William Eastham v. Chesapeake Appalachia, L.L.C.
754 F.3d 356
| 6th Cir. | 2014Background
- William and Frostie Eastham leased 49.066 acres in Ohio to Great Lakes (later acquired by Chesapeake) on April 9, 2007; lease term five years with a one-eighth royalty and $10/acre annual delay rentals until a well commenced.
- Paragraph 19 provided: no other mineral lease during the term; upon expiration and within 60 days thereafter, lessor grants lessee an option to "extend or renew under similar terms a like lease."
- On March 14, 2012 Chesapeake recorded a notice of extension, sent the Easthams a letter stating it extended the lease for five more years, and enclosed delay rental payment.
- Easthams sued in Ohio state court seeking a declaration that Paragraph 19 did not permit unilateral extension and that title should quiet in their favor; Chesapeake removed to federal court on diversity jurisdiction.
- District court granted summary judgment for Chesapeake, holding Paragraph 19 unambiguous and that Chesapeake had the option to either extend the existing lease or renew into a new similar lease; Easthams appealed.
Issues
| Issue | Eastham(s) Argument | Chesapeake Argument | Held |
|---|---|---|---|
| Whether Paragraph 19 is ambiguous | Phrase "extend or renew under similar terms a like lease" is susceptible to reasonable interpretation that renewal requires renegotiation and not unilateral extension | Paragraph 19 is plain: it gives the lessee two distinct options — extend (lengthen same lease) or renew (enter new similar lease) | Unambiguous; only reasonable reading is a choice to extend the existing lease or to renew into a new similar lease |
| Legal distinction between "extend" and "renew" | Terms often used interchangeably; either could mean a new agreement | Ohio law distinguishes them: extend lengthens the original contract; renew effects a new contract | Followed Ohio Supreme Court: extend and renew are legally distinct (option to extend binds parties to same lease for additional term) |
| Validity/timeliness of Chesapeake’s early exercise (filed ~1 month before expiry) | Option required exercise upon expiration and within 60 days after; early exercise was premature and invalid | Early exercise is not invalid; strict reading would render "extend" meaningless if exercise only after expiration were required | Early filing was not material; exercise was effective and did not excuse Easthams’ obligations |
| Public policy / unconscionability challenge | Lease is one-sided, predatory toward unsophisticated landowners; should be void as against public policy or unconscionable | Parties were free to contract; no Ohio statute or precedent supports invalidating such clauses; no procedural or substantive unconscionability shown | Rejected: presumption of freedom to contract; Easthams failed to prove procedural or substantive unconscionability or identify applicable Ohio public policy |
Key Cases Cited
- Sunoco, Inc. (R & M) v. Toledo Edison Co., 953 N.E.2d 285 (Ohio 2011) (courts must effectuate parties’ intent and give words their plain meaning)
- Shifrin v. Forest City Enters., 597 N.E.2d 499 (Ohio 1992) (extrinsic evidence considered only if contract ambiguous)
- Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256 (Ohio 2003) (ambiguity exists only when provision is susceptible to more than one reasonable interpretation)
- State ex rel. Preston v. Ferguson, 166 N.E.2d 365 (Ohio 1960) (distinguishes options to "renew"—creating new contracts—from options to "extend"—lengthening original contract)
- Corvington v. Heppert, 103 N.E.2d 558 (Ohio 1952) (fact-specific treatment of "extend" v. "renew")
- Taylor Bldg. Corp. of Am. v. Benfield, 884 N.E.2d 12 (Ohio 2008) (factors for procedural unconscionability in Ohio)
- Hayes v. Oakridge Home, 908 N.E.2d 408 (Ohio 2009) (both procedural and substantive unconscionability must be shown)
- Parsons v. City of Pontiac, 533 F.3d 492 (6th Cir. 2008) (standard of review for summary judgment)