K & D Farms, Ltd v. Enervest Operating, L.L.C. , 2015 Ohio 4475 ( 2015 )

[Cite as K & D Farms, Ltd v. Enervest Operating, L.L.C., 2015-Ohio-4475.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
K AND D FARMS, LTD, ET AL : Hon. W. Scott Gwin, P.J.
: Hon. John W. Wise, J.
Plaintiffs-Appellants : Hon. Craig R. Baldwin, J.
:
-vs- :
: Case No. 2015CA00038
ENERVEST OPERATING, LLC, ET :
AL :
: OPINION
Defendants-Appellees
CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No.2013CV01867
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: October 26, 2015
APPEARANCES:
For Plaintiffs-Appellants For Defendants-Appellees
ERIC JOHNSON LEONIDAS PLAKAS
12 W. Main Street COLLIN S. WISE
Canton, OH 44406 BRANDON S. TRENT
220 Market Avenue South
For Appellee Enervest Operating LLC Canton, OH 44702
JOHN K. KELLER
THOMAS H. FUSONIE For Appellees Stephen & Debra Vaughan
STEVEN A. CHANG DAVID LUNDGREN
52 E. Gay Street 526 East Main St.
Columbus, OH 43216 Alliance, OH
Stark County, Case No. 2015CA00038 2
Gwin, P.J.
{¶1} Appellant appeals the February 27, 2015 judgment entry of the Stark
County Common Pleas Court granting appellees' motions for judgment on the
pleadings.
Facts & Procedural History
{¶2} On March 6, 1954, appellants' predecessors-in-interest executed an oil
and gas lease in favor of appellee Enervest's predecessor-in-interest, leasing
approximately one hundred and seventeen (117) acres of land located in Marlboro
Township in Stark County, Ohio ("Vaughan lease"). Adjoining the property under the
Vaughan lease are lands owned by the Rohrers. The Rohrers entered into a similar oil
and gas lease with Enervest's predecessor-in-interest on February 1, 1954, leasing
approximately one hundred and eleven acres (111) of land, also located in Marlboro
Township ("Rohrer lease"). Appellees Sable Creek Enterprises, LLC, ("Sable Creek")
and Robert, Mary, David, and Gretchen Frase are the successors-in-interest to the
Rohrer lease.
{¶3} The identical granting clauses of both the Vaughan and Rohrer leases
provide that the leases were executed for, "exploring, drilling and operating for oil and
gas, and all constituents thereof, and all rights necessary, convenient and incident
thereto * * *." Each lease has the following clause with regards to consolidation in
paragraph 7:
It is hereby agreed that the lands herein leased are to be consolidated
with other lands in Marlboro Twp., Stark [County, State] of Ohio, which are
or hereafter leased to the Lessee for oil and gas or their constituents and
Stark County, Case No. 2015CA00038 3
the said Lessee is hereby appointed Agent of the Lessor to consolidate
said lands provided that such consolidation shall not exceed 231 acres * *
* I and/or we, said Lessor or Lessors do ratify and confirm the acts of the
said Lessee as such agent in preparing and filing such declaration of
consolidation as herein provided and the said declaration of consolidation
shall have the same force and effect and bind the premises herein leases
as though I and/or we had signed the acknowledgment of the same.
{¶4} The leases both additionally provide that, upon consolidation, all royalties
in the oil and/or gas produced from any well that is drilled in the consolidated unit must
be divided amongst the lessors in the respective proportion of the acreage/interest they
own in the consolidated area ("Upon said consolidation the royalty in the oil and/or gas
produced from the consolidated area shall be payable to the Lessor on the basis of the
rate in this lease specified, but only in such proportion as the interest or acreage in the
whole of the consolidated area * * *). Further, both leases state that, "[a]ll covenants
and conditions between the parties hereto shall extend to their heirs, executors,
successors and assigns * * *." The Vaughan lease provides that, "any consolidation as
mentioned in paragraph 7 shall be with the lands of E. Rohrer." The Rohrer lease
contains no such restriction.
