904 F. Supp. 2d 213
N.D.N.Y.2012Background
- Plaintiffs Beardslee et al. own lands in Tioga County and entered into Victory/Mega oil and gas leases granting drilling rights.
- Leases typically have a primary five-year term with an option to extend if land is operated for oil or gas thereafter.
- Defendants Inflection Energy, Victory, and Mega argue the leases extended beyond the primary term due to a force majeure event from a NY DEP Directive (2008).
- Plaintiffs contend no wells were drilled and no royalties paid within the primary term, so the leases terminated by their terms.
- In 2010, Inflection sent notices purporting to extend the leases based on ‘unforeseen governmental action’ tied to the Directive.
- The court analyzes whether the Directive constitutes force majeure, impossibility, or frustration of purpose to extend the leases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the leases expired at the end of the primary term | Beardslee argues no operations occurred to extend the term. | Inflection asserts the Directive constituted force majeure delaying drilling and extending the leases. | Yes, the leases expired at the end of the primary term |
| Whether the Directive constitutes a force majeure extending the leases | No force majeure; the leases gave option to drill, not obligation. | Directive halted HVHF, constituting a government order beyond Lessee's control and extending the term. | No, the force majeure clause does not extend the leases |
| Whether impossibility or frustration of purpose extends the leases | Impossibility/frustration foreseeability defeats extension. | Directive foreseeably disrupts HVHF and could frustrate purpose. | No, neither impossibility nor frustration extends the leases |
| Do conventional drilling permits and non-HVHF drilling affect outcome | Permits for conventional drilling could still be used; HVHF halt does not void leases. | Commercial viability requires HVHF; conventional drilling is impractical. | Leases do not obligate HVHF; viability concerns do not override primary term expiration |
Key Cases Cited
- Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900 (N.Y. 1987) (force majeure specificity and inclusion of event required)
- Phibro Energy, Inc. v. Empresa De Polímeros De Sines Sarl, 720 F.Supp. 312 (S.D.N.Y. 1989) (mere impracticality not enough to excuse performance)
- Wiser v. Enervest Operating, LLC, 803 F.Supp.2d 109 (N.D.N.Y. 2011) (habendum clauses and indefinite secondary term concepts)
- U.S. v. Gen. Douglas MacArthur Senior Vill., Inc., 508 F.2d 377 (2d Cir. 1974) (foreseeability relevant to frustration of purpose doctrine)
- Eternity Global Master Fund, Ltd. v. Morgan Guar. Trust, 375 F.3d 168 (2d Cir. 2004) (contract interpretation and ambiguity against drafter)