Lang v. Enervest Energy Institutional Fund XI A LP

[Cite as Lang v. Enervest Energy Institutional Fund XI A LP, 2016-Ohio-4844.]
IN THE COURT OF APPEALS OF OHIO
FOURTH APPELLATE DISTRICT
WASHINGTON COUNTY
PATRICK LANG, ET AL., : Case No. 15CA24
Plaintiffs-Appellants, :
v. :
DECISION AND
ENERVEST ENERGY INSTITUTIONAL JUDGMENT ENTRY
FUND XI A LP, ET AL., :
Defendants-Appellees. : RELEASED 06/29/2016
APPEARANCES:
Ethan Vessels, Fields, Dehmlow & Vessels, LLC, Marietta, Ohio, for plaintiffs-appellants
Patrick and Amy Lang.
Michael D. Buell, Buell & Sipe Co., L.P.A., Marietta, Ohio, for defendants-appellees McAlester
Fuel Company and McAlester Fuel Holding Co., Inc.
Hoover, J.
{¶1} Plaintiffs-appellants, Patrick and Amy Lang (hereinafter “appellants”), appeal
several decisions and judgments of the Washington County Common Pleas Court in their action
seeking to declare an oil and gas lease encumbering their property forfeited and void.
{¶2} Appellants first contend that the trial court erred by denying their motion for
default judgment and by instead granting defendants-appellees, McAlester Fuel Company and
McAlester Fuel Holding Co., Inc. (hereinafter “appellees”), leave to file a responsive pleading.
Because we do not believe that the trial court abused its discretion in determining that excusable
Washington App. No. 15CA24 2
neglect existed justifying the appellees’ delayed response to the complaint, we disagree with
appellants’ first contention.
{¶3} Appellants next contend that the trial court erred by granting the appellees’
motion to dismiss the complaint. The trial court, after initially denying appellees’ motion to
dismiss the complaint, later revisited the motion upon the “presentment of evidence” and
ultimately granted the motion to dismiss. Because a Civ.R. 12(B)(6) motion to dismiss may only
be determined upon review of the complaint, and not upon the consideration of evidence, we find
merit in this argument.
{¶4} Finally, appellants contend that the trial court erred by denying their motion for
summary judgment. However, because the trial court chose not to consider appellants’ motion
for summary judgment, as opposed to denying or granting the motion, we also decline to
consider the motion.
{¶5} Accordingly, the judgment of the trial court is affirmed in part, and reversed in
part. The cause shall be remanded to the trial court for further proceedings.
I. Facts and Procedural History
{¶6} Appellants own approximately 62 acres of real property located in Adams
Township in Washington County, Ohio (hereinafter the “property”). The property is subject to an
oil and gas lease entered April 19, 1978, between Frank and Ruth Lang as lessors and Eastern
Gas Systems, Inc., as the lessee (hereinafter the “lease”). Appellants are the successors-in-
interest to Frank and Ruth Lang and appellees are the successors-in-interest to the original lessee.
The term of the lease is for “a primary term of One (1) years [sic] from May 10, 1978 and as
long thereafter as operations for oil or gas are being conducted on the premises, or oil or gas is
Washington App. No. 15CA24 3
found in paying quantities thereon, or any formation underlying the herein leased land is used for
storage of gas provided under paragraph 7 hereof.” The lease also expressly grants the lessee the
right to unitize the property or portions thereof with other tracts of land to form a drilling unit or
units.
{¶7} Two wells were drilled on the property: the Frank and Ruth Lang # 1 Well
(hereinafter the “# 1 Well”) and the Frank and Ruth Lang # 2 Well (hereinafter the “# 2 Well”).
Neither the # 1 Well nor the # 2 Well has produced oil or gas since 2001.
