McWreath v. Maiorca

[Cite as McWreath v. Maiorca, 2015-Ohio-4319.]

IN THE COURT OF APPEALS

ELEVENTH APPELLATE DISTRICT

TRUMBULL COUNTY, OHIO

LARRY MCWREATH, : OPINION

Plaintiff-Appellant, :
CASE NO. 2014-T-0075
- vs - :

ROCCO J. MAIORCA, et al., :

Defendants-Appellees. :

Civil Appeal from the Trumbull County Court of Common Pleas, Case No. 2012 CV
1929.

Judgment: Affirmed.

L. Bryan Carr, Carr, Feneli & Carbone Co., L.P.A., 1392 S.O.M. Center Road, Mayfield
Heights, OH 44124 (For Plaintiff-Appellant).

Daniel P. Daniluk and Cherry Lynne Poteet, 1129 Niles-Cortland Road, S.E., Warren,
OH 44484(For Defendants-Appellees).

THOMAS R. WRIGHT, J.

{¶1} This accelerated-calendar appeal is from a final judgment in a civil action

before the Trumbull County Court of Common Pleas. As part of that judgment, the trial

court found that appellees, Rocco J. Maiorca and Annarock Petroleum, LLC, had been

properly assigned the rights of the lessee under an oil and gas lease in regard to ninety

acres of land in Vienna Township, Ohio. Appellant, Larry J. McWreath, argues that the

trial court erred in not holding that the assignment of the lease was fraudulent and
noncompliant with governing statutory law. For the following reasons, the decision

upholding the assignment is affirmed.

{¶2} As of April 6, 1981, the ninety acres were owned by Frank Kopervac and

his sister, Elizabeth. On that date, the Kopervacs executed an oil and gas lease in favor

of Eastern Petroleum Services as to the entire tract. The lease’s first paragraph stated,

in pertinent part:

{¶3} “1. That the Lessor, for and in consideration of One Dollar ($1.00) and

other valuable consideration in hand paid by the Lessee, the receipt of which is hereby

acknowledged and the covenants and agreements hereinafter contained, does hereby

Lease and let exclusively unto the Lessee for the purposes of drilling, operating for,

producing and removing oil and gas and all the constituents thereof, and in transport,

across and through said lands, oil, gas and their constituents from the subject and other

lands and of injecting, storing and holding in storage and removing gas of any kind, * * *

including gas lying thereunder, by pumping through wells and other means, into, in and

from and sands, strata or formations lying thereunder, regardless of the sources of such

gas or the location of the wells or other means of doing so, and of placing tanks,

equipment and structures thereon to procure and operate for the said products and of

laying pipe lines thereon to transport the same and for gas storage purposes on other

lands, all that certain tract of land * * * being all the property owned by Lessor in

Section/Lot 44 in Vienna Township, containing 90 acres, more or less.”

{¶4} The term of the lease was for three years. However, if a producing well

was operating on the land prior to the conclusion of the initial three years, the lease

would remain in effect as long as oil or gas was produced “in paying quantities.” The

lease also provides that all terms of the agreement are binding upon the parties’ heirs

2
and successors. Additionally, as to the assignment of the lease, the fifteenth paragraph

granted the “Lessee” the ability to transfer its rights under the lease without providing

any notice to the “Lessor.”

{¶5} During the first year of the lease, Eastern Petroleum Services drilled two

wells which have continued to produce oil or gas during the entire time frame pertinent

to this litigation. Therefore, once Frank Kopervac became the sole lessor following his

sister’s death, he continued to receive monthly royalty payments from the operators of

the wells until his own death in 2008.

{¶6} After establishing the two wells in early 1982, Eastern Petroleum Services

assigned its entire interest in the Kopervac lease to Ohio Oil & Gas. Within twenty days

of becoming the lessee, Ohio Oil & Gas assigned a partial interest in the subject lease

to Exploration Management. Inc. The partial interest covered forty acres of the land and

one of the wells. Approximately twenty months later, in July 1984, Ohio Oil & Gas sold

its remaining interest under the lease, covering the last fifty acres and the second well,

to Exploration Management.

