Eclipse Resources - Ohio, LLC et al v. Madzia
ORDER granting 139 Motion for Summary Judgment; denying 141 Motion for Partial Summary Judgment; granting 143 Motion for Summary Judgment; finding as moot 157 Motion to Dismiss; finding as moot 158 Motion for leave. Signed by Judge Algenon L. Marbley on 1/20/2017. (cw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
ECLIPSE RESOURCES-OHIO, LLC, et al., :
SCOTT A. MADZIA,
Case No. 2:15-cv-00177
JUDGE ALGENON L. MARBLEY
Magistrate Judge Kemp
OPINION AND ORDER
This matter is before the Court on the following motions: (1) the Third Motion for
Summary Judgment (Docs. 139 & 140) of Plaintiffs/Counter-Defendants Eclipse ResourcesOhio, LLC and Eclipse Resources I, LP (collectively, “Eclipse”); (2) Defendant/CounterClaimant Scott Madzia’s (“Madzia”) Motion for Partial Summary Judgment (Doc. 141); and (3)
Defendant XTO Energy, Inc.’s (“XTO”) Motion for Summary Judgment and/or Joinder in
Motion of the Eclipse Entities’ Motion for Summary Judgment. (Doc. 143.) For the following
reasons, the Court GRANTS Eclipse’s and XTO’s Motions, and DENIES Madzia’s Motion.
A. Factual Background.
1. Madzia and Eclipse Execute an Oil and Gas Lease, an Amendment to the Lease and
a Subsurface Easement.
This is a contract dispute concerning the rights and responsibilities of parties to an oil and
gas lease. Madzia owns approximately 128 acres of real property in Stock Township, Harrison
County, Ohio. (See Ex. A to Madzia’s Mot. Part. Summ. J., Affidavit of Scott Madzia (“Madzia
Aff.”) ¶ 2; Answer, Doc. 8, ¶ 10.) On April 10, 2006, Madzia entered into an oil and gas lease
(the “Lease”) with The Oxford Oil Company (“Oxford”). (Madzia Aff. ¶ 3; Ex. A to Eclipse’s
Third Mot. Summ. J., Deposition of Scott Madzia (“Madzia Dep.”) at 35:30–23, Ex. 3.) About
three years later, on June 26, 2013, Madzia and Oxford executed an Amendment and Ratification
of Oil and Gas Lease (the “Amendment”), which granted Oxford the right to pool Madzia’s
property with neighboring properties to create oil drilling units. (See Ex. B. to Second Am.
Countercl.; Madzia Dep. at 39:5–7.) The Amendment obligates the lessee to “at all times
comply with all applicable federal, state and local laws and regulations relative to its operations
conducted on [Madzia’s property.]” (Second Am. Countercl., Ex. B at 4.) Eclipse assumed
Oxford’s rights and obligations under the Lease and Amendment in June 2013. (See Madzia
Aff. ¶ 3; Ex. B to Eclipse’s Third Mot. Summ. J., 30(b)(6) Deposition of Christopher K. Hulburt,
Esq. (“Hulbert Dep.”) at 20:21–21:11.)
In December 2013, Eclipse constructed a well pad site on Madzia’s property (the
“Madzia Pad”) and began drilling the Madzia Unit 2H, 4H, 8H and 10H wells (the “Madzia
Wells”) in or around March 2014. (Second Am. Countercl. ¶ 14.) In April 2014, Madzia and
Eclipse entered into a subsurface easement agreement (the “Subsurface Easement”) to provide
Eclipse with subsurface horizontal drilling rights. (See id. ¶ 16, Ex. C.) When negotiating the
Subsurface Easement, Madzia communicated to Eclipse via e-mail that the Subsurface Easement
granted Eclipse rights only applicable to “the wells currently permitted and being drilled from
this pad,” which at that point, were the Madzia Wells. (Madzia Aff. ¶¶ 12, 14; see also Second
Am. Countercl. ¶ 17, n.3.) Eclipse agreed to this condition, and the final, executed Subsurface
Easement provided Eclipse the right to “drill a wellbore or wellbores across, through, and under
the subsurface” of Madzia’s property “in conjunction with drilling operations on the [Madzia
Wells] . . . and for no other purpose or purposes whatsoever.” (Second Am. Countercl., Ex. C.)
Like the Amendment, the Subsurface Easement also requires Eclipse at its sole cost and expense
to comply “at all times with all applicable federal, state and local laws, rules, regulations and
safety standards in connection with [Eclipse’s] activities hereunder.” (Id.)
2. The John Mills and John Mills West Units.
In early 2014, Eclipse became the operator of four drilling units located north of
Madzia’s property. (Ex. D to Eclipse’s Third Mot. Summ. J., Affidavit of Christopher K.
