Fracking Decision

7/23/2019 Fracking Decision

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124897cv

Beardsleev.InflectionEnergy,LLC

United States Court of Appeals

FOR

THE

SECOND

CIRCUIT

______________

AugustTerm,2013

(Argued: August22,2013 QuestionCertified:July31,2014

CertifiedQuestionAnswered:March31,2015 Decided:August19,2015)

No.124897cv

_________________

WALTERR.BEARDSLEE,INDIVIDUALLYANDASCOTRUSTEEOFTHEDRUSILLAW.

BEARDSLEEFAMILYTRUST,ANDREAR.MENZIES,ASCOTRUSTEEOFTHEDRUSILLA

W.BEARDSLEEFAMILYTRUST,JOHNA.BEARDSLEE,ASCOTRUSTEEOFTHE

DRUSILLAW.BEARDSLEEFAMILYTRUST,PHYLLISL.BENSON,ELIZABETHA.

BEARDSLEE,LYNDAB.COCCIA,NATHANJ.DONNELLY,CAROLYNB.DONNELLY,

KEVINP.DONNELLY,ROSEANNDONNELLY,MARIES.DONNELLY,WILLIAMJ.

HANER,

JOSEPH

HANER,

JAMES

HANER,

MARGARET

LAWTON,

GLEN

MARTIN,

LYNN

M.MARTIN,JOSEPHE.MCTAMNEY,B.LOUISEMCTAMNEY,BONNIED.MEAD,R.

DEWEYMEAD,WAYNER.MIDDENDORF,CYNTHIAL.MIDDENDORF,FLOYDE.

MOSHER,JR.,LESAD.MOSHER,AKALESAHUNTINGTON,MOUNTAINPARADISE

CLUBNY31LLC,JAMESW.REYNOLDS,ASTRUSTEEOFTHEJAMESW.REYNOLDS

TRUST,MARYA.PFEILELLIS,KERRYK.ELLIS,PAULR.SALAMIDA,PAULINEM.

SALAMIDA,GARYD.SHAY,BONITAK.SHAY,BRADA.VARGASON,

PlaintiffsCounterDefendantsAppellees,

v.

INFLECTIONENERGY,LLC,VICTORYENERGYCORPORATION,MEGAENERGY,INC.,

DefendantsCounterClaimantsAppellants.


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Before :

WINTER,WESLEY,ANDCARNEY,CircuitJudges.

_________________

AppealfromadecisionoftheUnitedStatesDistrictCourtfortheNorthern

DistrictofNewYork(DavidN.Hurd,Judge)grantingthemotionoflandowner

lessorsforsummaryjudgmentanddenyingthecrossmotionforsummary

judgmentoftheirlessees,variousenergycompanies. TheDistrictCourt

concludedthatthepartiesoilandgasleaseshadexpiredbytheirtermsandthat

theleasesforcemajeureclausesdidnotextendtheleasesprimaryterms.We

certifiedtotheNewYorkCourtofAppealstwoquestions:(1)whetherNew

Yorksmoratoriumonhighvolumehydraulicfracturing(commonlyknownas

fracking)was

aforce

majeure

event

under

the

leases;

and

(2)

whether

the

force

majeureclausemodifiedtheleaseshabendumclauseandextendedtheirprimary

terms. TheCourtofAppealsansweredthesecondofthosetwoquestions,

concludingthattheforcemajeureclausedidnotservetomodifytheprimary

termsoftheleases,anddeclinedaccordinglytoanswerthefirst. ApplyingNew

YorklawasnewlyarticulatedbytheCourtofAppeals,weAFFIRMthe

judgmentoftheDistrictCourt.

THOMASS.WEST,TheWestFirm,PLLC,Albany,

NY,forDefendantsCounterClaimantsAppellants

InflectionEnergy,LLC,etal.

ROBERTR.JONES(PeterH.Bouman,onthebrief),

Coughlin&Gerhart,LLP,Binghamton,NY,for

PlaintiffsCounterDefendantsAppelleesWalterR.

Beardslee,etal.

WALTERP.LOUGHLIN(Walter

A.

Bunt,

Jr.,

Bryan

D.Rohm,onthebrief),K&LGatesLLP,NewYork,

NY,forAmicusCuriaeMarcellusShaleCoalition.


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PERCURIAM:

InflectionEnergy,

LLC

(Inflection),

Victory

Energy

Corporation,

and

Megaenergy,Inc.(collectively,theEnergyCompanies)appealfromtheDistrict

CourtsordergrantingsummaryjudgmenttoWalterandElizabethBeardslee

andoverthirtyotherlandowners(collectively,theLandowners),anddenying

summaryjudgmenttotheEnergyCompanies. SeeBeardsleev.InflectionEnergy,

LLC(BeardsleeI),904F.Supp.2d213(N.D.N.Y.2012). Becausethiscaseraises

significantandnovelquestionsofNewYorkoilandgaslaw,wecertifiedtwo

questionstotheNewYorkCourtofAppeals. ApplyingNewYorklawas

articulatedbytheCourtofAppealsinitsopinionaddressingthosecertified

questions,wenowaffirmthejudgmentoftheDistrictCourt.

