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8/12/2019 New York Fracking Force Majeure Case
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124897cv
Beardsleev.InflectionEnergy,LLC
United States Court of Appeals
FORTHESECONDCIRCUIT
AugustTerm,2013
(Argued:August22,2013 Decided:July31,2014)
DocketNo.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,JOSEPHHANER,JAMESHANER,MARGARETLAWTON,GLENMARTIN,LYNNM.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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2
B e f o r e:
WINTER,WESLEY,ANDCARNEY,CircuitJudges.
AppealfromadecisionoftheUnitedStatesDistrictCourtfortheNorthern
DistrictofNewYork(DavidN.Hurd,Judge)grantingthemotionofAppellees
WalterR.Beardslee,etal.,landownersandlessors,forsummaryjudgment,and
denyingthemotionforsummaryjudgmentoftheirlessees,AppellantsInflection
Energy,LLC,VictoryEnergyCorporation,andMegaenergy,Inc. TheDistrict
Courtconcludedthatthepartiesoilandgasleaseshadexpiredbytheirterms,
reasoningthatNewYorkStatesregulatoryactionsdidnottriggerapplicationof
theleases
force
majeure
clauses.
Because
this
case
raises
significant
and
novel
questionsofNewYorkoilandgaslaw,wecertifytwoquestionstotheNewYork
CourtofAppealsforresolutioninthefirstinstance.
QUESTIONSCERTIFIED.
THOMASS.WEST,TheWestFirm,PLLC,Albany,
N.Y.,forDefendantsCounterClaimantsAppellantsInflectionEnergy,LLC,etal.
ROBERTR.JONES(PeterH.Bouman,onthebrief),
Coughlin&Gerhart,LLP,Binghamton,N.Y.,for
PlaintiffsCounterDefendantsAppelleesWalterR.
Beardslee,etal.
WALTER
P.
LOUGHLIN
(Walter
A.
Bunt,
Jr.,
Bryan
D.Rohm,onthebrief),K&LGatesLLP,NewYork,
N.Y.,forAmicusCuriaeMarcellusShaleCoalition.
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SUSANL.CARNEY,CircuitJudge:
InflectionEnergy,LLC(Inflection),VictoryEnergyCorporation
(Victory),andMegaenergy,Inc.(Mega)(collectively,theEnergy
Companies)appealfromtheDistrictCourtsordergrantingsummaryjudgment
toWalterandElizabethBeardsleeandoverthirtyotherlandowners(collectively,
theLandowners),anddenyingsummaryjudgmenttotheEnergyCompanies.
Startingin2001,theLandownersenteredintocertainoilandgasleases
(theLeases)withtheEnergyCompanies,grantingtheEnergyCompanies
specifiedrightstoextractoilandgasunderlyingtheLandownersrealproperty
(theProperties)intheSouthernTierofNewYorkState. EachoftheLeaseshas
aninitialprimarytermoffiveyearsandprovidedforasecondarytermthat,once
triggered,would
last
as
long
thereafter
as
the
said
land
is
operated
by
Lessee
in
theproductionofoilorgas. Appx321.
TheEnergyCompaniesfailedtoproduceoilandgasfromtheProperties
withintheLeasesprimaryterms,andthereafter,in2012,theLandownersfiled
thisactionseekingadeclarationthattheLeaseshadexpired. TheEnergy
Companiescounterclaimedforadeclarationtothecontrary. Theyarguedthat
eachLeasewasextendedbyoperationofapurportedforcemajeureclause,
triggered(theyargued)byNewYorkStatesdefactomoratorium(the
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NewYorkandborderingPennsylvania,TiogaCountysitsontheMarcellus
Shale,ablackshaleformationextendingdeepundergroundfromOhioand
WestVirginianortheastintoPennsylvaniaandsouthernNewYork.3 The
formationasawholeisestimatedtocontainupto489trillioncubicfeetof
naturalgasanenergyresourceofenormouspotential.4 Theformationhas
beencharacterizedinrecentyearsasofferingoneofthemostsignificant
opportunitiesfordomesticnaturalgasdevelopmentinmanyyears.5
Beginningin2001,theLandownersseparatelyenteredintotheoilandgas
LeaseswithVictory,grantingVictorycertainrightstoextractoilandgas
resourcesunderlyingtheProperties.6 Foranominalannualfeeor,ifdrilling
commenced,therighttoreceivearoyaltyongrossproceedsrelatedtooiland
gasextracted
and
sold,
Victory
acquired
the
rights
of
drilling,
producing,
and
contestedissuesnotedasnecessary.
