Hupp v. Beck Energy Corp. , 2014 Ohio 4255 ( 2014 )

[Cite as Hupp v. Beck Energy Corp., 2014-Ohio-4255.]
STATE OF OHIO, MONROE COUNTY
IN THE COURT OF APPEALS
SEVENTH DISTRICT
CLYDE HUPP, et al., )
) CASE NOS. 12 MO 6
PLAINTIFFS-APPELLEES, ) 13 MO 2
) 13 MO 3
- VS - ) 13 MO 11
)
)
BECK ENERGY CORPORATION, ) OPINION
)
DEFENDANT-APPELLANT. )
)
AND )
)
XTO ENERGY, INC., )
)
PROPOSED )
INTERVENOR/APPELLANT. )
CHARACTER OF PROCEEDINGS: Civil Appeals from Monroe County
Common Pleas Court,
Case No. 2011-345.
JUDGMENT: Case Nos. 12MO6, 13MO3 & 13MO11
Affirmed in Part and Reversed in Part
and Remanded.
Case No. 13MO2
Appeal Dismissed as Moot.
JUDGES:
Hon. Mary DeGenaro
Hon. Gene Donofrio
Hon. Joseph J. Vukovich
Dated: September 26, 2014
[Cite as Hupp v. Beck Energy Corp., 2014-Ohio-4255.]
APPEARANCES:
For Plaintiffs-Appellees: Attorney Richard V. Zurz, Jr.
Attorney Mark A. Ropchock
Slater & Zurz, LLP
One Cascade Plaza, Suite 2210
Akron, OH 44308-1135
Attorney James W. Peters
Peters Law Offices
107 W. Court Street
Woodsfield, OH 43793
For Defendant-Appellant: Attorney Scott M. Zurakowski
Attorney William G. Williams
Attorney Nathan D. Vaughan
Attorney Gregory W. Watts
Attorney Aletha M. Carver
Krugliak, Wilkins, Griffiths & Dougherty Co. L.P.A.
4775 Munson Street, N.W.
P.O. Box 36963
Canton, OH 44735-6963
For Proposed Intervenor/Appellant: Attorney Clair E. Dickinson
Brouse McDowell
388 S. Main Street, Suite 500
Akron, OH 44311
Attorney Andrew J. Pollis
1305 Yellowstone
Cleveland, OH 44121
Attorney Kevin C. Abbott
Reed Smith LLP
Reed Smith Centre
225 Fifth Avenue
Pittsburgh, PA 15222-2716
Attorney William J. Taylor
Kincaid, Taylor & Greer
50 North 4th Street
Zanesville, OH 43701
For Amicus Curiae: Attorney John K. Keller
Attorney Lija Kaleps-Clark
Vorys, Sater, Seymour & Pease LLP
52 E. Gay Street
Columbus, OH 43216-1008
Counsel for United Association of Plumber and
Pipefitters, et al.
[Cite as Hupp v. Beck Energy Corp., 2014-Ohio-4255.]
DeGenaro, P.J.
{¶1} Defendant-Appellant, Beck Energy Corp. (Beck), appeals the July 31,
2012, February 8, 2013 and June 10, 2013 judgments of the Monroe County Court of
Common Pleas. Plaintiffs-Appellees are six named Monroe County oil and gas
lessors (the named plaintiffs), together with a class of similarly situated Ohio lessors.
Appellees, when referred to collectively herein, will be called "the Landowners."
Respectively, these three appealed judgments: (1) granted summary judgment in favor
of the named plaintiffs; (2) granted the named plaintiffs' motion for class certification;
and (3) more specifically defined the class, pursuant to a limited remand order from
this court. These judgments generated three appeals: Case Nos. 12MO6, 13MO3 and
13MO11.
{¶2} Proposed Intervenor-Appellant, XTO Energy, Inc. (XTO), appeals the
February 8, 2013 judgment of the Monroe County Court of Common Pleas, overruling
its motion to intervene as a defendant, and generated a fourth appeal, Case No.
13MO2. All four appeals have been consolidated.
{¶3} In 13MO3, Beck argues that the trial court erred by certifying a class
after it granted summary judgment on the merits because it violates the rule against
one-way intervention, as well as by failing to hold a class certification hearing. In
13MO11, Beck asserts that the trial court abused its discretion by defining the class
more broadly than that requested in the second amended class action complaint and
motion for class certification. The trial court did not abuse its discretion by certifying
the class after granting summary judgment on the merits because the rule against
one-way intervention does not apply to Civ.R. 23(B)(2) classes. There was sufficient
opportunity for factual development so as to permit a meaningful determination
regarding the class action certification, thus rendering a hearing unnecessary. With
regard to class definition, the trial court has discretion to modify the class, even sua
sponte, and it did not abuse its discretion by defining the class as all Ohio lessors who
executed a Form G&T 83 Lease with Beck, where Beck had neither drilled nor
prepared to drill a well, nor included the property in a drilling unit.
{¶4} In 12MO6, Beck argues that the trial court erred by concluding that the
leases at issue are void against public policy and that Beck violated the implied
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covenant to reasonably develop the leaseholds. The trial court misinterpreted the
pertinent lease provisions and Ohio case law on the subject and erred in concluding
the Lease is a no-term, perpetual lease that is void ab initio as against public policy.
The Lease has a primary and secondary term, it is not perpetual. The trial court
further erred in concluding the Lease was subject to implied covenants and that Beck
breached the implied covenant to reasonably develop. Beck's remaining assignments
of error in 12MO6 are moot.
{¶5} In Case No. 13MO2, XTO argues that the trial court abused its
discretion by failing to permit it to intervene in the proceedings. However, in light of
our resolution of Beck’s assignments of error, XTO’s appeal is moot.
{¶6} Accordingly, in Case Nos. 12MO6, 13MO3, and 13MO11, the trial court's
class certification and definition judgments are affirmed, and its order granting
summary judgment is reversed and remanded to the trial court for further proceedings,
and Case No. 13MO2 is dismissed as moot.
Facts and Procedural History
{¶7} This case involves class action claims filed by the Landowners as oil and
gas lessors, against Beck, an oil and gas lessee, seeking declaratory judgment and
quiet title. On September 14, 2011, the suit began when a complaint was filed in the
Monroe County Court of Common Pleas by four of the Landowners against Beck. On
September 29 and 30, 2011, an amended and then a second amended class action
complaint were filed. The second amended class action complaint removed the
Hupps as plaintiffs, added several named plaintiffs, and asserted the claims as a class
action. Further, the named plaintiffs alleged that they, along with approximately 400
additional landowners/lessors in Monroe County, executed essentially identical oil and
gas leases with Beck, or are successors in interest to said lessors.
{¶8} The Landowners' Leases with Beck were form leases, known as the
Form G&T 83 Lease, a preprinted oil and gas lease that left blank lines to be
completed for the parties' names, addresses, date of execution, description of the
leasehold, the delay rental term, and the amount of the delay rental payment. The
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Leases provided for a one-eighth (12%) royalty for the Landowners should wells be
drilled and gas and oil produced.
{¶9} Most pertinent to this appeal are two Lease clauses. Paragraph two
contains the habendum clause, which provides that the Lease will continue "for a term
of ten years and so much longer thereafter as oil and gas or their constituents are
produced or are capable of being produced on the premises in paying quantities, in the
judgment of the Lessee, or as the premises shall be operated by the Lessee in the
search for oil or gas * * *." Paragraph three, the delay rental clause, provides that the
Lease will terminate if a well was commenced within 12 months of the date of Lease
execution, unless the lessee paid a specified delay rental.
{¶10} With regard to the named plaintiffs, they all own property in Monroe
County subject to Form G&T 83 leases. Larry and Lori Hustack are successors-in-
interest to land encumbered by an oil and gas lease entered into with Beck on August
14, 2008, presently covering 89.75 acres, with a primary term of ten years and
specifies a delay rental payment of $108.00. Lawrence and Lieselotte Hubbard
entered into a lease agreement with Beck on March 2, 2006, covering 55.06 acres,
with a primary term of ten years and specifies a delay rental payment of $56.00. David
Majors entered into a lease with Beck on October 11, 2005, covering 55 acres, and
has a primary term of ten years and specifies a $55.00 delay rental payment.
{¶11} The named plaintiffs asserted: 1) that the Leases contained terms and
conditions contrary to public policy, because they were allegedly leases in perpetuity
without timely development; 2) that Beck had failed to prepare to drill or to actually drill
any wells on their property: and 3) that Beck had breached a number of express and
implied covenants including the covenant to reasonably develop the leaseholds. They
asked the trial court to invalidate and declare the Leases void, and to quiet title in the
encumbered real estate. No monetary damages were sought.
{¶12} In their second amended class action complaint the named plaintiffs
sought certification of the class to be defined as "all landowners/Lessors of land in
Monroe County, Ohio who were lessors under, or who are successors in interest of
Lessors, under a standard form oil and gas lease with Beck Energy Corporation,
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where Beck Energy has neither drilled nor prepared to drill a gas/oil well, nor included
the property in a drilling unit within the time period set forth in paragraph 3 of the lease
or thereafter."
