Walter R. Beardslee,, et al., Respondents,v.Inflection Energy, LLC, et al., Appellants.

Brief

N.Y.August 26, 2014

To be Argued by: THOMAS S. WEST, ESQ. (Time Requested: 30 Minutes) Court of Appeals of the State of New York WALTER R. BEARDSLEE, Individually and as Co-Trustee of the Drusilla W. Beardslee Family Trust, ANDREA R. MENZIES, as Co-Trustee of the Drusilla W. Beardslee Family Trust, JOHN A. BEARDSLEE, as Co-Trustee of the Drusilla W. Beardslee Family Trust, PHYLLIS L. BENSON, ELIZABETH A. BEARDSLEE, LYNDA B. COCCIA, NATHAN J. DONNELLY, CAROLYN B. DONNELLY, KEVIN P. DONNELLY, ROSE ANN DONNELLY, MARIE S. DONNELLY, WILLIAM J. HANER, JOSEPH HANER, JAMES HANER, MARGARET LAWTON, GLEN MARTIN, LYNN M. MARTIN, JOSEPH E. MCTAMNEY, B. LOUISE MCTAMNEY, BONNIE D. MEAD, R. DEWEY MEAD, WAYNE R. MIDDENDORF, CYNTHIA L. MIDDENDORF, FLOYD E. MOSHER, JR., LESA D. MOSHER, AKA Lesa Huntington, (For Continuation of Caption See Inside Cover) ON APPEAL FROM THE QUESTION CERTIFIED BY THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT IN DOCKET NO. CTQ-2014-00006 REPLY BRIEF FOR DEFENDANTS-APPELLANTS THOMAS S. WEST CINDY MONACO THE WEST FIRM, PLLC Attorneys for Defendants-Appellants 677 Broadway, 8th Floor Albany, New York 12207 Tel.: (518) 641-0500 Fax: (518) 615-1500 December 22, 2014 MOUNTAIN PARADISE CLUB NY 31 LLC, JAMES W. REYNOLDS, as Trustee of the James W. Reynolds Trust, MARY A. PFEIL-ELLIS, KERRY K. ELLIS, PAUL R. SALAMIDA, PAULINE M. SALAMIDA, GARY D. SHAY, BONITA K. SHAY, BRAD A. VARGASON, Plaintiffs-Respondents, – against – INFLECTION ENERGY, LLC, VICTORY ENERGY CORPORATION, MEGAENERGY, INC., Defendants-Appellants. i TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................ iii PRELIMINARY STATEMENT ............................................................................ 1 SUMMARY OF ARGUMENT ............................................................................... 2 ARGUMENT ............................................................................................................ 4 POINT I: THE MORATORIUM IS A “FORCE MAJEURE” EVENT UNDER THE OPERATIVE LEASE LANGUAGE .............................................................................. 4 A. The Moratorium Is Not A Pre-Existing Governmental Order or Regulation .................................................................... 4 B. Without HVHF, No Production Can Be Obtained From The Leaseholds ........................................................................... 9 C. That Lessees Could Have Drilled Multiple Dry Holes On The Leaseholds Is Irrelevant ............................................... 18 D. That Lessees Did Not Have the Obligation To Drill Is Irrelevant ............................................................................... 23 E. Foreseeability Is Irrelevant To The “Force Majeure” Analysis ..................................................................................... 27 F. Even If Foreseeability Were Relevant, The Moratorium Was Unforeseeable ................................................................... 28 POINT II: THE FORCE MAJEURE CLAUSE TOLLS THE O&G LEASES DURING THE DELAY “ANYTHING IN TH[E] LEASE TO THE CONTRARY NOTWITHSTANDING,” THUS MODIFYING THE HABENDUM CLAUSE ................................................ 30 ii CONCLUSION ................................................................................................... 38 iii TABLE OF AUTHORITIES CASES Alaskan Crude Corp. v. Alaska Dep’t of Natural Res., 261 P.3d 412 (Alaska 2011) ............................................................................ 7 Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d 855 (Tex. Ct. App. 2011) ............................................. 6, 9, 15, 16 Ametex Fabrics, Inc. v. Just In Materials, Inc., 140 F.3d 101 (2d Cir. 1998) ........................................................................ 8, 9 Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905 (2d Cir. 2010) .......................................................................... 37 BDC Finance L.L.C. v. Barclays Bank PLC, 110 A.D.3d 582 (1st Dep’t 2013) .................................................................. 36 BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59 (Tex. 2011) ........................................................................... 22 Commonwealth Edison Co. v. Allied-Gen. Nuclear Servs., 731 F. Supp. 850 (N.D. Ill. 1990) .................................................................. 26 Curtis v. Hess Ohio Res. LLC, No. 2:13-cv-0453, 2014 WL 4249857 (S.D. Ohio Aug. 27, 2014) ............... 32 Erickson v. Dart Oil Corp., 474 N.W.2d 150 (Mich. Ct. App. 1991) .......................................................... 