{¶7} Exploration Management was incorporated under Ohio law in 1979, and

has remained in good standing throughout the entire period relevant to this litigation. Its

articles of incorporation state that its principal office is on Niles-Cortland Road in

Cortland, Ohio. After obtaining the remaining interest in the Kopervac lease in 1984,

Exploration Management was the sole lessee under the lease until March 2012.

{¶8} At approximately the same time as Exploration Management became the

sole lessee, a second entity, Exploration Energy, Inc., was incorporated under Ohio law.

Like Exploration Management, Exploration Energy’s articles of incorporation listed 2202

Niles-Cortland Road in Cortland as the location of its principal office.

3
 {¶9} At some point after its incorporation, Exploration Energy became the sole

owner of the two wells on the Kopervac property. However, Exploration Energy did not

acquire an interest in the Kopervac oil and gas lease. As the owner of the wells, the

company was responsible for the production of the oil and gas, and the maintenance of

all equipment on the property.

{¶10} In March 2001, Exploration Energy sold its ownership of the two Kopervac

wells, as well as its ownership of numerous other oil and gas wells in northeastern Ohio,

to Annarock Petroleum. As part of this transaction, Exploration Energy and Annarock

Petroleum had to submit a “change of ownership” notice with the Ohio Department of

Natural Resources. Immediately after the sale of the wells, Exploration Energy ceased

operations on an on-going business.

{¶11} Rocco J. Maiorca is a part-owner and the managing member of Annarock

Petroleum. Over the next eleven years, Annarock Petroleum continued to operate and

maintain the two Kopervac wells. The company also continued to send monthly royalty

payments to Kopervac.

{¶12} Kopervac died in March 2008. His will named Larry McWreath as his sole

heir. As a result, McWreath became the sole lessor under the oil and gas lease. Over

the next three years, there were no problems regarding the operations of the wells, and

McWreath continued to receive the monthly royalty payments. However, in early 2012,

McWreath began to claim that either Exploration Management or Annarock Petroleum

had violated various terms of the oil and gas lease. McWreath further claimed that the

lease did not give Exploration Management all of the oil and gas rights in the property;

according to him, the lease did not cover deep well drilling rights.

{¶13} Each well on the ninety acres had its own access road which had a gate

4
across it. In the past, the two gates never had locks, which made it easy for Annarock

Petroleum to access the wells. When McWreath began to question whether the terms

of the lease had been violated, he placed a lock on each of the two gates. Furthermore,

when Annarock Petroleum requested the combinations for the locks, McWreath refused

to cooperate. Believing that Annarock Petroleum still retained the right to access the

well, an employee of the company drove around the gates onto the land. In response,

McWreath called the local police, and the employee was initially charged with criminal

trespassing. But the local prosecutor later chose to dismiss the charge, and refused to

reinstate the charge despite the fact that McWreath specifically asked him to do so.

{¶14} Soon after McWreath began to challenge the validity of the Kopervac oil

and gas lease, Exploration Management executed a document in which it assigned its

entire interest in the lease to Annarock Petroleum. In addition to being signed by John

A. Ross as president of Exploration Management, the assignment was also executed by

Rocco J. Maiorca as vice president of Exploration Management. Upon its execution,

the document was filed with the Trumbull County Recorder on March 20, 2012.

{¶15} On that same day, Maiorca filed a written notice with the county recorder

stating that Annarock Petroleum, as lessee, had not forfeited or abandoned its interest

in the Kopervac oil and gas lease. The notice listed a number of “facts” regarding the

Kopervac/McWreath property, including the consistent payment of royalties through the

years based upon continuing production from the wells.

