IN THE SUPREME COURT OF OHIO

Patricia J. Schultheiss,

Appellee,

v.

Heinrich Enterprises, Inc., et al.,

Appellants.

On Appeal from the Washington County Court of Appeals, Fourth Appellate District

Case No. 2016-0623

Court of Appeals Case No. 15 CA 20

BRIEF OF APPELLANTS, HEINRICH ENTERPRISES, INC., HEINRICH PRODUCTION LLC, UTICA ASSETS, LLC, AND

DEEP ROCK INVESTMENTS, LLC

James S. Huggins (0003320)*

*Counsel of Record Daniel P. Corcoran (0083512)

THEISEN BROCK, a legal professional association 424 Second Street Marietta, Ohio 45750 Telephone: 740-373-5455 Facsimile: 740-373-4409 E-mail: hugginsgtheisenbrock.com

corcoran@theisenbrock.com Counsel for Appellants

Ethan Vessels (0076277)

Fields, Dehmlow & Vessels, LLC 309 Second Street Marietta, Ohio 45750 Telephone: 740-374-5346 Facsimile: 740-374-5349 E-mail: ethan(i4fieldsdehmlow.com Counsel for Appellee

Gregory D. Russell (0059718)

Peter A. Lusenhop (0069941)

Ilya Batikov (0087968)

Vorys, Sater, Seymour and Pease LLP 52 East Gay Street/P.O. Box 1008 Columbus, OH 43216-1008 Telephone: 614-464-6400 Facsimile: 614-719-4954 E-mail: gdrussell@vorys.com palusenhopvorys.com ibatikov@vorys.com

Counsel for Amici Curiae Ohio Oil and Gas Association, Southeastern Ohio Oil and Gas Association, Artex Oil Company, EnerVest Operating, L.L.C., Ascent Resources, LLC, Buckeye Oil Producing Co., Eclipse Corporation, Flat Rock Development, Hess Ohio Developments, LLC, HG Energy, LLC Northwood Energy Corporation, Petrox Resources Corp., and Sound Energy Company, Inc.

Supreme Court of Ohio Clerk of Court - Filed October 25, 2016 - Case No. 2016-0623

TABLE OF CONTENTS

TABLE OF AUTHORITIES iii

I. STATEMENT OF FACTS AND THE CASE 1

A. The File Lease 1 B. The File Well 1 C. Carl Heinrich acquired the File Lease in 1977 2 D. Carl Heinrich partially assigned the File Lease in 1983. 3 E. The Lindamood Wells were drilled in 1983 5 F. The Lindamood Wells have produced in paying quantities. 6 G. Defendants acquired their interests in the File Lease. 7 H. The pleadings and the parties. 7 I. Motions for summary judgment. 8 J. The ruling by the trial court 10 K The ruling by the Fourth District Court of Appeals 11

II. LAW AND ARGUMENT 12

Proposition of Law No. 1. A landowner should be estopped from terminating an oil and gas lease by the acceptance of benefits 12

A. The secondary term of an oil and gas lease has an indefinite duration 12 1. The secondary term of an oil and gas lease may continue for many

decades 12 2. The secondary term of an oil and gas lease expires automatically without

notice or judicial ascertainment 13 3. Determining the validity of an oil and gas lease requires a financial

analysis based on the records of production 15 B. Oil and gas leases are at least somewhat contractual in nature 16

1. The rights and obligations of the parties to an oil and gas lease are governed by principles of contract law 17

2. Parties to a contract may be estopped from denying its validity based on the acceptance of benefits 18

3. Estoppel by acceptance of benefits does not require strict adherence to the technical elements of estoppel 20

C. Estoppel by acceptance of benefits has historically applied to claims to terminate oil and gas leases 21 1. Other jurisdictions have applied estoppel to claims to terminate oil and gas

2.

3. 4.

leases 24 Ohio courts have recently refused to apply the doctrine of estoppel by acceptance of benefits to oil and gas leases 25 Estoppel should apply when there has been no reservation of rights 26 It is inconsistent to accept benefits under an allegedly expired lease. 27

D. A limited holding based on the doctrine of estoppel will decrease the precedential value of this case. 29

E. The delay in asserting her claim, alone, should bar Plaintiff's claim 30 1. The delay in asserting a claim implicates other equitable defenses, such as

laches 31 2. The delay in asserting a claim implicates the statute of limitations 32 3. Allowing landowners to assert stale claims decades later violates public

policy 33

III. CONCLUSION 33

CERTIFICATE OF SERVICE 34

APPENDIX 36

ii

TABLE OF AUTHORITIES

Cases

Abbo v. Perkins, 6th Dist. Lucas No. L-06-1137, 2007 Ohio 1520 29

Am. Energy Serv., Inc. v. Lekan, 75 Ohio App. 3d 205, 598 N.E.2d 1315 (Fifth Dist. 1992) 12, 18

Blausey v. Stein, 61 Ohio St.2d 264, 400 N.E.2d 408 (1980) 13

Blausey v. Stein, 6th Dist. Ottowa No. OT-78-3, 1978 Ohio App. LEXIS 9031 (Dec. 8, 1978) 12

Bohlen v. Anadarko E&P Onshore, LLC, 2014-Ohio-5819, 26 N.E.3d 1176 (4th Dist.) 13

Bonner Farms, Ltd. v. Fritz, 355 Fed. Appx. 10 (6th Cir. 2009) 26, 27

Brown v. Logan Clay Products Co., 7 Ohio L. Abs. 515 (4th Dist. 1929) 20

Burkhart Family Trust v. Antero Res. Corp., 7th Dist. Monroe Nos. 14M019, 14M020, 2016- Ohio-4817 13

Buydden v. Mitchell, 60 Ohio Law Abs. 493, 102 N.E.2d 21 (2d Dist. 1951) 18

Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St. 3d 490, 2015-Ohio-4551, 45 N.E.3d 185 12, 14, 16, 17

Chisholm v. Chisholm, 58 Ohio L. Abs. 1, 94 N.E.2d 705 (8th Dist. 1950) 30

Consolidated North v. Melas Theater Corp., 7th Dist. Mahoning No. 80 C.A. 7, 1981 Ohio App. LEXIS 12705 (Feb. 12, 1981) 30

Corban v. Chesapeake Exploration, L.L.C., 2016-Ohio-5796 14

Danne v. Texaco Exploration & Prod., Inc., 1994 OK CIV APP 138, 883 P.2d 210 (1994) 24

Dayton Sec. Assocs. v. Avutu, 105 Ohio App. 3d 559, 664 N.E.2d 954 (2d Dist. 1995) 19, 20

Dawson v. Dawson, 3d Dist. Union Nos. 14-09-08, 14-09-10, 14-09-11, 14-09-12, 2009-Ohio-6029 31

Dennison Bridge, Inc. v. Res. Energy, LLC, 2015-Ohio-4736, 50 N.E.3d 242 (7th Dist.) 13

Doe v. Archdiocese of Cincinnati, 116 Ohio St.3d 538, 2008-Ohio-67, 880 N.E.2d 892 18

iii

Eagle Oil Co. v. Sinclair Prairie Oil Co., 24 F. Supp. 612 (W.D. OK 1938) 24

Egan v. National Distillers & Chemical Corp., 25 Ohio St.3d 176, 495 N.E.2d 904 (1986) 18

Flagstar Bank, F.S.B. v. Airline Unions Mortg. Co., 128 Ohio St. 3d. 529, 2011-Ohio-1961, 947 N.E.2d 672 33

Gardner v. Oxford Oil Co., 2013-Ohio-5885, 7 N.E.3d 510 (7th Dist.) 13

Goodwill v. Columbia Gas Transmission Corp., 5th Dist. Holmes No. CA-368, 1987 Ohio App. LEXIS 6677 (May 5, 1987)

22

Goodwill v. Columbia Gas Transmission Corp., 5th Dist. Holmes No. CA-415, 1990 Ohio App. LEXIS 3716 (Aug. 2, 1990) 23

Hampshire Cty. Trust Co. v. Stevenson, 114 Ohio St. 1, 150 N.E. 726 (1926) 19, 21

Harding v. Viking Int'l Res. Co., 4th Dist. Washington No. 13CA13, 2013-Ohio-5236 (Nov. 18, 2013) 25, 26

Harris v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E. 502 (1897) 17

Indian Territory Operating Co. v. Bridger Petroleum Corp., 500 F. Supp. 449 (W.D. OK 1980) 24

In re Schubert's Estate, 32 Ohio N.P. 169, 1934 Ohio Misc. LEXIS 1447 (1934) 18

Labbe v. Magnolia Petroleum Co., 350 S.W.2d 873 (Tx. Ct. App. 1961) 24

Leader Natl. Ins. Co. v. Eaton, 119 Ohio App. 3d 688, 696 N.E.2d 236 (8th Dist. 1997) 29

Lex Mayers Chevrolet Co., Inc. v. Buckeye Finance Co., 107 Ohio App. 235, 153 N.E.2d 454 (10th Dist. 1958) 18

Litton v. Geisler, 80 Ohio App. 491, 76 N.E.2d 741 (4th Dist. 1945) 21, 23, 25

Locke v. Ridgeway, 5th Dist. Knox No. 86-CA-15, 1987 Ohio App. LEXIS 6151 (Mar. 6, 1987) 22, 23

London & Lancashire Indem. Co. v. Fairbanks Steam Shovel Co., 112 Ohio St. 136, 147 N.E. 329 (1925) 19

Lyons v. Skunda, 33 Ohio App.3d 177, 514 N.E.2d 944 (3d Dist. 1986) 18

Mahoning County Comm'rs v. Youngstown, 49 Ohio L. Abs. 186, 75 N.E.2d 724

iv

(7th Dist. 1946) 19

Myers v. Myers, 147 Ohio App. 3d 85, 768 N.E.2d 1201 (3d Dist. 2002) 31

Natural Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188 (Tex. 2003) 32

Nusekabel v. Cincinnati Pub. Sch. Emplees. Credit Union, 125 Ohio App. 3d 427, 708 N.E.2d 1105 (1st Dist. 1997) 29

Ohio Bank v. Beltz, 3d Dist. Logan No. 8-02-13, 2002-Ohio-4886 19

Price v. K.A. Brown Oil & Gas, LLC, 7th Dist. Monroe No. 13 MO 13, 2014-Ohio-2298 25, 26

Quadrant Exploration, Inc. v. Greenwood 4th Dist. Washington No. 82 x 29, 1983 Ohio App. LEXIS 14550 (Aug. 15, 1983) 22, 23

Rayl v. East Ohio Gas Co., 46 Ohio App. 2d 175, 348 N.E.2d 390 (9th Dist. 1975) 19

RHDK Oil & Gas LLC v. Dye, 7th Dist. Harrison No. 14 HA 0019, 2016-Ohio-4654 14

Russian Orthodox Greek Catholic St. Peter & St. Paul's Church v. Burdikoff, 117 Ohio App. 1, 189 N.E.2d 451 (9th Dist. 1962) 30

RWS Bldg. Co. v. Freeman, 4th Dist. Lawrence No. 04CA40, 2005-Ohio-6665 19

Schloss v. Sachs, 63 Ohio Misc. 2d 457, 631 N.E.2d 212 (M.C. 1993) 29

Seitz v. Stevenson, 4th Dist. Pickaway No. 97 CA 42, 1998 Ohio App. LEXIS 2756 (June 16, 1998) 32

Sims v. Anderson, 2015-Ohio-2727, 38 N.E.3d 1123 (4th Dist.) 27

State ex rel. Mallory v. Public Emples. Ret. Bd., 82 Ohio St.3d 235, 694 N.E.2d 1356 (1998) 31

State ex rel. Polo v. Cuyahoga Cty. Bd. Of Elections, 74 Ohio St.3d 143, 656 N.E.2d 1277 (1995) 31

State ex. rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d 836 17

Stitzlein v. Willey, 5th Dist. Holmes No. CA-318, 1979 Ohio App. LEXIS 8691 (Dec. 12, 1979) 26, 27

Swallie v. Rousenberg, 190 Ohio App. 3d 473, 483, 2010-Ohio-4573, 942 N.E.2d 1109 (7th Dist.) 17

Tisdale v. Walla, 11th Dist. No. Ashtabula 94-A-0008, 1994 Ohio App. LEXIS 5941 (Dec. 23, 1994) 14

Tribett v. Shepherd, 2016-Ohio-5821 14

Trs. of German Twp. v. Farmers & Citizens Say. Bank Co., 66 Ohio L. Abs. 332, 113 N.E.2d 409 (C.P. 1953) 30, 31

Tucker v. Hugoton Energy Corp., 253 Kan. 373, 855 P.2d 929 (1993) 24

Wagner v. Smith, 8 Ohio App. 3d 90, 456 N.E.2d 523 (4th Dist. 1982) 13, 14

Weisant v. Follett, 17 Ohio App. 371 (7th Dist. 1922) 13

Yoder v. Artex Oil Co., 5th Dist. Guernsey No. 14 CA 4, 2014-Ohio-5130 25, 26

Young v. Amoco Production Co., 610 F. Supp. 1479 (E.D. Tex. 1985) 24

Codes

R.C.1301.308(A) 27 R.C. 1304.35 32 R.C. 2305.03(A) 32 R.C. 2305.04-2305.22 32 R.C. 2305.04-2305.131 32 R.C. 2305.14 32 R.C. 2305.041 32 R.C. 2305.06 32 R.C. 2305.04 32 R.C. 5301.01 26 R.C. 5301.332 27

Secondary Sources

4Williams and Meyers, Oil and Gas Law (1993) 354.6 to 356, Section 682.2 14

42 Ohio Jurisprudence 3d, Estoppel and Waiver, Section 50 20

vi

I. STATEMENT OF FACTS AND THE CASE

A. The File Lease.

Plaintiff, Patricia J. Schultheiss, owns approximately 48 acres in Warren

Township, Washington County, Ohio (Supp. 113). Plaintiff's property was subject to an oil and

gas lease ("File Lease") originally dated November 20, 1950 and recorded in Volume 157, Page

299 of the Lease Records of the Washington County Recorder's Office (Supp. 11). The File

Lease was originally between Albert B. File and Jennie File, Lessors, and Andrew K. Cline,

Lessee.

The File Lease was to remain effective for a term of ten (10) years "and as much

longer as oil or gas is found in paying quantities thereon" (Supp. 11). The File Lease stated as

follows:

It is understood and agreed that the land leased herein is to include all the land conveyed to Lessor by Deed from Charles L. Schleymaker to Albert B. and Annie File dated January 30, 1940 and recorded in Vol. 218 at Page 332 in Deed Records of Washington County, Ohio.

(Supp. 11). Altogether, the acreage covered by the 1940 deed identified in the File Lease

included two non-contiguous tracts totaling 112 acres in Warren and Marietta Townships,

Washington County, Ohio ("Leasehold Premises").

B. The File Well.

According to records from the Ohio Department of Natural Resources, the Albert

File No. 1 Well, API No. 34167212320000 ("File Well"), was commenced on January 20, 1951

and completed on February 7, 1951 (Supp. 38). The File Well was drilled upon the 48 acre

portion of the Leasehold Premises that is now owned by Plaintiff.

1

Unlike most oil and gas leases, the File Lease did not originally provide that the

lessor would receive free gas. In 1963, Plaintiff, Patricia J. Schultheiss, herself, assigned the

F-th /8 royalty in the Berea formation for the File Well to Defendants' predecessor in exchange for

free gas to one dwelling (Supp. 77). Thus, the only consideration that Plaintiff is entitled to

receive from the File Well is free gas to one dwelling. During the entire period of time in which

Defendants and their predecessors have owned the File Well, Plaintiff has had access to and has

received unlimited free gas (Supp. 546). The File Well has been kept on Defendants' bond with

the Ohio Department of Natural Resources and Defendants have maintained the File Well to

ensure Plaintiff's access to domestic gas.

C. Carl Heinrich acquired the File Lease in 1977.

Carl Heinrich, the President of Heinrich Enterprises, Inc., acquired the File Lease

in 1977 (Supp. 205). Defendants do not have any documentation or information regarding

production from the File Well from prior to 1977. According to Defendants' records, there were

no commercial sales of oil or gas from the File Well from January 1977 to September 1981

(Supp. 188). Commercial sales from the File Well resumed in October of 1981 and continued

periodically throughout the 1980s, 1990s, and 2000s (Supp. 189-204).

