Tewanger v. Stonebridge Operating Co., L.L.C.

[Cite as Tewanger v. Stonebridge Operating Co., L.L.C., 2020-Ohio-236.]
IN THE COURT OF APPEALS OF OHIO
SEVENTH APPELLATE DISTRICT
NOBLE COUNTY
SAMUEL C. TEWANGER, ET AL.,
Plaintiffs-Appellees,
v.
STONEBRIDGE OPERATING COMPANY, LLC. ET AL.,
Defendants-Appellants.
OPINION AND JUDGMENT ENTRY
Case No. 17 NO 0456
Civil Appeal from the
Court of Common Pleas of Noble County, Ohio
Case No. CV 213-0161
BEFORE:
David A. D’Apolito, Gene Donofrio, Cheryl L. Waite, Judges.
JUDGMENT:
Affirmed.
Atty. Richard Yoss and Atty. Jason Yoss, Yoss Law Office, 122 North Main Street,
Woodsfield, Ohio 43793, for Plaintiffs-Appellees and
Atty. Daniel Corcoran, and Atty. Patrick Stealey, Theisen Brock, 424 Second Street,
Marietta, Ohio 45750, for Defendant-Appellant Positron Energy Resources. Atty. John
Triplett, Jr. and Atty. Patrick Stealey, Theisen Brock, 424 Second Street, Marietta, Ohio
45750, for Defendant-Appellant Stonebridge Operating Company, LLC.
–2–
Dated: January 24, 2020
D’APOLITO, J.
{¶1} Defendants-Appellants, Stonebridge Operating Co., LLC (“Stonebridge”)
and Positron Energy Resources, Inc. (“Positron”) appeal the judgment entry of the Noble
County Court of Common Pleas entering summary judgment in favor of Plaintiffs-
Appellees, Samuel and Deborah Tewanger on their claims for breach of contract and
termination of an oil and gas lease based on lack of production in paying quantities.
{¶2} In their sole assignment of error, Appellants argue that: (1) Appellees’
claims are time-barred based on the applicable statute of limitations, or otherwise barred
by the equitable doctrines of waiver, estoppel and laches; (2) the trial court did not have
subject matter jurisdiction based on Appellees’ failure to join indispensable parties; and
(3) the record contains sufficient evidence of economic production. Appellees appear to
have abandoned their breach of contract claim predicated upon the lessee’s failure to put
the wells in production within 60 days of the execution of the lease. In their appellate
brief, Appellees argue exclusively that the trial court did not err in entering summary
judgment on the failure to produce in paying quantities claim.
{¶3} We find that all necessary parties have been joined in this action, and that
Appellees asserted their claim for lack of production in paying quantities within the twenty-
one year statute of limitations applicable in this case. Because Appellants concede that
no oil and gas was produced for a period of greater than two years during the life of the
lease, the judgment of the trial court on the lack of production in paying quantities claim
is affirmed.
STANDARD OF REVIEW
{¶4} An appellate court conducts a de novo review of a trial court’s decision to
grant summary judgment, using the same standards as the trial court set forth in Civ.R.
56(C). Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105, 671 N.E.2d 241 (1996).
Before summary judgment can be granted, the trial court must determine that: (1) no
genuine issue as to any material fact remains to be litigated, (2) the moving party is
entitled to judgment as a matter of law, (3) it appears from the evidence that reasonable
Case No. 17 NO 0456
–3–
minds can come to but one conclusion, and viewing the evidence most favorably in favor
of the party against whom the motion for summary judgment is made, the conclusion is
adverse to that party. Temple v. Wean United, Inc., 50 Ohio St. 2d 317, 327, 364 N.E.2d
267 (1977). Whether a fact is “material” depends on the substantive law of the claim
being litigated. Hoyt, Inc. v. Gordon & Assoc., Inc., 104 Ohio App. 3d 598, 603, 662 N.E.2d
1088 (8th Dist.1995).
{¶5} “[T]he moving party bears the initial responsibility of informing the trial court
of the basis for the motion, and identifying those portions of the record which demonstrate
the absence of a genuine issue of fact on a material element of the nonmoving party’s
claim.” (Emphasis deleted.) Dresher v. Burt, 75 Ohio St. 3d 280, 296, 662 N.E.2d 264
(1996). If the moving party carries its burden, the nonmoving party has a reciprocal
burden of setting forth specific facts showing that there is a genuine issue for trial. Id. at
293. In other words, when presented with a properly supported motion for summary
judgment, the nonmoving party must produce some evidence to suggest that a
reasonable factfinder could rule in that party’s favor.
