Cedar Farm, Harrison County, I v. Louisville Gas and Electric Co
Filing
Filed opinion of the court by Judge Williams. AFFIRMED. Frank H. Easterbrook, Chief Judge; Diane P. Wood, Circuit Judge and Ann Claire Williams, Circuit Judge. [6341456-3] [6341456] [10-2234]
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In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2234
C EDAR F ARM , H ARRISON C OUNTY, INC.,
Plaintiff-Appellant,
v.
L OUISVILLE G AS AND E LECTRIC C OMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 07 C 1230—David F. Hamilton, Judge.
A RGUED M AY 9, 2011 — D ECIDED S EPTEMBER 29, 2011
Before EASTERBROOK, Chief
WILLIAMS, Circuit Judges.
Judge,
and
WOOD and
W ILLIAMS, Circuit Judge. This case involves an attempt
by the landowner Cedar Farm to expel the Louisville
Gas and Electric Company from its property and
terminate an oil and gas lease for violations of
certain portions of the lease. Because we find that the
lease allows for a damages remedy, and that Cedar
Farm has not shown that damages are inadequate
to compensate for the harm to its property, we affirm
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the district court’s grant of summary judgment to Louisville Gas and Electric on Cedar Farm’s ejectment claim.
I. BACKGROUND
Cedar Farm owns 2,485 acres of land, approximately four
square miles, along the Ohio River in southern Indiana.
On the property is Indiana’s only antebellum plantation complex, which includes Withers’ Mansion, an
1837 classical-revival structure. The plantation complex
is currently on the National Register of Historic
Places. Approximately 2,000 acres of the property
have been designated as a “classified forest” by the
Indiana Department of Natural Resources, and these
lands include habitats for rare and endangered
wildlife species. Cedar Farm has a number of public
uses: the property is enjoyed by members of the
general public, used by the Girl Scouts of Kentuckiana,
and utilized for research by the Nature Conservancy
and Cornell University.
Louisville Gas and Electric Company (“LG&E”) is
a regulated gas and electric utility com pany
serving customers in Kentucky. Starting in 1947,
LG&E secured multiple leases in its favor for storing
and extracting oil and natural gas on certain portions of
the current property. By June 1996, Cedar Farm
had acquired all of the parcels of the property, and the
parties then negotiated to consolidate the multiple
leases into the Amended and Consolidated Oil, Gas
and Gas Storage Lease (the “Lease”). The Lease
encumbers approximately 2,176 acres of the property.
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The Lease, by its express terms, continues in effect
so long as “oil or gas is produced in paying quantities”
or “the Property continues to be used for the underground storage of gas.” The Lease also contemplates
two other events giving rise to termination: (1) the cancellation provision, which affords LG&E (but not Cedar
Farm) the right to “surrender” the Lease “at any time
upon payment of one ($1.00) dollar . . . ;” and
(2) the payments clause, which says that the failure of
LG&E to make required payments under the Lease is
not a basis for invalidating its rights unless payment is
still not forthcoming 30 days after written demand
by Cedar Farm.
The Lease contains a specific provision requiring
LG&E to “pay for damages caused by its operations,”
and contains a specific formula for calculating monetary damages for harm to the trees on Cedar
Farm’s property. It contains a number of other provisions
intended to preserve the integrity of the historic sites
and forest habitats. Specifically, the Lease authorizes
LG&E to use the property only “as may be minimally
necessary . . . in connection with its production or
storage operations.” LG&E is obliged to give Cedar
Farm prior notice of any activity on the Property and
to cooperate with Cedar Farm so as not to interfere unreasonably with Cedar Farm’s use of the Property. And
LG&E must “use its best efforts to do all . . . activities
related to its operations in a workmanlike manner.”