Hulburt (“Hulburt Aff.”) ¶ 4.) Eclipse consolidated these four units into the John Mills Unit and
the John Mills West Unit. (Id. ¶ 5.) Eclipse determined that it would need another subsurface
easement from Madzia to drill the John Mills West (“JMW”) Wells from Madzia’s property, and
sought a second easement from Madzia in May 2014. (See Second Am. Countercl. ¶¶ 23, 25.)
Madzia refused to execute a second subsurface easement without compensation. (Id. ¶¶ 26, 31.)
Thus, in a purported effort to work around the limitations of the Subsurface Easement,
Eclipse pooled 0.517 acres of Madzia’s property into the JMW Unit and began drilling
operations on the JMW Wells from the Madzia Pad in June 2014, despite Madzia’s objections.
(Id. ¶¶ 32–33; Madzia Aff. ¶¶ 18–19.) Madzia contends that, although Eclipse had originally
intended to frack the Madzia Wells first, Eclipse decided to begin fracking the JMW Wells (in
which Madzia has a de minimis economic interest) before the Madzia Wells (in which Madzia
has a substantial economic interest) to retaliate against Madzia for asserting his rights under the
Subsurface Easement.1 (Second Am. Countercl. ¶¶ 33–34.) According to Madzia, Eclipse has
yet to frack the Madzia Wells. (Id. ¶ 34.)
On September 3, 2014, Madzia’s attorney sent a letter to Eclipse claiming that the Subsurface Easement prohibited
Eclipse from drilling the JMW Wells from the Madzia Pad. (Compl. (Doc. 1) ¶ 26; Answer (Doc. 8) ¶ 26.) Eclipse
notified Madzia on September 11, 2014 of its position that it had the right to do so under the Lease and Amendment.
(Doc. 1 ¶ 28, Doc. 8 ¶ 28.)
3. Eclipse Recycles Madzia’s Affidavit To Obtain Permits for the JMW Wells.
Under Ohio Revised Code Section 1509.05, Eclipse was required to obtain a valid permit
issued by the Chief of the Division of Oil and Gas Resources Management of the Ohio
Department of Natural Resources (“ODNR”) in order to drill the JMW Wells. Ohio Rev. Code
Ann. § 1509.05. On May 15, 2014, Eclipse submitted permit applications for several of the
JMW Wells (Units 1H and 3H) to ODNR and requested expedited review of those applications.
(Hulbert Aff. ¶ 6.) Eclipse intended to drill these wells from the Madzia Pad. (Id. ¶ 9.)
Section 1509.082 of the Ohio Revised Code sets forth the procedure for obtaining a
permit from ODNR to drill an oil and gas well in a coal bearing township:3
Upon receipt of an application for a permit required by section 1509.05 of the
Revised Code, or upon receipt of an application for a permit to plug and abandon
under section 1509.13 of the Revised Code, the chief of the division of oil and gas
resources management shall determine whether the well is or is to be located in a
coal bearing township.
Whether or not the well is or is to be located in a coal bearing township, the chief,
by order, may refuse to issue a permit required by section 1509.05 of the Revised
Code to any applicant who at the time of applying for the permit is in material or
substantial violation of this chapter or rules adopted or orders issued under it. The
chief shall refuse to issue a permit to any applicant who at the time of applying for
the permit has been found liable by a final nonappealable order of a court of
competent jurisdiction for damage to streets, roads, highways, bridges, culverts,
or drainways pursuant to section 4513.34 or 5577.12 of the Revised Code until
the applicant provides the chief with evidence of compliance with the order. No
applicant shall attempt to circumvent this provision by applying for a permit
under a different name or business organization name, by transferring
responsibility to another person or entity, by abandoning the well or lease, or by
any other similar act.
If the well is not or is not to be located in a coal bearing township, or if it is to be
located in a coal bearing township, but the landowner submits an affidavit
Section 1509.06(D) of the Ohio Revised Code enables an applicant to file a request for “expedited review of a
permit application.” If the expedited permit application applies to a well that will be located in a coal bearing
township, the application must be accompanied by an affidavit of the type required by Section 1509.08 of the Ohio
Revised Code. Ohio Rev. Code Ann. § 1509.06(D).
It is undisputed that all municipalities within Harrison County, where Madzia’s property is located, are coal
bearing. (See Doc. 107 at 3 n.1.)
attesting to ownership of the property in fee simple, including the coal, and has no
objection to the well, the chief shall issue the permit.
Ohio Rev. Code Ann. § 1509.08. Essentially, the procedure set forth in the statute permits an
affected coal owner to object to another entity’s application to drill a proposed well. If the owner
objects, “and if, in the opinion of the chief the objection is well founded, the chief shall
disapprove the application and immediately return it to [ODNR] together with the reasons for
disapproval and a suggestion for a new location for the well.” Id. The applying entity can
bypass this process if the coal owner submits an affidavit stating that he or she is the owner of
the property (including the coal) and has no objection to the proposed well. Id.