3MarcellusShale:TheEnvironmentalReviewProcessforNaturalGasExplorationinthe
MarcellusShale,N.Y.STATEDEPTOFENVTL.CONSERV.,
http://www.dec.ny.gov/energy/46288.html(lastvisitedJuly29,2014)(the2012DECReport).
4Id. Accordingtoestimatespublishedinthe2012DECReport,NewYorkStatesnatural
gasusageratein2012(forcomparison)wasapproximately1.1trillioncubicfeet. Id.
5GeorgeA.Bibikos&JeffreyC.King,APrimeronOilandGasLawintheMarcellusShale
States,4TEX.J.OILGAS&ENERGYL.155,156(20082009)(footnoteomitted).
6TheLeaseswereenteredintobyindividuals,marriedcouplesactingjointly,and
trusteesactingonbehalfoftrusts.
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otherwiseoperatingforoilandgasandtheirconstituentsduringtheleaseterm.
Appx32. Itundertooknoobligation,however,todrill.
VictoryshareditsleaseholdinterestswithMega. InJuly2010,Inflection
assumedfromMegatheoperationalrightsandresponsibilitiesundermostofthe
Leases.7
EachoftheLeasescontainsanidenticalhabendumclause.8 Thisclause
establishestheperiodduringwhichtheEnergyCompaniesmayexercisethe
drillingrightsgrantedbytheLease. TheLeaseshabendumclausescontainboth
afiveyearprimaryterm,andanoptionforasecondaryterm.9 Eachclause
provides:
Itisagreedthatthisleaseshallremaininforceforaprimary
term of FIVE (5) years from the date hereof and as long
thereafteras
the
said
land
is
operated
by
Lessee
in
the
productionofoilorgas.
7InflectiondidnotassumeoperationalrightstotheLeasesenteredintobythe
Beardslees,seeBeardslee,904F.Supp.2d.at217,butthisfactualvariationdoesnotaffectour
analysis.
8Ahabendumclause,whichistypicallyfoundinstandardoilandgasleasessuchas
thoseatissuehere,isusedtofixthedurationofsuchalease. Wiserv.EnervestOperating,
L.L.C.,
803
F.
Supp.
2d
109,
113
n.3
(N.D.N.Y.
2011).
These
clauses
typically
establish
a
definite
(orprimary)terminwhichthelessee[is]permittedtodevelop[]property,withanoptionforan
indefinitesecondarytermpermittingthelesseetoreapthelongtermvalueandreturnonthe
moneyspentdevelopingthepropertyduringtheprimaryterm. Id.at118.
9SomeoftheLeaseswereextendedforadditionalfiveyearprimaryterms,Beardslee,904
F.Supp.2dat217,buttheextensiondoesnotaltertheoperativelegalanalysis.
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Appx321.
Inaddition,eachLeasecontainswhatthepartiesrefertoasaforcemajeure
clause,whichspeakstodelaysandinterruptionsindrilling. Thatclause
provides,inrelevantpart:
Ifandwhendrilling . . .[is]delayedor interrupted . . .asa
resultofsomeorder,rule,regulation . . .ornecessityofthe
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
impliedcovenantsofthisleaseshallbesubjecttoallFederal
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.
Appx336.10
2. ApplicableStateStatutoryLawandRegulatoryActions
Article23oftheNewYorkEnvironmentalConservationLaw,Mineral
Resources,governsoilandgasproductionintheStateofNewYork. N.Y.Envtl.
10Althoughthepartiesrefertothisclauseasaforcemajeureclause,itisnotdesignated
assuchintheLeasesandmaybeamenabletootherlabels. Cf.BLACKSLAWDICTIONARY718
(9thed.2009)(definingaforcemajeureclauseasacontractualprovisionallocatingtheriskof
lossifperformancebecomesimpossibleorimpracticable,esp.asaresultofaneventoreffect
thatthepartiescouldnothaveanticipatedorcontrolled). Becausebothpartiesrefertothis
clauseasaforcemajeureclause,however,wecontinuetodosohereforeaseofreference. Our
useofthephraseforcemajeureshouldnotbeunderstoodasanaffirmationofthe
characterizationssubstance.