Cedar Farm claims that LG&E has repeatedly breached
the Lease. Cedar Farm alleged that LG&E: (a) used
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out-of-state maintenance crews to “hack down
trees needlessly and indiscriminately”; (b) removed
tree limbs in several areas, including classified-forest
areas, without proper notice to Cedar Farm; (c) installed
pump jacks (large, above-ground pumping units
also known as “nodding donkeys”) on elevated platforms in the middle of a scenic vista overlooking the
Ohio River known as “Pinnacle Point” and painted
them bright yellow; (d) has tossed concrete rubbish into
the brush adjacent to the pump jacks and dumped (or
allowed others to dump) construction and scrap
materials on the property; (e) allowed ruts and
other impediments to render some road areas on
the property nearly impassable; and (f) installed
(or allowed others to install) storage tanks that appear
to be leaking unidentified fluids. Cedar Farm also
alleges that after the lawsuit was filed, LG&E
mowed down chestnut saplings provided by the American
Chestnut Society, and it locked the gate in late
December 2008, preventing the owners from accessing
the Property during the holiday season.
Cedar Farm filed suit in state court, which was removed
to the Southern District of Indiana. Count one of
Cedar Farm’s amended complaint sought damages,
and count two sought to evict LG&E from the property
and to terminate the lease. After discovery, LG&E
moved for partial summary judgment on the second
count, arguing that the lease did not contemplate
ejectment for the misconduct alleged by Cedar Farm,
only damages. Cedar Farm argued that the lack of a
clause regarding termination for such conduct did not
bar its ejectment action.
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The district court granted LG&E’s motion for partial
summary judgment, finding that a disagreement about
the use of land was not an expressly provided for
rationale for termination, and that the lease specifically
provided that damages were the proper remedy for such
a disagreement. The court rejected Cedar Farm’s arguments that silence as to termination for non-compliance
with the provisions at issue allowed termination as
an available remedy. The court also found that Cedar
Farm failed to show that damages were an insufficient
remedy.
LG&E then moved for summary judgment on the
damages claim. Rather than litigate its damages claim,
Cedar Farm filed a motion to dismiss count
one voluntarily, without prejudice. LG&E objected
and argued that dismissal should occur with prejudice
or with certain conditions, including Cedar Farm’s reimbursement of LG&E’s attorneys’ fees and costs incurred
in moving for summary judgment and an order
requiring that any future lawsuit arising from the
same circumstances be filed in federal district court.
The district court gave Cedar Farm the choice of those
two options. Cedar Farm, Harrison Cnty., Inc. v. Louisville
Gas and Elec. Co., 2010 WL 1268051, at *2 (S.D. Ind.,
March 26, 2010). Cedar Farm elected to dismiss
the damages claim with prejudice so it could go
forward with an appeal of the ejectment claim. The
district court entered final judgment, and Cedar Farm
now appeals the grant of summary judgment to LG&E
on the ejectment claim.
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II. ANALYSIS
We review a district court’s order granting
summary judgment de novo. Walker v. Sheahan, 526
F.3d 973, 976 (7th Cir. 2008). We construe all facts
and reasonable inferences in favor of the non-moving
party. Marion v. City of Corydon, Ind., 559 F.3d 700, 704
(7th Cir. 2009). Summary judgment is appropriate
where the pleadings, discovery, disclosure materials
on file, and any affidavits show that there is no
genuine issue of material fact and that the movant
is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56(a); Estate of Suskovich v. Anthem Health Plans
of Va., Inc., 553 F.3d 559, 563 (7th Cir. 2009).
Cedar Farm argues that the district court essentially
decided this issue as a matter of law based on the pleadings, and that we should treat this case as a 12(b)(6)
motion, finding that the allegations are sufficient for
the case to proceed to the trier of fact. This is a misreading of the district court’s opinion. The district
court specifically found that “[t]o avoid summary judgment on the remedy of termination, Cedar Farm needed
to come forward with evidence that would allow a reasonable trier of fact to conclude that damages would
not compensate it adequately for the harm to its property.
. . . It has not done so.” This is a determination that,
even viewed in the light most favorable to Cedar Farm,
the record did not show a genuine issue of material
fact. Cedar Farm does not suggest that it was denied
the opportunity to provide additional evidence
regarding the adequacy of damages (which it was seeking
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in count one of the amended complaint and had not
yet sought dismissal on); rather, it rests on its allegations.
Despite Cedar Farm’s reliance on the allegations in
the amended complaint, we decline to view the proceedings as a 12(b)(6) motion.
The only question before us is whether termination
is permitted based on the damage to the property
caused by LG&E. Under Indiana law, courts will
generally enforce forfeiture or termination clauses in
oil and gas leases before the lessee has begun drilling.
