[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