{¶13} On November 9, 2011, Beck entered into a Purchase and Sale
Agreement with XTO Energy, Inc., to sell the deep rights in the Beck leases, which
covered oil and gas deposits below 3,860 feet, and on December 20, 2011, Beck
assigned those rights to XTO. Beck retained an overriding royalty interest in the
Leases, and, notably, agreed "to warrant and defend the title to the Assets hereby
assigned unto Assignee against the claims of any party arising by, through, or under
Assignor, but not otherwise."
{¶14} On November 30, 2011, Beck filed a motion to dismiss alleging that the
named plaintiffs' claims must fail because the plaintiffs failed to provide Beck with prior
written notice of breach prior to commencing the lawsuit. The named plaintiffs
opposed the motion, arguing, inter alia, that because the lease was allegedly void at
the time they filed suit, they were not required to provide Beck with notice or an
opportunity to cure prior to bringing the action.
{¶15} On February 16, 2012, the named plaintiffs filed a motion for summary
judgment. Therein, they argued that the Leases were void as against public policy and
that Beck had breached express and implied covenants in the Leases, including the
covenant to reasonably develop. In support of their motion, they attached, inter alia,
affidavits of three of the named plaintiffs, along with assignments and bills of sale for
the deep drilling rights for the Hustack, Hubbard and Majors Leases from Beck to
Exxon Mobil Corporation c/o its affiliate XTO Energy, Inc. Beck filed a brief in
opposition to summary judgment to which the named plaintiffs replied.
{¶16} On July 12, 2012, the trial court issued a lengthy decision on the pending
motions. The trial court concluded that the Leases were perpetual in nature and
therefore violate public policy, and that Beck breached the implied covenant to
reasonably develop the land by failing to drill any wells on leasehold properties. For
these reasons, the trial court determined the named plaintiffs were entitled to summary
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judgment and denied Beck’s motion to dismiss. The trial court ordered counsel for the
named plaintiffs to submit a proposed entry journalizing the decision.
{¶17} In the meantime, on July 19, 2012, the named plaintiffs filed a motion for
class action certification pursuant to Civ.R. 23(B)(2). The motion alleged that all
prerequisites for class action certification had been met. See Civ.R. 23(A); Civ.R.
23(B)(2). The motion continued to state:
* * * The Beck leases are void on their face as has already been
held by this Court. Accordingly, the Plaintiffs are requesting that a class
be certified of all landowners in Ohio who executed leases with Beck
where Beck did not drill a well on their property. The Plaintiffs herein
request a certification from this Court to proceed as a Class Action under
Civ.R. 23(B)(2). The leases of the Plaintiffs herein have already been
declared void against public policy, violative of implied covenants and
forfeited.
(Emphasis added.)
{¶18} The class action certification motion was accompanied by a motion for
leave to file a third amended class action complaint. Therein the named plaintiffs
sought to expand the class definition to include property owners in all Ohio counties.
{¶19} Beck opposed the motion for class certification, first arguing that
certification would be an unnecessary expenditure of court resources because the
order granting injunctive or declaratory relief would automatically accrue to similarly
situated landowners. Beck further asserted that the named plaintiffs failed to establish
an identifiable class and that the proposed class definition lacked the requisite
specificity. Finally, Beck contended that the representative parties and their counsel
will not fairly and adequately protect the interests of the class.
{¶20} The named plaintiffs subsequently withdrew their motion for leave to file
a third amended complaint on September 12, 2012. They filed an amended motion for
class certification that same day which sought certification of a class consisting of only
Monroe County landowners. Beck opposed the amended class certification motion,
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arguing that class certification would be improper because a trial court must rule on a
request for class certification prior to a decision on the merits so as not to violate the
rule against one-way intervention.
{¶21} On July 31, 2012, before ruling on the class issues, the trial court issued
a judgment entry granting the named plaintiffs' motion for summary judgment, and
denying Beck's motion to dismiss. The judgment incorporated by reference the
lengthy July 12, 2012 decision. This resulted in an appeal: Case No. 12MO6.
{¶22} On September 7, 2012, ten months after entering into the Purchase and
Sale agreement for the deep rights in the Beck leases, and almost two months after
summary judgment was granted to the Landowners, third-party XTO filed a motion to
intervene as a party defendant. The Landowners opposed the motion, and on
February 8, 2013, the trial court denied intervention. This spawned an appeal: Case
No. 13MO2.
{¶23} On February 8, 2013, the trial court granted the motion for class
certification. The trial court concluded that all prerequisites for class action certification
under Civ.R. 23(A) and (B)(2) had been met. However, the entry did not specifically
define the class. Beck appealed the class action certification judgment, which was
assigned Case No. 13MO3.
{¶24} Pursuant to a limited remand from this court, on June 10, 2013, the trial
court issued a judgment defining the class as follows:
"All persons who are lessors of property in the State of Ohio, or who are
successors in interest of said lessors, under a standard form oil and gas
lease with Beck Energy Corporation, known as (G&T (83)", [sic] where
Beck Energy Corporation has neither drilled nor prepared to drill a
gas/oil well, nor included the property in a drilling unit, within the time
period set forth in paragraph 3 of said Lease or thereafter."
{¶25} Beck challenged the trial court’s definition of the class in a fourth appeal,
which was assigned Case No. 13MO11. Meanwhile, the trial court denied the named
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plaintiffs' motion for approval of notice to the class and to establish a method of
service.
{¶26} On September 26, 2013, we granted Beck's motion for a stay pending
appeal and its motion to toll the terms of the Leases as to Beck and both the named
plaintiffs and the proposed defined class members, commencing on October 1, 2012,
the date Beck Energy first filed a motion in the trial court to toll the terms of the oil and
gas leases in the trial court, ruling that the tolling period would continue "during the
pendency of all appeals in this Court, and in the event of a timely notice of appeal to
the Ohio Supreme Court, until the Ohio Supreme Court accepts or declines
jurisdiction. At the expiration of the tolling period, Beck Energy, and any successors
and/or assigns shall have as much time to meet any and all obligations under the oil
and gas lease(s) as they had as of October 1, 2012."
{¶27} We will first address the appeals filed by Beck: the class action issues
raised in 13MO3 and 13MO11, and then the issues concerning the trial court's
determination that the Leases are void ab initio raised in 12MO6. Finally, we will
address the denial of XTO’s motion to intervene raised in 13MO2.
13MO3 – Class Certification
{¶28} There are two separate appeals concerning class action issues. In Case
No. 13MO3, Beck appeals the trial court's February 8, 2013 decision and order
granting class action certification. In 13MO11, Beck appeals the trial court's June 10,
2013 order defining the class. Beck assigns four errors in 13MO3, but points out in its
reply brief that assignments of error two and four concern issues that will be the
subject of 13MO11.
{¶29} The second and fourth assignments of error in 13MO3 state respectively:
{¶30} "The trial court abused its discretion when it granted class certification
where it failed to specify the means to determine class membership as required by
Civ.R. 23(C)(3)."
{¶31} "The trial court abused its discretion when it failed to consider the
Amended Motion for Class Certification and instead, granted class certification on a
motion that was no longer pending before the trial court."
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{¶32} These assignments of error are mooted by the trial court's June 10, 2013
order defining the class and therefore will not be addressed. But before turning to the
merits of the first and third assignments of error in 13MO3 and then to the sole
assignment of error presented by 13MO11, a discussion of general class action law in
Ohio is warranted.
General Class Action Law
{¶33} "Class certification in Ohio is based upon Civ.R. 23, which is nearly
identical to Fed.R.Civ.P. 23." Lucio v. Safe Auto Ins. Co., 183 Ohio App. 3d 849, 2009-
Ohio-4816, 919 N.E.2d 260, ¶13 (7th Dist.). Accordingly, Ohio courts may look to
federal court precedent concerning Fed.R.Civ.P. 23 when presented with class action
issues based upon Civ.R. 23. Stammco, L.L.C. v. United Tel. Co. of Ohio, 136 Ohio
St.3d 231, 2013-Ohio-3019, 994 N.E.2d 408, ¶18 ("federal law interpreting a federal
rule, while not controlling, is persuasive in interpreting a similar Ohio rule."). It must be
remembered that a class action is " 'an exception to the usual rule that litigation is
conducted by and on behalf of the individual named parties only[.]' " Cullen v. State
Farm Mut. Auto. Ins. Co., 137 Ohio St. 3d 373, 377, 2013-Ohio-4733, 999 N.E.2d 614,
¶11, quoting Califano v. Yamasaki, 442 U.S. 682, 700-701, 99 S. Ct. 2545, 61 L. Ed. 2d
176 (1979). The party seeking to maintain a class action bears the burden to "
'affirmatively demonstrate his compliance' with Rule 23," Cullen at ¶11, quoting
Comcast Corp. v. Behrend, ------ U.S. ------, 133 S. Ct. 1426, 1432, 185 L. Ed. 2d 515
(2013), quoting Wal-Mart Stores, Inc. v. Dukes, ------ U.S. ------, 131 S. Ct. 2541, 2551–
2552, 180 L. Ed. 2d 374 (2011).
