Court Opinion

ID: 4089601
Source: CourtListenerOpinion
Date Created: 2016-10-14 03:46:52.963255+00
Date Added: 2024-06-11T14:35:06.140479
License: Public Domain

STATE OF WEST VIRGINIA

                                  SUPREME COURT OF APPEALS

CHERYL WILHELM,
                                                                                         FILED
Plaintiff Below, Petitioner
                                                                                     October 13, 2016
                                                                                         released at 3:00 p.m.
vs) No. 15-0768 (Tyler County 13-C-45)                                                 RORY L. PERRY II, CLERK

                                                                                     SUPREME COURT OF APPEALS

                                                                                          OF WEST VIRGINIA

JAY-BEE PRODUCTION COMPANY,

Defendant Below, Respondent

                                     MEMORANDUM DECISION

                Petitioner Cheryl Wilhelm (hereinafter “petitioner”), by counsel David Conrad
Gall, appeals the circuit court’s July 7, 2015, order granting her motion for summary judgment,
but denying, in part, the relief requested in her complaint. Petitioner moved for summary
judgment seeking a declaration that respondent Jay-Bee Production (hereinafter “respondent”)
breached the oil and gas lease held by petitioner, that the lease was accordingly forfeited, and
that she was entitled to 100% of the royalties from her share of the oil and gas wells from the
date of forfeiture to the date of judgment. Respondent, by counsel Michael W. Taylor, filed a
response. The circuit court granted summary judgment, finding that respondent had, in fact,
willfully breached the lease and petitioner was entitled to her contractual royalties, plus interest
and attorney fees, but that petitioner was not entitled to forfeiture of the lease because petitioner
had not been irreparably harmed nor suffered a material injury.

               This Court has considered the parties’ briefs, oral arguments, and the appendix
record on appeal. Under the limited circumstances presented in this case, we find a memorandum
decision affirming the circuit court appropriate under Rule 21 of the West Virginia Rules of
Appellate Procedure. As explained below, we conclude that the circuit court did not abuse its
discretion by determining that petitioner was not entitled to forfeiture of the subject lease.

                          I. FACTUAL AND PROCEDURAL HISTORY

              Petitioner is a fractional owner1 of the mineral rights of a tract of land located in
Tyler County, West Virginia. On April 20, 2010, she entered into an oil and gas lease with
respondent, entitling her to a royalty of 1/8 of the oil and gas produced by her interest, payable
quarterly. The lease contained a forfeiture clause which provided that

                  no default shall be declared against the Lessee by the Lessor for
                  failure of the Lessee to make any payment or perform any

1
    Petitioner states that she holds a 1/30th interest in the mineral rights to the 39.7 acres at issue.
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               conditions provided for herein unless Lessee shall refuse or neglect
               to pay or perform the same for ten days after having received
               written notice by certified mail from the Lessor of his intention to
               declare such default.

The lease further contained an “Entireties” clause which provided that “this lease embodies the
entire contract and agreement between Lessor and Lessee.” A section entitled “Special
Conditions” was left blank.

                Petitioner’s property was pooled with other tracts and wells were developed and
drilled, resulting in oil and/or gas production. Before beginning to pay petitioner royalties,
respondent sent petitioner a “Division Order” for her signature outlining the “decimal interest” to
which she was entitled. Although the Division Order contained a disclaimer stating that “this
agreement does not amend any lease or operating agreement between the interest owners and the
lessee or operator or any other contracts for the purchase of oil or gas,” it did include various
additional “provisions” which were to “apply to each interest owner who executes this
agreement.” Among other things, the additional terms provided for payment on a monthly,
rather than quarterly basis, indemnity from all liability resulting from payments made, an
authorization to withhold funds if a dispute affecting title to the division of interest developed,
and withholding of royalties if owner failed to pay lease expenses. Petitioner objected to these
additional terms and provided notice of forfeiture of the lease via her attorney on February 5,
2013.2 Respondent countered by again sending the Division Order, highlighting the portion
which indicated it did not amend the lease and stating that petitioner’s money was being
escrowed and would be released upon receipt of the executed Division Order.

               Petitioner filed a petition for declaratory relief requesting the circuit court to void
the lease, order payment of the royalties,3 and award attorney fees and costs. Petitioner moved
for summary judgment, whereupon the circuit court found that respondent “had no legal right to
hold [petitioner’s] royalty payments for ransom until she executed their ‘Division Order’” and
therefore breached the lease. Despite respondent’s contention that Division Orders are industry
custom and have been found proper prerequisites to payment by the Ohio Supreme Court,4 the
court further found that respondent’s failure to pay was “willful and the delay in payment was
unreasonably long.” However, the circuit court determined that petitioner was not irreparably

2
 Given the lease’s ten-day grace period, this notice would render the lease arguably forfeited as
of February 15, 2013.
3
  Petitioner sought recovery of the royalties accrued prior to the date of forfeiture (1/8 per the
lease) and 100% of any royalties generated subsequent to the forfeiture. See n.2.
4
  See Blausey v. Stein, 400 N.E.2d 408 (Ohio 1980) (holding that requiring lessor to execute
division order prior to receipt of royalties did not impose such a burden that it could be
considered attempted modification of lease); but see Fontenot v. Sunray Mid-Continent Oil Co.,
197 So. 2d 715 (1967) (holding lessees’ unjustified failure to pay royalties awaiting execution of
division order warranted cancellation of lease). Respondent did not cross-assign as error the
circuit court’s conclusion that it willfully breached the lease.