6 Gillespie v. Simpson, 588 P.2d 890 (Colo. App. 1978) .................................................................. 6, 7 Gulf Oil Corp. v. Southland Royalty Co., 496 S.W.2d 547 (Tex. 1973) ....................................................... 31, 36, 37, 38 H. Fox & Co. v. Blumenfeld, 24 A.D.3d 722 (2d Dep’t 2005) ..................................................................... 36 iv Hoffman v. Town Bd. of Queensbury, 255 A.D.2d 752 (3d Dep’t 1998) ..................................................................... 8 Howard v. Hoffeld, 221 N.Y. 546 (1917) ...................................................................................... 20 Jensen v. Rudman P’ship & Hess Corp., No. 4:10-cv- 00027, 2011 WL 1791102 (D.N.D. May 10, 2011) ................. 13 Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900 (1987) .............................................................................passim Kel Kim Corp.v. Central Mkts., 131 A.D.2d 947 (3d Dep’t 1987) ................................................................... 17 Macalloy Corp. v. Metallurg, Inc., 284 A.D.2d 227 (1st Dep’t 2001) .............................................................. 7, 17 Martin v. Pa. Dep’t of Envtl. Res., 548 A.2d 675 (Pa. Commw. Ct. 1988) .......................................................... 25 Moyer v. City of Little Falls, 134 Misc. 2d 299 (Sup. Ct. Herkimer Cnty. 1986) ....................................... 29 Neuhard v. Range Res.-Appalachia, LLC, Case No. 4:11-cv-01989, 2014 WL1745896 (M.D. Pa. Apr. 30, 2014) ....... 32 Novy v. Woolsey Energy Corp., No. 110,599, 2014 WL 4437500 (Kan. Ct. App. Sept. 10, 2014) ........... 12, 13 Perlman v. Pioneer Ltd. P’ship, 918 F.2d 1244 (5th Cir. 1990) ........................................................... 16, 17, 28 Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312 (S.D.N.Y. 1989) ................................................................ 29 Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd., 782 F.2d 314 (2d Cir. 1985) .......................................................................... 25 v Raner v. Goldberg, 244 N.Y. 438 (1927) ...................................................................................... 26 Rohm & Haas Co. v. Crampton Corp., Nos. 215 NOV.TERM 2001, CONTROL 020435, 2002 WL 1023435 (Pa. Ct. Com. Pleas Apr. 29, 2002) .................................... 24, 25, 27 San Mateo Cmty. Coll. Dist. v. Half Moon Bay Ltd., 65 Cal App. 4th 401 (Cal. Ct. App. 1998) ......................................... 31, 36. 37 Sanders v. Binghamton, 522 P.2d 959 (Kan. 1974) .............................................................................. 13 Slaaten v. Amerada Hess Corp., 459 N.W.2d 765 (N.D. 1990) ........................................................................ 13 Starke v. United Parcel Serv., Inc., 513 F. Appx. 87 (2d Cir. 2013) ............................................................... 24, 27 Sun Operating Ltd. v. Holt, 984 S.W.2d 277 (Tex. Ct. App. 1998) ..................................................... 31, 38 Trinidad Petroleum Corp. v. Pioneer Natural Gas Co., 416 So. 2d 290 (La. Ct. App. 1982) ........................................................ 20, 21 United Equities Co. v. First Nat’l City Bank, 52 A.D.2d 154 (1st Dep’t 1976), aff’d, 41 N.Y.2d 1032 (1977) ................... 25 Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470 (2004) ...................................................................................... 24 Wadkins v. Wilson Oil Corp., 6 So. 2d 720 (La. 1942) ................................................................................. 22 Wallach v. Town of Dryden, 23 N.Y.3d 728 (2014) .................................................................................... 28 Wheatland Irrigation Dist. v. McGuire, 537 P.2d 1128 (Wyo. 1975) ........................................................................... 25 vi Wilkinson v. Planning Bd. of Town of Thompson, 255 A.D.2d 738 (3d Dep’t 1998) ..................................................................... 8 Wiser v. Enervest Operating, L.L.C., 803 F. Supp. 2d 109 (N.D.N.Y. 2011) .......................................................... 31 OTHER AUTHORITIES 3-27 Eugene Kuntz, et. al, Kuntz, Law of Oil & Gas § 27.1 (2013) ....................... 32 Carrizo Drills Exploratory Vertical Well in N.Y.’s Marcellus, NGI’s Shale Daily (Oct. 12, 2012) ................................................................ 12 Tom Wilber, Efforts to Test Marcellus in Upstate NY Produces Leaky Well Carrizo Crews on Site to Fix Casing Problem in Owego, Shale Gas Review (May 15, 2013) tomwilber.blogspot. com/2013/05/efforts-to-test-marcellus-in-upstate-ny.html ...................................... 