124897cv

Beardsleev.InflectionEnergy,LLC

United States Court of Appeals

FORTHESECONDCIRCUIT

AugustTerm,2013

(Argued:August22,2013Decided: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,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.

2

Before:
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
theleasesforcemajeureclauses.Becausethiscaseraisessignificantandnovel
questionsofNewYorkoilandgaslaw,wecertifytwoquestionstotheNewYork
CourtofAppealsforresolutioninthefirstinstance.

QUESTIONSCERTIFIED.

THOMASS.WEST,TheWestFirm,PLLC,Albany,
N.Y.,forDefendantsCounterClaimantsAppellants
InflectionEnergy,LLC,etal.

ROBERTR.JONES(PeterH.Bouman,onthebrief),
Coughlin&Gerhart,LLP,Binghamton,N.Y.,for
PlaintiffsCounterDefendantsAppelleesWalterR.
Beardslee,etal.

WALTERP.LOUGHLIN(WalterA.Bunt,Jr.,Bryan
D.Rohm,onthebrief),K&LGatesLLP,NewYork,
N.Y.,forAmicusCuriaeMarcellusShaleCoalition.

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,wouldlastaslongthereafterasthesaidlandisoperatedbyLesseein
theproductionofoilorgas.Appx321.
TheEnergyCompaniesfailedtoproduceoilandgasfromtheProperties
withintheLeasesprimaryterms,andthereafter,in2012,theLandownersfiled
thisactionseekingadeclarationthattheLeaseshadexpired.TheEnergy
Companiescounterclaimedforadeclarationtothecontrary.Theyarguedthat
eachLeasewasextendedbyoperationofapurportedforcemajeureclause,
triggered(theyargued)byNewYorkStatesdefactomoratorium(the

4

Moratorium)ontheuseofhorizontaldrillingandhighvolumehydraulic
fracturing(HVHF).
TheDistrictCourtruledinfavoroftheLandownersanddeclaredthatthe
Leaseshadexpired.Beardsleev.InflectionEnergy,LLC,904F.Supp.2d213
(N.D.N.Y.2012)(Hurd,Judge).
1
TheEnergyCompaniestimelyappealed.
Forthereasonsdiscussedbelow,weconcludethatthiscaseturnson
significantandnovelissuesofNewYorklawconcerningtheinterpretationofoil
andgasleases,alegalfieldthatisbothrelativelyundevelopedintheStateandof
potentiallygreatcommercialandenvironmentalsignificancetoStateresidents
andbusinesses.Accordingly,wecertifytwopivotalquestionsofNewYorklaw
totheNewYorkCourtofAppeals,requestingitsconsiderationofthese
questionsinthefirstinstance.
BACKGROUND
1. TheOilandGasLeases
Thisactionconcernsrightsofaccesstotheimportantnaturalresources
underlyinglandinTiogaCounty,NewYork.
2
LocatedintheSouthernTierof

1
TheDistrictCourtreachedthesameconclusionwithregardtootherNewYorkStateoil
andgasleaseholdsinacasepresentingcloselyparallelfacts.Aukemav.ChesapeakeAppalachia,
LLC,904F.Supp.2d199(N.D.N.Y.2012)(Hurd,Judge.).

2
ThefactsaredrawninpartfromtheDistrictCourtopinion,withothersourcesand

5

NewYorkandborderingPennsylvania,TiogaCountysitsontheMarcellus
Shale,ablackshaleformationextendingdeepundergroundfromOhioand
WestVirginianortheastintoPennsylvaniaandsouthernNewYork.
3
The
formationasawholeisestimatedtocontainupto489trillioncubicfeetof
naturalgasanenergyresourceofenormouspotential.
4
Theformationhas
beencharacterizedinrecentyearsasofferingoneofthemostsignificant
opportunitiesfordomesticnaturalgasdevelopmentinmanyyears.
5

Beginningin2001,theLandownersseparatelyenteredintotheoilandgas
LeaseswithVictory,grantingVictorycertainrightstoextractoilandgas
resourcesunderlyingtheProperties.
6
Foranominalannualfeeor,ifdrilling
commenced,therighttoreceivearoyaltyongrossproceedsrelatedtooiland
gasextractedandsold,Victoryacquiredtherightsofdrilling,producing,and

contestedissuesnotedasnecessary.

