Burkhart v. Miley
101 N.E.3d 563
| Ohio Ct. App. | 2017Background
- Rosemary Burkhart (successor to Cyril) owns the mineral rights to a 66-acre parcel in Monroe County; a 1945 oil-and-gas lease (5-year primary term, then so long as oil or gas is in paying quantities) covers the tract.
- A single well on the property (drilled 1945) was operated by Miley Gas Company (Miley) after Miley purchased the well and the lease in 2011; Antero received an assignment of deep rights in 2012.
- Burkhart sued in 2013 seeking a declaration that the lease expired for lack of production in paying quantities; bench trial in 2014 initially found the well produced in paying quantities and entered judgment for Miley and Antero.
- After trial, Burkhart moved to reopen based on evidence (tax returns) allegedly contradicting Miley’s testimony about profitability; the court reopened, took additional evidence, and then vacated its prior judgment, finding the lease terminated for lack of paying-quantity production.
- Miley and Antero appealed; the appellate court found the trial court had shifted the burden of proof to the lessees and relied on irrelevant factors (e.g., owner-wide tax returns, late ODNR reporting, lessee’s motive), reversed, and entered judgment for Miley and Antero.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the lease continued by production in paying quantities after the primary term | Burkhart: Well did not produce in paying quantities; tax returns and other evidence show lack of profitability | Miley/Antero: The well produced in paying quantities; lessee’s testimony and royalty payments support continuation; profitability is assessed at the well level, not by overall business tax returns | Reversed trial court; appellee (Burkhart) had burden to prove lack of paying quantities, and trial court erred by shifting burden and relying on irrelevant factors |
| Proper burden of proof in declaratory action to cancel lease for lack of paying quantities | Burkhart: (implicitly) once issues raised, burden shifts to lessee to prove paying quantities | Miley/Antero: Burkhart, as plaintiff seeking forfeiture, bears the burden to prove the well is not producing in paying quantities | Held: Plaintiff (Burkhart) bears the burden to prove non‑production in paying quantities; trial court improperly shifted burden to lessees |
| Relevance of lessee’s business tax returns/Schedule C to well-level paying-quantity inquiry | Burkhart: Tax returns show losses and support non‑paying production conclusion | Miley/Antero: Tax returns are company-wide and do not reflect profitability of the specific well; lessee labor and non-well income distort totals | Held: Trial court erred in relying on company tax returns; they are not dispositive of well‑level paying quantities |
| Relevance of late or omitted production reports and lessee’s motives | Burkhart: Late reporting and lessee’s financial motive support finding of no paying quantities | Miley/Antero: Failure to timely report is not determinative of paying quantities; motive to retain lease is irrelevant | Held: Late ODNR reporting and alleged lessee motive are not proper bases; trial court improperly considered these factors |
Key Cases Cited
- Blausey v. Stein, 61 Ohio St.2d 264 (1980) (defines "paying quantities" as yielding a small profit to the lessee over operating expenses)
- Swallie v. Rousenberg, 942 N.E.2d 1109 (Ohio Ct. App. 2010) (lease secondary-term termination when conditions of habendum clause not met)