Court Opinion

ID: 4303502
Source: CourtListenerOpinion
Date Created: 2018-08-14 15:14:15.628557+00
Date Added: 2024-06-11T14:06:42.433958
License: Public Domain

[Cite as Am. Energy-Utica, L.L.C., v. Fuller, 2018-Ohio-3250.]

                                        COURT OF APPEALS
                                    GUERNSEY COUNTY, OHIO
                                    FIFTH APPELLATE DISTRICT

AMERICAN ENERGY - UTICA, LLC,                              JUDGES:
et al.                                                     Hon. John W. Wise, P. J.
                                                           Hon. Patricia A. Delaney, J.
        Plaintiffs-Appellees                               Hon. Craig R. Baldwin, J.

-vs-
                                                           Case No. 17 CA 000028
RONALD L. FULLER

        Defendant-Appellant                                OPINION

CHARACTER OF PROCEEDING:                               Civil Appeal from the Court of Common
                                                       Pleas, Case No. 15OG190

JUDGMENT:                                              Affirmed in Part; Reversed in Part and
                                                       Remanded

DATE OF JUDGMENT ENTRY:                                August 13, 2018

APPEARANCES:

For Plaintiff-Appellees                                For Defendant-Appellant

CLAY K. KELLER                                         MICHAEL J. MATASICH
ANDREW N. SCHOCK                                       1375 E. 9th Street, Suite 1700
JACKSON KELLY PLLC                                     Cleveland, Ohio 44114
50 South Main Street
Suite 201                                              MATTHEW R. DUNCAN
Akron, Ohio 44308                                      3800 Embassy Parkway, Suite 300
                                                       Akron, Ohio 44333-8332
Guernsey County, Case No. 17 CA 000028                                                   2

Wise, John, P. J.

      {¶1}   Defendant-Appellant Ronald Fuller appeals the decision of the Guernsey

County Court of Common Pleas granting summary judgment in favor of Plaintiff-Appellees

American Energy - Utica, LLC, et al.

                      STATEMENT OF THE FACTS AND CASE

      {¶2}    This matter involves the construction of an oil and gas lease on property

located in Londonderry Township in Guernsey County, Ohio.

      {¶3}   The relevant facts and procedural history are as follows:

      {¶4}   Ronald Fuller is the owner of a tract of real property in Londonderry

Township, Guernsey County, containing 94.5 acres. On or about June 3, 1981, Ronald

Fuller and his wife Shirley Ann, now deceased, executed a three-year oil and gas lease

with D.B. Shaffer & Associates, Inc.

      {¶5}   Pursuant to the terms of the Lease, the Fullers:

             grant, demise, lease and let unto the said lessee for the sole and only

      purpose of mining and operating for oil and gas and of laying of pipe lines,

      and of building tanks, power stations, and structures thereon to produce,

      save and take care of said products, all that certain tract of land ....

      {¶6}   The term of the lease is set forth as follows:

             this lease shall remain in force for a primary term of three years from

      this date and if lessee shall commence to drill within said primary term or

      any extension thereof, the said lessee shall have the right to continue drilling

      to completion with reasonable diligence and said term shall extend long
Guernsey County, Case No. 17 CA 000028                                                    3

       thereafter as oil and gas, or either of them, is produced by lessee from said

       land or from a communitized unit as hereinafter provided.

       {¶7}   The landman for D.B. Shaffer, John Robinson, made hand-written changes

to the standard lease form to reflect the intent of the parties and to embody the terms to

which the Fullers and D.B. Shaffer agreed. (Fuller Depo. at 30-31, 71). Specifically, Mr.

Robinson hand-wrote the following provisions into the Fuller Lease:

              Mr. Robinson crossed out the standard lease provision that allowed

       unitization and in its place wrote, "UNITIZATION BY WRITTEN AGREEMENT

       ONLY!" (emphasis by Mr. Robinson); Lease, p. 1.

              Each well will hold only 40 acres after the primary term of this lease

       expires.

       {¶8}   Lease, p. 2.

       {¶9}   Pursuant to the Lease, the "Fuller No. 1" Well (API #34059232750000) was

drilled and completed in 1981. It is undisputed that since 1981, the Fuller Well has

remained active and is producing oil and gas sufficient to continue the D.B. Shaffer Lease

as to the forty acre unit established for this well. There is no dispute as to the remaining

54.5 acres, which are no longer encumbered by the D.B. Shaffer Lease. The parties agree

that the terms of the D.B. Shaffer Lease are clear and unambiguous. (See the parties

respective Trial Briefs, filed August 12, 2016).