Since Defendants were not obligated to pay Plaintiff any royalties for production

from the File Well, production was not metered (Supp. 546-547). Nevertheless, gas was

produced and sold from the File Well in excess of what was provided to Plaintiff's dwelling.

Defendants' records indicate that, through 2013, the File Well has produced thousands of mcf of

gas.' (Supp. 194). Oil was also periodically swabbed from the File Well and sold (Supp. 547). It

I Since the File Well was the only well connected to the master meter that did not have a submeter, the excess gas sold through the master meter was allocated to the File Well.

2

is undisputed that there has been oil produced and sold from the File Well approximately yearly

for at least the last ten years (Supp. 547).

D. Carl Heinrich partially assigned the File Lease in 1983.

The File Well is not the only development that has occurred on the 112 acre

Leasehold Premises. On April 22, 1983, Mr. Heinrich assigned approximately 30 acres of the

Leasehold Premises to Bobby Anderson (Supp. 208). At the time, those 30 acres were owned by

Ralph M. Lindamood and Patricia W. Lindamood. The 1983 Assignment was subject to the

following terms and conditions.

1. Within 120 days from the date of this Assignment, Assignee will commence the actual drilling of a well for oil and/or gas purposes. Time for commencement of the actual drilling of well shall be of the essence of this agreement.

2. Assignor shall have the right of inspection, free access and the right to receive, free of cost, the results of any process, operation or analysis performed on any wells drilled under this assignment during the drilling, completion or producing phase, including but not limited to drill cutting samples, well logs, production records and tests, reports and records submitted to government agencies, or other parties.

3. Assignee agrees to keep the lease on the herein described acreage in full force and effect by conducting drilling operations, producing wells or payment of rentals as may be required. In the event that Assignee desires to cease operations for any reason on the well drilled under this agreement, it shall notify Assignor by writing sufficiently ahead of time so that reassignment of all rights back to Assignor can be made and the lease continued in full force and effect.

4. Assignor is to have an option to purchase any of the wells drilled under this Agreement for their actual salvage value when Assignee, his heirs and assigns, elect to plug and abandon such well or wells. For purposes of this Assignment, "actual salvage value," is defined as the sum a third party who is seeking to purchase such well or wells for plugging purposes and salvage of equipment therein would be willing to pay for the well or wells, less the cost of plugging the well or wells to all governmental

3

requirements and any other requirements which might apply. Assignor must exercise this option within thirty (30) days from the date of receipt of written notice from the Assignee that Assignee intends to plug and abandon the well or wells. If Assignor receives written notice that Assignee intends to plug and abandon more than one well, Assignor may exercise the option as to any one or more of said wells to which Assignee, its heirs and assigns, have elected to plug and abandon. If Assignor elects to exercise his option, he may, in his sole discretion, produce or plug such well or wells. This Assignment is subject to all the terms and conditions contained in the original leases, and any subsequent assignments.

5. I hereby assign all my right, title and interest, being all the working interest (87 'A % and not including the landowners royalty interest), of that portion of the lease hereby assigned and warrant, to the best of my knowledge, that I am the sole owner of the working interest.

(Supp. 210). Under the 1983 Assignment, Mr. Heinrich retained an interest and an option in the

portion of the Leasehold Premises that he assigned to Mr. Anderson. The terms and conditions

of the 1983 Assignment clearly show that, at the time it was made, the parties believed the File

Lease to be valid.

It was the intention of the parties to the 1983 Assignment that any drilling or

development that occurred on the portion of the Leasehold Premises assigned to Mr. Anderson

would maintain the entire File Lease, including the portion of the File Lease that was retained by

Mr. Heinrich. That is why the 1983 Assignment included the obligation for Mr. Anderson to

drill a new well and to sell it back to Mr. Heinrich prior to plugging or abandonment. Mr.

Anderson agreed to keep the File Lease "in full force and effect" and, in the event he desired to

cease operations, to reassign the File Lease back to Mr. Heinrich so that "the Lease [can bed

continued in full force and effect" (Supp. 210).

4

E. The Lindamood Wells were drilled in 1983.

Less than one month after the 1983 Assignment, on May 19, 1983, Mr. Anderson

obtained a ratification and confirmation of the File Lease from Ralph M. Lindamood and Patricia

W. Lindamood (Supp. 211). The Lindamoods had previously filed an affidavit claiming that the

File Lease was null and void. The affidavit did not relate to the lack of sales from 1977 to 1981;

instead, the affidavit had been filed on November 18, 1966. Although no legal action had ever

been filed to adjudicate the Lindamoods' claim, the ratification and confirmation specifically

noted that their claim had been "disputed and controverted" by the owners of the File Lease.

The Lindamoods wanted an oil and gas well to be drilled on their property. So, as

part of the ratification and confirmation, Mr. Anderson agreed to commence the drilling of an oil

or gas well within ninety days and to allow the Lindamoods to receive free gas for their dwelling

(Supp. 212). According to records from the Ohio Department of Natural Resources, the Ralph

Lindamood No. 1 Well was commenced on May 19, 1983 and completed on May 27, 1983

(Supp. 214).

On July 29, 1983, Mr. Anderson also obtained a pooling agreement from the

Lindamoods and from Howard A. Strahler and Grace E. Strahler, owners of the neighboring

property, in order to permit pooling with a neighboring 8-acre lease (Supp. 216). ODNR records

show that the Strahler and Lindamood Well No. 2 was commenced on August 30, 1983 and

completed on September 5, 1983 (Supp. 222).

The Lindamood Wells satisfied Mr. Anderson's obligation to drill under the terms

of the 1983 Assignment from Mr. Heinrich. These wells maintained the File Lease in full force

and effect with respect to the entire Leasehold Premises, including that portion which had been

retained by Mr. Heinrich.

F. The Lindamood Wells have produced in paying quantities.

It is undisputed that production from the Lindamood Wells has been continuous

and in paying quantities (Supp. 317-321). Based on the average historical NYMEX price and the

average historical price of gas from the U.S. Energy Administration, the total gross revenue for

production from the Lindamood Wells from 1992 through 1996 is approximately as follows:

$7,794.25 in 1992 $5,946.31 in 1993 $6,305.60 in 1994 $4,024.95 in 1995 $11,783.10 in 1996

(Supp. 320).

Based on the royalties that were paid, the total gross production from the

Lindamood Wells in each year from August 15, 1997 to September 24, 2013 is as follows:

$4,067.20 in 1997 $13,862.24 in 1998 $18,025.20 in 1999 $12,243.84 in 2000

$6,008.64 in 2001 $6,101.44 in 2002 $9,531.60 in 2003 $7,531.60 in 2004

$14,346.64 in 2005 $13,707.36 in 2006

$9,172.24 in 2007 $15,095.36 in 2008 $16,498.56 in 2009 $12,989.60 in 2010 $16,842.40 in 2011

$6,398.80 in 2012 $11,408.32 in 2013

(Supp. 319-320).

The gross proceeds from the sale of oil and gas from the Lindamood Wells during

the period from 1992 to 2013 was approximately $229,885.80 (Supp. 320). The gross proceeds

6

in each year from 1992 to 2013 far exceeded the operating costs for the Lindamood Wells (Supp.

320). The Lindamood Wells produced in paying quantities in each year from 1992 through 2013

(Supp. 320-321).

G. Defendants acquired their interests in the File Lease.

In 2008, Mr. Heinrich assigned the File Lease to Heinrich Production LLC (Supp.

13). Utica Assets, LLC and Deep Rock Investments, LLC both received an assignment of the

File Lease in 2011 (Supp. 18, 28).

At the time this action was filed in 2013, the Lindamood Wells were owned by

Loken Oil Field Services, LLC2 (Supp. 54). Heinrich Production, LLC took an assignment of

the Lindamood Wells from Loken Oil Field Services, LLC on February 24, 2014 (Supp. 79). By

the agreement of the parties, all those who had previously held an interest in the Lindamood

Wells were dismissed on April 18, 2014 (Supp. 87).

H. The pleadings and the parties.

Plaintiff's First Amended Complaint was filed on January 30, 2014 (Supp. 2).

Plaintiff filed this action attempting to terminate the File Lease. Plaintiff argued that, as a result

of the 1983 Assignment, the leasehold interest in the 30 acres for the Lindamood property "was

separated from the leasehold interest in the oil and gas underlying the Plaintiff's 48 acres" and

that any oil or gas production from the Lindamood Wells "has no bearing on the subject Lease as

it pertains to the Plaintiffs property" (Supp. 7). She alleged that the oil and gas production from

the File Well was not in paying quantities and that the File Lease had therefore teiminated (Supp.

7). Plaintiff also attempted to terminate the File Lease for breach of implied covenants (Supp.

9).

2 Loken Oil Field Services, LLC acquired the Lindamood Wells on August 27, 2007. From 1995 to 2007 they had been owned by B&B Petroleum (Supp. 318).

7

In their answer filed February 28, 2014, Defendants asked that the trial court

dismiss Plaintiff's claims with prejudice (Supp. 73). Defendants also asserted a counterclaim for

a declaration that the File Lease was valid and in full force and effect because there had been

continuous production in paying quantities (Supp. 74). Plaintiff filed a response to Defendants'

Counterclaim on March 12, 2014 (Supp. 84).

I. Motions for Summary Judgment.

In discovery, Plaintiff demanded production information from each well going all

the way back to 1960 (Supp. 136-137). Defendants objected to these requests for ancient records

as being "irrelevant and ...not likely to lead to the discovery of admissible evidence" (Supp. 136-

137). Without waiving their objection, Defendants produced all of their available production

records, including those dating back to 1977.

On August 27, 2014, Plaintiff filed a Motion for Summary Judgment (Supp. 89).

Although it had not been expressly raised in her Complaint, Plaintiff argued for the first time,

based on the documents that Defendants had produced in discovery (with objections), that the

File Lease had expired for lack of production before 1983 (Supp. 99). Plaintiff also argued, in

the alternative, that the File Lease terminated due to lack of production after 1983 and that the

File Lease should be partially forfeited for breach of implied covenants, including the implied

covenant to drill (Supp. 103, 105).

On September 2, 2014, Defendants filed a Motion for Summary Judgment (Supp.

300). Defendants argued that the Lindamood Wells had been producing in paying quantities for

more than 21 years and that Plaintiff's claims for breach of implied covenants should be

dismissed for lack of sufficient evidence, the lack of any prior demand for drilling, and because

even in the event of a breach, money damages, not forfeiture, was the appropriate remedy.

8

On September 15, 2014, Plaintiff filed a Brief in opposition to Defendants'

Motion for Summary Judgment (Supp. 469). Plaintiff argued that Defendants had breached the

implied covenant to develop, that Plaintiff did not need to present any expert testimony in order

to establish a breach, that she did not need to make a prior demand for drilling, and that forfeiture

was the appropriate remedy. Plaintiff did not discuss the production from the File Well other

than to once again cite to the period from 1977 to 1981.

On September 15, 2014, Defendants filed a Memorandum in Opposition to

Plaintiff's Motion for Summary Judgment (Supp. 491). In it, consistent with the objections that

had been made during the course of discovery, Defendants argued that production history for the

File Well from 35 years ago was irrelevant to this case. In order to emphasize the point,

Defendants' Memorandum included the following introduction:

For just a moment, this Court should pause to consider just how far back in time the events which form the basis of Plaintiff's Motion took place. Between 1977 and 1981, the cost of a postage stamp was increased from $0.13 to $0.20. The U.S. agreed to transfer control of the canal to Panama by the end of the twentieth century. The space shuttle program, which has now been discontinued for over three (3) years, had just begun its first test flights. President Jimmy Carter created the Department of Energy. His successor, President Ronald Reagan, was shot in the chest by John Hinckley, Jr.

In sports and popular culture, Star Wars first opened in theaters. Apple Computer was incorporated. The Atari 2600 video game system was released. Earle Bruce became the head football coach at The Ohio State University. The United States Olympic hockey team defeated the Soviet Union in the semi-finals of the Winter Olympics in Lake Placid, New York.

On a more personal note, attorney Ethan Vessels matriculated from kindergarten to the second grade of elementary school in New Concord, Ohio. His co-counsel, Ms. Olivia Walker, was not even born. Incredibly, based on what Plaintiff now believes to be the history of production during a period of time over thirty-five (35) years ago, she now asks this Court to declare, as a matter of law, that the Lease is expired.

(Supp. 492-493). Defendants presented extensive argument that any claims that would have

accrued between 1977 and 1981 were barred by the applicable statute of limitation and/or by

laches, and that production from anywhere on the Leasehold Premises maintained the entire File

9

Lease. Defendants also argued that Plaintiff was not entitled to a partial forfeiture of the File

Lease for breach of implied covenants.

On September 25, 2014, Plaintiff filed a Reply in Support of her Motion for

Summary Judgment (Supp. 512). Plaintiff argued that claims arising from the File Well's lack of

production from 1977 to 1981 were not barred by any statute of limitation or by the doctrine of

laches. Plaintiff also argued that production from the Lindamood Wells did not maintain the File

Lease with respect to her 48 acre portion of the Leasehold Premises.

On September 25, 2014, Defendants filed a Reply in support of their Motion for

Summary Judgment (Supp. 519). Once again, Defendants emphasized that the 1983 Assignment

did not split the File Lease into two separate leases (as Plaintiff had argued), that Plaintiff had

failed to establish the existence of an essential element of her claim for breach of implied

covenants, and that Plaintiff was not entitled to forfeit the File Lease.

J. The ruling by the trial court.

On April 16, 2015, the trial court issued its ruling on Motions for Summary

Judgment (Appx. 1). The court found that the Lindamood Wells had been drilled on the same oil

and gas lease that covered Plaintiff's property; there was no separate lease for the Lindamood

Wells (Appx. 2). The court observed that over the last 21 years, over $200,000 in oil and gas

had been produced from the Lindamood Wells with appropriate royalties having been paid

(Appx. 2-3). It held that the production from the Lindamood Wells continued the entire 112 acre

File Lease and that the File Lease had not been severed by the 1983 Assignment (Appx. 3). The

court also held that under the circumstances in this case, the free gas provided to Plaintiff from

the File Well was equivalent to production in paying quantities in lieu of royalties (Appx. 3).

10

Lastly, the court did not find any breach of the implied covenant to develop (Appx. 3). On April

21, 2015, the trial court entered a final judgment entry (Appx. 4).

K. The ruling by the Fourth District Court of Appeals.

On May 13, 2015 Plaintiff filed an appeal to the Fourth Appellate District. After

briefing, the Fourth District entered a decision and judgment entry on January 12, 2016 (Appx.

6). The Fourth District unanimously reversed the trial court and held that the File Lease had

automatically expired for lack of production from the File Well between 1977 and 1981 and that

Defendants had waived the right to assert the defenses of statute of limitations and laches.3

On January 21, 2016, Defendants filed an Application for Reconsideration with

the Fourth Appellate District arguing that they had not waived their affirmative defenses, that

laches and statute of limitations should apply to Plaintiff's claims, and that the File Lease had

been maintained by virtue of the free gas that had been provided to Plaintiff from the File Well.

On March 11, 2016, the Fourth Appellate District issued an Entry granting in part and denying in

part Defendants' Application for Reconsideration (Appx. 20). The court unanimously agreed

that there had been no waiver of affirmative defenses. Nevertheless, a 2-1 majority of the court

held that the File Lease had terminated based on a lack of production from 1977 to 1981 and that

the defenses Defendants had raised based on the long delay in asserting Plaintiff's claims did not

apply as a matter of law, effectively holding that the conduct of the parties over a 30+ year

period did not matter.

On April 22, 2016, Defendants timely filed a Notice of Appeal in this action.

Plaintiff did not appeal the dismissal of her claim for breach of implied covenants. Thus, that portion of the trial court's ruling is now final.

11

H. LAW AND AGRUMENT

Proposition of Law No. I: A landowner should be estopped from terminating an oil and gas lease by the acceptance of benefits.