{¶6} This case involves the interpretation of a written contract. When reviewing
a contract, the court’s primary role is to ascertain and give effect to the intent of the
parties. Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 86 Ohio St. 3d 270, 273, 714
N.E.2d 898 (1999). A contract that is, by its terms, clear and unambiguous requires no
interpretation or construction and will be given the effect called for by the plain language
of the contract. Aultman Hosp. Assn. v. Community Mut. Ins. Co., 46 Ohio St. 3d 51, 53,
544 N.E.2d 920 (1989). Review of an unambiguous written agreement is a matter of law
for the court, which an appellate court reviews de novo. Cadle v. D’Amico, 7th Dist.
Mahoning No. 15 MA 0136, 2016-Ohio-4747, 66 N.E.3d 1184, ¶ 22.
FACTS AND PROCEDURAL HISTORY
{¶7} Appellees are the fee owners of certain real property consisting of 38 acres,
more or less, situated in Section 18 of Elk Township, Noble County, Ohio. Samuel
acquired his interest in the property by general warranty deed dated July 7, 1975, filed
October 3, 1975, and recorded in Volume 142, Page 272 of the Official Records of Noble
County, Ohio. He conveyed his interest in the property to himself and his wife, Deborah
Case No. 17 NO 0456
–4–
by general warranty deed dated July 11, 1984, filed July 18, 1984 and recorded in Volume
158, Page 364 of the Official Records of Noble County, Ohio.
{¶8} Appellees entered into an oil and gas lease with Drillers Petroleum
Corporation dated October 29, 1979, filed December 4, 1979 and recorded in Volume 84,
Page 990 of the Lease Records of Noble County, Ohio (“1979 Lease”). (Id. ¶ 5). Two
wells were drilled, Sam Tewanger No. 1 (“Sam 1”) and Sam Tewanger No. 2 (“Sam 2”).
(Id. ¶ 6). At some point after the wells were drilled, they were taken out of production and
the 1979 Lease was forfeited on February 13, 1987.
{¶9} Appellees entered into a second oil and gas lease with Washington Land
Company, dated March 17, 1987 and recorded on March 20, 1987 in Volume 104, Page
782 of the Lease Records of Noble County, Ohio (“1987 Lease”). Although the lessee
was not required to drill additional wells under the terms of the 1987 Lease, a handwritten
provision was added to the delay rental clause, which reads, in pertinent part:
The said Lessee covenants and agrees to pay a rental at the rate of five
dollars per acre ($5.00 per acre) Dollars annually in advance, beginning
_______ until, but not after, a well yielding royalty [sic] to the Lessors is
drilled on the leased premises * * * *60 days to have wells in Production
(initials omitted)
(1987 Lease, ¶ 8) (Omission in original; handwritten clause in italics). Appellants concede
that no oil or gas was produced within the 60-day period.
{¶10} The 1987 Lease contains a habendum clause, which reads, in its entirety:
[T]his lease shall remain in force for a term of _____ years from this date
and as long thereafter as oil and gas is drilled or produced by any method
from the said premises by the lessee, its successors and assigns.
Lease at p.1. (Omission in original).
{¶11} The record reflects that neither Appellants nor their predecessors in interest
produced any oil or gas from the wells in 1987, and 1989 through 1992. In this appeal,
Case No. 17 NO 0456
–5–
Appellants concede a gap in production from 1987 to 1992. (Rep. Brf., 2.) (“It is
undisputed in the record that there was not production on this well from 1987-1992.”)
{¶12} According to the Ohio Department of Natural Resources, Stonebridge is
listed as the owner of the wells from 2001 to the time this action was filed in 2013. Halwell
Company was listed as the owner of the wells in the Ohio Well Completion Reports prior
to 2001.
{¶13} Appellees filed their complaint on September 16, 2013 seeking a
declaration that the 1987 Lease was breached and/or expired by its own terms based on
the lessees’ failure to fulfill the handwritten provision in the lease, and the failure to
produce oil and gas in paying quantities. Appellees requested that title be quieted and
any lien or encumbrance by virtue of the 1987 Lease be discharged. Appellees also
asserted additional breach of contract and tort claims that were voluntarily dismissed prior
to this appeal.