{¶8} In 2001, 3.30 acres of the property were consolidated with other properties in
Adams Township, Washington County, Ohio, to form a 40-acre drilling unit under a
“Declaration of Consolidation” (hereinafter the “Consolidation”). The purpose of the
Consolidation was to “develop and operate the lands [therein] described, [and] to consolidate to
the extent [therein] described said lands into a single operating unit (the ‘Consolidated Unit’) for
the purpose of development and production of oil and/or gas from all zones and formations
available to the Lessee pursuant to the provisions of the Leases and the rights of the Lessee.”
{¶9} One well was drilled on the Consolidated Unit in 2001, the W Lang # 3-SE36
Well (hereinafter the “# 3 Well”). Although the # 3 Well is part of the Consolidated Unit, it is
not located on the appellants’ property. It is undisputed that the # 3 Well is currently producing
oil or gas in paying quantities. No other wells have been drilled on the Consolidated Unit.
{¶10} The appellants filed their complaint in this case on November 25, 2013. In count
one of their complaint, the appellants alleged that the lease had expired under its own terms as to
the 58.7 acres unencumbered by the Consolidation due to a lack of production of oil or gas.
Appellants requested a judgment declaring the oil and gas lease forfeited and void as to those
Washington App. No. 15CA24 4
58.7 unencumbered acres. In count two, the appellants claimed that the defendants had breached
implied covenants, thus voiding the lease.
{¶11} The appellees were served with the complaint by certified mail on December 4,
2013.1 However, the appellees failed to respond to the complaint, or otherwise notify the trial
court of their intent to contest the case within the time prescribed by the Civil Rules of
Procedure.
{¶12} On January 24, 2014, the appellants filed a motion for default judgment against
the appellees. The appellees responded to the motion for default judgment by filing a combined
motion in opposition to default, and motion for leave to file a responsive pleading. In their
combined motion, supported by the affidavit of in-house counsel, the appellees alleged that they
had retained Attorney Thomas Webster to represent them in the lawsuit. The appellees further
claimed that Attorney Webster had told them that he had obtained from the appellants a two-
week extension of time to file an answer. Thereafter, appellees’ in-house counsel attempted to
contact Attorney Webster several times for an update of the case status but to no avail. It was
upon the filing of appellants’ motion for default judgment that appellees hired new counsel,
Attorney Michael D. Buell, to represent their interests in the lawsuit. Appellees claimed that the
misunderstanding and lack of communication constituted mistake, inadvertence, and/or
excusable neglect.
{¶13} The appellants filed a memorandum in opposition to the combined motion of
appellees. In their memorandum in opposition, the appellants denied that their counsel had ever
granted a filing extension; and even if they had, they argued that the appellees still failed to
1
The complaint named several defendants in addition to the appellees. However, those additional defendants
released any interest they may have had in the disputed portion of the property and were subsequently dismissed
from the lawsuit.
Washington App. No. 15CA24 5
timely respond by the extended date. They also argued that a lawyer’s mistake is not “excusable
neglect” warranting leave to respond under Civ.R. 6.
{¶14} Appellees filed a reply memorandum in support of their motion for leave to file a
responsive pleading. Attached to the reply memorandum was an affidavit from Attorney
Webster. Through the affidavit, Attorney Webster averred that he agreed to represent the
appellees in the lawsuit. He further averred that shortly after he received a copy of the summons
and complaint he saw appellants’ counsel in the courthouse and verbally requested “at least an
additional two weeks” to investigate the matter and file a responsive pleading. Attorney Webster
claimed to have received a verbal extension from opposing counsel at that time. He further
averred that since he had been granted an extension, he believed that opposing counsel would
contact him before proceeding on the matter pursuant to local custom.
{¶15} In June 2014, the trial court denied appellants’ motion for default judgment and
granted appellees’ motion for leave to file a responsive pleading. The trial court determined that
appellees’ actions constituted excusable neglect, citing the “local practice to ‘informally’ seek
additional time to plead”. The trial court also noted that the appellants would not be prejudiced
by allowing appellees to respond because appellees sought to “reuse” defenses raised by the co-
defendants prior to their dismissal from the case.