In July 2013, Eclipse obtained an affidavit from Madzia (the “Coal Affidavit”) stating
that he owned the coal rights on his property and that he had no objections to Eclipse’s drilling of
the Madzia Wells. (Madzia Aff. ¶ 23; Ex. C to Eclipse’s Third Mot. Summ. J., Deposition of
Steve Opritza (“Opritza Dep.”) at Ex. 17.) Eclipse submitted the Coal Affidavit in connection
with its permit application for the Madzia Wells. (Id.) The Coal Affidavit contained no
reference to the JMW Wells. (See Madzia Aff. ¶ 23.) But Eclipse also submitted the Coal
Affidavit with its permit applications for the JMW Wells.4 (Id. ¶¶ 20–24; see also Second Am.
Countercl. ¶ 36.) Eclipse submitted the Coal Affidavit without Madzia’s knowledge or consent.
(Madzia Aff. ¶¶ 20–24.) ODNR issued Eclipse drilling permits for the JMW Wells on June 2,
2014, and Eclipse began drilling the JMW Wells shortly thereafter.5 (See Hulburt Aff. ¶¶ 11–
Eclipse submitted the Coal Affidavit with non-expedited permit applications for several other JMW Wells in
addition to Units 1H and 3H. (See Hulbert Aff. ¶¶ 7–8, 10.)
Eclipse completed drilling operations on these wells in September and October 2014, and began fracking
operations for the wells in early January 2015. (See Hulburt Aff. ¶¶ 13–14.) However, due to a downturn in market
prices, and pursuant to a directive from Eclipse’s Chief Operating Officer, Eclipse ceased all drilling operations on
January 8, 2015. (Ex. E to Eclipse’s Third Mot. Summ. J., Deposition of Oleg Tolmachev (“Tolmachev Dep.”) at
Eclipse’s use of the Coal Affidavit to obtain permits for the JMW Wells is the central
issue in this action. The parties do not dispute that Eclipse did indeed submit the recycled Coal
Affidavit for the JMW Wells permit applications; what is at issue is only whether that
submission was unlawful and therefore a breach of the Lease, Amendment and Subsurface
According to Eclipse, it submitted the Coal Affidavit with its permit application for the
JMW Wells in reliance on the guidance of Patty Nicklaus, the ODNR employee responsible for
reviewing all permit applications. (See Doc. 140 at 19–20.) In response to an inquiry from
Eclipse about the permitting process, Nicklaus informed Eclipse via e-mail that “once you have
received coal approval for at least one well on your pad, it follows that any future wells would
have approval.” (Ex. J to Eclipse’s Third Mot. Summ. J., Deposition of Patricia Nicklaus
(“Nicklaus Dep.”) at Ex. B.) Based on Nicklaus’s directive, Eclipse’s understanding was that
“once one well on the pad received a permit, whether through expedited review or non-expedited
coal review, an operator could receive expedited review of all future wells drilled from the same
pad without having to submit a new coal affidavit for each future well.” (Doc. 140 at 20 (citing
Tolmachev Dep. at 121:4–17; Hulbert Dep. at 71:2–8).) Thus, “because the Madzia Wells had
already gone through expedited review, Eclipse believed it could obtain expedited review for the
John Mills Wells without having to submit new coal affidavits because the wells would be
drilled from the same pad.” (Id.)
Both Nicklaus and Steve Opritza, ODNR’s permitting manager, testified in their
depositions that Eclipse’s understanding was indeed ODNR’s practice at the time Eclipse
submitted its permit applications for the JMW Wells. (Opritza Dep. at 76:1–22, 95:1–7;
171:21–172:6.) Madzia claims that Eclipse shut down operations to retaliate against him for asserting his rights
under the Subsurface Easement. (See Madzia’s Opp’n to Eclipse’s Third Mot. Summ. J., Doc. 148, at 10–13.)
Nicklaus Dep. at 35:18–36:14, 37:3–17.) Opritza also testified that Eclipse acted in good faith
by submitting the Coal Affidavit with the JMW Wells permit applications. (Opritza Dep.at
89:7–13.) Further, ODNR’s own documents show that since 2011, ODNR has issued
approximately seventy permits using recycled affidavits like the Coal Affidavit.6 (See Ex. K to
Eclipse’s Third Mot. Summ. J., Affidavit of Bronson Goss (“Goss Aff.”).)
But Opritza also testified that Eclipse’s submission of the Coal Affidavit to obtain
permits for the JMW Wells violated the governing statutory provisions. (Opritza Dep. at 30:1–
31:8, 129:15–24, 131:16–24, 134:3–6.) Additionally, Simmers testified at his deposition that
Eclipse’s submission of the Coal Affidavit to obtain permits for the JMW Wells was a violation
of the statute and that Nicklaus’s interpretation of the permitting process requirements was not
ODNR’s official interpretation.7 (Simmers Dep. at 138:4–20.)
Further, when ODNR discovered in January 2015 that Eclipse had submitted the Coal
Affidavit to obtain the JMW Wells permits, it demanded that Eclipse submit a new affidavit.
