In Browne v. Artex Oil Co., Case No. 17 CA 20, the Fifth District recently determined that an action to declare an oil and gas lease terminated due to a lack of production was subject to a breach of contract statute of limitations period of either eight or fifteen years (for more, see here). On August 2, 2018, the Fifth District determined that its ruling in Browne was in direct conflict with a decision from the Fourth Appellate District in Rudolph v. Viking International Resources Co., No. 15CA26, 2017-Ohio-7369 (which applied a 21-year statute of limitations applicable to adverse possession claims), and thus certified the question of the appropriate statute of limitations to the Supreme Court of Ohio (see here). The Supreme Court has yet to take the case up on appeal, but if it does, we will be sure to report back.
On June 29, 2018, USEPA issued a supplemental notice of proposed rulemaking (the “Supplemental Notice”) to its July 2017 proposed action to repeal the 2015 definition of “waters of the United States” adopted under the Obama Administration. The Supplemental Notice includes additional justification for the repeal of the 2015 definition, and also clarifies that USEPA is still seeking to repeal the entirety of the 2015 definition as step one in a two-step process. The second step, yet to be initiated, will be to adopt a new regulatory definition for waters of the United States based on Justice Scalia’s opinion in the Rapanos plurality opinion.
The 2015 definition has yet to go into effect due to a combination of court-issued stays, and, more recently, USEPA’s promulgation of a final rule adding an effective date to the 2015 definition which delays its effectiveness until 2020. This effective date delay rulemaking is currently under legal challenge by a variety of states and environmental groups, as is the 2015 definition itself being challenged in court by a different group of states as well as industry groups.
Given the volume and variety of litigation that has already occurred surrounding the definition of waters of the United States, any final rulemaking repealing the 2015 definition will almost assuredly be subject to additional litigation. The Supplemental Notice may represent USEPA’s effort to provide better support for a future final rule to withstand any such challenge.
USEPA is accepting additional comments on the Supplemental Notice for 30 days following its publication in the Federal Register, until August 13, 2018. Comments can be submitted under Docket ID No. EPA-HQ-OW-2017-0203 at https://www.regulations.gov/.
On June 13, 2018, a federal district court rejected a takings challenge to a unit order issued by the Ohio Division of Oil and Gas Resources Management under the state’s statutory unitization law, R.C. 1509.28 The court found that “the statutory unitization procedure set forth in R.C. § 1509.28 operates to protect the correlative rights of landowners….and it was passed as a valid exercise of Ohio’s police power.” See Kerns v. Chesapeake Exploration, LLC , N.D. Ohio No. 5:18 CV 389 (June 13, 2018). Although the constitutionality of statutory unitization or its analog, mandatory pooling, is well-settled nationwide, Kerns is the first decision to squarely consider Ohio’s unitization law.
Click here to read the decision.
[Disclosure: Vorys represented Chesapeake Exploration, LLC in this case].
A newly filed collective action in Ohio federal court against an oil and gas company highlights the importance of wage-hour law compliance and the potential ramifications for failing to do so. The case, Casarez v. Producers Service Corp., pending in the U.S. District Court for the Southern District of Ohio, involves the proper calculation of overtime compensation for employees paid under a “Belo” plan. Read more about this case in our Client Alert.
On June 1, 2018, the Pennsylvania Supreme Court upheld most of the provisions of an injunction issued by the Commonwealth Court in 2016 preliminarily enjoining the Department of Environmental Protection (the “DEP”) from enforcing various regulations relating to unconventional natural gas operations (see Marcellus Shale Coalition v. Pa. Dep’t of Envtl. Prot., Case No. 115 MAP 2016). The disputed regulations, published in 25 Pa. Code ch. 78a, pertain to the following:
- operators’ pre-permitting notice obligations relating to certain public resources;
- operators’ obligations relative to monitoring and remediating nearby wells;
- upgrading or closing of existing well development impoundments;
- re-permitting or closing of existing centralized impoundments; and,
- the imposition of erosion and sediment control measure requirements pertaining to site restoration which are potentially exempted under the Clean Streams Law.
The Court agreed that the Commonwealth Court did not err in issuing its temporary preliminary injunction. However, with respect to the contested regulations relating to existing well-development impoundments and the purported abrogation of an exemption under the Clean Streams Law, the Court concluded that the Marcellus Shale Coalition had not carried its burden to demonstrate a clear right to relief and, as such, reversed the grant of preliminary injunctive relief while the lower court continues to consider the case on its merits.
