Chesapeake Exploration, L.L.C. et al v. Catlett Quality Plumbing & Heating, Inc. et al
Filing
60
Order granting Plaintiffs' Motion for summary judgment (Related Doc # 38 ); denying Defendants' Motion to dismiss (Related Doc # 51 ); denying as moot Plaintiffs' Motion to schedule oral argument (Related Doc # 58 ). Judge John R. Adams on 10/30/12.(L,J)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
Chesapeake Exploration, LLC, et al.,
Plaintiffs,
v.
Catlett Quality Plumbing & Heating,
Inc, et al.,
)
)
)
)
)
)
)
)
)
CASE NO. 5:12CV188
JUDGE JOHN R. ADAMS
MEMORANDUM OF OPINION
AND ORDER
Defendants
This matter appears before the Court on Plaintiffs’ motion for summary judgment (Doc.
38), Defendants’ motion to dismiss (Doc. 51), and Plaintiffs’ motion to schedule oral argument
on their motion for summary judgment (Doc. 58). The motion for summary judgment is
GRANTED.
The motion to dismiss is DENIED.
The motion to schedule oral argument is
DENIED AS MOOT.
I.
Factual Background and Procedural History
The substantive facts giving rise to this matter are largely undisputed by the parties.
Plaintiffs Chesapeake Exploration, LLC and CHK Utica, LLC (collectively “Chesapeake”)
purchased oil and gas leases from Anschutz Exploration Company. Defendants are numerous
business and individuals that had entered into these leases with Anschutz. The parties are before
the Court because they cannot agree on the interpretation and effect of one provision common to
all of the leases. Specifically, the provision reads as follows:
14. PREFERENTIAL RIGHT TO RENEW. If, at any time during the primary
term hereof, or within one (1) year from the expiration, cancellation or
termination of this Lease, Lessor receives an acceptable, bona fide third-party
offer to lease the Leasehold, in whole or part, Lessor shall promptly provide the
Lessee, in writing, of all of the verifiable particulars of such offer. Lessee shall
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have thirty (30) days from the receipt thereof to advise Lessor, in writing, of its
agreement to match said third-party offer as to all terms and consideration;
immediately thereafter, Lessor and Lessee shall take all cooperative steps
necessary to effectuate the consummation of said transaction and the survival of
said transaction through any statutorily mandated right of cancellation thereof.
Any lease or option to lease the Leasehold, in whole or part, granted by Lessor in
contravention of the purposes of this paragraph shall be deemed null and void.
Doc. 38-3 at 4.
For the purposes of the pending motion, it appears that the parties agree that Defendants
have received acceptable, bona fide offers from a third party to the lease their property. 1 It also
appears that the parties agree that Chesapeake has declined to match these offers. The parties,
however, sharply disagree over the effect of Chesapeake’s decision. The Court now resolves that
disagreement.
II.
Law and Analysis
A. Summary Judgment Standard
Summary judgment is proper if “the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed.R. Civ.P. 56(a).
The initial burden of showing the absence of any “genuine issues” belongs to the moving party.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (citing former Fed.R. Civ.P. 56(c)).
[A] party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and identifying those
portions of “the pleadings, depositions, answers to interrogatories, and admissions
on file, together with affidavits, if any,” which it believes demonstrate the absence
of a genuine issue of material fact.
Id. (quoting former Fed.R. Civ.P. 56(c)). A fact is “material” only if its resolution will affect the
outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Determination of whether a factual issue is “genuine” requires consideration of the applicable
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That is not to say that Chesapeake has agreed that Defendants have properly invoked this
provision or that applies to the specific offers relied upon by Defendants.
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evidentiary burdens. Id. at 252. Moreover, the Court must view a summary judgment motion
“in the light most favorable to the party opposing the motion.” U.S. v. Diebold, Inc., 369 U.S.
654, 655 (1962).