{¶34} There are seven prerequisites plaintiffs must establish in order to certify
a class action, and the failure to meet any one of them will defeat certification.
Stammco at ¶19, ¶24. They are as follows:
(1) an identifiable and unambiguous class must exist, (2) the named
representatives of the class must be class members, (3) the class must
be so numerous that joinder of all members of the class is impractical,
(4) there must be questions of law or fact that are common to the class,
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(5) the claims or defenses of the representative parties must be typical
of the claims and defenses of the members of the class, (6) the
representative parties must fairly and adequately protect the interests of
the class, and (7) one of the three requirements of Civ.R. 23(B) must be
satisfied.
Stammco at ¶19, citing Warner v. Waste Mgt., Inc., 36 Ohio St. 3d 91, 94-96, 521
N.E.2d 1091 (1988).
{¶35} With regard to the seventh prerequisite, the named plaintiffs requested
declaratory judgment and quiet title relief, but no money damages, and sought
certification pursuant to subsection (2). Civ.R. 23(B)(2) provides that class actions
may be brought where "the party opposing the class has acted or refused to act on
grounds generally applicable to the class, thereby making appropriate final injunctive
relief or corresponding declaratory relief with respect to the class as a whole." Civ.R.
23(B)(2). Additionally, courts have held that subsection (B)(2) contains two
requirements: " '(1) the class action must seek primarily injunctive relief; and (2) the
class must be cohesive.' " Fowler v. Ohio Edison Co., 7th Dist. No. 07-JE-21, 2008-
Ohio-6587, ¶64, quoting Wilson v. Brush Wellman, Inc., 103 Ohio St. 3d 538, 2004-
Ohio-5847, 817 N.E.2d 59, ¶13.
{¶36} Class actions brought under Civ.R. 23(B)(2) differ significantly from a
procedural perspective from those brought under Civ.R. 23(B)(3), which applies where
the plaintiff seeks money damages and the trial court finds that class issues
predominate and that a class action is the superior method for adjudicating the
dispute. For example, Civ.R. 23(B)(3) class members are entitled to notice and have
the opportunity to opt-out of the class, while Civ.R. 23(B)(2) class members do not
enjoy those protections. See Dukes at 2558; Civ.R. 23(C)(2)-(3).
{¶37} To this end, the United States Supreme Court has explained:
The procedural protections attending the (b)(3) class—
predominance, superiority, mandatory notice, and the right to opt out—
are missing from (b)(2) not because the Rule considers them
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unnecessary, but because it considers them unnecessary to a (b)(2)
class. When a class seeks an indivisible injunction benefitting all its
members at once, there is no reason to undertake a case-specific inquiry
into whether class issues predominate or whether class action is a
superior method of adjudicating the dispute. Predominance and
superiority are self-evident. * * * Similarly, (b)(2) does not require that
class members be given notice and opt-out rights, presumably because
it is thought (rightly or wrongly) that notice has no purpose when the
class is mandatory, and that depriving people of their right to sue in this
manner complies with the Due Process Clause.
Dukes, 131 S. Ct. at 2558-2559.
{¶38} With regard to the timing of a class certification ruling, Civ.R. 23(C)(1)
provides: "As soon as practicable after the commencement of an action brought as a
class action, the court shall determine by order whether it is to be so maintained. An
order under this subdivision may be conditional, and may be altered or amended
before the decision on the merits." (Emphasis added.)
{¶39} Finally, regarding the standard of review, the "trial court's decision to
certify a class pursuant to Civ.R. 23 is reviewed for abuse of discretion." Lucio at ¶13.
"An abuse of discretion means an error in judgment involving a decision that is
unreasonable based upon the record; that the appellate court merely may have
reached a different result is not enough." Downie v. Montgomery, 7th Dist. No. 12 CO
43, 2013-Ohio-5552, ¶50. The trial court's discretion with regard to class certifications
has been described as broad. Marks v. C.P. Chem. Co., 31 Ohio St. 3d 200, 201, 509
N.E.2d 1249. Further, " '[a] finding of abuse of discretion, particularly if the trial court
has refused to certify, should be made cautiously.' " Stammco at ¶25, quoting Marks
v. C.P. Chem. Co. at 201, 509 N.E.2d 1249. At the same time, a trial court's discretion
in certifying a class is not unfettered; it is restrained by the framework set forth in
Civ.R. 23. Lucio at ¶14.
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Timing of Class Certification
{¶40} In its first assignment of error in 13MO3, Beck asserts:
{¶41} "The trial court abused its discretion when it granted Appellees' motion
for class certification where the rigorous analysis mandated by Civ.R. 23 establishes
Appellees' motion and the trial court's ruling were untimely under Ohio law."
{¶42} Turning to a preliminary matter, the Landowners claim Beck waived any
right it otherwise may have had to a ruling on class certification before pronouncement
of judgment on the merits by filing a motion to dismiss, and by participating without
objection in scheduling conferences and in the determination of the Landowners'
motion for summary judgment. This argument is meritless for several reasons.
{¶43} First, the burden falls on the plaintiffs to move for class certification and
thus it is baseless to fault Beck as the defendant for failing to insist on certification
sooner. Second, Beck did not expressly acquiesce in the timing of class certification;
in its memo in opposition to the amended motion for class certification, Beck squarely
challenged the timing of class certification. Third, Beck's motion to dismiss did not call
into question the merits of the case, rather it raised only the narrow procedural issue
that the named plaintiffs failed to provide Beck with prior written notice of breach
before commencing the lawsuit.
{¶44} Turning to Beck’s numerous arguments relating to the timing of class
certification, Beck first contends that the named plaintiffs' failure to move for class
certification sooner demonstrates that they did not adequately represent the class.
Beck has waived this argument because it failed to raise it at the trial court level. See,
e.g., Maust v. Meyers Prods., Inc., 64 Ohio App. 3d 310, 313, 581 N.E.2d 589 (1989)
(failure to raise an issue in the trial court waives a litigant's right to raise that issue on
appeal). In neither Beck's brief in opposition to the first or amended motion for class
certification did it assert precisely that the named plaintiffs' failure to move for class
certification sooner demonstrates they were inadequate class representatives.
{¶45} Beck's chief argument on appeal with regard to timing is that the trial
court's actions violate the so-called rule against one-way intervention. The origins of
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this rule stem from the effects of former versions of Rule 23, as aptly explained by the
Seventh Circuit:
One of the complaints about the old Rule 23 was that it allowed
courts to entertain what were called "spurious class actions"--actions for
damages in which a decision for or against one member of the class did
not inevitably entail the same result for all. One party could style the
case a "class action", but the missing parties would not be bound. A
victory by the plaintiff would be followed by an opportunity for other
members of the class to intervene and claim the spoils; a loss by the
plaintiff would not bind the other members of the class. (It would not be
in their interest to intervene in a lost cause, and they could not be bound
by a judgment to which they were not parties. Hansberry v. Lee, 311
U.S. 32, 40, 61 S. Ct. 115, 117, 85 L. Ed. 22 (1940).) So the defendant
could win only against the named plaintiff and might face additional suits
by other members of the class, but it could lose against all members of
the class. This came to be known as "one-way intervention", which had
few supporters. A principal purpose of the 1966 revision of Rule 23 was
to end "one-way intervention". See the Advisory Committee's note to
new Rule 23(c)(3), and, e.g., C. Wright, A. Miller & M. Kane, 7B Federal
Practice and Procedure Sec. 1789 at 266-67 (2d ed. 1986). See also H.
Kalven & M. Rosenfield, The Contemporary Function of the Class Suit, 8
U.Chi.L.Rev. 684 (1941).
The drafters of new Rule 23 assumed that only parties could take
advantage of a favorable judgment. Given that assumption, it was a
simple matter to end one-way intervention. First, new Rule 23(b)(3)
eliminated the "spurious" class suit and allowed the prosecution of
damages actions as class suits with preclusive effects. Second, new
Rule 23(c)(3) required the judgment in a Rule 23(b)(3) class action to
define all members of the class. These members of the class were to be
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treated as full-fledged parties to the case, with full advantage of a
favorable judgment and the full detriments of an unfavorable judgment.
Third, new Rule 23(c)(1) required the district courts to decide whether a
case could proceed as a class action "as soon as practicable" after it
was filed. The prompt decision on certification would both fix the
identities of the parties to the suit and prevent the absent class members
from waiting to see how things turned out before deciding what to do.
Finally, new Rule 23(c)(2) allowed members of a 23(b)(3) class action to
opt out immediately after the certification in accordance with 23(c)(1). So
a person's decision whether to be bound by the judgment--like the
court's decision whether to certify the class--would come well in advance
of the decision on the merits. Under the scheme of the revised Rule 23,
a member of the class must cast his lot at the beginning of the suit and
all parties are bound, for good or ill, by the results. Someone who opted
out could take his chances separately, but the separate suit would
proceed as if the class action had never been filed. As the Advisory
Committee put it: "Under proposed subdivision (c)(3), one-way
intervention is excluded; the action will have been early determined to be
a class or a nonclass action, and in the former case the judgment,
whether or not favorable, will include the class".