(Second Am. Countercl. ¶ 39, Ex. J.) Eclipse then asked Madzia to execute a coal affidavit
specifically for the JMW Wells, which he refused to do. (Madzia Dep. at 118:2–12.) Because
Eclipse did not produce the requested coal affidavit, ODNR sent Eclipse a draft compliance
agreement stating that Eclipse had violated Ohio Revised Code Sections 1509.06(D) and
1509.08, and on March 4, 2016, ODNR issued orders suspending Eclipse’s operations of the
JMW Wells. (Second Am. Countercl. ¶¶ 41–42, Exs. L & M; Madzia Aff. ¶ 27.) The
suspension orders state that Eclipse is not operating the JMW Wells “in accordance with the
Richard Simmers, Chief of the Oil and Gas Division of ODNR, testified at his deposition that he was unaware that
ODNR had issued other permits based on recycled affidavits. (See Doc. 138, Deposition of Richard Simmers
(“Simmers Dep.”) at 61:14–62:6.)
Nicklaus—the employee who responded to Eclipse’s inquiry about the permitting process—is an office assistant at
ODNR. (Simmers Dep. at 109:3–21.) It was Simmers’ testimony that Opritza is “more knowledgeable” about the
statutory permitting process than Ms. Nicklaus. (Id. at 109:3–16.)
requirements of R.C. 1509.06(D) and 1509.08.” (Second Am. Countercl. ¶¶ 44–45, Exs. L &
Ten days later, ODNR terminated the suspension orders after Judge Frost issued an
opinion and order (Doc. 84) finding that Eclipse’s use of the Coal Affidavit was not a violation
of Ohio law. (Simmers Dep. at 98:5–24, Exs. F & G.) This Court reversed Judge Frost’s ruling
after discovering that it was based on “an incomplete, if not misleading, record.” (Order, Doc.
107 at 9.) While ODNR has taken no further action against Eclipse since the termination of the
suspension orders (see Simmers Dep. at 132:22–133:6), Richard Simmers, current Chief of the
Oil and Gas Division of ODNR, stated that it is ODNR’s current position that Eclipse “has been
and [is] still violating the law by operating the [JMW] Wells.” (Doc. 141 at 7 (citing Simmers
Dep. at 117:11–118:4).)
B. Procedural Background.
On January 20, 2015, Eclipse filed this lawsuit against Madzia, seeking damages for
breach of contract and a declaratory judgment that it is entitled to drill the JMW Wells from the
Madzia Pad. (Doc. 1.)8 One month later, Madzia filed a ten-count counterclaim against Eclipse
(Doc. 8), and amended his counterclaim in April 2015—bringing in additional parties, including
XTO, but asserting identical causes of action. (See Doc. 25.)
On March 2, 2016, Judge Frost granted Eclipse’s Motion to Dismiss Madzia’s Amended
Counterclaims. (Doc. 84.) Holding that Eclipse’s use of the Coal Affidavit did not violate Ohio
law, Judge Frost dismissed all but Eclipse’s claims, a portion of Count V (breach of the covenant
of good faith and fair dealing) of Madzia’s amended counterclaim and Madzia’s claims against
Eclipse amended its Complaint on January 26, 2016. (Doc. 69.)
the non-Eclipse counter-defendants.9 (See id. at 33.) In April 2016, Madzia moved for leave to
file a second amended counterclaim, seeking to reassert claims related to Eclipse’s use of the
Coal Affidavit, based on newly discovered evidence. (See Doc. 92.) This Court granted
Madzia’s motion for leave to file a second amended counterclaim and vacated Judge Frost’s
prior finding that Eclipse’s use of the Coal Affidavit was lawful. (Doc. 107 at 11.) Madzia then
filed his Second Amended Counterclaim (Doc. 113) on July 22, 2016, asserting six causes of
On November 2, 2016, the Court dismissed three of Madzia’s claims based on Judge
Frost’s prior rulings. (See Order, Doc. 134.) Eclipse now moves for summary judgment on the
three remaining counts of Madzia’s Second Amended Counterclaim: (1) Count III – Breach of
the Lease, Amendment and Subsurface Easement; (2) Count IV – Breach of the Covenant of
Good Faith and Fair Dealing of the Lease, Amendment and Subsurface Easement; and (3) Count
VI – Injunction.10 (Docs. 139 & 140.) XTO also moves for summary judgment, or in the
alternative, to join Eclipse’s Motion for Summary Judgment. (Doc. 143.) Finally, Madzia
moves for “partial summary judgment as to liability” on Count III of the Second Amended
Counterclaim, which alleges that “Eclipse breached [its] contractual obligation to comply with
the law in drilling the John Mills West Unit 1H & 3H wells.” (Doc. 141 at 1.) The parties’
motions are fully briefed and ripe for this Court’s review.
