time this is a breach of contract action for the under payment of oil and gas was to use by chesapeake exploration l l c which is the lessee on the leases at issue in this the leases provide for a monthly or elfie of one day of the revenue realized from the sale of a oil and the gas the plaintiff's position the appellant's the position is th chesapeake failed to pay the royalty on the revenue realized to understand this claim at least give splaying the chesapeake takes the oil and gas to market in two steps carries as a matter of history how this is worked out easily where are they about two decades old or how old are they these are fairly old leases they were originally entered into by a gas producer  chesapeake's been doing this approach i think it's a little bit less than that maybe i think it's about a seven or eight years they've been they've been using this approach i got it ok so go back sorry thank you thank you just to explain there's a two step process chesapeake transfers title at the well to a marketing affiliate has to transfer title because the marketing affiliate in order to market the product has to have title to move it through the enter state pipeline system that's a st regulation federal regulation that the shipper has to be the title holder so chesapeake exploration unquestionably transfers title at the well  chesapeake exploration which it refers to as a trial balance the balance sheet reports as revenue to chesapeake exploration the full price paid by the rd party buyer in the again it has to be money that is realized no money is realized a police hole so in other words there can't be a calculation of a leasehold price when no money is realised the only cash the only money that's paid and reported on the balance sheet is the gross price paid by the rd party buyer there is no pay but at the leasehold well why you know one of the things that just seems and i'm not an expert in this area but it just seems self evident is why is the price going up and the only reason it seems to me the price could go up from at the well head down stream is that some values been added to it and its  value has been added to it that seems to suggest that you know the net back method is a it's appropriate here and that it would be a windfall for the landowners so you know it's really it's really not a windfall downstream price vender the question becomes what costs are properly deductible from the revenue realized and under all in gas law the only costs that a gas producer can deduct from the revenue realized are costs that say it incurs itself and b that are incurred while it still holds title in this case chesapeake admits that the cost of that were incurred between the well and the downstream sale were incurred by the marketing affiliate after chesapeake expiration transfer title therefore those costs are not properly deductible under settled oil and gas law so again it's a dollars step analysis st what revenue was realized and that was not realized at the well then one says ok if we have the price that was realized now let's consider what cost if any are properly the doctor and then market it could be just sold from the lease holding in your argument that point to resolve the ambiguity there is into the accounting perspective of what the balance sheet show but i guess i would say there's another way to the ambiguity which doesn't turn on accounting in terms on what the industry normally does and i thought the net back method was pretty typical and that seems to be suggested in the case effect method is used frequently there's no question about that but it doesn't mean that it is always appropriate to use whether the net effect method can be used depends upon two things it depends on the lease language and it depends on the manner of the factual manner in which the oil and gas was marketed and sold in this case the lease like which says it must be on the money that is actually realized there is no money realized the well after the ruling the chesapeake exploration could simply say ok let's just do they counting out the wellhead here's what it costs and and then bend game over so no change  o change the lease but they just say it's a matter of accounting the price at that point it's more it's me i would seem to me that under your subsidiaries accounting argument that would be that it's more than a matter of if they change where the payment was made what money they've received then of course that they could pay it on the debt in other words they don't say i'm right they could they could the next day just between the subsidiaries change the date of calculation and put it precisely in the books that way and then you wouldn't be entitled to anything different from what you've been getting i think that's almost correct but the only the only clarification i would make is it's not just a bookkeeping matter it's a matter of the receipt of money of the revenue that is hate so if they change how much money was paid right now the gas producer of the defendant is paid the gross price by the rd parties it's reported as it's revenue if if they changed it the way chesapeake says that happens chesapeake says the gross amount by the for party is pa i get sorry very good thank you very much that is chesapeake pay consistent with the lease language and as mr sanders was arguing he didn't precisely get what the lease language is and it is on page two dollars of the district court's opinion  chesapeake exploration is obligated to pay is an amount equal to th of the net proceeds realized by the lessee from all sale of scuse me from the sale of all gas and the constituents there produced and marketed from the lease hold to a couple key points there st of all its net proceeds realized by the lessee everyone agrees that chesapeake exploration produced and marketed from importantly i heard mr sanders argue about ambiguity the parties agree and the court found that the lease language is plain and unambiguous there is no ambiguity and the evidentiary record is clear that chesapeake exploration the less respond to the argument that you know the chesapeake entities are all related and he's kind of like saying the best evidence of what happens is what they do and it will mean that in fact he acknowledged i  him to acknowledge if you want to change the way you do this it would change the calculations but it's just problem you're the one who did it this way now and we did it precisely right i want to answer that to a stretch st of all there is no evidence no argument that these entities were doing anything improper chesapeake exploration didn't take any deductions i don't resent i don't i don't think it's a propriety point it's a you're hung by your own petard point you know you did it this way and we're going to reap the benefit of how you did it you have a judge this is what the district court found and sort of the ohio court of appeals is that what mr sanders is arguing is just wrong because he's assuming that chesapeake exploration took deductions it didn't let's do it the other way and this is what we argue in our brief is this is a net proceeds lease so if you're going to collapse the entities then the net proceeds you get to the same answer they paid the net proceeds but what's important and that's why both court of appeals the district court to arbitration panels have found that chesapeake exploration did it correctly they receive the net back everyone agrees that's what they received they didn't receive anything else that testimony that mr sanders