Court Opinion

ID: 2802553
Source: CourtListenerOpinion
Date Created: 2015-05-21 15:04:37.914259+00
Date Added: 2024-06-11T11:41:25.391613
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                            Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                   File Name: 15a0097p.06

                  UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                 _________________

 UNITED STATES OF AMERICA,                            ┐
                               Plaintiff-Appellant,   │
                                                      │
                                                      │       No. 13-4362
       v.                                             │
                                                       >
                                                      │
 STATE OF OHIO; BUCKINGHAM COAL COMPANY,              │
                          Defendants-Appellees.       │
                                                      ┘
                       Appeal from the United States District Court
                      for the Southern District of Ohio at Columbus.
                  No. 2:11-cv-00383—James L. Graham, District Judge.
                                Argued: October 1, 2014
                             Decided and Filed: May 21, 2015

                    Before: GUY, CLAY, and WHITE, Circuit Judges.

                                   _________________

                                       COUNSEL

ARGUED: John L. Smeltzer, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellant. Daniel J. Martin, OFFICE OF THE OHIO ATTORNEY GENERAL,
Columbus, Ohio, for Appellee State of Ohio. John J. Kulewicz, VORYS, SATER, SEYMOUR
AND PEASE LLP, Columbus, Ohio, for Appellee Buckingham Coal. ON BRIEF: John L.
Smeltzer, John S. Most, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
for Appellant. Daniel J. Martin, Brian A. Ball, OFFICE OF THE OHIO ATTORNEY
GENERAL, Columbus, Ohio, for Appellee State of Ohio. John J. Kulewicz, Michael G. Long,
VORYS, SATER, SEYMOUR AND PEASE LLP, Columbus, Ohio, for Appellee Buckingham
Coal.

                                             1
No. 13-4362                          United States v. State of Ohio, et al.                Page 2

                                           _________________

                                                 OPINION
                                           _________________

        HELENE N. WHITE, Circuit Judge. The United States appeals from the district court’s
denial of its motion for summary judgment and grant of the State of Ohio’s and Buckingham
Coal Company’s (“Buckingham”) motions for summary judgment in this action challenging
Ohio’s right to lease Buckingham the right to mine coal lying beneath land acquired for a flood-
control project. We REVERSE.

                                                       I.

        In 1948, the United States and Ohio entered into a cost-sharing agreement to construct
and maintain the Tom Jenkins Dam and Burr Oak Reservoir (“Project”) to control flooding in
southeast Ohio’s Hocking River Basin. The Project was designed and constructed by the United
States Army Corps of Engineers (“Corps”), which determined that the Project required the
acquisition of certain property interests under and surrounding the dam, including subsurface
mineral rights. The property interests were acquired, the dam was built, and the Project operated
within the parties’ joint understandings until the instant disagreement.

        In 2010, Ohio entered into two subsurface mineral leases with Buckingham, a coal
company that owned and mined land surrounding the Project. The leases granted Buckingham
rights to conduct mining activities within Project lands, specifically, to construct a corridor
beneath Project lands to connect two non-Project parcels of land Buckingham already owned.1
Buckingham was also granted the right to sell any coal extracted in the process.

        When the Corps discovered that Ohio entered into the leases with Buckingham, it asked
Ohio to cease all mining activities within Project lands until it could determine whether mining
would place the Project at risk. The Corps took the position that Ohio was required to obtain the
Corps’ approval for any mining activity involving Project lands. Ohio and Buckingham initially
complied with the Corps’ request, but after Buckingham altered its mining plans and secured the

        1
           The corridor is located within Project lands at elevation 725 feet, higher than the reservoir pool at
721 feet, but well within the reservoir’s crest level of 750 feet.
No. 13-4362                            United States v. State of Ohio, et al.                  Page 3

final license it needed to commence mining, Ohio and Buckingham advised the Corps that
Buckingham would no longer cease mining activity and that they did not believe that the cost-
sharing agreement precluded the lease to Buckingham.

        This prompted the United States to seek a temporary restraining order to prevent Ohio
from permitting subsurface mining activities within Project lands. After a hearing, the district
court denied the United States’ motion for a temporary restraining order, finding that the United
States had failed to show a likelihood of success on the merits. Also, relying on a defense
expert’s testimony, the district court determined that the Project would not be placed at risk by
the leases.