All non-Eclipse counter-defendants other than XTO were voluntarily dismissed without prejudice in November
2015. (Doc. 57.)
On December 5, 2016, Eclipse voluntarily dismissed without prejudice its Amended Complaint against Madzia.
LAW AND ANALYSIS
A. Standard of Review.
Federal Rule of Civil Procedure 56(a) provides, in relevant part, that summary judgment
is appropriate “if the movant shows that there is no genuine issue as to any material fact and the
movant is entitled to judgment as a matter of law.” A fact is deemed material only if it “might
affect the outcome of the lawsuit under the governing substantive law.” Wiley v. United States,
20 F.3d 222, 224 (6th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). The nonmoving party must then present “significant probative evidence” to show that
“there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris
Cos., Inc., 8 F.3d 335, 340 (6th Cir. 1993). The mere possibility of a factual dispute is
insufficient to defeat a motion for summary judgment. See Mitchell v. Toledo Hosp., 964 F.2d
577, 582 (6th Cir. 1992). Summary judgment is inappropriate, however, “if the dispute about a
material fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson, 477 U.S. at 248.
The necessary inquiry for this Court is “whether ‘the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law.’” Patton v. Bearden, 8 F.3d 343, 346 (6th Cir. 1993) (quoting
Anderson, 477 U.S. at 251–52). In evaluating such a motion, the evidence must be viewed in the
light most favorable to the nonmoving party. United States S.E.C. v. Sierra Brokerage Servs.,
Inc., 712 F.3d 321, 327 (6th Cir. 2013). The mere existence of a scintilla of evidence in support
of the opposing party’s position will be insufficient to survive the motion; there must be
evidence on which the jury could reasonably find for the opposing party. See Anderson, 477
U.S. at 251; Copeland v. Machulis, 57 F.3d 476, 479 (6th Cir. 1995).
The standard of review for cross-motions of summary judgment does not differ from the
standard applied when a motion is filed by only one party to the litigation. Taft Broad. Co. v.
United States, 929 F.2d 240, 248 (6th Cir. 1991). The fact that both parties have moved for
summary judgment does not mean that the court must grant judgment as a matter of law for one
side or the other; summary judgment in favor of either party is not proper if disputes remain as to
material facts. Rather, the court must evaluate each party’s motion on its own merits, taking care
in each instance to draw all reasonable inferences against the party whose motion is under
consideration. Id. (citing Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.
B. The Coal Affidavit Claims
1. Count III of the Second Amended Counterclaim – Breach of the Lease, Amendment
and Subsurface Easement.
Under Ohio law, the essential elements of a cause of action for breach of contract are: (1)
the existence of an enforceable contract; (2) the performance (or excuse from performance) of
the contractual obligations by the party seeking relief; (3) breach or failure to fulfill contractual
obligations by the other party; and (4) damages suffered by the party seeking relief as a result of
the breach. See Thomas v. Publishers Clearing House, Inc., 29 F. App’x 319, 322 (6th Cir.
2002) (internal citations omitted). Both Madzia and Eclipse move for summary judgment on
Madzia’s claim for breach of the Lease, Amendment and Subsurface Easement. The majority of
the parties’ briefing is centered on the third element: whether Eclipse breached its obligation
under the Lease, Amendment and Subsurface Easement to comply with all applicable laws when
it submitted the Coal Affidavit with its permit application for the JMW Wells.
Madzia argues that he is entitled to summary judgment on the issue of Eclipse’s liability
for breach because ODNR has concluded that Eclipse violated the law by submitting the Coal
Affidavit to support its permit application for the JMW Wells (as confirmed by the testimony of
Simmers and Opritza), and that the Court is obligated to defer to ODNR’s interpretation of Ohio
Revised Code Sections 1509.06(D) and 1509.08. (See Doc. 141 at 8 (citing Simmers Dep. at
107:13–108:8; Opritza Dep. at 30:1–31:8; 129:15–24).) This Court has previously
acknowledged that it must defer to ODNR’s interpretation of the Ohio Revised Code “unless
there are compelling indications that it is wrong.” (Doc. 107 at 9 (citing Weiss v. Pub. Util.
Comm’n, 734 N.E.2d 775 (Ohio 2000)); see also Smith v. Babcock, 19 F.3d 257, 260 (6th Cir.
Eclipse contends that there are indeed compelling reasons to disregard ODNR’s
interpretation. First, according to Eclipse, ODNR has not conclusively determined that Eclipse
violated the law by submitting the Coal Affidavit with its permit application for the JMW Wells.
While Eclipse admits that ODNR suspended its operation of the JMW Wells, the suspension
orders were voluntarily withdrawn ten days later and ODNR has taken no further action against
Eclipse. (See Eclipse’s Mem. Opp’n Madzia’s Mot. Part. Summ. J., Doc. 146 (citing Simmers
Dep. at Exs. F&G).) Moreover, Simmers admitted that ODNR is waiting until after this Court
issues its decision to determine if Eclipse violated the law. (Simmers Dep. at 132:22–133:6.)