3
MarcellusShale:TheEnvironmentalReviewProcessforNaturalGasExplorationinthe
MarcellusShale,N.Y.STATEDEPTOFENVTL.CONSERV.,
http://www.dec.ny.gov/energy/46288.html(lastvisitedJuly29,2014)(the2012DECReport).

4
Id.Accordingtoestimatespublishedinthe2012DECReport,NewYorkStatesnatural
gasusageratein2012(forcomparison)wasapproximately1.1trillioncubicfeet.Id.

5
GeorgeA.Bibikos&JeffreyC.King,APrimeronOilandGasLawintheMarcellusShale
States,4TEX.J.OILGAS&ENERGYL.155,156(20082009)(footnoteomitted).

6
TheLeaseswereenteredintobyindividuals,marriedcouplesactingjointly,and
trusteesactingonbehalfoftrusts.

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
thereafter as the said land is operated by Lessee in the
productionofoilorgas.

7
InflectiondidnotassumeoperationalrightstotheLeasesenteredintobythe
Beardslees,seeBeardslee,904F.Supp.2d.at217,butthisfactualvariationdoesnotaffectour
analysis.

8
Ahabendumclause,whichistypicallyfoundinstandardoilandgasleasessuchas
thoseatissuehere,isusedtofixthedurationofsuchalease.Wiserv.EnervestOperating,
L.L.C.,803F.Supp.2d109,113n.3(N.D.N.Y.2011).Theseclausestypicallyestablishadefinite
(orprimary)terminwhichthelessee[is]permittedtodevelop[]property,withanoptionforan
indefinitesecondarytermpermittingthelesseetoreapthelongtermvalueandreturnonthe
moneyspentdevelopingthepropertyduringtheprimaryterm.Id.at118.
9
SomeoftheLeaseswereextendedforadditionalfiveyearprimaryterms,Beardslee,904
F.Supp.2dat217,buttheextensiondoesnotaltertheoperativelegalanalysis.

Appx321.
Inaddition,eachLeasecontainswhatthepartiesrefertoasaforcemajeure
clause,whichspeakstodelaysandinterruptionsindrilling.Thatclause
provides,inrelevantpart:
If and when drilling . . . [is] delayed or interrupted . . . as a
result of some order, rule, regulation . . . or necessity of the
government, or as the result of any other cause whatsoever
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 shall not be terminated, in whole or in part, 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.

10
Althoughthepartiesrefertothisclauseasaforcemajeureclause,itisnotdesignated
assuchintheLeasesandmaybeamenabletootherlabels.Cf.BLACKSLAWDICTIONARY718
(9thed.2009)(definingaforcemajeureclauseasacontractualprovisionallocatingtheriskof
lossifperformancebecomesimpossibleorimpracticable,esp.asaresultofaneventoreffect
thatthepartiescouldnothaveanticipatedorcontrolled).Becausebothpartiesrefertothis
clauseasaforcemajeureclause,however,wecontinuetodosohereforeaseofreference.Our
useofthephraseforcemajeureshouldnotbeunderstoodasanaffirmationofthe
characterizationssubstance.

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).
Whenseparateactionshav[e]genericorcommonimpacts,regulationsissued
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).

9

In1992,theNewYorkStateDepartmentofEnvironmentalConservation
(theDepartmentorDEC)issuedaGEISthataddressedtheenvironmental
impactofconventionaldrillingtechniquestheninuse.
11
The1992GEIS
describedwatergelfracsasthemostcommonstimulationtechniquethen
employedtoderivegasfromtheshaleformation.Thattechniquerequiredusing
approximatelytwentytoeightythousandgallonsoffluidinastimulation
operation.1992GEISat926.
Morerecently,however,thetechniquesavailableforextractinggashave
undergoneadramatictransformationashighvolumehydraulicfracturing
combinedwithhorizontaldrillinghasbecomefeasible.HVHFalsocommonly
knownasfrackingisanunconventionaldrillingtechnologywhich
involvestheinjectionofmorethanamilliongallonsofwater,sand,and
chemicalsathighpressuredownandacrossintohorizontallydrilledwellsasfar
as10,000feetbelowthesurface.Beardslee,904F.Supp.2dat216n.4.The
pressurizedmixturecausestherocklayer...tocrack....[andthe]gastoflow

11
GenericEnvtl.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).

10

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

Overoneyearlater,onSeptember30,2009,theDepartmentissuedadraft
SupplementalGEIS(theDraftSGEIS),whichquicklyreceivedextensivepublic
commentandgeneratedvigorouscontroversy.
14
OnDecember13,2010,

12
MemorandumfiledwithNewYorkStateSenateBillNumber8169A(July21,2008),
availableathttp://iarchives.nysed.gov/dmsBlue/viewImageData.jsp?id=172078(lastvisitedJuly
29,2014).