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8
Conserv.Law230101etseq. Article8oftheNewYorkEnvironmental
ConservationLaw,EnvironmentalQualityReview,governshowstate
agenciesaddresstheenvironmentaleffectsoftheiractions,includingtheir
actionswithrespecttooilandgasproduction. N.Y.Envtl.Conserv.Law8
0101etseq. Enactedin1975andcodifiedinArticle8,theStateEnvironmental
QualityReviewAct(SEQRA)representsanattempttostrikeabalance
betweensocialandeconomicgoalsandconcernsabouttheenvironment.Matter
ofJacksonv.N.Y.StateUrbanDev.Corp.,67N.Y.2d400,414(1986). SEQRA
requiresthatNewYorkStateagenciesprepare,orcausetobeprepared...an
environmentalimpactstatement[EIS]onanyaction...whichmayhavea
significanteffectontheenvironment. N.Y.Envtl.Conserv.Law.80109(2).
Whenseparate
actions
hav[e]
generic
or
common
impacts,
regulations
issued
pursuanttoSEQRApermitagenciestoprepareagenericEIS(GEIS)
assessingtheenvironmentalimpactsofthoseactions. N.Y.Comp.CodesR.&
Regs.tit.6,617.10(a)(3). If,afterissuingaGEIS,anagencyproposestotake
actionsnotaddressedbytheGEISbutthatmightsignificantlyandadversely
affecttheenvironment,itmustprepareeitherasupplementalGEIS(SGEIS)or
asitespecificEIS. Id.617.10(d)(4).
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9
In1992,theNewYorkStateDepartmentofEnvironmentalConservation
(theDepartmentorDEC)issuedaGEISthataddressedtheenvironmental
impactofconventionaldrillingtechniquestheninuse.11 The1992GEIS
describedwatergelfracsasthemostcommonstimulationtechniquethen
employedtoderivegasfromtheshaleformation. Thattechniquerequiredusing
approximatelytwentytoeightythousandgallonsoffluidinastimulation
operation. 1992GEISat926.
Morerecently,however,thetechniquesavailableforextractinggashave
undergoneadramatictransformationashighvolumehydraulicfracturing
combinedwithhorizontaldrillinghasbecomefeasible. HVHFalsocommonly
knownasfrackingisanunconventionaldrillingtechnologywhich
involvesthe
injection
of
more
than
amillion
gallons
of
water,
sand,
and
chemicalsathighpressuredownandacrossintohorizontallydrilledwellsasfar
as10,000feetbelowthesurface. Beardslee,904F.Supp.2dat216n.4. The
pressurizedmixturecausestherocklayer...tocrack....[andthe]gastoflow
11GenericEnvtl.ImpactStatementonOil,Gas,andSolutionMiningRegulatoryProgram
(GEIS),N.Y.STATEDEPTOFENVTL.CONSERV.,(1992)926,availableat
ftp://ftp.dec.state.ny.us/dmn/download/geismaster.pdf(lastvisitedJuly29,2014)(the1992
GEIS).
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intothewell. Id.;seegenerallyWallachv.TownofDryden,__N.Y.3d__,2014WL
2921399(N.Y.June30,2014).
Thetechnologicaldevelopment,notsurprisingly,wasaccompaniedby
increasedinterestinobtainingpermitsforthecombineduseofhorizontal
drillingandHVHF. OnJuly23,2008,inresponsetothesepaireddevelopments,
thenGovernorDavidPatersondirectedtheDepartmenttoupdateand
supplementthe1992GEIS(the2008Directive). HeinstructedtheDECto
ensurethatitissuitabletoaddresspotentialnewenvironmentalimpactsfrom
drilling,includinghorizontaldrillinginMarcellusshaleformations.12 The
EnergyCompaniesallegethatthis2008Directivemarkedthebeginningofthe
Moratorium.13
Overone
year
later,
on
September
30,
2009,
the
Department
issued
adraft
SupplementalGEIS(theDraftSGEIS),whichquicklyreceivedextensivepublic
commentandgeneratedvigorouscontroversy.14 OnDecember13,2010,
12MemorandumfiledwithNewYorkStateSenateBillNumber8169A(July21,2008),
availableathttp://iarchives.nysed.gov/dmsBlue/viewImageData.jsp?id=172078(lastvisitedJuly
29,2014).
