M3 Producing, Inc. v. Tuggle

[Cite as M3 Producing, Inc. v. Tuggle, 2017-Ohio-9123.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
M3PRODUCING, INC., ET AL : Hon. W Scott Gwin, P.J.
: Hon. Craig R. Baldwin, J.
Plaintiffs-Appellees : Hon. Earle E. Wise, J.
:
-vs- :
: Case No. 2017CA00036
MELISSA TUGGLE, ET AL :
:
Defendants-Appellants : OPINION
CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No.2015CV01678
JUDGMENT: Reversed and Remanded
DATE OF JUDGMENT ENTRY: December 19, 2017
APPEARANCES:
For Plaintiff-Appellant For Defendant-Appellee
JAMES H. MCHUGH SCOTT M. ZURAKOWSKI
Tzangas, Plakas, Mannos, Ltd JAMES M. WILLIAMS
220 Market Avenue South, 8th Floor Krugliak, Wilkins, Griffiths
Canton, Ohio 44702 & Dougherty Co., L.P.A.
4775 Munson Street, N.W.
P.O. Box 36963
Canton, Ohio 44735-6963
Baldwin, J.
Stark County, Case No. 2017CA00036 2
{¶1} Appellants Melissa Tuggle and SSS Oil and Gas, Inc. appeal the February
8, 2017 judgment entry of the Stark County Court of Common Pleas granting in part and
denying in part their motion to enforce settlement agreement.
Facts & Procedural History
{¶2} KMFAD Oil and Gas, LLC (“KMFAD”), an oil and gas production company,
was bequeathed to appellant Melissa Tuggle (“Tuggle”) and her sister Carrie Anne Moore
(“Moore”) when their father died. Each sister’s company was a 50% owner of KMFAD.
Moore’s company is appellee M3 Producing, Inc. (“M3”) and Tuggle’s company is
appellant SSS Oil and Gas. The parties were unable to operate KMFAD cooperatively
and continually disagreed about the management and running of KMFAD. Thus, on
August 13, 2015, appellees filed a complaint against appellants for breach of fiduciary
duty, accounting, unjust enrichment, and injunctive relief. Appellants filed an answer to
the complaint. The parties then engaged in extensive motion practice and mediation, and
ultimately arrived at a settlement. The parties reduced the settlement terms to writing
and filed a consent entry of dismissal with prejudice on October 18, 2016. The trial court
retained jurisdiction to enforce the terms of the settlement agreement.
{¶3} The settlement agreement generally provides that appellants would
relinquish their interest in KMFAD in exchange for appellees transferring certain wells
owned by KMFAD, the NATCO and Medina wells, to appellants. Section 2.01 of the
settlement agreement states that the purchase and sale agreement of the NATCO and
Medina wells, shall be held in abeyance and not take effect until such time as the SSS
Oil Parties, at the sole expense of the SSS Oil Parties, secure any and all permits and
licensure as required by the State of Ohio, including, but not limited to the State of Ohio
Stark County, Case No. 2017CA00036 3
Department of Natural Resources (“ODNR”), and until such time as the SSS Oil Parties,
at the sole expense of the SSS Parties, secure the industry security and bonding on all
assets contained in the Purchase and Sale Agreement as further required by ODNR;
however, said period of abeyance shall be no later than November 30, 2016 (the
“Transition Period”). The KMFAD Parties shall timely tender any and all information or
documentation as requested by the SSS Oil Parties for purposes of obtaining said
required permits, licensure and industry security, provided said information and/or
documentation is in the possession of the KMFAD Parties
{¶4} Further, Section 2.09 of the settlement agreement provides that if the SSS
Oil Parties failed to secure any and all permits and licensure as required by the State of
Ohio, including, but not limited to ODNR, and/or in the event that the SSS Oil Parties fail
to secure the required industry security on all assets contained in the Purchase and Sale
Agreement, as required by §2.01 above, by the last date of the Transition Period, the
Purchase and Sale agreement shall then become null and void on December 1, 2016,
and KMFAD shall retain and maintain any and all interest in the NATCO/Crescent Brick
Lease wells and the Homer Township/Medina County gas wells (and all well equipment).
{¶5} On November 1, 2016, counsel for appellants sent an e-mail to counsel for
appellees. The e-mail stated that appellants had satisfied the requirement for a bond and
liability insurance and thus counsel believed “this satisfies the conditions precedent in
order to execute the Purchase and Sale Agreement in order to formally transfer the wells.”