Risch v. Burch, 95 N.E. 123, 126 (Ind. 1911). This
ensures that the lessor, in the event the lessee does not
drill or seek to extract the resources profitably, can enter
into a new contract and avoid losing the economic value
of the resources below. But once the lessee begins
to produce oil or gas, it acquires an interest in the
land. Rembarger v. Losch, 118 N.E. 831, 833 (Ind. App.
1918) (“[I]f such exploration and development is made
in accordance with the terms of such lease, and oil or
gas are produced thereby as therein provided, such
lessee acquires an interest in such land.”). As the
district court noted, and as the parties agree, courts
are reluctant to enforce even explicit forfeiture
provisions if damages can adequately compensate
the lessor. Barrett v. Dorr, 212 N.E.2d 29, 35 (Ind.
App. 1965); Rembarger, 118 N.E. at 833.
In Rembarger, the lessor of an oil and gas lease
sought cancellation of the lease based on the lessee’s
alleged noncompliance with the agreement. After a
bench trial, the trial court found that there was sufficient
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evidence of breaches of the agreement for which termination was contemplated in the lease. Rembarger, 118 N.E.
at 832. The Appellate Court of Indiana reversed,
finding that even though the termination was based
on “certain specific violations” of the lease, the lessor
failed to show that money damages were inadequate
to compensate for losses. Id. at 833. The court found that
“it is well settled that to entitle a lessor of mining
property to equitable relief by way of forfeiture or cancellation of a lease . . . it must appear that there is not
an adequate remedy at law by suit for damages.” Id. at 83334. Notably, the court found that “[t]he burden is upon
the plaintiff to establish an absence of such remedy,
when relief in equity is sought.” Id. at 834.
Cedar Farm relies primarily on Thurner v. Kaufman,
699 P.2d 435, 438-41 (Kan. 1984), a Kansas Supreme
Court case which affirmed termination of an oil and
gas lease after production had commenced. In Thurner,
the lease did not contain an express termination provision,
but the court found that the lessee had “flagrantly violated” restrictions on its use of the surface “as to deny
the lessors the use of the surface rights retained.” Id. at
439. In that case, the lessee: (a) allowed salt water to be
drained onto the land, (b) left gates open allowing
livestock to escape, (c) allowed oil to spill which covered
livestock and affected livestock breeding, and (d)
allowed oil to drain into a pond. The court in
Thurner found that the violations denied “the lessors
the right to pursue farming operations which are
the lessors’ means of livelihood.” Id.
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The district court considered the effect of Thurner on this
case, and assumed that “Indiana courts might follow
Thurner on similarly extreme facts,” but found that
“the breaches alleged by Cedar Farm are not so comparable
as to justify the extreme remedy of implying a right
of forfeiture of this producing oil and gas lease.” We
agree. While LG&E’s damage to this unique and
historic property is certainly not trivial, the Lease contemplates money damages as the proper remedy. And
to overcome the express terms of the Lease and eject
LG&E from the property, Cedar Farm cannot rely on
the mere existence of harm as alleged in its complaint
and the statements in its filings that LG&E “treats
all injuries as remediable simply by writing a check —which
is not the case with this historically, architecturally,
and environmentally significant Property.” We do
not doubt that “[e]nvironmental injury, by its nature,
can seldom be adequately remedied by money damages.” Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531,
545 (1987). But to survive summary judgment in this
case and under this Lease, Cedar Farm needed to
provide specific evidence in order to show a trier of fact
the environmental impact of LG&E’s actions and
why writing a check would be insufficient. See Fed. R.
Civ. P. 56(c)(4), (d)-(e); see also, Omnicare, Inc.
v. UnitedHealth Group, Inc., 629 F.3d 697, 707 (7th Cir.
2011) (“ . . . to survive summary judgment . . . Omnicare
must show that it has produced evidence that, when considered collectively, would permit a reasonable jury
to conclude that United and PacifiCare agreed to
work together to fix prices.”) (emphasis added); Clifford
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v. Crop Prod. Servs., Inc., 627 F.3d 268, 271 (7th Cir.