13TheNewYorkCourtofAppealsrecentlyacknowledgedtheexistenceofamoratorium
onhighvolumehydraulicfracturingcombinedwithhorizontaldrilling. Wallach,2014WL
2921399,atn.1.
14DraftSGEISontheOil,GasandSolutionMiningRegulatoryProgram(September2009),
N.Y.STATEDEPTOFENVTL.CONSERV.,availableathttp://www.dec.ny.gov/energy/58440.html
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GovernorPatersonissuedExecutiveOrderNo.41,entitledRequiringFurther
EnvironmentalReviewofHighVolumeHydraulicFracturingintheMarcellus
Shale(the2010Order). N.Y.Comp.CodesR.&Regs.tit.9,7.41. Inthe2010
Order,theGovernorobservedthattensofthousandsofcitizens,landowners,
localgovernments,[and]largeandsmallbusinesses...haveexpressedtheir
heartfeltsupportfororoppositiontothenewtechnology. Id. Heinstructedthe
DECtorevisetheDraftSGEISandaddresscomprehensivelytheenvironmental
impactsassociatedwithhighvolumehydraulicfracturingcombinedwith
horizontaldrillinginaprescribedtimeframe. Id. Hefurtherrecogniz[ed]that,
pursuanttoSEQRA,nopermits[could]beissuedbytheStatebeforethe
completionofaFinalSGEIS. Id.
Inresponse
to
these
developments,
Inflection
sent
notices
of
extension
to
theLandowners,assertingthatNewYorksregulatoryactionsconstitutedaforce
majeureeventundertheLeases,extendingtheLeaseterms. OnSeptember7,
2011,theDepartmentreleasedaRevisedDraftSGEIS. Thatday,italsoissueda
pressreleaseinformingthepublicthat[n]opermitsfor[HVHF]willbeissued
untiltheSGEISisfinalizedand[theDepartment]issuestherequiredFindings
(lastvisitedJuly29,2014).
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preventedthemfromusingthecombinationofhorizontaldrillingandHVHF
thattheycharacterizedastheonlycommerciallyviablemethodofdrillingin
theMarcellusShaleduringtheLeasesprimaryterms.15 Therefore,they
contended,theMoratoriumconstitutedaforcemajeureevent;itmodifiedthe
habendumclause,anditworkedtoextendtheLeasesprimarytermsuntilthe
StateliftedtheMoratorium,wheneverthatmightbe.
OnNovember15,2012,theDistrictCourtgrantedsummaryjudgmentto
theLandowners,declaringalloftheLeasesexpired. Thecourtfoundthattheso
calledforcemajeureclausewasnottriggeredbytheMoratoriumanddidnot
extendtheLeases. Itdeclinedtoruleonwhetheraforcemajeureeventoccurred,
explainingthatevenifitdid,theforcemajeureclausewouldhavenoeffectonthe
habendumclause
and
the
Lease
terms.
It
reasoned
that
the
invocation
of
aforce
majeureclausetorelieve[theEnergyCompanies]fromtheircontractualdutiesis
unnecessary,becausetheLeasessimplyprovidetheEnergyCompanieswith
theoptionratherthantheobligationtodrill. Beardslee,904F.Supp.2dat
220. ItalsoconcludedthatGovernorPatersons2008Directivedidnotfrustrate
thepurposeoftheLeases,becausetheEnergyCompaniescoulddrillusing
15AlthoughtheEnergyCompaniesrelyoncommercialviabilityasacriticalfactorin
theiranalysis,theyoffernodefinitionofthephraseorthemeasureofeithercostorprofitability
thattheyenvisionthephrasetoconvey.
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conventionalmethods. Id.at221. WhileacknowledgingthattheEnergy
CompaniesadducedevidencesupportingtheirpositionthatHVHFwas
currentlytheonlycommerciallyviablemethodofdrillingandproductionin
theMarcellusShale,thecourtfoundthatmereimpracticalitywasnotenough
totriggertheforcemajeureclauseandextendtheLeaseterms. Id.at220(internal
quotationmarksandalterationomitted).