{¶16} Five months after the filing of the lease assignment, McWreath instituted

the underlying proceeding against Maiorca and Annarock Petroleum. In his amended

complaint, McWreath asserted two claims for declaratory judgment and one claim for

civil trespass. Under the first declaratory judgment, he requested that the terms of the

5
oil and gas lease be construed to determine whether he, as the lessor under the lease,

still retains the deep well drilling rights to the Kopervac property. Under the second, he

sought a declaration that the March 2012 “lease” assignment to Annarock Petroleum

was invalid, thereby rendering the entire oil and gas lease void.

{¶17} In answering the amended complaint, Maiorca and Annarock Petroleum

asserted five counterclaims. Ultimately, they only went forward on three counterclaims,

essentially seeking a declaratory judgment regarding the continuing enforceability of the

lease and an injunction to prohibit McWreath from denying Annarock Petroleum access

to the two wells. McWreath later decided to dismiss his trespass claim, choosing to go

forward only on his two declaratory judgment claims.

{¶18} The case proceeded upon the parties’ stipulations of fact and final briefs

on the merits. The stipulations primarily consisted of copies of various documents, the

authenticity of which were agreed to by the parties. Included in these documents were

copies of the Kopervac oil and gas lease and the March 2012 assignment to Annarock

Petroleum. The parties also submitted McWreath’s and Maiorca’s deposition for review

in relation to various factual matters.

{¶19} In its final judgment, the trial court ruled in favor of Maiorca and Annarock

Petroleum on all five remaining claims. In disposing of the three declaratory judgment

claims, the court reached the following conclusions: (1) the Kopervac oil and gas lease

is still in full force and effect; (2) the March 2012 “lease” assignment involving

Exploration Management and Annarock Petroleum is valid; (3) as a result, Annarock

Petroleum is the present lessee under the Kopervac lease; and (4) the oil and gas rights

granted in the Kopervac lease include all deep well drilling rights. As to Maiorca’s and

Annarock Petroleum’s claims for breach of lease and injunctive relief, the trial court

6
found that McWreath repeatedly tried to interfere with Annarock Petroleum’s rights

under the lease by denying it access to the property. Hence, the court granted a

permanent injunction prohibiting McWreath from violating any of Annarock Petroleum’s

rights under the oil and gas lease.

{¶20} In contesting the merits of the foregoing judgment, appellant raises three

assignments of error for review:

{¶21} “[1.] The trial court erred in finding the oil and gas lease at issue to be in

full force and effect.

{¶22} “[2.] The trial court erred in finding that ‘deep well drilling rights’ are

comprehended in the lease.

{¶23} “[3.] The trial court erred in issuing a restraining order against appellant.”

{¶24} Under his first assignment, McWreath asserts three arguments regarding

whether the Kopervac oil and gas lease is still enforceable. First, he contends that the

lease must be declared void because the March 2012 “lease” assignment to Annarock

Petroleum was wrought with fraud. According to McWreath, Maiorca engaged in such

fraudulent behavior that it renders the March 2012 assignment invalid and compromises

continuing validity of the oil and gas lease.

{¶25} To prove fraud, a party must satisfy six elements: “‘“(a) a representation

or, where there is a duty to disclose, concealment of a fact, (b) which is material to the

transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter

disregard and recklessness as to whether it is true or false that knowledge may be

inferred, (d) with the intent of misleading another into relying upon it, (e) justifiable

reliance upon the representation or concealment, and (f) a resulting injury proximately

caused by the reliance.”’” Williams v. Aetna Finance Co., 83 Ohio St.3d 464, 475

7
(1998), quoting Cohen v. Lamko, Inc., 10 Ohio St.3d 167, 169 (1984).

{¶26} In maintaining that the March 2012 assignment was fraudulent, McWreath

raises six issues. First, he states that the document provides an address for Exploration

Management, 2202 Niles-Cortland Road in Cortland, Ohio, that is incorrect. In support

of his assertion, McWreath notes that, during his deposition, Maiorca admitted that the

building at the cited address houses an accounting firm, and that no one representing

Exploration Management is at that address on a regular basis.

{¶27} Taken as a whole, Maiorca’s testimony only demonstrates that Exploration

Management did not have an established office from which it transacted its business.

