy." Claugus at ¶ 21, citing Ionno v. Glen–
Gery Corp., 2 Ohio St. 3d 131, 134, 443 N.E.2d 504 (1983). Ultimately, the Court in
Claugus concluded the lease was not perpetual. Id. at ¶ 24-30. Similarly, the Lease in
this case is not perpetual. Accordingly, Oxford Oil's third assignment of error is moot.
Return of Rentals and Release of Lease
{¶20} In its sixth assignment of error, Appellant asserts:
The Common Pleas Court erred in ordering the lessors to return
delay rental payments and ordering the County Recorder to place on
the record an entry that the lease between the parties has been
released.
{¶21} As the trial court erred by invalidating the Lease, it follows that it was
error to order the Wests to return delay rental payments and to order the County
Recorder to place on the record an entry releasing the Lease. Accordingly, Oxford
Oil's sixth assignment of error is meritorious.
Denial of Summary Judgment
{¶22} Finally, it its eighth assignment of error, Oxford Oil asserts:
The Common Pleas Court erred by denying the motion of plaintiff
for summary judgment.
{¶23} The trial court's decision granting the Wests' partial summary judgment
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motion and denying Oxford Oil's hinged solely on the determination that the Lease
was invalid; i.e., that it was perpetual and void ab initio as against public policy. The
trial court did not address the merits of the remainder of either the Wests'
counterclaims or Oxford Oil's declaratory judgment claim.
{¶24} "[I]t is well-established that issues raised in summary judgment
motions but not considered by the trial court will not be ruled upon by the appellate
court." Conny Farms, Ltd. v. Ball Resources, Inc., 7th Dist. No. 09 CO 36, 2011-Ohio-
5472, ¶ 15, citing Mills–Jennings, Inc. v. Dept. of Liquor Control, 70 Ohio St. 2d 95,
99, 435 N.E.2d 407 (1982); Ochsmann v. Great American Ins. Co., 10th Dist. No.
02AP–1265, 2003-Ohio-4679, ¶ 21.
{¶25} In Conny Farms, the trial court's ruling was based upon a legal issue:
that a judicial ascertainment clause in the lease precluded the plaintiffs from bringing
suit. Id. at ¶ 27–28. The trial court did not review the merits of the plaintiff's
underlying claims that the leases had been breached or had expired, despite the fact
that the merits were raised in summary judgment proceedings. Id. On appeal, we
held the judicial ascertainment clause was unenforceable and declined to review the
substantive arguments raised by the plaintiff because the trial court had not resolved
those issues. Id. See also Fullum v. Columbiana Cty. Coroner, 7th Dist. No. 12 CO
51, 2014-Ohio-5512, 25 N.E.3d 463, ¶ 44-46; and Tree of Life Church v. Agnew, 7th
Dist. No. 12 BE 42, 2014-Ohio-878, ¶ 27-28.
{¶26} Similarly, the merits of the remainder of the Wests' counterclaims were
raised via summary judgment but not addressed by the trial court; its ruling was
based solely upon the counterclaim that a perpetual lease is void.
{¶27} Thus, Oxford Oil's eighth assignment of error is meritorious in part. The
trial court should have granted summary judgment in favor of Oxford Oil on the
Wests' counterclaim attacking the Lease as perpetual and void. The matter is
remanded for the trial court to consider the remainder of Oxford Oil's claims and the
Wests' counterclaims, in a manner consistent with this court's opinion and with
Claugus.
Equitable Tolling
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{¶28} While this case was stayed pending the Supreme Court's decision in
Claugus, Oxford Oil filed a motion to toll the terms of the Lease during the pendency
of the appeal process. Oxford Oil requested we toll the primary term of the Lease
from the time the Wests refused to allow Oxford Oil access to the subject property
through the pendency of these proceedings and all other appellate proceedings.
{¶29} The Wests failed to oppose this motion. Moreover, the trial court stayed
its judgment pending this appeal.
{¶30} Following the Claugus decision, Oxford Oil supplemented its request for
equitable tolling in reliance on the Ohio Supreme Court validating the remedy in that
case, reasoning that because the Wests have blocked Oxford Oil from developing its
bargained-for development rights, in order to preserve these rights, it is necessary to
toll the primary term of the Lease.