Once the moving party has satisfied its burden of proof, the burden then shifts to the nonmoving party. The non-moving party may not simply rely on its pleadings, but must “produce
evidence that results in a conflict of material fact to be resolved by a jury.” Cox v. Kentucky
Dep’t of Transp., 53 F.3d 146, 150 (6th Cir. 1995). Moreover, Fed.R. Civ.P. 56(e) states as
follows:
If a party fails to properly support an assertion of fact or fails to properly address
another party’s assertion of fact as required by Rule 56(c), the court may:
…
(2) consider the fact undisputed for purposes of the motion; [or]
(3) grant summary judgment if the motion and supporting materials--including the
facts considered undisputed--show that the movant is entitled to it[.]
Accordingly, summary judgment analysis asks whether a trial is necessary and therefore is
appropriate when there are no genuine issues of fact. Anderson, 477 U.S. at 250.
B. Contract Interpretation
“The role of courts in examining contracts is to ascertain the intent of the parties.”
Savedoff v. Access Group, Inc., 524 F.3d 754, 763 (6th Cir. 2008), (citing City of St. Marys v.
Auglaize Cty. Bd. of Commrs., 875 N.E.2d 561, 566 (Ohio 2007). Where the terms in a contract
are not ambiguous, courts are constrained to apply the plain language of the contract. Nationwide
Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d 684, 686 (Ohio 1995).
In this specific
subject matter area, Ohio courts have noted as follows:
“The rights and remedies of the parties to an oil or gas lease must be determined
by the terms of the written instrument [.]” Harris v. Ohio Oil Co., 57 Ohio St.
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118, 129 (1897). “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.”
Id. The construction of written contracts and instruments of conveyance is a
matter of law that this court reviews de novo. Bath Twp. v. Raymond C. Firestone
Co., 140 Ohio App.3d 252, 256 (2000).
Kramer v. PAC Drilling Oil & Gas, LLC, 197 Ohio App.3d 554, 558 (2011).
Ohio courts have further explained contract interpretation:
Common words appearing in a written instrument will be given their ordinary
meaning unless manifest absurdity results, or unless some other meaning is
clearly evidenced from the face or overall contents of the instrument. Shifrin v.
Forest City Enterprises, 64 Ohio St.3d 635, 638. The court must read words and
phrases in context and apply the rules of grammar and common usage. Keller v.
Foster Wheel Energy Corp., 163 Ohio App.3d 325. The rules of grammar require
“dependent clauses [to] modify some part of the main clause.” Id., citing Bryan
Chamber of Commerce v. Bd. of Tax Appeals (1966), 5 Ohio App.2d 195. See,
also, Carter v. Youngstown (1946), 146 Ohio St. 203, 209 (“referential and
qualifying words and phrases, where no contrary intention appears, refer solely to
the last antecedent.”)... Moreover, contracts must be interpreted in a way that
renders all provisions meaningful and not mere surplusage. Sherwin-Williams Co.
v. Travelers Casualty & Surety Co., Cuyahoga App. No. 82867, 2003-Ohio-6039.
With regard to the law pertaining to rights of first refusal, we note that a right of
first refusal constitutes a promise to present offers made by third parties to the
promisee in order to afford the promisee the opportunity to match the offer.
Latina v. Woodpath Development Co. (1991), 57 Ohio St.3d 212.
Lo-Med Prescription Servs., Inc. v. Eliza Jennings Group, 200y WL 1290078, at *3-4 (Ohio Ct.
App. May 3, 2007).
Despite Ohio law’s clarity on the law surrounding contract interpretation, the parties’
proposed constructions of the Preferential Right to Renew provision are vastly different. This
Court, therefore, will review the entirety of the provision, including those portions in which the
parties appear to be in agreement.
1) 14. PREFERENTIAL RIGHT TO RENEW.
Chesapeake contends that the title of this paragraph should assist in the Court’s review of
the matter. Defendants, however, contend that the Court should not place any weight on this
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section’s title. In support, Defendants rely upon Worth v. Aetna Cas. & Sur. Co., 32 Ohio St.3d
238, 241 (1987). However, Worth does not stand for the proposition that the Court should
disregard a heading. Worth notes as follows: “The absence of an express ‘indemnification’
provision in the agreements is not determinative since the nature of a given provision is
determined not by the label the parties give it, but rather by the legal effect of the provision as
expressed by the parties in their agreement.” Id. Thus, the Worth court noted that the lack of a
heading was not dispositive. It did not hold that headings were irrelevant or should be ignored.