Premier Elec. Const. Co. v. National Elec. Contractors Assn., Inc., 814 F.2d 358, 362
(7th Cir.1987)
{¶46} Beck asserts that the trial court's decision to certify the class after it had
granted summary judgment in favor of the Landowners violates the rule against one-
way intervention. The Landowners counter that the rule against one-way intervention
does not apply to Civ.R. 23(B)(2) actions because members of a Civ.R. 23(B)(2) class
have no right to notice nor the ability to opt-out of the class.
{¶47} Beck relies heavily on an older case from the First District, Bass v. Ohio
Med. Indemnity Inc., 1st Dist. No. C-76273, 1977 WL 199736 (Aug. 3, 1977), and the
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federal cases cited therein. In Bass, the court determined that the trial court had erred
by failing to consider class certification until after a decision on the merits.1 The
plaintiff had filed a complaint on his own behalf and on behalf of others similarly
situated. The defendant moved to dismiss the class-action allegations, and the trial
court, following a hearing, denied that motion. It did not consider class certification
again until after a trial that resulted in judgment in the plaintiff's favor. Following
judgment, the plaintiff, for the first time, moved for class certification pursuant to Civ.R.
23(B)(2) (requesting only injunctive relief). The trial court denied class certification,
and the plaintiff appealed.
{¶48} The First District, citing case law regarding the rule against one-way
intervention, concluded that the trial court erred by failing to address class certification
prior to issuing a judgment on the merits in favor of the named plaintiff: "[T]hose courts
ruling on the question consistently have held that certification of a suit as a class
action must precede or, at the very least, accompany the court's decision on the merits
of the action." Bass at *2, citing American Pipe & Construction Co. v. Utah, 414 U.S.
538, 94 S. Ct. 756, 38 L. Ed. 2d 713 (1974); Larionoff v. United States, 533 F.2d 1167
(D.C.Cir.1976); Jiminez v. Weinberger, 523 F.2d 689 (7th Cir.1975); Peritz v. Liberty
Loan Corp., 523 F.2d 349 (7th Cir.1974); Katz v. Carte Blanche Corp, 496 F.2d 747
(3d Cir.1974); Glodgett v. Betit, 368 F. Supp. 211 (D.Vt.1973).
{¶49} Some of the cases cited above in Bass, however, involve different
procedural postures and/or do not squarely hold that class certification must always
precede or accompany a merit decision in 23(B)(2) cases. For example, American
Pipe & Construction discussed the rule against one-way intervention, 414 U.S. at 547,
but ultimately that case dealt with the commencement of the applicable statute of
limitations for asserted class members. Id. at 552-553 (holding that "at least where
class action status has been denied solely because of failure to demonstrate that 'the
class is so numerous that joinder of all members is impracticable,' the commencement
of the original class suit tolls the running of the statute for all purported members of the
1
Ultimately the court did not reverse the error because it found the plaintiff-appellant had either waived
the issue for purposes of appeal or invited the error. Bass at *4.
- 15 -
class who make timely motions to intervene after the court has found the suit
inappropriate for class action status.") Some of the cases concededly involved
23(B)(2) classes, yet the courts failed to note the distinctions between 23(B)(2) and
23(B)(3) classes.
{¶50} The Landowners contend that Bass, which appears to be the only Ohio
case addressing the issue, and those cases upon which it relies, are no longer good
law and that the rule against one-way intervention does not apply to 23(B)(2) class
actions. They cite a more recent Sixth Circuit case which concluded that there is "no
support for applying the prohibition on one-way intervention to Rule 23(b)(2) class
certifications, in which class members may not opt out and therefore make no decision
about whether to intervene." Gooch v. Life Investors Ins. Co. of America, 672 F.3d
402, 433 (6th Cir.2012), citing Paxton v. Union Natl. Bank, 688 F.2d 552, 558–59 (8th
Cir.1982).
{¶51} In Gooch, the trial court certified the class after granting a preliminary
injunction to the plaintiffs in a 23(B)(2) suit. While Beck is correct that the Gooch
court's conclusion that no error occurred was based in part on its determination that a
decision to grant a preliminary injunction was not a decision on the merits, the court
alternatively concluded that the rule against one-way intervention did not apply to Rule
23(B)(2) class certifications. Id.
{¶52} Other federal courts have likewise stated that the rule against one-way
intervention does not apply to Civ.R. 23(B)(2) class certifications. In Williams v. Lane,
129 F.R.D. 636, 640-41 (N.D.Ill.1990), the court noted that where a plaintiff class
seeks only declaratory or injunctive relief, certification under Rule 23(b)(2) "readily
leads to binding all members of the class to both favorable and unfavorable
judgments." The overriding concern over one-way intervention "legitimately arises
only where monetary relief is the sole relief sought, not where * * * injunctive relief was
and is so importantly at stake." Id. at 642.
{¶53} In Paxton, the Eighth Circuit refused to apply the rule against one-way
intervention where the trial court withheld a decision on a 23(B)(2) class certification
until after a full trial on the merits, reasoning that
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The prejudice inherent in delaying the certification determination
until after trial has been thoroughly explored in the context of litigation
under subdivision (3) of Rule 23(b). The courts' concern in Rule
23(b)(3) suits has been to prevent "one-way intervention[,]" i.e., to
protect defendants from putative class members who can "opt-out" of
an unfavorable decision rendered simultaneously with class
certification but can choose to be bound by a favorable decision. Rule
23(b)(2) suits * * * from which class members cannot "opt-out," do not
present the same problem.
Paxton at 558-59. See also Civ.R. 23(C)(2), (3) (only Civ.R. 23(B)(3) class members
may request exclusion from the class).
{¶54} As an issue of first impression in this district, we are more persuaded by
the Gooch and Paxton cases, and hold that the rule against one-way intervention does
not apply to Civ.R. 23(B)(2) classes.
{¶55} This leaves us to consider the language of Civ.R. 23(C)(1) which
provides: "As soon as practicable after the commencement of an action brought as a
class action, the court shall determine by order whether it is to be so maintained. An
order under this subdivision may be conditional, and may be altered or amended
before the decision on the merits."
{¶56} The use of the term practicable leaves some discretion with the trial
court. Thus, we read this rule as generally requiring class certification prior to a ruling
on the merits in many, but not all circumstances, for example, not in Civ.R. 23(B)(2)
classes. Although we might have managed this case differently, as borne out by the
myriad of appeals and judgment entries this case management has generated,
ultimately we cannot conclude the trial court abused its discretion, given the standard
of review that we generally defer to the trial court's broad discretion in managing class
actions. See generally Marks, supra, 31 Ohio St.3d at 201.
- 17 -
{¶57} Additionally, even though the rule against one-way intervention does not
apply in 23(B)(2) classes, we recognize that determining the merits prior to certifying a
23(B)(2) class may, in some circumstances, be "inappropriate for reasons 'of judicial
economy, and of fairness to both sides[.]' " Gooch, supra at 559, quoting Paxton,
supra, at 558-559, quoting Stastny v. S. Bell Tel. & Tel. Co., 628 F.2d 267, 275 (4th
Cir.1980). However, there must be a showing of prejudice. Paxton at 559.
{¶58} Here, Beck has failed to demonstrate how it was prejudiced by the
timing, especially in light of this court's orders granting a stay of the trial court's
judgments on appeal and equitable tolling of the terms of all the Landowners' Leases.
Moreover, this case is similar to Paxton, where no prejudice was found. There, as
here, the "the defendant thereupon fully presented its defense as to all the class and
individual claims [and the] plaintiffs generally proceeded on a class-wide basis as
well." Paxton at 559. The Paxton court found these factors demonstrated that neither
party could assert prejudice from the delay in certification. Id.
{¶59} While not the better practice, the trial court did not abuse its discretion in
certifying a Civ.R. 23(B)(2) class after ruling on the merits. There was no prayer for
monetary damages, only declaratory and quiet title relief were sought, and prospective
class members under subsection (B)(2) are not entitled to notice and cannot opt-out of
the class. Accordingly, Beck's first assignment of error in 13MO3 is meritless.
Failure to Conduct a Class Action Certification Hearing
{¶60} In its third assignment of error in 13MO3, Beck asserts:
{¶61} "The trial court abused its discretion when it failed to conduct an
evidentiary hearing prior to granting class action certification."
{¶62} The Civil Rules themselves are silent as to whether a hearing is required
prior to class certification. See Civ.R. 23; Ritt v. Billy Blanks Ents., 171 Ohio App. 3d
204, 2007-Ohio-1695, 870 N.E.2d 212 (8th Dist.) Although the Ohio Supreme Court
has stated in passing that "typically there is a hearing," on class certification, Warner,
36 Ohio St. 3d at 94, the Court also recognized that a hearing is not required in all
cases. Id. at 98. Further, this court has concluded, "in many cases, no evidentiary
hearing is needed in order for a court to certify a class, and class certification may be
- 18 -
granted on the basis of the pleadings alone." Lucio v. Safe Auto Ins. Co., 183 Ohio
App.3d 849, 2009-Ohio-4816, 919 N.E.2d 260, ¶15, citing Warner at 98; Gottlieb v. S.
