Cunningham Prop. Mgmt. Trust v. Ascent Res. - Utica, LLC

351 F. Supp. 3d 1056
CourtDistrict Court, S.D. Ohio
DecidedNovember 16, 2018
DocketCase No. 2:16-cv-957
StatusPublished
Cited by20 cases

This text of 351 F. Supp. 3d 1056 (Cunningham Prop. Mgmt. Trust v. Ascent Res. - Utica, LLC) is published on Counsel Stack Legal Research, covering District Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cunningham Prop. Mgmt. Trust v. Ascent Res. - Utica, LLC, 351 F. Supp. 3d 1056 (S.D. Ohio 2018).

Opinion

EDMUNDA A. SARGUS, JR., CHIEF UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Ascent Resources - Utica, LLC's ("ARU('s)") Motion to Dismiss. (EFC No.

*105922.) For the following reasons, the Court GRANTS IN PART AND DENIES IN PART ARU's Motion.

I.

Plaintiff Cunningham Property Management Trust ("Cunningham") owns approximately 272 acres of real property in Harrison County, Ohio. (Am. Compl. ¶ 6, ECF No. 20). The property is burdened by two separate oil and gas leases, one dated December 11, 1982, covering about 88 acres, and another dated January 12, 1983, covering about 183 acres. (Id. ¶¶ 29-31). The leases use a standard, pre-printed form and include identical royalty provisions:

5. In consideration of the premises the Lessee covenants and agrees: (A) To deliver to the credit of the Lessor in tanks or pipe lines, as royalty, free of cost, the equal one-eighth (1/8) part of all oil produced and saved from the premises, or at Lessee's option to pay Lessor the market price for such one-eighth (1/8) royalty oil at the published rate for oil of like grade and gravity prevailing on the date such oil is run into tanks or pipe lines. (B) To pay to the Lessor, as royalty for the gas marketed and used off the premises and produced from each well drilled thereon, the sum of one-eighth (1/8) of the wellhead price paid to Lessee per thousand cubic feet of such gas so marketed and used, measured in accordance with Boyle's Law for the measurement of gas at varying pressure.... (C) Lessee to deduct from payments in (A) and (B) above Lessors prorata share of any severance (excise) tax imposed by any governmental body. (D) In the event Lessee does not sell the gas to others, Lessor shall be paid on the basis of The East Ohio Company field market price at the wellhead for gas of like kind and quality, and on the basis that East Ohio would pay for such gas, including any escalation in the price that East Ohio would pay for such gas as if a contract for the sale of same had been entered into at the time of initial production.

(Leases at PageID 244, 246, EFC Nos. 20-1, 20-2; see Am. Compl. ¶ 32). The leases also contain identical notice provisions:

18. In the event Lessor considers that Lessee has not complied with all its obligations hereunder, both express and implied, Lessor shall notify Lessee in the writing setting out specifically in what respects Lessee has breached this contract Lessee shall then have thirty (30) days after receipt of said notice within which to meet or commence to meet all or any part of the breaches alleged by Lessor. The service of said notice shall be precedent to the bringing of any action by Lessor on said lease for any cause, and no such action shall be brought until the lapse of thirty (30) days after service of such notice on Lessee.

(Leases at PageID 245, 247.) And they contain identical disclaimers:

19. ... It is mutually agreed that this instrument contains and expresses all of the agreements and understandings of the parties in regard to the subject matter thereof, and no implied covenant, agreement or obligation shall be read into this agreement or implied upon the parties or either of them.

(Leases at PageID 245, 247.) Cunningham eventually acquired the property's surface and mineral rights and is the current Lessor under the leases. (Am. Comp. ¶ 33). Defendant ARU is the current Lessee. (Id. ¶ 35).

Cunningham alleges that it began receiving royalty payments, with associated royalty statements in early 2016. (Am. Compl. ¶ 41). Those payments contained substantial "post-production" cost deductions *1060for items such as compression, processing, treating, transportation, fuel, marketing, and gathering. (Id. ¶ 42). The deductions were not explained in the royalty statements, Cunningham alleges. (Id. ¶ 43). And the deductions purportedly varied without explanation or good cause. (Id. ¶ 44). Cunningham alleges that ARU is not entitled to deduct post-production expenses under the leases, and if they are so entitled the deductions must be reasonable. (Am. Compl. ¶ 48).

ARU moved to dismiss Cunningham's complaint for, inter alia , failure to comply with the notice requirement set out in the leases. (ECF Nos. 22, 23; Leases at PageID 245, 247.) Once that motion to dismiss was fully briefed (ECF Nos. 25, 28), this Court issued a decision denying it without prejudice to refiling and stayed the case. The Court concluded:

The Court, in sum, cannot reasonably infer that Cunningham complied with the leases' notice requirement. This conclusion does not mandate dismissal of Cunningham's claims though. The notice requirement serves an important purpose in the parties' agreement-providing ARU an opportunity to cure purported breaches prior to facing suit. (See Leases at PageID 245, 247; Mem. in Supp. of Mot. to Dismiss at 5.) That purpose can be satisfied here without dismissal, see Lutz , 2016-Ohio-7549, ¶ 9, 148 Ohio St.3d 524, 71 N.E.3d 1010 (stating that contracts are to be interpreted to carry out the intent of the parties), which would be, in any event, without prejudice. The Court will stay the case to allow Cunningham an opportunity to comply with the leases' notice requirement and ARU an opportunity to cure the purported breaches. See Clinton v. Jones , 520 U.S. 681, 706, 117 S.Ct. 1636, 137 L.Ed.2d 945 (1997) (explaining that a district court "has broad discretion to stay proceedings as an incident to its power to control its own docket"). If the parties are unable to resolve the case through this procedure, they shall move the Court to lift the stay.
Given its decision to stay the case, the Court declines to address ARU's arguments for dismissal of the claims on the merits. (See Mem. in Supp. of Mot. to Dismiss at 7-20.) ARU may raise these arguments again in a refiled motion to dismiss if the stay in this case is lifted.

(ECF No. 32 at 10-11) (omitting footnote that explained that the stay was justified as to all of Cunningham's claims (and not just the breach of contract claim) because of the interdependence of those claims with the breach of contract claim).

On November 6, 2017, the parties moved to lift the stay (ECF No. 33), which this Court granted (ECF No. 34). The Court held a status conference at which the parties agreed that notice was no longer an issue. The parties requested additional briefing to discuss the impact of Lutz v. Chesapeake Appalachia, L.L.C.

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351 F. Supp. 3d 1056, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cunningham-prop-mgmt-trust-v-ascent-res-utica-llc-ohsd-2018.