{¶14} On August 25, 2014, Appellees filed a motion to add additional parties, that
is, twenty-eight individuals/entities listed by Appellants as working interest owners in the
1987 Lease. The motion was never addressed by the trial court. Service on
approximately 70% of the individuals/entities on the list failed. Individuals that did
respond indicated that they had divested themselves of any interest in Halwell.
{¶15} At his deposition on May 5, 2015, Eddy Biehl, the record owner and
statutory agent of Appellants, and the president and operations manager of the now-
defunct Halwell, testified that Halwell became the owner of the entire working interest in
the land through a series of assignments from and to companies controlled by the Biehls
(Washington Land Company to Bentre Company to Halwell). Biehl further testified that
Appellants were formed in the late 1990s as successors in terms of operations or interests
to Halwell Corporation, which assigned all of its rights to the 1987 Lease to Positron and
the operation of the wells to Stonebridge. Specifically, Biehl testified “Stonebridge took
over the day-to-day operation of the wells. Positron owned – or got assigned all of the
assets.” (Biehl Depo. p. 22).
{¶16} At some point, Biehl as an individual was assigned a “four point something”
working interest in the 1987 Lease. (Id. 12). He testified that his individual interest was
assigned to Positron. In addition, a list of twenty-eight working interest owners in the 1987
Case No. 17 NO 0456
–6–
Lease was provided by Biehl to Appellees in discovery. Biehl explained that “at the time
Halwell kind of wrapped up its affairs or changed, it was [his] understanding that all of
these individual working interest owners contributed their working interest in a series of
wells that Halwell operated to a new LLC that [he] had nothing to do with. That – and
consolidated their interest someplace in ’98 or ’99.” (Id. 9). He further testified that none
of the individuals currently owned a working interest in the lease and that the name of the
new LLC was HCI Programs, LLC (“HCI”).
{¶17} According to Biehl, he was instructed to consolidate all of the individual
interests in terms of distributions and accounting to HCI. Biehl testified that “Positron was
the consolidating entity and there was kind of a master agreement and bill of sale
prepared at that time * * *.” (Id. 13). He further testified that he believed the various
interests were recorded, but not in every county. Later in his testimony, and contrary to
his earlier statements, Biehl testified that he did not know if two working interest owners
from the list, Twin Bridge Energy 86-II and Marietta Recompletions, contributed their
interest to HCI Programs. (Id. 23-25).
{¶18} At his deposition, Biehl agreed to provide additional information regarding
HCI. According to the affidavit of Richard A. Yoss, counsel for Appellees, a subpoena
was issued to Appellants on January 15, 2016 that requested all records relating to the
alleged working interest holders. Appellants did not respond to the subpoena. Yoss
conducted a public records search in Noble County, which established that Appellants
are the record owners of the complete working interest in the 1987 Lease.
{¶19} On March 30, 2016, Appellees filed their motion for summary judgment.
Appellees attached Ohio Well Completion Reports, their own affidavit, and the
Supplemental Response to Plaintiffs’ First Combined Discovery Requests and Requests
for Admissions to Defendants in support of their argument that the lease terminated on
its own terms and as a matter of law as early as 1987, or, in the alternative, in 1992.
{¶20} On April 4, 2016, a notice of hearing was filed by the trial court setting a
non-oral hearing on the motion for summary judgment on May 23, 2016. In response to
the motion, Appellants filed the affidavit of John Schneider on May 20, 2016 and their
memorandum in opposition on May 23, 2016.
Case No. 17 NO 0456
–7–
{¶21} In his affidavit, Schneider avers that he is in charge of the production
department for Stonebridge and that both wells “produced and have produced in paying
quantities while operated by [Stonebridge]” (Schneider Aff. ¶ 5, 10). However, Schneider
does not indicate in his affidavit the date when Stonebridge began operating the wells.
{¶22} In their opposition brief, Appellants argued that Appellees’ claims were
barred by the applicable statute of limitations and the equitable doctrine of estoppel, that
forfeiture was inappropriate, and that genuine issues of material fact existed with respect
to production and when it commenced.
{¶23} Appellees filed a motion to strike both the Schneider affidavit and the
opposition brief on May 27, 2016, arguing that the pleadings were not timely filed. In the
motion to strike, Appellees requested, in the alternative, that they be granted thirty days
to submit a reply to the opposition brief if it was not stricken.