       {¶10} In 2009, pursuant to various recorded assignments of interest, EnerVest

Energy Institutional Fund XI-A, L.P., EnerVest Energy Institutional Fund XI-WI, L.P., and

CGAS Properties, L.P. (the "EV Entities") became the lessees of the DB Shaffer Lease

and EnerVest Operating, L.L.C. ("EV Operating") became the operator of the Fuller Well.
Guernsey County, Case No. 17 CA 000028                                                         4

The EV Entities subsequently assigned the Utica, Point Pleasant, and Trenton formations

(the "Deep Rights") of several leases, including the D.B. Shaffer Lease to American

Energy-Utica, LLC nka Ascent Resources in 2013.

       {¶11} After the Enervest-AEU Transaction closed, AEU requested that Mr. Fuller

execute an amendment to the Fuller Lease to allow AEU to unitize the Fuller Parcel into

a large drilling unit with other tracts of land for purposes of deep horizontal drilling into the

Utica shale formation. (See Fuller Depo., pp. 119-123). The parties were unable to reach

an agreement, and AEU was unable to obtain Mr. Fuller's consent. Id.

       {¶12} On May 7, 2015, Plaintiff-Appellee, American Energy-Utica, LLC nka

Ascent Resources-Utica, LLC ("AEU"), and its vendor, TGS-NOPEC Geophysical Co.

("TGS"), filed a Complaint against Defendant-Appellant Ronald Fuller seeking an

injunction to gain access to Mr. Fuller's property in Londonderry Township, Guernsey

County, to conduct seismic testing in anticipation of Utica shale operations. AEU and TGS

claimed a right to enter Mr. Fuller's property and conduct testing as the assignee of the

"deep rights" under a 1981 oil and gas lease between Mr. Fuller, his now-deceased wife,

Shirley, and a leasing company called D.B. Shaffer & Associates, Inc. ("D.B. Shaffer").

       {¶13} On May 28, 2015, Mr. Fuller filed an Answer and Counterclaim against AEU

seeking, in pertinent part, a declaratory judgment that the 1981 oil and gas lease does

not include the right to drill the Utica shale or to extract natural resources other than oil

and gas, such as natural gas liquids ("NGLs") (Count II), slander of title (Count V), and

quiet title (Count VI). Mr. Fuller also named various "Enervest" entities as counterclaim-

defendants. Enervest purported to sell the "deep rights" to AEU and retained an interest

in the 1981 oil and gas lease.
Guernsey County, Case No. 17 CA 000028                                                       5

       {¶14} AEU and TGS's claim for an injunction against Mr. Fuller was settled and

the Complaint was dismissed by the trial court on June 30, 2015, leaving only Mr. Fuller's

Counterclaim.

       {¶15} In July, 2015, Mr. Fuller was served with notice from the Ohio Division of

Oil and Gas that AEU filed an application pursuant to R.C. §1509.28 to force a portion of

Mr. Fuller's property into a 462 acre Utica shale drilling unit known as the "Henry Unit."

       {¶16} On August 13, 2015, Mr. Fuller filed a Motion for Leave to File Amended

Counterclaim, seeking to add an allegation of breach of the oil and gas lease provision

which provides, "UNITIZATION BY WRITTEN AGREEMENT ONLY!" (Count IV).

       {¶17} On August 14, 2015, the trial court granted said motion and Mr. Fuller filed

his Amended Counterclaim on August 19, 2015.

       {¶18} On June 30, 2016, the parties filed cross-motions for summary judgment.

Mr. Fuller sought summary judgment on Count II seeking a declaratory judgment that the

lease does not include the right to drill the Utica shale or to extract natural resources other

than oil and gas, such as NGLs. Mr. Fuller also sought partial summary judgment on

Count IV, that ABU breached the lease by forcing his property into the Henry Unit without

his written agreement. Mr. Fuller did not seek summary judgment on Count V alleging

slander of title or on Count VI for quiet title. However those counterclaims are grounded

upon Counts II and Count IV.

       {¶19} ABU and Enervest sought summary judgment on Counts II, IV, V and VI.

       {¶20} By Order dated December 28, 2016, the trial court denied the parties' cross-

motions for summary judgment, holding that "the Court finds there are material disputed

facts presented by the parties in their pleadings such as the Court is unable to determine
Guernsey County, Case No. 17 CA 000028                                                    6

that either party is entitled to judgment as a matter of law based on the pleadings and

affidavits in their submissions."

       {¶21} On June 30, 2017, ABU and Enervest filed a Motion for Reconsideration

and Revision, requesting the trial court to reconsider it December 28, 2016, Order and

enter summary judgment in their favor on Mr. Fuller's Amended Counterclaim. After

further briefing by the parties, the trial court denied the Motion.

