Date: 09-26-2001

Case Style: Margaret Hayes, Administratrix of Louisa Hoover and Melvin Hoover v. Equitable Energy Resources Company

Case Number: 00-5201

Judge: Clay

Court: United States Court of Appeals for the Sixth Circuit

Plaintiff's Attorney: Todd B. Portune of Cohen, Todd, Kite & Stanford, L.L.C., Cincinnati, Ohio

Defendant's Attorney: Wayne F. Collier and Shelby C. Kinkead, Jr. of Kinkead & Stilz, Lexington, Kentucky

Description: In this action which was removed pursuant to diversity jurisdiction under 28 U.S.C. §§ 1332 and 1441 et seq., Plaintiffs, Margaret Hayes, et al., appeal from the district court's order awarding Defendant, Equitable Production Company ("Equitable"), f/k/a Equitable Energy Resources Company, summary judgment on Plaintiffs' Kentucky state law claims of breach of contract and trespass, in connection with performance under an oil and gas lease of property located in Kentucky. We AFFIRM the district court's order.

BACKGROUND

On June 26, 1998, the Estate of Louisa and Melvin Hoover, Margaret Hayes, administratrix ("the Estate"), the original Plaintiff in this case, filed its complaint against Equitable in Kentucky state court, which Equitable then removed to federal court. The original complaint named several parties as defendants, including Equitable, and sought damages of royalties and gross values of minerals extracted from several wells under an oil and gas lease ("the Lease"), originally executed on June 6, 1921, and under which Equitable is the current lessee. The original complaint also sought punitive damages in connection with the defendants' alleged misconduct.

On August 3, 1998, Equitable moved to dismiss the original complaint, pursuant to Federal Rules of Civil Procedure 12(b), 12(c), and 56, on, among other grounds, the Estate's failure to state a claim. The Estate replied to Equitable's motion, claiming that the Estate had alleged sufficient facts to state a claim under Rule 12(b), and, alternatively, that material questions of fact existed which precluded an award of summary judgment to Equitable under Rule 56.

The Estate twice amended its complaint, joining several parties as plaintiffs, (the "Hoover Heirs"), all individuals identifying themselves as descendants of Louisa and Melvin Hoover, who obtained title to the oil and gas estates at issue in April of 1911. The Estate also dismissed all corporate defendants aside from Equitable, while adding individual defendants who were also heirs of the Hoover estate. Many of the individual defendants filed a cross-claim against Equitable and certain Hoover Heirs, raising claims parallel to those raised in the second amended complaint. On August 27, 1999, Equitable moved to dismiss the second amended complaint and cross-claim under Rules 12(b), 12(c), and 56.

On October 21, 1999, the district court entered an order granting Equitable's motion to dismiss. The court reached its decision on the following grounds: (1) Equitable did not breach the Lease by withholding royalties due unknown lessors because Equitable was entitled to verify that the royalties were paid to the true owners and was entitled to protect itself from multiple liability; and (2) Plaintiffs' claims regarding Equitable's failure to develop the Lease, and failure to market oil and gas, were unavailing because such implied covenants did not apply to a flat-rate lease. The court also found that the appointment of Margaret Hayes as administratrix of the Estate was contrary to Kentucky law, and that Hayes could only represent herself in the action.

Although the district court characterized Plaintiffs' breach of contract claims in terms of failure "to state facts upon which relief may be granted," the court's ultimate conclusion stated that Plaintiffs had presented "no claim upon which to terminate the [L]ease . . . [that] [n]o genuine issue of material fact exists in this matter, and summary judgment is proper pursuant to Fed. R. Civ. P. 56." (J.A. at 600-01.) The district court then ordered Equitable to deposit with the court all royalty payments held in escrow since 1992 for the Lease, ultimately to be issued to the properly identified Hoover Heirs. On December 3, 1999, the court ordered that the royalties be invested in the Court Registry System.

On November 3, 1999, Plaintiffs sought relief from the October 21, 1999 order pursuant to Rule 60(b), and moved to stay the execution of the order pursuant to Rule 62(b). Plaintiffs argued that the district court's decision under Rule 56 should have been deferred until Plaintiffs were given an opportunity to respond to Equitable's August 27, 1999 motion to dismiss and present additional supporting evidence for their claims. On December 14, 1999, the district court stayed execution of the October 21, 1999 order and allowed Plaintiffs until December 30, 1999, to file a response to Equitable's motion to dismiss. On December 30, 1999, Plaintiffs filed their response, attaching fourteen exhibits. On January 13, 2000, the court denied Plaintiffs' motion for relief from the October 21, 1999 order, finding that Plaintiffs' response contained no additional information. Plaintiffs now appeal.

On July 3 and August 23, 2000, Equitable filed motions to dismiss Woodrow Hoover, James Allen Hoover, Gary Edward Hoover, and Margaret Hayes as administratrix of the Estate of Melvin and Louisa Hoover, as parties to Plaintiffs' appeal. This Court thereafter granted Equitable's motions. Margaret Hayes continues to represent herself as a plaintiff in this action.

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Under Kentucky law, in the event of nonpayment of royalties, a lease at most permits an unpaid lessor to seek to recover a deficiency, rather than forfeit the lease, absent clear language to the contrary. Kelley v. Ivyton Oil & Gas Co., 265 S.W. 309, 311 (Ky. Ct. App. 1924) ("[A] forfeiture of the lease will not be decreed because of arrears of rent or royalty except upon clear language in the lease providing therefor.") Further, Equitable notes, even if the lease permitted a forfeiture, "[t]he least-favored of all forfeitures are those founded upon mere delay in the payment of money." Denniston v. Kenova Oil Co., 220 S.W. 1078, 1080 (Ky. Ct. App. 1920). Plaintiffs offer no authority in support of their claim that, under Kentucky law, mere nonpayment of royalties empowers a lessor to terminate a lease with or without clear language providing for such termination in the lease itself. Accordingly, our analysis will focus on the claim for which Plaintiffs do offer precedential support; namely, that a lessor may terminate a lease upon the lessee's breach of implied covenants to develop property.

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Click the case caption above for the full text of the Court's opinion.

Outcome: Affirmed

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None