        The United States filed this action against Ohio and Buckingham seeking, among other
things, a declaratory judgment that the terms of the cost-sharing agreement preclude Ohio (or
any third party authorized by Ohio) from conducting mining activity in Project lands without
prior approval of the Corps. After discovery, all parties moved for summary judgment; the
district court determined that “none of the acts, agreements, reports, or plans that form the legal
basis for the [Project] clearly and explicitly prohibit Ohio from leasing coal interests in project
lands owned by the state.” Accordingly, it denied the United States’ motion for summary
judgment and granted both Ohio’s and Buckingham’s motions for summary judgment. The
United States now appeals.

                                                        II.

        We review the grant or denial of summary judgment de novo.                           Yellowbook Inc. v.
Brandeberry, 708 F.3d 837, 843 (6th Cir. 2013). We apply Ohio law to this contract dispute.2
Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). In Ohio, contract interpretation is a matter of
law subject to de novo review on appeal. City of St. Marys v. Auglaize Cnty. Bd. of Comm’rs.,

        2
          The United States initially argues that we should look to federal common law to review the relevant
contract provisions. However, as long as state law does not conflict with federal law, and the question is not
“uniquely federal” in nature, it is more appropriate to “borrow[], incorporat[e], or adopt[] state law [o]n point.”
Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 692 (2006). Indeed, a case cited by the United
States makes clear that “where Congress has not adopted a different standard, it is customary to apply the principles
of general contract law.” Bituminous Cas. Corp. v. Lynn, 503 F.2d 636, 640 (6th Cir. 1974). Because the United
States did not identify a congressionally mandated “different standard,” and it does not appear that this dispute is
“uniquely federal” in nature, we apply Ohio law.
No. 13-4362                       United States v. State of Ohio, et al.           Page 4

115 Ohio St. 3d 387, 392, 875 N.E.2d 561, 568 (2007). “When confronted with an issue of
contract interpretation, our role is to give effect to the intent of the parties.” Sunoco, Inc. v.
Toledo Edison Co., 129 Ohio St. 3d 397, 404, 953 N.E.2d 285, 292 (2011). “When the language
of a written contract is clear, a court may look no further than the writing itself to find the intent
of the parties,” and we may “presume that the intent of the parties is reflected in the language of
the contract.” Id.; Kelly v. Med. Life Ins. Co., 31 Ohio St. 3d 130, 132, 509 N.E.2d 411, 413
(1987) (“The intent of the parties to a contract is presumed to reside in the language they chose
to employ in the agreement.”).

       In Ohio, a contract is “unambiguous” if a reviewing court “can give a definite legal
meaning” to the contract’s terms. Westfield Ins. Co. v. Galatis, 100 Ohio St. 3d 216, 219, 797
N.E.2d 1256, 1261 (2003). “Common, undefined words appearing in a contract will be given
their ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly
evidenced from the face or overall contents of the agreement.” Sunoco, 953 N.E.2d at 292–93
(citations omitted). If a term is ambiguous, parol evidence is admissible to interpret, but not to
contradict, the express language of the contract. Ohio Historical Soc. v. Gen. Maint. & Eng. Co.,
65 Ohio App. 3d 139, 146, 583 N.E.2d 340, 344 (Ct. App. 10th Dist. 1989) (citations omitted).
“[I]f such an ambiguity is alleged, it must arise from the language of the contract itself and,
therefore, courts will not admit parol testimony to construe an ambiguity forced into
the contract to strain the apparent meaning of the language.”         Fireman’s Fund Ins. Co. v.
Mitchell-Peterson, Inc., 63 Ohio App. 3d 319, 328, 578 N.E.2d 851, 856 (Ct. App. 12th Dist.
1989). Documents created after a contract’s execution, however, are not subject to the parol-
evidence rule. Am. Gen. Fin. v. Beemer, 73 Ohio App. 3d 684, 687, 598 N.E.2d 144, 146 (Ct.
App. 3d Dist. 1991).

                                                 III.