Second, Eclipse argues that it was “ODNR’s longstanding pre-Complaint practice to
accept resubmitted coal affidavits,” (Doc. 146 at 8), as evidenced by the nearly seventy permits it
issued using recycled affidavits. (See Goss Aff.) Eclipse complied with this practice—in place
at the time it filed the JMW Wells permit applications—in reliance on guidance from Nicklaus.
(See Nicklaus Dep. at 29:18–30:8; Tolmachev Dep. at 121:4–17; Hulburt Dep. at 71:2–8.)
Although both Simmers and Opritza testified that ODNR viewed Eclipse’s submission of the
Coal Affidavit with the JMW Wells permit applications as unlawful (Opritza Dep. at 30:1–31:8,
129:15–24, 131:16–24, 134:3–6; Simmers Dep. at 138:4–20), according to Opritza, this
interpretation came into effect solely as a result of the dispute leading to this litigation. (Opritza
Dep. at 95:20–96:1.)
In Christopher v. SmithKline Beecham Corp., the Supreme Court opined that deference to
an agency’s interpretation of its own regulation is “unwarranted when there is reason to suspect
that the agency’s interpretation does not reflect the agency’s fair and considered judgment on the
matter in question,” which may occur when “the agency’s interpretation conflicts with a prior
interpretation, or when it appears that the interpretation is nothing more than a convenient
litigating position, or a post hoc rationalization advanced by an agency seeking to defend past
agency action against attack.” 132 S. Ct. 2156, 2166 (2012) (internal quotation marks and
citations omitted). The guiding principle when determining whether to defer to an agency’s
interpretation of a regulation is that “agencies should provide regulated parties fair warning of
the conduct a regulation prohibits or requires.” Id. at 2167 (internal quotation marks and citation
omitted). Unfair surprise should be avoided at all costs. See id.; see also Perez v. Loren Cook
Co., 803 F.3d 935 (8th Cir. 2015). According to Eclipse, ODNR’s post-litigation policy shift
amounts to unfair surprise, and therefore this Court should not defer to ODNR’s interpretation of
Ohio Revised Code Sections 1509.06(D) and 1509.08 and whether Eclipse’s conduct complied
with those statutory provisions.
In rebuttal, Madzia argues that ODNR “did not espouse its interpretation of
R.C. §§ 1509.06(D) and 1509.08 for the first time during this litigation. In fact, ODNR
demanded that [Eclipse] supply a second coal affidavit for the [JMW] Wells before this case was
even filed.” (Doc. 154 at 2.) Additionally, although Madzia concedes that ODNR “previously
approved well permits based on recycled permits,” he argues that Eclipse could not rely on this,
because the “procedure did not reflect ODNR’s official interpretation of R.C. §§ 1509.06(D) and
1509.08” (id. (emphasis added)), even though it was followed by multiple ODNR employees,
including permitting manager Opritza. (See Simmers Dep. at 138:4–20.) Finally, regarding
Eclipse’s claim that ODNR has not yet made a final determination as to whether Eclipse violated
Ohio Revised Code Sections 1509.06(D) and 1509.08, Madzia asserts that nothing about the
statutory provisions is “tentative.” (Doc. 154 at 2.) According to Simmers, the statutory
provisions are “clear” that an affidavit is required to accompany a permit application (Simmers
Dep. at 138:4–20); the only reason that ODNR is waiting to revisit the suspension orders is its
preference that “private parties that are contesting an issue work the issue out between
themselves.” (Id. at 115:10–14.)
The Court agrees with Eclipse that the Supreme Court’s reasoning in Christopher applies
here. Despite conflicting testimony about the lawfulness of Eclipse’s use of the Coal Affidavit,
it is undisputed that: (1) ODNR allowed the use of recycled coal affidavits on approximately
seventy other occasions; (2) ODNR’s permitting manager, Opritza, confirmed that it was
ODNR’s practice to accept resubmitted coal affidavits at the time that Eclipse submitted its
permit application for the JMW Wells; and (3) Eclipse relied on guidance from Nicklaus in
submitting the Coal Affidavit with its permit application for the JMW Wells. The record
therefore reflects that Eclipse complied with ODNR’s interpretation of the statutory permitting
process in effect at the time it filed the JMW Wells permit application. It also reflects that, based
on Opritza’s testimony, ODNR did not take the position that Eclipse’s conduct was unlawful
until after it was notified by Madzia that he objected to Eclipse’s use of the Coal Affidavit in
December 2014—one month prior to the filing of this lawsuit. (Opritza Dep. at 95:20–96:1.)