A. The secondary term of an oil and gas lease has an indefinite duration.

As this Court recently recognized, the language of the granting clause in an oil

and gas lease determines its effect on the parties' property interest in the oil and gas. Chesapeake

Exploration, L.L.C. v. Buell, 144 Ohio St. 3d 490, 2015-Ohio-4551, 45 N.E.3d 185, ¶ 48. An oil

and gas lease typically includes a primary term, which sets forth the initial duration of the lease,

and a secondary term, which allows the lease to be extended under certain described conditions.

Id. ¶ 77. After the primary term has expired, the lease terminates, unless it is extended into the

secondary term by actual production in paying quantities. See Blausey v. Stein, 6th Dist. Ottowa

No. OT-78-3, 1978 Ohio App. LEXIS 9031, 5-6 (Dec. 8, 1978). So long as production in paying

quantities continues, the secondary term of the lease is extended for an indefinite duration. See

Am. Energy Serv., Inc. v. Lekan, 75 Ohio App. 3d 205, 212, 598 N.E.2d 1315 (5th Dist. 1992).

The File Lease states that it remains effective for a term of ten (10) years "and as

much longer as oil or gas is found in paying quantities thereon" (Supp. 11). Thus, the File Lease

continues for an indefinite duration as long as oil or gas is found anywhere on the Leasehold

Premises.

1. The secondary term of an oil and gas lease may continue for many decades.

In Ohio, the term "paying quantities" means:

quantities of oil or gas sufficient to yield a profit, even small, to the lessee over operating expenses, even though the drilling costs, or equipping costs, are not recovered, and even though the undertaking as a whole may thus result in a loss.

12

Burkhart Family Trust v. Antero Res. Corp., 7th Dist. Monroe Nos. 14M019, 14M020, 2016-

Ohio-4817, ¶ 17 (quoting Blausey v. Stein, 61 Ohio St. 2d 264, 265-266, 400 N.E.2d 408

(1980)); see also Gardner v. Oxford Oil Co., 2013-Ohio-5885, 7 N.E.3d 510, ¶ 37 (7th Dist.);

Bohlen v. Anadarko E&P Onshore, LLC, 2014-Ohio-5819, 26 N.E.3d 1176, ¶ 28 (4th Dist.). The

lessee must be given an opportunity to recoup his initial investment "for as long as he continues

to derive any financial benefit from production." Blausey, 61 Ohio St. 2d at 266 (emphasis

added). When bona fide, a lessee's judgment is entitled to great weight in determining whether

the gas is in fact produced in paying quantities. Burkhart, 2016-Ohio-4817, ¶ 18 (quoting

Weisant v. Follett, 17 Ohio App. 371 (7th Dist. 1922). The result is that there are many leases

that were signed decades ago that are still in full force and effect today. In some cases, there are

oil and gas leases today with wells that were drilled over a century ago, and yet they are still

producing a profit.

In this case, the File Lease was signed in 1950 and the File Well was drilled in

1951. Yet, the File Lease remains valid and effective, even 60 or more years later, as long as

Defendants continue to derive financial benefit from oil and gas production upon the Leasehold

Premises.

2. The secondary term of an oil and gas lease expires automatically without notice or judicial ascertainment.

When interruptions in production occur during the secondary term, the lessee is

obligated to exercise reasonable diligence to place the well back into production. See Dennison

Bridge, Inc. v. Res. Energy, LLC, 2015-Ohio-4736, 50 N.E.3d 242, ¶ 22 (7th Dist.)(citing Wagner

v. Smith, 8 Ohio App. 3d 90, 92, 456 N.E.2d 523 (4th Dist. 1982)). While courts tend to hold the

cessation of production temporary when the time periods are short, lessees have, for the most

part, been held not to have proceeded diligently when the cessation from production exists for

13

two years or more. See RHDK Oil & Gas LLC v. Dye, 7th Dist. Harrison No. 14 HA 0019, 2016-

Ohio-4654, ¶22; Wagner, 8 Ohio App. 3d at 94.

In this Court's recent decision in Corban v. Chesapeake Exploration, L.L.C.,

2016-Ohio-5796, it held that the 1989 version of Ohio's Dormant Mineral Act did not

automatically vest stale mineral rights in surface owners. Since the legislature "did not intend

title to dormant mineral interests to pass automatically and outside the record chain of title," this

Court concluded that the surface owner was "required to commence a quiet title action seeking a

decree that the dormant mineral interest was deemed abandoned."4 Corban, ¶¶ 27, 28.

Oil and gas leases are very different. This Court has already recognized that,

when the conditions of the secondary term are not met, an oil and gas lease terminates by the

express terms of the contract and, by operation of law, revests the leased estate in the lessor.

Buell, 2015-Ohio-4551, ¶ 77 (quoting Tisdale v. Walla, 11th Dist. Ashtabula No. 94-A-0008,

1994 Ohio App. LEXIS 5941 (Dec. 23, 1994)). Unlike the abandonment of a mineral interest

under the 1989 version of the DMA, the expiration of an oil and gas lease occurs automatically

without any requirement of notice or judicial ascertainment in the event of failure of production

at or after the end of the primary term. See Tisdale, 1994 Ohio App. LEXIS 5941, at 9-11

(quoting 4 Williams and Meyers, Oil and Gas Law (1993) 354.6 to 356, Section 682.2). Thus,

the expiration of an oil and gas lease affects title to land even though it occurs outside the record

chain of title.

The possibility that the File Lease may automatically expire gives rise to the

central issue in this case. Although the File Lease has never been cancelled or released of

record, and although it is undisputed that Defendants and their predecessors have produced oil

4 Although this Court invited the parties in Tribett v. Shepherd, 2016-Ohio-5821, to brief the issue of statute of limitations for a claim accruing under the 1989 version of the DMA, the issue was rendered moot by this Court's holding in Corban.

14

and gas in paying quantities from the Leasehold Premises for at least the last 30 years, Plaintiff

asserts that this is irrelevant because she believes that the File Lease expired automatically

outside the record chain of title from 1977 to 1981. When production from the File Well

resumed in 1981, Plaintiff did not commence a quiet title action seeking a decree that the File

Lease was cancelled. Instead, she permitted Defendants and their predecessors to continue to

operate under the File Lease without ever raising any objection. After more than 30 years of

conduct inconsistent with an expired lease, this Court must decide whether there is any reason

why Plaintiff should be prevented from asserting her claims today.5

3. Determining the validity of an oil and gas lease requires a financial analysis based on the records of production.

It is not possible to determine whether a well is producing in "paying quantities"

by simply examining the well and its equipment. Instead, this determination requires a financial

analysis of the revenue and expenses evidenced by the lessee's production records.

If a lease has been in effect for many decades, it is highly unlikely that the

operator has kept and maintained his financial records for that entire period of time. The

difficulty in finding and authenticating ancient records is exacerbated by the fact that wells and

leases are often assigned, meaning that a single well may have a number of different operators

during the course of its life. The oil and gas industry often experiences dramatic booms and

busts. During difficult times, companies who survive will acquire the remaining assets of those

that become bankrupt or insolvent. During these messy transitions, production records from

failing companies may be discarded or lost.

5 The issue in this case is not whether a 4 year cessation in production from 1977 to 1981 is temporary or permanent or whether a permanent cessation in production results in the automatic expiration of an oil and gas lease.

15

Landowners often try to use the lack of current production records as the basis for

terminating leases. Defendants submit that they should not be required to keep their records

forever. There is no other industry that requires businessmen to scrupulously maintain records of

all income and expenses for decades. Taxpayers are expected to keep their records for the IRS

for just seven (7) years. Attorneys, who serve as officers of the court, are required to keep

certain financial records under Ohio Rule of Professional Conduct 1.15(a) for just seven (7)

years. Even if by some miracle the ancient records of a well's production have not been

discarded, often they were kept in a format that is no longer technologically accessible. The

floppy discs, operating systems, and word processing and spreadsheet software from the 1970s

and 1980s are long gone and are no longer compatible with the systems used today.

No oil and gas operator should reasonably be expected to retain his production

records in perpetuity in order to maintain his rights under a lease. Yet, in this action, Plaintiff

requested information and documentation from Defendants in discovery going all the way back

to 1960, which is more than fifty-three (53) years before the lawsuit was filed. At some point,

whether they exist today or not, these ancient records become irrelevant and a rule of reason

should prevail.

B. Oil and gas leases are at least somewhat contractual in nature.

An action to terminate an oil and gas lease presents a unique claim. In Buell,

2015-Ohio-4551, !( 41, this court recognized the unusual nature of oil and gas leases:

There is no question that oil and gas leases are unique, as they "seemingly straddle the line between property and contract: they are neither residential leases nor commercial contracts for the sale of goods." Keeling & Gillespie, The First Marketable Product Doctrine: Just What is the "Product"? 37 St. Mary's L.J. 1, 6 (2005). "Oil and gas leases are unusual in that they are not technically leases at all." Richardson, 46 Akron L. Rev. at 1144.

16

In Buell, the majority was inclined to determine that the lease created a determinable fee, yet the

Court recognized that "Nile nature of the instrument is not a dispute presented to us for

resolution." Id. at ¶ 65, fn. 5. Although an oil and gas lessor retains a reversionary interest, oil

and gas leases are not exactly like deeds that convey a fee simple determinable estate. This

Court recognized in Buell that oil and gas leases have other unique features. The lessor under a

lease, for example, is also entitled to "the bonus, delay rental, and royalty payments provided for

in the lease." Id. at ¶ 62.

Because of the unique nature of oil and gas leases, the File Lease is governed by

property law and by contract law. The termination of the File Lease is governed by its

contractual terms. Thus, any claim to terminate the File Lease is subject to the usual contractual

defenses. One of these contractual defenses is estoppel by acceptance of benefits, which

prevents Plaintiff from retaining the benefits of the File Lease while simultaneously rejecting its

burdens. Since Plaintiff has accepted benefits under the File Lease, she should be estopped from

asserting that it expired more than 30 years ago.

1. The rights and obligations of the parties to an oil and gas lease are governed by principles of contract law.

The rights and remedies of the parties to an oil and gas lease must be determined

by the terms of the written instrument. Swallie v. Rousenberg, 190 Ohio App. 3d 473, 483,

2010-Ohio-4573, 942 N.E.2d 1109 ¶ 61 (7th Dist.)(quoting Harris v. Ohio Oil Co., 57 Ohio St.

118, 129, 48 N.E. 502 (1897)). Such leases are contracts, and the terms of the contract with the

law applicable to such terms must govern the rights and remedies of the parties. Id.

As this Court has recognized, when the conditions of the secondary term are not

met, the lease terminates "by the express terms of the contract." State ex. rel. Claugus Family

Farm, L.P. v. Seventh Dist. Court of Appeals, 145 Ohio St.3d 180, 2016-Ohio-178, 47 N.E.3d

17

836, ¶ 20 (quoting Lekan, 75 Ohio App.3d at 212). Equitable defenses like estoppel apply to

contract claims. See Lyons v. Skunda, 33 Ohio App.3d 177, 178, 514 N.E.2d 944 (3d Dist. 1986)

(noting that a "due on sale" clause in a mortgage transaction is subject to traditional contract

defenses, including equitable defenses). Because oil and gas leases are partially rooted in

contract law, such equitable defenses are applicable to claims for lease expiration.

The decision from the Fourth District below suggests that Plaintiff's claim to

terminate the File Lease is somehow unique in that it is not subject to certain well-recognized

contractual defenses. This ignores the contractual nature of oil and gas leases and creates a

perverse situation in which the only litigants in the state of Ohio that are not entitled to avail

themselves of the usual contractual defenses are oil and gas lessees.

2. Parties to a contract may be estopped from denying its validity based on the acceptance of benefits.

Generally, lain estoppel arises when one is concerned in or does an act which in

equity will preclude him from averring anything to the contrary." Doe v. Archdiocese of

Cincinnati, 116 Ohio St.3d 538, 2008-Ohio-67, 880 N.E.2d 892, ¶ 7. This Court has stated that

"no single formulation of the doctrine of estoppel is applicable to every situation. In applying

the doctrine, each case must be considered on its own merits." Egan v. National Distillers &

Chemical Corp., 25 Ohio St.3d 176, 179, 495 N.E.2d 904 (1986). The doctrine of estoppel

should be applied so as to promote the ends of justice. Lex Mayers Chevrolet Co., Inc. v.

Buckeye Finance Co., 107 Ohio App. 235, 237, 153 N.E.2d 454 (10th Dist. 1958).

As a general principle, a party cannot be permitted to retain the benefits of a

contract and at the same time repudiate it or reject its burdens. See, e.g., Buydden v. Mitchell, 60

Ohio Law Abs. 493, 102 N.E.2d 21 (2d Dist. 1951); In re Schubert's Estate, 32 Ohio N.P. 169,

1934 Ohio Misc. LEXIS 1447 (1934). Ohio courts have recognized that estoppel prohibits a

18

party who accepts the benefits of a contract from denying the obligations imposed on it by that

same contract. Dayton Sec. Assocs. v. Avutu, 105 Ohio App. 3d 559, 563, 664 N.E.2d 954 (2d

Dist. 1995); see also Hampshire County. Trust Co. v. Stevenson, 114 Ohio St. 1, 16, 150 N.E.

726 (1926) ("[A] party actively affirming a transaction such as a contract or a purchase, by

receiving and retaining money upon it, is estopped thereafter to deny the force of any of its

express or implied terms or conditions."); RWS Bldg. Co. v. Freeman, 4th Dist. Lawrence No.

04CA40, 2005-Ohio-6665, ¶ 19 (holding that equity does not permit a party "to retain the

benefits of a contract and at the same time repudiate it or reject its burdens"); Ohio Bank v. Beltz,

3d Dist. Logan No. 8-02-13, 2002-Ohio-4886, ¶ 27 (same); London & Lancashire Indem. Co. v.

Fairbanks Steam Shovel Co., 112 Ohio St. 136, 145-146, 147 N.E. 329 (1925) (defendant

estopped to raise question as to whether a contract was ultra vires when the contract had been

fully performed and the defendant had received the benefits of the contract); Rayl v. East Ohio

Gas Co., 46 Ohio App. 2d 175, 178-179, 348 N.E.2d 390 (9th Dist. 1975) (acceptance of benefits

under an oil and gas storage agreement estopped plaintiffs from terminating the agreement

because in accepting the benefits they acted in a manner inconsistent with the attempted

termination of the agreement); Mahoning County Comm 'rs v. Youngstown, 49 Ohio L. Abs. 186,

192, 75 N.E.2d 724 (7th Dist. 1946) (city estopped to deny validity of water contracts after

having received the benefits of such contracts over a long period of years).

In this case, if the File Lease expired between 1977 and 1981, it is inconsistent for

Plaintiff to permit Defendants and their predecessors to resume production and continue

production for more than 30 years. It is inconsistent for Plaintiff to expect Defendants to

continue to operate the File Well so that she can receive free domestic gas. It is inconsistent for

Plaintiff to essentially lie in wait for the most opportune time to assert that the File Lease is

19

terminated while Defendants and their predecessors undertake significant capital investments to

drill additional wells elsewhere on the Leasehold Premises. Plaintiff's conduct over the course

of 30 years is sufficient to create an estoppel by acceptance of benefits.