12 Well: 31107265020000, Empire State Oil & Gas Information System, http://esogis.nysm.nysed.gov/esogis/ well.cfm?api=31107265020000 (last visited Dec. 17, 2014) ............................ 11, 12 1 PRELIMINARY STATEMENT The Inflection Lessees respectfully submit this Reply Brief in response to the Beardslee Lessors’ brief, dated December 4, 2014 (“Beardslee Brief”) and in further support of Lessees’ position that the two certified questions from the Second Circuit must be answered in the affirmative.1 Simply stated, all of the Beardslee Lessors’ arguments – which ignore or miscast the undisputed facts, defy plain contract language, fly in the face of the O&G Leases’ purpose and implied covenants, or rely on espoused legal principles that either do not exist or are irrelevant to this case – fail to support their interpretation of the operative Lease language. In the end, none of the Beardslee Lessors’ arguments, misrepresentations or misapprehensions changes the unrebutted fact that the Moratorium’s ban on HVHF precludes use of the only drilling method that can possibly obtain any production from the Leaseholds. This renders the delay in drilling “beyond Lessees’ control” and, hence, a “force majeure” event per the express contract language. And, because the time of the delay shall not be counted against Lessees “anything in th[e] lease to the contrary notwithstanding,” this informs the analysis and trumps the habendum clause, thus extending the O&G Leases’ primary terms. Accordingly, both certified questions must be answered in the affirmative. 1 Abbreviations herein are as defined in the Inflection Lessees’ Brief, dated October 28, 2014 (“Inflection Brief”). 2 SUMMARY OF ARGUMENT Notwithstanding the Beardslee Lessors’ Gatlin gun approach, this case presents questions of commercial contract interpretation and is not about deeds, recording statutes, the vesting of estates, real property alienation principles, or commercial lease transaction that post-date execution of the O&G Leases. Further, contrary to Lessors’ miscasting of the facts and relevant law, this case is also not about a typical permitting situation involving application of existing regulations where the lessee either (1) did not allow enough time for the predictable timing of the permitting process; or (2) elected to pursue one develop method over a less profitable one. What this case is about is an extraordinary, wholly unprecedented 6-year-long statewide ban on the only development methodology that can yield any production from the Leaseholds. And, resolution of this case cannot be dictated by Lessors’ self-serving after- the-fact view of what they feel was intended by the O&G Leases, or by generalized common law notions. Rather, this case must be resolved based upon the unrefuted factual record and the contract language to which the parties agreed: namely, that “[i]f and when drilling . . . [is] delayed . . . as a result of some order, rule, regulation, requisition or necessity of the government, or as a result of any other cause whatsoever beyond the control of Lessee, the time of such delay . . . shall not 3 be counted against Lessee, anything in th[e] lease to the contrary notwithstanding.” A. 46, ¶ 6. Indisputably, Lessees were given the right to drill with the aim of obtaining production. The record stands unrebutted that Lessees’ activities in the vicinity of the Leaseholds proved that (1) there are no formations underlying the Leaseholds that are capable of production other than deep shales, and (2) these deep shales require HVHF and horizontal drilling in order to yield production – that is, any production at all. The record also stands unrebutted that the Inflection Lessees have no control over the timing of the SGEIS process or the state’s standing Executive Orders that no HVHF permits will be issued (if at all) until after the SGEIS process is concluded. Thus, the Moratorium‘s long-term ban on HVHF is a governmentally-imposed delay in drilling that is beyond Lessees’ control, and hence, a “force majeure” event per the express contract language. Moreover, under the operative contract language, this is so regardless of whether there was any obligation to drill, whether the Moratorium was foreseeable (which it was not), or whether drilling with conventional methods continued in other geologically removed (and hence irrelevant) parts of New York State. Under a plain language reading of the contract, the result of this “force majeure” event is equally clear. The O&G Lease language directs, unqualifiedly and unequivocally, that, “the time of such [drilling] delay . . . shall not be counted 4 against Lessee, anything in th[e] lease to the contrary notwithstanding.” A. 46, ¶ 6. Under settled precedent in New York, which the Beardslee Lessors tellingly ignore, the “anything . . . to the contrary notwithstanding” language informs the interpretation of the O&G Leases read as a whole and trumps all other contract provisions, thus, including the habendum clause. The O&G Leases, therefore, were tolled during the drilling delay, meaning the Leases’ primary terms were extended. Accordingly, both certified questions must be answered in the affirmative. ARGUMENT POINT I THE MORATORIUM IS A “FORCE MAJEURE” EVENT UNDER THE OPERATIVE LEASE LANGUAGE A. The Moratorium Is Not A Pre-Existing Governmental Order Or Regulation At the outset, the Beardslee Lessors’ attempt to cast the Moratorium as a governmental order pre-dating execution of the O&G Leases must be rejected. Specifically, Lessors misguidedly argue that because SEQRA and the 1992 GEIS pre-dated execution of the O&G Leases, the Inflection Lessees cannot claim “force majeure.” See generally Beardslee Brief, Point II; see also id. at 22-26. As the certified question from the Second Circuit recognizes, however, the “force majeure” event asserted here is not the existence of pre-existing regulation, be it 5 SEQRA or the 1992 GEIS. The “force majeure” event is not even the 2008 Directive ordering the Department to complete the SGEIS process for HVHF and horizontal drilling. The pertinent event is the resulting long-term (now more than 6-year-long) Moratorium on HVHF that has resulted from protracted bureaucratic delay in completing the SGEIS process (as ordered by the 2008 Directive) and the several Executive Orders directing that no HVHF permits will be issued until conclusion of the SGEIS process. A. 17-18, n.13, Second Circuit Decision (discussing the delay and ban on HVHF since the 2008 Directive, and identifying same as the Moratorium). Thus, the Moratorium – which evolved and became more certain over the years after issuance of the 2008 Directive – is not a regulation or order that pre-dates execution or extension of the O&G Leases between 2001 and 2006. In any event, to the extent the Bearsdlee Lessors’ make sweeping statement of law that existing governmental regulation can never be the basis of a force majeure claim, they are wrong in this regard as well. See Beardslee Brief, at 29 (stating that every jurisdiction agrees that “[a] governmental order/regulation predating the lease executions has never been held to be a force majeure event”); id. at 30 (arguing that because the Inflection Lessees were aware of New York’s regulatory scheme, they cannot claim “force majeure”). First, if mere knowledge of a statutory or regulatory scheme means the lessee can never assert force majeure 6 regardless of how state actors implement and apply that scheme, then “delay from governmental order” language in a “force majeure” clause is meaningless, as presumably every governmental order would arise from some underlying regulatory or statutory scheme. Indeed, the Beardslee Lessors’ sweeping statement is belied by the very case on which they rely. See Beardslee Brief, at 29 (citing Erickson v. Dart Oil Corp., 474 N.W.2d 150 [Mich. Ct. App. 1991]). In Erickson, the Michigan Appeals court held that failure to obtain a permit was not a force majeure event under the facts in that case: namely, the court’s finding that the applicant “did not leave enough time to account for the predictable timing of the permit process.” 474 N.W.2d at 156 (emphasis added). Pointedly, the court noted that the process “was not affected by any unforeseeable, unreasonable or even unusual bureaucratic delay” or “extraordinary circumstances.” Id. Thus, Erickson did not involve a long-term delay in completing the environmental review process, let alone an outright multi-year ban on permit issuance. Accordingly, Erickson does not support the Beardslee Lessors’ position. See also Allegiance Hillview, L.P. v. Range Texas Prod., LLC, 347 S.W.3d 855, 867-72 (Tex. Ct. App. 2011) (holding that city’s delay in issuing permit was a force majeure event); Gillespie v. Simpson, 588 P.2d 890, 891-92 (Colo. App. 1978) (finding force majeure triggered; finding no merit to lessor’s claims that 7 “lessees assumed the risk of governmental inaction and that, therefore, such delays [could not] be considered as a force majeure”). Macalloy Corp. also does not support the Beardslee Lessors’ argument because, unlike the situation here, Macalloy Corp. involved straightforward application of a pre-existing regulation. See Beardslee Brief, at 31 (discussing Macalloy Corp. v. Metallurg, Inc., 284 A.D.2d 227 [1st Dep’t 2001]). The plaintiff in Macalloy Corp. shut down the facility voluntarily due to increased costs associated with existing regulations, as to which “plaintiff was fully aware . . . prior to entering into the contract.” 