{¶5} On April 6, 1954, the Vaughan lease and Rohrer lease were consolidated
into a single unit pursuant to a Declaration of Consolidation that was recorded on April
8, 1954. The Consolidation repeated the lessee's obligation to distribute any royalties
from the wells drilled in the 228-acre unit to each lessor in proportion to their
interest/acreage in the entire unit and stated as follows:
Stark County, Case No. 2015CA00038 4
It is further declared that all of the acreage covered by said leases shall be
considered as an entity as though covered by a single lease and the
commencement of a well upon any of the acreage covered by any such
lease shall be deemed a well commenced upon each of the leases
hereinabove set forth. That the royalty provided to be paid in each of said
leases from each such well shall be owned by and distributed to the
Lessor in each of said leases in the proportion that the acreage owned by
said Lessor as set forth in each lease bears to the acreage covered by all
of such leases.
{¶6} From 1954 to 1980, five (5) Clinton sandstone wells were drilled in the
consolidated unit. Two of the wells were drilled on the acreage subject to the Rohrer
lease and three on the acreage subject to the Vaughan lease. Royalties from these
wells were paid to all lessors, including appellants and their predecessors-in-interest, in
the proportion of ownership of acreage in the consolidated unit.
{¶7} In 1984, the Vaughan No. 3 well was drilled. In 2011, the Hall No. 3 well
was drilled. It is undisputed that both of these wells were drilled outside the 228-acre
consolidated unit; however, both included acreage within the consolidated unit. For the
Vaughan No. 3 well, acreage was utilized from the northwest corner of the Rohrer
lease. For the Hall No. 3 well, acreage was utilized from the Rohrer lease. Appellants
did not object to these wells and have received their proportional share of royalties from
them.
{¶8} In October of 2006, Enervest filed an application with the Ohio Department
of Natural Resources ("ODNR") for a permit to drill a well in the Rose Run formation.
Stark County, Case No. 2015CA00038 5
Enervest listed the successors-in-interest under the Vaughan lease on the application
as prospective royalty owners. However, it did not list the successors-in-interest under
the Rohrer lease as royalty owners. In 2011, Enervest applied for and received a
second well permit to drill another well in the Rose Run formation which listed all the
members of the unit as royalty owners. Enervest drilled two separate Rose Run wells in
2007 and 2012 (Vaughan 1A and 2K wells), both located on the Vaughan lease land.
From 2007 to 2011, royalties for the first well were paid exclusively to appellants,
proportionally to their acreage contributions, instead of to all lessors. In 2012, Enervest
informed appellants of the error and informed appellants the royalties would be
distributed pursuant to the terms of the leases and the consolidation to all lessors,
including appellees, in the consolidated unit. Further, that the royalty overpayment from
the previous years would be "recaptured" out of future royalty payments from both Rose
Run wells.
{¶9} On July 16, 2013, appellants filed a complaint against appellees for:
breach of contract, breach of fiduciary duty/wrongful unitization, conversion of
hydrocarbons, quiet title, and declaratory judgment under R.C. 2721 to obtain a judicial
determination of the construction/validity of the Vaughan lease and determination
whether Enervest is in compliance with state statutory, regulatory, and public policy
requirements. After appellees filed answers to the complaint, Enervest filed a motion for
judgment on the pleadings on all of appellants’ claims. Sable Creek and the Frases'
filed a response in support and motion to join Enervest's motion. Appellants filed a
response to the motion. In their response, appellants conceded that the arguments of
Enervest regarding claims for conversion and quiet title were "well taken and
Stark County, Case No. 2015CA00038 6
[appellants'] do not object to the dismissal of such claims. Accordingly, the trial court
dismissed, with prejudice, the claims for conversion and quiet title.
