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Tawney Stopped at the Ohio Border

By Greg Russell

Building on the royalty-interest owners' success in Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC (West Virginia), plaintiffs filed a nearly-identical suit in Ohio asserting class-action claims for the deliberate and fraudulent underpayment of natural gas royalties by CNR and its successors.  See Lutz v. Chesapeake Appalachia, LLC, Case No. 4:09CV2256 (United States District Court, Northern District of Ohio).  Today, the District Court issued its decision dismissing those claims - based largely on Ohio's new 4-year statute of limitations.

Effective April 6, 2007, Ohio changed its statute of limitations for breaches of oil and gas leases from 15 years (i.e., the limitations period ordinarily applicable to breach of contract claims) to 4 years (i.e., the period applicable to UCC sales of goods).  See Rev. Code Section 2305.041.  Notably under the new statute, the "cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach."  See Rev. Code Section 1302.98.  To overcome the fact that they had alleged royalty claims beginning in 1993 and 2000, plaintiffs argued the new statute of limitations should not be applied because it would retroactively extinguish an accrued substantive right.  The court disagreed.

Because the retroactive application of the new limitations period would eliminate the right to sue on their contract claims, the court found that plaintiffs must be permitted a "reasonable time" to assert those claims to avoid offending the Ohio Constitution's retroactivity clause.  The issue therefore was:  "[W]hat is a 'reasonable time' under the new statute made effective in 2007 for plaintiffs to assert claims that accrued in 1993 and 2000."  The answer:  2 years, following the Ohio Supreme Court's decision in Groch v. Gen. Motors Corp., 117 Ohio St. 3d 192 (2008).  Because plaintiffs filed suit outside that 2-year period (i.e., after April 6, 2009), they were too late.

Plaintiffs sought to save their claims by arguing continuing breach! - i.e., by asserting that each monthly royalty payment was a separate breach of the parties' leases triggering a new claim accrual period.  Unfortunately for the plaintiffs, on the very day that the District Court held its hearing on the issue, the Ohio Supreme Court issued its decision in State ex rel. Nickoli v. Erie Metroparks, 124 Ohio St. 3d 449 (2010), distinguishing between continuing violations and the continuing effects of prior violations.  The District Court found that the same reasoning applied to plaintiffs' claims here.

As the first test of Ohio's new statute of limitations, this is a good result for Ohio producers!

Tags: Energy, Royalty

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