Moreover, while the parties were free to negotiate, they did not negotiate a provision that stated
that the headings were inserted for mere convenience and therefore should not be used in
determining the parties’ intent. See, e.g., Sunoco, Inv. v. Toledo Edison Co., 129 Ohio St.3d 397,
402 (2011). Accordingly, this Court is bound to give meaning to all the words chosen by the
parties and will review the heading, if necessary, to interpret this provision.
2) If, at any time during the primary term hereof, or within one (1) year from the
expiration, cancellation or termination of this Lease, Lessor receives an acceptable, bona
fide third-party offer to lease the Leasehold, in whole or part, Lessor shall promptly
provide the Lessee, in writing, of all of the verifiable particulars of such offer.
The Court finds nothing ambiguous about the above provision. The provision allows
Defendants to present bona fide offers to Chesapeake from the first day after a lease is signed
until up to one year beyond the expiration of the lease.
3) Lessee shall have thirty (30) days from the receipt thereof to advise Lessor, in
writing, of its agreement to match said third-party offer as to all terms and consideration;
Similarly, the above provision grants Chesapeake thirty days to match any offer received
and presented by Defendants. The provision is unambiguous and requires no interpretation.
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4) immediately thereafter, Lessor and Lessee shall take all cooperative steps
necessary to effectuate the consummation of said transaction and the survival of said
transaction through any statutorily mandated right of cancellation thereof.
The parties give significantly different interpretations to the above language. For that
matter, not even the different groups of Defendants can agree on its meaning. The Court will
review each of the parties’ proposed interpretations.
First, the Court finds that despite the argument of a group of Defendants, the above
provision is not a most-favored-nation clause. Most-favored-nation clauses grant a contracting
party the absolute right to receive a higher benefit if that benefit is given to another similarly
situated party contracting with the same entity. See, e.g., Sunoco, Inc. v. Toledo Edison Co., 129
Ohio St.3d 397 (2011). However, any such interpretation herein is expressly foreclosed by other
provisions in the leases at issue. Specifically, section 5(L) of the lease provides that “Lessor will
not seek to amend or modify the lease payments [or] seek additional consideration… based upon
[] any differing terms which Lessee has or will negotiate with any other lessor/oil and gas
owner.” Doc. 38-3 at 3. Thus, any assertion that the paragraph in dispute is a most-favorednations clause cannot withstand scrutiny.
Strangely, this same group of Defendants contends that Chesapeake cannot rely on
section 5(L) of the lease because these Defendants are not seeking higher payments based upon
any offer by Chesapeake. However, this is precisely the conduct that would be necessary –
higher offers to other by Chesapeake – to invoke a most-favored-nations clause. Accordingly,
the Court finds no merit in these arguments.
Finally, the parties again offer sharply different views on the meaning of the following:
“shall take all cooperative steps necessary to effectuate the consummation of said transaction.”
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Chesapeake contends that the above is only applicable if they have agreed to match the bona fide
offer. In contrast, Defendants contend that the above provision requires Chesapeake to cooperate
in closing any transaction -- whether it be renewing the lease or terminating it. The Court now
examines that precise provision.
The Court finds that the above provision is unambiguous. Despite numerous attempts by
Defendants to muddy the waters, the entirety of the paragraph above is entitled “preferential
right to renew.” Defendants have gone on at length to argue that “renew” can have any number
of meanings. In particular, Defendants have relied upon these differing meanings to argue
against any temporal limitations on their right to receive bona fide offers. However, in so
arguing, Defendants have missed the vital importance of the term “renew” in the context of this
provision – one can only renew something that is currently in existence. Thus, when the
provision speaks of “consummation of said transaction,” the sole logical interpretation is that
“said transaction” is the renewal expressly spoken of in the title of the provision.