Euclid, 157 Ohio App. 3d 250, 2004-Ohio-2705, 810 N.E.2d 970 (8th Dist.); Franks v.
Kroger Co. 649 F.2d 1216 (6th Cir.1981). "An evidentiary hearing is not required in
cases where the pleadings in a class action are so clear that a trial court may find by a
preponderance of the evidence that certification is or is not proper." Ritt at ¶18. " 'As
long as the trial court provides a sufficient opportunity for a factual development so as
to permit a meaningful determination as to whether or not a cause of action should be
certified as a class action, the trial court need not conduct a hearing on the certification
question. * * *' " Id. at ¶19, quoting Clark v. Pfizer, Inc., 6th Dist. No. S–84–7, 1984
WL 7932, *5 (July 13, 1984).
{¶63} Therefore, a trial court has discretion whether to hold a class certification
hearing and "it follows that if the court had sufficient information before it to rule on
certification, it did not abuse its discretion by failing to hold a hearing." Ritt at ¶21.
See also Lasson v. Coleman, 2d Dist. No. 21524, 2007-Ohio-3443, ¶15-17.
{¶64} Beck asserts the record was not developed enough with regard to class
certification and therefore a hearing was required. We disagree. Based upon a review
of the trial court's detailed February 8, 2013 decision, which noted, inter alia, the same
Form G&T 83 Lease was used between Beck and all the Landowners and no
monetary damages were sought, class certification was a fairly straightforward matter.
There was sufficient opportunity for factual development to permit a meaningful
determination as to whether to certify a class action.
{¶65} Prior to ruling on class certification, the trial court ruled upon Beck's
motion to dismiss and/or change venue and the Landowners' motion for summary
judgment. The trial court had before it the Form G&T 83 Leases at issue, the
purchase and sale agreement and assignment of the deep rights under the leases
between Beck and XTO, Beck's motion to dismiss and the Landowners' opposition
response, and the Landowners' and Beck’s filings regarding the Landowner’s motion
for summary judgment. Further, the only relief sought was a declaration that the form
lease is void and the quieting of title to lands encumbered by that particular form lease.
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{¶66} Membership in the class is based upon whether an individual's land is
encumbered by that form lease, and whether any drilling has been carried out on the
individual's land. There are no disputes regarding the pertinent evidence, and the trial
court's conclusion on each one of the class prerequisites was based upon information
in the record. Moreover, neither party requested a hearing on class certification.
{¶67} Based on all of the above, the trial court did not abuse its discretion by
failing to hold a hearing on class certification. Accordingly, Beck's third assignment of
error in 13MO3 is meritless.
13MO11 – Class Definition
{¶68} In its sole assignment of error in 13MO11, Beck asserts:
{¶69} "The trial court abused its discretion when it adopted a class description
that is inconsistent with Appellees' Second Amended Complaint and Appellees' Motion
for Class Action Certification."
{¶70} Beck challenges the trial court decision to certify a class consisting of
Ohio lessors instead of one comprised of Monroe County lessors as requested in the
second amended class action complaint and amended motion for class action
certification. In other words, Beck challenges the trial court's authority to modify the
definition of the class set forth in the pending pleading and motion.
{¶71} To briefly recap the procedural history, both the first and second
amended class action complaints requested that a class of Monroe County lessors be
certified. The initial motion for class action certification did request a class of Ohio
lessors, however, in the amended motion, they changed their request to include
Monroe County lessors. Because the trial court's February 8, 2013 class action
certification decision was ambiguous regarding the class definition, this court issued a
limited remand for the trial court to define the class. Thereafter, the Landowners' filed
a motion in aid of appeal requesting that the class include all Ohio lessors.
{¶72} A court's description of a class must be unambiguous and such that all
class plaintiffs are sufficiently identifiable. Warner v. Waste Mgt., Inc., 36 Ohio St. 3d
91, 96, 521 N.E.2d 1091 (1988). A class description is sufficiently definite if it is
"administratively feasible for the court to determine whether a particular individual is a
- 20 -
member." Hamilton v. Ohio Sav. Bank, 82 Ohio St. 3d 67, 71-72, 694 N.E.2d 442, 448
(1998).
{¶73} The trial court has wide discretion in defining the certified class, and has
the power to sua sponte modify a class description that was proposed by a party. Ritt,
supra, at ¶19-20 (citing Warner and concluding that trial court should have modified
the class). See also Baughman v. State Farm Mut. Auto. Ins. Co., 88 Ohio St. 3d 480,
483-484, 727 N.E.2d 1265 (2000) (where Ohio Supreme Court sua sponte modified
the class description). The Sixth Circuit has noted that this broad discretion stems
from the fact that "courts must be vigilant to ensure that a certified class is properly
constituted." Powers v. Hamilton Cty. Pub. Defender Comm, 501 F.3d 592, 619 (6th
Cir.2007). In Powers, the appellate court concluded that the trial court's multiple
amendments to the class description "merely showed that the court took seriously its
obligation to make appropriate adjustments to the class definition as the litigation
progressed." Id., citing Schorsch v. Hewlett–Packard Co., 417 F.3d 748, 750 (7th
Cir.2005) (noting that "[l]itigants and judges regularly modify class definitions"); In re
Monumental Life Ins. Co., 365 F.3d 408, 414 (5th Cir.2004) ("District courts are
permitted to limit or modify class definitions to provide the necessary precision.").
{¶74} Resolution of this issue turns on the trial court's broad discretion to
manage class actions. See, e.g., Hamilton, supra, 82 Ohio St.3d at 70 (emphasizing
the trial court's broad discretion in class certification matters and noting that such
discretion is "grounded * * * in the trial court's special expertise and familiarity with
case-management problems and its inherent power to manage its own docket.");
Marks v. C.P. Chem. Co., Inc., 31 Ohio St. 3d 200, 201, 509 N.E.2d 1249, 1252 (1987)
("[d]ue deference must be given to the trial court's decision. A trial court which
routinely handles case-management problems is in the best position to analyze the
difficulties which can be anticipated in litigation of class actions. It is at the trial level
that decisions as to class definition and the scope of questions to be treated as class
issues should be made.")
{¶75} Here, the Landowners did submit a proposed modification while the case
was on remand from this court, wherein they requested a state-wide class. Second,
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the class certified by the trial court is unambiguous and such that all class plaintiffs are
easily identifiable. Third, the trial court cited valid reasons in support of its decision to
certify a state-wide class:
This is the class delineation that best serves the interests of finality,
judicial economy and justice. Determination of the members of this class
will not be difficult. This is a clear and unambiguous class definition. It
will resolve these issues once and for all and prevent years of numerous
and protracted litigation.
{¶76} The trial court did not abuse its discretion by defining the class more
broadly than was originally requested via the pending pleading and class certification
motion. Specifically, the trial court did not abuse its discretion by defining the class as
all Ohio lessors who executed a Form G&T 83 Lease with Beck, where Beck had
neither drilled nor prepared to drill a well, nor included the property in a drilling unit.
Accordingly, Beck's sole assignment of error in 13MO11 is meritless.
12MO6 – Summary Judgment
{¶77} Beck assigns six errors, all of which challenge the trial court's decision
granting summary judgment in favor of the Landowners. For ease of analysis, the
assignments of error will be discussed together and/or out of order.
{¶78} When reviewing a trial court's decision to grant summary judgment, an
appellate court applies the same standard used by the trial court and, therefore,
engages in de novo review. Parenti v. Goodyear Tire & Rubber Co., 66 Ohio App. 3d
826, 829, 586 N.E.2d 1121 (9th Dist.1990). Under Civ.R. 56, summary judgment is
only proper when the movant demonstrates that, viewing the evidence most strongly in
favor of the nonmovant, reasonable minds must conclude no genuine issue as to any
material fact remains to be litigated and the moving party is entitled to judgment as a
matter of law. Doe v. Shaffer, 90 Ohio St. 3d 388, 390, 738 N.E.2d 1243 (2000).
Further, "[t]he construction of written contracts and instruments of conveyance is a
matter of law." Alexander v. Buckeye Pipe Line Co., 53 Ohio St. 2d 241, 374 N.E.2d
- 22 -
146 (1978), paragraph one of the syllabus, quoting Graham v. Drydock Coal Co., 76
Ohio St. 3d 311, 313, 667 N.E.2d 949 (1996). Thus, a de novo review applies as well.
No-term/Perpetual Leases
{¶79} In its first and fourth assignments of error in 12MO6, Beck asserts:
{¶80} "The trial court erred when it concluded the leases are subject to
perpetual renewal and therefore void ab initio"
{¶81} "The trial court erred when it concluded the leases were "no-term"
leases."