Maiorca testified that all of the accounting work for the company was done at that

address, and that the royalty payments were made there. He further testified that if a

person needed to contact the company, the “Niles-Cortland Road” address was the best

one to utilize. Thus, the record does not show that a different address for the company

existed, or that the “address” statement on the assignment was knowingly false.

Moreover, even if the statement was incorrect, there is nothing in the record to indicate

that the lack of a proper address was material to the assignment.

{¶28} Under his second “fraud” issue, McWreath notes that Maiorca also stated

during his deposition that Exploration Management “is not registered with the State of

Ohio.” Based upon this, he asserts that the March 2012 assignment is invalid because

Exploration Management has been defunct as a corporation since 2001. However, the

record readily shows that it was Exploration Energy, not Exploration Management, that

ceased doing business in 2001. Thus, in stating that Exploration Management was not

registered with the state, Maiorca was not referring to whether the company still had its

corporate status, but whether it was still registered with the Ohio Department of Natural

8
Resources as an owner and operator of oil and gas wells. To this extent, there was no

fraud.

{¶29} Under his third “fraud” issue, McWreath maintains that it was fraudulent for

Maiorca to sign the March 2012 assignment when he subsequently admitted that he did

not hold any office with Exploration Management at that time. As part of his deposition,

Maiorca testified that he should not have executed the assignment on behalf of

Exploration Management because he had not been associated with that company since

1984. But he was also able to provide a logical explanation as to why the mistake had

occurred. Specifically, Maiorca noted that, on the day he signed the “lease”

assignment, he and John A. Ross, president of Exploration Management, were “quickly”

executing a number of documents pertaining to their various businesses. He further

noted that, although he had never been vice president for Exploration Management, he

had once held that post with Exploration Energy.

{¶30} If Maiorca’s signature appeared on the assignment due to confusion as to

which company he served as vice president, there would be no specific intent to commit

fraud. Moreover, since the assignment also has the valid signature of John A. Ross as

president of Exploration Management, the presence of Maiorca’s signature was

superfluous and had no effect upon the validity of the assignment.

{¶31} Under his fourth “fraud” issue, McWreath maintains that a finding of fraud

is justified because Maiorca and Annarock Petroleum gave conflicting statements during

discovery as to when the assignment of the lease took place. According to McWreath,

Maiorca and Annarock Petroleum once asserted during the case that the assignment

occurred in 2001, and cited the “change of ownership” form which they submitted to the

Ohio Department of Natural Resources.

9
 {¶32} As to the “change of ownership” form, the record establishes that the form

pertained to the sale of the two Kopervac wells from Exploration Energy to Annarock

Petroleum, not the “lease” assignment. To that extent, the discovery responses were

not conflicting. Furthermore, even if Maiorca and Annarock Petroleum made conflicting

statements during discovery as to the timing of the assignment, such a conflict during

the case itself would not be relevant to demonstrating fraud as of March 2012.

{¶33} Under his last “fraud” issue, McWreath argues that fraud was committed

when Maiorca and Annarock Petroleum stated on the “change of ownership” form that

the prior holder of the oil and gas lease had been Exploration Energy, not Exploration

Management. But McWreath has again mischaracterized the form. The record clearly

shows that the form covered the sale of the wells to Annarock Petroleum. The record

also establishes that Exploration Energy owned the Kopervac wells prior to the sale to

Annarock Petroleum. Thus, the record does not support McWreath’s assertion of fraud.

{¶34} As a separate point under his fraud argument, McWreath submits that the

March 2012 “lease” assignment should be declared void on the basis of a public policy

violation. In support, he cites Conny Farms, LTD. v. Ball Resources, Inc., 7th Dist.

Columbiana No. 09 CO 36, 2011-Ohio-5472. However, the Conny Farms case involved

the enforceability of a judicial ascertainment clause in an oil and gas lease. In this case,

McWreath is contesting the validity of a “lease” assignment, not the lease itself. More

importantly, the assignment does not have a judicial ascertainment clause or any other

clause that would conflict with the general public policy of this state.

