The United States Court of Appeals for the Second Circuit (Second Circuit) certified a question to the New York Court of Appeals (Court of Appeals) that could have provided an avenue by which an energy company could have maintained its right to drill in New York. Specifically, the company argued that New York’s decision to halt the issuance of drilling permits during its review of the environmental impact of fracking triggered a force majeure clause in a lease that extended the term of the lease.
The energy company had several oil and gas leases with landowners in Tioga County. The leases contained habendum clauses that would have extended the leases as long as the company used the land for the production of oil and gas. When New York implemented its moratorium on hydraulic fracturing, the company had not yet engaged in oil and gas production on the leased land and the landowners had not received any royalties. The landowners sued in New York federal court, arguing that the leases had expired. The energy company and landowners filed competing motions for summary judgment. The energy company argued that the leases were extended because the force majeure clause was triggered by New York’s moratorium on hydraulic fracturing, and the landowners claimed that the leases were expired.
The district court granted summary judgment in favor of the landowners, reasoning that the leases had expired. The energy company appealed to the Second Circuit. Because of the importance and novelty of the case to state law, the Second Circuit certified two questions to the Court of Appeals: 1) whether New York’s moratorium constituted a force majeure event and 2) whether the leases were extended.
The Court of Appeals answered the second question and refrained from answering the first question. Specifically, the court concluded that the force majeure clause did not affect the term of the habendum clauses and therefore failed to extend the leases. The court based its conclusion on the fact that the habendum clause did not refer to the force majeure clause. Moreover, according to the court, the force majeure clause only applied to the termination of the lease rather than the expiration of the lease.
Read the opinion.
This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713 651 3662) and Johnjerica Hodge (johnjerica.hodge@nortonrosefulbright.com or 713 651 5698) from Norton Rose Fulbright's Energy Practice Group.
