Tera II, LLC v. Rice Drilling D, LLC

679 F.Supp.3d 620

TERA II, LLC, et al., Plaintiffs, v. RICE DRILLING D, LLC, et al., Defendants.

Case No. 2:19-cv-2221

United States District Court, S.D. Ohio, Eastern Division

Signed June 28, 2023

Charles Herbert Bean, Thornburg Bean & Glick, St. Clairsville, OH, Craig J. Wilson, C.J. Wilson Law, LLC, Hilliard, OH, Elizabeth L. Glick, Thornburg, Bean & Glick, St. Clairsville, OH, Richard Allen Myser, Thomas, Fregiato, Myser & Hanson, Bridgeport, OH, for Plaintiffs.

John Kevin West, John C. Ferrell, Steptoe & Johnson PLLC, Columbus, OH, Nicolle Snyder Bagnell, Reed Smith, Pittsburgh, PA, Anna G. Rotman, Pro Hac Vice, Dustin Womack, Pro Hac Vice, Kenneth A. Young, Pro Hac Vice, Kirkland & Ellis LLP, Houston, TX, Grace C. Brier, Pro Hac Vice, Kirkland & Ellis, Washington D.C., DC, Melanie Morgan Norris, Steptoe & Johnson PLLC, Wheeling, WV, Ragan Naresh, Pro Hac Vice, Kirkland & Ellis LLP, Washington, DC, for Defendant Rice Drilling D, LLC.

Daniel Donovan, Kirkland & Ellis LLP, Washington, DC, John Kevin West, John C. Ferrell, Steptoe & Johnson PLLC, Columbus, OH, Melanie Morgan Norris, Steptoe & Johnson PLLC, Wheeling, WV, for Defendant Gulfport Energy Corporation.

Nicolle Snyder Bagnell, Emily A. Davis, Pro Hac Vice, Lucas Liben, Pro Hac Vice, Reed Smith LLP, Pittsburgh, PA, Peter M. Ellis, Reed Smith LLP, Chicago, IL, for Defendant Ascent Resources - Utica LLC.

John Kevin West, Steptoe & Johnson PLLC, Columbus, OH, Daniel Donovan, Kirkland & Ellis LLP, Washington, DC, for Defendant Gulfport Appalachia, LLC.

OPINION & ORDER

ALGENON L. MARBLEY, CHIEF UNITED STATES DISTRICT JUDGE

This matter comes before this Court on Plaintiffs' Motions for Partial Summary Judgment (ECF Nos. 145; 386) and Defendants' Motions for Summary Judgment (ECF Nos. 387; 388; 389; 393; 394; 477). Former Defendants XTO Energy, Inc. and Phillips Exploration LLC's Motion for Summary Judgment (ECF No. 392) is DENIED AS MOOT because they have been dismissed with prejudice. (ECF No. 417). For the reasons set forth infra, this Court rules as follows:

• Threshold Matters:

• Plaintiffs' First Motion for Partial Summary Judgment is NOT moot; Defendants' Motion is DENIED.

• Plaintiffs' Motion to use offensive non-mutual collateral estoppel is DENIED.

• Defendant Ascent Resources - Utica, LLC's ("Ascent") Motion on application of Joint Venture Theory of Liability:

• GRANTED for Ascent, DENIED for Plaintiffs: Gold Digger, Son-Uva, Big Foot 7, Dorsey East, Skyhawk 3 Units.

• DENIED for Ascent, GRANTED for Plaintiffs: Gold Digger South 3 and South 4 Units.

• DENIED for both Ascent and Plaintiffs: Snodgrass Unit.

• Potential period of liability under Joint Venture Theory: DENIED for both parties.

• Defendant Gulfport Energy Corporation and Gulfport Appalachia, LLC's (together "Gulfport") Motion for Summary Judgment for all damages prior to May 17, 2021 is GRANTED.

• COUNT I - Declaratory Judgment: DENIED for all parties.

• COUNT II - Trespass: GRANTED in part, DENIED in part for Defendants; DENIED for Plaintiffs.

• COUNTS III & IV - Conversion & Unjust Enrichment: DENIED for Plaintiffs; GRANTED in part for Defendants as related to application of the rule of capture and DENIED in part for remainder of argument for Defendants.

• COUNT V - Fees: Defendant's Motion for Summary Judgment is DENIED.

• COUNT VI - Breach of Contract: Plaintiffs' Motion is DENIED; Defendants Rice Drilling D, LLC's ("Rice") Motion is GRANTED; Defendant Gulfport's Motion is GRANTED in part and DENIED in part.

• Affirmative defenses: Plaintiffs' Motion is DENIED as to all affirmative defenses.

I. BACKGROUND

A. Factual Background

Plaintiffs TERA II, LLC ("TERA II"), TERA III Honza, LLC ("TERA III"), TERA IV, LLC ("TERA IV"), Thomas and Jeannine Shaw, Joyce Chambers, and Donald Scott Harvey own oil and gas rights in Belmont County, Ohio. (ECF No. 302; ¶¶ 1-7, 41). On December 31, 2013, Defendant Rice leased Plaintiffs' property for the development of oil and gas. (Id.; ¶¶ 32-40). Rice assigned its leases with TERA II to Defendant Ascent, who in turn assigned a partial interest to Defendant Gulfport Energy. (ECF No. 64 at 1-2). Rice allowed Gulfport and Ascent to drill horizontal wells on TERA II, TERA III, and TERA IV's properties, and entered into an agreement with Gulfport to develop Plaintiff Thomas Shaw and Joyce Chambers' property. (ECF Nos. 64 at 1 - 2; 302, ¶ 45). Defendants own interests in the respective wells and benefit from the sale of any oil, gas, and other hydrocarbons produced from these wells. (ECF No. 64 at 2).