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harmed, did not suffer a material injury, and could be fully compensated for the breach in
absence of forfeiture of the lease. Accordingly, the circuit court denied petitioner’s request to
declare the lease forfeited and awarded the royalties, along with prejudgment interest5 and
attorney fees. Petitioner now appeals that portion of the order declining to declare the lease
forfeited.

                                  II. STANDARD OF REVIEW

                         In reviewing challenges to the findings and conclusions of
                 the circuit court, we apply a two-prong deferential standard of
                 review. We review the final order and the ultimate disposition
                 under an abuse of discretion standard, and we review the circuit
                 court’s underlying factual findings under a clearly erroneous
                 standard. Questions of law are subject to a de novo review.

Syl. Pt. 2, Walker v. West Virginia Ethics Comm’n, 201 W. Va. 108, 492 S.E.2d 167 (1997).
With these standards in mind, we turn to petitioner’s assignments of error.

                                         III. DISCUSSION

               Petitioner makes one assignment of error: that the circuit court erred in refusing
to declare the lease forfeited. Petitioner argues simply that the lease plainly permits forfeiture
upon demand after breach of the lease and that respondent’s willful breach of the lease strips it of
any equity disfavoring forfeiture. Respondent counters by arguing that this Court has embraced
the majority view holding that equity disfavors forfeiture and that petitioner has properly been
made whole.

               Indeed, this Court has held that “equity will never enforce a forfeiture, but will
always relieve from a technical forfeiture, when no pecuniary or substantial injury has resulted,
and full performance of the covenant or condition can, and will be, effected.” Pheasant v.
Hanna, 63 W. Va. 613, 620, 60 S.E. 618, 621 (1908). The rationale behind this relief is that the
forfeiture provision is “primarily a security and payment [is] all that the lessor is equitably
entitled to demand, and that the allowance of interest forms a certain rule of compensation for
the delay.” Beech Fork Coal Co. v. Pocahontas Corp., 109 W. Va. 39, 46, 152 S.E. 785, 788
(1930); see also Zanetos v. Sparks, 468 N.E.2d 938, 940 (Ohio Ct. App. 1984) (“The forfeiture
clause for nonpayment of rent is not strictly construed, rather, it is viewed as merely security for
the payment of rent.”). More specifically, this Court has held:

                 The forfeiture clause in a gas and oil lease, under which a valuable
                 estate vested in the lessee in so far as the rentals are concerned,
                 made payable in gas, oil, and money, is in the nature of a penalty
                 to secure such rentals against which a court of equity will grant
                 relief when compensation for such rentals can be fully made, and
                 great loss wholly disproportionate to the injury occasioned by the

5
    Interest was awarded at the statutory rate of 7% pursuant to W. Va. Code § 56-6-31 (2006).

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               breach of the contract would otherwise result to the lessee
               negligently, but not fraudulently, in default.

Syllabus, S. Penn Oil Co. v. Edgell, 48 W. Va. 348, 37 S.E. 596 (1900) (emphasis added).

               This rule of relief from forfeiture underwent a slight modern “qualification of the
rule” in McCartney v. Campbell, 114 W. Va. 332, 333, 171 S.E. 821, 822 (1933), which enlarged
the considerations before the court when determining whether equity favored forfeiture in a
particular case. In McCartney, the Court reiterated the general rule that “relief in equity
ordinarily goes as matter of course, where full compensation can be made,” but cited authority
supporting the court’s discretion to enforce forfeiture where the breach was intentional or willful.
See Syllabus. Importantly, the Court concluded its opinion by citing with approval the following
from Pomeroy’s Specific Performance (3d Ed.) § 335:

               “A forfeiture caused by the non-payment of money, however
               express may be the language of the contract, will, as a general rule,
               be relieved from, on the theory that interest is a sufficient
               compensation. But the failure to pay must not be willful, nor the
               delay in payment be unreasonably long, and the plaintiff seeking
               relief from his default must show that it was not intentional and has
               not caused irreparable injury to the defendant.”

McCartney, 114 W. Va. at 334, 171 S.E. at 823. The Court noted further that the lessor had not
suffered “any material injury” and that “[i]nterest will seemingly be sufficient compensation in
this case.” Id. at 334, 171 S.E. at 822.