On June 1, 2018, the Pennsylvania Supreme Court, in a 4 to 3 decision, held that, without first establishing a sufficient evidentiary record, a Township cannot permit oil and gas drilling in a zoning district unless that use is specifically authorized by the municipal zoning ordinance. In Gorsline v. Fairfield Twp. Board of Supervisors, the Court stated that because the applicable zoning ordinance did not expressly authorize gas wells in any of the township’s zoning districts and the gas company failed to develop a factual record related to “similarity of use,” natural gas drilling cannot be presumed to be a permitted use within the township. The Court held that, in order to permit oil and gas drilling, Fairfield Township must change its zoning ordinance to permit drilling in designated areas and set forth “whatever limitations and conditions it decides are appropriate for the protection of its citizenry.” What limitations and conditions the members of the Court deem necessary and appropriate have not yet been determined; however, that issue may be resolved in a pending case wherein the Court is reviewing the constitutional validity of the zoning ordinance of Allegheny Township, Westmoreland County. Stay tuned for details!
In Browne v. Artex (May 31, 2018), Ohio’s Fifth District Court of Appeals held that a claim that an oil and gas lease expired for lack of production is governed by Ohio’s statute of limitation for contract claims—not the state’s longer statute of limitations for recovery of possession of real property.
In Browne, the plaintiffs alleged that their oil and gas lease had lapsed for lack of production from 1981-1999. The defendant-lessee asserted that plaintiffs’ claims were barred by Ohio’s statute of limitations for contract claims in R.C. 2305.06 (which, prior to being amended in September 2012, provided for a 15-year limitations period). Plaintiffs disagreed, contending that the applicable limitations period was 21-years under R.C. 2305.04, relating to the recovery of possession of real property.
The trial court agreed with the lessee and the court of appeals affirmed. Quoting the Supreme Court of Ohio, the court of appeals noted that “courts must look to the actual nature or subject matter of the case, rather than to the form in which the action is pleaded.” Here, “[a] review of the complaint reveals the ‘actual nature or subject matter of the case’ is a dispute over the written terms of the lease agreement,” and specifically, the lease’s habendum clause. Therefore, the proper limitations period was set by Ohio’s statute of limitations for contract claims, the appellate court found.
Click here to read the decision.
[Disclosure: Vorys represented amicus curiae The Ohio Oil & Gas Association in this case].
On May 25, 2018, the United States Court of Appeals for the Second Circuit upheld a district court’s decision that Sabine Oil & Gas Corporation could reject certain gathering service agreements in bankruptcy. The agreements, with Nordheim Eagle Ford Gathering, LLC, provided that Nordheim would supply Sabine with certain gathering, transportation and treatment services for Sabine’s natural gas and condensate production. The Court of Appeals determined that the agreements were not “real covenants that run with the land,” and therefore, could be rejected in bankruptcy as executory contracts. Under Texas law, horizontal privity was required for a covenant to run with the land—i.e., “there must have been some common interest in the land other than the purported covenant itself at the time it was executed.” That was not the case here, the court found. Nor was the horizontal privity requirement satisfied by a separate agreement between Sabine and Nordheim providing for the conveyance of a pipeline easement and a separate parcel of land. As a result, the agreements could be rejected in bankruptcy.
Click here to read the decision.
On May 1, 2018, a federal judge for the U.S. District Court for the District of North Dakota affirmed a Magistrate’s decision to lift the stay on a group of 13 States’ lawsuit challenging U.S EPA’s the Army Corps’ 2015 rule defining “waters of the United States” (“WOTUS”) under the Clean Water Act. The Court stayed the case in May 2016 in light of the Sixth Circuit’s decision that exclusive jurisdiction to review the 2015 WOTUS Rule rests in the courts of appeal under the Clean Water Act’s judicial review provision. However, the U.S. Supreme Court reversed the Sixth Circuit’s decision on January 22, 2018, and ordered all lawsuits challenging the WOTUS Rule be filed in the federal District Courts.
Following the Supreme Court’s directive, a Magistrate Judge granted a motion filed by 7 of the 13 states to the lift the Court’s stay of the proceedings. U.S. EPA and the Army Corps challenged the Magistrate’s decision, but the Chief Judge for the Court affirmed the Magistrate’s decision. The Chief Judge noted that “it is especially telling that the Supreme Court rejected a stay of proceeding based upon the prospect of additional rulemaking . . . [and] such a possibility does not insulate the Defendants from challenges to the original rule while the original rule remains in place.”
On April 30, 2018, the U.S. District Court for the District of Wyoming denied a motion to stay its April 4, 2018 order staying the phase-in implementation provisions of the Bureau of Land Management’s (BLM) Waste Prevention Rule, pending an appeal of the Court’s April 4th order filed by various environmental groups, California and New Mexico. The Court denied the motion, holding “Intervenor-Respondents have not met their burden of showing the circumstances here warrant a stay pending their appeal of this Court’s order.” The Court explained that “a stay of the phase-in provisions is necessary to preserve the status quo and to prevent irreparable injury pending these review proceedings” while the BLM reconsiders the Waste Prevention Rule. The Court also clarified that its April 4th order only applies to the phase-in provisions of the Waste Prevention Rule.