13
TheNewYorkCourtofAppealsrecentlyacknowledgedtheexistenceofamoratorium
onhighvolumehydraulicfracturingcombinedwithhorizontaldrilling.Wallach,2014WL
2921399,atn.1.

14
DraftSGEISontheOil,GasandSolutionMiningRegulatoryProgram(September2009),
N.Y.STATEDEPTOFENVTL.CONSERV.,availableathttp://www.dec.ny.gov/energy/58440.html

11

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.
Inresponsetothesedevelopments,Inflectionsentnoticesofextensionto
theLandowners,assertingthatNewYorksregulatoryactionsconstitutedaforce
majeureeventundertheLeases,extendingtheLeaseterms.OnSeptember7,
2011,theDepartmentreleasedaRevisedDraftSGEIS.Thatday,italsoissueda
pressreleaseinformingthepublicthat[n]opermitsfor[HVHF]willbeissued
untiltheSGEISisfinalizedand[theDepartment]issuestherequiredFindings

(lastvisitedJuly29,2014).

12

Statement.Appx158.Asofthiswriting,theDepartmenthasyettoreleasea
FinalSGEIS.
3. PriorProceedings
OnFebruary8,2012,theLandownersfiledthisdeclaratoryjudgment
actionintheUnitedStatesDistrictCourtfortheNorthernDistrictofNewYork.
Theysubsequentlysoughtsummaryjudgmentontheirclaims,allegingthatthe
EnergyCompaniesdidnotdrillanywellsonthePropertiessinceenteringinto
theLeases,andthattheLeaseshadthereforeexpiredattheendoftheirfiveyear
primaryterms.AccordingtotheLandowners,theEnergyCompaniescould
haveacquiredpermitsthatwouldallowdrillingonthePropertiesduringthe
primarytermsusingtheconventionaldrillingmethodsdescribedinthe1992
GEIS.TheyarguedthatnothingprecludedtheEnergyCompaniesfrom
performinganyobligationundertheLeasestotheextenttherewasany
obligationtodrillatall.Finally,theyarguedthat,inanyevent,thehabendum
clausescouldnotbemodifiedbyoperationoftheforcemajeureclause,evenifthe
Moratoriumwascorrectlyclassifiedasaforcemajeureevent.TheLandowners
thereforesoughtadeclarationthattheLeaseshadexpired.
TheEnergyCompaniescrossmovedforsummaryjudgment,arguing
primarilythattheMoratoriuminstitutedbytheGovernors2008Directive

13

preventedthemfromusingthecombinationofhorizontaldrillingandHVHF
thattheycharacterizedastheonlycommerciallyviablemethodofdrillingin
theMarcellusShaleduringtheLeasesprimaryterms.
15
Therefore,they
contended,theMoratoriumconstitutedaforcemajeureevent;itmodifiedthe
habendumclause,anditworkedtoextendtheLeasesprimarytermsuntilthe
StateliftedtheMoratorium,wheneverthatmightbe.
OnNovember15,2012,theDistrictCourtgrantedsummaryjudgmentto
theLandowners,declaringalloftheLeasesexpired.Thecourtfoundthattheso
calledforcemajeureclausewasnottriggeredbytheMoratoriumanddidnot
extendtheLeases.Itdeclinedtoruleonwhetheraforcemajeureeventoccurred,
explainingthatevenifitdid,theforcemajeureclausewouldhavenoeffectonthe
habendumclauseandtheLeaseterms.Itreasonedthattheinvocationofaforce
majeureclausetorelieve[theEnergyCompanies]fromtheircontractualdutiesis
unnecessary,becausetheLeasessimplyprovidetheEnergyCompanieswith
theoptionratherthantheobligationtodrill.Beardslee,904F.Supp.2dat
220.ItalsoconcludedthatGovernorPatersons2008Directivedidnotfrustrate
thepurposeoftheLeases,becausetheEnergyCompaniescoulddrillusing

15
AlthoughtheEnergyCompaniesrelyoncommercialviabilityasacriticalfactorin
theiranalysis,theyoffernodefinitionofthephraseorthemeasureofeithercostorprofitability
thattheyenvisionthephrasetoconvey.

