Carroll and Columbiana County Residents Respond to Chesapeake Lawsuit

We previously reported on a lawsuit filed by Chesapeake against 95 landowners in Carroll and Columbiana counties (Chesapeake Exploration, L.L.C., et al., vs. Catlett Quality Plumbing & Heating, Inc., et al.) in response to the landowners intention to break their lease because they had received a third party offer.

The lawyers for the landowners filed a memorandum in the United States District Court for the Northern District of Ohio on April 30th which outlines the argument of the landowners.  The Daily Digger has obtained a copy of this memorandum.  Here is a summary.

The landowners (the defendants) attempted to exercise a clause in their lease - originally signed with Anschutz Exploration - which allows them to obtain a bone fide, third-party offer for a new lease during the primary term of their lease with Chesapeake (the plaintiffs).  Upon receiving a third-party offer the lessors (landowners) are required to notify the lessee (Chesapeake) in writing within 30 days and provide the opportunity for them to match the new offer.  All of this took place when Torchlight Energy, Inc. approached the lessors and offered them a better value for their land.  The offer was forwarded to Chesapeake in writing, and they chose not to match the offer.  The landowners thus are seeking to sign the new leases with Torchlight.

Chesapeake filed a complaint for declaratory judgment on January 25, the defendants responded on February 17 with an answer and counterclaim.  Then Chesapeake filed a motion for summary judgement on March 8, and the document we have obtained is the defendants' response.

The dispute basically comes down to paragraph 14 of the lease agreements between the defendants and Anschutz.  That paragraph states:
Preferential Right to Renew. If, at any time during the primary term hereof, or within one (1) year from the expiration, cancellation or termination of this Lease, Lessor receives an acceptable, bona fide third-party offer to lease the Leasehold, in whole or part, Lessor shall promptly provide the Lessee, in writing, of all of the verifiable particulars of such offer. Lessee shall have thirty (30) days from the receipt thereof to advise Lessor, in writing, of its agreement to match said third-party offer as to all terms and consideration; immediately thereafter, Lessor and Lessee shall take all cooperative steps necessary to effectuate the consummation of said transaction and the survival of said transaction through any statutorily mandated right of cancellation thereof. Any lease or option to lease the Leasehold, in whole or part, granted by Lessor in contravention of the purposes of this paragraph shall be deemed null and void.
Chesapeake asserts that this paragraph "operates unilaterally, suggesting that Paragraph 14 'provides a right to Chesapeake (the Lessee), not to Defendants (the Lessors).'"  Clearly, all one has to do is read the paragraph to see that this is not true.  As referenced in the article by Farm and Dairy that originally covered this lawsuit, Chesapeake also asserts that the up-front payments received by the lessors give Chesapeake the exclusive rights for a primary term of at least three years, and longer in some circumstances.

The response filed by the defendants breaks down the reasons that the provisions of Paragraph 14 have been triggered in this case.  The following table from the filing makes it pretty simple, referencing some statements made by Chesapeake in their own filings on the case which support the landowners argument.

There is much more verbiage and several case precedents cited in the memorandum, but I won't go into all of that here.  It is a convincing argument, and there is some clear language in the lease that supports the landowners' claims.  There is also language added to later leases by Anschutz which demonstrates their recognition that the wording of the leases being considered in this case were not adequate to protect them from this very situation.  It will be interesting to see how this one comes out.

Do you have any questions about this whole thing?  Feel free to use the comments to discuss the case.

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