284 A.D.2d at 227-28 (emphasis added). Thus, Macalloy Corp. does not involve a sweeping, unprecedented regulatory ban enacted after contract execution.2 In short, given that the Moratorium did not pre- date execution of the O&G Leases, but arose long thereafter due to protracted bureaucratic delay (which is still not at an end), Macalloy Corp. is wholly inapt. See also Beardslee Brief, at 29 (citing Alaskan Crude Corp. v. Alaska Dep’t of Natural Res., 261 P.3d 412 [Alaska 2011]; also involving a governmental determination that pre-dated contract execution). The Beardslee Lessors’ remaining arguments are equally unavailing. That agricultural district land would be affected by an HVHF permit also does render the subject drilling delay – i.e., the Moratorium – a pre-existing governmental 2 Additionally, the case does not provide the “plant shutdown” language on which plaintiff attempted to rely to excuse performance. 8 regulation or order. See Beardslee Brief, at 32-33. Here, the Beardslee Lessors confuse the need to make a determination of significance under SEQRA with having that determination be a positive declaration requiring an environmental impact statement (“EIS”). The two are not the same, and, in fact, it is commonplace for Type I actions to be issued negative declarations. See, e.g., Wilkinson v. Planning Bd. of Town of Thompson, 255 A.D.2d 738, 738-40 (3d Dep’t 1998) (affirming the negative declaration of a Type I action involving 200,000 square foot Wal-Mart retail development). Further, the Beardslee Lessors have offered nothing suggesting, let alone supporting the view, that an EIS would have been required for an HVHF permit simply due to the disturbance of a few acres of agricultural land. See Hoffman v. Town Bd. of Queensbury, 255 A.D.2d 752, 752-54 (3d Dep’t 1998) (affirming the negative declaration of a Type I action involving development of 140 acres with single-family homes, duplex units and senior citizen housing). Thus, this argument fails. Also without merit is the Beardslee Lessors’ misguided attempt to make much of the fact that Inflection acquired its interest in the O&G Leases by assignment after the 2008 Directive. See Beardslee Brief, at 7, 16, 29. “[A]ssignment does not modify the terms of the underlying contract[s];” rather, Inflection “simply move[d] into the shoes of the assignor,” “leaving [the assignor’s transferred contract rights] in full force and effect.” Ametex Fabrics, Inc. v. Just In 9 Materials, Inc., 140 F.3d 101, 107 (2d Cir. 1998); see also A. 52 ,¶ 10 (providing lessee the right to assign the lease and according assignee all rights and obligations thereunder). In any event, when Inflection negotiated its interest in the O&G Leases in March 2009, both operators and the Department believed that the SGEIS process would be concluded shortly; therefore, no one anticipated (or could have anticipated) that the process would continue to languish year after year after year. See A. 239, 648, 660, 856-57, 921. In the end, nothing supports the Beardslee Lessors’ claim that the Moratorium cannot be a force majeure event because it arises from unprecedented, protracted bureaucratic delay in implementing an existing regulatory scheme. See Allegiance Hillview, L.P., 347 S.W.3d at 867-72; Gillespie, 588 P.2d at 891-92. B. Without HVHF, No Production Can Be Obtained From The Leaseholds Likewise unavailing is the Beardslee Lessors’ claim that the Moratorium is not a “force majeure” event because (1) drilling did not stop in other geographically removed, geologically irrelevant portions of the state; or (2) a vertical Marcellus test well (Wetterling #1) was drilled in Tioga County in the vicinity of the Leaseholds. See Beardslee Brief, Point III. Lessors’ first statement fails to raise any issue of fact that (1) deep shales are the only formations 10 underlying the Leaseholds with the potential to yield any production, and (2) the development of those deep shales requires the use of HVHF and horizontal drilling. Lessor’s second statement regarding the Wetterling #1 test well – which yielded no production – actually further proves the Inflection Lessees’ point that the deep shale formations underlying the Leaseholds requires HVHF and horizontal drilling to yield any production. More specifically, the Beardslee Lessors have failed to present any competent proof rebutting the record evidence that the only potentially productive formations at issue are deep