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Kerns v. Chesapeake Exploration, LLC

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

June 13, 2018

Corey A. Kerns, et al., Plaintiffs,
v.
Chesapeake Exploration, LLC, et al., Defendants.

          MEMORANDUM OF OPINION AND ORDER

          PATRICIA A. GAUGHAN UNITED STATES DISTRICT COURT CHIEF JUDGE

         INTRODUCTION

         This matter is before the Court upon: (1) Defendant Chesapeake Exploration, L.L.C.'s Motion to Dismiss (Doc. 9) and (2) Motion to Dismiss of Defendant Richard J. Simmers, Chief, Ohio Department of Natural Resources, Division of Oil and Gas Resources Management (Doc. 8). This case involves property rights related to natural gas located below the surface of Plaintiffs' land. For the reasons that follow, Defendants' motions are GRANTED.

         FACTS

         Plaintiffs, Corey A. Kerns, Keith J. Kerns, Mark Zantene, Linda Zantene, Robert J. Zantene Trust, Helen Zantene, and Connie Huhn, bring this action against Defendants, Chesapeake Exploration, L.L.C. and Richard J. Simmers, Chief of the Ohio Department of Natural Resources, Division of Oil and Gas Resources Management, alleging violations of the Fourteenth Amendment in connection with unconstitutional takings of Plaintiffs' property. Plaintiffs request declaratory judgment, injunctive relief, and compensatory and punitive damages.

         Plaintiffs are property owners of 127 acres of land located in Harrison County, Ohio. (Doc. 1 ¶ 7). Plaintiffs allege that they own the land as well as the oil, gas, and natural gas liquids located beneath the surface of the land. Id. On November 10, 2014, Defendant Chesapeake Exploration, L.L.C. (“Chesapeake”) filed a unitization application with the Division of Oil and Gas Resources Management (the “Division”) pursuant to Ohio Rev. Code § 1509.28. Id. ¶ 34, 35. The application included the mineral estate beneath Plaintiffs' land. Id. Plaintiffs objected to the application and submitted a motion to dismiss the application, which was never ruled upon by Defendant Simmers. Id. ¶¶ 37, 38.

         In February 2015, while the application was pending, Plaintiffs filed their first lawsuit in this Court, alleging wrongdoing with the potential “takings” of their natural gas rights located beneath the surface of their land, in connection with Chesapeake's application. See Kerns, v. Chesapeake Exploration, LLC,, No. 15 CV 346, Doc. 1 (N.D. Ohio, Feb. 23, 2015). On September 1, 2015, the Court dismissed Plaintiffs' complaint because Chesapeake's application was still pending and Plaintiffs had not availed themselves of Ohio's procedures for obtaining just compensation.[1]

         On July 13, 2015, Defendant Simmers issued a unitization order (the “Order”), aggregating Plaintiffs' land with adjacent land to form a drilling unit (the “Unit”). Id. ¶ 13. The Order also authorized Chesapeake to drill three wells on the Unit, but not on the surface of Plaintiffs' land, in order to release oil, gas, and natural gas liquid trapped within the shale beneath the Unit. Id. Plaintiffs did not receive notice of the Order until November 4, 2015, when it was posted on the Division's website. Id. ¶ 39.

         Plaintiffs appealed the Order to the Ohio Oil and Gas Commission (the “Commission”) pursuant to R.C. § 1509.36. Id. ¶ 41. Plaintiffs asserted that the Order violated their property rights and that the Order was procedurally and substantively unlawful. Id. The Commission dismissed the appeal, stating that it did not have jurisdiction to consider Plaintiffs' constitutional law claims. Id. ¶ 32. Plaintiffs did not appeal the Division's decision in the Franklin County Court of Common Pleas as provided in R.C. § 1509.37. Plaintiffs then filed a verified complaint for a writ of mandamus with the Ohio Supreme Court, seeking an order to compel Defendant Simmers to commence appropriation proceedings regarding Plaintiffs' property in accordance with Ohio Rev. Code Chapter 163. Id. ¶ 44. The Ohio Supreme Court denied Plaintiffs' complaint for a writ of mandamus on the basis that Plaintiffs had an adequate remedy at law under R.C. § 1509.37. Id. ¶ 45.

         On December 16, 2016, Defendant Simmers issued a drilling permit to Chesapeake for the first oil and gas well to be drilled in accordance with the Order. Id. ¶ 14. Pursuant to that permit, Chesapeake drilled the well, commenced horizontal drilling and hydraulic fracturing (“fracking”), and removed oil, gas, and natural gas liquids from the Unit. Id. ¶¶ 16-19. Horizontal drilling and fracking involve injecting water, sand, and chemicals into the shale beneath the Unit, including Plaintiffs' land, causing the shale to fracture and release oil, gas, and natural gas liquids, which then flow to the wells for retrieval. Id. ¶ 13.