{¶10} The trial court issued a judgment entry on the motion for judgment on the
pleadings on February 27, 2015. The trial court found as follows: appellants' claims for
declaratory relief and breach of contract fail as a matter of law because the leases
unambiguously require that royalties be distributed to all lessors who have an interest in
the consolidation; that a well permit application submitted to ODNR that fails to list a
party with contractual right to receive royalties does not abrogate and modify the
contractual relationship of the parties; appellants' claim that their lease and
consolidation were limited to the Clinton-Sandstone Formation is contrary to the
language of the instruments; appellants' breach of fiduciary claim fails as a matter of law
because any duties owed to appellants were solely contractual in nature; and
appellants' fiduciary duty claim also fails because the economic loss rule bars it.
Accordingly, the trial court granted appellees' motion for judgment on the pleadings and
dismissed appellants' claims for declaratory judgment, breach of contract, and breach of
fiduciary duty.
{¶11} Appellants appeal the February 27, 2015 judgment entry of the Stark
County Common Pleas Court and assign the following as error:
{¶12} "I. THE TRIAL COURT ERRED BY DISMISSING PLAINTIFFS'
COMPLAINT ON THE PLEADINGS."
Stark County, Case No. 2015CA00038 7
I.
Motion for Judgment on the Pleadings
{¶13} Motions for judgment on the pleadings are governed by Civil Rule 12(C),
which states, "[a]fter the pleadings are closed but within such time as not to delay the
trial, any party may move for judgment on the pleadings." Pursuant to Civil Rule 12(C),
"dismissal is [only] appropriate where a court (1) construes the material allegations in
the complaint, with all reasonable inferences to be drawn therefrom, in favor of the
nonmoving party as true, and (2) finds beyond doubt that the plaintiff could prove no set
of facts in support of his claim that would entitle him to relief." State ex rel. Midwest
Pride IV, Inc. v. Pontious, 75 Ohio St. 3d 565, 664 N.E.2d 931 (1996). The very nature
of a Civil Rule 12(C) motion is specifically designed for resolving solely questions of law.
See Peterson v. Teodosio, 34 Ohio St. 2d 161, 297 N.E.2d 113 (1973). Reviewing
courts will reverse a judgment on the pleadings if the plaintiffs can prove any set of facts
that would entitle them to relief. Flanagan v. Williams, 87 Ohio App. 3d 768, 623 N.E.2d
185 (4th Dist. Washington 1993), abrogated on other grounds by Simmerer v. Dabbas,
89 Ohio St. 3d 856, 2000-Ohio-232, 733 N.E.2d 1169. The review will be done
independent of the trial court's analysis to determine whether the moving party was
entitled to judgment as a matter of law. Id.
{¶14} Further, while the abuse of discretion standard applies to dismissals of
declaratory judgment action as not justifiable, once a trial court determines that a matter
is appropriate for declaratory judgment, its holdings regarding questions of law are
reviewed de novo. Orwell Natural Gas Co., Inc. v. Fredon Corp, 11th Dist. Lake No.
2014-L-026, 2015-Ohio-1212.
Stark County, Case No. 2015CA00038 8
Interpreting Oil and Gas Leases
{¶15} With respect to oil and gas leases, the Ohio Supreme Court stated in
Harris v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E.2d 502 (1987):
[T] he rights and remedies of the parties to an oil and gas lease must be
determined by the terms of the written instrument, and the law applicable
to one form of lease may not be, and generally is not, applicable to
another and different form. Such leases are contracts, and the terms of
the contract with the law applicable to such terms must govern the rights
and remedies of the parties.
{¶16} A contract is to be interpreted to give effect to the intention of the parties.
Morrison v. Petro Evaluation Serv., Inc., 5th Dist. Morrow No. 2004 CA 0004, 2005-
Ohio-5640, citing Employer's Liab. Assur. Corp. v. Roehm, 99 Ohio St. 343, 124 N.E.