The e-mail also included several steps appellants’ counsel believed were necessary to
transfer the wells, including:
Stark County, Case No. 2017CA00036 4
1. Finalize the Purchase and Sale Agreement – see latest version attached (please
note that it remains subject to further changes, review and approval by my client);
2. Your client needs to sign the necessary Form 7’s; and
3. My client needs to finalize and sign ODNR Form 9.
{¶6} The e-mail further stated, “there is no reason this transaction cannot be
closed on or before November 11th” and concluded by asking counsel for appellees to
respond with his availability on November 11th. The e-mail included a redlined Purchase
and Sale Agreement as an attachment. Counsel for appellees responded to the e-mail
to inquire about the status of $24,385.20 in certified funds, but did not respond to the
remainder of the e-mail.
{¶7} On November 14, 2016, appellants filed a motion to enforce settlement
agreement. Appellants argued appellees refused to cooperate with appellants’ effort to
obtain the necessary documents to satisfy the conditions precedent pursuant to Section
2.01 and that appellees failed to cooperate with the payment of all revenues due
appellants from the subject wells. Appellants also contended appellees had damaged
their well operator’s property and any amount due should be reduced to reimburse them
for that expense. Appellees filed their own motion to enforce, arguing the trial court should
not allow the transfer of the wells because the conditions precedent of Section 2.01 were
not met by November 30, 2016, thus rendering the Purchase and Sale Agreement null
and void. Appellees also argued appellants breached Section 1.03 by failing to pay
appellees $24,385.02. The $24,385.20 amount represented one-half of the debt of
KMFAD.
Stark County, Case No. 2017CA00036 5
{¶8} The trial court held an evidentiary hearing on the motions on December 29,
2016 and then issued a judgment entry on February 8, 2017, granting in part and denying
in part both motions to enforce settlement agreement. The trial court: ordered appellees
to remit the net operating proceeds from the oil produced in November of 2016 from the
NATCO and Medina wells to appellants; found KMFAD shall retain and maintain any and
all interest in the NATCO wells; and ordered appellants to return three motors removed
from the NATCO wells. The trial court stated appellees did not fail to timely tender any
information or documentation necessary to obtain the ODNR licenses or permits and,
thus, the NATCO and Medina wells remained with appellees pursuant to Section 2.09 of
the settlement agreement. The trial court also ordered appellants to pay appellees
$24,385.20, plus interest, from December 1, 2016.
{¶9} Appellants appeal from the February 8, 2017 judgment entry of the Stark
County Court of Common Pleas and assign the following as error:
{¶10} “I. THE TRIAL COURT ERRED IN DENYING IN PART APPELLANTS’
MOTION TO ENFORCE SETTLEMENT.”
I.
{¶11} The standard of review to be applied to a ruling on a motion to enforce
settlement agreement depends primarily on the question presented. If the question is an
evidentiary one, this Court will not overturn the trial court’s finding if there was sufficient
evidence to support such finding. M&G Automotive Serv., Inc. v. Bouscher, 5th Dist.
Tuscarawas No. 2014 AP 03 009, 2014-Ohio-5370, citing Chirchiglia v. Ohio Bur. of
Workers’ Comp., 138 Ohio App. 3d 676, 742 N.E.2d 180 (7th Dist. 2000). If the dispute
is a question of law, an appellate court must review the decision de novo to determine
Stark County, Case No. 2017CA00036 6
whether the trial court’s decision is based upon an erroneous standard or a
misconstruction of the law. Id., citing Continental West Condominium Unit Owners Assn
v. Howard E. Ferguson, Inc., 74 Ohio St. 3d 501, 660 N.E.2d 431 (1996).
{¶12} Settlement agreements are contractual in nature and, as such, basic
principles of contract law apply. Rulli v. Fan Co., 79 Ohio St. 3d 374, 683 N.E.2d 337
(1997). 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.” Skivolocki v. East Ohio Gas Co., 38 Ohio St. 2d 244, 313 N.E.2d
374 (1974). However, a party cannot avoid liability under a contract if that person has
done some act which prevents the carrying out of the contract according to its terms.
Long v. Commodore Bank, 5th Dist. Perry No. 01-CA-14, 2002-Ohio-252.
{¶13} The parties in this case do not dispute that a valid, enforceable settlement
agreement was executed. However, the parties disagree as to the interpretation of the
settlement agreement and the condition precedent and its application to the undisputed
facts. Accordingly, the application of the law to the facts is at issue and thus we will
conduct a de novo review.
{¶14} A condition precedent is a condition that must be performed before the
obligations in the contract become effective. Kern v. Clear Creek Oil Co., 149 Ohio
App.3d 560, 778 N.E.2d 115 (5th Dist. 2002), citing Troha v. Troha, 105 Ohio App. 3d 327,
663 N.E.2d 1319 (2nd Dist. 1995). Essentially, a condition precedent requires that an act
“must take place before a duty of performance of a promise arises. If the condition is not
fulfilled, the parties are excused from performing.” Id. Whether a provision of a contract
is a condition precedent is a question of the parties’ intent. Id. Intent is ascertained by
Stark County, Case No. 2017CA00036 7
considering not only the language of the particular provision but also the language of the
entire agreement and its subject matter. Id.