{¶24} On January 13, 2017, the trial court issued a journal entry, which quoted
Civil Rule 56(C) as follows:
The motion shall be served in accordance with Civ.R. 5. Unless otherwise
provided by local rule or by order of the court, the adverse party may serve
responsive arguments and opposing affidavits within twenty-eight days after
service of the motion, and the movant may serve reply arguments within
fourteen days after service of the adverse party’s response. Summary
judgment shall be rendered forthwith if the pleadings, depositions, answers
to interrogatories, written admissions, affidavits, transcripts of evidence,
and written stipulations of fact, if any, timely filed in the action, show that
there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. No evidence or stipulation may
be considered except as stated in this rule. A summary judgment shall not
be rendered unless it appears from the evidence or stipulation, and only
from the evidence or stipulation, that reasonable minds can come to but one
conclusion and that conclusion is adverse to the party against whom the
motion for summary judgment is made, that party being entitled to have the
evidence or stipulation construed most strongly in the party’s favor. A
summary judgment, interlocutory in character, may be rendered on the
Case No. 17 NO 0456
–8–
issue of liability alone although there is a genuine issue as to the amount of
damages.
(1/13/17 J.E. p. 1-2)(Emphasis in original).
{¶25} The trial court concluded that “[a] reading of Civil Rule 56(C), and
considering the applicable dates in this case, clearly indicates that the only ‘evidence or
stipulation’ that ‘may be considered’ by this Court as ‘timely filed’ is the motion of Plaintiffs
and the memorandum and appendix attached thereto.” (Id. 2). The trial court further
concluded that summary judgment was appropriate and ordered Appellees to prepare an
order in accord.
{¶26} The trial court predicated summary judgment on the breach of contract
claim on our decision in Price v. K.A. Brown Oil & Gas, LLC, 7th Dist. Monroe No. 13 MO
13, 2014-Ohio-2298. In that case, the 1988 oil and gas lease specifically read that “[t]he
purpose of this lease is so that the [l]essee may put the existing wells in production.” Id.
at ¶ 5. The lessee was required to put the first well into production within six months of
the execution of the lease, and the second well into production within the following six
months. Significantly, the lease read, “[i]f this schedule is not adhered to, then the Lessee
shall release said lease back to Lessor or begin paying shut-in royalties.” Id. The primary
term of the lease was six months. Id. The lessee conceded that the second well was not
put into production until 1995. We found that the lessee had “one of two options at its
disposal” in 1999: “release the lease or pay shut-in royalties.” Id. at ¶ 20. Because no
shut-in royalties were paid, we concluded that the lease automatically terminated.
{¶27} The trial court also cited Curtis v. American Energy Development, Inc., 11th
Dist. Lake No. 2000-L-133, 2002-Ohio-3122, in which the Eleventh District found that a
lease expired by its own terms as a result of the failure of the lessee to commence drilling
a second well within the time specified by the lease. A provision in the lease, captioned
“Failure to Commence Drilling,” read “in the event the drilling of one of the (two wells) 2
wells is not commenced on the Premises within twelve (12) months after the date of this
lease, this lease shall terminate and shall be of no further force or effect. Second well to
commence in eighteen months of this lease.” Id. at ¶ 11. The Eleventh District
Case No. 17 NO 0456
–9–
concluded that the foregoing provision created a condition precedent to the remaining life
of the lease. Id. at ¶ 33.
{¶28} The trial court found that the primary term of the 1987 Lease was 60 days
based on the handwritten provision. Despite the fact that the 1987 Lease did not contain
the release/termination language present in Price and Curtis, supra, the trial court further
found that the primary term of the 1987 Lease expired on its own terms based on
Appellants failure to fulfill the 60-day term for production. The trial court reasoned that
the 60-day term was a condition precedent to the secondary term of the 1987 Lease.
(3/9/17 J.E., p. 4).
{¶29} In the alternative, the trial court found that the 1987 Lease expired by its
own terms due to lack of production in paying quantities from 1987 to 1992. The trial
court cited Ohio case law for the rule that cessation of production for more than two years
is evidence of a lack of diligence by the lessee. (Id. at p. 6). The trial court entered
judgment in favor of Appellees and ordered that the judgment entry be recorded and noted
upon the 1987 Lease.