Because ODNR’s current interpretation of Ohio Revised Code Sections 1509.06(D) and
1509.08 “conflicts with its prior interpretation,” and appears to be a “post hoc rationalization”
ODNR adopted only after being questioned by Madzia, and because to subject Eclipse to liability
based on ODNR’s current interpretation would constitute unfair surprise, the Court declines to
hold Eclipse liable for breach of the Lease, Amendment and Subsurface Easement. See
Christopher, 132 S. Ct. at 2166–67.
Madzia makes much of the fact that ODNR’s practice of accepting recycled coal
affidavits was not ODNR’s “official” interpretation of the statute, and that ODNR’s “official”
interpretation of Ohio Revised Code Sections 1509.06(D) and 1509.08 has never changed. (See
Doc. 148 at 6; Simmers Dep. at 138:4–20.) But Madzia does not cite case law in support of the
proposition that there can be “official” and “unofficial” interpretations of agency regulations.
Even if he had, however, it would be difficult to argue that the practice approved by ODNR’s
permitting manager—which was, at the time Eclipse submitted the JMW Wells permit
application, to accept recycled coal affidavits—was not the agency’s “official” practice or
interpretation of the permitting process.
While Simmers asserts that ODNR’s “official” interpretation of the permitting process is
reflected in the “clear” language of Ohio Revised Code Sections 1509.06(D) and 1509.08, it is
noteworthy that Judge Frost, when interpreting this “clear” statutory language, found that “the
statute . . . does not create a violation for submitting an affidavit expressing the landowner’s
consent to drill a different oil and gas well.” (Doc. 84 at 24 (emphasis added).) Thus, even
ODNR’s so-called “official” interpretation of its regulation is subject to differing interpretations.
For these reasons, even if ODNR had definitively determined that Eclipse had violated the law
by submitting the recycled Coal Affidavit, the Court is not obligated to defer to ODNR’s current
interpretation of Ohio Revised Code Sections 1509.06(D) and 1509.08. ODNR’s interpretation
has been inconsistent, and imposing liability on Eclipse would constitute unfair surprise.
Further, Madzia cannot have it both ways. He cannot demand that Eclipse comply with
the law by obtaining a second coal affidavit, and then refuse to provide that affidavit. The terms
of the Amendment require Madzia to:
promptly and duly execute and deliver any and all such further
instruments, endorsements, agreements, consents, assignments and other
documents (including, without limitation, driveway permits), make such
filings, give such notices, and take such further action as may be deemed
necessary or convenient to carry out the provisions of this Amendment
and the Oil and Gas Lease.
(Second Am. Countercl., Ex. B at 7 (emphasis added).)
In order to carry out the provisions of the Lease and Amendment, Eclipse is required to
obtain permits. See Ohio Rev. Code Ann. §§ 1509.06(D) and 1509.08. Madzia is therefore
required under the Lease and Amendment to execute any documents that are “necessary or
convenient” to Eclipse in obtaining those permits. Madzia acknowledges that he refused to
execute a coal affidavit for the JMW Wells at Eclipse’s request, after ODNR requested a new
affidavit to support Eclipse’s expedited permit application. (Madzia Dep. at 118:2–12.)
Madzia’s argument that it was “entirely unnecessary” for him to execute a second coal
affidavit because Eclipse “could readily obtain permits for the John Mills West Wells through
the non-expedited permit process” wholly ignores the fact that he is contractually bound to
execute documents that are deemed “convenient”—not just necessary. Thus, under the Lease
and Amendment, Eclipse has the right to make the business decision to apply for an expedited
permit because it is more convenient than utilizing the non-expedited process, and Madzia is
obligated to aid Eclipse in that process. By refusing to execute a second coal affidavit, Madzia
breached his contractual obligation to execute convenient documents under the Lease and
Amendment. Because “it is axiomatic that a party cannot benefit from its own breach” of a
contract, Madzia’s claim for breach of the Lease, Amendment and Subsurface easement fails for
this additional reason, and Eclipse’s motion for summary judgment on this claim is GRANTED.
GenCorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 817 (6th Cir. 1999) (internal citations
C. Count IV of the Second Amended Counterclaim – Breach of Covenant of Good
Faith and Fair Dealing of the Lease, Amendment and Subsurface Easement.
Madzia alleges that Eclipse breached the covenant of good faith and fair dealing of the
Lease, Amendment and Subsurface Easement by: (1) submitting the Coal Affidavit to obtain
permits for the JMW Wells; (2) engaging in bad faith pooling by including 0.517 acres of
Madzia’s property in the JMW Unit; and (3) retaliating against Madzia by fracking the JMW
Wells before the Madzia Wells. (Second Am. Countercl. ¶¶ 74–77.)
As a threshold matter, the Court notes that Madzia’s bad faith pooling claim was
previously dismissed by Judge Frost, on the basis that the Lease and the Amendment “explicitly
allowed” it. (Doc. 84 at 32; see also id. at 30–32.) The law of the case doctrine “provides that
when a court decides upon a rule of law, that decision should govern the same issues in
subsequent stages of the case.” Westside Mothers v. Olszewski, 454 F.3d 532, 538 (6th Cir.
