Core v. Samurai Corp.
55 N.E.3d 449
Ohio Ct. App.2015Background
- In 1979 the Maders leased ~515 acres to Universal (later rights passed to Core and then Samurai); one producing well was drilled in 1980 that covers ~100–110 acres, leaving ~414–415 acres undeveloped for ~30+ years.
- Core retained a reversionary right in its assignment to Samurai tied to a drilling schedule; Samurai claimed the lease was held by continuous production from the single well.
- In 2010 the Maders sent a demand to Samurai to commit to drilling or face forfeiture; Samurai replied it considered the lease held by production and did not forfeit rights, but did not drill further wells.
- The Maders counterclaimed seeking declaratory relief that the lease was void (or partially forfeited) for breach of an implied covenant to develop; parties filed cross-motions for partial summary judgment.
- The trial court found an implied covenant to develop existed and that Samurai/Core breached it (failure to develop ~4/5 of the acreage), granted partial summary judgment for the Maders, and set a hearing on damages/forfeiture.
- The appellate court affirmed the findings that (1) the lease contains an implied covenant to develop and (2) the covenant was breached, but reversed and remanded on damages because material facts remained about adequacy/calculability of damages and forfeiture.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Existence of implied covenant to develop | Maders: lease includes implied covenant absent express waiver | Core/Samurai: lease not silent — paragraphs 7 (unitization) and 8 (offset wells) preclude implying covenant | Court: Implied covenant exists; paragraphs 7 and 8 do not operate as express disclaimers |
| Effect of paragraph 8 (offset wells) | Core/Samurai: paragraph 8 shows lessor accepted royalties and disclaimed development duty | Maders: paragraph 8 only governs offset wells when adjacent production appears and is inapplicable here | Held: Paragraph 8 concerns only offset wells; does not waive implied duty to develop |
| Effect of paragraph 7 (unitization clause) | Core/Samurai: unitization clause limits required drilling and thus negates implied duty | Maders: clause only limits drilling if lessee elects to form units; it is inapplicable absent consolidation | Held: Paragraph 7 is unit-specific and not a general waiver; lease remains subject to implied covenant |
| Breach and remedy (forfeiture vs. damages) | Core/Samurai: no evidence Maders were damaged; royalties from producing tract estop forfeiture; damages may be calculable | Maders: failure to develop ~415 acres over 30+ years breaches covenant; damages are speculative and thus inadequate — forfeiture appropriate | Held: Breach proven (failure to develop ~4/5 of lease over 30+ years). But material issues exist about adequacy/calculability of damages; remanded for trial on damages and whether forfeiture is proper |
Key Cases Cited
- Ionno v. Glen-Gery Corp., 2 Ohio St.3d 131 (Ohio 1983) (absent express provisions to the contrary, mineral leases include an implied covenant to reasonably develop)
- Beer v. Griffith, 61 Ohio St.2d 119 (Ohio 1980) (remedy for breach of implied covenant is generally damages unless damages are inadequate)
- Harris v. Ohio Oil Co., 57 Ohio St. 118 (Ohio 1897) (lessee must reasonably develop lands and cancellation/forfeiture is available when legal remedies are inadequate)
- Sauder v. Mid-Continent Petroleum Corp., 292 U.S. 272 (U.S. 1934) (failure to develop substantial portion of leased premises over many years can constitute breach)
- Lake v. Ohio Fuel Gas Co., 2 Ohio App.2d 227 (Ohio Ct. App.) (provision governing offset wells does not amount to an express waiver of the implied covenant to develop)