         The Complaint contains three counts. Count one, against Chesapeake, alleges a takings claim in violation of the Fifth Amendment, the Fourteenth Amendment, and 42 U.S.C. § 1983, as well as a claim for declaratory judgment under 28 U.S.C. § 2201 and a claim for injunctive relief. Count two requests declaratory judgment and injunctive relief against Defendant Simmers. Count three is a claim for punitive damages against Chesapeake. Defendants move to dismiss the Complaint under Fed. R. Civ. Pro. 12(b)(1) and 12(b)(6). Plaintiffs oppose the motions.

         STANDARD OF REVIEW

         I. Rule 12(b)(1)

         When a court's subject matter jurisdiction is challenged under Rule 12(b)(1) of the Federal Rules of Civil Procedure, the party seeking to invoke jurisdiction bears the burden of proof. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Rogers v. Stratton, 798 F.2d 913, 915 (6th Cir. 1986). This burden is not onerous. Musson Theatrical, Inc. v. Fed. Express Corp., 89 F.3d 1244, 1248 (6th Cir. 1996). The party need only show that the complaint alleges a substantial claim under federal law. Id.

         A 12(b)(1) motion to dismiss may constitute either a facial attack or a factual attack. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). Facial attacks question the sufficiency of the jurisdictional allegations in the complaint. Id. Thus, those allegations must be taken as true and construed in the light most favorable to the nonmoving party. Id. Factual attacks, however, challenge the actual fact of the court's jurisdiction. Id. In such cases, the truthfulness of the complaint is not presumed. McGee v. E. Ohio Gas Co., 111 F.2d 979, 982 (S.D. Ohio 2000) (citing Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320 (6th Cir. 1990)). Instead, the Court may weigh any evidence properly before it. Morrison v. Circuit City Stores, Inc., 70 F.Supp.2d 815, 819 (S.D. Ohio 1999) (citing Ohio Nat'l, 922 F.2d 320; Rogers, 798 F.2d 913).

         II. Rule 12(b)(6)

         “Dismissal is appropriate when a plaintiff fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). We assume the factual allegations in the complaint are true and construe the complaint in the light most favorable to the plaintiff.” Comtide Holdings, LLC v. Booth Creek Management Corp., 2009 WL 1884445 (6th Cir. July 2, 2009) (citing Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008)). In construing the complaint in the light most favorable to the non-moving party, “the court does not accept the bare assertion of legal conclusions as enough, nor does it accept as true unwarranted factual inferences.” Gritton v. Disponett, 2009 WL 1505256 (6th Cir. May 27, 2009) (citing In re Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir.1997). As outlined by the Sixth Circuit:

Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” “Specific facts are not necessary; the statement need only give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). However, “[f]actual allegations must be enough to raise a right to relief above the speculative level” and to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 555, 570. A plaintiff must “plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir.2012). Thus, Twombly and Iqbal require that the complaint contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face based on factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Twombly, 550 U.S. at 570; Iqbal, 556 U.S. at 678. The complaint must contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

         ANALYSIS

         I. Chesapeake

         A. Standing

         Chesapeake challenges Plaintiffs' standing to assert a takings claim regarding the subsurface property rights at issue. Under Article III of the U.S. Constitution, standing is a threshold requirement for a court to hear all cases and controversies, and thus implicates the issue of subject matter jurisdiction. See Horne v. Flores, 557 U.S. 433 (2009). In order to satisfy Article III's standing requirement, Plaintiffs must establish: (1) an injury in fact that is concrete and particularized; (2) a connection between the injury and the conduct at issue; and (3) a likelihood that the injury would be redressed by a favorable decision of the court. Courtney v. Smith, 297 F.3d 455, 459 (6th Cir. 2002). An “injury in fact” requires that the plaintiff suffered “an invasion of a legally protected interest” that is “actual or imminent, not conjectural or hypothetical.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1548 (2016). The party invoking federal jurisdiction has the burden to prove a concrete and particularized, actual and imminent, injury in fact. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998)(“[T]he party invoking federal jurisdiction bears the burden of establishing its existence.”).

         Chesapeake contends that Plaintiffs lack standing because they do not own the mineral rights which are subject to the Order. In support of its argument, Chesapeake provides a number of leases dating back to 1981 which appear to demonstrate that Plaintiffs leased at least some of their interest in the oil and gas beneath their land to another party. Chesapeake argues that, based on these leases, Plaintiffs have no property interest in the minerals beneath their land. Plaintiffs object to the introduction of the leases, dispute ...


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