{¶15} The provisions of the settlement agreement at issue are Sections 2.01 and
2.09. The question at issue is whether appellants secured the permits, licenses, industry
security, and bonding by November 30, 2016 and, if not, whether the failure to secure
these items was prevented by the failure of appellees to timely tender information or
documentation in their possession for purposes of obtaining the permits, licensure, or
industry security.
{¶16} The parties agree that, pursuant to the settlement agreement and in order
to secure a permit or license from the ODNR, appellants had to post bond and obtain
liability insurance. We find both of these conditions precedent were met. In the e-mail
from appellants’ counsel to appellees’ counsel on November 1, 2016, it states appellants
had secured the money for the bond, which was being held in the attorney’s trust account.
Further, the e-mail states appellants had secured insurance.
{¶17} The testimony also supports the conclusion that appellants had secured
liability insurance and secured the money for the bond. Moore testified she was aware
appellants had secured the money necessary to pay for the bond as she stated, “I had
been told, yes, that she had the money.” Tuggle testified she obtained liability insurance
in June of 2016 and obtained enough money for the bond at the end of October and
deposited the money into her attorney’s trust account.
{¶18} The parties disagree as to what other documentation is necessary to obtain
a permit or license from the ODNR. Appellants argue both Form 9 and Form 7 must be
filed to get a license or permit from the ODNR and that Form 9 did not have to be filled
Stark County, Case No. 2017CA00036 8
out and filed prior to appellees filling out their portion of the Form 7. Appellees contend
they could not fill out and sign their portion of Form 7 without appellants first filling out and
filing the Form 9 and thus any responsibility on their part to fill out their portion of Form 7
was not triggered because appellants had not yet filled out and filed the Form 9.
{¶19} The parties’ testimony highlights the confusion as to what documents were
necessary to obtain a permit or license from the ODNR and whether Form 9 had to be
filed prior to Form 7. Moore testified she knew her signature was required on Form 7;
however, Moore maintained she needed the new owner number to complete her portion
of the Form 7 and this new owner number could only be obtained by appellants’
completion of the Form 9. Tuggle testified Form 7 requires the signature of both herself
and Moore, she could not file the Form 7 without Moore’s signature, and she knew she
had to file a Form 9 to obtain a new owner number in order to fill out her portion of the
Form 7. However, when asked whether SSS Oil was required to have a new owner
number prior to Moore signing the Form 7, Tuggle testified, “I don’t know about that.”
Tuggle also stated it made no sense for her to fill out the Form 9 and pay the necessary
money without the Form 7.
{¶20} Given the conflicting testimony of the parties and the lack of instruction in
the ODNR forms at issue of how to specifically obtain a permit or license, we find the
most persuasive evidence comes from the form entitled “Requirements to Obtain an
Owner Number.” The form lists the registration requirements for new non-domestic
owners as Form 9, a bond, and liability insurance. At the bottom of the form, it states,
“IMPORTANT NOTE: In order for a well(s) to be placed under a new owner number, the
Division of Oil and Gas Resources Management must receive and approve a “Request
Stark County, Case No. 2017CA00036 9
for Change of Owner Form” (Form 7 enclosed) executed by the Assignor/Transferor and
Assignee/Transferee.” Based upon the fact that this “Important Note” is found at the
bottom of the form instructing parties on how to register and the note specifically states
Form 7 must be “approved” by ODNR, the form indicates that, to complete the permit or
licensure process, Form 7 had to be submitted to ODNR.
{¶21} Further, upon our review of Form 7, we find appellees could have filled out
their portion of the form without the new owner number and prior to the filing of the Form
9, as the portion of Form 7 to be filled out by appellees asks for KMFAD’s owner number.
The portion of the form to be filled out by appellants asks for the new owner number.
There is no indication in the instructions by the ODNR that appellees could not fill out their
portion of the Form 7 prior to the filing of the Form 9. If appellees had filled out their
portion of the Form 7 and provided it to appellants when requested in the November 1 e-
mail or November 14 motion to enforce, it would have been incumbent upon appellants
to file all the documents and have them processed by the ODNR, and any failure on their
part to do so by November 30, 2016 would have triggered the section of the settlement
agreement that reverted the NATCO wells to appellees. However, it appears from
Moore’s testimony and the e-mails submitted by appellees in their December 2, 2016
response in opposition to the motion to enforce that appellees’ strategy was to do nothing
until appellants filed the Form 9. During this time, appellees did not fill out their portion of
the Form 7 to submit to appellants.
