Opinion ID: 775024
Heading Depth: 3
Heading Rank: 1

Heading: Royalty Payments

Text: 19 The district court found that Equitable did not breach the Lease when suspending royalty payments because Equitable instead paid the royalties into an escrow account. Plaintiffs argue that Equitable has provided no evidence that it actually escrowed the royalties while attempting to determine the rightful owners of such royalties, and thus there is a genuine issue of material fact as to whether Equitable breached the Lease. 20 Equitable, rather than insisting that it had in fact escrowed the royalties, offers the alternative response that under Kentucky law, a lessor that has not received royalty payments cannot forfeit the lease, but can instead bring an action for payment. Thus, Equitable argues, the issue of whether the royalties were escrowed is unresponsive to the question of whether a genuine issue of material fact exists as to a material breach of the Lease. In addition, Equitable notes that Plaintiffs do not seek payment of the unpaid royalties, presumably because those royalties have already been deposited with the Court Registry System pursuant to the December 3, 1999 district court order. Plaintiffs instead merely reference the unpaid royalties as grounds for terminating the Lease. 21 Under Kentucky law, in the event of nonpayment of royalties, a lease at most permits an unpaid lessor to seek to recover a deficiency, rather than forfeit the lease, absent clear language to the contrary. Kelley v. Ivyton Oil & Gas Co., 265 S.W. 309, 311 (Ky. Ct. App. 1924) ([A] forfeiture of the lease will not be decreed because of arrears of rent or royalty except upon clear language in the lease providing therefor.) Further, Equitable notes, even if the lease permitted a forfeiture, [t]he least-favored of all forfeitures are those founded upon mere delay in the payment of money. Denniston v. Kenova Oil Co., 220 S.W. 1078, 1080 (Ky. Ct. App. 1920). Plaintiffs offer no authority in support of their claim that, under Kentucky law, mere nonpayment of royalties empowers a lessor to terminate a lease with or without clear language providing for such termination in the lease itself. Accordingly, our analysis will focus on the claim for which Plaintiffs do offer precedential support; namely, that a lessor may terminate a lease upon the lessee's breach of implied covenants to develop property.