TheEnergyCompaniesappeal.
DISCUSSION16
1. StandardforCertification
SecondCircuitLocalRule27.2providesameansbywhichourCourtmay
certifyquestionsofNewYorklawtotheNewYorkCourtofAppeals. The
regulationsof
the
New
York
Court
of
Appeals
permit
that
Court,
in
its
discretion,toentertaindispositivequestionscertifiedtoitforresolution.
Certifiedquestionsmustbedeterminativequestionsthatareinvolvedina
casependingbefore[us]forwhichnocontrollingprecedentoftheCourtof
Appealsexists. InreThelenLLP,736F.3d213,224(2dCir.2013)(citingN.Y.
Comp.CodesR.&Regs.tit.22,500.27(a);N.Y.Const.Art.6,3(b)(9)).
16Wereviewadistrictcourtsgrantofsummaryjudgmentdenovo. Isabellav.Koubek,733
F.3d384,387(2dCir.2013).
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Wehavedeemedcertificationappropriatewherestatelawisnotclear
andstatecourtshavehadlittleopportunitytointerpretit,whereanunsettled
questionofstatelawraisesimportantissuesofpublicpolicy,wherethequestion
islikelytorecur,andwheretheresultmaysignificantlyimpactahighly
regulatedindustry. Cruzv.TDBank,N.A.,711F.3d261,26768(2dCir.2013)
(internalquotationmarksomitted). Beforewemaycertify,however,wemake
threeinquiries:(1)whethertheNewYorkCourtofAppealshasaddressedthe
issueand,ifnot,whetherthedecisionsofotherNewYorkcourtspermitusto
predicthowtheCourtofAppealswouldresolveit;(2)whetherthequestionisof
importancetothestateandmayrequirevaluejudgmentsandpublicpolicy
choices;and(3)whetherthecertifiedquestionisdeterminativeofaclaimbefore
us.Barenboim
v.
Starbucks
Corp.,
698
F.3d
104,
109
(2d
Cir.
2012).
2. Application
UnderNewYorklaw,[o]il[andgas]leasesorcontractsstandonan
entirelydifferentbasisfromanyotherleaseholdagreements. Conklingv.
Krandusky,127A.D.761,766,112N.Y.S.13(4thDept1908). Oilandgasleases
areenteredintointhecontextofahighlytechnicalindustry,whichemploys
distinctterminologyusedbythoseinthebusiness. Wiserv.EnervestOperating,
L.L.C.,803F.Supp.2d109,117(N.D.N.Y.2011). Currently,however,thereisa
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16
dearthofauthorityinNewYorkrelatingtooilandgasleasessuchasthose
nowatissue. Id. Thus,althoughthiscaseturnsonquestionsofcontract
interpretationthatmaynotbethetypicalmaterialforcertification,becausethe
disputearisesinarelativelyunderdevelopedareaoflawandbecauseit
implicatesmattersofpublicpolicyintegraltotheeconomicandenvironmental
wellbeingoftheStateofNewYork,wecertifythefollowingquestionstothe
NewYorkCourtofAppeals,basedonthemotionforsummaryjudgmentand
accompanyingsubmissions: First,whether,inthecontextofanoilandgaslease,
theStatesMoratoriumamountedtoaforcemajeureevent;andsecond,ifso,
whethertheforcemajeureclausemodifiesthehabendumclauseandextendsthe
primarytermsoftheLeases. Weexplainbelowwhythesequestionsadmitofno
clearanswer
under
New
York
law,
and
why
they
warrant
certification.
a. WastheMoratoriumaforcemajeureevent?
VirtuallyeveryLeasewasexecutedmorethanfiveyearsbeforethe
Landownersbroughtsuitin2012. TheEnergyCompaniesneverdrilledonany
oftheLandownersProperties,letaloneproducedoilorgas. Absentsome
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17
exceptionormodificationtotheprimarytermsinthehabendumclauses,
therefore,eachLeasehadexpiredby2012.17
Thefirstissue,then,iswhethertheMoratoriumqualifiedasaforcemajeure
event. Theforcemajeureclauseprovides,inrelevantpart,thatwhenanorder,
rule,regulation,requisitionornecessityofthegovernment,orothercause
thatisbeyondthecontrolofLesseecausesdelayorinterruptionofdrilling
orotheroperationsundertheLease,thetimeofsuchdelayorinterruption
shallnotbecountedagainstLessee,anythinginthisleasetothecontrary
notwithstanding. Appx336.
