United States District Court, N.D. Ohio, Eastern Division
REGIS F. LUTZ, et al., PLAINTIFFS,
CHESAPEAKE APPALACHIA, LLC, et al., DEFENDANTS.
MEMORANDUM OPINION AND ORDER
HONORABLE SARA LIOI UNITED STATES DISTRICT JUDGE.
the Court is defendant Chesapeake Appalachia L.L.C.'s
renewed motion for partial summary judgment. (Doc. No. 136
[“Mot.”]) Plaintiffs have filed a memorandum in
opposition (Doc. No. 139 [“Opp'n”]), and
defendant has filed a reply (Doc. No. 140
[“Reply”]). For the reasons discussed below,
defendant's motion is granted.
September 30, 2009, plaintiffs Regis and Marion Lutz, Leonard
Yochman, Joseph Yochman, and C.Y.V., LLC
(“plaintiffs” or “lessors”) filed
their putative class action complaintagainst defendants Chesapeake
Appalachia, L.L.C. (“Chesapeake” or
“lessee”), Columbia Energy Group, and NiSource,
(Doc. No. 1 [“Compl.”].) Plaintiffs are lessors
of interests in natural gas estates in tracts of land in
Trumbull and Mahoning Counties in Ohio. (Compl. ¶¶
1-5.) They claim that their leases provide that the defendant
will pay them a royalty equal to 1/8th the value of the gas
produced each month, computed by multiplying the volumes
produced by the market price of gas at the time of production
and dividing the product by eight. (Id. ¶ 16.)
Plaintiffs alleged that “[b]eginning in at least 1993,
” defendant began to deliberately and fraudulently
underpay the full gas royalty due its natural gas lessors,
“by (1) deducting post production costs from the
royalty payments [the ‘improper deductions' claim],
(2) calculating the monthly royalty payments using a price
that was less than the market price of the gas at the time of
production [the ‘Mahonia contracts' claim], and (3)
calculating the monthly royalty payments using volumes that
were less than the volumes actually produced [the ‘line
loss' claim].” (Id. ¶ 20; see
also ¶ 65.) They further allege that, although the
gas wells at issue produced oil in addition to gas, no oil
royalties were ever paid. (Id. ¶ 66.)
Court dismissed the entire complaint, on defendants'
motion to dismiss, finding the contract claim time-barred
under the four-year statute of limitations in Ohio Rev. Code
§ 2305.041, and finding no independent basis for the
remaining tort claims. (See Memorandum Opinion and
Order [Doc. No. 68] at 982.) Plaintiffs appealed and the
Sixth Circuit determined that the breach of contract claim in
Count I of the complaint should survive a motion to dismiss
because each monthly royalty underpayment would constitute a
separate breach triggering a new accrual period, a question
never decided by any Ohio court and the answer to which was
gleaned by the Sixth Circuit from existing Ohio precedent.
Thus, the court of appeals held “that plaintiffs are
permitted to pursue their breach of contract claim pertaining
to any underpayments of royalties that occurred within the
four years prior to the filing of their complaint in
September 2009.” Lutz v. Chesapeake
Appalachia, L.L.C., 717 F.3d 459, 470 (6th Cir.
2013). The court further held that plaintiffs “may be
entitled to equitable tolling on the basis of fraudulent
concealment[, ]” but that “these are questions
for summary judgment or for trial[.]” (Id. at
1078.) The court affirmed this Court's ruling in all
other respects and remanded for further proceedings.
(Id. at 1079.)
parties filed cross-motions for summary judgment (Doc. Nos.
114 and 118), which the Court took under advisement,
ultimately concluding, after consultation with counsel, that
the following question should be certified to the Supreme
Court of Ohio:
Does Ohio follow the “at the well” rule (which
permits the deduction of post-production costs) or does it
follow some version of the “marketable product”
rule (which limits the deduction of post-production costs
under certain circumstances)?
No. 130 at 3029.) The Court stayed all proceedings until the
Ohio Supreme Court determined whether to accept the certified
question. (See Doc. No. 131.) On July 13, 2015, in
view of the Ohio Supreme Court's acceptance of the
certified question, the case was administratively closed,
subject to reopening. (See Doc. No. 133.)
Ohio Supreme Court heard oral argument on January 5, 2016 and
the case was submitted that day. On November 14, 2016,
defendant advised the Court that a majority of the Ohio
Supreme Court had ruled on November 2, 2016 as follows:
Under Ohio law, an oil and gas lease is a contract that is
subject to the traditional rules of contract construction.
Because the rights and remedies of the parties are controlled
by the specific language of their lease agreement, we decline
to answer the certified question and dismiss this cause.
Lutz v. Chesapeake Appalachia, L.L.C., 71 N.E.2d
1010, 1013 (Ohio 2016). Two justices filed dissenting
opinions, with one suggesting that Ohio would follow the
“marketable product” rule, id. (Pfeifer,
J., dissenting), and the other suggesting that Ohio would
follow the “at the well” rule, id.