223 (1919). It is a fundamental principle in contract construction that contracts should
"be interpreted so as to carry out the intent of the parties, as that intent is evidenced by
the contractual language." Id., quoting Skivolocki v. East Ohio Gas Co., 38 Ohio St. 2d
244, 313 N.E.2d 374 (1974). "The intent of the parties to a contract is presumed to
reside in the language they chose to employ in the agreement." Id., quoting Foster
Wheeler Enviresponse, Inc. v. Franklin County Convention Facilities Auth., 78 Ohio
St.3d 353, 1997-Ohio-202, 678 N.E.2d 519.
{¶17} Appellants admit that they received the benefit of royalty payments for at
least two wells drilled in the consolidation unit located exclusively on the Rohrer lease
acreage. However, appellants now seek to retain all the royalties for the wells drilled
exclusively on the Vaughan acreage.
Stark County, Case No. 2015CA00038 9
Breach of Contract Claim
{¶18} Appellants first argue that the trial court erred in dismissing their breach of
contract claim because Enervest breached the contract by failing to timely pay them
royalties for the Vaughan 1A and 2K wells. In order to demonstrate a breach of
contract, the plaintiff must demonstrate by a preponderance of the evidence: (1) that a
contract existed; (2) that the plaintiff fulfilled its obligations; (3) that the defendants failed
to fulfill their obligations; and (4) that damages resulted from this failure. Moore v.
Adams, 5th Dist. Tuscarawas No. 2007AP090066, 2008-Ohio-5953.
{¶19} The leases at issue are binding on the parties, as they were entered into
by their predecessors-in-interest and the leases state that the covenants and conditions
shall “extend to their heirs, executors, successors and assigns * * *.” Because the
leases are contracts, we look to the contractual language to determine the intent of the
parties. The leases provides that, upon consolidation, the royalties shall be payable,
“on the basis of the rate in this lease specified, but only in such proportion as the
interest or acreage in the whole of the consolidated area * * *.” Further, the Declaration
of Consolidation provides that the royalties are to be paid, “in the proportion that the
acreage owned by said Lessor as set forth in each lease bears to the acreage covered
by all of such leases.”
{¶20} Looking at the leases and Declaration of Consolidation, the unambiguous
language expressly sets forth that all royalties from wells drilled on the acreage of the
consolidation must be split proportionally amongst all owners in the consolidation.
Because the terms of the lease agreement and Declaration of Consolidation are clear
and unambiguous, there is no need to resort to parole evidence to glean the intent of
Stark County, Case No. 2015CA00038 10
the parties. Accordingly, we find the trial court did not err in granting judgment on the
pleadings as Enervest did not breach the lease by failing to timely pay royalties for the
Vaughan 1A and 2K wells.
{¶21} Appellants further contend that the trial court erred in dismissing their
breach of contract claim because Enervest breached the Vaughan lease by drilling the
Vaughan No. 3 and Hall No. 3 wells. Appellants argue that a well drilled outside the
consolidated area that utilizes land within the consolidated area violates the plain
language of the Vaughan lease because it states that, “any consolidation as mentioned
in paragraph 7 shall be with the lands of E. Rohrer.” We disagree.
{¶22} First, the clause relied on by appellants merely provides that “any
consolidation as mentioned in paragraph 7 shall be with the lands of E. Rohrer.” This
plain language does not broadly prohibit the usage of any lands in the consolidation
from being pooled with other lands for the purposes of drilling after the consolidated unit
was created. Paragraph 7 of the Vaughan lease merely provides that the 1954
consolidation must be only with Rohrer lands, which it was. The plain language of the
lease also anticipates that acreage in the consolidated unit may be used for wells not
physically inside the consolidation area as it specifically provides that, “* * * the
commencement of any well and/or production of oil or gas on any part of the
consolidated area shall have the same effect in keeping this lease in force as though
such wells are commenced and/or production had on the premises leased therein.” The
phrase “or production” would be meaningless if the consolidated unit was restricted to
wells drilled inside the consolidated area.