{¶30} Appellants appealed the January 13, 2017 journal entry (17NO0447), and
we held the appeal in abeyance for 60 days in order to allow the trial court to enter a final
judgment. On March 9, 2017, the trial court issued a judgment entry granting summary
judgment in favor of Appellees on counts two and three. On May 5, 2017, we dismissed
the appeal because the March 9, 2017 entry did not address the remaining breach of
contract and tort claims and did not contain the required language from Civ.R. 54(B).
{¶31} On September 19, 2017, Appellees filed a motion pursuant to Civ.R.
41(B)(2) in the trial court to voluntarily dismiss the remaining counts. Counts four through
six were dismissed by order of the trial court on September 26, 2017. Also on September
26, 2017, the trial court filed a judgment entry that is the final appealable order in this
case. The September 26, 2017 Judgment Entry provides, in pertinent part, "The findings
and orders of the January 13, 2017 Journal Entry are incorporated by reference as though
fully re-stated." The September 26, 2017 Journal Entry further provides that "[t]he March
9, 2017 Judgment Entry is incorporated herein by reference as though fully restated."
This timely appeal followed.
Case No. 17 NO 0456
– 10 –
ANALYSIS
{¶32} Appellants advance a single assignment of error:
THE TRIAL COURT ERRED IN GRANTING PLAINTIFFS-APPELLEES'
MOTION FOR SUMMARY JUDGMENT.
{¶33} Appellants have not advanced an assignment of error based on the January
13, 2017 journal entry, which effectively granted the motion to strike the Schneider
affidavit and their opposition brief. Although they characterize the entry of summary
judgment as “a default judgment for discovery sanctions,” (Rep., p. 1), they do not assert
that the Schneider affidavit or the argument offered in the opposition brief is properly
before us for review.
{¶34} Appellants’ sole assignment of error is divided in three parts: (1) statute of
limitations, waiver, estoppel and laches; (2) failure to join indispensable parties; and (3)
evidence of economic production. The second part of the sole assignment of error is
addressed out of order as the failure to join indispensable parties is a jurisdictional defect
and cannot be waived. Potts v. Unglaciated Industries, Inc., 7th Dist. Monroe No. 15 MO
0003, 2016-Ohio-8559, 77 N.E.3d 415, ¶ 42, citing City of Cincinnati v. Whitman, 44 Ohio
St.2d 58, 60, 337 N.E.2d 773 (1975) (stating an injunction entered in a declaratory
judgment action was “void” where the trial court lacked jurisdiction to issue the injunction
due to the failure to join a necessary party).
{¶35} Appellants contend that the trial court did not have jurisdiction to enter the
declaratory judgment because indispensable parties were not joined. Appellants do not
specifically identify the alleged indispensable parties but generally refer to the list of
working interest owners produced in discovery.
{¶36} In a civil lawsuit, the defense of failure to join an indispensable party can be
waived if not timely asserted. Civ.R. 19(A), citing Civ.R. 12(G) and (H); Civ.R. 12(H)(2)
(the defense can be raised at a trial on the merits). Appellants raised the defense in their
answer. However, when declaratory relief is sought under Chapter 2721, the governing
statute provides: “all persons who have or claim any interest that would be affected by
the declaration shall be made parties to the action or proceeding. * * * a declaration shall
Case No. 17 NO 0456
– 11 –
not prejudice the rights of persons who are not made parties to the action or proceeding.”
R.C. 2721.12(A).
{¶37} The Ohio Supreme Court has recognized the absence of a necessary party
in a declaratory judgement action is a jurisdictional defect, which precludes a trial court
from rendering a proper declaratory judgment and cannot be waived. Cty. Bd. of Commrs.
v. Akron, 109 Ohio St. 3d 106, 2006-Ohio-954, 846 N.E.2d 478, ¶ 99-100; Gannon v. Perk,
46 Ohio St. 2d 301, 310–311, 348 N.E.2d 342 (1976). Joinder can nonetheless be
accomplished by amendment of the pleadings. Plumbers & Steamfitters Local Union 83
v. Union Local Sch. Dist. Bd. of Edn., 86 Ohio St. 3d 318, 323, 715 N.E.2d 127 (1999).