3. Estoppel by acceptance of benefits does not require strict adherence to the technical elements of estoppel.

For an estoppel by acceptance of benefits to arise, where a party has an election to

adopt one of two inconsistent courses of action, the party accepting such benefits must do so

with full knowledge of the facts and of his rights. Dayton Securities Assocs., 105 Ohio App. 3d

at 563 (citing Brown v. Logan Clay Products Co., 7 Ohio L. Abs. 515 (4th Dist. 1929); 42 Ohio

Jurisprudence 3d, Estoppel and Waiver, Section 50). The principles of estoppel by acceptance of

benefits, "quasi-estoppel," "estoppel in pais," or "equitable estoppel," have been recognized

under varying circumstances. This Court has noted that in the "acceptance of benefits" or "quasi-

estoppel" situation, strict adherence to some of the elements of technical estoppel, such as

knowledge and reliance, may not be required for the doctrine to be invoked, describing the

application of these principles as follows:

Of course, in technical estoppel, the party to be estopped must knowingly have acted so as to mislead his adversary, and the adversary must have placed reliance on the action and acted as he would otherwise not have done. Some authorities, however, hold that what is tantamount to estoppel may arise without this reliance on the part of the adversary, and this is called ratification, or election by acceptance of benefits, which arises when a party, knowing that he is not bound by a defective proceeding, and is free to repudiate it if he will, upon knowledge, and while under no disability, chooses to adopt such defective proceeding as his own. Such conduct amounts to a ratification. Estoppel proceeds on the theory that the party's conduct has induced his adversary to take certain action on the faith of it, and that it would work injury to his adversary if the party were not compelled to be bound by such conduct. This element of knowledge and reliance upon the part of the adversary may not be present in ratification. Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was thereafter unauthorized [or defective], and becomes the authorized act of the party so making the ratification.

20

Hampshire Cly, Trust Co., 114 Ohio St. at 14-15, (citations omitted).

In analyzing Plaintiff's behavior, this Court should not unnecessarily emphasize

the technical elements of estoppel. In a situation involving the acceptance of benefits, strict

adherence to these elements is not required. As this Court has recognized, Plaintiff's

inconsistent behavior over the course of more than 30 years may essentially ratify the File Lease

and authorize further production, drilling, and other operations in accordance with its terms.

Under these circumstances, the elements of knowledge and reliance are not essential in order to

prevent Plaintiff from disavowing the validity of the File Lease.

C. Estoppel by acceptance of benefits has historically applied to claims to terminate oil and gas leases.

Until very recently, the doctrine of estoppel by acceptance of benefits was

routinely applied in actions filed to determine the validity and enforceability of oil and gas

leases. In Litton v. Geisler, 80 Ohio App. 491, 76 N.E.2d 741 (4th Dist. 1945), the lease allowed

the lessor to have the use of gas for heat and light in "one dwelling house." Id. The lessors were

later permitted to connect additional residences to the well and to use gas therefrom until there

were five (5) different homes being furnished heat and light. Id. at 492. The lessors later

brought an action to have the lease declared null and void and cancelled of record. Id.

The evidence disclosed that the gas provided to heat and light the additional

homes over and above the one residence provided for in the lease had been "in lieu of the

payment the lessors would have received had the gas been marketed. Id. at 493. Both the lessors

and the lessee benefitted from this arrangement. Id. It made no appreciable pecuniary difference

to the lessors that the gas had not been marketed. Id. The Fourth District held that the gas

provided to the additional dwellings "satisfied the lessors" and that they were "estopped from

21

maintaining that the well has not produced and is not producing in paying quantities, or from

complaining that no gas has ever been marketed therefrom . . . ." Id. at 494. Thus, the lease had

not expired and there was no element of forfeiture established. Id. at 496.

In Quadrant Exploration, Inc. v. Greenwood 4th Dist. Washington No. 82 x 29,

1983 Ohio App. LEXIS 14550, 5-6 (Aug. 15, 1983), the life tenants executed an oil and gas lease

but the remainderman did not. The oil and gas lease was signed in 1973. Id. at 2-3. From 1975

through 1977, the yearly rental fee was paid to the life tenants. Id. at 2. After the death of the

life tenants, from 1978 through 1980, the yearly rental payments were paid to the remainderman.

Id. The Fourth District held that by knowingly accepting the delay rental payments for the years

1978 through 1980, the remainderman was estopped from denying the validity of the lease. Id

As a result of his acceptance of benefits, the remainderman was bound by the lease, even though

he never signed it. Id.

In Locke v. Ridgeway, 5th Dist. Knox No. 86-CA-15, 1987 Ohio App. LEXIS

6151 (Mar. 6, 1987), the oil and gas producer spent a significant amount of time and several

thousand dollars to bring a well that had ceased producing in paying quantities back into

production. Id. at 2. All of this was done with the knowledge of the landowner after written

notice was served upon her. Id. The landowner did not protest after receiving written notice and

never informed the producer that she considered the lease to be forfeited or terminated. Id. at 2-

3. The court found that since it was undisputed that the work the producer performed and the

expense he incurred on the property was done without protest of the landowner, the lease

remained valid and in full force and effect. Id. at 3.

In Goodwill v. Columbia Gas Transmission Corp., 5th Dist. Holmes No. CA-368,

1987 Ohio App. LEXIS 6677 (May 5, 1987), the landowners filed suit against an oil and gas

22

producer claiming that the primary term of the lease had expired and that there had been no oil

production on the property for more than two (2) years and no gas production for more than a

year. The trial court granted the oil and gas producer's motion for summary judgment that the

landowners were estopped from claiming forfeiture or cancellation of the lease. On appeal, the

court of appeals recognized that:

. . . the position of the Plaintiffs is somewhat inconsistent since they allowed Plaintiff [sic] to continue to operate on premises using its pipe and other equipment to produce oil and gas from the premises and to retain its share of royalties under the lease as compensation for such operation. Again, the Plaintiffs did not request that the Defendant pull its pipe or remove its equipment, nor did they offer to purchase the same from the Defendant. As the saying goes, it would appear that the Plaintiffs would like to 'have their cake and eat it, too'.

Id. pp. 3-4 (emphasis added). The court remanded the case back to the trial court because the

testimony admitted into evidence created a "genuine dispute as to whether gas is being produced

from the wells covered by the lease and whether gas is being injected and stored therein." Id. at

5.

After the court of appeals remanded the case, it went to a bench trial. Goodwill v.

Columbia Gas Transmission Corp., 5th Dist. Holmes No, CA-415, 1990 Ohio App. LEXIS 3716,

at 2 (Aug. 15, 1990). There, the trial court again ruled in favor of the oil and gas producer,

holding that "the Plaintiffs are legally estopped to assert their claims that the Defendant has

violated some of the terms and conditions of the lease because they have accepted royalty and

rental payments from Defendant from 1969 to date." Id. at 3 (emphasis added).

This case presents the same inconsistency in Plaintiff's conduct that was present

in Litton, Quadrant Exploration, Locke, and Goodwill. Under principles that have long been

recognized in Ohio Courts, Plaintiff should not be permitted to "have [her] cake and eat it too."

23

Instead, she should be estopped from asserting that the File Lease expired during the period from

1977 to 1981.

1. Other jurisdictions have applied estoppel to claims to terminate oil and gas leases

Courts in other jurisdiction have likewise applied the doctrine of estoppel to

claims for termination of oil and gas leases. See Tucker v. Hugoton Energy Corp., 253 Kan. 373,

855 P.2d 929 (1993) (remanding the case to determine whether the plaintiff should be equitably

estopped from claiming termination of the lease because of defendants' continued payment of

operating expenses in reliance on plaintiffs' acceptance of shut-in royalty payments); Danne v.

Texaco Exploration & Prod., Inc., 1994 OK CIV APP 138, 883 P.2d 210 (1994) (holding that

acceptance of shut-in royalties may estop the lessor from denying the lessee's title or denying

that the lessee has failed to market diligently); Young v. Amoco Production Co., 610 F. Supp.

1479 (E.D. Tex. 1985) (indicating that the doctrines of estoppel and waiver may become

applicable and prevent lessors from asserting termination of their leases when lessors accept

royalties with knowledge of the lessee's efforts to form gas units and develop the leases); Indian

Territory Operating Co. v. Bridger Petroleum Corp., 500 F. Supp. 449 (W.D. OK 1980)(holding

that since the plaintiffs had treated a lease as valid a year after production ceased they were

estopped from asserting expiration of the lease); Eagle Oil Co. v. Sinclair Prairie Oil Co., 24 F.

Supp. 612 (W.D. OK 1938)(holding that plaintiffs were estopped from terminating several oil

and gas mining leases by the execution of a division order and the acceptance of royalties);

Labbe v. Magnolia Petroleum Co., 350 S.W.2d 873 (Tx. Ct. App. 1961)(holding that the

landowners were barred from asserting that a lease had lapsed because production was not kept

up for a certain period of time, some eleven to thirteen years ago).

24

Although there are also cases that go the other way, the traditional rule in Ohio

that estops Plaintiff from asserting a claim inconsistent with her past behavior has been

recognized in many other jurisdictions, including in states with a long and well-developed

history of oil and gas law. The law in other states does not provide a compelling reason for this

Court to decline to apply the doctrine of estoppel under the facts in this case.

2. Ohio courts have recently refused to apply the doctrine of estoppel by acceptance of benefits to oil and gas leases.

In Harding v. Viking Intl Res. Co., 4th Dist. Washington No. 13CA13, 2013-

Ohio-5236, the Fourth District refused to apply the doctrine of estoppel in a case where a lessee

had breached a non-assignment clause. The court distinguished Litton and Quadrant insofar as

"those cases seem to deal with an attempt to forfeit a lease or declare a lease to have expired by

its own terms." Id. at ¶ 18. It insisted that the holding was limited to "the facts of this case,

which involves an attempt to invalidate an assignment, rather than an attempt to declare a

forfeiture, or assert a breach of the expiration of an original oil and gas lease." Id. at 1120.

Despite the Fourth District's assurance regarding the limited scope of Harding, it

was immediately seized upon by other courts and expanded. In Price v. K.A. Brown Oil & Gas,

LLC, 7th Dist. Monroe No. 13 MO 13, 2014-Ohio-2298, the Seventh District noted that "the

Fourth District Court of Appeals has recently stepped away from its holding in Litton." Id. at ¶

25. The Seventh District proceeded to terminate the lease at issue, despite the lessor's

acceptance of "de minimis" royalties, because the lessee had failed to get a second well into

production by 1989. The lawsuit to terminate the lease had not been filed until 2012.

In Yoder v. Artex Oil Co., 5th Dist. Guernsey No. 14 CA 4, 2014-Ohio-5130, the

Fifth District adopted and further expanded this rule. The landowners asserted that their lease

terminated and/or expired because it had not been properly unitized. Id. at ¶ 16. Citing Harding

25

and Price, and without any discussion as to whether the payments were "de minimis," the court

held that the acceptance of royalty payments did not waive the landowner's claims for breach of

the lease.6 Id. at ¶ 16.

As a result of Harding, Price, and Yoder, the doctrine of estoppel by acceptance

of benefits has been significantly eroded. The underlying principle that the Fourth District

enunciated in this case is that the landowner's conduct does not have any legal effect on the

parties' rights and obligations under a lease. The Fourth District recklessly swept aside decades

of well-established legal precedent and created a new rule that is startling in its over-

breadth. Specifically, the court held that "Necause the termination of a lease by the operation of

the habendum clause is automatic, any delay in bringing suit is immaterial" (Appx. 8). The

implication is that there are no legal consequences whatsoever after a lease is arguably expired,

even if a delay occurs in asserting the action for 50 years, 75 years, or even 100 years.

3. Estoppel should apply when there has been no reservation of rights.

In Harding, the Fourth District identified Stitzlein v. Willey, 5th Dist. Holmes No.

CA-318, 1979 Ohio App. LEXIS 8691 (Dec. 12, 1979) and Bonner Farms, Ltd. v. Fritz, 355

Fed. Appx. 10 (6th Cir. 2009) as the primary legal basis for the eradication of estoppel. Citing

R.C. 5301.01, the court in Stitzlein held that once a lease expires, it cannot be reborn by estoppel.

Id. at 6. The court also noted, however, that the producer had drilled a new well despite prior

landowner letters and other notice that the lease had expired. Id. at 3. Likewise, in Bonner

Farms, which was based on the holding in Stitzlein, the landowner sent the lessee an unequivocal

letter before the checks were negotiated asserting that he was entitled to 100% of the value of the

resources taken from the property. Id. at 13.

6 The Fifth District's holding was gratuitous, since the Court admitted that its analysis did "not change our ultimate judgment" in favor of the lessee, which had been on other grounds. Id. at ¶ 73.

26

The stated reasoning in Stitzlein and Bonner Farms embraces a more limited

principle of law that has been codified in R.C. 1301.308(A), which relates to performance or

acceptance under a reservation of rights. Revised Code § 1301.308(A) states that a party is not

prejudiced if it performs or promises performance or assents to performance in a manner

demanded if such party makes an explicit reservation of rights. Since the landowners in Stitzlein

and Bonner Farms made an explicit reservation of rights before the producer's actions occurred,

the acceptance of a royalty check did not result in any prejudice.

In this case, Plaintiff never made a reservation of rights when she accepted

benefits under the File Lease or when she permitted Defendants and their predecessors to resume

and then continue production from the File Well in 1981. Plaintiff admitted in discovery that she

never objected to Defendants' rights under the File Lease until she initiated this action in 2013

(Supp. 457). She never recorded an affidavit of non-compliance, an affidavit of non-production,

or an affidavit of forfeiture under R.C. 5301.332. Unlike the lessees in Stitzlein and Bonner

Farms, Defendants were never put on notice that if they recommenced production under the File

Lease it was at their own risk. Plaintiff's failure to ever make a reservation of rights during the

long period of time that she acquiesced in Defendants' performance means that she is bound by

her inconsistent behavior.

4. It is inconsistent to accept benefits under an allegedly expired lease.

Ohio courts have recently attempted to excuse the landowners' conduct in

accepting lease benefits by suggesting that it is not inconsistent with their legal position. In Sims

v. Anderson, 2015-Ohio-2727, 38 N.E.3d 1123,1128 (4th Dist.), the Fourth District explained that

because the plaintiffs were the owners of the land "they were entitled to at least the royalties no

matter what the outcome in this case." But an oil and gas well does not pump itself, maintain

27

itself, or produce oil and gas all by itself for any period of time, let alone during the course of

many years. If the lessee had been aware of the landowner's legal position (that the lease was

invalid), it would have been obligated to plug the well and would not likely have continued

production operations. So, but for the landowner's silence, the benefits that the landowner

accepted would not have existed. It is therefore inequitable for a landowner to assert a lease

forfeiture after having accepted benefits under a lease for years and years without ever having

questioned the lessee's right to continue its operations.

In this case, everything that has occurred since 1981 is inconsistent with an

expiration. During that entire time, Plaintiff received free gas from the File Well, two new oil

and gas wells, the Lindamood Wells, were drilled elsewhere on the Leasehold Premises,

hundreds of barrels of oil and thousands of MCF of gas were produced and sold, and all of the

royalties on production were paid. The gross revenue from oil and gas sales from the

Lindamood Wells is nearly $230,000.00 since 1992 (which is the 21 year period prior to the

filing of this action).

Defendants were always available to respond, and did respond, whenever Plaintiff

had a problem with the File Well that affected her free gas. Although the record below does not

describe the full extent of Defendants' labor with respect to the File Well, the File Well was

swabbed approximately yearly (at Plaintiffs request) in order to maintain her free gas. Yet,

Plaintiff admitted that, prior to the filing of this action, she never objected to Defendants' right to

operate the File Well (Supp. 457). Instead, she simply filed an action in 2013 to terminate the

File Lease. According to the Fourth District, this entire course of conduct over a period of thirty-

five years is legally irrelevant!

2s

D. A limited holding based on the doctrine of estoppel will decrease the precedential value of this case.

The existence of estoppel in any given case depends on the facts and

circumstances of that particular case. See Abbo v. Perkins, 6th Dist. Lucas No. L-06-1137, 2007-

Ohio-1520, ¶ 18 (quoting Leader Nail Ins. Co. v. Eaton, 119 Ohio App. 3d 688, 692, 696

N.E.2d 236 (8th Dist. 1997)). This is problematic when dealing with claims that affect title to

real estate. Courts have recognized that when dealing with potential uncertainties in title to land,

bright-line rules are generally preferable. See Nusekabel v. Cincinnati Pub. Sch. Emplees. Credit

Union, 125 Ohio App. 3d 427, 435, 708 N.E.2d 1105 (1St Dist. 1997)("we believe that a bright-

line rule is preferable when property is affected"); Schloss v. Sachs, 63 Ohio Misc. 2d 457, 462-

463, 631 N.E.2d 212 (M.C. 1993)("especially concerning real estate, a 'bright-line' must be

drawn somewhere....").