with all due respect and he keeps inventing it because this is why the trial court in her  to people that aren't experts in the old gas business how or what it is that actually done that adds value and would suggest there is a windfall to the property owners like what happens between wellhead and sale that while a lot of it on the east side and what happens is it needs to get moved from the wellhead to an inner to next which a lot of times is basically think of it as a collection point where a bunch of lines from these wells go and sometimes that gas is sold there and then sometimes it's moved even further cleveland cincinnati columbus so if your looking for even a high rise of a it's only transportation cost that you want to net out it yes yes production costs these are what we refer to as post production once the minerals severed from the ground and the reason why the oil is different is a historic kind of quirk oil traditionally has been paid in kind that is where you would actually get your share of the oil gas historically has paid with money or revenue to realize that's why when you read it there's a difference but in today's world it ends up being the same analysis but yes those are the production costs that actually get it out of the ground that's chesapeake explorations job they have to do it and no one else has so to get back to the question that us is the problem is is that either way that chesapeake exploration did it correctly if you're going to respect the corporate formalities as the district or the court of appeals and to every tradition panels did this is this is all that the district  looked at and said look the evidence is simply one way chesapeake exploration gets the net back they don't take any deductions and they give mr sanders clients th now mr sanders argues well wait i want  collapse these entities for one purpose but not the other because remember he's saying he's not disputing there was a transfer of title at the wellhead there was an under the ohio u c c the transfer of the title means it was a sale and it was a sale and the testimony when you look at it in the record is all uniform what mr sanders and he's good lawyer but he's making arguments he didn't put any evidence there's no evidence that chesapeake exploration took deductions that chesapeake exploration received anything other than a net back that title wasn't transfer what mr sanders does is creates arguments to try to get at that downstream sales that what the case work well i mean in terms of maybe per property owner what is it come to terms of what the approach whether you do that back or not amount to for each property owner the hard part varies it depends is is it a huge chunk of property or some of them are small family farms so they have a small amount so it really varies but the windfall can be huge the windfall can be huge and what we believe the reason it's a windfall is because that's not the benefit that was struck the benefit that was struck was the rule turner would get the net proceeds that the  lessee received from gas sold or oil sold from the lease holder and that's exactly what's done and that's why the court of appeals and i think this is another reason you can affirm is the ohio court of appeals dress the same thing we  refer to this court's church joint venture decision earlier this year where it held were an intermediate appellate court result is a question of state law that ruling is not to be disregarded by a federal court unless it's convinced by otherwise persuasive data that the highest court of the state would decide otherwise again i think independently you should affirm but i think that's another reason why mr sanders hasn't given me any reason different why the ohio court of appeals that rejected his arguments that this was sale this wasn't marketing that chesapeake exploration received anything other than the net back price because the way this works is just because fleshing gets the money gets the receivable gets all the funds as a net back and pays eighteen without any deductions and when we step back that's exactly what the lease language requires and that's why this quarter excuse me the district court and the ohio court of appeals and to ar all on the same arguments with mr sanders plans counsel myself as defense counsel have affirmed and found that chesapeake exploration was paying directly and correctly with the lease and rejected mr a leaven that's what it provides it's a sale occurs in the passing of title and you heard mr sanders start his argument by saying title transferred at the well and it did the other undisputed fact and i think mr sanders would agree chesapeake expiration did not occur any costs they did not incur any cost they didn't take any deductions so then mr sanders argues well i don't think that sale is a sale but ohio code itself and then but what the ohio court of appeals in the district court below said well the plaintiffs themselves cite the merriam webster's dictionary that says marketing is the same as selling then we go to what did the net that price and the gap and gap accounting and all the evidence is in one dollar direction the thirty six dollars testified to chesapeake exploration receive the net back the only a county expert in the case mr gold be the chesapeake put forward so that is a value that is a sale and i understand mr sanders arguing differently but at the summary judgment stage is this panel knows you can't just put forward arguments you have to put forth evidence and he didn't and that's why this court below the ohio court of appeals  net th of the net proceeds realized by the lessee produced and marketed from the leasehold and the record here establishes chesapeake exploration paid those th of the proceeds it received without any deductions and i submit that  beginning and the end of this case just like the ohio court of appeals found gateway royalty and asked that it be affirmed thank your hon why is a mystery to me it was responsive to document requests in both of the court cases the one at issue in this case and the gateway case in the ohio court of appeals neither court even referenced the balance sheet which reports as a revenue to the defendant gas producer the gross amount paid by the rd parts that is the only money that was realized and the thirty six dollars witnessed it made it it was paid and received the gro amount was paid and received by the defendant gas producer she admitted that she also did say as mr donohue said that the net was paid but that is based on a mistake of law she admitted and marketing affiliate keeps a general accounting let your which shows debits and credits buy in between the different subsidiaries and the net price on which the royalty is paid is recorded on those ledger it is money that has not yet been paid so the only money paid was paid directly by the rd party buyers to the defendant and recorded as its revenue chesapeake as good as his presented a that amount now it is true if these are net revenue leases that's clearly what the lease leases say but there is this body of law that says when you have a net revenue release what c eventually gets to the person who burns the gas that doesn't mean that all costs in that long train of events is deductible for oil takes the courts have decided sensibly that the only cost a ducted from the gross net for royalty purposes not for accounting purposes they can account or whatever they want but the net is but for royalty calculation purposes the only cost adoptable from the gross