       {¶22} On August 8, 2017, at an oral hearing before the court, ABU and Enervest

orally moved for reconsideration again, and for a third time requested the trial court to

enter summary judgment in their favor on Mr. Fuller's Amended Counterclaim. This time,

by Order dated August 25, 2017, the trial court agreed to reconsider its prior summary

judgment rulings, and it ordered the parties to filed new summary judgment motions by

September 29, 2017.

       {¶23} The parties filed new summary judgment motions on September 29, 2017,

as well as additional briefs and other filings October 24, 2017.

       {¶24} AEU and Enervest did not make any new arguments or present any new

evidence in this round of summary judgment briefings.

       {¶25} By Order dated December 4, 2017, the trial court granted summary

judgment to AEU and Enervest and against Mr. Fuller. The trial court entered a Final

Order on December 12, 2017, dismissing Mr. Fuller's Amended Counterclaim. The Trial

Court held on Count II, the oil and gas lease "covers all formations underlying the property

and any oil and gas which may be extracted based on a plain reading of the lease under

Ohio law." The trial court held on Count IV, "R.C. 1509.28 permits the unitization of the
Guernsey County, Case No. 17 CA 000028                                                   7

lease", and the trial court dismissed Counts V and VI because it dismissed Counts II and

IV.

        {¶26} Appellant now appeals, assigning the following errors for review:

                                   ASSIGNMENTS OF ERROR

        {¶27} “I. THE TRIAL COURT ERRED WHEN IT CONCLUDED THAT

PLAINTIFF/APPELLEE DID NOT BREACH THE OIL AND GAS LEASE PROVISION

PROHIBITING UNITIZATION WITHOUT                  DEFENDANT/APPELLANT'S WRITTEN

AGREEMENT WHEN PLAINTIFF/APPELLEE UNITIZED DEFENDANT/APPELLANT'S

PROPERTY WITHOUT HIS WRITTEN AGREEMENT.

        {¶28} "II. THE TRIAL COURT ERRED WHEN IT CONCLUDED THAT THE OIL

AND GAS LEASE COVERS ALL FORMATIONS UNDERLYING THE PROPERTY AND

ANY OIL AND GAS WHICH MAY BE EXTRACTED."

                                  Summary Judgment Standard

        {¶29} Summary judgment proceedings present the appellate court with the unique

opportunity of reviewing the evidence in the same manner as the trial court. Smiddy v.

The Wedding Party, Inc. (1987), 30 Ohio St. 3d 35, 36. Civ.R. 56(C) provides, in pertinent

part:

               Summary judgment shall be rendered forthwith if the pleadings,

        depositions, answers to interrogatories, written admissions, affidavits,

        transcripts of evidence in the pending case, 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. * * * A summary judgment shall not be rendered unless it
Guernsey County, Case No. 17 CA 000028                                                         8

         appears from such evidence or stipulation and only therefrom, 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, such party being entitled to have the evidence or stipulation

         construed most strongly in his favor.

         {¶30} Pursuant to the above rule, a trial court may not enter a summary judgment

if it appears a material fact is genuinely disputed. The party moving for summary judgment

bears the initial burden of informing the trial court of the basis for its motion and identifying

those portions of the record that demonstrate the absence of a genuine issue of material

fact. The moving party may not make a conclusory assertion that the non-moving party

has no evidence to prove its case. The moving party must specifically point to some

evidence which demonstrates the non-moving party cannot support its claim. If the

moving party satisfies this requirement, the burden shifts to the non-moving party to set

forth specific facts demonstrating there is a genuine issue of material fact for trial. Vahila

v. Hall, 77 Ohio St. 3d 421, 429, 1997-Ohio-259, citing Dresher v. Burt, 75 Ohio St. 3d 280,

1996-Ohio-107.

         {¶31} It is based upon this standard that we review Appellant's Assignments of

Error.

                                                   I.

         {¶32} In the first assignment of error, Appellant challenges the trial court judgment

entry granting summary judgment in favor of Appellee on its breach of lease claim.
Guernsey County, Case No. 17 CA 000028                                                    9

                                Interpreting Oil and Gas Leases

       {¶33} With respect to oil and gas leases, the Ohio Supreme Court stated in Harris

v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E.2d 502 (1987):

              [T]he rights and remedies of the parties to an oil and gas lease must

       be determined by the terms of the written instrument, and the law applicable

       to one form of lease may not be, and generally is not, applicable to another

       and different form. Such leases are contracts, and the terms of the contract

       with the law applicable to such terms must govern the rights and remedies

       of the parties.