shales, and HVHF is needed to obtain production. Contrast Inflection Brief, Point I.A (and record citations therein), with Beardslee Brief, Point III (and citations to Keefe Affidavit). The Beardslee Brief recounts the information provided in the Keefe Affidavit, which gives bulk statistics of how many conventional drilling permits were granted and natural gas produced statewide in various timeframes since 2008. See Beardslee Brief, Point III. These blanket, generalized claims – with no indication of location, geologic formation, or well-specific productivity (see id.) – do nothing to rebut Lessees’ record evidence demonstrating that, in the vicinity of the Leaseholds, (1) no formations other than deep shales are capable of yielding any production; and (2) HVHF with horizontal drilling is necessary to develop that resource. See Inflection Brief, Point I.A (and record citations therein). 11 Interestingly, the Beardslee Lessors’ arguments merely highlight this conclusion. By way of example, to the extent the Beardslee Lessors reference the total number of vertical Marcellus wells that were drilled and remain active/producing in New York State, conspicuously absent is any mention of location. See Beardslee Brief, at 33-35 (reciting total numbers and number of producing/active vertical Marcellus wells for 2004-2008, 2009, and 2010, without any mention of location). As set forth in the Hennessey Declaration, during this same time period, only two wells were drilled in all of Tioga County with conventional methods, and both failed to yield any production. A. 201-04, Hennessey Dec., ¶¶ 13-22; A. 230, Hennessey Dec., Exh. B. The Beardslee Lessors have not rebutted this fact. Notably, in the sole instance where the Beardslee Lessors do mention location (i.e., the Wetterling #1 well, which was drilled in 2012 in the Town of Owego, Tioga County, and is not part of the record of this case), they never mention whether the well yielded any production. See Beardslee Brief, at 35. In fact, this well did not yield any production, and the Lessors are aware of this fact, as it is reported on the website that they cite. See id. (citing Well: 31107265020000, Empire State Oil & Gas Information System, http://esogis.nysm.nysed.gov/esogis/well.cfm?api=31107265020000 [last visited Dec. 17, 2014]). The Beardslee Lessors are also very likely aware that the 12 Wetterling #1 well was intended, from the outset, to be only a test/evaluation well so that rock cores could be gathered. See Carrizo Drills Exploratory Vertical Well in N.Y.’s Marcellus, NGI’s Shale Daily (Oct. 12, 2012), available at http://www.naturalgasintel.com/articles/3795-carrizo-drills-exploratory-vertical- well-in-new-york-s-marcellus. From its inception, this well was intended to be plugged and abandoned after testing as it was never intended or anticipated that this vertical Marcellus well would yield any production, and, indeed, it did not. See Tom Wilber, Efforts to Test Marcellus in Upstate NY Produces Leaky Well Carrizo Crews on Site to Fix Casing Problem in Owego, Shale Gas Review (May 15, 2013) http://tomwilber.blogspot.com/2013/05/efforts-to-test-marcellus-in- upstate-ny.html; see also Well: 31107265020000, supra. Accordingly, the Beardslee Lessors’ argument and evidentiary submissions (including the Keefe Affidavit) – which are bereft of a single word as to location- specific production and rely on geographically irrelevant wells from other parts of the state and a vertical Marcellus test well in Tioga County that yielded no production – are wholly inadequate to raise any issue of fact suggesting that, in the area of the Leaseholds, production can be obtained without HVHF and horizontal drilling. Cf. Novy v. Woolsey Energy Corp., No. 110,599, 2014 WL 4437500, *5- *6 (Kan. Ct. App. Sept. 10, 2014) (rejecting the claim of breach of implied covenant to prudently develop where plaintiff failed to present evidence whether 13 there was a capability of producing under leased land; stating that “despite [plaintiff’s] testimony that three wells had been drilled 2 miles south of the leased land, he failed to indicate whether those wells were even producing”); Jensen v. Rudman P’ship & Hess Corp., No. 4:10-cv- 00027, 2011 WL 1791102, *4-*6 (D.N.D. May 10, 2011) (rejecting a claim of breach of implied covenant to further develop where plaintiffs failed to provide evidence countering lessee’s evidence of local development activity, seismic on leased property, and evaluation of nearby well drilling and production); Slaaten v. Amerada Hess Corp., 459 N.W.2d 765, 769 (N.D. 1990) (finding that plaintiffs failed to create fact issue regarding lessee’s failure to act as prudent operator where defendant-lessee presented evidence of development history, including wells drilled in the vicinity of leased property, poor performance of wells near leased land, and pursuit of further development through seismic program); see also Sanders v. Binghamton, 522 P.2d 959, 965-67 (Kan. 1974) (reversing the trial court’s finding that lessee failed to act as a prudent operator regarding further development where lessor presented no evidence of reasonable expectation of obtaining production from the acreage in the litigation and no evidence of reservoir characteristics, including producing or productive formations and location-specific information as to the same). 