{¶31} Civ.R. 62(D) provides:
The provisions in this rule do not limit any power of an appellate court
or of a judge or justice thereof to stay proceedings during the pendency
of an appeal or to suspend, modify, restore, or grant an injunction
during the pendency of an appeal or to make any order appropriate to
preserve the status quo or the effectiveness of the judgment
subsequently to be entered.
{¶32} App.R. 7(A) further provides for application of "an order suspending,
modifying, restoring or granting an injunction during the pendency of an appeal * * *
made to the court of appeals or to a judge thereof * * *." While a stay must ordinarily
be sought in the first instance in the trial court, App.R. 7(A) imposes no such
obligation for requesting injunctive relief. Rather the rule expressly notes that a stay
must ordinarily be sought in the first instance in the trial court "except in cases of
injunction pending appeal * * *[,]" which is the situation presented herein.
{¶33} Courts have concluded that "where plaintiff has placed a cloud on the
title of a leasehold by seeking judicial cancellation of the lease, a court may, in
fairness to the lessee, toll the running of the lease terms." Jicarilla Apache Tribe v.
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Andrus, 687 F.2d 1324, 1341 (10th Cir.1982). See also H & G Fossil Fuels Co., v.
Roach, 103 N.M. 793, 795–797, 715 P.2d 66 (1986) (reversing lower court's refusal
to toll lease).
{¶34} In Claugus, the Ohio Supreme Court also considered the propriety of an
equitable tolling order entered to maintain the status quo during the pendency of an
appeal. In Claugus, the landowners prevailed in the trial court challenging the validity
of the lease, and on appeal this court, pursuant to a motion filed under Civ.R. 62(D)
and App.R. 7(A), equitably tolled the lease terms during the pendency of the appeal
process. The Supreme Court denied writs of mandamus and prohibition challenging
the validity of our equitable tolling order; thus concluding this court had jurisdiction to
enter the tolling order. Claugus at ¶ 34–40.
{¶35} Pursuant to Claugus, we grant Oxford Oil's motion for equitable tolling.
It is reasonable and equitable to toll the primary term of the Lease beginning at the
point the Wests refused to permit access to the property, August 8, 2011. See
Feisley Farms Family, L.P. v. Hess Ohio Resources, No. 2:14-cv-146, 2015 WL
5793936 at *7 (S.D.Ohio Sept. 30, 2015) (tolling the primary term of the lease from
the date that the lessee received a letter from the lessor's attorney stating that the
lease was "forfeited"). This court's tolling order will continue through a timely notice
of appeal to the Ohio Supreme Court, until that Court accepts or declines jurisdiction.
See, e.g., Hupp, supra, at ¶ 26 (drawing similar parameters to the equitable tolling
order); and Claugus at ¶ 34–40 (denying writs challenging order).
Conclusion
{¶36} The Lease is not perpetual; rather, it has a primary term of a definite
duration of five years—which allows for the payment of delay rental payments only
during the primary term—followed by a secondary term that extends the Lease if
certain conditions are met. Accordingly, Oxford Oil's first, second, fourth, fifth and
seventh assignments of error are meritorious, and the judgment of the trial court is
reversed and the case remanded for partial summary judgment to be entered in favor
of Oxford Oil on the Wests' perpetual lease counterclaim. This renders Oxford Oil's
third assignment of error moot.
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{¶37} It follows that it was error to order the Wests to return delay rental
payments and to order the County Recorder to place on the record an entry releasing
the parties' Lease. Accordingly, Oxford Oil's sixth assignment of error is meritorious,
and the judgment of the trial court is reversed.
{¶38} As the decision granting the Wests' partial summary judgment motion
and denying Oxford Oil's hinged solely on the determination that the Lease was
invalid, the trial court did not address the merits of the remainder of either the Wests'
counterclaims or Oxford Oil's declaratory judgment claim. Accordingly, Oxford Oil's
eighth assignment of error is meritorious in part, thus these remaining claims are
remanded to the trial court to be adjudicated as applicable. Finally, Oxford Oil's
motion for equitable tolling is granted, retroactively to August 8, 2011, and continuing
until a timely notice of appeal is filed with the Ohio Supreme Court, and continuing
thereafter until that Court accepts or declines jurisdiction.
Donofrio, P. J., concurs.
Robb, J., concurs.