Court Opinion

ID: 9562391
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:27:47.650949+00
Date Added: 2024-06-11T09:17:19.487112
License: Public Domain

WHITE, Circuit Judge,
concurring.
I join in the affirmance, although my reasoning differs somewhat from the majority’s.
I
As to the question of jurisdiction, Chesapeake submitted an affidavit purporting to estimate the present value of the natural gas reserves for Well 820584, net of expenses and production taxes, at between $106,874 and $131,426, depending on the rate of discount to present value. The affidavit also placed an estimated $426,700 value on the “undeveloped acreage,” and asserted that the cost of drilling the well was in excess of $75,000. Northup challenged the affidavit by 1) arguing that no royalties had ever been paid under the lease, 2) questioning the affiant’s qualifications and the bases for his opinions, 3) producing evidence that the well was abandoned, and 4) asserting that the yearly delay rental of $4,327.00, rather than projected profits, should control. Northup of*775fered no alternative value other than the delay rental.
I agree with Northup that the cost of drilling the well is irrelevant, except insofar as that cost affects the value of the leasehold interest. Yet, I also agree with the majority that the value of the leasehold interest is not necessarily the same as the rentals to be paid under the lease. The value of the leasehold interest would, I think, be reasonably based on the likelihood of recovering oil and gas, the value of the oil and gas that might be recovered, the timing of such recovery, the costs of recovery and sale, the expenses of delay, and any other factors normally considered by persons engaged in the enterprise of valuing such interests. Chesapeake’s affidavit could have addressed these factors more clearly, but Northup’s arguments against jurisdiction did not fatally undermine the affidavit, and under all the circumstances, I agree that Chesapeake established that more likely than not, the amount in controversy exceeds $75,000.
II
I also reach the same conclusion as the majority on the merits. The parties entered into stipulations of fact and submitted the matter to the district court on cross-motions for summary judgment. Northup conceded at argument that it contemplated that the district court would decide the case one way or the other on the stipulations, motions, and briefs, and without trial. Because I find that the lease is ambiguous regarding the question at issue, I conclude that neither party was entitled to summary judgment solely on the agreement. However, because the district court was authorized by the parties to decide the case based on the submissions, and the court’s decision finds adequate factual support in the stipulated record and is consistent with the controlling law, I concur in the affirmance. Cf. Situation Mgmt. Sys., Inc. v. ASP. Consulting LLC, 560 F.3d 53, 58 (1st Cir.2009) (“In a case stated, the parties waive trial and present the ease to the court on the undisputed facts in the pre-trial record. The court is then entitled to engage in a certain amount of factfinding, including the drawing of inferences.” (quotation marks and citations omitted)).
Under Kentucky law, a contract is ambiguous if it is “capable of more than one different, reasonable interpretation.” Central Bank & Trust Co. v. Kincaid, 617 S.W.2d 32, 33 (Ky.1981). I find the lease ambiguous with respect to whether the payment of delay rentals is sufficient to extend the primary term without regard to the “search for or production of oil or gas.” The lease can be read as set forth by the majority, or it can be read as providing that the lease term is ten years, and thereafter for as long as the lessee is engaged in the search for or production of oil or gas on the land, with that extended term being conditioned on the payment of rentals under the lease.
The final portion of the habendum clause refers to “an extended term by payment of rentals as hereinafter set forth,” not specifically payment of delay rentals. The word “rentals” in a clause extending the lease term can be read to refer to royalties payable under the lease. See Vaughn v. Hearrell, 347 S.W.2d 542, 544-45 (Ky.1961) (quoting 2 Summers on Oil and Gas § 302, at 278-79, § 351, at 482-83); see also 2 W.L. Summers, The Law of Oil and Gas: With Forms § 14:22 (3d ed. 2006) (“It was urged that the term ‘rental’ in this context meant the delay rental provided for in the drilling clause. But that interpretation would permit the lessee to indefinitely postpone development of the premises by the payment of delay rental.... When the question was presented to the courts, they uniformly held that the rental referred to in this *776clause was not delay rental provided for in the drilling clause, but gas or oil rentals to be paid to the lessee after production, and that the lessee could not extend the lease beyond the definite term by the tender or payment of delay rentals.” (citing cases)). Additionally, the lease provides for abatements of the delay rentals based on the number of gas or oil wells drilled. Thus, it is not unreasonable to contemplate that the lessee would be producing and searching for oil and gas, paying royalties, and paying delay rentals all at the same time. Further, the “drill or not drill” clause can be read as applying during the primary term of the lease. All of which is to say that these additional provisions are themselves subject to different interpretations and do not dictate that the habendum clause be read one way or the other.
Taking into account both the terms of the lease and Kentucky case law with respect to oil and gas leases, it would be reasonable to read the lease-term provision and habendum clause as providing that the lease terminates after ten years (i.e., “this lease shall remain in force for the term of ten (10) years”), unless the land is then operated by the lessee in the search for or production of oil or gas (i.e., “and as long thereafter as the said land is operated by the Lessee in the search for or production of oil or gas”), in which case the lease can be extended for terms coincident with the obligation to pay rentals under the lease by the payment of those rentals (i.e., “with an extended term by payment of rentals as hereinafter set forth”).
That said, I agree with the majority that the lease at issue here differs in relevant respects from the Producer’s 88 leases involved in the cases Northup relied on. Most relevant is that the lease does not contain a typical “drilling clause,” requiring that the lessee begin drilling within a specific period of time.
Were the case not submitted to the district court for decision on the stipulated facts, the parties’ motions, and their briefs, I would conclude that summary judgment for either party is inappropriate. However, because the case was so submitted, and the parties contemplated that the court would decide the case without trial, I agree that the judgment should be affirmed. Taking the ambiguous lease together with the approximately thirty-year course of conduct after the alleged expiration of the lease,1 there was adequate support for the district court’s determination that the lease had not terminated on its own at the conclusion of the primary term.

. When a contract is ambiguous, Kentucky courts apply the doctrine of "contemporaneous construction.” A.L. Pickens Co., Inc. v. Youngstown Sheet & Tube Co., 650 F.2d 118, 120 (6th Cir.1981). Under this doctrine, " 'courts are required to give great weight to the interpretation which the parties have placed on an ambiguous contract. The construction of the parties is best evidenced by their conduct with respect to the agreement.’ ” Id. (quoting Billips v. Hughes, 259 S.W.2d 6, 7 (Ky.1953)).