WeassumethereadersfamiliaritywiththeDistrictCourtsopinion;our

certificationopinion,Beardsleev.InflectionEnergy,LLC(BeardsleeII),761F.3d221

(2dCir.2014);andtherelateddecisionoftheNewYorkCourtofAppeals,

Beardsleev.

Inflection

Energy,

LLC

(Beardslee

III),

25

N.Y.3d

150

(Mar.

31,

2015),

rehgdenied,2015WL3951961(N.Y.June30,2015).Werestatebrieflythemost

salientfacts.


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I. FactualBackground

Beginningin2001,theLandownersenteredintocertainoilandgasleases

(the

Leases)

with

the

Energy

Companies,

granting

the

Energy

Companies

rightstoextractoilandgasunderlyingtheLandownersrealpropertyinTioga

County,NewYork. EachoftheLeasescontainsanidenticalhabendum

clause.1 ThisclauseestablishestheperiodduringwhichtheEnergyCompanies

mayexercisethedrillingrightsgrantedbytheLease. Theclauseprovides:

Itisagreedthatthisleaseshallremaininforceforaprimary

term of FIVE (5) years from the date hereof and as long

thereafter as the said land is operated by Lessee in the

productionofoilorgas.

Appx321. Thehabendumclausethusestablishesbothafiveyearprimary

termandasecondarytermlastingaslongastheEnergyCompaniescontinueto

extractoilandgasfromtheland.

Inaddition,eachLeasecontainswhatthepartiesrefertoasaforcemajeure

clause,whichspeakstotheeffectofdelaysandinterruptionsindrilling. That

clauseprovides,inrelevantpart:

Ifandwhendrilling . . .[is]delayedorinterrupted . . .asa

resultofsomeorder,rule,regulation . . .ornecessityofthe

1Ahabendumclause,whichistypicallyfoundinstandardoilandgasleasessuchasthoseat

issuehere,isusedtofixthedurationofsuchalease. Wiserv.EnervestOperating,L.L.C.,803F.

Supp.2d109,113n.3(N.D.N.Y.2011).


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government,oras theresultofanyothercausewhatsoever

beyond the control of Lessee, the time of such delay or

interruptionshallnotbecountedagainstLessee,anythingin

this lease to the contrary notwithstanding. All express or

impliedcovenants

of

this

lease

shall

be

subject

to

all

Federal

andStateLaws,ExecutiveOrders,RulesorRegulations,and

this lease shallnotbe terminated, inwhole or inpart,nor

Lessee held liable in damages for failure to comply

therewith,ifcomplianceispreventedby,orifsuchfailureis

theresultofanysuchLaw,Order,RuleorRegulation.

Appx336.

OnJuly

23,

2008,

then

Governor

David

Paterson

ordered

formal

public

environmentalreviewtoaddresstheimpactofcombineduseofhighvolume

hydraulicfracturing(HVHF)(commonlyknownasfracking)andhorizontal

drilling. BeardsleeIII,25N.Y.3dat154. Inparticular,hedirectedtheNewYork

StateDepartmentofEnvironmentalConservation(DEC)toupdateand

supplementits...genericenvironmentalimpactstatement(GEIS)on

conventionaloilandgasexploration. Id. Accordingly,in2009theDECissueda

draftsupplementalGEIS(SGEIS). Seeid.at155. Thefollowingyear,on

December13,2010,GovernorPatersoninstructedtheDECtorevisethedraft

SGEIStoaddresscomprehensivelytheenvironmentalimpactsassociatedwith

[HVHF]combinedwithhorizontaldrilling. Id.(quotingN.Y.Comp.CodesR.&

Regs.tit.9,7.41). GovernorPatersonalsomandatedthenthattheDECissueno


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permitsforHVHFbeforethecompletionofafinalSGEIS. Seeid. InBeardsleeIII,

theNewYorkCourtofAppealsdescribedGovernorPatersons2010ordersas

imposingastatewide

moratorium

on

[HVHF]

combined

with

horizontal

drilling. Id.at155n.4(quotingWallachv.TownofDryden,23N.Y.3d728,740

n.1(2014)).2

II. ProceduralHistory

In2010,InflectionsentnoticesofextensiontothoseLandownerswith

whomithadcontracted,assertingthatNewYorksregulatoryactionsconstituted

aforcemajeureeventundertheLeasesandthusextendedtheLeasesprimary

terms. OnFebruary8,2012,theLandownersfiledthisdeclaratoryactionagainst

theEnergyCompaniesintheUnitedStatesDistrictCourtfortheNorthern

Districtof

New

York,

seeking

aruling

that

the

Leases

primary

terms

had

not

beenextendedandtheLeaseshadinsteadexpiredattheconclusionofthose

terms. TheEnergyCompaniescounterclaimed,reassertingthepositionfirst

takenbyInflectioninthe2010notices.

