Lutz v. Chesapeake Appalachia, L.L.C.

Respondents, landowner-lessors, filed a putative class action in federal court claiming that Petitioner, the lessee, underpaid gas royalties under the terms of their leases. Under each lease, the lessee must bear all the production costs. The federal court certified to the Ohio Supreme Court a question regarding whether the lessee was permitted to deduct postproduction costs from the lessors’ royalties and, if so, how those costs were to be calculated. Specifically, the federal court asked the Supreme Court whether Ohio follows the “at the well” rule, which permits the deduction of post-production costs, or whether it follows some version of the “marketable product” rule, which limits the deduction of post-production costs under certain circumstances. The Supreme Court declined to answer the certified question and dismissed the cause, holding (1) under Ohio law, an oil and gas lease is a contract that is subject to the traditional rules of contract construction; and (2) therefore, the rights and remedies of the parties in this case are controlled by the specific language of their lease agreement. View "Lutz v. Chesapeake Appalachia, L.L.C." on Justia Law