Plaintiffs' property is spread across ten pooled units. Under Ohio law, landowners can pool together adjoining properties to form a single drilling unit, and all production of oil and gas from anywhere in the unit is considered produced from the unit as a whole no matter where the well was drilled. See OHIO REV. CODE §§ 1509.26-.27. Defendants allocate royalties from the sale of oil and gas from any well drilled in that pooled unit based on the percentage of total acreage a landowner holds in the pooled unit. J&R Passmore, LLC, No. 2:18-cv-1587, 2023 WL 2667749, at *3 (S.D. Ohio Mar. 28, 2023).

Ascent argues that their involvement in this case is limited, because they only have a working interest in one of the Shaw/Harvey leases that covers less than 8.5 acres and contains two parcels of land, both of which have been included in the Coleman RCH BL and Ross SE RCH BL Units—Ascent-operated pools. (ECF No. 388 at 5). Ascent represents that the three wellbores in the Coleman Unit do not traverse the Shaw/Harvey property and only one wellbore in the Ross Unit may traverse the property. (Id.). As demonstrated more fully below, however, Ascent did have interests in other units while wells in those units were drilled and/or production was ongoing.

Plaintiffs allege that Rice, Gulfport, and Ascent have infringed on Plaintiffs' mineral rights by drilling on property that they are not entitled to drill, outside of the terms of the leases. (ECF No. 64 at 3). The Granting Clause states:

Lessor . . . leases and lets exclusively to the Lessee all the oil, gas, minerals and their constituents (not including coal) in the formations commonly known as the Marcellus Shale and the Utica Shale.

(ECF No. 302; ¶ 50). The Reservation Clause states:

Lessor specifically reserves the rights to all products contained in any formation . . . and (3) in all formations below the base of the Utica Shale.

(Id.; ¶ 51). Plaintiffs allege that Defendants are permitted only to drill the Marcellus and Utica Shale formations, and that Defendants have gone beyond the terms of the leases by drilling into and producing from the Point Pleasant formation below the Utica Shale. (ECF No. 64 at 3). While Defendants agree that the Utica Shale and Point Pleasant formations are distinct geologically, they argue that the Utica Shale is commonly understood in the oil and gas industry to include the Point Pleasant; therefore, they have a right to drill there. (ECF No. 407 at 4).

Of note, Rice began leasing oil and gas interests in Belmont County in 2010 as part of a separate negotiation with the Smith-Goshen Group, a group of Belmont County landowners represented by Larry Cain. (ECF No. 389 at 13). Both Larry Cain and Toby Rice, then-COO of Rice and current CEO of EQT (Rice's parent company), have testified in deposition that when they negotiated the Smith-Goshen leases with the at-issue Reservation Clause, they intended the Point Pleasant to be included in the term "commonly known as the Utica Shale." (Id. at 14). While the Plaintiffs in this case allege that they were not members of the Smith-Goshen Group, they attended meetings with the Smith-Goshen Group and did not change the pertinent Reservation Clause language used in the Cain and Rice negotiations when drafting their own leases. (Id. at 16).

Plaintiffs bring six causes of action: (1) a declaratory judgment that the Utica Shale and Point Pleasant formations are distinct, and that Defendants do not have a right to produce from below the Utica Shale; (2) willful trespass;¹ (3) conversion; (4) unjust enrichment; (5) all litigation fees; and in the alternative (6) breach of contract against Rice and Gulfport for underpayment of royalties. (ECF No. 302, ¶¶ 105-55).

B. Procedural Background

On April 25, 2019, Plaintiffs filed suit in the Belmont County Court of Common Pleas seeking a declaratory judgment regarding their rights under the leases and alleging trespass, conversion, and unjust enrichment. (ECF No. 64 at 3). On May 28, 2019, Rice timely removed this action to this Court. (ECF No. 1). The parties proceeded through motions to dismiss and discovery, and one Plaintiff and two defendants were dismissed. On July 28, 2020, this Court granted Plaintiffs leave to amend their complaint to add an alternative claim for breach of contract (Count VI) against Rice and Gulfport. (ECF No. 153). On July 1, 2021, Gulfport Appalachia, LLC (hereinafter Gulfport Energy Corporation and Gulfport Appalachia, LLC are "Gulfport") was added as a Defendant, resulting in the current composition of the parties. (ECF No. 243).

Plaintiffs filed two Motions for Partial Summary Judgment on Counts I-IV and VI. (ECF Nos. 145; 386). Defendants filed several Motions for Summary Judgment. (ECF Nos. 387; 388; 389; 393; 394; 477). The parties timely responded and replied. Oral argument on the motions was held, and this matter is now ripe for review.

II. STANDARD OF REVIEW

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Maben v. Thelen, 887 F.3d 252, 258 (6th Cir. 2018). This Court's function at the summary judgment stage is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). This Court then asks "whether 'the...