Stark County, Case No. 2015CA00038 11
{¶23} Next, the clause cited by appellants is contained only in the Vaughan
lease, not in the Rohrer lease. There is no dispute that both of the No. 3 wells included
only Rohrer acreage and not Vaughan acreage. Since the Rohrer acreage was not
subject to the alleged prohibition contained in the Vaughan lease, the drilling of the No.
3 wells is not a breach of the Vaughan lease because the No. 3 wells did not include
any acreage subject to the Vaughan lease.
{¶24} Finally, the fact that the No. 3 wells were drilled outside the consolidated
area but utilize land within the consolidated area has no bearing on the re-allocation of
royalties of the Vaughan 1A and 2K wells, the damages which appellants claim under
their breach of contract action. Even if the Vaughan lease prohibited Enervest’s
actions, appellants do not identify any damages relating to the alleged breach of the
lease from the No. 3 wells. The complaint contains no allegations that appellants were
damaged by the drilling, operation of, or payment of royalties from the No. 3 wells.
Rather, appellants admit that they “did not object to the variance from the rule and have
received their proportionate share of royalties from the subject wells.” Appellants thus
have set forth no allegations that “damages resulted from” Enervest’s “failure to fulfill
their obligations” with regards to the No. 3 wells.
{¶25} The Vaughan 1A and 2K wells were both drilled on the Vaughan property
and, as noted above, based upon the plain language of the leases and consolidation,
the royalties from these wells were to be allocated in proportion to the ownership
interest in the consolidated unit.
{¶26} Based on the foregoing, we find the trial court did not err in dismissing
appellants’ breach of contract claim.
Stark County, Case No. 2015CA00038 12
Declaratory Judgment Claim
{¶27} As stated by appellants in their brief, their complaint asked the trial court
to determine: (1) an interpretation of the relevant language from the Vaughan lease and
(2) whether Enervest's payments of royalties complied with R.C. 1509.06, which
requires operating oil and gas wells in compliance with assertions made in a lessee's
drilling application.
{¶28} Appellants first argue that the trial court erred in dismissing their claim for
declaratory relief because the Vaughan lease was executed in contemplation of drilling
Clinton wells and the lease did not contemplate deeper formations to find isolated pools
of oil. We disagree.
{¶29} There is no language contained in the leases or the consolidation that
limits the formations from which oil and gas can be extracted. Paragraph 7 of each of
the leases provides that "the lands herein leased" are to be consolidated. There is no
limitation or reference to any specific geological formation. The granting clause of each
lease states that the lease is for the "sole and only purpose of exploring, drilling, and
operating for oil and gas * * * all that certain tract of land * * *." If a granting clause does
not contain terms limiting the depth or formation, the rights are granted to all depths.
Marshall v. Beekay Co., 4th Dist. Washington No. 14CA16, 2015-Ohio-238. Further,
the consolidation states that it applies to "any of the acreage covered by any such
lease." The language is not ambiguous and expressly conveys to Enervest the right to
explore, drill, and commence operations for extracting oil and gas on the entire acreage,
without limitation.
Stark County, Case No. 2015CA00038 13
{¶30} Appellants further argue that the trial court erred in dismissing their
declaratory judgment claim due to the fact that the No. 3 wells were drilled outside the
consolidated area, but utilized land within the consolidated area. Based upon our
discussion as detailed above, we find appellants’ argument to be not well-taken.
{¶31} Appellants contend that R.C. 1509.06 requires Enervest to issue royalties
to only those landowners included in its permit application and that, by filing an
application for a drilling permit with ODNR that omitted the names and addresses of the
Rohrer lease royalty owners, Enervest modified the terms of the parties' contract and
thus appellants are entitled to keep the overpayments.