2006) (internal citation omitted). Because Judge Frost has already dismissed Madzia’s bad faith
pooling claim, the Court cannot revisit it now.
With regard to Madzia’s two remaining bad faith claims, Eclipse moves for summary
judgment because under Ohio law, “a breach of the duty of good faith cannot stand alone as a
separate cause of action, independent of the underlying claim for breach.” R.G. Barry Corp. v.
Olivet Int’l, Inc., No. 2:15-CV-00826, 2016 WL 51228 at *7 (S.D. Ohio Jan. 5, 2016); see also
Wendy’s Int’l, Inc. v. Saverin, 337 F. App’x 471, 476–77 (6th Cir. 2009). Madzia relies on
Savedoff v. Access Group, Inc., 524 F.3d 754 (6th Cir. 2008) to support his argument that there
can be a standalone claim for breach of the duty of good faith if the contract does not explicitly
address what is at issue between the parties. (See Doc. 148 at 11); Savedoff, 524 F.3d at 764 (“If
the contract is silent, as opposed to ambiguous, with respect to a particular matter . . . the parties
to a contract are required to use good faith to fill the gap of a silent contract.”) (internal citations
Here, the issues on which Madzia’s two remaining bad faith claims are premised do not
involve matters on which the Lease and Amendment are silent. As discussed supra in Section
(B)(1), the Court finds that Eclipse has not breached the Lease and Amendment by its
submission of the Coal Affidavit. Further, the Lease and Amendment address Madzia’s
obligations with regard to executing coal affidavits. (Second Am. Countercl., Ex. B at 7.) As for
Madzia’s claim that Eclipse retaliated against him in bad faith by fracking the JMW West Wells
before the Madzia Wells, the Lease also addresses Eclipse’s obligation (or lack thereof) to drill
wells. The Lease does not state that wells need to be drilled in a particular order because it does
not require that wells be drilled at all. In fact, under the Lease, Eclipse may “decline to drill a
well or wells” at any time during the duration of the Lease. (Id., Ex. A.)
In sum, because Madzia’s underlying breach claim fails, and because Madzia’s bad faith
claims are premised on issues addressed by the parties’ written agreements, Eclipse’s motion for
summary judgment on Madzia’s bad faith claims is GRANTED.
D. Count VI of the Second Amended Counterclaim – Injunction.
A party seeking a permanent injunction must “demonstrate that it has suffered irreparable
injury, there is no adequate remedy at law, that, in considering the balance of hardships between
[the parties], a remedy in equity is warranted, and that it is in the public’s interest to issue the
injunction.” Audi AG v. D’Amato, 469 F.3d 534, 551 (6th Cir. 2006) (internal citation omitted).
The movant must establish its case by “clear and convincing evidence.” Wilkins v. Daniels, 913
F. Supp. 2d 517, 533 (S.D. Ohio 2012).
Importantly, injunctive relief is a remedy afforded to parties in appropriate circumstances,
not an independent cause of action. Saha v. Ohio State Univ., No.05-CV-675, 2005 WL
2806318, at *3 (S.D. Ohio Oct. 26, 2005). The success of Madzia’s injunction claim is therefore
“dependent on the underlying merits of [his] other claims.” Id. (quoting Airbrake Sys., Inc. v.
Mineta, 202 F. Supp. 2d 705, 715 (E.D. Mich. 2002)). Accordingly, because Eclipse is entitled
to summary judgment on Madzia’s underlying claims for breach of contract and breach of the
covenant of good faith and fair dealing, it is also entitled to summary judgment on Madzia’s
injunctive relief claim. Eclipse’s motion for summary judgment on Madzia’s injunctive relief
claim is hereby GRANTED.
For the same reasons, Madzia’s claim for injunctive relief against XTO must be
dismissed. The only claim asserted against XTO in the Second Amended Counterclaim is
Madzia’s request for injunctive relief against the “John Mills West Interest Holders,” a term
defined to include XTO.11 Because the injunctive relief claim is the only claim asserted against
XTO, and injunctive relief is not an independent cause of action, Madzia’s claim against XTO
fails. Indeed, none of Madzia’s summary judgment briefing even mentions XTO, and he has not
opposed XTO’s summary judgment motion. For these reasons, XTO’s motion for summary
judgment is GRANTED.
For all of the foregoing reasons, the motions for summary judgment of Eclipse and
The factual allegations against XTO in the Second Amended Counterclaim are essentially limited to jurisdictional
information. (See Second Am. Countercl. ¶ 9.)
XTO are GRANTED. Madzia’s motion for partial summary judgment is DENIED. Madzia’s
motion to dismiss his remaining counterclaims without prejudice (Doc. 157) is DENIED as
IT IS SO ORDERED.
s/Algenon L. Marbley
ALGENON L. MARBLEY
UNITED STATES DISTRICT JUDGE
DATED: January 20, 2017
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