{¶38} “[W]hether a nonparty is a necessary party to a declaratory-judgment action
depends upon whether that nonparty has a legally protectable interest in rights that are
the subject matter of the action.” Rumpke Sanitary Landfill, Inc. v. State, 128 Ohio St. 3d
41, 2010-Ohio-6037, 941 N.E.2d 1161, ¶ 14-15. A nonparty’s mere practical interest in
the subject matter does not rise to the level of a legal interest. Id. at ¶ 15.
{¶39} Pursuant to R.C. 5301.10, captioned “Parties defendant in suits to cancel
leases,” reads, in its entirety:
The plaintiff in an action to cancel a lease or license mentioned in section
5301.09 of the Revised Code [“Leases of natural gas and oil lands to be
recorded; address of lessor and lessee; release”], or in any way involving it,
in order to finally adjudicate and determine all questions involving such
lease or license in such action, need only make those persons defendants,
so far as such lease or license is involved, who claim thereunder and are in
actual and open possession, and those who then appear of record, or by
the files in such office, to own or have an interest in such lease or license.
If there is no claimant in actual and open possession, and no persons whose
interest appears of record or file, then so far as such lease or license is
involved, it will only be necessary to make the original lessee or licensee
defendant in order to finally adjudicate and determine all questions
concerning such lease or license.
Case No. 17 NO 0456
– 12 –
{¶40} Biehl testified that there may be working interest holders to the 1987 Lease.
His testimony suggested that Appellants’ records would establish their continued interest,
however, Appellants provided no additional evidence in response to the subpoena.
Further, Appellees’ counsel provided an affidavit stating that a search was performed in
the Noble County Recorders’ Office that showed Appellants were the sole
owner/operators under the 1987 Lease. Appellants have not cited any portion of the
record, other than Biehl’s testimony, to show that Appellees’ search was insufficient.
Accordingly, the second part of Appellants’ sole assignment of error based on the failure
to join necessary parties in not well-taken.
{¶41} In the first part of the sole assignment of error, Appellants contend that
Appellees’ gap in production claims is barred by the fifteen-year statute of limitations set
forth in the uncodified law of R.C. 2305.06, as well as the equitable doctrines of waiver,
estoppel, and laches. Because Appellants raised the foregoing affirmative defenses in
their stricken opposition brief, Appellees contend that Appellants are prohibited from
raising their arguments for the first time on appeal.
{¶42} The Ohio Supreme Court recently held that “[t]he 21-year limitations period
set forth in R.C. 2305.04 applies to a claim for declaratory judgment that an oil and gas
lease has expired by its own terms for lack of production.” Browne v. Artex Oil Co., --
OhioSt.3d --, 2019-Ohio-4809, at ¶ 46. R.C. 2305.04, captioned “Recovery of real
estate,” reads, in pertinent part, “An action to recover the title to or possession of real
property shall be brought within twenty-one years after the cause of action accrued * * *.”
{¶43} The Browne Court reasoned that “an action to recognize the reversion of
mineral interests following the alleged termination of an oil and gas lease pursuant to its
express terms is not an action upon a written contract; it is more akin to a quiet title action.”
Id. at ¶ 41. The Court further reasoned that “the lease did not impose a contractual
obligation upon the lessee to produce oil and gas * * * [a]nd the parties [did] not dispute
either the terms of the lease or the meaning of those terms * * * only whether there was
a period of non-production that terminated the lease by operation of law.” Id. at ¶ 42.
Because the Brownes sought recognition of their reversionary interest in the minerals,
which constituted a part of the realty, the Ohio Supreme Court applied the 21-year statute
of limitations in R.C. 2305.04. Id.
Case No. 17 NO 0456
– 13 –
{¶44} The Brownes acquired ownership of the mineral interest in 2012 and filed
their complaint in 2014. The complaint asserted a failure by the lessee to produce any
oil and gas from the inception of the lease in 1975 to 1998. The Brownes later asserted
for the first time on appeal that the lessee’s resumption of production in 1999 did not give
rise to a justiciable controversy, but instead, that their cause of action accrued “only when
they realized that there was a dispute over the lease’s continued validity.” Id. at ¶ 45.
However, the Court refused to consider the Brownes’ accrual argument because it was
not raised before the trial court. Id.
{¶45} Based on the Ohio Supreme Court’s decision in Browne, supra, the 21-year
statute of limitations applies to Appellees’ failure to produce in paying quantities claim.
The 1987 Lease does not impose a contractual obligation on the lessee to produce oil
and gas, and the parties do not dispute either the terms of the lease or their meaning.
