Bonner Farms, Ltd. v. EXCO-North Coast Energy, Inc.

355 F. App'x 10
CourtCourt of Appeals for the Sixth Circuit
DecidedNovember 30, 2009
Docket08-4338
StatusUnpublished
Cited by11 cases

This text of 355 F. App'x 10 (Bonner Farms, Ltd. v. EXCO-North Coast Energy, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bonner Farms, Ltd. v. EXCO-North Coast Energy, Inc., 355 F. App'x 10 (6th Cir. 2009).

Opinion

CORNELIA G. KENNEDY, Circuit Judge.

Defendants, the beneficiaries of a lease that allows them to extract oil and gas from four wells on the plaintiffs property, appeal the declaratory judgment that the lease had expired by its terms when defendants failed to continue production. Defendants do not challenge the jury’s finding that all production had ceased by the end of 2004. Instead, they seek to avoid the conclusion that the lease expired raising two affirmative defenses: (1) the plaintiff is estopped from denying the continuation of the lease because the plaintiff accepted benefits under the lease when the defendants reinstated production in 2005; and (2) the plaintiff has unclean hands because it took gas from the defendants’ pipeline without their consent. The district court rejected these defenses. The defendants assert on appeal that both defenses require judgment in their favor. Because neither defense defeats the district court’s judgment, we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1970, James and Martha Leet entered into a lease (the “Leet Lease”) with Pointer Oil Company, allowing access to their land for the purpose of drilling for and extracting gas and oil. The lease provides that it shall continue for ten years “and so much longer thereafter as oil, gas, or their constituents are produced in paying quantities thereon, or operations are maintained on” the land. Under the lease, the landowner was entitled to a royalty in the amount of one-eighth (12.5%) of the value of the oil and gas removed from the premises less the expense related to its removal.

Eventually, plaintiff-appellee Bonner Farms obtained the land and the landowner’s rights, and Power Gas (to which defendant-appellant Exco-North Coast energy is a successor in interest) assumed the extraction privileges. Defendants Thomas A. Fritz and Deborah D. Weise also have an interest in the lease that would terminate if the Leet Lease was no longer in effect, and they were therefore joined as defendants.

Four wells (known as Jones # 1, Jones # 2, Jones # 8, and Jones # 8, collectively the “Bonner wells”) were placed on the 155 acres now owned by the plaintiff, and gas was extracted by Power Gas pursuant to the 1970 lease. The Pochedly Pipeline System, owned by Power Gas, gathers resources from plaintiffs wells and several others for its pipeline system. Pursuant to the plaintiffs request, at some point Power Gas removed all flow lines, which had not been operating, from the Jones # 2 and # 3 wells.

This much was, and is, undisputed. The plaintiff believed that productive use of all wells and operations had ceased by the end of 2004, so it attempted to clarify the expiration of the lease by filing an affidavit with the county recorder. See Ohio Rev. Code § 5301.332. Power Gas contested the affidavit, contending that the lease remains in full effect, causing the plaintiff to com *12 menee the present declaratory judgment action in the Portage County, Ohio Court of Common Pleas, seeking a declaration that the lease had expired.

The case was removed to federal court on the basis of diversity of citizenship, 1 and the parties agree that Ohio law provides the substantive rule of decision. After extensive proceedings not relevant to this appeal, a jury was asked to return a special verdict containing interrogatories on factual disputes. Through a special verdict form, the jury found “by a preponderance of the evidence that defendant Power Gas Marketing & Transmission, Inc. stopped producing oil or gas in paying quantities” from all four Bonner wells, and that Power Gas had stopped maintaining operations on the property subject to the lease. There is no challenge to the jury’s findings on these issues.

The defendants seek to avoid a finding that the lease had expired through two affirmative defenses: quasi-estoppel and unclean hands. In support of their quasiestoppel argument, the defendants contend that the plaintiff is estopped from denying the continuing vitality of the lease because after the commencement of this litigation the wells were again actively pumped and the plaintiff had accepted payments each equal to 12.5% of the value of oil and gas produced from the Bonner wells in the preceding interval, the property owner’s share under the lease. The parties stipulate that there were twenty-one Power Gas checks deposited by the plaintiff in that period, although the parties do not agree on the dates the checks were negotiated. All checks were dated after August 2005.

At trial, the defendants emphasized that the checks were accompanied by a letter dated August 11, 2005, indicating that the checks were made in accordance with the terms of the lease:

It was recent [sic] brought to my attention that your accounts relative to the wells known as Jones # 1, 2/3, 7, 8, 11 and Gould # 1 had been suspended in error. Therefore, I am enclosing two checks (162006 for $1,981.25, 162008 for $2,231.47) to bring your account up to date, along with a complete statement of said accounts.

Attached to the letter was a statement computing 12.5% of various transactions. The defendants elicited testimony from the plaintiffs owner, Richard Bonner, on cross-examination regarding this letter:

Q. What this letter does, Mr. Bonner, is explain to you that your account had been suspended in error by Power Gas, and the enclosed checks were being sent to you because they had some past due royalties that they had not paid because of that error. Isn’t that true?
A. I think it’s a coverup, I really do. Excuse me. I don’t know what it means. It’s legal stuff.
Q. That’s what the letter says though; right, sir?
A. If you say so.
Q. And those checks were royalty checks; right, sir?
A. Yes.
*13 MR. KELLER: Objection. We stipulated he received checks, he cashed them. The characterization of those checks is a question that depends on whether the lease is still in effect or not. THE COURT: Yes, it does.
MR. MENDOZA: Your honor, I asked the question because the stipulations only go so far.
THE COURT: That’s true. Okay. Let’s move on.

Plaintiffs counsel had sent a letter dated December 16, 2004 to defendants’ counsel, stating the plaintiffs position:

As you understand, the lease(s) underlying the wells on the Bonner and Burrows property subject to this action have expired and/or been otherwise terminated. We understand that your client is removing and selling oil and gas from some of these wells and is sending our clients a royalty of l/8th. We understand that your client currently disagrees with our position and intends to continue operating these wells until the resolution of this action in spite of our objections.
The purpose of this letter is to demand that your client account for and pay our clients the other 87.5% of the oil and gas removed from their property.

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Bluebook (online)
355 F. App'x 10, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bonner-farms-ltd-v-exco-north-coast-energy-inc-ca6-2009.