2016 Ohio 5082
Ohio Ct. App.2016Background
- Seven landowners own ~74 acres subject to a 1980 oil & gas lease to Collins-McGregor that grants rights "to all depths" and contains no disclaimer of implied covenants.
- Collins-McGregor completed a well in 1981 that has produced in paying quantities through 2014, but the well produces only from formations above the Gordon Sand.
- Landowners allege lessee failed to explore/develop deeper formations (e.g., Marcellus/Utica) and seek a judicial declaration that the lease has expired or is forfeited for depths below the Gordon Sand (partial horizontal forfeiture) and quiet title.
- Lessee/operators moved to dismiss under Civ.R. 12(B)(6), arguing Ohio does not recognize horizontal partial forfeiture and that continued production holds all depths.
- Trial court granted dismissal; the court of appeals affirmed, holding existing Ohio precedent bars horizontal forfeiture where leases grant all depths and shallow production is in paying quantities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether production from a shallow well can be held to "hold" all depths and formations under the lease | Alford: shallow production does not protect deep rights; lessee breached implied covenant to reasonably develop deep formations | Collins-McGregor: continued paying production holds the entire lease (all acres and depths); Ohio law does not permit horizontal partial forfeiture | Court: Production in paying quantities from shallow wells holds all depths under a grant of "all depths"; no horizontal partial forfeiture recognized |
| Whether partial (horizontal) forfeiture for breach of implied covenant is available | Alford: implied covenant to reasonably develop includes deeper formations; remedy should include partial forfeiture of deep rights | Lessee: Beer and Ohio precedent limit forfeiture; no authority supports forfeiture limited by depth where lease grants all depths | Court: Forfeiture may be available in limited cases, but Ohio precedent (including Marshall) rejects partial horizontal forfeiture under similar lease language |
| Whether dismissal under Civ.R. 12(B)(6) was appropriate | Alford: complaint states facts entitling them to relief (partial forfeiture) | Lessee: pleadings fail because law forecloses horizontal forfeiture; plaintiffs can prove no set of facts entitling them to relief | Court: Dismissal proper because plaintiffs pleaded no viable legal theory for horizontal forfeiture given controlling precedent |
Key Cases Cited
- Beer v. Griffith, 61 Ohio St.2d 119 (Ohio 1980) (recognized partial forfeiture as remedy in limited circumstances for breach of implied covenant to reasonably develop)
- Ionno v. Glen-Gery Corp., 2 Ohio St.3d 131 (Ohio 1982) (absent express terms, a mineral lease includes an implied covenant to reasonably develop)
- Harris v. Ohio Oil Co., 57 Ohio St. 118 (Ohio 1897) (rights and remedies under oil and gas leases are governed by the written instrument)
- Marshall v. Beekay Co., 27 N.E.3d 1 (4th Dist. 2015) (rejected horizontal partial forfeiture where lease granted rights to all depths and shallow production continued in paying quantities)