{¶32} R.C. 1509.07 provides, in part, that an application for a mandatory pooling
order "shall be accompanied by an application for permit," and further provides that an
application "shall be filed with the chief of the division of mineral resources
management" and shall contain "the names and addresses of all persons holding the
royalty interest in the tract upon which the well is located or is to be drilled or within a
proposed drilling unit." R.C. 1509.27. In construing the requirements of R.C. 1509.27
and R.C. 1509.06, including the requirement that an application contain the names and
addresses of all persons holding a royalty interest, an Ohio court has stated that, "the
purpose of such provisions is to provide all interested parties notice and an opportunity
to have any concerns and objections heard." Martz v. Chief, Div. of Mineral Resource
Mgmt., 10th Dist. Franklin No. 08AP-12, 2008-Ohio-4003. Further, that this requirement
is "little more than a formality" and there is no statutory requirement that the chief deny
a permit solely because the application contains incorrect information. Id.
Stark County, Case No. 2015CA00038 14
{¶33} Another court stated that in following the procedure for an application for
an oil and gas permit, " * * * the legislature clearly contemplated that issuance of a
permit would be a relatively straightforward and ministerial act * * *" and not a
declaration of the parties' rights. Barclay Petroleum, Inc. v. Ohio Dept. of Natural
Resources, 10th Dist. Franklin No. 00AP-592, 2001 WL 242567 (March 13, 2001).
There is no provision in R.C. 1509.06 that provides any authority for a court to alter the
terms of a lease. The cases cited by appellants involve orders for compulsory pooling
that upheld the state's authority to order a compulsory unit. In this case, ODNR has not
ordered a compulsory pooling unit or conservation order. The well permits attached to
the complaint are not mandatory pooling orders that could potentially supersede an
existing unit. The omission of certain royalty owners on a single well permit application
does not alter the provisions of the parties' lease or consolidation agreement.
{¶34} Based on the foregoing, we find the trial court did not err in granting
judgment on the pleadings on appellants' declaratory judgment action.
Breach of Fiduciary Duty
{¶35} Appellants argue that it was improper for the trial court to dismiss their
breach of fiduciary claim because Enervest violated the fiduciary duty of good faith
when it redistributed royalties from the Vaughan 1A and 2K Rose Run wells to other
landowners within the 1954 unit who did not own that discrete pool of oil.
{¶36} The elements for a breach of fiduciary duty claim are: (1) the existence of
a duty arising from a fiduciary relationship; (2) a failure to observe the duty; and (3) an
injury resulting proximately therefrom. Grossniklaus v. Waltman, 5th Dist. Holmes No.
09 CA 15, 2010-Ohio-2937. "A claim of breach of fiduciary duty is basically a claim for
Stark County, Case No. 2015CA00038 15
negligence that involves a higher standard of care." Id. A "fiduciary relationship" is one
which special confidence and trust is reposed in the integrity and fidelity of another and
there is a resulting position of superiority or influence acquired by virtue of this special
trust. In re: Termination of Employment, 40 Ohio St. 2d 107, 321 N.E.2d 603 (1974).
The burden of proving the existence of a fiduciary relationship is on the party asserting
it. Craggett v. Andell Ins. Agency, 92 Ohio App. 3d 443, 635 N.E.2d 1326 (8th Dist.
Cuyahoga).
{¶37} Appellants argue that since the word “agent” is utilized in the lease, a
fiduciary duty is created between appellants and Enervest. Without additional
allegations that would establish a fiduciary relationship, solely using the word “agent”
does not establish a fiduciary duty between the lessor and the lessee in a lease.
Rather, the relationship is governed by the principles of contract. See Shaver v.
Standard Oil, 135 Ohio App. 3d 242, 733 N.E.2d 645 (6th Dist. Huron 1999); Amoco
Production Co. v. Heimann, 904 F.2d 1405 (10th Cir. 1990).
