Price v. K.A. Brown Oil and Gas, L ...

[Cite as Price v. K.A. Brown Oil and Gas, L.L.C., 2014-Ohio-2298.]

STATE OF OHIO, MONROE COUNTY

IN THE COURT OF APPEALS

SEVENTH DISTRICT

TIMOTHY R. PRICE, et al.

)

)

PLAINTIFFS-APPELLEES

)

)

VS.

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K.A. BROWN OIL AND GAS, LLC,

)

et al.

)

)

DEFENDANTS-APPELLANTS )

CHARACTER OF PROCEEDINGS:

JUDGMENT: APPEARANCES: For Plaintiffs-Appellees:

For Defendants-Appellants:

CASE NO. 13 MO 13

OPINION

Civil Appeal from the Court of Common Pleas of Monroe County, Ohio Case No. 2012-265 Affirmed.

Atty. Matthew W. Warnock Atty. Daniel C. Gibson Atty. Daniel E. Gerken Bricker & Eckler LLP 100 South Third Street Columbus, Ohio 43215-4291 Atty. Craig E. Sweeney Atty. Richard A. Yoss Yoss Law Office 122 N. Main Street Woodsfield, Ohio 43793

JUDGES:

Hon. Cheryl L. Waite Hon. Gene Donofrio Hon. Mary DeGenaro

Dated: May 27, 2014

[Cite as Price v. K.A. Brown Oil and Gas, L.L.C., 2014-Ohio-2298.]

WAITE, J.

{?1} Appellant K.A. Brown Oil & Gas, LLC, appeals the summary judgment of the Monroe County Court of Common Pleas declaring that a 1988 oil and gas lease had terminated. The purpose of the lease was to develop two wells that had been drilled pursuant to an earlier lease. The new lease did not require additional drilling, and required only that the two previous wells become productive. After many years of receiving no royalties, Appellees Timothy R. and Rhonda Price filed a declaratory judgment action to have the lease terminated. The trial court determined that paragraph 14 of the lease required both wells on the property to be productive by November 1989 or the lease automatically terminated. The second well was not put into production until 1995, and for this reason the court declared the lease had terminated.

{?2} Appellant contends that Appellees ratified the lease by accepting royalty payments and free gas. Appellant's argument is not persuasive. The doctrine of ratification deals with the binding effect of certain unauthorized contracts on a corporation and is inapplicable in this case because Appellees are not a corporate entity. Appellant also argues that any breach of the lease was waived when Appellees accepted royalty payments. The only records of any royalty payments were five de minimus checks from 2004-2005 totaling less than $69. We have previously held that acceptance of de minimus royalty payments does not waive termination rights in an oil and gas lease. Finally, Appellant argues that Appellees waived their termination rights by accepting free gas from the wells. The lease provided that Appellees could have a specified amount of free gas, and the remedy provided in the lease for any overage was that Appellees would have to pay for the

-2excess, not the loss of the right to terminate the lease. Additionally, there is no evidence that they took more gas than was allowed by the lease. The trial court judgment is correct and is hereby affirmed.

History {?3} In 1979, Willard and Eleanor Maienknecht owned 65.441 acres located in Jackson Township, Monroe County, Ohio. On March 15, 1979, they leased the property to Pan American Exploration for purposes of oil and gas drilling. In 1981, two wells were drilled on the property (Well #1 and Well #2). Neither well produced any oil or gas, and the lease was subsequently released in the fall of 1988 by KDA, Inc., the successor in interest to Pan American Exploration. {?4} In November 1988, the Maienknechts entered into a second oil and gas lease for the same acreage that was the subject of the 1979 lease. The new lessee was Greg Cappadona, d/b/a Austin Enterprises. The lease had a six-month primary term. (11/1/88 Lease, ?4.) The secondary term of the lease continued "as long thereafter as said premises are operated by lessee in the search for or production of oil or gas in paying quantities or as long as this lease is extended by any other provision hereof." (11/1/88 Lease, ?4.) {?5} Paragraph 14 of the lease stated that "[t]he purpose of this lease is so that the Lessee may put the existing wells into production." (Emphasis sic.) (11/1/88 Lease, ?14.) The lessee was required to put the first well into production within six months, and the second well into production within the following six months. (11/1/88 Lease, ?14.) The lease stated that "[i]f this schedule is not adhered to, then the Lessee shall release said lease back to Lessor or begin paying shut-in royalties." (Emphasis sic.) (11/1/88 Lease, ?14.) The lease also allowed Appellees to take

-3200,000 cubic feet of free gas for domestic use, at their sole risk and expense. Any additional amount used must be paid for at a fair domestic rate. (11/1/88 Lease, ?11.) The first well was put into production in the spring of 1988, but the second well was not put into production until 1995. There is no evidence that shut-in royalties were ever paid.

{?6} In January of 1989, Cappadona assigned 50% of his interest in Well #1 to Appellant. In August of 2003, Cappadona assigned his remaining interest in the lease to Appellant. In 2010, Cappadona again assigned all his remaining interest in the lease to Appellant.

{?7} On January 11, 1999, Appellees acquired the Maienknechts' real property located in Monroe County and became the lessors of the 1988 lease.

{?8} On February 29, 2012, Appellees recorded an "Affidavit of Facts Relating to Title" pursuant to R.C. 5301.252 in the Monroe County Recorder's Office.

{?9} On August 26, 2012, Appellees filed a declaratory judgment action in the Monroe County Court of Common Pleas. The complaint requested a declaration that the lease had terminated due to expiration of the primary term, the nonproduction of the two wells, and the failure of the lessee to pay production or shut-in royalties. Appellees presented evidence that the second well was not put into production until 1995, that no production royalties had been paid except for five de minimus checks in 2004 and 2005 totaling $68.59, that no shut-in royalties had been paid, and that neither Appellant nor the prior lessees reported any production to the Ohio Department of Natural Resources until 2008. Appellant responded by introducing production records from 2003-2011. Appellant also cited to a deposition of Mr. Price in which he stated that he had no personal knowledge of events at the

-4well from 1988 to 1999, and that he had used some gas for personal use. Appellant argued that Appellees had ratified the lease by their acceptance of royalties, by taking gas for personal use, and by failing to take affirmative action to terminate the lease in a timely manner. The trial court granted summary judgment to Appellees on the grounds that the lease required both wells to be put into operation by November 1, 1989. If both wells were not put into production by that date, the lease terminated and the lessee was required to release the lease back to the lessor. The court held that paragraph 14 of the lease did not require any affirmative action by the lessor to terminate the lease. The court filed its judgment entry on July 8, 2013 and this timely appeal followed.

ASSIGNMENT OF ERROR

The Trial Court erred in granting summary judgment based only on the finding that the subject oil and gas lease terminated as a matter of law on November 1, 1989.

{?10} This appeal involves a challenge to the decision to grant summary judgment in a matter involving the interpretation of an oil and gas lease. An appellate court conducts a de novo review of a trial court's decision to grant summary judgment, using the same standards as the trial court, set forth in Civ.R. 56(C). Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E. 241 (1996). Before summary judgment can be granted, the trial court must determine that: (1) no genuine issue as to any material fact remains to be litigated, (2) the moving party is entitled to judgment as a matter of law, (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing the evidence most

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