If this Court limits its analysis to whether or not there is an estoppel under the

facts and circumstances of this particular case, it will severely limit the extent to which its

holding may be applied in other lease termination cases, thereby decreasing the extent to which

this case will affect the public interest. The failure to recognize a bright-line limitation period

for asserting a lease termination claim will mean that similar claims will continue to be filed by

landowners based on activity that occurred many decades ago. Such landowners will simply

attempt to distinguish their claims from the facts in this case.

A limited holding on the basis of estoppel will also leave open the question as to

how long producers must retain their production records in order to guard against claims to

terminate a lease. Just as taxpayers know that after seven years they may discard their tax and

other financial records without fear of scrutiny from an IRS audit, at some point a producer

should be able to discard old production records in the ordinary course of business without

29

having to worry about whether a landowner will challenge the validity of his lease based on the

production from his well during that period of time.

In this case, Plaintiff demanded production records from the File Well dating back

to 1960. The Fourth District cancelled the File Lease based on the production records that

Defendants had retained from 1977 to 1981. Without a clear limitation period, lessors, such as

Plaintiff, will continue to scavenge for old, irrelevant records to use as the basis for cancelling

leases in lawsuits filed many decades later.

E. The delay in asserting Plaintiff's claim, alone, should bar her claim.

In determining whether there has been an estoppel, courts will often consider the

amount of time during which the plaintiff accepted the benefits. See Consolidated North v.

Melas Theater Corp., 7th Dist. Mahoning No. 80 C.A. 7, 1981 Ohio App. LEXIS 12705, at 18

(Feb. 12, 1981)(finding an estoppel by acceptance of benefits when the landlord accepted

payments for six months after becoming aware of an unauthorized assignment of the lease);

Russian Orthodox Greek Catholic St. Peter & St. Paul's Church v. Burdikoff, 117 Ohio App. 1,

7, 189 N.E.2d 451 (9th Dist. 1962)(holding that the "long continued acquiescence" in the use of

certain property raised the issue of estoppel (and laches) in a claim to the right of spiritual

jurisdiction); Rayl, 46 Ohio App. 2d at 178-179 (holding that the plaintiffs' acceptance of free

gas and of quarterly payments from defendant for a period of fifteen months was inconsistent

with the attempted termination of a storage agreement and that the acceptance of such benefits

estopped them from pursuing the action); Chisholm v. Chisholm, 58 Ohio L. Abs. 1, 94 N.E.2d

705, paragraph 2 of the syllabus (8th Dist. 1950)(" The acceptance of benefits of an equitable

charge, over a period of years, and with full knowledge and advice of counsel works an equitable

estoppel to contest the terms of the agreement"); Trs. of German Twp. v. Farmers & Citizens

30

Say. Bank Co., 66 Ohio L. Abs. 332, 113 N.E.2d 409 (C.P. 1953), paragraph 10 of the syllabus

("Where a township has received all the benefits of a lease for a period of more than 80 years

and has, by its conduct, repeatedly ratified the terms of the lease, common honesty and the

claims of good faith serve to estop the trustees from questioning the validity of the lease in

question.").

Plaintiff's inconsistent position, in accepting the File Lease's benefits while

simultaneously disavowing its validity, is important and, in fact, dispositive of this case. Her

conduct in treating the lease as valid is sufficient to create an estoppel. What is even more

important, however, is Plaintiff's extreme delay in asserting the claims that have been pled in

this case.

1. The delay in asserting a claim implicates other equitable defenses, such as laches.

The defense of estoppel is closely related to the defenses of laches and waiver and

the three are often asserted together. Myers v. Myers, 147 Ohio App. 3d 85, 92, 768 N.E.2d 1201

(3d Dist. 2002); Dawson v. Dawson, 3d Dist. Union Nos. 14-09-08, 14-09-10, 14-09-11, 14-09-

12, 2009-Ohio-6029, ¶ 32. Laches is an equitable doctrine. State ex rel. Mallory v. Public

Emples. Ret. Bd., 82 Ohio St.3d 235, 244, 694 N.E.2d 1356 (1998). The elements of laches are

1) unreasonable delay or lapse of time in asserting a right, 2) absence of an excuse for the delay,

3) knowledge, actual or constructive, of the injury or wrong, and 4) prejudice to the other

party. Id. (citing State ex rel. Polo v. Cuyahoga Cty. Bd. Of Elections, 74 Ohio St.3d 143, 145,

656 N.E.2d 1277 (1995)).

Plaintiff is requesting that this Court declare the Lease expired and terminated

based on what happened over thirty-five (35) years ago in the late 1970s and early 1980s.

Thirty-five (35) years is an unreasonable delay for Plaintiff to assert her claim. Plaintiff has

31

offered no excuse for the delay. Plaintiff's delay in asserting her rights has prejudiced

Defendants; Defendants and their predecessors have assumed all liability and responsibility for

maintaining the wells for the last thirty (30) years, and they have invested their time and money

in operating the wells. In equity, Plaintiff's claims are barred by the doctrine of laches.

2. The delay in asserting a claim implicates the statute of limitations.

The General Assembly has already provided bright-line rules for the disposition

of claims that are filed long after they accrue. The Ohio Revised Code expressly states that a

civil action may be commenced only within the periods prescribed in sections 2305.04 to

2305.22 of the Revised Code. R.C. 2305.03. Any action for relief can be placed into one of two

categories: 1) an action with a limitation period provided for in Sections 2305.04 to 2305.131 or

Section 1304.35 of the Revised Code, or 2) an action without a limitation period provided for in

Sections 2305.04 to 2305.131 or Section 1304.35 of the Revised Code. For those in the former

category, the longest limitation period for any claim is 21 years. See R.C. 2305.04. For those in

the latter category, R.C. 2305.14 imposes a 10-year limitation period. Quite simply, there is no

cause of action recognized under Ohio law that can be asserted more than 30 years after it

accrues. That is why courts have referred to R.C. 2305.14 as the "catch-all" statute of

limitations.7 See Seitz v. Stevenson, 4th Dist. Pickaway No. 97 CA 42, 1998 Ohio App. LEXIS

2756, at 15 (June 16, 1998).

At least one other court has relied on the statute of limitations in order to dismiss

a claim for lease termination that was filed long after the claim would have accrued. In Natural

Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188 (Tex. 2003), there were several periods where

no production had occurred under an oil and gas lease. Id. at 190. Although the lessor brought

In the event this Court examines Defendants' statute of limitations defense, it should peiiiiit briefing on which of the possible statutes of limitation apply to Plaintiff's claim, including R.C. 2305.041, 2305.06, 2305.14, or 2305.04.

32

suit to quiet title for trespass, conversion, and fraud, the court held that the lessee had obtained a

fee simple determinable by adverse possession, because the action was filed beyond Texas' 10-

year limitation period. Id. at 199. The lessee's fee simple determinable was on the same terms

and conditions as the original leases. Id.

3. Allowing landowners to assert stale claims decades later violates public policy.

This Court should recall the general purposes of statute of limitations. They are:

1. To ensure fairness to the defendant; 2. To encourage prompt prosecution of causes of action; 3. To suppress stale and fraudulent claims; and 4. To avoid the inconveniences engendered by delay—specifically the

difficulties of proof presented in older cases.

See Flagstar Bank, F.S.B. v. Airline Unions Mortg. Co., 128 Ohio St. 3d. 529, 2011-Ohio-1961,

947 N.E.2d 672, ¶ 27 (quoting Doe, 2006-Ohio-2625, at ¶ 10).

Filing an action to have an oil and gas lease declared expired more than thirty (30)

years later presents extreme inconveniences and difficulties of proof. Memories fade, witnesses

die, and records are lost or destroyed. Applying a limitations period will encourage lessors, such

as Plaintiff, to promptly prosecute their causes of action. It is not as if Plaintiff was completely

unaware of Defendants' operations on her property and the oil and gas revenues that were being

generated. All of these factors indicate that, under the circumstances, this Court must apply a

statute of limitations to Plaintiff's claims.

III. CONCLUSION

Despite all the procedural complexity in this case, including the multiple motions

for summary judgment, multiple appeals, and multiple motions for reconsideration, and despite

all the substantive issues that have been extensively argued and briefed, including estoppel,

laches, statute of limitation, and all the issues related to implied covenants, the trial court had this

33

case right from the beginning. In just 3 short pages, the trial court managed to summarize all the

relevant facts, identify all the relevant issues, and arrive at the proper conclusion. After more

than 20 years of behaving as though the File Lease was valid and in effect, the trial court simply

would not entertain Plaintiff's claims to the contrary. For all the foregoing reasons, this Court

should reverse the decision and judgment entry of the Fourth Appellate District and should enter

judgment in favor of Defendants.

Respectfully submitted,

/s/ James S. Huggins James S. Huggins (#0003320)

Daniel P. Corcoran (#0083512)

THEISEN BROCK, a legal professional association

424 Second Street Marietta, Ohio 45750 Telephone: (740) 373-5455 Telefax: (740) 373-4409 corcoran@theisenbrock.com Counsel . for Appellants

CERTIFICATE OF SERVICE

The undersigned hereby certifies a copy of the foregoing Brief of Appellants, Heinrich Enterprises, Inc., Heinrich Production LLC, Utica Assets, LLC, and Deep Rock Investments, LLC was e-filed with the court and served upon the following parties by sending a copy of same by ordinary U.S. mail, postage pre-paid, on this 25th day of October, 2016:

Attorney Ethan Vessels Fields, Dehmlow & Vessels, LLC 309 Second Street Marietta, Ohio 45750 Telephone: 740-374-5346 Counsel for Appellee

Gregory D. Russell (0059718)

Peter A. Lusenhop (0069941)

Ilya Batikov (0087968)

Vorys, Sater, Seymour and Pease LLP

34

52 East Gay Street/P.O. Box 1008 Columbus, OH 43216-1008 Telephone: 614-464-6400 Facsimile: 614-719-4954 E-mail: gdrussell(&,vorys.com palusenhop(&,vorys.com ibatikov(&vorys.com Counsel for Amica Curiae, Ohio Oil and Gas Association, Southeastern Ohio Oil and Gas Association, Artex Oil Company, EnerVest Operating, L.L.C., Ascent Resources, LLC, Buckeye Oil Producing Co., Eclipse Corporation, Flat Rock Developments, LLC, HG Energy, LLC, Northwood Energy Corporation, Petrox Resources Corp., and Sound Energy Company, Inc.

/s/ Daniel P. Corcoran Daniel P. Corcoran Counsel for Appellants

IN THE SUPREME COURT OF OHIO

Patricia J. Schultheiss,

Appellee,

v.

Heinrich Enterprises, Inc., et al.,

Appellants.

On Appeal from the Washington County Court of Appeals, Fourth Appellate District

Case No. 2016-0623

Court of Appeals Case No. 15 CA 20

APPENDIX

1. Trial court's Ruling on Motions for Summary Judgment, filed 4-16-15 1

2. Trial court's Final Judgment Entry, filed 4-21-15 4

3. Fourth District's Decision and Judgment Entry, filed 1-12-16 6

4. Fourth District's Entry Granting in Part and Denying in Part Appellees' Application for Reconsideration, filed 3-11-16 20

5. Notice of Appeal, filed 4-22-16 34

(392292)

36

IN THE COURT OF COMMON PLEAS WASHINGTON COUNTY OHIO

PATRICIA J. SCHULTHEISS, CASE NO. 13 OT 306 Plaintiff,

U

7915 APR I 6 PM 12: 5 0

,I:kSiiNGT01.4 CO. Ci-

vs. JUDGE RANDALL G. BURNWORTH

HEINRICH ENTERPRISES, INC. ET AL., RULING ON MOTIONS FOR Defendant. SUMMARY JUDGMENT

This case comes before the Court on a Motion for Summary Judgment filed

August 27, 2014 by Plaintiff, a Memorandum in Opposition filed September 15, 2014, Plaintiff's

Reply filed September 25, 2014, a Motion for Summary Judgment and Memorandum in Support

filed September 2, 2014 by Defendants, a Brief in Opposition filed September 15, 2014, and a

Reply Memorandum filed September 25, 2014 by Defendants. Defendants have submitted

Supplemental Authority December 30, 2014 and January 20, 2015, as cases have been decided.

FINDINGS OF FACT

Plaintiff owns 48 acres in Warren Township, Washington County, Ohio. The acreage was

a part of a 112 acre lease dated November 20, 1950 and recorded at Vol. 157, P. 299 of the

Lease Records of the Washington County Recorder. Defendants Heinrich Enterprises, Inc.,

Heinrich Production LLC, Utica Assets, LLC, and Deep Rock Investments LLC, own the working

interest in the original lease, which physically includes non-continguous acreage. The

Albert File #1 Well was drilled in 1951. It is the only well drilled on the 48 acres owned by

Plaintiff. The original lease did not contain a provision providing Lessor with free gas for

domestic purposes. An Assignment executed March 21, 1963, by predessors to the present

parties, assigned Lessor's 118th landowner royalty interest in the existing Berea Well to Lessee in

exchange for use of gas for one dwelling on the acreage. The assignment refers to the 112 acre

File Lease.

1

Part of the 112 acre lease (30 acres owned by Lindamoods), was assigned April 22, 1983

to Bobby Anderson. The Lindamoods and Bobby Anderson executed a Ratification and

Confirmation of Oil and Gas Lease referencing the original 112 acre lease. There was no new or

separate lease. The Lindamood No. 1 Well was drilled May 27, 1983 on acreage physically

within the original 112 acres. After a pooling agreement between the Lindamoods and adjacent

property owner Strahlers (acreage not within the 112 acres), the Strahler and Lindamood

No. 2 Well was drilled September 5, 1983. The well was physically located within the original

112 acres.

ISSUES

Plaintiff asserts variously with regard to the File No. 1 Well that there was no gas

produced 1977 to 1981; that there were lapses in production 1992 to 2012, and that the

nominal or non-existent production during that time was insufficient to hold the lease; that for

at least the last eight years the Albert File No. 1 Well has only produced oil and gas for domestic

use, and that no royalties have been paid to Plaintiff from actual production on other non-

contiguous lands of the original 112 acre lease. Plaintiff further asserts that the assignment of

the Lindamood 30 acres severed the lease and that Defendants have breached the implied

covenant to develop.

Defendants concede that only gas for domestic use has been produced from the File No.

1 Well the last eight years and that Plaintiff has received no royalties from the Lindamood No. 1

Well or the Strahler-Lindamood No. 2 Well. Defendant asserts that the 1963 assignment

relieves them of any requirement to pay Plaintiff royalties on the File No. 1 Well, and that the

domestic use gas therefore amounts to a royalty payment. Defendants also assert that

production in paying quantities on the Lindamood No. 1 Well and the Strahler-Lindamood No. 2

Well hold the entire 112 acres, such production in paying quantities having been continuous in

2

excess of 21 years and totaling over $200,000.00 with appropriate royalties paid . Defendants

deny that the 30 acre assignment severed the lease or that they have breached the implied

covenant to develop.

CONCLUSIONS OF LAW

The Court has reviewed the Complaint, Answer and Counterclaim of Defendants,

Plaintiffs Response, the Amended Complaint, the Answer to Amended Complaint and

Counterclaim of Defendants and Plaintiffs Response thereto. The Court has further reviewed

the pleadings associated with the dueling Motions for Summary Judgment filed by the parties

and the extensive documentation, argument and case law, including the supplemental filings

from the Court of Appeals which clearly address the issues raised in this case.

The Court finds that the 1963 assignment and subsequent production of domestic gas

from the File No. 1 Well is the equivalent of production in paying quantities in lieu of royalties,

an agreement reached by Plaintiffs predecessor in interest to which she is bound.

Notwithstanding that determination, the Court further finds that the production in paying

quantities from the Lindamood No. 1 Well and the Strahler-Lindamood No. 2 Well, despite the

fact that Plaintiff receives no economic benefit, serve to hold the entire 112 acres which are the

subject of the original lease and that the 1983 assigment of the Lindamood 30 acres did not

sever the lease. Lastly, the Court does not find a breach of the implied covenant to develop.