There is no contractual remedy for a breach of either term. The only determination to be
made is whether there was a period of non-production, which terminated the 1987 Lease
by its own terms and by operation of law. Assuming that Appellees’ claims accrued in
1993, when production of oil and gas commenced pursuant to the terms of the 1987 lease,
we find that the 21-year statute of limitations does not bar the claims asserted in the 2013
complaint.
{¶46} Turning to the equitable defenses alleged in Appellants’ answer, the
elements of laches are: (1) unreasonable delay or lapse of time in asserting a right; (2)
absence of an excuse for the delay; (3) actual or constructive knowledge of the injury or
wrong; and (4) prejudice to the other party. Watson v. Caldwell Hotel, LLC, 7th Dist. Noble
No. 16 NO 0432, 2017-Ohio-4007, 91 N.E.3d 179, ¶ 45, citing State ex rel. Polo v.
Cuyahoga Cty. Bd. of Elections, 74 Ohio St. 3d 143, 145, 656 N.E.2d 1277 (1995). The
prejudice must be the result of the plaintiff’s delay, not merely the result of the plaintiff’s
assertion or exercise of a right. Furthermore, “[p]rejudice is not inferred from a mere lapse
of time.” Id.
{¶47} Waiver is the voluntary relinquishment of a known right that can be enforced
by the person who had a duty to perform and who changed his position as a result of the
other party’s waiver. Id. ¶ 46, citing Chubb v. Ohio Bur. of Workers' Compensation, 81
Ohio St. 3d 275, 278-279, 690 N.E.2d 1267 (1998). Estoppel, on the other hand, does
Case No. 17 NO 0456
– 14 –
not require the party to intend to relinquish a right. Id., citing Chubb at 279. The estoppel
doctrine prevents relief when a party induces another to believe certain facts exist and
the other party changes his position in reasonable reliance on those facts to his detriment.
Id. “Although waiver is typical of estoppel, estoppel is a separate and distinct doctrine.”
Id., citing Chubb at 279. Still, the term “waiver by estoppel” has been employed when
estopping a party from asserting a right when his conduct was inconsistent with the intent
to claim a right and such conduct misled the other party to his prejudice. J&B Fleet Indus.
Supply, Inc. v. Miller, 7th Dist. Mahoning No. 09MA173, 2011-Ohio-3165, ¶ 79.
{¶48} The applicability of equitable defenses in the context of the termination of
an oil and gas lease based on its own terms and by operation of law is a matter of first
impression in this district. However, we need not consider whether equitable defenses
apply here, because there is no evidence of a change in position by or prejudice to
Appellants. Consequently, we find that Appellants’ arguments predicated upon laches,
waiver, and estoppel are not well taken.
{¶49} In the third part of Appellants’ sole assignment of error, they contend that
there is evidence of production in the record. However, Appellants concede that no oil
and gas was produced from the wells from 1987 to 1992. Because there is evidence of
production from Sam #1 in 1988, we find there was a complete lack of production from
either well from 1989 to 1992.
{¶50} The trial court correctly concluded that the 60-day provision in the 1987
Lease constituted the primary term of the lease. The Ohio Supreme Court has held that
where the conditions of the secondary term of a habendum clause are not met, then the
lease terminates by the express terms of the contract and by operation of law and revests
the leased estate in the lessor. Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St. 3d
490, 2015-Ohio-4551, 45 N.E.3d 185, ¶ 77, citing Tisdale v. Walla, 11th Dist. Ashtabula
No. 94-A-0008, 1994 WL 738744 (Dec. 23, 1994) and Am. Energy Servs., Inc. v. Lekan,
75 Ohio App. 3d 205, 212, 598 N.E.2d 1315 (5th Dist.1992). We recognized the general
rule regarding gaps in production in RHDK Oil & Gas, L.L.C. v. Dye, 7th Dist. Harrison
No. 14 HA 0019, 2016-Ohio-4654, ¶ 20, appeal not allowed, 147 Ohio St. 3d 1506, 2017-
Ohio-261, 67 N.E.3d 823:
Case No. 17 NO 0456
– 15 –
Courts universally recognize the proposition that a mere temporary
cessation in the production of a gas or oil well will not terminate the lease
under a habendum clause of an oil and gas lease where the owner of the
lease exercises reasonable diligence and good faith in attempting to resume
production of the well.