{¶16} Thereafter, on June 11, 2014, the appellees filed a motion to dismiss the
complaint pursuant to Civ.R. 12(B)(6). The appellees argued, through the motion, that dismissal
of the complaint was required because oil or gas produced from the # 3 Well on the Consolidated
Unit was sufficient to hold the lease on all of the appellants’ property. Appellees also argued that
the lease contained an express provision disclaiming all implied covenants. Conversely, in their
memorandum in opposition, the appellants argued that the language of the lease required the
Washington App. No. 15CA24 6
release of their property except for the 3.30 acres that were made part of the Consolidated Unit.
The trial court denied the motion to dismiss by ruling filed August 20, 2014. However, the trial
court held in its ruling that the motion was “subject to reconsideration upon presentment of
evidence regarding production volume and royalty payments” from the # 3 Well. An entry
denying the motion to dismiss was journalized on August 26, 2014.
{¶17} Appellants ultimately moved for summary judgment; again arguing that the lack
of production on the non-consolidated acreage causes the lease to expire under its own terms.
The appellants also argued that the appellees had breached the implied covenant to develop the
property, thus voiding the lease as to the non-consolidated acreage. In their memorandum in
opposition to the summary judgment motion, the appellees renewed their argument that the
production of oil or gas on the Consolidated Unit held the lease on all of the appellants’ property.
Attached to the memorandum in opposition was the affidavit of appellees’ President and Chief
Executive Officer, documenting for the first time the oil and gas production and royalty
payments from the # 3 Well. Notably, the appellees did not file a cross-motion for summary
judgment.
{¶18} In its “Ruling on Motion for Summary Judgment”, filed June 10, 2015, the trial
court noted that it had chosen “to revisit the [appellees’] Motion to Dismiss” given the
“production/royalty information” presented in appellees’ opposition memorandum. The trial
court then announced that it was granting appellees’ motion to dismiss and declining to consider
appellants’ motion for summary judgment.2 In a subsequent “Entry”, filed on June 22, 2015, the
trial court again stated it was granting appellees’ motion to dismiss. However, in the Entry the
trial court stated that appellants’ motion for summary judgment was “denied”.
2
Specifically, the ruling states that: “Defendant’s Motion to Dismiss is GRANTED. As a result, the Court will not
consider Plaintiffs’ Motion for Summary Judgment * * *.”
Washington App. No. 15CA24 7
{¶19} Following the journalization of the June 22, 2015 Entry, appellants filed a timely
notice of appeal indicating their intent to appeal the trial court’s judgments on the motion for
default judgment/motion for leave to file a responsive pleading, motion to dismiss, and motion
for summary judgment.
II. Assignments of Error
{¶20} Appellants assign the following errors for our review:
First Assignment of Error:
The trial court erred in denying the Langs’ Motion for Default Judgment.
Second Assignment of Error:
The trial court erred in granting McAlester’s Motion to Dismiss and denying the
Langs’ Motion for Summary Judgment.
III. Law and Analysis
{¶21} In their first assignment of error, appellants contend that the trial court erred by
granting appellees' motion for leave to file their responsive pleading and by overruling their
motion for default judgment. In particular, appellants argue that the appellees failed to prove that
their failure to file a timely answer or to otherwise defend was due to excusable neglect.
{¶22} “A trial court's decision to either grant a default judgment in favor of the moving
party, or allow the defending party to file a late answer pursuant to Civ.R. 6(B)(2) upon a finding
of excusable neglect, will not be reversed absent an abuse of discretion.” Huffer v. Cicero, 107
Ohio App. 3d 65, 74, 667 N.E.2d 1031 (4th Dist.1995), citing Miller v. Lint, 62 Ohio St. 2d 209,
404 N.E.2d 752 (1980) and McDonald v. Berry, 84 Ohio App. 3d 6, 616 N.E.2d 248 (8th
Washington App. No. 15CA24 8
Dist.1992). Accordingly, we must uphold the trial court’s decision so long as the trial court did
not act unreasonably, unconscionably, or arbitrarily. Lauer v. Positron Energy Resources, Inc.,
4th Dist. Washington No. 13CA39, 2014-Ohio-4850, ¶ 9. Furthermore, in applying the abuse of
discretion standard, we may not substitute our judgment for that of the trial court. Id.
