2023 Ohio 273
Ohio Ct. App.2023Background
- In 2013–2014 Shaw (Tera’s sole member/predecessor-in-interest) leased subsurface rights to Rice Drilling; leases reserved “all formations below the base of the Utica Shale.”
- Six horizontal wells were drilled and later conceded to be landed in the Point Pleasant formation; parties disputed whether Point Pleasant was part of or excluded from the Utica as used in the lease language.
- Trial court granted partial summary judgment for Tera, holding the leases unambiguously reserved Point Pleasant to the surface owner and that drilling/production from Point Pleasant was a bad‑faith trespass and conversion.
- Extensive discovery disputes: defendants produced sales data late; trial court sanctioned them by excluding evidence of actual sales and forbidding certain expert attacks, so the jury used production volumes and NYMEX pricing (pv‑10 applied) to compute damages.
- Jury awarded approximately $40.1 million net (after royalties) for compensatory and future damages; trial court denied JNOV/remittitur. On appeal the court affirmed liability and several rulings but reversed only as to compensatory damages covering a period when Shaw (not Tera) owned some parcels and remanded for a limited retrial on compensatory damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Lease interpretation—does “formation commonly known as the Utica Shale” include Point Pleasant? | Lease language reserves formations below Utica, so Point Pleasant is reserved to lessor. | “Commonly known as” gives term a trade/region meaning that included Point Pleasant at time of contracting; extrinsic evidence shows industry/regulatory usage treated Point Pleasant as part of the Utica play. | Court: lease unambiguous; reservation clarifies grant; summary judgment for Tera affirmed. |
| Bad‑faith trespass (willfulness) | Lessee drilled intentionally into a formation reserved to lessor; willfulness is presumed and defendants cannot prove good faith. | If Point Pleasant was within leased formation, there was no trespass; good‑faith belief negates willfulness. | Court: because lease unambiguously reserved Point Pleasant, defendants acted willfully; bad‑faith trespass summary judgment affirmed. |
| Exclusion of defendants’ sales evidence (discovery sanction) | Late production of sales/supporting contracts justified exclusion; defendants should be barred from attacking expert opinions based on undisclosed data. | Evidence was produced (argued) and exclusion unfairly prevented meaningful rebuttal. | Court: no abuse of discretion; exclusion affirmed. |
| Damages proof, JNOV challenge, and use of pv‑10/NYMEX pricing | Tera’s expert provided decline‑curve, microseismic and USGS support for allocation (90% Point Pleasant); pv‑10 is accepted industry present‑value method. | Experts disputed allocation (60/40), local indices better than NYMEX, pv‑10 application to past production amounts to prejudgment interest; damages not proven to reasonable certainty. | Court: substantial competent evidence supports actual and future damages; pv‑10 multiplier is not prejudgment interest; JNOV denied except as to compensatory dollars covering period when Tera lacked standing. |
| Standing / ownership period (Shaw vs. Tera) | Tera claimed all damages though portions of property were owned by Shaw until Oct 11, 2017; deed and R.C. 5302.04 argued to transfer claims. | Defendants argued lack of standing for Tera to recover for periods when Shaw was record owner; evidence of ownership should reduce compensatory award. | Court: Tera lacked standing to assert Shaw’s pre‑2017 claims; portions of compensatory award covering Shaw’s ownership were vacated and remanded for a limited trial on compensatory damages. |
Key Cases Cited
- Skivolocki v. E. Ohio Gas Co., 38 Ohio St.2d 244 (1974) (contracts construed to effect parties’ intent; ordinary meaning controls absent special intent)
- Brady v. Stafford, 115 Ohio St. 67 (1926) (measure of damages for willful trespass: market value at mouth of mine; no deduction for severance/transportation costs)
- Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241 (1978) (trade usage/parol evidence may show special meaning but cannot vary express contract terms)
- Dresher v. Burt, 75 Ohio St.3d 280 (1996) (summary judgment movant’s and nonmovant’s burdens under Civ.R. 56)
- Grafton v. Ohio Edison Co., 77 Ohio St.3d 102 (1996) (de novo appellate review of summary judgment)
- Lutz v. Chesapeake Appalachia, L.L.C., 148 Ohio St.3d 524 (2016) (extrinsic evidence admissible when contract language acquires special meaning)
- Eastley v. Volkman, 132 Ohio St.3d 328 (2012) (standard for JNOV and legal sufficiency of evidence)