{¶38} Further, even if we were to find that the word “agent” created a fiduciary
relationship between the parties, it is clear from the plain language of the lease that
such duty was limited to the creation and filing of the consolidation unit in 1954.
Paragraph 7 of the Vaughan lease specifically provides that Enervest's predeccessor-in-
interest is "hereby appointed Agent of the Lessor to consolidate said lands provide that
such consolidation shall not exceed 231 acres * * * I and/or we, said Lessor or Lessors
do ratify and confirm the acts of the said Lessee as such agent in preparing and filing
such declaration of consolidation * * *." Appellants allege no damages with regard to
the creation of the consolidated unit in 1954 and concede that Enervest satisfied these
Stark County, Case No. 2015CA00038 16
duties when it created the unit. Accordingly, there is no "injury resulting proximately
therefrom."
{¶39} Even assuming the existence of a fiduciary agreement, any obligations
Enervest has are derived solely from the lease agreement. "A tort claim based upon the
same actions as those upon which a claim of contract breach will exist independently of
the contract action only if the breaching party also breached a duty owed separately
from that created by contract * * *." Textron Financial Corp. v. Nationwide Mut. Ins. Co.,
115 Ohio Ap.3d 137, 684 N.E.2d 1261 (9th Dist. 1996). A breach of contract alone will
not give rise to an action in tort and Ohio courts have "repeatedly have stated that it is
no tort to breach a contract, regardless of the motive." Hoskins v. Aetna Life Ins. Co., 6
Ohio St. 3d 272, 452 N.E.2d 1315 (1983); Castle Hill Holdings, LLC v. Al Hut, Inc., 8th
Dist. Cuyahoga No. 86442, 2006-Ohio-1353.
{¶40} In this case, appellants' breach of fiduciary duty claim is based on alleged
breaches of contract promises purportedly in the Vaughan lease and the obligations
owed by Enervest grew out of the contract/lease. The breach of contract claim and
breach of fiduciary duty claim seek the same damages: payment of royalties from the
Vaughan 1A and 2K wells. Accordingly, because the claim is based upon an existing
alleged contractual duty, it fails as a matter of law as a separate tort claim.
{¶41} We further find that appellants' breach of fiduciary duty claim is barred by
the economic loss doctrine. The Ohio Supreme Court has held that the economic-loss
rule generally prevents recovery in tort damages of purely economic loss as, "the well-
established general rule is that a plaintiff who has suffered only economic loss due to
another's negligence has not been injured in a manner which is legally cognizable or
Stark County, Case No. 2015CA00038 17
compensable." Chemtrol Adhesives, Inc. v. American Manufacturers Mut. Ins. Co., 42
Ohio St. 3d 40, 537 N.E.2d 624 (1989); Corporex Dev. & Contr. Mgmt., Inc. v. Shook,
Inc., 106 Ohio St. 3d 412, 2005-Ohio-5409, 835 N.E.2d 701. The rule stems from the
recognition of a balance between tort law and contract law. Id. "Tort law is not
designed * * * to compensate parties for losses suffered as a result of a breach of duties
assumed only by agreement." Floor Craft Floor Covering, Inc. v. Parma Community
General Hospital Assn., 54 Ohio St. 3d 1, 560 N.E.2d 206 (1990); Potts v. Safeco Ins.
Co., 5th Dist. Richland No. 2009CA0083, 2010-Ohio-2042.
{¶42} In this case, appellants fail to claim a breach of any duty imposed that
would justify recovery of purely economic damages in tort. Instead, appellants merely
allege a breach of contractually created duties. See Corporex Dev. & Contr. Mgmt., Inc.
v. Shook, Inc., 106 Ohio St. 3d 412, 2005-Ohio-5409, 835 N.E.2d 701. Appellants
expressly allege economic loss in their complaint because they seek, as damages for
the breach of fiduciary duty, "damages in that the royalties rightly due to them have
been given to others." These damages arising from the calculation and distribution of
royalties are purely economic losses and thus the breach of fiduciary duty action is
barred by the doctrine of economic loss.