{¶23} Civ.R. 55 governs default judgments, and provides, in relevant part, that when a
party defending a claim has “failed to plead or otherwise defend”, the court may, upon motion,
enter a default judgment on behalf of the party asserting the claim. Civ.R. 55(A) and (C); Ohio
Valley Radiology Assocs., Inc. v. Ohio Valley Hosp. Assn., 28 Ohio St. 3d 118, 120, 502 N.E.2d
599 (1986).
{¶24} Civ.R. 12 and Civ.R. 6 are also applicable to this appeal. Civ.R. 12(A)(1)
provides that “[t]he defendant shall serve his answer within twenty-eight days after service of the
summons and complaint upon him * * *.” Civ.R. 12(B) provides that any Civ.R. 12(B) defense
“shall be made [by motion] before pleading if a further pleading is permitted.” Additionally,
Civ.R. 6(B)(2) provides that if a party fails to act as required within the time specified, the court
may, upon motion, “permit the act to be done where the failure to act was the result of excusable
neglect * * *.” Thus, once an applicable filing deadline passes, the court only has the discretion
to grant an extension upon motion and demonstration of excusable neglect.
{¶25} The Ohio Supreme Court has reasoned that “the test for excusable neglect under
Civ.R. 6(B)(2) is less stringent than that applied under Civ.R. 60(B).” State ex rel. Lindenschmidt
v. Bd. of Commrs. of Butler Cty., 72 Ohio St. 3d 464, 466, 650 N.E.2d 1343 (1995). “The
determination of whether neglect was excusable or inexcusable must take into consideration all
the surrounding facts and circumstances, and courts must be mindful that cases should be
decided on their merits where possible, rather than on procedural grounds.” Duffy v. Nourse
Washington App. No. 15CA24 9
Family of Dealerships-Chillicothe, Inc., 4th Dist. Ross No. 05CA2846, 2006-Ohio-2057, ¶ 11,
citing Lindenschmidt at 466. “Indicators of whether neglect was excusable in a particular
instance include whether the opposing party was prejudiced by the delay, the relative length of
the delay, and whether the opposing party filed its own materials in a timely matter.” Duffy at ¶
11.
{¶26} Here, the trial court denied appellants’ motion for default judgment based upon its
reasoning that appellees’ had demonstrated excusable neglect in failing to timely file their
answer or to otherwise defend. Based on the following, we conclude that the trial court did not
abuse its discretion in reaching this decision.
{¶27} First, we note that appellants have not identified any prejudice suffered as a result
of the trial court granting appellees’ motion for leave to file a responsive pleading. The very
defenses sought to be raised by appellees had already been raised by the co-defendants via a
motion to dismiss. While the trial court never reached a decision on the co-defendants’ motion to
dismiss, in granting appellees’ motion for leave to file a responsive pleading, the trial court
explicitly noted appellants’ familiarity with the defenses. The appellees also filed their combined
motion in opposition to default, and motion for leave to file a responsive pleading within three
weeks of being served with appellants’ motion for default judgment, and within three months of
the service of the complaint. We believe this is a relatively short delay. Furthermore, the trial
court noted that “cases should be decided on their merits as opposed to procedural grounds”; a
view that reflects the applicable law.
{¶28} As a final matter, we reiterate that our resolution of appellants’ first assignment of
error turns upon the abuse of discretion standard of review. As the Tenth District Court of
Washington App. No. 15CA24 10
Appeals succinctly stated in McGee v. C & S Lounge, 108 Ohio App. 3d 656, 661, 671 N.E.2d
589 (10th Dist.1996):
Discretion necessarily connotes a wide latitude of freedom of action on the part of
the trial court, and a broad range of more or less tangible or quantifiable factors
may enter into the trial court's determination. Simply put, two trial courts could
reach opposite results on roughly similar facts and neither be guilty of an abuse of
discretion.