{¶82} Beck challenges the trial court's decision to void the Lease merely
because the court deemed it to be a perpetual lease. Indeed, although perpetual
leases are disfavored by the law, courts have not found them to be per se illegal or
void from their inception. See Myers v. East Ohio Gas, 51 Ohio St. 2d 121, 364 N.E.2d
1369 (1977); Hallock v. Kintzler, 142 Ohio St. 287, 51 N.E.2d 905 (1943); Central Ohio
Natural Gas & Fuel Co. v. Eckert, 70 Ohio St. 127, 71 N.E. 281 (1904). That said, we
must first determine whether the Leases are in fact perpetual.
{¶83} Beck challenges the trial court's ruling that the Leases were no-term and
perpetual in nature, and therefore violative of Ohio public policy. Beck asserts the trial
court misinterpreted the following Lease provisions to reach that conclusion:
2. This lease shall continue in force and the rights granted
hereunder be quietly enjoyed by the Lessee for a term of ten years and
so much longer thereafter as oil and gas or their constituents are
produced or are capable of being produced on the premises in paying
quantities, in the judgment of the Lessee, or as the premises shall be
operated by the Lessee in the search for oil or gas and as provided in
Paragraph 7 [the dry hole clause].
3. This lease, however, shall become null and void and all rights of
either party hereunder shall cease and terminate unless, within 12
months from the date hereof, a well shall be commenced on the
premises, or unless the Lessee shall thereafter pay a delay rental of
- 23 -
_____ each year, payments to be made quarterly until the
commencement of a well. A well shall be deemed commenced when
preparations for drilling have commenced.
{¶84} The trial court concluded that these two provisions, when read together,
allow Beck to extend the leases in perpetuity, in violation of Ohio public policy, "either
by making nominal delay rental payments pursuant to paragraph 3 or by determining
in its own judgment that the premises are capable of producing oil or gas in paying
quantities pursuant to paragraph 2."
{¶85} Beck asserts that the trial court's interpretation of the Lease provisions
runs counter to years of established oil and gas jurisprudence in Ohio and nationwide.
We agree; the trial court's reasoning is problematic for four main reasons.
{¶86} First, the lease is not a no-term lease. The habendum clause of the
Lease contains a primary and secondary term: "This lease shall continue in force * * *
for a term of ten years and as much longer thereafter as oil or gas or their constituents
are produced or are capable of being produced on the premises in paying quantities,
in the judgment of the Lessee * * *."
{¶87} As stated in Am. Energy Serv. v. Lekan, 75 Ohio App. 3d 205, 598
N.E.2d 1315 (5th Dist.1992), the habendum clause is "two tiered. The first tier, or
primary term, is of definite duration * * *. The second tier is of indefinite duration and
operates to extend the Lessee's rights under the lease so long as the conditions of
the secondary term are met." Id. at 212 (quoting and affirming in entirety the
decision of the trial court).
{¶88} For example, Gardner v. Oxford Oil Co., 2013-Ohio-5885, 7 N.E.3d 510
(7th Dist.), involved a habendum clause that stated: "the lease will run for '5 years and
so much longer thereafter as oil, gas or their constituents are produced in paying
quantities thereon, or operations are maintained on' all or part of the land." Id. at ¶4.
We concluded that the "primary term" of the lease was five years, which had expired,
and that "[t]he habendum clause of the lease also provides for a secondary term, that
the lease will run for 'and so much longer thereafter as oil, gas or their constituents are
- 24 -
produced in paying quantities thereon, or operations are maintained on' all or part of
the land." Id. at ¶27.
{¶89} Likewise in Swallie v. Rousenberg, 190 Ohio App. 3d 473, 2010-Ohio-
4573, 942 N.E.2d 1109 (7th Dist), the habendum clause provided that the lease had:
"a term of twenty (20) years and so much longer thereafter as oil, gas, or their
constituents are produced in paying quantities thereon." Id. at ¶5-6. In interpreting
this language, this court concluded that "the primary term of the [1919] lease expired"
after the first twenty years, "in 1939." Id. at ¶63. The court then acknowledged that
"[t]he lease term continued under the secondary term until the well ceased producing
in paying quantities * * *." Id. There was no requirement in the lease that the lessee
had any drilling obligations during the initial primary term. Id. at ¶62.
{¶90} Applying these principles to the instant case, the primary term of the
Lease is ten years and the secondary term is "so much longer thereafter as oil and gas
or their constituents are produced or are capable of being produced on the premises in
paying quantities, in the judgment of the Lessee, or as the premises shall be operated
by the Lessee in the search for oil or gas and as provided in Paragraph 7 [the dry hole
clause]." The Form G&T 83 Lease is not a no-term lease; it has two distinct terms.
{¶91} Second, courts have held that delay rental provisions in oil and gas
leases also known as drilling and rental clauses such as the one contained in
paragraph 3 of the Lease, only apply during the primary term of the lease.
{¶92} In Northwestern Ohio Natural Gas Co. v. City of Tiffin, 59 Ohio St. 420,
54 N.E. 77 (1899), the lease at issue was for "the term of five years...and as much
longer as oil and gas is produced or found in paying quantities," and it also required
the lessee to "complete a well * * * within nine months" or pay "for such delay a yearly
rental." Id. at 424. The Supreme Court of Ohio concluded that "such a lease * * *
expires at the end of the specified term, unless within that time oil or gas is obtained
from the land in the designated quantities." Id., at paragraph two of the syllabus.
"Upon payment of the [delay] rental, [lessee's] right to complete the well continued for
the specified term of five years, but no longer." (Emphasis added.) Id. at 442-443.
 - 25 -
{¶93} And in Brown v. Fowler, 65 Ohio St. 507, 522, 63 N.E. 76 (1902), the
lease had a primary term of two years and secondary term of "as long thereafter as oil
or gas is found in paying quantities thereon," but not to exceed 25 years from the date
of the lease agreement. Id. at 521. It also contained a provision that required the
lessee to drill within twelve months or pay a delay rental. The Court concluded that
"[t]his [delay rental] clause cannot have the effect, in any event, to extend the lease
beyond the two years definitely and certainly fixed in the habendum clause." Id. at
523. In other words, the delay rental payment cannot extend the lease beyond the
primary term.
{¶94} As a federal district court has explained much more recently, provisions
in oil and gas leases "obligating the lessor to pay a rental or develop the leasehold"
are "understood to be operative during the primary term." Jacobs v. CNG
Transmission Corp., 332 F. Supp. 2d 759, 786 (W.D.Pa.2004). The court elaborated on
the history of the delay rental clause and how that played a role in its meaning:
When the fixed term lease came into general use in the 1890s.* *
* lessees argued that such leases could be extended beyond the fixed
term by the mere payment of the fixed rental referenced in the drilling
clause. * * * The courts * * * rejected such a construction as being
"contrary to the intentions of the parties to so word a habendum clause
that the lease must terminate within a definite time in the absence of
production, and then in the next clause destroy that provision by another
permitting the lease to run indefinitely [without production] by the
payment of a nominal delay rental."
Id. at 790, quoting 2 Summers, The Law of Oil and Gas, Section 290.
{¶95} The trial court here primarily relied on Hite v. Falcon Partners, 13 A.3d
942, 947 (Pa.Super.2011), a Pennsylvania appellate court case, in reaching the
opposite conclusion. However, Hite is factually distinguishable for a number of
reasons. In Hite, the secondary term of the habendum clause expressly permitted the
lease to continue in perpetuity as long as a delay rental was paid:
- 26 -
3. Term. Lessee has the right to enter upon the Property to drill
for oil and gas at any time withinone [sic] (1) year from the date hereof
and as long thereafter as oil or gas or either of them is produced from
the Property, or as operations continue for the production of oil or gas, or
as Lessee shall continue to pay Lessors two ($2.00) dollars per acre as
delayed rentals, or until all oil and gas has been removed from the
Property, whichever shall last occur. Id. at Paragraph 3.1.
Hite at 944.
{¶96} However, the Hite court declined to enforce the provision so as to permit
the lessee to defer production indefinitely as long as the rental was paid. The court
only allowed the delay rental provision to defer production during the primary term:
[D]elay rentals function to relieve the lessee of the obligation to develop
the leasehold during the primary term of the lease. Thus, Paragraph 3 of
the leases currently at issue sets forth a primary term of one year, and
requires a two dollar delay rental, paid annually. As such, a single two
dollar delay rental payment relieved [the lessee] of any obligation to
develop the leasehold during the one year primary term. Once that one
year primary term expired, however, the mere payment of delay rentals
alone did not preserve [the lessee's] drilling rights.
Id. at 948.
{¶97} Importantly, when the lessors filed suit in Hite the primary term of the
leases at issue had long since expired, no production had occurred and the lessees
contended that they were not obligated to drill so long as they paid the delay rental.
Id. at 944-945, 948. By contrast, the Form G&T 83 Leases here were still within their
primary term at the time the trial court declared them unenforceable. Secondly, unlike
the leases in Hite, the delay rental provision here was set forth separately from the
secondary term of the habendum clause. Finally, unlike the Hite lessees, Beck is not
- 27 -
contending that the Lease permits it to defer drilling indefinitely so long as it pays the
delay rental in paragraph 3 of the Lease.