14

conventionalmethods.Id.at221.WhileacknowledgingthattheEnergy
CompaniesadducedevidencesupportingtheirpositionthatHVHFwas
currentlytheonlycommerciallyviablemethodofdrillingandproductionin
theMarcellusShale,thecourtfoundthatmereimpracticalitywasnotenough
totriggertheforcemajeureclauseandextendtheLeaseterms.Id.at220(internal
quotationmarksandalterationomitted).
TheEnergyCompaniesappeal.
DISCUSSION
16

1. StandardforCertification
SecondCircuitLocalRule27.2providesameansbywhichourCourtmay
certifyquestionsofNewYorklawtotheNewYorkCourtofAppeals.The
regulationsoftheNewYorkCourtofAppealspermitthatCourt,inits
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)).

16
Wereviewadistrictcourtsgrantofsummaryjudgmentdenovo.Isabellav.Koubek,733
F.3d384,387(2dCir.2013).

15

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.Barenboimv.StarbucksCorp.,698F.3d104,109(2dCir.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

16

dearthofauthorityinNewYorkrelatingtooilandgasleasessuchasthose
nowatissue.Id.Thus,althoughthiscaseturnsonquestionsofcontract
interpretationthatmaynotbethetypicalmaterialforcertification,becausethe
disputearisesinarelativelyunderdevelopedareaoflawandbecauseit
implicatesmattersofpublicpolicyintegraltotheeconomicandenvironmental
wellbeingoftheStateofNewYork,wecertifythefollowingquestionstothe
NewYorkCourtofAppeals,basedonthemotionforsummaryjudgmentand
accompanyingsubmissions:First,whether,inthecontextofanoilandgaslease,
theStatesMoratoriumamountedtoaforcemajeureevent;andsecond,ifso,
whethertheforcemajeureclausemodifiesthehabendumclauseandextendsthe
primarytermsoftheLeases.Weexplainbelowwhythesequestionsadmitofno
clearanswerunderNewYorklaw,andwhytheywarrantcertification.
a. WastheMoratoriumaforcemajeureevent?
VirtuallyeveryLeasewasexecutedmorethanfiveyearsbeforethe
Landownersbroughtsuitin2012.TheEnergyCompaniesneverdrilledonany
oftheLandownersProperties,letaloneproducedoilorgas.Absentsome

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
commerciallyviabledrillingbutnotalldrillingcanconstitutesuchan
event.TheEnergyCompaniesallegeandLandownersdonotseriouslydispute
thatthecombineduseofHVHFandhorizontaldrillingiscurrentlytheonly
commerciallyviablereadprofitablemethodofdrillingintheMarcellus
Shale.ButtheLeasesalmostallofwhichappeartohavebeenexecutedbefore

17
Thepartiesdonotaddresswhether,whentheGovernorissuedtheJuly23,2008
Directive,thefiveyearprimarytermsofthoseLeasesthatwereexecutedbeforeJuly23,2003,
hadalreadyexpired.Wedonotaddressthatquestionhere,becausethereisnodisputethat
certainLeasesthatis,thosesignedafterJuly23,2003,andthosewhoseprimarytermshad
beenextendedbyagreementofthepartieswerestillineffectasofJuly23,2008.

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
commerciallyprofitabletobothparties.);LaBartev.SenecaRes.Corp.,285A.D.2d
974,975(4thDept2001)([E]verycontractcontainsanimpliedcovenantofgood
faithandfairdealing.).

18
TheLandownersallegethatseveralwellsareoperatingintheMarcellusShaleusing
conventionaldrillingmethods.Theydonotaddress,however,andtherecorddoesnotreflect,
whetherthosewellsareprofitable.TheEnergyCompaniesarguethattheLandownersproof
thatconventionalwelldrillingpermitswereavailableisinadequate,buttheyappeartodispute
onlytheprofitabilityofdrillingintheMarcellusShaleusingconventionaltechniques,rather
thantheavailabilityofpermitstodrillusingconventionaltechniquesinthatregion.

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
guidancefromtheCourtofAppeals.
b. Doestheforcemajeureclausemodifythehabendumclause?