While a different trial court or even certain members of this Court may have reached a different
result, we cannot say that the trial court's decision constituted an abuse of its discretion. The trial
court best understands local practices and customs; and it did not act unreasonably,
unconscionably, or arbitrarily in assessing the actions of appellees and finding excusable neglect
in light of those customs. Accordingly, we overrule appellants’ first assignment of error.
{¶29} In their second assignment of error, the appellants contend that the trial court
erred by granting the appellees’ motion to dismiss while simultaneously denying their motion for
summary judgment.
{¶30} A Civ.R. 12(B)(6) motion to dismiss for failure to state a claim upon which relief
may be granted is procedural and tests the sufficiency of the complaint. State ex rel. Hanson v.
Guernsey Cty. Bd. of Commrs., 65 Ohio St. 3d 545, 548, 605 N.E.2d 378 (1992). A trial court
may not grant a motion to dismiss for failure to state a claim upon which relief may be granted
unless it appears “beyond doubt from the complaint that the plaintiff can prove no set of facts
entitling him to recovery.” O'Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St. 2d 242,
327 N.E.2d 753 (1975), syllabus.
Washington App. No. 15CA24 11
{¶31} When a trial court considers a Civ.R. 12(B)(6) motion to dismiss, it must review
only the complaint, accepting all factual allegations contained in the complaint as true and
making all reasonable inferences in favor of the nonmoving party. State ex rel. Talwar v. State
Med. Bd. of Ohio, 104 Ohio St. 3d 290, 2004–Ohio–6410, 819 N.E.2d 654, ¶ 5; Perez v.
Cleveland, 66 Ohio St. 3d 397, 399, 613 N.E.2d 199 (1993); Estate of Sherman v. Millhon, 104
Ohio App. 3d 614, 617, 662 N.E.2d 1098 (10th Dist.1995). Furthermore, the trial court “cannot
rely on evidence or allegations outside the complaint to determine a Civ.R. 12(B)(6) motion.”
State ex rel. Fuqua v. Alexander, 79 Ohio St. 3d 206, 207, 680 N.E.2d 985 (1997).3 When a party
presents evidence outside the pleadings, the trial court bears the “responsibility either to
disregard [the] extraneous material or to convert [the] motion to dismiss into a motion for
summary judgment * * *.” Keller v. Columbus, 100 Ohio St. 3d 192, 2003–Ohio–5599, 797
N.E.2d 964, ¶ 18. If the court converts the motion to dismiss to one for summary judgment, the
court must give the parties notice and a reasonable opportunity to present all of the available
evidence that Civ.R. 56(C) permits. Civ.R. 12(B). As our sister district aptly explained in Powell
v. Vorys, Sater, Seymour & Pease, 131 Ohio App. 3d 681, 684–685, 723 N.E.2d 596 (10th
Dist.1998):
When a motion to dismiss presents matters outside the pleadings, the trial court
may either exclude the extraneous matter from its consideration or treat the
motion as one for summary judgment and dispose of it pursuant to Civ.R. 56.
3
Civ.R. 12(B) provides:
When a motion to dismiss for failure to state a claim upon which relief can be granted presents
matters outside the pleading and such matters are not excluded by the court, the motion shall be
treated as a motion for summary judgment and disposed of as provided in Rule 56. Provided
however, that the court shall consider only such matters outside the pleadings as are specifically
enumerated in Rule 56. All parties shall be given reasonable opportunity to present all materials
made pertinent to such a motion by Rule 56.