       {¶34} A contract is to be interpreted to give effect to the intention of the parties.

Morrison v. Petro Evaluation Serv., Inc., 5th Dist. Morrow No. 2004 CA 0004, 2005–Ohio–

5640, citing Employer's Liab. Assur. Corp. v. Roehm, 99 Ohio St. 343, 124 N.E. 223

(1919). It is a fundamental principle in contract construction that contracts should “be

interpreted so as to carry out the intent of the parties, as that intent is evidenced by the

contractual language.” Id., quoting Skivolocki v. East Ohio Gas Co., 38 Ohio St. 2d 244,

313 N.E.2d 374 (1974). “The intent of the parties to a contract is presumed to reside in

the language they chose to employ in the agreement.” Id., quoting Foster Wheeler

Enviresponse, Inc. v. Franklin County Convention Facilities Auth., 78 Ohio St. 3d 353,

1997–Ohio–202, 678 N.E.2d 519.

       {¶35} The parties to the D.B. Shaffer Lease included the handwritten provision

“UNITIZATION BY WRITTEN AGREEMENT ONLY!”, as well as the 40-acre limit on unit

sizes as set forth above.
Guernsey County, Case No. 17 CA 000028                                                      10

       {¶36} In its decisions, the trial court, in finding in favor of Appellees on Appellant’s

counterclaim, held:

              Count IV – Breach of Lease

              The Court finds that R.C. 1509.28 permits unitization of the lease.

       See this Court’s decision in American Energy-Utica, LLC, et al. v. Jon

       Matthew Crislip, et al. Guernsey County Court of Common Pleas, Case No.

       15-OG-189. (Entry, Dec. 4, 2017).

              ***

              2. R.C. 1509.28 permits unitization of the lease dated June 3, 1981

       and recorded in Volume 90, Page 244 of the Guernsey County Lease

       Records. Judgment is entered in favor of Plaintiff and Counterclaim

       Defendants on Count IV of Defendant’s Counterclaim. (Final Order, Dec.

       12, 2017).

       {¶37} While we do not disagree that R.C. 1509.28 permits unitization of the lease,

we do find that in this case, doing so without Fuller’s written agreement was a breach of

the lease agreement.

       {¶38} Much legislation has been enacted in regulating the drilling of oil and gas

wells. R.C. §1509.24 authorizes the Chief of the Division of Oil and Gas to establish rules

and regulations with respect to the minimum acreage necessary to comprise a drilling

unit. Ohio Adm.Code 1509:9–1–04(C)(4)(a) provides that wells of the depth of the subject

well must be situated upon a minimum of forty acres to establish a drilling unit. R.C.

§1509.26 allows for voluntary pooling agreements to form drilling units which conform to

the minimum acreage and distance requirements. R.C. §1509.27 allows for mandatory
Guernsey County, Case No. 17 CA 000028                                                     11

pooling orders from the Chief of the Division of Oil and Gas where an owner is unable to

secure a voluntary pooling agreement. R.C. §1509.28 allows the Chief to make orders

providing for unit operations when reasonably necessary to increase the recovery of oil

and gas.

       {¶39} In Burtner–Morgan–Stephens Co. v. Wilson (1992), 63 Ohio St. 3d 257, 586
N.E.2d 1062, syllabus, the Ohio Supreme Court, in a unanimous decision, reviewed a

case involving of application of a R.C. Chapter 1509 statute to a pre-existing oil and gas

lease. In that case, the Court held that, pursuant to Section 28, Article II of the Ohio

Constitution, a statute could not be retroactively applied to determine the distribution of

royalties that were provided for in an agreement entered into prior to the enactment of the

statute. In so holding, the Court explained:

              In the cause sub judice, the trial court retroactively applied the above

       statutes, rules and regulations in order to defeat the clear and unambiguous

       language of the 1949 oil and gas lease with regard to the payment of

       royalties generated by a producing well. In our view, such retroactive

       application clearly violated Section 28, Article II of the Ohio Constitution by

       impairing an obligation of contract. See Kiser v. Coleman (1986), 28 Ohio

       St.3d 259, 28 OBR 337, 503 N.E.2d 753.