{¶22} While appellees also argue it was appellants’ responsibility to give them the
Form 7 to fill out, we find no such intent in the settlement agreement. The settlement
agreement states the KMFAD parties “shall timely tender all * * * documentation as
Stark County, Case No. 2017CA00036 10
requested by the SSS Oil Parties for purposes of obtaining said required permits * * *.”
Here, once appellants requested that appellees fill out their portion of the Form 7,
appellees were required to tender this documentation to appellants. Appellants requested
this documentation via e-mail on November 1, 2016 and via their motion to enforce filed
on November 14, 2016. However, appellees did not tender their portion of Form 7 to
appellants.
{¶23} Accordingly, we find that simply because appellants had not yet filed the
Form 9 does not relieve appellees of the duty to fill out their portion of Form 7, given the
confusion by the parties as to what documentation was necessary to secure the permit/or
license by the ODNR and given the “Important Note” regarding the Form 7 listed at the
bottom of the ODNR form “Requirements to Obtain an Owner Number” requiring the
“approval” of Form 7. Appellants twice requested that appellees fill out their portion of
Form 7, but appellees did not respond to this request.
{¶24} “Every contract, including a settlement agreement, contains an implied duty
for parties to act in good faith and to deal fairly with each other.” Weckel v. Cole + Russell
Architects, 1st Dist. Hamilton No. C-110590, 2013-Ohio-2718. “This is particularly so
when one party has direct influence over the satisfaction of a condition precedent.” Id.;
Johnston v. Cochran, 10th Dist. Franklin No. 06AP-1065, 2007-Ohio-4408. Here,
appellees had direct influence over the satisfaction of the condition precedent and had to
exercise good faith and diligence in providing their portion of the Form 7 to appellants
when appellants requested it, especially given the lack of clarity as to when the Form 7
had to be filed with the ODNR.
Stark County, Case No. 2017CA00036 11
{¶25} Though the trial court notes appellants were unprepared to close by
November 30, 2016 because there was no finalized purchase and sale agreement, we
find such was not required by the plain language of the settlement agreement. The items
appellants were required to obtain by November 30, 2016 were ODNR permits/licenses,
liability insurance, and bond. Further, appellants did provide appellees with their proposal
for the purchase and sale agreement in the November 1, 2016 e-mail, but appellees did
not respond to this portion of the e-mail. Moore testified that she had no issues with the
purchase and sale agreement proposed by appellants in the November 1, 2016 e-mail.
Thus, the parties had a mutually agreeable purchase and sale agreement.
{¶26} Finally, we find that the denial of the motion to enforce settlement
agreement produces an inequitable result. Prior to the initiation of the lawsuit in this case,
appellants and appellees each owned 50% of KMFAD. However, the parties continually
disagreed about the management and running of KMFAD. In order to settle the lawsuit,
appellants agreed to relinquish their interest in KMFAD in exchange for appellees’
transferring certain wells owned by KMFAD to appellants. There is no dispute that
appellants no longer have an interest in KMFAD, as, pursuant to the settlement
agreement, appellants relinquished any interest they had in KMFAD to appellees via a
unit redemption agreement. Moore testified SSS Oil relinquished its interest in KMFAD
via a unit redemption agreement pursuant to the terms of the settlement agreement. Due
to the denial of the motion to enforce settlement, appellees received a windfall, as
appellees retained all of the KMFAD wells and 100% ownership of KMFAD, despite the
fact that the parties agreed to divide the wells in exchange for appellants’ relinquishment
of its ownership in KMFAD. Given the confusion by the parties and lack of clarity
Stark County, Case No. 2017CA00036 12
regarding what is required to obtain a permit or license from the ODNR, we find such a
result inequitable.
{¶27} Based on the foregoing, appellants’ assignment of error is sustained. We
find the trial court erred in denying the motion to enforce with respect to Section 2.01 of
the settlement agreement and in finding that KMFAD shall retain and maintain any and
all interest in the NATCO and Medina wells. We further find that because appellees were
not relieved of their duty to fill out their portion of Form 7, the date provision (November
30, 2016) contained in Section 2.01 of the settlement agreement was frustrated and the
Purchase and Sale agreement was not null and void on December 1, 2016.
{¶28} Accordingly, we reverse and remand the case with instructions to the trial
court to effectuate the transfer of the NATCO and Medina wells by having the parties fill
out the paperwork necessary to accomplish the transfer within a reasonable time.
Further, once the case is remanded, the trial court should determine what amounts, if
any, should be offset from the $24,385.20 monetary judgment against appellants.
By Baldwin, J.
Gwin, P.J., and
Wise, Earle, J., concur