DeterminingwhethertheMoratoriumwasaforcemajeureeventunderthe
Leasesrequiresexaminationofwhetherregulatoryactionsbarring
commerciallyviable
drilling
but
not
all
drilling
can
constitute
such
an
event. TheEnergyCompaniesallegeandLandownersdonotseriouslydispute
thatthecombineduseofHVHFandhorizontaldrillingiscurrentlytheonly
commerciallyviablereadprofitablemethodofdrillingintheMarcellus
Shale. ButtheLeasesalmostallofwhichappeartohavebeenexecutedbefore
17Thepartiesdonotaddresswhether,whentheGovernorissuedtheJuly23,2008
Directive,thefiveyearprimarytermsofthoseLeasesthatwereexecutedbeforeJuly23,2003,
hadalreadyexpired. Wedonotaddressthatquestionhere,becausethereisnodisputethat
certainLeasesthatis,thosesignedafterJuly23,2003,andthosewhoseprimarytermshad
beenextendedbyagreementofthepartieswerestillineffectasofJuly23,2008.
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18
currentfrackingmethodswerefullydevelopeddonotexplicitlynotethetype
ofdrillingtheypermit. NordotheyexcusetheEnergyCompaniesfrompaying
rentduringtheprimaryperiodifdrillingproducesnothing,orfrompaying
royaltiesiftheroyaltiesduepaleincomparisontothosethatmightbederived
fromafrackedwell.18 Nevertheless,theEnergyCompaniesarguethatthe
purposeofeveryoilandgaslease,includingtheirs,istoachievepaying
production,andthatrequiringthem(ineffect)todrillatalosswouldviolatethe
impliedcovenantofgoodfaithandfairdealingthatNewYorklaw
acknowledges. See3HowardR.Williams&CharlesJ.Meyers,OILANDGASLAW
604.5(abridgeded.1984)([T]heobjectiveofthe[oilandgas]leaseisnot
merelytohaveoilorgasflowfromthegroundbuttoobtainproductionthatis
commerciallyprofitable
to
both
parties.);
LaBarte
v.
Seneca
Res.
Corp.,
285
A.D.2d
974,975(4thDept2001)([E]verycontractcontainsanimpliedcovenantofgood
faithandfairdealing.).
18TheLandownersallegethatseveralwellsareoperatingintheMarcellusShaleusing
conventionaldrillingmethods. Theydonotaddress,however,andtherecorddoesnotreflect,
whetherthosewellsareprofitable. TheEnergyCompaniesarguethattheLandownersproof
thatconventionalwelldrillingpermitswereavailableisinadequate,buttheyappeartodispute
onlytheprofitabilityofdrillingintheMarcellusShaleusingconventionaltechniques,rather
thantheavailabilityofpermitstodrillusingconventionaltechniquesinthatregion.
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19
WheretheLeasecontainsnoexpressrequirementorconditionthatdrilling
beprofitable,however,andwhenconventionalwelldrillingandotheroiland
gasoperationsappearstilltobepossible,theMoratoriummightnotbeaforce
majeureevent. Generallyspeaking,inNewYork,aforcemajeureclausemust
specificallyinclude[]theeventthatactuallypreventsapartysperformancein
ordertoexcusethatperformance. KelKimCorp.v.CentralMkts.,Inc.,70N.Y.2d
900,90203(1987). Asdescribedabove,theLeasescontainnocommercial
viabilityterm. ReadingsuchatermintotheLeasesastheEnergyCompanies
proposemightthereforeviolateNewYorklawwhileencumberingthe
LandownersPropertiesindefinitely.19 GiventhedearthofNewYorkauthority
inthecontextofoilandgasleases,wearereluctanttoproceedwithoutfurther
guidancefrom
the
Court
of
Appeals.
b. Doestheforcemajeureclausemodifythehabendumclause?