OurreluctancetoaddresswhethertheMoratoriumqualifiesasaforce
majeureeventiscompoundedbyafurther,andinsomerespectsmore
fundamentalquestion:whetherthisforcemajeureclausemodifiestheprimary
termsetbythehabendumclause.

19
Inaparallelsuit,thesameDistrictCourtrejectedasimilarargumentbyotherlessees
thattheMoratoriumwasaforcemajeureeventbecauseitpreventeddrillingintheMarcellus
Shaleinacommerciallypracticabl[e]manner.SeeAukema,904F.Supp.2dat210.Theparties
withdrewtheirappealofthatdecisioninSeptember2013.

20

ThehabendumclauseprovidesthattheLeaseshallremaininforcefor
thefiveyearprimarytermandaslongthereafterasthesaidlandisoperatedby
Lesseeintheproductionofoilorgas.Appx321.Theforcemajeureclause
providesthatifdrillingisdelayedorinterruptedforanenumeratedreason,
thetimeofsuchdelayorinterruptionshallnotbecountedagainsttheLessee,
anythinginthisleasetothecontrarynotwithstanding.Appx336(emphasis
added).Itisunclearwhether,underNewYorklaw,thisclausemodifiesthe
primarytermofthehabendumclausewhenthehabendumclauseisnot
expresslymadesubjecttotheothertermsoftheLease.
ThepartieshavedirectedustonoNewYorkcasethataddressesthe
relationshipbetweenahabendumclauseandaforcemajeureclauseinanoiland
gaslease.Onefederalcourt,applyingNewYorklaw,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.

21

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 clauses unless such clauses [granting and habendum]
incorporatetheadditionallanguagebyexpressreference.
Id.at412(internalquotationmarksomitted).Thatcourtthusfoundthatin
partbecausethehabendumclausedidnotexpresslyincorporatetheforcemajeure
clausetheforcemajeureclauseatissuedidnotmodifythehabendumclause.
Id.
Itisundisputedthatthehabendumclauseinthiscasecontainsnosuch
language.TheLandownersthereforeclaimthattheprimarytermsoftheLeases
areunaffectedbytheforcemajeureclause.
20

20
TheEnergyCompaniesarguethattheLandownersinterpretationoftheLeases
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.4that41213.
NewYorklawoffersnoguidanceonwhetheraforcemajeureeventwould
extendtheprimarytermsoftheLeases.Giventheimportanceofthisissueand
thelikelihoodthatitwillrecurinothercasesinvolvingsimilaroilandgasleases,
wethinkitprudenttoleavethisissuetotheNewYorkCourtofAppeals.

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c. CertificationofthesetwoquestionstotheNewYorkCourt
ofAppeals

Asnotedabove,beforewemaycertify,wemakethreeinquiries:
(1)whethertheNewYorkCourtofAppealshasaddressedtheissueand,ifnot,
whetherthedecisionsofotherNewYorkcourtspermitustopredicthowthe
CourtofAppealswouldresolveit;(2)whetherthequestionisofimportanceto
thestateandmayrequirevaluejudgmentsandpublicpolicychoices;and
(3)whetherthecertifiedquestionisdeterminativeofaclaimbeforeus.
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.ThereissubstantialinterestintheuseofHVHFintheMarcellusShale,
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. UnderNewYorklaw,andinthecontextofanoilandgaslease,didthe
StatesMoratoriumamounttoaforcemajeureevent?
2. Ifso,doestheforcemajeureclausemodifythehabendumclauseandextend
theprimarytermsoftheleases?
WeinvitetheNewYorkCourtofAppealstoexpand,alter,orreformulate
thosequestionsasitdeemsappropriate.
ItisherebyORDEREDthattheClerkoftheCourttransmittotheClerkof
theNewYorkCourtofAppealsacertificateintheformattached,togetherwitha

25

copyofthisOpinionandacompletesetofthebriefs,appendices,andrecord
filedbythepartiesinthisCourt.Thispanelwillretainjurisdictiontodecidethe
caseoncewehavehadthebenefitoftheviewsoftheNewYorkCourtof
AppealsoroncethatCourtdeclinestoacceptcertification.
CERTIFICATE
WeherebycertifytheforegoingquestionstotheNewYorkCourtof
AppealspursuanttoSecondCircuitLocalRule27.2andNewYorkCompilation
ofCodes,Rules,andRegulations,title22,section500.27(a).