{¶35} The wording of the March 2012 “lease” assignment is sufficiently clear to

establish the purpose of the document. Pursuant to the foregoing analysis, McWreath

has not shown that the document has any material misstatement which would adversely

10
affect the right of the parties to the assignment. Moreover, even if the document does

contain one misstatement, i.e., whether Maiorca was Exploration Management’s vice

president, the evidence supports a finding of no intent to mislead. Accordingly,

McWreath cannot satisfy the elements for fraud.

{¶36} Additionally, McWreath stipulated that he was “* * * not alleging a

claim/count of fraud against [Maiorca and Annarock Petroleum] * * *, or that “* * * [they]

made a false representation to him or concealed a material fact from him.” To this

extent, his “fraud” arguments go to the rights of the assignor and assignee which would

not result in a ruling that the lease is void. Given the stipulations, it is hard to imagine

arguing that the trial court erred in finding no fraud or that he suffered prejudice.

Therefore, McWreath’s first argument regarding the validity of the “lease” assignment

lacks merit.

{¶37} Under his second argument concerning the March 2012 assignment,

McWreath contends that the assignment never became effective because Maiorca and

Annarock Petroleum did not comply with the requirements of R.C. 1509.31. The first

sentence of this statute provides:

{¶38} “Whenever the entire interest of an oil and gas lease is assigned or

otherwise transferred, the assignor or transferor shall notify the holders of the royalty

interests, and, if a well or wells exist on the lease, the division of mineral resources

management, of the name and address of the assignee or transferee by certified mail,

return receipt requested, not later than thirty days after the date of the assignment or

transfer.”

{¶39} No evidence was submitted as part of the stipulations of fact showing that

notification was provided after the “lease” assignment was recorded in March 2012.

11
Based upon this, McWreath asserts that since he never received notification of the

assignment in compliance with the statute, the assignment must be void.

{¶40} As to this point, this court would note that McWreath has raised this point

as a means of declaring that the Kopervac oil and gas lease is likewise void. However,

paragraph 15 of the lease recognizes the right of the lessee to assign its right to another

person or entity. The paragraph further provides that when an assignment of rights

takes place, the lessor is not entitled to any notice. Thus, although McWreath may have

been entitled to notice as a holder of royalty rights, he was not entitled to notice as the

lessor under the oil and gas lease. To that extent, lack of compliance with R.C. 1509.31

had no effect upon the continuing validity of the oil and gas lease.

{¶41} Under the statute, notification of the assignment must be provided by the

assignor. In this case, Exploration Management is the assignor. Therefore, the failure

to comply with the notification requirement means that the assignment is not official, and

Exploration Management is still the holder of the rights under the lease. However, there

is no language in the statute indicating that, by failing to satisfy the statute, Exploration

Management would lose the ability to assign its rights under the lease. In turn, once a

new assignment to Annarock Petroleum has been executed and recorded, Exploration

Management could complete the transaction by providing the necessary notification.

{¶42} Since McWreath has not established that any error as to the March 2012

assignment has rendered the oil and gas lease void, his second argument under his first

assignment is not well taken.

{¶43} Under the final argument of his first assignment, McWreath maintains that

the Kopervac oil and gas lease is no longer enforceable because the lease has been

abandoned. In making this argument, though, McWreath relies solely upon the fact that

12
Exploration Management was unsuccessful in assigning its rights under the oil and gas

lease to Annarock.

{¶44} Notwithstanding the fact that the assignment to Annarock has not been

completed under R.C. 1509.31, there is no evidence that the production of oil and gas

has ceased during the time period since March 2012. Similarly, there is no evidence

that McWreath has not stopped receiving the monthly royalty payments. Hence, while

there is a clear dispute as to which entity is the lessee under the lease at this time, the

rights under the lease are still being exercised. To this extent, the lease has not been

abandoned.

