Beardslee v. Inflection Energy, LLC
761 F.3d 221
2d Cir.2014Background
- Oil and gas leases dated beginning in 2001 between Landowners and Energy Companies (Victory, Inflection, Mega) grant drilling rights in Tioga County, NY; each lease has a five-year primary term with a habendum/secondary term provision: “as long thereafter as the land is operated by Lessee in the production of oil or gas.”
- Energy Companies did not drill during primary terms; Landowners filed suit in 2012 seeking declaration that leases expired; Energy Companies counterclaimed for extension invoking a force majeure clause tied to government actions.
- Gov. Paterson’s 2008 directive and subsequent SEQRA/GEIS developments regarding HVHF in the Marcellus Shale prompted regulatory action (2008 directive, 2009-2010 SGEIS, 2010 EO 41); claimed Moratorium affected feasibility of HVHF, allegedly triggering force majeure.
- District Court granted summary judgment for Landowners (leases expired); Energy Companies appealed seeking force majeure extension; court noted uncertainty in NY law on how force majeure interacts with habendum clauses and in what way Moratorium qualifies.
- Second Circuit certified two NY questions to the New York Court of Appeals due to unsettled law and public policy importance: (1) whether the Moratorium was a force majeure event; (2) whether force majeure modifies habendum and extends primary terms.
- The panel retained jurisdiction pending NYCA’s response.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the Moratorium amount to a force majeure event under the Leases? | Beardslee argued Moratorium not force majeure. | Energy Companies contended Moratorium was force majeure, delaying drilling. | Question certified; no NY law determination on force majeure in this context. |
| If yes, does force majeure modify the habendum and extend the primary term? | Beardslee urged no modification of primary term absent explicit language. | Energy Companies argued clause with “notwithstanding” extends term. | Question certified; no NY law determination on modification of habendum. |
Key Cases Cited
- Kel Kim Corp. v. Central Mkts., Inc., 70 N.Y.2d 900 (N.Y. 1987) (force majeure requires explicit inclusion of event)
- San Mateo Cmty. Coll. Dist. v. Half Moon Bay Ltd. P’ship, 65 Cal.App.4th 401 (Cal. Ct. App. 1998) (holding force majeure may not modify habendum unless incorporated)
- Wiser v. Enervest Operating, L.L.C., 803 F.Supp.2d 109 (N.D.N.Y.2011) (treats habendum vs. force majeure interplay)
- Barenboim v. Starbucks Corp., 698 F.3d 104 (2d Cir.2012) (certification considerations guidance)
- Aukema v. Chesapeake Appalachia, LLC, 904 F.Supp.2d 199 (N.D.N.Y.2012) (parallel NY case addressing Moratorium impact)
- Wallach v. Town of Dryden, 23 N.Y.3d 728 (N.Y. 2014) (recognition of moratorium on HVHF with horizontal drilling)