Washington App. No. 15CA24 12
However, a trial court may not, on its own motion, convert a Civ.R. 12(B)(6)
motion to dismiss to a motion for summary judgment and thus dispose of it
without giving notice to the parties of its intent to do so and fully complying with
Civ.R. 12(B) and Civ.R. 56 in its considerations. Civ.R. 12(B); State ex rel. Baran
v. Fuerst (1990), 55 Ohio St. 3d 94, 97, 563 N.E.2d 713, 716. * * * * Failure to
notify the parties that the court is converting a Civ.R. 12(B)(6) motion to dismiss
into one for summary judgment is, itself, reversible error. State ex rel. Boggs v.
Springfield Local School Dist. Bd. of Edn. (1995), 72 Ohio St. 3d 94, 96, 647
N.E.2d 788, 791.
{¶32} In the case sub judice, we cannot uphold the trial court’s judgment of dismissal as
either a dismissal under Civ.R. 12(B)(6) or as a valid summary judgment under Civ.R. 56. The
trial court, in reaching its decision, clearly considered and relied upon evidence and materials
outside of the pleadings. Thus, the trial court’s judgment fails as a dismissal under Civ.R.
12(B)(6). Furthermore, there is no indication that the trial court notified the parties that it would
convert the motion to dismiss into a summary judgment motion. Because the trial court’s
judgment fails to comply with either Civ.R. 12(B)(6) or Civ.R. 56(C), we must reverse it.4
{¶33} With regards to appellants’ contention that the trial court erred by denying their
motion for summary judgment, we note that the trial court actually did not enter a decision on the
motion. Rather, in its June 10, 2015 ruling, the trial court stated that “[a]s a result [of the granting
of appellees’ motion to dismiss], the Court will not consider [appellants’] Motion for Summary
4
In this instance, the trial court’s actions are not excused as constituting harmless error because appellants did not
have sufficient notice and an opportunity to respond. The evidence considered by the trial court was submitted in
opposition to appellants’ motion for summary judgment, and in no way could the appellants have known that the
trial court would consider the evidence to unilaterally change it previous ruling on appellees’ motion to dismiss. For
a more thorough discussion of the harmless error doctrine in the conversion-notification context, see our ruling in
Rice v. Lewis, 4th Dist. Scioto No. 13CA3551, 2013-Ohio-5890.
Washington App. No. 15CA24 13
Judgment * * *.” Because the trial court did not first consider the motion, we decline to consider
it. See Sites v. Sites, 4th Dist. Lawrence No. 09CA19, 2010-Ohio-2748, ¶ 30 (noting that as a
reviewing court, an appellate court should decline to address the merits of a motion in the first
instance).
{¶34} Based on the foregoing, we sustain appellants’ second assignment of error in part
and overrule it in part.
IV. Conclusion
{¶35} In summary, appellants’ first assignment of error contesting the trial court's denial
of their motion for default judgment is overruled, and that aspect of the trial court's judgment is
affirmed. We further decline to address the portion of appellants’ second assignment of error
relative to the merits of their motion for summary judgment until the trial court has had an
opportunity to do so. However, having sustained the remaining portion of appellants’ second
assignment of error, we reverse the judgment of the trial court that granted appellees’ motion to
dismiss the complaint. This matter is remanded to the Washington County Common Pleas Court
for further proceedings in accordance with the law and this opinion.
JUDGMENT AFFIRMED IN PART,
REVERSED IN PART,
AND CAUSE REMANDED.
Washington App. No. 15CA24 14
JUDGMENT ENTRY
It is ordered that the JUDGMENT IS AFFIRMED IN PART AND REVERSED IN
PART; and the CAUSE IS REMANDED. Appellants and appellees shall equally divide the
costs.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Washington
County Common Pleas Court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the
Rules of Appellate Procedure.
Harsha, J.: Concurs in Judgment and Opinion.
McFarland, J.: Concurs in Judgment Only as to Assignment of Error II.
Dissents as to Assignment of Error I.
For the Court
BY: ________________________________
Marie Hoover, Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and
the time period for further appeal commences from the date of filing with the clerk.