{¶45} As McWreath has not demonstrated a flaw in the March 2012 assignment

that would affect the continuing validity of the oil and gas lease, his first assignment is

not well taken.

{¶46} McWreath’s second assignment pertains to the trial court’s interpretation

of the Kopervac oil and gas lease. Under his second declaratory judgment claim, he

sought a determination that the lessee’s right to extract oil and gas did not include deep

well drilling. In entering judgment in favor of Maiorca and Annarock Petroleum on this

claim, the trial court held that the wording of the lease was broad enough to encompass

all oil and gas rights. In challenging this holding, McWreath contends that the original

parties to the lease could not have intended to include deep well drilling rights in the

grant because deep well drilling did not even exist in 1981.

{¶47} Since an oil and gas lease is a type of contract, any determination of the

rights of the lessor and lessee must be based upon the terms of the written instrument.

Kramer v. PAC Drilling Oil & Gas, LLC, 197 Ohio App.3d 554, 2011-Ohio-6750, ¶10 (9th

Dist.). As a general proposition, the construction of a written contract is a matter of law

13
that will be reviewed de novo on appeal. Bath Twp. v. Raymond C. Firestone, Co., 140

Ohio App.3d 252, 256 (9th Dist.2000). “‘The purpose of contract construction is to

discover and effectuate the intent of the parties. The intent of the parties is presumed to

reside in the language they chose to use in their agreement.’” Id., quoting Graham v.

Drydock Coal Co., 76 Ohio St.3d 311, 313-314 (1996).

{¶48} The grant of the right to the oil and gas on the Kopervac land appears in

the first paragraph of the lease. As noted above, the clause gives the lessee the right to

produce and remove oil and gas “by pumping through wells or other means, into, in and

from any sands, strata or formations lying thereunder, regardless of the source of such

gas or the location of the wells or other means of doing so, * * *.” (Emphasis added.)

{¶49} The foregoing language is plain and unambiguous. By referring to all

sands, strata, or formations, the language does not place any limitation as to where the

oil and gas is located, so long as it is under the surface of the ground. Furthermore, as

the trial court noted, the language clearly provides that any means can be employed to

extract the materials from the ground. Therefore, the language does not indicate any

reservation of rights to the lessor regarding the oil and gas. The lessee is entitled to all

oil and gas, regardless of its location underground.

{¶50} Given the absolute nature of the grant, the creation of new technology to

engage in deep well drilling would inure to the benefit of the lessee. The fact that the

original parties to the lease were unaware of the possibility of deep well drilling does not

alter the interpretation of the paragraph. By granting the lessee the right to extract the

oil and gas regardless of its location, the lessor lost the ability to extract any oil and gas

by any means. To this extent, the trial court did not err in holding that the terms of the

lease did not allow McWreath to engage in any separate drilling on the land. Thus, his

14
second assignment is without merit.

{¶51} Under his final assignment, McWreath argues that the trial court should

not have granted a permanent injunction against him because there was no evidence

demonstrating that he was inhibiting Annarock Petroleum’s access to the wells. Yet, in

making this argument, McWreath does not acknowledge the undisputed fact that he

placed locks on the two access gates, and then refused to give the combinations to the

locks to Annarock Petroleum’s employee. He also does not acknowledge that he called

the police and had a company employee cited for civil trespassing when that employee

drove around the locked gates to access the wells.

{¶52} Viewed as a whole, the record contains sufficient evidence for the trial

court to find that McWreath was attempting to block Annarock Petroleum’s right under

the lease to enter upon the land to properly maintain the wells and continue production

of the oil and gas. In turn, this finding justifies the issuance of a permanent injunction to

stop McWreath from taking any other steps to inhibit Annarock Petroleum’s access to

the property. Accordingly, McWreath’s third assignment also lacks merits.

{¶53} The judgment of the Trumbull County Court of Common Pleas is affirmed.

TIMOTHY P. CANNON. P.J.,

COLLEEN MARY O’TOOLE, J.,

concur.

15