{¶98} Hite actually supports Beck's position more than the Landowners insofar
as the Pennsylvania court recognized the long-standing view that delay-rental
clauses—which were developed to offset the harsh requirement that development had
to occur immediately upon the signing of the lease—apply only during the primary term
of the lease and do not permit a lessee to defer commencement of a well beyond the
primary term. Hite at 947-948.
{¶99} Thus, the trial court incorrectly concluded that Beck could extend the
Lease in perpetuity by making a nominal delay rental payment. Under established
case law, once the primary term of the Lease expires, the delay rental provision is no
longer applicable. In order for the Lease to continue into the secondary term, "oil or
gas or their constituents [must be] produced or [must be] capable of being produced
on the premises in paying quantities, in the judgment of the Lessee * * *."
{¶100} Turning to the third issue with the trial court's decision—its
interpretation of the phrase capable of production—similar language in a habendum
clause has been read as referring to whether a well is capable of producing, not
whether the land is capable of producing. Morrison v. Petro Eval. Serv., Inc., 5th Dist.
No. 2004 CA 0004, 2005-Ohio-5640, ¶34-35, 39-40 (where a lease had a definite
primary term and continued "as long thereafter" as "oil or gas is produced or is capable
of being produced from the premises," the court held that "a well is capable of
production if it is capable of producing in paying quantities without additional repairs or
equipment"), quoting Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 558
(Tex.2003); Hunthauser Holdings, LLC v. Loesch, D.Kan. No. 00-1154-MLB, 2003 WL
21981961 (June 10, 2003) (where lease lasted for three years and as long thereafter
as oil, gas or any of the products covered by the lease is or can be produced, the court
proceeded as if the clause refers to a well that has produced or is capable of
producing); Anadarko Petroleum Corp., supra (habendum clause stating the lease
lasts as long as gas is or can be produced refers to whether a well is producing or can
- 28 -
produce). In other words, oil and gas is not capable of being produced if no well
exists.
{¶101} Here, the secondary term of the habendum clause does not allow an
extension merely because the land is capable of production. The Landowners are
incorrect that the Leases require no development activity whatsoever, ever, and may
be extended indefinitely. The trial court incorrectly concluded that Beck could extend
the Lease in perpetuity by interpreting the phrase "capable of production," in the
secondary term of the habendum clause to mean the land is capable of producing.
Instead, case law has interpreted the phrase as referring to whether a well is capable
of producing. This interpretation presupposes that a well was drilled and began
producing during the primary term of the lease, and continued producing into the
secondary term. The secondary term would then continue until such time as the well
was no longer capable of producing.
{¶102} Fourth and finally, the trial court incorrectly reasoned that the addition
of the language "in the judgment of Lessee" to the secondary term of the habendum
clause, permits the Lease to continue in perpetuity at Beck's sole discretion. The full
portion of the habendum clause reads: "are produced or are capable of being
produced on the premises in paying quantities, in the judgment of the Lessee." The
Landowners and the trial court over-parsed the phrase. The phrase does leave it to
the judgment of the Lessee to determine whether a well is in fact or capable of
producing in paying quantities. It would be contrary to the joint economic interest of
both a landowner and the lessee to continue drilling if it was no longer financially
feasible. Under these conditions, the lease would end and the lessee’s interest in the
mineral rights would expire; it would not continue in perpetuity. Further, clauses
dealing with paying quantities have not been invalidated or read as making an entire
lease void ab initio. They do not necessarily allow the lessee to arbitrarily determine
whether a well is capable of production.
{¶103} Rather, courts generally impose a good faith standard on the paying
quantities requirement, with or without this lease language. See, e.g., T.W. Phillips
Gas and Oil Co. v. Jedlicka, 615 Pa. 199, 216-224, 42 A.3d 261, fn. 15 (2012); Cotton
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v. Upham Gas Co., 5th Dist. No. 86CA20, 1987 WL 8741, *1 (Mar. 6, 1987) ("As
between lessor and lessee, the construction of the phrase 'paying quantities' must be
from the standpoint of the lessee and his 'good faith judgment' that production is in
paying quantities must prevail."); Weisant v. Follett, 17 Ohio App. 371 (7th Dist.1922)
(reviewing cases in various states for propositions such as: "The lessee, acting in
good faith and upon his honest judgment, not an arbitrary judgment * * *"; "His
judgment, when bona fide, is entitled to great weight in determining whether the gas is
in fact produced in paying quantities"; "the lessee is the sole judge on this question,
and as long as he can make a profit therefrom, he will be permitted to do so"; and
"largely left to his good judgment").
{¶104} For all of these reasons, the trial court erred in determining that the
leases were no-term and perpetual in nature, and therefore void ab initio as against
public policy. The Lease provided for a primary term of 10 years within which to
commence drilling. Only then would a secondary term commence, and continue only
so long as there is an established oil or gas well that is actually producing or capable
of producing in paying quantities. Accordingly, Beck's first and fourth assignments of
error in 12MO6 are meritorious.
Implied Covenants
{¶105} In its second, third and sixth assignments of error in 12MO6 Beck
asserts, respectively:
{¶106} "The trial court erred when it concluded Appellant's leases were subject
to implied covenants."
{¶107} "The trial court erred when it refused to enforce the 30-day notice
provision."
{¶108} "The trial court erred when it found a breach of the covenant to
develop."
{¶109} In addition to invalidating the Leases because it believed them to be
no-term and perpetual in nature, the trial court also concluded that they were subject
to the implied covenants and that Beck had breached the implied covenant to
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reasonably develop. Despite finding a breach, the trial court refused to enforce a
Lease clause that granted Beck 30 days to cure any alleged breach.
{¶110} First and foremost, the trial court erred in its conclusion that the Leases
were subject to implied covenants, relying on the Supreme Court's decision in Ionno,
supra, 2 Ohio St. 3d 131. In that case, the 1960 coal and clay lease provided for a
royalty on the product or a minimum rent payment of $300 per year for the first two
years and $600 per year thereafter. By 1979, there was still no mining activity, the
lessors refused to accept that year's payment, and the lessors sued seeking forfeiture
and cancellation of the mineral lease for reasons of nonperformance and failure of
consideration. The issue before the Supreme Court was whether the lease should be
forfeited for breach of an implied duty to reasonably develop the leased premises
where the lease contains no time period for commencement of operations. Id. at 132.
{¶111} The Supreme Court reiterated the general principle that absent express
provisions to the contrary, a mineral lease includes an implied covenant to reasonably
develop the land. Id. at 132-133, citing Beer v. Griffith, 61 Ohio St. 2d 119, 399 N.E.2d
1227, at paragraph of syllabus (1980) and Harris v. Ohio Oil Co., 57 Ohio St. 118, 127,
48 N.E. 502 (1897). "Thus, where a lease fails to contain any specific reference to the
timeliness of development, the law will infer a duty to operate with reasonable
diligence." Id. at 133.
{¶112} The Court then addressed whether the annual rental removed any duty
to develop with diligence. The Court concluded that because the rental was to be
offset by any coal or clay produced, the contract manifestly contained an implied
covenant on the part of the lessees that they will work the land with ordinary diligence
so that lessors may secure the actual consideration for the lease being the payment of
a royalty on mined minerals. Id. at 133-134. The Court continued:
The fact that the lessees have continued to make annual payments for a
period of over eighteen years does not alter their responsibility to
develop the land within a reasonable time. The questions of working
diligently and of paying rent or royalties are entirely separate matters. An
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annual advance payment which is credited against future royalties
cannot be viewed as a substitute for timely development. To hold
otherwise would be to reward mere speculation without development,
effort, or expenditure on the part of the lessees. It would allow a lessee
to encumber a lessor's property in perpetuity merely by paying an annual
sum. Such long-term leases under which there is no development
impede the mining of mineral lands and are thus against public policy.
We therefore hold that an annual advance payment which is credited
against future royalties under the terms of a mineral lease does not
relieve the lessee of his obligation to reasonably develop the land. We
further find that since the lessees in the present case have failed to carry
on any sort of mining activity on the leased premises since the inception
of the lease in 1960, that they have breached such duty.
Id. at 134.
{¶113} Ionno does not benefit the Landowners for several reasons. First, it is
factually distinguishable. The Ionno Court focused on contractual language stating
that the rental was an offset in the case of production—"an annual advance payment
which is credited against future royalties"—to show that there was an implied covenant
to reasonably develop. Id. at syllabus. The Court explained:
Clearly, we are not dealing with a contract which exacts a non-
refundable annual payment of rent to the lessor as separate and
independent consideration. Rather, because the minimum royalties
required under the lease at hand offset production royalties, the real
consideration for the lease is the expected return derived from the actual
mining of the land.
Id. at 443.
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{¶114} By contrast, here the rental is not an offset but rather a substitute for
drilling. It is a non-refundable payment of rent to the Landowners as separate and
independent consideration for the right to delay drilling during the primary term of the
Lease.