Plaintiffs Motion for Summary Judgment is DENIED. Defendants' Motion for Summary

Judgment is GRANTED. Counsel for Defendant shall journalize. Costs assessed to Plaintiff.

Judge Randall G. Burnworth c. Atty. E. Vessels

Atty. J. Huggins /

3

15 PR 21 P14 2: 50 IN THE COURT OF COMMON PLEAS

WASHINGTON COUNTY, OHIO , A6HINGION CO. CH O

Patricia J. Schultheiss, Case No.: 13 OT 306

Plaintiff, Judge Burnworth

v.

Heinrich Enterprises, Inc, et al.,

Defendants.

FINAL JUDGMENT ENTRY

This matter came before the court upon the Motion

for Summary Judgment filed by Plaintiff and upon the Motion

for Summary Judgment filed by Defendants.

For the reasons set forth in this Court's April

16, 2015 Ruling on Motions for Summary Judgment, the Court

hereby orders, adjudges, and declares as follows:

1. Plaintiff's Complaint is hereby dismissed in

toto WITH PREJUDICE.

2. The oil and gas lease ("Lease") dated

November 20, 1950 and recorded in Volume 157, Page 299

of the Lease Records of Washington County, Ohio, is a

valid and subsisting oil and gas lease and encumbrance

on the premises described therein.

A certified copy of this Judgment Entry shall be

recorded in the Washington County Recorder's Office and

-.1-

4

cross-referenced to the lease recorded at Washington County

Recorder's Lease Volume 157, Page 299.

This is a final judgment entry.

Costs shall be assessed against Plaintiff.

e Honorable Randall G. urnworth, Judge of the Washington County Court of Common Pleas

APPROVED BY COUNSEL:

61)),), wAikk,)--,..N\PA„tcu Ethan Vessels' ( 076277) Fields, Dehmlow & Vessels,

a limited liability company 309 Second Street Marietta, Ohio 45750

s S. Hugg s (# iel P. Corcora

EISEN BROCK,

or /i (# 083512)

0)

a legal professional association 424 Second Street Marietta, Ohio 45750 Telephone: (740) 373-5455 Telecopier: (740) 373-4409 huggins@theisenbrock.com Counsel for all Defendants

THE CLERK IS DIRECTED TO SERVE ALL ethan@fieldsdehmlow.com INTERESTED PARTIES AND ATTORNEYS A Telephone : ( 7 04 ) 3 74 _ 5 3 cPPY OF THIS FINAL APPEALABLE JUDGMENT Telecopier: (704) 374-5349 Counsel for Plaintiff

(361814)

-2-

5

CLERK OF COURTS

IN THE COURT OF APPEALS 4TH APPELLATE DISTRICT

205 PUTNAM STREET MARIETTA, OH 45750

PATRICIA J SCHULTHEISS vs. HEINRICH ENTERPRISES INC et al

TO : ATTY DANIEL P CORCORAN THEISEN BROCK

CASE NO. 15CA000020 424 SECOND STREET MARIETTA OH 45750

PURSUANT TO APPELLATE RULE 22-B, YOU ARE HEREBY NOTIFIED THAT A DECISION AND JUDGMENT ENTRY, COPY HERETO ATTACHED, HAS BEEN FILED IN SAID COURT OF APPEALS IN THE ABOVE STYLED ACTION ON 01/12/16

NOTICE OF FILING

RULE 22-B

PAPERS ATTACHED:

DECISION AND JUDGMENT ENTRY DATED: 01/12/16

BRENDA L WOLFE

DEPUTY ORIGINAL NOTICE TO:

DATED 01/12/16 CURTIS L LOKEN LOKEN OIL FIELD SERVICES LLC DAVID POTTMEYER ATTY JAMES S HUGGINS ATTY ETHAN T VESSELS

6

FOURTH DISTRtiCT COUR- QF PPEALS

F 1 IN THE COURT OF APPEALS OF OFkERK OF COURTS

FOURTH APPELLATE DISTRICT

1 .j M1

WASHINGTON COUNTY z- 16 j 7

CiN CO. OHIO Case No. 15CliA2 =1SOINGT

DECISION AND JUDGMENT ENTRY

APPEARANCES:

Ethan Vessels, Fields, Dehmlow & Vessels, LLC, Marietta, Ohio, for appellant.

James S. Huggins and Daniel P. Corcoran, Theisen Brock, LPA, Marietta, Ohio, for appellee. Harsha, J.

{111} The trial court granted summary judgment to Heinrich Enterprises, Inc.

and other defendants (collectively "Heinrich defendants") on Patricia Schultheiss's

complaint to cancel a 1950 oil and gas lease because of lack of production and breach

of implied covenants to reasonably develop the land. The trial court declared that the

lease was valid and binding on Schultheiss's property.

{112} The trial court determined that a 1963 assignment to the lessees of the

lessor's royalty interest in return for the provision of free gas for domestic purposes

satisfied the conditions of the lease. In the alternative the trial court also determined

that the production in paying quantities from two wells located not on her property, but

on the noncontiguous property in the original leasehold, held the entire lease even

though she received no royalties from the production of those wells. The trial court also

PATRICIA J. SCHULTHEISS,

Plaintiff-Appellant,

v.

HEINRICH ENTERPRISES, INC., ET AL.,

Defendants-Appellees.

7

Washington App. No. 15CA20 2

rejected her second claim, determining that there was no breach of the implied

covenant to develop the land.

{113} Citing the lack of oil and gas production from 1977 to 1981, including a

shut-in period from 1979 through 1980 in which even domestic gas was not produced,

Schultheiss argues that the trial court erred in rejecting her claim that the lease expired

by the terms in the habendum clause. The Heinrich defendants do not deny the

underlying basis of this argument, but instead argue that this contention is barred by the

statute of limitations and laches. However, we agree with Schultheiss for several

reasons. First, the trial court did not address her argument concerning lack of

production from her well. Instead it concluded adjacent wells held the entire original

leasehold. However, this could not occur because the lease terminated before those

wells existed. Second, the Heinrich defendants waived the affirmative defenses

because they did not assert the statute of limitations and laches in their answer or seek

leave to amend their answer to include them. Third, it is questionable whether the

claimed affirmative defenses apply where the lease terminates under the express

language of the contract and revests the leased estate in the lessor by operation of law.

Because the termination of a lease by the operation of the habendum clause is

automatic, any delay in bringing suit is immaterial.

{114} The oil and gas lease expired in accordance with its own express

provisions when no oil or gas was produced from 1977 to 1981, including a two-year

period in which not even domestic gas was produced. We sustain her assignment of

error and reverse the judgment of the trial court. Schultheiss's remaining contentions

are rendered moot by our ruling.

8

Washington App. No. 15CA20 3

I. FACTS

{115} In November 1950 Albert and Jennie File granted an oil and gas lease to

Andrew Cline. The lease covered 112 acres in Warren and Marietta Townships,

Washington County, Ohio, including the 48 acres now owned by Schultheiss. The Files

granted Cline and his heirs or assignees "all the oil and gas" in the property for a

primary term of ten years and a secondary term "as much longer as oil or gas is found

in paying quantities thereon." In return the Files were to receive the payment of one-

eighth of all the oil produced and one-eighth of the sale proceeds of any gas produced.

{116} In 1951, the Albert File Well No. 1 was drilled and completed on what is

now Schultheiss's property. Appellee Heinrich Enterprises, Inc. is the current operator

of the well, which is the only one on the Schultheiss property. In 1963, Schultheiss's

predecessors-in-interest, Howard and Patricia Strickler, assigned to Heinrich's

predecessor-in-interest, Fort Harmar Oil & Gas Company, their one-eighth royalty

interest in the Albert File Well No. 1 in return for the use of gas for their dwelling on the

property. As a result of the assignment no lessee of the property has paid any royalties

since 1963 for production related to the Albert File Well No. 1.

{117} According to then-lessee Carl Heinrich's own records, the well-produced

no oil or gas from January 1977 through September 1981, and the well did not produce

even domestic gas for the benefit of Schultheiss's predecessors-in-interest in 1979 and

1980 when the well was shut-in. The lessees' own production records additionally

reported only sporadic production of oil or gas in the succeeding years from this well,

including no gas production from 2009 through 2012 and oil production of only 2 barrels

in 2009 and no barrels from 2009 through 2012. The Heinrich defendants admit that for

9

Washington App. No. 15CA20 4

at least the last eight years, the Albert File Well No. 1 has produced only oil or gas for

domestic use. This domestic gas has been provided to Schultheiss for the dwelling on

her property in accordance with the 1963 assignment.

{118} As time passed the interests in the original 1950 leasehold estate were

divided among different lessors and lessees. In 1977, W. Geoffrey Cline assigned his

interest in the lease, including the royalty interest in the Albert File Well No. 1, to Carl

Heinrich. In 1983, Heinrich assigned his interest in a 30-acre tract of land, which was

part of the original leasehold and then owned by Ralph and Patricia Lindamood, to

Bobby Anderson. The Ralph Lindamood Well No. 1 was drilled on the Lindamoods'

property in that year.

{119} A few months later Anderson entered into an agreement with the

Lindamoods and Howard and Grace Strahler to pool the Lindamoods' 30-acre tract with

additional property not included in the original leasehold. The pooled land formed a

drilling unit on part of the acreage of the original leasehold, but it did not include

Schultheiss's property. The Strahler and Lindamood Ralph Well No. 2, which was

drilled on the pooled acreage, was located on the original leasehold property. The

Ralph Lindamood Well No. 1 has produced oil and/or gas from 1988 to 2012, and the

Strahler and Lindamood Ralph Well No. 2 has produced oil and/or gas from 1988 to

2009. The lessees paid royalties to the appropriate landowners for these wells from

1997 through 2013. Schultheiss received nothing because she did not own the land that

produced the oil and gas. And her predecessor-in-interest had agreed to accept gas for

personal use in lieu of royalties. Through various assignments, appellees succeeded to

the original lessees' interest in the lease.

10

Washington App. No. 15CA20 5

{1110} In October 2013 Schultheiss filed a complaint in the Washington County

Court of Common Pleas against the Heinrich defendants. In her subsequently

amended complaint, Schultheiss sought a declaration that the 1950 oil and gas lease no

longer encumbered her property because: (1) there had not been production of oil and

gas on her property sufficient for the lease to remain in effect and the lease had

consequently expired under its own terms; and (2) appellees had breached the lease's

implied covenant to reasonably develop the land. Schultheiss alleged—and appellees

admitted that the Albert File Well No. 1 on her property had only produced oil or gas

for domestic use.

{1111} In their answer to the amended complaint the Heinrich defendants raised

certain defenses, but not the statute of limitations or laches. They also sought a

declaration that the oil and gas lease constituted a valid encumbrance on Schultheiss's

property.

{1112} After the parties filed respective motions for summary judgment the trial

court ruled in favor of the Heinrich defendants, declaring that the 1950 oil and gas lease

is a valid encumbrance on Schultheiss's property. This appeal ensued.

II. ASSIGNMENT OF ERROR

{1113} Schultheiss assigns the following error for our review:

The trial court erred in granting summary judgment for Defendants and denying Plaintiff's motion for summary judgment.

III. SUMMARY JUDGMENT & THE STANDARD OF REVIEW

{1114} Appellate review of summary judgment decisions is de novo, governed by

the standards of Civ.R. 56. Vacha v. N. Ridgeville, 136 Ohio St.3d 199, 2013—Ohio--

3020, 992 N.E.2d 1126, ¶ 19; Holland v. Gas Ents. Co., 4th Dist. Wash. No. 14CA35,

11

Washington App. No. 15CA20 6

2015-Ohio-2527, Ti 10. Summary judgment is appropriate if the party moving for

summary judgment establishes that (1) there is no genuine issue of material fact; (2) the

moving party is entitled to judgment as a matter of law; and (3) reasonable minds can

come to but one conclusion, which is adverse to the party against whom the motion is

made. Civ.R. 56(C); New Destiny Treatment Ctr., Inc. v. Wheeler, 129 Ohio St.3d 39,

2011—Ohio-2266, 950 N.E.2d 157, T 24; Settlers Bank v. Burton, 4th Dist. Washington

Nos. 12CA36 and 12CA38, 2014—Ohio-335, 2014 WL 356626, 1120.

(1115) The moving party has the initial burden of informing the trial court of the

basis for the motion and identifying the parts of the record that demonstrate the

absence of a genuine issue of material fact on the pertinent claims. Dresher v. Burt, 75

Ohio St.3d 280, 293, 662 N.E.2d 264 (1996). Once the moving party meets this initial

burden, the non-moving party has the reciprocal burden under Civ.R. 56(E) to set forth

specific facts showing that there is a genuine issue for trial. Id.; Holland at 1111.

IV. LAW AND ANALYSIS

A. Expiration of Lease on its Own Terms:

Lack of Oil and Gas Production from 1977 to 1981

{1116} This case involves the interpretation of a written contract, which usually is

a matter of law also requiring de novo review. Arnott v. Arnott, 132 Ohio St.3d 401,

2012—Ohio-3208, 972 N.E.2d 586, II 14, quoting Saunders v. Mortensen, 101 Ohio

St.3d 86, 2004—Ohio-24, 801 N.E.2d 452, ¶ (" `[t]he construction of a written contract is

a matter of law that we review de novo' "). "Our role is to ascertain and give effect to

the intent of the parties, which is presumed to lie in the contract language." Boone

Coleman Constr., Inc. v. Piketon, 2014—Ohio-2377, 13 N.E.3d 1190, 11 18 (4th Dist.),

12

Washington App. No. 15CA20 7

citing Arnott at ¶ 14. "Common words appearing in a written instrument will be given

their ordinary meaning unless manifest absurdity results, or unless some other meaning

is clearly evidenced from the face or overall contents of the instrument." Alexander v.

Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (1978), paragraph two of

the syllabus, superseded by statute on other grounds; Harding v. Viking Intematl.

Resources Co., Inc., 2013—Ohio-5236, 1 N.E.3d 872, ¶ 12 (4th Dist.).

{1117} In our context, "Mlle rights and remedies of the parties to an oil or gas

lease must be determined by the terms of the written instrument" and "[s]uch leases are

contracts, and the terms of the contract with the law applicable to such terms must

govern the rights and remedies of the parties." Harris v. Ohio Oil Co., 57 Ohio St. 118,

129, 48 N.E. 502 (1897); Harding at ¶ 11; Bohlen v. Anadarko E & P Onshore, LLC, 4th

Dist. Washington App. No. 14CA13, 2014—Ohio-5819.

{1118} Citing of the lack of oil and gas production from 1977 to 1981, including a

shut-in period from 1979 through 1980 in which not even domestic gas was produced,

Schultheiss asserts that the trial court erred in denying her claim that the lease expired

by its own terms. Appellees do not deny the underlying factual or legal basis of this

argument, but instead argue that this claim is barred by the statute of limitations and

laches.

{1119} However, Schultheiss's argument has merit. We have consistently

recognized that an oil and gas lease containing a habendum clause stating the lease

shall remain in force as long as paying quantities are produced expires when there is no

oil or gas produced for two years or more:

"Courts universally recognize the proposition that a mere temporary cessation in the production of a gas or oil well will not terminate the lease

13

Washington App. No. 15CA20 8

under a habendum clause of an oil and gas lease where the owner of the lease exercises reasonable diligence and good faith in attempting to resume production of the well. A critical factor in determining the reasonableness of the operator's conduct is the length of time the well is out of production. * * *

A review of the reported cases reflects that while courts tend to hold the cessation of production temporary when the time periods are short, lessees have, for the most part, been held not to have proceeded diligently when the cessation from production exists for two years or more."

Lauer v. Positron Energy Resources, Inc., 4th Dist. Wash. No. 13CA39, 2014-Ohio-

4850, If 12, quoting Wagner v. Smith, 8 Ohio App.3d 90, 92-94, 456 N.E.2d 523 (4

Dist.). Appellees do not contend that this precedent is inapplicable to their

predecessors' well, which was inactive from 1977 to 1981, including two years that the

well was shut-in in 1979 and 1980.

{1120} However, the trial court did not explicitly address Schultheiss's contention.

Instead, it resolved her entire first claim based on production from the Lindamood wells

and the assignment of the royalty interest in the File well in return for free domestic gas.