(O'Neill, J., dissenting). (That, of course, was the very
issue that this Court sought to have determined when it
certified the question to Ohio's Supreme Court.)
August 18, 2017, Chesapeake filed the instant renewed motion
for partial summary judgment, again seeking summary judgment
solely with respect to the “at the well” leases.
Plaintiffs have not filed a renewed dispositive motion,
although they have opposed Chesapeake's renewed motion.
of these procedural developments, the Court, without guidance
from the Supreme Court of Ohio, shall now address
defendant's renewed motion for partial summary judgment.
Standard of Review
Fed.R.Civ.P. 56(a), when a motion for summary judgment is
properly made and supported, it shall be granted “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.”
opposing party may not rely merely on allegations or denials
in its own pleading; rather, by affidavits or by materials in
the record, the opposing party must set out specific facts
showing a genuine issue for trial. Fed.R.Civ.P. 56(c)(1).
Affidavits or declarations filed in support of or in
opposition to a motion for summary judgment “must be
made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant or
declarant is competent to testify on the matters
stated.” Fed.R.Civ.P. 56(c)(4). A movant is not
required to file affidavits or other similar materials
negating a claim on which its opponent bears the burden of
proof, so long as the movant relies upon the absence of the
essential element in the pleadings, depositions, answers to
interrogatories, and admissions on file. Celotex Corp. v.
Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d
reviewing summary judgment motions, this Court must view the
evidence in a light most favorable to the non-moving party to
determine whether a genuine issue of material fact exists.
Adickes v. S.H. Kress & Co., 398 U.S. 144, 157,
90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); White v. Turfway
Park Racing Ass'n, 909 F.2d 941, 943-44 (6th Cir.
1990), impliedly overruled on other grounds by Salve
Regina Coll. v. Russell, 499 U.S. 225, 111 S.Ct. 1217,
113 L.Ed.2d 190 (1991). 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,
106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Determination of
whether a factual issue is “genuine” requires
consideration of the applicable evidentiary standards. Thus,
in most civil cases the Court must decide “whether
reasonable jurors could find by a preponderance of the
evidence that the [non-moving party] is entitled to a
verdict[.]” Id. at 252.
judgment is appropriate whenever the non-moving party fails
to make a showing sufficient to establish the existence of an
element essential to that party's case and on which that
party will bear the burden of proof at trial.
Celotex, 477 U.S. at 322-23. Moreover, “[t]he
trial court no longer has the duty to search the entire
record to establish that it is bereft of a genuine issue of
material fact.” Street v. J.C. Bradford &
Co., 886 F.2d 1472, 1479-80 (6th Cir. 1989) (citing
Frito-Lay, Inc. v. Willoughby, 863 F.2d 1029, 1034
(D.C. Cir. 1988)). The non-moving party is under an
affirmative duty to point out specific facts in the record as
it has been established that create a genuine issue of
material fact. Fulson v. City of Columbus, 801
F.Supp. 1, 4 (S.D. Ohio 1992). The non-movant must show more
than a scintilla of evidence to overcome summary judgment; it
is not enough for the non-moving party to show that there is
some metaphysical doubt as to material facts. Id.
the complaint originally set forth six different claims, only
a single breach of contract claim (Count I) has survived the
various court rulings. In Count I, plaintiffs allege:
60. The named Plaintiffs restate and incorporate by reference
the allegations of paragraphs 1-59 of this Complaint.
61. Each named Plaintiff and member of the Plaintiff Class
owns an interest in an oil and gas estate in real property
[in] the State of Ohio and, at all times relevant to this
Complaint, leased that interest to Chesapeake.
62. Pursuant to said leases, Chesapeake was required to pay
the named Plaintiffs and the other class members a royalty
equal to 1/8th of the market value of the gas at the time of
production (or highest price reasonably obtainable at the
time of production) multiplied by the volumes of gas
63. Chesapeake had an affirmative duty to pay the named
Plaintiffs and the other class members the true and correct
royalty due them by virtue of said leases and/or by virtue of
the duty of good faith and fair dealing underlying all
64. Beginning in 1993, Chesapeake breached its lease
obligations to the named Plaintiffs and the members of the
Plaintiff Class by failing to pay them the full royalties due
them under the leases.
65. Chesapeake breached its lease obligations with the named
Plaintiffs and the members of the Plaintiff Class by (1)
deducting from the royalty payments various production
charges not identified in the lease agreements, all the while
stating in reports and documents issued to the named
Plaintiffs and the members of the Plaintiff Class that there
were zero dollars deducted for production charges; (2)
calculating the royalty payments using volumes of gas that
were less than the volumes of gas produced from the gas
wells; and (3) calculating the royalty payments using a price