OurreluctancetoaddresswhethertheMoratoriumqualifiesasaforce
majeureeventiscompoundedbyafurther,andinsomerespectsmore
fundamentalquestion:whetherthisforcemajeureclausemodifiestheprimary
termsetbythehabendumclause.
19 Inaparallelsuit,thesameDistrictCourtrejectedasimilarargumentbyotherlessees
thattheMoratoriumwasaforcemajeureeventbecauseitpreventeddrillingintheMarcellus
Shaleinacommerciallypracticabl[e]manner. SeeAukema,904F.Supp.2dat210. Theparties
withdrewtheirappealofthatdecisioninSeptember2013.
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20
ThehabendumclauseprovidesthattheLeaseshallremaininforcefor
thefiveyearprimarytermandaslongthereafterasthesaidlandisoperatedby
Lesseeintheproductionofoilorgas. Appx321. Theforcemajeureclause
providesthatifdrillingisdelayedorinterruptedforanenumeratedreason,
thetimeofsuchdelayorinterruptionshallnotbecountedagainsttheLessee,
anythinginthisleasetothecontrarynotwithstanding. Appx336(emphasis
added). Itisunclearwhether,underNewYorklaw,thisclausemodifiesthe
primarytermofthehabendumclausewhenthehabendumclauseisnot
expresslymadesubjecttotheothertermsoftheLease.
ThepartieshavedirectedustonoNewYorkcasethataddressesthe
relationshipbetweenahabendumclauseandaforcemajeureclauseinanoiland
gaslease.
One
federal
court,
applying
New
York
law,
predicted,
[W]here
...
thelanguageofthehabendumclauseclearlymakesthatprovisionsubjectto
otherprovisionsintheagreement,...thelifeoftheleasemaybesubjectto
modification. Wiser,803F.Supp.2dat121. Otherjurisdictionsthathave
addressedthisissueprovidesomeadditionalguidance. Forexample,one
Californiacourtdeterminedthataforcemajeureeventdidnotmodifytheprimary
termofalease. First,itinterpretedanoilandgasleaseasbothaconveyance
andacontract. SanMateoCmty.Coll.Dist.v.HalfMoonBayLtd.Pship,65Cal.
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App.4th401,409(Cal.Ct.App.1998). TheSanMateocourtexplained,The
conveyancingelementsarethegrantingandhabendumclauses,andthe
contractualelementsincludetheprovisionsthatpertaintothelessees
obligationswithrespecttoexploring,drilling,andproducingoperations. Id.
Then,itfollowedthelongestablishedruleofCalifornialawthat
any language in a deed, subsequent to the granting and
habendum clauses, may not modify, cut down or control
those clausesunlesssuchclauses [grantingandhabendum]
incorporate
the
additional
language
by
express
reference.
Id.at412(internalquotationmarksomitted). Thatcourtthusfoundthatin
partbecausethehabendumclausedidnotexpresslyincorporatetheforcemajeure
clausetheforcemajeureclauseatissuedidnotmodifythehabendumclause.
Id.
Itisundisputedthatthehabendumclauseinthiscasecontainsnosuch
language. TheLandownersthereforeclaimthattheprimarytermsoftheLeases
areunaffectedbytheforcemajeureclause.20
20TheEnergyCompaniesarguethattheLandownersinterpretationoftheLeases
rendersmeaninglesstheforcemajeureclausesphrase,thetimeofsuchdelayorinterruption
shallnotbecountedagainstLessee. TheLandownerscounterthattheclauseretainsforce,
becauseitwouldapplyduringtheLeasessecondaryterms,whentheEnergyCompanieshave
anobligationtooperateintheproductionofoilorgastopreventtheLeasesfrom
terminating. AppelleesBr.48. WeleavetheresolutionofthatquestiontotheCourtof
Appeals.
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TheEnergyCompaniescontend,however,thatitisirrelevantthatthe
habendumclausedoesnotmakeitselfsubjecttotheotherLeasetermsbecause
theforcemajeureclauseapplies,anythinginthisleasetothecontrary
notwithstanding. Appx336. UnderNewYorkcontractlaw,clausessimilar
tothephrasenotwithstandinganyotherprovisiontrumpconflictingcontract
terms. BankofN.Y.v.FirstMillennium,Inc.,607F.3d905,917(2dCir.2010)
(alterationomitted). TheEnergyCompaniesthusarguethattheforcemajeure
clausemodifiesthehabendumclause,regardlessoftheabsenceofanysubject
tolanguageinthehabendumclause. Indeed,inSanMateo,thecourtsuggested
thatiftheforcemajeureclausecontainedlanguagepurportingtomodifythe
habendumclauseitself,thenthecasemayhavecomeoutdifferently. 65Cal.