              The lease involved in this action was recorded shortly after it was

       entered into and, therefore, all parties to this action had at least constructive

       notice of how royalties were to be distributed for a producing well on the

       property in issue. While the state's police powers permit the General

       Assembly to enact legislation governing pooling arrangements, spacing,
Guernsey County, Case No. 17 CA 000028                                                    12

       unitization and other oil and gas drilling regulations, a provision such as that

       found in R.C. 1509.27(D) governing distribution of royalties cannot, under

       the specific facts of this case, be used to retroactively impair the obligation

       of the contract set forth in the 1949 lease. See Goodale v. Fennell (1875),

       27 Ohio St. 426. To hold otherwise would emasculate both the letter and

       spirit of the Ohio Constitution.

              Therefore, we hold that pursuant to Section 28, Article II of the Ohio

       Constitution, R.C. 1509.27(D) may not be retroactively applied to determine

       distribution of royalties that are provided for in an oil and gas lease that was

       entered into and recorded prior to the enactment of the statutory provision.

       {¶40} In applying the above holding to the case before us, we find that Appellees’

use of the application procedure under R.C. 1509.28, without Fuller’s written agreement,

was “used to retroactively impair the obligation of the contract” set forth in the Lease. We

therefore find that such constituted a breach of the lease and hereby remand this matter

back to the trial court to make a determination of the appropriate remedy.

       {¶41} Based on the foregoing, this Court finds Appellant's first assignment of error

well-taken and sustains same.

                                                 II.

       {¶42} In his second assignment of error, Appellant argues that the trial court erred

in finding that the oil and gas lease covers all formations underlying the property. We

disagree.

       {¶43} Here, the trial court found “that the DB Shaffer Lease covers all formations

underlying the Property and any oil and gas which may be extracted by a plain reading of
Guernsey County, Case No. 17 CA 000028                                                      13

the lease under Ohio law.” In support, the trial court cited this Court’s decision in K & D

Farms, Ltd. v. Enervest Operating, L.L.C., 5th Dist. Stark County No. 2015-CA-00038,

2015-Ohio-4475.

       {¶44} As in this case, the Appellants in K & D Farms argued that the subject lease

was executed in contemplation of drilling Clinton wells and did not contemplate deeper

formations to find isolated pools of oil. This Court disagreed, finding:

              There is no language contained in the leases or the consolidation

       that limits the formations from which oil and gas can be extracted.

       Paragraph 7 of each of the leases provides that “the lands herein leased”

       are to be consolidated. There is no limitation or reference to any specific

       geological formation. The granting clause of each lease states that the lease

       is for the “sole and only purpose of exploring, drilling, and operating for oil

       and gas * * * all that certain tract of land * * *.” If a granting clause does not

       contain terms limiting the depth or formation, the rights are granted to all

       depths. Marshall v. Beekay Co., 4th Dist. Washington No. 14CA16, 2015–

       Ohio–238. Further, the consolidation states that it applies to “any of the

       acreage covered by any such lease.” The language is not ambiguous and

       expressly conveys to Enervest the right to explore, drill, and commence

       operations for extracting oil and gas on the entire acreage, without

       limitation.

       {¶45} The Supreme Court of Ohio has also held that the terms "oil" and "gas"

included products in both the refined and natural states. Alexander v. Buckeye Pipe Line

Co., 53 Ohio St. 2d 241, 248, 374 N.E.2d 146, 151 (1978) (holding that gasoline, two types
Guernsey County, Case No. 17 CA 000028                                                   14

of fuel oil, gas oil, propane, and butane were all within the meaning of the terms "oil" and

"gas" when no restrictive language was used). The Supreme Court of Ohio further

reasoned that a restriction of the terms "oil" and "gas" could have been easily

accomplished through the use of limiting language, such as "crude oil" or "natural gas,"

and that absent qualifying language the court must "assume that they intended no

restrictive meaning." Id.

       {¶46} In the case sub judice, the granting clause reads:

              ... grant, demise, lease and let unto the said lessee for the sole and

       only purpose of mining and operating for oil and gas and of laying of pipe

       lines, and of building tanks, power stations, and structures thereon to

       produce, save and take care of said products, all that certain tract of land

       situated in the Township of Londonderry, County of Guernsey, State of

       Ohio, described as follows, to wit: being all land owned by lessor in Section

       13 and 18. ...

       {¶47} As the granting clause does not contain terms limiting the depth or

formation, the rights are granted to all depths. Based on the foregoing, we find the trial

court did not err in granting judgment in favor of Appellee on this issue.

       {¶48} Appellant's second assignment of error is overruled.
Guernsey County, Case No. 17 CA 000028                                                 15

       {¶49} Accordingly the judgment of the Guernsey County Court of Common Pleas

is affirmed in part, reversed in part and remanded for further proceedings consistent with

the law and this opinion.

By: Wise, John, P. J.

Delaney, J., and

Wise, Earle, J., concur.

JWW/d 0802