2InJune2015,threemonthsafterBeardsleeIIIissued,theDECconcludeditsreviewofHVHF

andannouncedthatitwillnotestablishahighvolumehydraulicfracturingpermitting

program;thatnoindividualorsitespecificpermitapplications...willbeprocessed;andthat

highvolumehydraulicfracturingwillbeprohibitedinNewYorkState. FindingsStatement,

FinalSupplementalGenericEnvironmentalImpactStatementontheOil,GasandSolutionMining

RegulatoryProgram,at41(June29,2015),availableat

http://www.dec.ny.gov/docs/materials_minerals_pdf/findingstatehvhf62015.pdf.


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Thepartieseachmovedforsummaryjudgment. TheDistrictCourt

grantedtheLandownersmotionanddeniedtheEnergyCompaniescross

motion,concluding

that

the

force

majeure

clause

did

not

operate

to

extend

the

Leases. SeeBeardsleeI,904F.Supp.2dat22021. TheEnergyCompaniestimely

appealed.

III. OurCertificationOpinionandtheNewYorkCourtofAppeals

Answer

Becausethis

appeal

turns

on

significant

and

novel

issues

of

New

York

lawconcerningtheinterpretationofoilandgasleases,alegalfieldthatisboth

relativelyundevelopedintheStateandofpotentiallygreatcommercialand

environmentalsignificancetoStateresidentsandbusinesses,BeardsleeII,761

F.3dat224,wecertifiedthefollowingtwoquestionstotheNewYorkCourtof

Appeals:

1. UnderNewYorklaw,andinthecontextofanoil

andgas lease,did theStatesMoratoriumamount toa

forcemajeureevent?

2. If so, does the force majeure clause modify the

habendum

clause

and

extend

the

primary

terms

of

the

leases?

Id.at232.


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TheCourtofAppealsbeganbyansweringthesecondcertifiedquestion.

ConstruingtheLeaseswithreferencetoboththeintentionofthepartiesandthe

knownpractices

within

the

industry,

the

court

concluded

that

the

force

majeure

clausedoesnotmodifytheprimarytermofthehabendumclauseand,

therefore,doesnotextendtheleases. BeardsleeIII,25N.Y.3dat157. Itthen

declinedtoanswerthefirstquestion,whichitsanswertothesecondhad

renderedacademic.

InconstruingtheLeases,theCourtofAppealsobserved,first,thatthe

habendumclausedoesnotincorporatetheforcemajeureclauseeitherexplicitlyor

byreference. Seeid.at15758. Second,thecourtrejectedtheEnergyCompanies

argumentthatthehabendumclausewasmodifiedbytheforcemajeureclauses

provisionthatthetimeofsuchdelayorinterruptionshallnotbecounted

againstLessee,anythinginthisleasetothecontrarynotwithstanding. The

courtexplainedthattheforcemajeureclausedoesnotconflictwiththe

provisionsoftheprimarytermofthehabendumclauseandsohasnobearing

onthat

term.

Id.

at

158

59.


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IV. Application

HavingreceivedadefinitivestatementofNewYorklawfromtheCourtof

Appeals,

we

now

apply

that

law

in

reviewing

the

District

Courts

judgment.3

We

reviewdenovoanordergrantingsummaryjudgment. SeeWestinghouseCredit

Corp.v.DUrso,278F.3d138,145(2dCir.2002). Summaryjudgmentinfavorof

themovingpartyisproperifthemovantshowsthatthereisnogenuinedispute

astoanymaterialfactandthemovantisentitledtojudgmentasamatterof

law. Fed.R.Civ.P.56(a).

UnderNewYorklaw,astheCourtofAppealshasexplained,theLeases

forcemajeureclausedoesnotmodifythehabendumclause.Whetherornotthe

moratoriumonHVHFandhorizontaldrillingqualifiesasaforcemajeureevent,

then,it

did

not

operate

to

extend

the

Leases

primary

terms.

Accordingly,

becauseweperceivenofactualdisputesmaterialtothelegalquestionpresented,

weconcludethattheDistrictCourtcorrectlygrantedsummaryjudgmentin

3In

asubmission

filed

in

our

Court

after

the

New

York

Court

of

Appeals

decision

in

this

case,

theEnergyCompaniesurgeusnottofollowBeardsleeIII,advancingtheargumentthatthe

CourtofAppealsmisquotedtheLeaseslanguageandmisappliedNewYorklaw. Thosesame

argumentswerepresentedtotheCourtofAppealsintheEnergyCompaniesmotionfor

reargumentthereamotionthatthecourtdenied. See2015WL3951961(N.Y.June30,2015).

Here,wenotethattheCourtofAppealsdidnotmisquotetheLeases.Moreover,wewillnot

secondguessthecourtsinterpretationandapplicationofNewYorklaw. SeeErieR.Co.v.

Tompkins,304U.S.64,7880(1938).


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favoroftheLandownersanddeniedDefendantscrossmotionforsummary

judgment.

CONCLUSION

Forthereasonsdiscussedabove,weAFFIRMthejudgmentoftheDistrict

Court.

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