Id. 20, quoting Wagner v. Smith, 8 Ohio App. 3d 90, 92, 456 N.E.2d 523 (4th Dist.1982).
{¶51} We quoted Wagner for the rule that “‘[a] critical factor in determining the
reasonableness of the operators conduct is the length of time the well is out of
production.’” Id., quoting Wagner at 93, citing Jath Oil Co. v. Durbin Branch, 490 P.2d
1086 (Okl.1971). In addition to the length of time, a court must consider all attendant
circumstances. Id., citing Barrett v. Dorr, 140 Ind.App. 295, 212 N.E.2d 29 (1966).
{¶52} The party who asserts a claim in an oil and gas case, just as in any other
civil case, carries the burden of proof. Pfalzgraf v. Miley, 7th Dist. Monroe No. 16 MO
0005, 2018-Ohio-2828, ¶ 45, reconsideration denied, 7th Dist. Monroe No. 16 MO 0005,
2018-Ohio-3595, ¶ 45, citing Burkhart Family Trust v. Antero Resources Corp., 2016-
Ohio-4817, 68 N.E.3d 142 (7th Dist.), appeal not allowed, 147 Ohio St. 3d 1437, 2016-
Ohio-7677, 63 N.E.3d 156, ¶ 13. Therefore, Appellees must prove the failure to produce
in this case.
{¶53} In Dennison Bridge, Inc. v. Resource Energy, LLC, 2015-Ohio-4736, 50
N.E.3d 242 (7th Dist.), we acknowledged there is no bright line rule in regard to cessation
periods. However, in RDHK Oil & Gas, supra, ¶ 22, this Court acknowledged no Ohio
appellate court has recognized forfeiture by operation of law based on less than two years
of nonproduction. See Casto v. Positron Energy Resources, Inc., 4th Dist. Washington
No. 14 CA 39, 2016-Ohio-285 (seven years of nonproduction during the secondary term
resulted in termination of the lease); Schultheiss v. Heinrich Ents. Inc., 4th Dist.
Washington No. 15 CA 20, 2016-Ohio-121, 57 N.E.3d 361, (four years of nonproduction
during the secondary term resulted in termination of the lease); Lauer v. Positron Energy
Resources, 4th Dist. Washington No. 13 CA 39, 2014-Ohio-4850 (two years of
nonproduction during the secondary term resulted in termination of the lease); Moore v.
Adams, 5th Dist. Tuscarawas No.2007AP090066, 2008-Ohio-5953 (six years of
Case No. 17 NO 0456
– 16 –
nonproduction during the secondary term resulted in termination of the lease); Tisdale v.
Walla, 11th Dist. Ashtabula No. 94-A-0008, 1994 WL 738744 (Dec. 23, 1994) (twenty
plus years of nonproduction during the secondary term resulted in termination of the
lease); Hanna v. Shorts, 163 Ohio St. 44, 125 N.E. 338 (1955) (the well failed to produce
any oil or gas during the secondary term).
{¶54} Here, Appellees demonstrated a lack of production in paying quantities for
a period of three years. Appellants concede that there was no production of oil and gas
from 1989 to 1992. Therefore, we find that the trial court did not err in granting summary
judgment in favor of Appellees on their lack of production in paying quantities claim.
CONCLUSION
{¶55} In summary, we find that the alleged working interest owners identified by
Appellants in discovery do not fulfill the statutory requirements of R.C. 5301.10, and,
therefore, do not constitute indispensable parties. We further find that the complaint in
this matter was timely-filed and that the record establishes a complete lack of production
from 1989 to 1992. Accordingly, the entry of summary judgment in favor of Appellees on
their lack of production in paying quantities claim is affirmed.
Donofrio, J., concurs.
Waite, P.J., concurs.
Case No. 17 NO 0456
[Cite as Tewanger v. Stonebridge Operating Co., L.L.C., 2020-Ohio-236.]
For the reasons stated in the Opinion rendered herein, the assignment of error
is overruled and it is the final judgment and order of this Court that the judgment of the
Court of Common Pleas of Noble County, Ohio, is affirmed. Costs to be taxed against
the Appellants.
A certified copy of this opinion and judgment entry shall constitute the mandate
in this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that
a certified copy be sent by the clerk to the trial court to carry this judgment into
execution.
NOTICE TO COUNSEL
This document constitutes a final judgment entry.