A group of Defendants also contends that the choice to use “immediately thereafter” by
the parties evidences an intent that the lease either be renewed or terminated immediately.
However, Defendants again seek to add language to the lease. The lease provides that “said
transaction” will be immediately consummated. It says nothing about said transaction becoming
effective immediately. There is a vast distinction between the parties entering immediately into a
lease renewal and that renewal becoming effective immediately.
The lease contains no
terminology to suggest that any agreed-upon renewal would become effective immediately.
Therefore, the proffered interpretation from Defendants cannot be utilized by the Court.
Defendants also argue at length the above provision is ambiguous and therefore must be
construed against the drafting party.
In so doing, Defendants ignore that their proffered
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interpretation runs afoul of numerous rules of contract interpretation.
First, in order to adopt Defendants’ proffered interpretation, the Court would need to add
words to the lease. The lease does not contain a termination provision. There is no wording in
any portion of the lease that discusses terminating the lease. However, Defendants would have
the Court infer that “consummation of said transaction” is the equivalent of a termination
provision. However, this conclusion can only be reached by ignoring the plain language utilized
by the parties in paragraph 14. To reach this conclusion, the provision would need to read
“consummation of said transaction or termination of this lease.” Contract interpretation forbids
adding terms to the lease.
Furthermore, Defendants’ proffered interpretation is at odds with other provisions within
the lease. Section 3 of the lease is titled “Lease Term” and provides as follows:
This Lease shall remain in force for a primary term of three (3) years from … (the
“effective date”) and for as long thereafter as prescribed payments are made, or
for as long thereafter as operations are conducted on the Leasehold in search of or
production of oil, gas, or their constituents, or for as long as a well capable of
production is located on the Leasehold or lands pooled or unitized therewith, or
for as long as extended by provision herein. If after the primary term the last
producing well on the Leasehold or lands pooled or unitized therewith is plugged
and abandoned, the Leasehold will remain under Lease for an additional period of
one year from the date of plugging and abandonment, subject to the payment of
delay rental.
Doc. 38-3 at 2. In turn, section 4 of the lease provides Chesapeake with the option to extend the
primary term of the lease for an additional three years. Defendants, however, contend that
section 14 may serve to terminate the lease at any time. Neither section 3 or 4 of the lease
references section 14, nor does section 14 reference section 3 or 4. Thus, Defendants’ proffered
interpretation would serve to render meaningless the mandatory language, “shall remain in
force,” in section 3. Instead, again, Defendants’ interpretation would add language to the lease.
Defendants’ interpretation would result in section 3 reading “the lease shall remain in force for a
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primary term of three (3) years unless Lessor receives a bona fide offer and Lessee declines to
match said offer.” However, that is not the language negotiated by the parties, and the Court
declines to add words to the parties’ agreement.
Finally, much argument is made that discusses section 14 as a “fair market value”
provision. Defendants detail how this terminology was commonly used when negotiating the
leases at issue. However, the term is nowhere found in the lease. Accordingly, reliance on that
term to interpret the unambiguous lease provision would be error.
5) Any lease or option to lease the Leasehold, in whole or part, granted by Lessor in
contravention of the purposes of this paragraph shall be deemed null and void.
Again, this final provision in section 14 is unambiguous. If Defendants enter into a lease
or option to lease that violates Chesapeake’s rights in the current lease or its right to renew, the
new lease or option is void.
Based upon all of the above, the Court finds no ambiguity in the section 14 of the lease.
Section 14 grants Chesapeake a right to match a bona fide offer and renew the lease. It does not
ever speak of depriving Chesapeake of its current rights in the lease.
It is clear that
Chesapeake’s choice to not match a bona fide offer does nothing other than allow the current
lease to run its course. As such, Chesapeake’s motion for summary is GRANTED.
Also pending before the Court is a motion by a group of Defendants seeking to dismiss
this matter for failure to join an indispensable party. The Court finds no merit in that motion.