App.4th
at
412
13.
NewYorklawoffersnoguidanceonwhetheraforcemajeureeventwould
extendtheprimarytermsoftheLeases. Giventheimportanceofthisissueand
thelikelihoodthatitwillrecurinothercasesinvolvingsimilaroilandgasleases,
wethinkitprudenttoleavethisissuetotheNewYorkCourtofAppeals.
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c. CertificationofthesetwoquestionstotheNewYorkCourt
ofAppeals
Asnotedabove,beforewemaycertify,wemakethreeinquiries:
(1)whether
the
New
York
Court
of
Appeals
has
addressed
the
issue
and,
if
not,
whetherthedecisionsofotherNewYorkcourtspermitustopredicthowthe
CourtofAppealswouldresolveit;(2)whetherthequestionisofimportanceto
thestateandmayrequirevaluejudgmentsandpublicpolicychoices;and
(3)
whether
the
certified
question
is
determinative
of
a
claim
before
us.
Barenboim,698F.3dat109.
Inourview,thetwoquestionsthatwecertifysatisfyallthreeinquiries.
First,theNewYorkCourtofAppealshasnotdecidedthequestionsbeforeus.
NorhasanyNewYorkstatecaseofwhichweareawareresolvedtheseissues.
SeeGeorgeA.Bibikos&JeffreyC.King,APrimeronOilandGasLawinthe
MarcellusShaleStates,4TEX.J.OILGAS&ENERGYL.155,191(20082009)(New
Yorkpresentsessentiallyablankslateastoallsignificantoilandgaslease
issues.). Second,thesequestionsareofgreatimportancetotheStateofNew
York.There
is
substantial
interest
in
the
use
of
HVHF
in
the
Marcellus
Shale,
andinadditiontotheLandownersinthiscasemanyNewYork
landownerscouldbeaffectedbythisruling,bothastocurrentlyeffectiveleases
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andastoleasesthatmaybeenteredintointhefuture. Andfinally,thecertified
questionsaredeterminativeoftheclaimsinthiscase. TheCourtsanswertoour
certifiedquestionswouldresolve(1)whethertheStatesMoratoriumwasaforce
majeureevent;and(2)whethertheEnergyCompaniesmayinvoketheforce
majeureclausetoextendtheprimarytermsoftheLeases,thusdetermining
whethertheLeaseshaveorhavenotexpired.
Wethereforefindthateachfactorweighsinfavorofcertifyingthese
questionstotheNewYorkCourtofAppeals.
CONCLUSION
WecertifythefollowingquestionstotheNewYorkCourtofAppeals
basedonthemotionforsummaryjudgmentandaccompanyingsubmissions:
1.
UnderNew
York
law,
and
in
the
context
of
an
oil
and
gas
lease,
did
the
StatesMoratoriumamounttoaforcemajeureevent?
2. Ifso,doestheforcemajeureclausemodifythehabendumclauseandextend
theprimarytermsoftheleases?
WeinvitetheNewYorkCourtofAppealstoexpand,alter,orreformulate
thosequestionsasitdeemsappropriate.
ItisherebyORDEREDthattheClerkoftheCourttransmittotheClerkof
theNewYorkCourtofAppealsacertificateintheformattached,togetherwitha
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copyofthisOpinionandacompletesetofthebriefs,appendices,andrecord
filedbythepartiesinthisCourt. Thispanelwillretainjurisdictiontodecidethe
caseoncewehavehadthebenefitoftheviewsoftheNewYorkCourtof
AppealsoroncethatCourtdeclinestoacceptcertification.
CERTIFICATE
WeherebycertifytheforegoingquestionstotheNewYorkCourtof
AppealspursuanttoSecondCircuitLocalRule27.2andNewYorkCompilation
ofCodes,Rules,andRegulations,title22,section500.27(a).