{¶43} Appellants argue that since Enervest was within its rights under the
Vaughan and Rohrer leases to take portions of the Rohrer-Vaughan unit and include it
within other units, it could also create other, smaller units only using Rohrer-Vaughan
lands. Further, since Enervest had this right, Enervest had a fiduciary duty to create
these smaller units and issue royalties only to the owners whose land contains the
deeper formations with isolated pools of oil. We disagree with appellants’ assertion that
Stark County, Case No. 2015CA00038 18
Enervest has a “duty” to create smaller units to appellants' economic advantage and in
contravention of the Rohrer and Vaughan leases’ plain language simply because
Enervest created smaller units with wells that were not drilled on Rohrer or Vaughan
leases. As noted above, any “duty” created by the lease applies only to the 1954
consolidation and not to any other smaller units. Any re-consolidation would have to be
completed via a recorded consolidation agreement rather than a drilling permit to
ODNR. Further, the smaller units utilizing the Rohrer land are dissimilar to the smaller
units that appellants want Enervest to create, as the wells in the smaller units were not
drilled on any Rohrer or Vaughan land. The smaller units appellants seek have wells
drilled on the Rohrer or Vaughan land that are subject to the Rohrer and Vaughan
leases. Finally, appellants allege no damages as a result of this alleged breach of
fiduciary duty, as they are receiving royalties from the No. 3 wells and are receiving
royalties from the 1A and 2K wells in proportionate share, as required by the plain
language of the leases.
{¶44} Based on the forgoing, we find the trial court did not err in finding
appellants’ breach of fiduciary duty claim fails as a matter of law.
Wrongful Unitization
{¶45} Appellants contend the trial court erred in dismissing their wrongful
unitization claim. Further, that their declaratory judgment and breach of fiduciary claims
required the trial court to determine whether the unitization was wrongful.
{¶46} With regards to appellants’ argument as to a “claim for wrongful
unitization,” appellants failed to plead a separate claim in their complaint. Rather, the
term “wrongful unitization” appears only in their claims for declaratory judgment and
Stark County, Case No. 2015CA00038 19
breach of fiduciary duty. Accordingly, any claim for wrongful unitization as a separate
cause of action was not raised in the trial court. The failure to raise such issue in the
trial court results in a waiver of their right to raise such issue on appeal. Potts v. Safeco
Ins. Co., 5th Dist. Richland No. 2009CA0083, 2010-Ohio-2042.
{¶47} We further find appellants’ argument that the trial court had to determine
whether the unitization was wrongful to review their breach of fiduciary claim and/or
declaratory judgment claim to be not well-taken based upon the legal standards for
these claims as discussed above. As detailed above, Enervest did not alter the lease
by omitting royalty owners in an ODNR application; thus, Enervest did not “wrongfully
unitize” appellants’ acreage by changing the royalty owners in the drilling applications.
Also as discussed above, appellants seek only damages arising from the calculation
and distribution of royalties from the 1A and 2K wells, pure economic loss, which relies
on the same course of conduct as the breach of contract claim. Thus, any wrongful
unitization as part of a breach of fiduciary duty claim fails. Further, the complaint lacks
facts or allegations as to wrongful unitization, as the facts pled in the complaint indicate
that both the Vaughan and the Rohrer leases are currently and have been held by
production. Finally, the plain language of both the Vaughan and Rohrer leases
authorized the unitization in question and required Enervest to distribute royalties in
proportion with each lessor’s interest in the entire acreage of the consolidation.
Stark County, Case No. 2015CA00038 20
{¶48} Based upon the foregoing, we find the trial court did not err in dismissing
appellants’ complaint. Appellants’ assignment of error is overruled and the February 27,
2015 judgment entry of the Stark County Common Pleas Court is affirmed.
By Gwin, P.J.,
Wise, J., and
Baldwin, J., concur