       The United States argues that the original cost-sharing agreement it entered into with
Ohio, coupled with a Real Estate Planning Report created by the Corps, prohibit Ohio’s lease of
the coal rights to Buckingham. Specifically, the United States argues that a plain reading of
documents memorializing Ohio’s responsibilities relating to the Project shows that Ohio has an
obligation to “retain” all Project lands—including subsurface coal interests—until the Project is
No. 13-4362                           United States v. State of Ohio, et al.                 Page 5

decommissioned or the Corps gives “prior approval.” The United States also rejects Ohio’s
argument that a subsequent quitclaim deed it granted to Ohio relieved Ohio of its “duty to retain
the coal.” To obtain relief, the United States must prevail on both issues.

                                                        A.

        On September 22, 1947, pursuant to congressional authorization, Pub. L. No. 78–533, 58
Stat. 887, 898 (1944), the Corps prepared and submitted a Definite Project Report (“Project
Report”), which set out a general framework for the Project.3 Although many details needed to
be finalized, the Project’s purpose was made clear: “Flood alleviation in Sunday Creek and other
downstream valleys, and water conservation for water supply and recreational purposes.”
According to the Project Report, “[t]he dominant factor in all considerations regarding the
regulation of the reservoir is flood control.”

        The Project Report acknowledged that mineable coal was present under Project lands and
stated that operation of the Project would prevent mining: “Since operation of the reservoir will
prevent mining of the underlying coal, it will be necessary to acquire all coal rights in the lands
below elevation 740 feet, plus a horizontal barrier averaging 50 feet in width beyond this
elevation for protection of adjacent coal measures from seepage.” Accordingly, the Project
Report anticipated Ohio acquiring “all coal rights” below elevation 740 feet, and stated that
doing so was “necessary” to effectuate the Project as envisioned by the Corps. To be sure, this
necessity may have been premised at least in part on the fact that operation of the reservoir
would impair the ability of the holder of the mineral rights to access the coal, but the Project
Report clearly anticipated that there would be no coal mining on Project lands.

                                                        B.

        In 1948, Ohio and the United States executed Articles of Agreement (“Agreement”),
which expressly referenced and expanded on the Project Report. The Agreement set out each

        3
           Ohio argues that it is not bound by the Project Report because it did not execute it. However, the
1948 Articles of Agreement expressly incorporated the Project Report by providing that “[t]he State shall . . .
acquire all lands and/or interests in land necessary for said Project, in accordance with said approved plan.” The
“approved plan” was defined in the Agreement to refer to the Project Report; thus, the quoted language incorporated
that document. See Blanchard Valley Farmers Coop. Inc. v. Carl Niese & Sons Farms, Inc., 143 Ohio App. 3d 795,
802, 758 N.E.2d 1238, 1244 (Ct. App. 3d Dist. 2001) (“Documents that are incorporated by reference into a contract
are to be read as though they are restated in the contract.”).
No. 13-4362                            United States v. State of Ohio, et al.                  Page 6

party’s obligations for constructing and maintaining the Project, including cost allocation and
division of long-term responsibilities. As the district court observed, the Agreement itself does
not prohibit Ohio from leasing out coal rights. Indeed, the Agreement does not specifically
address subsurface mineral rights at all. The United States argues that the Agreement requires
Ohio to “retain” all “necessary” lands, which includes subsurface mineral rights, because Ohio
was required to “acquire” lands “necessary” for the Project and Ohio’s obligation to “acquire”
the lands is useless without a corresponding obligation to also “retain” them. The Agreement
echoes this understanding, expressly granting the United States the right to “enter upon [Project]
lands to be retained by Ohio” and “to flood [Project] lands and/or interests in land to be retained
by Ohio.”4

          Under the Agreement, Ohio was required to “acquire all lands and/or interests in land
necessary for said Project, in accordance with [the Project Report].” The Agreement also
provided that if Ohio did not acquire the “necessary” lands fast enough, the United States had the
option to itself acquire the necessary lands in Ohio’s stead, and then be reimbursed by Ohio,
subject to Ohio’s financial-contribution cap. All parties envisioned Ohio ultimately holding the
Project lands, except the land needed for the actual dam, which would be held by the United
States.       The details of the acquisition, however, were to “be in accordance with the land
acquisition program to be agreed upon between the [Corps] and the State.”

                                                         C.