But the production from the Lindamood wells beginning in 1988 could not have held this

property if the lease had already expired because of nonproduction from 1977 to 1981.

And the 1963 assignment of the lessor's royalty interest in exchange for free domestic

gas could not have held the lease because no domestic gas was produced in 1979 and

1980, when the File well was shut-in.

{1121} Despite their current efforts to the contrary, appellees forfeited their

statute-of-limitations and laches affirmative defenses by failing to raise them in their

answer or an amended answer. "In pleading to a preceding pleading, a party shall set

forth affirmatively * * * laches, * * * statute of limitations, * * * and any matter constituting

14

'Washington App. No. 15CA20 9

an avoidance or affirmative defense." Civ.R. 8(C). "Affirmative defenses other tha[n]

those listed in Civ.R. 12(B) are waived if not raised in the pleadings or in an amendment

to the pleadings." See Jim's Steak House, Inc. v. Cleveland, 81 Ohio St.3d 18, 20, 688

N.E.3d 506 (1998); see generally Klein, Darling, and Terez, Baldwin's Ohio Civil

Practice, Section 8:14 ("Affirmative defenses that are not presented in a responsive

pleading pursuant to Civ.R. 8(C), not presented by motion before pleading [pursuant to

Civ.R. 12(B)], or not presented by an amended pleading pursuant to Civ.R. 15 are

waived"); Ernst, Baldwin's Ohio Practice Tort Law, Section 2:101 (2d Ed.2014). Neither

laches nor the statute of limitations are listed in Civ.R. 12(B), so they are waived if not

properly raised in a pleading. See Poling v. Poling, 4th Dist. Hocking No. 03CA3, 2003-

Ohio-5601, 1122 (appellant "waived his right to raise fraud as a defense in his response

to the summary judgment motion" because he "did not raise fraud as an affirmative

defense in his answer, nor did he raise it as a cause of action in his counterclaim or

cross-claim").

{1122} Appellees forfeited their right to raise laches and statute of limitations as

affirmative defenses when they failed to raise them in a motion prior to pleading or in an

answer or an amended answer. Apparently the trial court recognized this forfeiture as it

did not mention either laches or any statute of limitations in resolving the parties'

motions for summary judgment.

{1123} Finally, it is questionable whether these claimed affirmative defenses even

apply here. After the expiration of the primary term of the oil and gas lease, if the

conditions of the secondary term are not met, the lease automatically expires. This

occurred here when the File well did not produce oil or gas from 1977 to 1981. "The

15

Washington App. No. 15CA20 10

terminology utilized in the habendum clause ([e.g.,] "and as long thereafter as") is

generally construed to create a determinable fee interest, such that the lessee's interest

automatically terminates upon lessee's failure to satisfy any of the listed provisions

would serve to extend the terms of the lease. In such a case, no affirmative action on

the part of a lessor is required to formally terminate the lease; it expires on its owns

terms." (Emphasis added.) Tisdale v. Walla, 11th Dist. Ashtabula No. 94-A-0008, 1994

WL 738744, *4 (Dec. 23, 1994); see also Am. Energy Servs. v. Lekan, 75 Ohio App.3d

205, 212, 598 N.E.2d 1315 (5th Dist. 1992) ("If after the expiration of the primary term

the conditions of the secondary term are not continuing to be met, the lease terminates

by the express terms of the contract herein and by operation of law and revests the

leased estate in the lessor"). Therefore, when the appellees' predecessors-in-interest

failed to meet the conditions of the secondary term of the lease because there was no

production from the File well in 1979 and 1980, the lease terminated by its own terms;

no further action was required by Schultheiss or her predecessors-in-interest.

{1124} As a leading oil and gas law treatise has observed, when the lease has

terminated by operation of law, any delay by the lessor in asserting termination of the

lease cannot give life to the affirmative defenses of laches or the statute of limitations:

No cases have been found in which the court has found that the doctrine of laches is a defense to the lessor's claim that a lease has terminated pursuant to the special limitation in the habendum clause. Since the termination of a lease by operation of the limitation provision of the habendum clause is automatic, the lessor's delay in bringing suit appears immaterial. Any defense that the lessor has waived his right to assert termination of the lease would seem inapplicable.

3-6 Williams & Meyers, Oil and Gas Law, Section 604.7 (2014) (footnotes omitted.)

16

Washington App. No. 15CA20 11

{1125} Courts have adopted this reasoning. "If the term of the lease previously

ended by reason of failure to produce oil in paying quantities, nothing that occurred after

that time would cancel the termination or initiate a new lease." Montana-Fresno Oil Co.

v. Powell, 219 Cal.App.2d 653, 669 (1963); see also Freeman v. Samedan Oil Corp., 78

S.W.3d 1 (Tex.App.2001), quoting Ladd Petroleum Corp. v. Eagle Oil & Gas Co., 695

S.W.2d 99, 109 (Tex.App.1985) ("We conclude that 'once a lease terminates by its own

terms, it cannot be ratified or revived.").

{1126} Similarly, the Fifth District Court of Appeals recently rejected a claim that a

statute of limitations barred lessors' declaratory action to quiet title in their property after

the conditions of the secondary term were breached. Cox v. Kimble, 5th Dist. Guernsey

No. 13 CA 32, 2015-Ohio-2470, 7 56-66. The court reasoned that "[w]hen Appellees

failed to drill the second well, they failed to meet the express terms of the [secondary

term] of the habendum clause of the oil and gas lease; therefore, the secondary term of

the lease terminated by its own terms and 60 acres not included in the first well reverted

to Appellants automatically." Id. at 1165. Therefore, the equitable defenses asserted by

appellees—even if they had been properly raised—do not apply in this context.'

1 It appears that for Schultheiss's first declaratory judgment claim, which was in the nature of a quiet-title action, the applicable statute of limitations would have been the 21-year period set forth in R.C. 2305.04. See Cox at 1159-62. Unlike her second claim, which was based on breach of implied covenants, her first claim was not for a breach of contract, but rather to confirm the termination of the lease that had already occurred by its express terms. See Lauer v. Positron Energy Resources, Inc., 4th Dist. Wash. No. 13CA39, 2014-Ohio-4850, fn. 3 ("We have doubts that appellee was required to notify the appellants under paragraph 6 of the lease prior to filing his complaint because the issue presented in his first claim for relief was not one of breach of a condition or covenant, but rather, whether the lease had expired because of the failure to produce gas or oil for two years.")

17

' Washington App. No. 15CA20 12

{1127} The oil and gas lease expired in accordance with its own express

provisions when no oil or gas was produced from 1979 to 1981, including a two-year

period in which not even domestic gas was produced. Therefore the 1950 oil and gas

lease is not a valid encumbrance on Schultheiss's property. We sustain her assignment

of error.

B. Remaining Arguments

{1128} Schutheiss also claims that the trial court also erred in denying her first

claim for relief—that the oil and gas lease expired by its own terms—because the

production of oil and gas in paying quantities from the Lindamood wells, which are not

on her property, could not hold her noncontiguous property to the original lease. In her

reply brief Schultheiss argues that the trial court further erred in denying her second

claim that the Heinrich defendants breached the implied covenant of the oil and gas

lease to reasonably develop her property. Because these claims have been rendered

moot by our determination that the lease expired by its own terms, we need not address

them. App.R. 12(A)(1)(c); Holland v. Gas Enterprises Co., 4th Dist. Washington No.

14CA35, 2015-Ohio-2527, II 20 (appellant's remaining arguments are rendered moot

after sustaining assignment of error reversing summary judgment).

V. CONCLUSION

{1129} The trial court erred in granting summary judgment to appellees and

denying Schultheiss's motion for summary judgment. Having sustained Schultheiss's

sole assignment of error, we reverse the judgment of the trial court and remand the

cause to that court to enter judgment in favor of Schultheiss.

JUDGMENT REVERSED AND CAUSE REMANDED.

18

Washington App. No. 15CA20 13

JUDGMENT ENTRY

It is ordered that the JUDGMENT IS REVERSED and that the CAUSE IS REMANDED. Appellees shall pay the costs.

The Court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate issue out of this Court directing the Washington County Court of Common Pleas to carry this judgment into execution.

Any stay previously granted by this Court is hereby terminated as of the date of this entry.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.

Abele, J. & McFarland, J.: Concur in Judgment and Opinion.

For the Court

BY: Wiliam H. Harsha, Judge

NOTICE TO COUNSEL

Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and the time period for further appeal commences from the date of filing with the clerk.

19

IN THE COURT OF APPEALS 4TH APPELLATE DISTRICT

205 PUTNAM STREET MARIETTA, OH 45750

PATRICIA J SCHULTHEISS vs. HEINRICH ENTERPRISES INC et al

TO : ATTY JAMES S HUGGINS THEISEN BROCK

CASE NO. 15CA000020 424 SECOND STREET MARIETTA OH 45750

PURSUANT TO APPELLATE RULE 30-A, YOU ARE HEREBY NOTIFIED THAT AN ENTRY, COPY HERETO NOTICE OF FILING ATTACHED, IN THE ABOVE STYLED ACTION WAS FILED FOR JOURNALIZATION IN THIS COURT ON 03/11/16 RULE 30-A

PAPERS ATTACHED:

COURT ORDER DATED: 03/11/16

BRENDA L WOLFE CLE' OF COURTS

-19E.Ptrfr" ORIGINAL NOTICE TO:

DATED 03/14/16 CURTIS L LOKEN LOKEN OIL FIELD SERVICES LLC DAVID POTTMEYER ATTY DANIEL P CORCORAN ATTY ETHAN T VESSELS

20

FOURTH DISTRICT COURT OF APPEALS

FILED IN THE COURT OF APPEALS OF OHIO

EP,K OF COURTS

FOURTH APPELLATE DISTRICT

71N 1 I AM 9: 38 WASHINGTON COUNTY

r3 li 'GION CO.

PATRICIA J. SCHULTHEISS,

Plaintiff-Appellant,

v.

HEINRICH ENTERPRISES, INC., ET AL.,

Defendants-Appellees.

Case No. 15CA20

ENTRY GRANTING IN PART AND DENYING IN PART APPELLEES' APPLICATION FOR RECONSIDERATION

APPEARANCES:

Ethan Vessels, Fields, Dehmlow & Vessels, LLC, Marietta, OH, for appellant.

James S. Huggins and Daniel P. Corcoran, Theisen Brock, LPA, Marietta, OH, for appellees.

Harsha, J.

{111} The trial court granted summary judgment to Heinrich Enterprises, Inc.

and other defendants (collectively "Heinrich defendants") on Patricia Schultheiss's

complaint to cancel a 1950 oil and gas lease because of lack of production and breach

of implied covenants to reasonably develop the land. The trial court declared that the

lease was valid and binding on Schultheiss's property.

{112} The trial court determined that a 1963 assignment to the lessees of the

lessor's royalty interest, in return for the provision of free gas for domestic purposes,

satisfied the conditions of the lease. In the alternative the trial court also determined

that the production in paying quantities from two wells located not on her property, but

on the noncontiguous property in the original leasehold, held the entire lease even

though she received no royalties from the production of those wells. The trial court also

21

Washington App. No. 15CA20 2

rejected her second claim, determining that there was no breach of the implied

covenant to develop the land.

{113} On appeal we sustained her assignment of error and reversed the

judgment of the trial court. Schultheiss v. Heinrich Enterprises, Inc., 4th Dist. Wash. No.

15CA20, 2016-Ohio-121. Citing the lack of oil and gas production from 1977 to 1981,

including a shut-in period from 1979 through 1980 in which even domestic gas was not

produced, Schultheiss argued that the trial court erred in rejecting her claim that the

lease expired by the terms in the habendum clause. The Heinrich defendants did not

deny the underlying basis of this argument, but instead argued that this contention was

barred by the statute of limitations and laches. We agreed with Schultheiss for several

reasons.

{114} First, we found that the trial court did not address her argument

concerning lack of production from her well. Instead it concluded adjacent wells held the

entire original leasehold; however, this could not occur because the lease terminated

before those wells existed. Second, we determined that the Heinrich defendants

forfeited the affirmative defenses because they did not assert the statute of limitations

and laches in their answer or seek leave to amend their answer to include them. Third,

we held that it was questionable whether the claimed affirmative defenses applied

where the lease terminated under the express language of the contract and revested

the leased estate in the lessor by operation of law. Because the termination of a lease

by the operation of the habendum clause was automatic, any delay in bringing suit was

immaterial.

22

Washington App. No. 15CA20 3

{115} Consequently, we held that "[t]he oil and gas lease expired in accordance

with its own express provisions when no oil or gas was produced from 1977 to 1981,

including a two-year period in which not even domestic gas was produced." Id. at 114.

{116} The Heinrich defendants now seek reconsideration of our decision. Upon

reflection, we agree with the Heinrich defendants that we erred in holding that they

waived the affirmative defenses of laches and statute of limitations because the parties

contested these issues by implied consent. Therefore, we grant their application insofar

as it challenges that part of our decision.

{117} Nevertheless, we deny the Heinrich defendants' application for

reconsideration insofar as they contest the remainder of our decision and judgment

because they either raise new arguments that they could have, but failed to raise

previously, or they simply reargue their appeal based on their dissatisfaction with our

conclusions.

I. STANDARD OF REVIEW

{118} Under App.R. 26(A)(1)(a) an aggrieved party may apply for

reconsideration of any cause or motion submitted on appeal. "App.R. 26 does not

provide specific guidelines to be used by an appellate court when determining whether

a decision should be reconsidered or modified." See Heineken USA, Inc. v. Esber

Beverage Co., 5th Dist. Stark No. 2013 CA 00158, 2014-Ohio-946, 1111; State v.

Wheeler, 4th Dist. Wash. No. 04CA1, 2005-Ohio-479, 11 7 ("We begin our review by

noting that App.R. 26(A) does not specify an exact standard against which such a

request should be measured").

23

Washington App. No. 15CA20 4

{119} Nevertheless, "[title test generally applied upon the filing of a motion for

reconsideration is whether the motion calls to the attention of the court an obvious error

in its decision or raises an issue for consideration that was either not considered at all or

was not fully considered by the court when it should have been." State v. Schwab, 4th

Dist. Athens No. 12CA39, 2014-Ohio-336, ¶ 8.

II. LAW AND ANALYSIS

A. Forfeiture of Affirmative Defenses

{1110} We held that the trial court erred in granting summary judgment to the

Heinrich defendants and denying summary judgment to Schultheiss on her complaint.

One of our reasons for our decision was that the Heinrich defendants forfeited their

affirmative defenses of laches and statute of limitations by failing to raise them in their

answer or an amended answer. Schultheiss, 2016-Ohio-121, at 1121-22, citing Jim's

Steak House, Inc. v. Cleveland, 81 Ohio St.3d 18, 20, 688 N.E.2d 596 (1998), and

Klein, Darling, and Terez, Baldwin's Ohio Civil Practice, Section 8:14 ("Affirmative

defenses that are not presented in a responsive pleading pursuant to Civ.R. 8(C), not

presented by motion before pleading [pursuant to Civ.R. 12(B)), or not presented by an

amended pleading pursuant to Civ.R. 15 are waived").

{If 1 1} In their application for reconsideration, the Heinrich defendants assert that

our decision was wrong because Schultheiss never objected to them raising the

affirmative defenses without pleading them, and she actively argued against their

merits. "Although a party generally may not move for summary judgment on a claim for

relief not previously raised in the pleadings, the parties may expressly or impliedly

consent to resolve a new claim for relief by a summary judgment motion." See

24

Washington App. No. 15CA20 5

McGinnis, Inc. v. Lawrence Economic Development Forum, 4th Dist. Lawrence No.

02CA33, 2003-Ohio-6552, ¶ 23, citing Civ.R. 15(B). Civ.R. 15(B) permits the trial court

to allow amendment of the pleadings if "issues not raised by the pleadings are tried by

express or implied consent of the parties." Although the Heinrich defendants did not

raise these defenses in their pleading, they did raise them in their memorandum in

support of summary judgment, and Schultheiss responded to the argument on the

merits without objecting to the procedural defect.