The Sixth Circuit has explained the Court’s analysis in this area of law as follows:
We use a three-part test to determine whether a party is indispensable under Rule
19. “First, the court must determine whether the person or entity is a necessary
party under Rule 19(a).” Glancy, 373 F.3d at 666. “Second, if the person or entity
is a necessary party, the court must then decide if joinder of that person or entity
will deprive the court of subject matter jurisdiction.” Id. “Third, if joinder is not
feasible because it will eliminate the court's ability to hear the case, the court must
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analyze the Rule 19(b) factors to determine whether the court should in equity and
good conscience dismiss the case because the absentee is indispensable.” Id.
(citation and internal quotation marks omitted). Thus, a person or entity “is only
indispensable, within the meaning of Rule 19, if (1) it is necessary, (2) its joinder
cannot be effected, and (3) the court determines that it will dismiss the pending
case rather than proceed in the case without the absentee.” Id. (citing 4 Moore’s
Fed. Practice § 19.02[3][c], at 19–22).
A party is necessary under Rule 19 if either (1) in the party’s absence, the court
cannot accord complete relief among existing parties, Fed.R.Civ.P. 19(a)(1)(A),
or (2) if the party claims an interest relating to the subject of the action and
disposing of the action in the party’s absence may (i) as a practical matter impair
or impede the party’s ability to protect the interest; or (ii) leave an existing party
subject to a substantial risk of incurring multiple or otherwise inconsistent
obligations because of the interest, Fed.R.Civ.P. 19(a)(1)(B).
Laethem Equipment Co. v. Deere & Co., 2012 WL 2149755, at *4 (6th Cir. June 13, 2012).
In their motion, Defendants contend that Total E&P USA, Inc. (“Total”) is an
indispensable party that must be joined to this suit. Specifically, Defendants contend that Total
holds a majority interest in most of the leases at issue herein. In response, Chesapeake has
asserted that such a statement is factually inaccurate and legally irrelevant.
First, Chesapeake asserts that Total was assigned 89% of the interest in the leases that
was held by Chesapeake Exploration, LLC.
Chesapeake then clarifies that Chesapeake
Exploration, LLC only held a minority interest in the leases to begin with and that the other
plaintiff in this matter, CHK Utica, LLC, held a majority interest in those leases and still does to
this date. Chesapeake asserts that Total does not own more than a 25% interest in any one of the
leases. Furthermore, Chesapeake asserts that Total is fully aware of this litigation and has
declined to become involved.
With respect to whether Total is a necessary party, it is clear that disposing of this action
will not impair Total’s ability to protect its interest. First, as a majority holder in the leases at
issue, Chesapeake and CHK Utica are aligned with Total and will protect its interests.
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Furthermore, as an assignee, Total would have direct recourse against the Chesapeake entities in
the event that this litigation impacted the value of the assignment. Accordingly, under that prong
of the analysis, Total is not a necessary party.
It is also unclear as to how Defendants could be subject to inconsistent obligations if
Total is not joined. The record is now clear that Total is fully aware of this litigation and has
declined to become involved in it. Thus, it is quite clear that a subsequent suit by Total – in the
event that the leases are somehow impaired by the results of this suit – would not be well taken.
In short, along with numerous factual inaccuracies, the motion to dismiss falls well short of
demonstrating that Total is a necessary party, let alone an indispensable one.
Finally, the Court would note that much of the motion and reply brief are dedicated to
allegations that Chesapeake concealed Total’s interests in the leases at issues. The pleadings
tend to utilize inflammatory language and attempt to impute an improper motive to Chesapeake’s
alleged concealment. None of those arguments or alleged facts are relevant to the Court’s
analysis of the motion and the Court can only conclude that they were written in a deliberately
inflammatory manner to attempt to sway the Court. They have not. The motion to dismiss is
DENIED.
III.
Conclusion
Chesapeake’s motion for summary judgment on the issue of section 14 of the leases is
GRANTED. Defendants’ motion to dismiss is DENIED.
IT IS SO ORDERED.
DATE: October 30, 2012
/s/ John R. Adams_________________
Judge John R. Adams
UNITED STATES DISTRICT COURT
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