          In October 1948, to further define Ohio’s and the United States’ obligations and rights
under the Agreement, the Corps prepared, and Ohio and the United States executed, a Real
Estate Planning Report (“Planning Report”), which constituted the “land acquisition program”
contemplated in the Agreement. The Planning Report echoed the Project Report’s approach to
the coal: “[S]ince operation of the reservoir will prevent future mining, it will be necessary for
Ohio to acquire the coal underlying the lands below elevation 740, the spillway crest level, plus
the coal in a barrier sufficient in width beyond this elevation to protect adjacent coal measures

          4
          As discussed infra, because the United States had an option to acquire some Project lands itself, expressly
stating which party would “retain” Project lands was particularly appropriate; in fact, there was at least some
duration of time (1950 – 1962) where the United States held title to lands that were supposed to be “retained” by
Ohio.
No. 13-4362                           United States v. State of Ohio, et al.                Page 7

from seepage.” The Corps “estimated that it [would] be necessary for the State to acquire the
coal, oil, and gas, and to extinguish outstanding rights thereto, in the lands (approximately
1,450 acres) underlying elevation 750.” The Planning Report acknowledged that “[t]he greater
portion of the coal affected by the [Project] is owned by mining companies or individuals other
than the owners of the surface.” Thus, “as a minimum requirement,” Ohio was required to
“acquire . . . the coal in the lands lying below elevation 750.”

          Ohio argues that the lands were only “necessary” because the United States was trying to
extinguish legal claims that might arise when the reservoir floods. Although there is some
support for this interpretation, that this appears to be one purpose behind acquiring the
“necessary” lands does not mean it was the only purpose. The United States was certainly
interested in avoiding legal claims arising from the Project’s anticipated use, but it also sought to
secure the unfettered ability to control flooding in southeast Ohio’s Hocking River Basin and to
extinguish any potential assertion of property rights that might interfere with its judgment
regarding the Project. Whether to extinguish legal claims or to guarantee control of the Project’s
structural integrity, it was clearly contemplated that “operation of the reservoir will prevent
future mining.”

          Indeed, Ohio does not dispute that it is precluded from adversely affecting the Project’s
efficacy or structural integrity; nevertheless, it argues that its lease to Buckingham is not
problematic because it has determined that the mining activities within Project land will not
threaten the Project.5 But accepting Ohio’s and Buckingham’s interpretation of the contract as
allowing Ohio the unilateral right to make this determination subject to proof to the contrary
would require the United States to litigate each time it disagrees with Ohio’s determination
regarding a particular activity’s likelihood of threatening the Project’s structural integrity. This
undermines the parties’ intent and understanding in entering into the Agreement and Planning
Report.

          5
          Ohio’s legislation approving the lease at issue expressly states that the lease and subsequent mining
operations cannot adversely affect the Project. Ohio Rev. Code § 1541.083 (stating that coal extraction can “in no
way affect the surface of the land or the use of the land as a public park” and authorizing the Chief of Ohio’s
Division of Parks and Recreation to determine whether the Project would be affected).
No. 13-4362                       United States v. State of Ohio, et al.           Page 8

        The United States required Ohio to acquire land “necessary” for the Project. It included
in the definition of such land “coal in the lands lying below elevation 750,” so it would not have
to incur the time and expense of litigating to protect the Project, or worse, alter the Project’s
operation to avoid litigation (even if the United States were to ultimately prevail). In light of the
Planning Report’s requirement that Ohio acquire and extinguish all coal rights, “[t]he greater
portion of [which were] owned by mining companies or individuals other than the owners of the
surface,” we conclude that the Agreement and Planning Report did not grant Ohio a unilateral
right to sell, lease, or otherwise dispose of those very same rights to a third party to resurrect and
exercise those rights.

                                                 D.

        Notably, the Planning Report states: “As provided in the [A]greement, the State will
retain and utilize the lands acquired above elevation 750 for development of conservational and
recreational features of the project, it being expressly understood and agreed that sale or disposal
of any lands acquired by the State, pursuant to the agreement, will be subject to prior approval
of the District Engineer.” The United States argues that Ohio’s lease constitutes “disposal” of
“lands” and thus required its “prior approval.” The trial court concluded that “disposal” includes
Ohio’s lease to Buckingham because coal was removed from Project lands, but the lease was not
a “disposal” of “lands” because the “disposal” was of coal found within specific tracts of land,
not land itself.

