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Burkhart v. Miley

Court of Appeals of Ohio, Seventh District, Monroe

December 8, 2017

CYRIL AND ROSEMARY BURKHART, PLAINTIFFS-APPELLEES,
v.
JEFF MILEY DBA MILEY GAS CO., ET AL., DEFENDANTS-APPELLANTS.

         Civil Appeal from Court of Common Pleas of Monroe County, Ohio Case No. 2013-293

          For Plaintiffs-Appellees Cyril and Rosemary Burkhart Attorney Ethan Vessels

          For Defendants-Appellants Jeff Miley dba Miley Gas Co. Attorney William Taylor Attorney Scott Eickelberger Attorney David Tarbert Attorney Ryan Linn

          For Defendant-Appellant Antero Resources Attorney Lyle Brown Attorney Melanie Morgan-Norris Attorney J. West

          For Amicus Curiae Ohio Oil and Gas Association Attorney Gregory Russel Attorney Peter Lusenhop Attorney Aaron Williams

          JUDGES: Hon. Gene Donofrio Hon. Mary DeGenaro Hon. Carol Ann Robb

          OPINION

          DONOFRIO, J.

         {¶1} Defendant-appellant, Antero Resources Corporation, along with defendant-appellant, Jeff Miley d.b.a. Miley Gas Company, appeal from a Monroe County Common Pleas Court judgment, resulting from a bench trial, finding that a certain oil and gas lease terminated due to the failure of the well at issue to produce in paying quantities.

         {¶2} Plaintiff-appellee, Rosemary Burkhart, individually and as the representative of the estate of Cyril Burkhart, is the owner of the mineral rights to a 66-acre parcel of property located in Seneca Township in Monroe County (the Property).

         {¶3} By deed recorded February 2, 1945, Aloysius and Celia Burkhart, as lessors, executed an oil and gas lease with Burns Drilling Company, as lessee (the Lease). Aloysius and Celia were Cyril Burkhart's parents. Aloysius's and Celia's mineral interest passed to Cyril. When Cyril passed away, his mineral interest passed to Rosemary.

         {¶4} The Lease provides that it is for a term of five years and "so much longer thereafter as oil, gas or their constituents are in paying quantities thereon."

         {¶5} The Lease covers the entire property. A single well sits on the property (the Well). The Well was drilled in 1945. In 1992, the Burkharts transferred ownership of the Property's surface rights to Leo and Judith Loraditch. The Burkharts reserved the mineral rights to the Property.

         {¶6} On October 11, 2011, the Burkharts recorded a Preservation Notice of Ownership in Oil and Gas Rights for the purpose of preserving their reserved mineral interest.

         {¶7} In 2011, defendant-appellant, Jeff Miley d.b.a. Miley Gas Company (Miley), purchased the Well from RMB Production Corporation. The Lease was also assigned to Miley. The assignment of the Lease from RMB to Miley was recorded April 12, 2011. In 2012, Miley assigned the deep rights of the Lease to defendant-appellant, Antero Resources Corporation (Antero).

         {¶8} On July 26, 2013, Burkhart filed a complaint against Miley. The complaint alleged that the primary term of the Lease expired on December 6, 1949, and there has not been sufficient production to continue the Lease. Therefore, Burkhart sought a declaration that the Lease expired under its own terms. She later amended the complaint to add Antero as a defendant.

         {¶9} The case proceeded to a bench trial on October 1, 2014. The trial court found that Miley had operated the Well in good faith and that it was profitable. The court found that Miley had declared a profit from its operation of the Well on tax returns in 2011, 2012, and 2013.

         {¶10} The trial court found there was confusion regarding the name and API number of the Well stemming from a sign hanging on the wellhead identifying the Well as the "Burkhart, No.: 1Permit; Unknown." and the Form 7 (Request for Change of Owner), which identified the Well as the "Burkhart No. 2 API 20368." The court went on to find that the evidence demonstrated the Well located on the Property is actually the Well designated as API No. 20368. It found that the argument that Miley had been using the production from a well located off of the Property (No. 20334) to hold the Lease was not supported by the evidence. The court found that the Ohio Department of Natural Resources (ODNR) records placed Well No. 20334 in a location that did not match the legal description of the Property. Moreover, the court found that the drilling of Well No. 20334 was completed prior to the execution of the Lease and the ODNR described this well as a non-producing historic well. On the other hand, the court found that Well No. 20368 is located in the southwest quarter of section 4, in which a portion of the Property is also located. And ODNR records reflected that Well No. 20368 was drilled approximately one month after the execution of the Lease.

         {¶11} Thus, the court found that the production from Well No. 20368 located on the Property was continuous and profitable. Therefore the court found that the Lease remained in full force because the Well was producing in paying quantities. The court entered judgment in favor of Miley and Antero.

         {¶12} Following the judgment in favor Miley and Antero, Burkhart filed a motion for new trial or to amend the court's findings of fact and conclusions of law. Burkhart alleged that Jeff Miley made knowing misrepresentations to the court during the trial. In the motion, Burkhart did not take issue with the court's finding that the Well was located on the Property. But Burkhart argued that the court's finding that Miley made a profit from 2011-2013 was incorrect. She noted that Jeff Miley and his wife Meleesa both testified that they declared a profit in those years. But Burkhart stated that Miley actually declared a loss in 2012 and 2013. She stated that she obtained this information by way of a motion to compel in another case where Miley produced his tax records. She further asserted that Miley's tax records reported money spent for contract labor, repairs, and maintenance, contrary to his testimony that he did his own repairs.

         {¶13} The trial court found that Burkhart presented good cause to reopen its previous judgment and take additional testimony on the issue of Miley's tax returns.

         {¶14} The court held a hearing where it took additional testimony and evidence on the sole issue of whether Miley had been profitably producing oil or gas from the Well under the Lease.

         {¶15} The court found that at the initial trial, Jeff Miley had testified for the relevant tax years of 2010-2013, Miley was profitable and did not declare a loss. But the court found Miley's tax records showed otherwise. It noted that Miley declared a loss in 2012 and 2013. Additionally, it found that the tax returns demonstrated that much of Miley's gross revenue did not come from the sale of oil and gas but from contract work that Jeff Miley performed for other oil and gas operators. The court went on to find that Miley did not report any production for 2011-2103 until late 2013, when Antero suggested that Miley submit its production to the ODNR. Based on this disclosure, the court inferred that the 2011 and 2012 production numbers were merely estimates. The court noted it was undisputed by Jeff Miley that it would be virtually impossible for any third party to look at documentary evidence and independently verify that the Well is profitable. The court also noted, however, that Miley's tax preparer testified that the Schedule C forms for 2012 and 2013, did not show the expenses associated with the production of oil and gas exceeded the revenues from the sale of oil and gas.

         {¶16} The trial court found that Miley has a major financial incentive to claim that the Well is profitable. It further found significant that Miley did not report any production for the years 2011 and 2012, until directed by Antero do to so in late 2013. Finally, the court found that a lessee who claims his lease is profitable yet whose tax return shows a loss casts "real doubt" on the actual profitability. Based on these findings, the trial court found the Lease was cancelled for lack of production. Therefore, the court vacated its previous judgment and entered judgment in favor of Burkhart.

         {¶17} Antero subsequently filed a motion for new trial and to ...


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