                Therefore, it is clear that our caselaw supports the notion that forfeiture of a lease
should, as a matter of course, be relieved. It is equally clear, however, that as an equitable
remedy, relief from forfeiture rests—as most equitable relief does—on a balancing of the
equities. See Quicken Loans, Inc. v. Brown, 230 W. Va. 306, 328, 737 S.E.2d 640, 662 (2012)
(noting disfavor of forfeiture and finding that “balancing of the equities” required that the parties
be returned to the status quo); see also Hignell v. Gebala, 202 P.2d 378, 383 (Cal. Dist. Ct. App.
1949) (“[T]he court in balancing the equities should take into consideration the circumstances of
the case, the hardship, if any, to the lessee from the forfeiture, the hardship, if any, to the lessor
from relieving the lessee from the forfeiture, the wilful or other character of the breach, and then
use its best discretion in determining whether relief will be granted. Its action will not be upset
unless there is a clear showing of abuse of discretion.”); Zanetos, 468 N.E.2d at 940 (“The courts
will balance the equities of the case and relieve the forfeiture where the equities favor the
lessee.”); S. Hotel Co. v. Miscott, Inc., 337 N.E.2d 660, 663 (Ohio Ct. App. 1975) (“[W]hen the
defendant raises equitable defenses as in this case the court must balance the equities in order to
determine whether a forfeiture should be declared.”); Warren, H. D., Annotation, Relief against
forfeiture of lease for nonpayment of rent, 31 A.L.R. 2d 321 (1953) (“The problem of granting or
refusing equitable relief against a forfeiture of a lease for nonpayment of rent is essentially one
of balancing the equities.”).

               Petitioner’s nearly exclusive focus on the unambiguous forfeiture language
contained in the lease fails to inform the issue of whether the circuit court abused its discretion in

                                                  4

weighing the equities in this case. The circuit court’s order finds that although the breach was
willful and the delay in payment was unreasonably long, petitioner suffered no material injury or
irreparable harm and could be fully compensated for the breach. The circuit court awarded
interest, as well as attorney fees, returning the parties to the “status quo.”

                 More importantly, as noted above, this Court reviews the ultimate disposition of
the circuit court under an abuse of discretion standard. While most certainly this Court does not
condone a lessee engaging in willful breach of a lease, thereby compelling the lessor to pursue
litigation to enforce its rights under the lease, we cannot under the circumstances of this case
conclude that the circuit court abused its discretion in granting relief from forfeiture of the lease.
Our precedent clearly identifies the factors the circuit court must weigh when balancing the
equities involved in forfeiture of a lease, all of which were properly considered by the circuit
court below and guided its refusal to enforce forfeiture. Accordingly, we find no error in the
circuit court’s refusal to enforce forfeiture of the subject lease.

                                       IV. CONCLUSION

               For the reasons set forth above, this Court affirms the July 7, 2015, order of the
Circuit Court of Tyler County.

                                                                                           Affirmed.

ISSUED: October 13, 2016

CONCURRED IN BY:

Chief Justice Menis E. Ketchum
Justice Brent E. Benjamin
Justice Robin Jean Davis
Justice Margaret L. Workman

CONCURRING AND WRITING SEPARATELY:

Justice Allen H. Loughry II

Loughry, J., concurring:

                I concur in the majority’s conclusion that the circuit court committed no abuse of
discretion in fashioning an equitable remedy in this case and declining to enforce the forfeiture.
However, I write separately to ensure that my concurrence in the majority is not misconstrued as
sanctioning the respondent’s willful refusal to comply with the lease and galling attempt to
strong-arm the petitioner into executing the division order. Under the circumstances of this case,
the petitioner was fortunately able to hire counsel and institute litigation that made her fully
whole through the circuit court’s award of royalties, interest, and attorney’s fees. Given the state

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of our law and the broad discretion granted to the circuit court to fashion a remedy, I found no
discernible error in the instant case.

                However, I caution individuals and/or entities similarly-situated to the respondent
that this Court does not condone business practices that compel citizens to institute litigation to
enforce their rights. While the petitioner was in a position to hire counsel to assist her, other
citizens may not have such resources available to them. Individuals and/or entities which
opportunistically attempt to take advantage of citizens with limited resources to vindicate their
rights will find little favor with this Court. Accordingly, the “take away” message from this case
is not that individuals or entities are free to act with impunity insofar as they are willing to
shoulder the expense should citizens actually institute and be successful in litigation. Rather,
given the broad discretion granted to our lower courts in such matters, this Court will seldom
provide relief to either party aggrieved by the lower court’s equitable remedy. Therefore, this
Court’s refusal to meddle with the circuit court’s disposition can be fairly read as an equal
unwillingness to disturb its disposition had it enforced the forfeiture.

               For these reasons, I respectfully concur in the majority’s decision.

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