        “Land” is not defined in the Agreement or Planning Report, so we apply its ordinary
meaning: “An immovable and indestructible three-dimensional area consisting of a portion of
the earth’s surface, the space above and below the surface, and everything growing on or
permanently affixed to it; an estate or interest in real property.” Black’s Law Dictionary 1008
(10th ed. 2014) (emphasis added). “Land” clearly includes subsurface mineral rights, which are
“interests in real property” found “below” the earth’s surface. See id. Ohio disposed of Project
lands by leasing the mineral rights in such lands to Buckingham. Under the Planning Report,
Ohio needed the Corps’ “prior approval” to dispose of “necessary” Project lands, including coal
interests.
No. 13-4362                       United States v. State of Ohio, et al.           Page 9

                                                 IV.

          Ohio and Buckingham further assert that the United States gave up any rights it might
have had to control coal mining when it gave Ohio a quitclaim deed to the Project lands. Again,
we disagree. On October 11, 1962, “[i]n compliance with and [in] furtherance of the provisions
of [the Agreement],” the United States prepared and executed a quitclaim deed (“1962 Quitclaim
Deed”) to grant Ohio all lands the United States had acquired for the Project. The grant
expressly included subsurface mineral interests: “Grantor does hereby Remise, Release and
forever Quitclaim . . . all the right, title and interest of the Grantor in and to the coal underlying
the tracts of land,” subject to stated exceptions and reservations.

          Buckingham and Ohio argue that under Ohio’s “merger-by-deed” doctrine the 1962
Quitclaim Deed superseded the Agreement and Planning Report. “[A]n application of the
contract canon of integration,” Suermondt v. Lowe, 165 Ohio App. 3d 427, 432, 846 N.E.2d 910,
913 (Ct. App. 5th Dist. 2006) (quoting 14 Powell on Real Property (1995) 81A–136, Section
81A.07(1)(d)), the doctrine provides that “[w]here a deed is delivered and accepted without
qualification pursuant to an agreement, the agreement merges with the deed, and no cause of
action upon the agreement thereafter exists,” Dillahunty v. Keystone Savs. Ass’n., 36 Ohio App.
2d 135, 137, 303 N.E.2d 750, 751 (Ct. App. 2d Dist. 1973). However, “‘[m]erger by deed’ is a
canon of construction that aids courts in determining what the true intent of the parties to a real
estate transaction was at the time of a sale.” Shah v. Smith, 181 Ohio App. 3d 264, 267, 908
N.E.2d 983, 985–86 (Ct. App. 1st Dist. 2009). “Thus, if it can be shown that the parties actually
intended that the provisions of a prior agreement continue in force, then the provisions do so
continue.” Id. at 432. Here, the 1962 Quitclaim Deed expressly refers to the Agreement, and did
not displace or otherwise affect the parties’ obligations under the Agreement and Planning
Report.

          The 1962 Quitclaim Deed was not intended to displace or supersede the Agreement.
Rather, it operated to place the parties in the position they originally contemplated. Although
Ohio was supposed to acquire all of the Project lands, the United States actually acquired a
portion of the necessary lands, using funds designated for this purpose, when Ohio was unable to
timely do so. The 1962 Quitclaim Deed simply transferred ownership of these lands to Ohio as
No. 13-4362                            United States v. State of Ohio, et al.               Page 10

originally envisioned, and expressly states that it was granted “[i]n compliance with and [in]
furtherance of the provisions of [the Agreement].” Unlike the usual situation in which the
doctrine is applied, the Agreement was not simply an agreement to purchase lands that would
later merge into the deed. Rather, it governed the continuing relationship between the parties.
Because the parties clearly intended the Agreement to survive the 1962 Quitclaim Deed, the
doctrine of merger by deed does not apply. See Suermondt, 846 N.E.2d at 913.6

                                                        V.

        For the foregoing reasons, we conclude that Ohio lacked the authority to enter into the
instant leases. We REVERSE the district court’s grant of summary judgment to Ohio and
Buckingham and its denial of the United States’ motion for summary judgment, and REMAND
for entry of judgment consistent with this opinion.

        6
           Buckingham also argues that it is a bona fide purchaser for value without notice of the encumbrance and
thus that its interests cannot be extinguished because the United States did not record this alienation on the land.
This argument fails, as Buckingham, a lessee, is not a bona fide purchaser for value. See Basil v. Vincello, 50 Ohio
St. 3d 185, 191, 553 N.E.2d 602, 608 (1990); see also Villa v. Rodriguez, 79 U.S. 323, 338 (1870).