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Lutz v. Chesapeake Appalachia, LLC

United States District Court, N.D. Ohio, Eastern Division

October 25, 2017

REGIS F. LUTZ, et al., PLAINTIFFS,
v.
CHESAPEAKE APPALACHIA, LLC, et al., DEFENDANTS.

          MEMORANDUM OPINION AND ORDER

          HONORABLE SARA LIOI UNITED STATES DISTRICT JUDGE.

         Before the Court is defendant Chesapeake Appalachia L.L.C.'s renewed motion for partial summary judgment. (Doc. No. 136 [“Mot.”])[1] 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.

         I. BACKGROUND

         On 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 complaint[2]against defendants Chesapeake Appalachia, L.L.C. (“Chesapeake” or “lessee”), Columbia Energy Group, and NiSource, Inc.[3] (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.)

         This 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.[4]) 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.)

         The 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)?

         (Doc. 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.)

         The 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.)

         On 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.

         In view 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.

         II. DISCUSSION

         A. Standard of Review

         Under 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.”

         An 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 265 (1986).

         In 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.

         Summary 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.

         B. Analysis

         Although 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 produced.
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 contracts.
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 ...

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