{¶115} In any event, the Ionno implied covenant to reasonably develop will
only be inferred "where a lease fails to contain any specific reference to the timeliness
of development." Id. at 133. The Ionno Court specified that it was dealing with a no-
term lease. There was no primary term in the Ionno lease during which major actions
such as production were required, whereas here there is a ten-year primary term
during which certain development activities must occur. Further, an implied covenant
can only be construed in a lease if there are no express provisions to the contrary. Id.
at 132-133. Where the lease specifies that no implied covenant shall be read into the
agreement, an implied covenant to develop under Ionno cannot be imposed. Bilbaran
Farm, Inc. v. Bakerwell, Inc., 5th Dist. No. 12-CA-21, 2013-Ohio-2487, 993 N.E.2d
795, ¶19-21; Bushman v. MFC Drilling, Inc., 9th Dist. No. 2403-M, 1995 WL 434409,
*2 (July 19, 1995), Taylor v. MFC Drilling, Inc., 4th Dist. No. 94CA14, 1995 WL 89710,
*2 (Feb 27, 1995); Holonko v. Collins, 7th Dist. No. 87CA120, 1988 WL 70900, *2
(June 29, 1988), Smith v. North East Natural Gas Co., 5th Dist. No. 86AP30016, 1986
WL 11337, *2-3 (Sept. 30, 1986).
{¶116} In Holonko, this court refused to impose an implied covenant of
development into a lease, noting that the Supreme Court held the implied covenant is
utilized only when the lease is silent as to timeliness of development. Holonko, 7th
Dist. No. 87CA120 at *2, citing Harris, 57 Ohio St. at 129. This court pointed out that
the lease mentioned the right of drilling or not drilling and the lease stated: "It is
mutually agreed that this instrument contains and expresses all the agreements and
understandings of the parties in regard to the subject matter thereof, and no implied
covenant, agreement or obligation shall be read into this agreement or imposed upon
the parties or either of them." (Emphasis added.) Holonko at *2.
{¶117} Similarly, the Lease here contains a clause that required Beck to
commence operations or make a delay rental payment, as well as a clause stating that
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the rentals are "adequate and full consideration for all the rights herein granted to the
Lessee, and the further right of drilling or not drilling on the leased premises * * *[;]"
and a clause stating that the lease "contains and expresses all of the agreements and
understandings of the parties" and that "no implied covenant, agreement or obligation
shall be read into this agreement or imposed upon the parties or either of them."
(Lease paragraphs 3, 9, 19.)
{¶118} The trial court, however, found that paragraph 19's disclaimer of
implied covenants was contradicted by paragraph 17 of the Lease which states:
In the event the Lessor considers that Lessee has not complied
with any of its obligations hereunder, either expressed or implied, Lessor
shall notify Lessee in writing setting out specifically in what respects
Lessee has breached this contract. Lessee shall then have thirty (30)
days after receipt of said notice within which to meet or commence to
meet all or any part of the breaches alleged by Lessor. The service of
said notice shall be precedent to the bringing of any action by Lessor on
said lease for any cause, and no such action shall be brought until the
lapse of thirty (30) days after service of such notice on Lessee. * * *
(Emphasis added.)
{¶119} The trial court concluded that the reference to express or implied in
paragraph 17, which it found to be a more specific provision, created an ambiguity that
nullified the disclaimer of implied covenants in paragraph 19, which the trial court
found to be a more general provision.
{¶120} However, the fact that paragraph 17 requires notice of the lessor's
belief that the lessee has violated an express or implied obligation does not
necessarily create implied obligations. The purpose of that clause is to provide notice
to the lessee to ensure it has time to cure any alleged breaches. And assuming
arguendo that the clause at paragraph 17 somehow supersedes the express
proscription against the creation of implied covenants in paragraph 19, the fact that
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there is a delay rental provision during the primary term would preclude the reading of
any implied covenants into the Lease, as discussed above.
{¶121} The entire premise behind the delay rental clause is to delay drilling
during the primary term. As the Supreme Court has explained:
In the lease in this case there is an express stipulation for the payment of
rental in lieu of drilling, and the option is thus given the lessee to drill or
pay rental in accordance with the terms of the contract. Surely the clause
making such provision, which is set out in full in the finding of facts,
cannot be otherwise construed or interpreted. The rights of the parties
must be determined from their own contract. Under the clearly expressed
terms of the lease, if the lessee does not drill, he may still continue the
lease in force by payment of the stipulated rental. Such matter being
covered by the express terms of the written contract, no implication can
arise in relation thereto inconsistent with, or in opposition to, such plain
provision of the written contract. An implied covenant can arise only
when there is no expression on the subject.
Kachelmacher v. Laird, 92 Ohio St. 324, 332, 110 N.E. 933 (1915).
{¶122} For the various reasons expressed above, there is no implied covenant
of reasonable development that could apply within the ten-year primary term here, as
construing the lease to include such a covenant was expressly proscribed by the lease
terms. The trial court erred in reading an implied covenant into the Lease and further
concluding it was violated. Accordingly, Beck's second and sixth assignments of error
in 12MO6 are meritorious, and Beck's third assignment of error, that the trial court
erred by failing to enforce the 30-day notice provision, is moot. App.R. 12(A)(1)(c).
{¶123} Finally, in its fifth assignment of error in 12MO6, Beck asserts:
{¶124} "The trial court erred when it invoked the equitable remedy of
forfeiture."
{¶125} Here Beck contends that—setting the other issues with the trial court's
decision aside— forfeiture was not the appropriate remedy. This assignment of error
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is also rendered moot by the resolution of the other assignments of error above, and
we decline to address it. App.R. 12(A)(1)(c).
Appeal of the Denial of Intervention is Moot
{¶126} In its sole assignment of error, XTO Energy asserts:
{¶127} "The trial court incorrectly denied XTO Energy's Motion to Intervene."
{¶128} In light of our decision in Case Nos. 12MO6, 13MO3, and 13MO11,
XTO’s appeal is moot.
"As a general rule, courts will not resolve issues that are moot. See
Miner v. Witt (1910), 82 Ohio St. 237, 92 N.E. 21. 'The doctrine of
mootness is rooted both in the "case" or "controversy" language of
Section 2, Article III of the United States Constitution and in the general
notion of judicial restraint. * * * While Ohio has no constitutional
counterpart to Section 2, Article III, the courts of Ohio have long
recognized that a court cannot entertain jurisdiction over a moot
question.' (Citations omitted.) James A. Keller, Inc. v. Flaherty (1991), 74
Ohio App. 3d 788, 791, 600 N.E.2d 736. * * * "
In re Atty. Gen.'s Subpoena, 11th Dist. No. 2009-G-2916, 2010-Ohio-476, ¶12, quoting
Nextel West Corp. v. Franklin County Bd. Of Zoning Appeals, 10th Dist. No. 03AP-
625, 2004-Ohio-2943, ¶10.
{¶129} Within its motion to intervene, XTO alleged it had a significant interest
in the Leases, which the trial court determined to be void in its July 2012 decision
granting summary judgment in favor of the Landowners. Because this court has held
that the Leases are valid, XTO is in the same position it held prior to the trial court’s
judgment. Thus, there is no need for XTO to intervene, and as such, no case or
controversy for this court to decide.
{¶130} Accordingly, XTO's sole assignment of error in 13MO2 is moot.
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Conclusion
{¶131} While it was not the best practice, the trial court did not abuse its
discretion by certifying the class after granting summary judgment on the merits
because the rule against one-way intervention does not apply to Civ.R. 23(B)(2)
classes. There was sufficient opportunity for factual development so as to permit a
meaningful determination regarding the class action certification, thus rendering a
hearing unnecessary. Finally, the trial court has discretion to modify the class, even
sua sponte, and it did not abuse its discretion by defining the class as all Ohio lessors
who executed a Form G&T 83 Lease with Beck, where Beck had neither drilled nor
prepared to drill a well, nor included the property in a drilling unit. Accordingly,
assignments of error 1 and 3 in 13MO3 are meritless; assignments of error 2 and 4 in
13MO3 are moot; and the sole assignment of error in 13MO11 is meritless.
{¶132} Regarding the summary judgment ruling, the trial court misinterpreted
the pertinent lease provisions and Ohio case law and erred in concluding the Lease is
a no-term, perpetual lease that is void ab initio as against public policy. The trial court
further erred in concluding the Lease was subject to implied covenants and that Beck
breached the implied covenant to reasonably develop. Accordingly, in 12MO6,
assignments of error 1, 2, 4 and 6 are meritorious, and assignments of error 3 and 5
are moot.
{¶133} Finally, in light of our decision in Case Nos. 12MO6, 13MO3, and
13MO11, XTO’s appeal in Case No. 13MO2 is moot.
{¶134} For all the foregoing reasons, the trial court's class certification and
definition judgments, dated February 8, 2013 and June 10, 2013, respectively, are
affirmed, and its July 31, 2012 order granting summary judgment is reversed and
remanded to the trial court for further proceedings according to law and consistent with
this Court's opinion.
Donofrio, J., concurs.
Vukovich, J., concurs.