2010) (finding that to survive summary judgment,
farmer needed to produce evidence perm itting
reasonable trier of fact to find all of elements of claim).
Did the specific trees that were cut down serve as
the habitat for specific endangered species? Did
the “unidentified” fluids have an identity and
damage irreplaceable structures or prevent users
from carrying out their enjoyment of the property?
An affidavit or other form of proof along these lines
was necessary, and Cedar Farm did not submit, and
does not argue it was prevented from submitting,
such evidence to the district court.
Cedar Farm alternatively seeks certification to
the Indiana Supreme Court on the question of “whether
Indiana would allow a lessor to terminate an oil-and-gas
lease where recurring breaches of the lease threaten
to inflict intangible, irreparable harm on the
subject property.” In applying our Circuit Rule 52,1
1
Circuit Rule 52 reads in relevant part:
(a) When the rules of the highest court of state provide for
certification to that court by a federal court of questions
arising under the laws of that state which will control the
outcome of a case pending in the federal court, this court, sua
sponte or on motion of a party, may certify such a question to
the state court in accordance with the rules of that court, and
may stay the case in this court to await the state court’s
decision of the question certified. The certification will
(continued...)
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we have found that “[t]he most important consideration
guiding the exercise of this discretion . . . is whether
the reviewing court finds itself genuinely uncertain
about a question of state law that is vital to a
correct disposition of the case.” State Farm Mut. Auto.
Ins. Co. v. Pate, 275 F.3d 666, 672 (7th Cir. 2001) (quoting
Tidler v. Eli Lilly & Co., 851 F.2d 418, 426 (D.C. Cir.
1988)). We have further held that “certification is appropriate when the case concerns a matter of vital public
concern, where the issue will likely recur in other
cases, where resolution of the question to be certified
is outcome determinative of the case, and where the
state supreme court has yet to have an opportunity
to illuminate a clear path on the issue.” In re Badger
Lines, Inc., 140 F.3d 691, 698-99 (7th Cir. 1998). We
are careful not to “overburden state courts with requests
for certification when what is required is not
the promulgation of new law but rather, the exercise of a
court’s judgment.” State Farm, 275 F.3d at 672. “[F]act
specific, particularized decisions that lack broad, general
significance are not suitable for certification to a
state’s highest court.” Woodbridge Place Apartments
v. Washington Square Capital, 965 F.2d 1429, 1434 (7th
Cir. 1992).
The Indiana Supreme Court rule authorizing certified
questions from federal courts imposes two requirements:
1
(...continued)
be made after the briefs are filed in this court. A motion for
certification shall be included in the moving party’s brief.
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the state-law issue must be “determinative” of the case
and not governed by “clear controlling” state-law precedent: “[A]ny federal circuit court of appeals . . . may
certify a question of Indiana law to the Supreme
Court when it appears to the federal court that a proceeding presents an issue of state law that is determinative of
the case and on which there is no clear controlling Indiana
precedent.” Ind. App. Rule 64(A).
As we have said above, the parties agree that under
Indiana law forfeiture is a disfavored remedy unless
the lessor makes a showing that money damages
are inadequate. Cedar Farm cannot show that there is
a conflict between state intermediate courts of appeal,
or that we face an issue of first impression in Indiana.
See State Farm, 275 F.3d at 672 (citations omitted).
Cedar Farm seeks to certify the question of whether
the type of recurring damage alleged would suffice,
which we find is not an appropriate question for certification. Not only is this a question that relates to specific
facts and is an exercise of the court’s judgment, but
Cedar Farm fails to acknowledge that it was an evidentiary
failure that led to the district court granting summary
judgment to LG&E, and this would not be resolved
by certification. We therefore decline Cedar Farm’s
request for certification.
Cedar Farm argues that absent a finding that termination is warranted here, LG&E will repeatedly
and materially violate the lease, and Cedar Farm’s
only remedy will be to sue (again and again) for damages. For the sake of the property, we hope that is not the
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case. But those are the terms of the Lease, and because
there was no showing that money damages would be
inadequate, we affirm the grant of summary judgment on
the ejectment claim.
III. CONCLUSION
For the reasons set forth above, the grant of summary
judgment in favor of LG&E is A FFIRMED.
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