{1112} Because the parties impliedly consented to contesting Heinrich's

affirmative defenses, we agree that we erred in holding that they forfeited them by

failing to plead them. Therefore, we grant the Heinrich defendants' application for

reconsideration for this part of our decision.

B. Application of Laches and Statute of Limitations

{1113} The Heinrich defendants also contest our alternative reason for sustaining

Schultheiss's assignment of error and reversing the judgment of the trial court, i.e. that

the asserted affirmative defenses are inapplicable because the oil and gas lease

expired in accordance with its own express provisions when no oil or gas was produced

from 1979 to 1981 including a two-year period in which not even domestic gas was

produced. However, we reaffirm that rationale here.

{1114} After the expiration of the primary term of the oil and gas lease, if the

conditions of the secondary term are not met, the lease automatically expires. This

occurred here when the File well did not produce oil or gas from 1977 to 1981. "The

terminology utilized in the habendum clause ( [e .g.,] "and as long thereafter as") is

generally construed to create a determinable fee interest, such that the lessee's interest

25

Washington App. No. 15CA20 6

automatically terminates upon lessee's failure to satisfy any of the listed provisions

which would serve to extend the terms of the lease. In such a case, no affirmative

action on the part of a lessor is required to formally terminate the lease; it expires on its

owns terms." (Emphasis added.) Tisdale v. Walla, 11th Dist. Ashtabula No. 94—A-

0008, 1994 WL 738744, *4 (Dec. 23, 1994); see also Am. Energy Servs. v. Lekan, 75

Ohio App.3d 205, 212, 598 N.E.2d 1315 (5th Dist.1992) ("If after the expiration of the

primary term the conditions of the secondary term are not continuing to be met, the

lease terminates by the express terms of the contract herein and by operation of law

and revests the leased estate in the lessor"). Therefore, when the appellees'

predecessors-in-interest failed to meet the conditions of the secondary term of the lease

because there was no production from the File well in 1979 and 1980, the lease

terminated by its own terms; no further action was required by Schultheiss or her

predecessors-in-interest.

{1E15} As a leading oil and gas law treatise has observed, when the lease has

terminated by operation of law, any delay by the lessor in asserting termination of the

lease cannot give life to the affirmative defenses of laches or the statute of limitations:

No cases have been found in which the court has found that the doctrine of laches is a defense to the lessor's claim that a lease has terminated pursuant to the special limitation in the habendum clause. Since the termination of a lease by operation of the limitation provision of the habendum clause is automatic, the lessor's delay in bringing suit appears immaterial. Any defense that the lessor has waived his right to assert termination of the lease would seem inapplicable.

3-6 Williams & Meyers, Oil and Gas Law, Section 604.7 (2014) (emphasis added and

footnotes omitted.)

26

Washington App. No. 15CA20 7

{1116} Courts have adopted this reasoning. "If the term of the lease previously

ended by reason of failure to produce oil in paying quantities, nothing that occurred after

that time would cancel the termination or initiate a new lease." Montana—Fresno Oil Co.

v. Powell, 219 Cal.App.2d 653, 669, 33 Cal.Rptr. 401 (1963); see also Freeman v.

Samedan Oil Corp., 78 S.W.3d 1 (Tex.App.2001), quoting Ladd Petroleum Corp. v.

Eagle Oil & Gas Co., 695 S.W.2d 99, 109 (Tex.App.1985) ("We conclude that 'once a

lease terminates by its own terms, it cannot be ratified or revived.").

{1E17} Similarly, the Fifth District Court of Appeals recently rejected a claim that a

statute of limitations barred lessors' declaratory action to quiet title in their property after

the conditions of the secondary term were breached. Cox v. Kimble, 5th Dist. Guernsey

No. 13 CA 32, 2015—Ohio-2470, 1156-66. The court reasoned that "[w]hen Appellees

failed to drill the second well, they failed to meet the express terms of the [secondary

term] of the habendum clause of the oil and gas lease; therefore, the secondary term of

the lease terminated by its own terms and 60 acres not included in the first well reverted

to Appellants automatically." Id. at 1165. Therefore, the equitable defenses asserted by

appellees do not apply in this context.

f1f181 The oil and gas lease expired in accordance with its own express

provisions when no oil or gas was produced from 1979 to 1981, including a two-year

period in which not even domestic gas was produced. The 1950 oil and gas lease is not

a valid encumbrance on Schultheiss's property.

{1119} In their application for reconsideration the Heinrich defendants complain

about our rationale, asserting that it is a "breathtaking" and "bold assertion" that

engenders an "open season on the oil and gas industry." Yet for all their verbal

27

Washington App. No. 15CA20 8

gymnastics, they cite only a solitary Texas case in support of their claim that our

rationale was erroneous-one that they had not cited in their previous merit brief. By

contrast, our rationale was supported by cases, including a recent Ohio appellate

decision, a leading oil and gas treatise, and the plain language of the oil and gas lease.

{1120} In essence the Heinrich defendants reargue their appeal based upon their

disagreement with our conclusions rejecting their claim. It is well settled that "[a]n

appellate court will not grant an application for reconsideration merely because a party

disagrees with the logic or conclusions of the underlying decision." See, e.g., Open

Container, Ltd. v. CB Richard Ellis, Inc., 10th Dist. Franklin No. 14AP-133, 2015-Ohio-

866, 11 2. That is, "[t]he purpose of reconsideration is not to reargue one's appeal based

on dissatisfaction with the logic used and conclusions reached by an appellate court."

State v. Wellington, 7th Dist. Mahoning No. 14 MA 115, 2015-Ohio-2754, 118.

Therefore, we deny the Heinrich defendants' application for reconsideration insofar as

they challenge our holding that their affirmative defenses are inapplicable.

C. Applicable Statute of Limitations

{1121} Next, the Heinrich defendants challenge our footnote in Schultheiss, 2016-

Ohio-121, in which we opined in dicta that if the statute of limitations were applicable,

the 21-year period in R.C. 2305.04 would be it:

It appears that for Schultheiss's first declaratory judgment claim, which was in the nature of a quiet-title action, the applicable statute of limitations would have been the 21-year period set forth in R.C. 2305.04. See Cox at 1 59-62. Unlike her second claim, which was based on breach of implied covenants, her first claim was not for a breach of contract, but rather to confirm the termination of the lease that had already occurred by its express terms. See Lauer v. Positron Energy Resources, Inc., 4th Dist. Wash. No. 13CA39, 2014—Ohio-4850, fn. 3 ("We have doubts that appellee was required to notify the appellants under paragraph 6 of the lease prior to filing his complaint because the issue presented in his first

28

Washington App. No. 15CA20 9

claim for relief was not one of breach of a condition or covenant, but rather, whether the lease had expired because of the failure to produce gas or oil for two years").

{1122} We already acknowledged that our conclusion that they waived their

affirmative defenses by failing to plead them was erroneous. However, other reasoning

and resulting conclusions, including that the defenses were inapplicable because the oil

and gas lease expired in accordance with its own terms, means that our comment in

footnote one remains dicta. Moreover, the Heinrich defendants' argument against the

substance of the footnote constitutes a mere rehashing of their previous arguments in

their appellees brief. Consequently, this contention is not an appropriate basis for

reconsideration. See Open Container, 2015-Ohio-866, at 112; Wellington, 2015-Ohio-

2754, at 11 8.

{1123} In fact, even if we assume that the affirmative defenses of !aches and

statute of limitations constitute appropriate defenses to a lessor's assertion that an oil

and gas lease has expired by its own terms, they would still not bar Schultheiss's first

declaratory-judgment claim. Schultheiss's acceptance of free domestic gas was a

benefit she would have been equally entitled to both under the oil and gas lease, as

modified by the 1963 assignment, and without the lease—that is, when the lease was

terminated, she was "entitled to 100% of the value of resources taken from [their]

property, and could properly treat [the provision of free domestic gas] as a partial

payment towards the [lessees'] debt." See Bonner Farms, Ltd. v. Fritz, 355 Fed.Appx.

10, 15 (6th Cir.2009). Under these circumstances, by continuing to accept the free

domestic gas Schultheiss did not act inconsistently with the position that the lease

terminated; Schultheiss's conduct neither warranted the application of laches nor

29

Washington App. No. 15CA20 10

contravened any statute of limitations. Compare Sims v. Anderson, 4th Dist. Wash. No.

14CA31, 2015-Ohio-2727, If 24-28, citing Bonner Farms (rejecting a claim that the

lessors' acceptance of royalty payments after an oil and gas lease had terminated was

barred by estoppel because it was not inconsistent with their legal claim since as

owners of the land, they were entitled to at least the royalties, no matter what the

outcome in the case). We reject the Heinrich defendants' contention.

D. Expiration of the Lease

{1124} Finally, the Heinrich defendants attack our finding that during the period

from 1979 through 1980, not even domestic gas was produced. As we noted in

Schultheiss at ¶ 7, "[a]ccording to then-lessee Carl Heinrich's own records, the [Albert

File] well produced no oil or gas from January 1977 through September 1981, and the

well did not produce even domestic gas for the benefit of Schultheiss's predecessors-in-

interest in 1979 and 1980 when the well was shut-in."

{1125} Without citation to any precedent or credible evidence, the Heinrich

defendants baldly assert that "[t]he shutting in of a well does not mean that no domestic

gas is produced" and that "[t]here is simply no evidence to support that [Schultheiss]

was ever deprived of her domestic gas."

{126} The Heinrich defendants' own records established that no oil or gas was

produced from January 1977 through September 1981 and that the well was shut-in in

1979 and 1980. A well that is shut-in is inoperable and is not producing. See

Wuensche/ v. Northwood Energy Corp., 11th Dist. Ashtabula No. 2008-A-0039, 2008-

Ohio-6879, 1154 ("at no time did the state require the wells to be 'shut in,' which would

have indicated nonproduction and that the wells were inoperable"); Webster's New

30

Washihgton App. No. 15CA20 11

Universal Unabridged Dictionary 1774 (2003) (defining "shut-in" as "(of an oil or gas

well) temporarily sealed up" and defining "shut-in well" as "an oil or gas well that has

been closed down"); Black's Law Dictionary 1413-1414 (8th Ed.2004) (defining "shut-in

royalty clause" as "[a] provision in an oil-and-gas lease allowing the lessee to maintain

the lease while there is no production from the property because wells capable of

production are shut in").

{1127} Moreover, insofar as they raise this contention now instead of in their brief,

they are raising a new claim that they could have raised previously, but did not. In this

regard, the Heinrich defendants also now claim that the generalized, conclusory

statement by Carl Heinrich in an affidavit that Schultheiss "has access and have

received unlimited free gas from the File Well for her dwelling as long as Defendants

have owned the File Well" contradicted the cited evidence of their own oil and gas

record. But in their brief, they instead emphasized that "[p]roduction history from thirty-

five (35) years ago is irrelevant to this case" and that it did not matter what statute of

limitations applied to Schultheiss's first declaratory-judgment claim "[biased on the

testimony of Curtis Loken [that] there had been continuous production in paying

quantities from the Lindamood Wells for over twenty-one (21) years, which are located

on the premises described in the Lease." In effect, the Heinrich defendants are

attempting raise a new claim, but reconsideration is not " 'an opportunity to raise new

arguments that a party neglected to make in earlier proceedings.' " See generally

Painter and Pollis, Baldwin's Ohio Appellate Practice, Section 7:33 (2014), quoting

Deutsche Bank Natl. Trust Co. v. Greene, 6th Dist. Erie No. E-10-006, 2011-Ohio-2959,

112; State v. Wellington, 7th Dist. Mahoning No. 14 MA 115, 2015-Ohio-2095, 11 9.

31

Washington App. No. 15CA20 12

{1128} Finally, the affidavit relied on by the Heinrich defendants is a conclusory

one that is insufficient to raise a genuine issue of material fact in light of their own

records establishing that the File well was shut-in in 1979 and 1980. See, generally,

Adkins v. Yamaha Motor Corp., 2014-Ohio-3747, 17 N.E.3d 64, II 17, quoting Moore v.

Smith, 4th Dist. Washington No. 07CA61, 2008-Ohio-7004, 'if 15 (" 'conclusory affidavits

that merely provide legal conclusions or unsupported factual assertions are not proper

under Civ.R. 56(E)' and are insufficient to establish a genuine issue of material fact").

The Heinrich defendants' objection is meritless.

III. CONCLUSION

{1129} Upon reflection, we grant the Heinrich defendants' application for

reconsideration for the part of our decision that held they forfeited their affirmative

defenses of !aches and statute of limitations because they failed to plead them.

Nevertheless, we deny the remainder of their application because they attempt to use

reconsideration to either reargue their claims or raise new arguments that they could

have raised previously, and they have not met their burden of establishing an obvious

error in our decision and judgment.

{1130} Having reconsidered the erroneous part of our decision, but ultimately

rejecting the merits of the remaining arguments contesting our original decision, our

judgment reversing summary judgment for the Heinrich defendant's stands, as does our

judgment in favor of appellant Schultheiss.

APPLICATION FOR RECONSIDERATION GRANTED IN PART AND DENIED IN PART.

Abele, J.: Concurs. McFarland, J.: Concurs in Part (Affirmative Defenses) and

Dissents in Part (Remainder of Entry).

32

Washington App. No. 15CA20 13

For the Court

33

Supreme Court of Ohio Clerk of Court - Filed April 22, 2016 - Case No. 2016-0623

IN THE SUPREME COURT OF OHIO

Patricia J. Schultheiss, On Appeal from the Washington County Court of Appeals,

Appellee, Fourth Appellate District

v. Court of Appeals

Heinrich Enterprises, Inc., et al., Case No. 15 CA 20

Appellants.

NOTICE OF APPEAL OF APPELLANTS, HEINRICH ENTERPRISES, INC., HEINRICH PRODUCTION LLC,

UTICA ASSETS, LLC, AND DEEP ROCK INVESTMENTS, LLC

James S. Huggins (0003320)* *Counsel of Record Daniel P. Corcoran (0083512)

THEISEN BROCK, a legal professional association 424 Second Street Marietta, Ohio 45750 Telephone: 740-373-5455 Facsimile: 740-373-4409 E-mail: huggins@theisenbrock.com

corcoran@theisenbrock.com Counsel for Appellants

Ethan Vessels (0076277)

Fields, Dehmlow & Vessels, LLC 309 Second Street Marietta, Ohio 45750 Telephone: 740-374-5346 Counsel for Appellee

NOTICE OF APPEAL OF APPELLANTS, HEINRICH ENTERPRISES, INC., HEINRICH PRODUCTION LLC,

UTICA ASSETS, LLC, AND DEEP ROCK INVESTMENTS, LLC

Appellants, Heinrich Enterprises, Inc., Heinrich Production LLC, Utica Assets,

LLC, and Deep Rock Investments, LLC, hereby give notice of appeal to the Supreme Court of

Ohio from the Decision and Judgment Entry of the Washington County Court of Appeals, Fourth

Appellate District, in Case No. 15 CA 20 as set forth in the Decision and Judgment Entry entered

on January 12, 2016 and in the Entry Granting in Part and Denying in Part Appellees'

Application for Reconsideration entered on March 11, 2016. Appellants' Application for

Reconsideration was filed on January 21, 2016.

This case is one of public or great general interest.

Respectfully submitted,

/s/ James S. Huggins James S. Huggins (0003320)* *Counsel of Record Daniel P. Corcoran (#0083512) THEISEN BROCK, a legal professional association 424 Second Street Marietta, Ohio 45750 Telephone: (740) 373-5455 Telefax: (740) 373-4409 corcoran@theisenbrock.com huggins@theisenbrock.corn Counsel for Appellants

35

CERTIFICATE OF SERVICE

The undersigned hereby certifies a copy of the foregoing Notice of Appeal was served upon the following parties by sending a copy of same by ordinary U.S. mail, postage pre-paid, on this 22nd day of April, 2016:

Attorney Ethan Vessels Fields, Dehmlow & Vessels, LLC 309 Second Street Marietta, Ohio 45750 Telephone: 740-374-5346 Counsel for Appellee

/s/ Daniel P. Corcoran Daniel P. Corcoran Attorney for Appellants

(377602)

36