3 3 Although these cases deal with the implied covenant of further development after initial discovery of oil or gas in paying quantities, they are instructive nonetheless as to the factors that are pertinent to determining if the lessee has acted in good faith. Thus, these cases provide 14 Thus, the record stands unrebutted that: (1) multiple attempts to develop other formations in the vicinity of the Leaseholds yielded no production; (2) the only promising shows were in the Marcellus Shale; and (3) development of the Marcellus underlying the Leaseholds requires HVHF and horizontal drilling, the combination of which is prohibited by the Moratorium. Inflection Brief, Point I.A (and record citations therein). In the end, because the Moratorium bans the only drilling method that could be used on the Leaseholds to obtain any production, and because the Inflection Lessees have no control over the Executive Branch and the timing of the SGEIS process, the delay in drilling is beyond Lessees’ control, and, hence, is a “force majeure” event. Furthermore, because of this factual reality, it matters not that the “force majeure” clause does not specifically mention HVHF. See Beardslee Brief, at 16 (stating that the O&G Leases do not mention HVHF). The “force majeure” language expressly identifies drilling delays caused by Governmental Order beyond Lessees’ control, and the Moratorium, imposed by Executive Order, so qualifies under the Kel Kim standard. See Kel Kim Corp. v. Central Mkts., 70 N.Y.2d 900, 902-03 (1987) (stating that force majeure provisions will be applied to the events identified in the clause). pertinent guidance for this analysis – both as to whether (1) the Beardslee Lessors’ generalized submissions raise any issue of fact of whether other drilling methods could have been employed in good faith to yield production; and (2) the Moratorium’s ban on the only method that could have yielded any production renders the delay in drilling beyond the Inflection Lessees’ reasonable control and, thus, within the scope of the “force majeure” clause. 15 In this regard, the Beardslee Lessors reliance on Allegiance Hillview, L.P. to support their contrary interpretation is nothing short of perplexing. See Beardslee Brief, at 52-53 (stating that Allegiance Hillview, L.P. supports their position because the contract “defined a force majeure event to include delays in issuance of a permit by the City”). Under a plain language reading, the O&G Leases’ “force majeure” language – i.e., delay in drilling caused by Governmental Order beyond Lessees’ control – is even broader than the “permit delay” language in Allegiance Hillview, L.P. See 347 S.W.3d at 867. Thus, the distinction Lessors raise is not of any legal significance and certainly does not support their position. Moreover, the Beardslee Lessors neglect to mention that the force majeure clause in Allegiance Hillview required an even higher standard than that here: namely, that the force majeure event be beyond the party’s control and that the party take all reasonable steps to overcome the force majeure. Id. Further, the Court of Appeals of Texas found that the city’s delay in issuing a permit constituted a force majeure event, even though the city’s regulation that was being applied existed prior to execution of the subject contract and even though the delay in permitting resulted from the defendant’s decision to pursue a six-well development plan rather than a smaller scale plan. Id. at 871 (finding that the evidence supported defendant’s belief that six wells were necessary to develop the property fully and noting that defendant “had a duty to act as a reasonably prudent 16 operator . . . to reasonably develop the premises”). Thus, contrary to the Beardslee Lessors’ claim, in no respect does Allegiance Hillview support their position that the drilling delay here is not a “force majeure” event. In fact, Allegiance Hillview fully supports the Inflection Lessees’ position that the Moratorium is a “force majeure” event under the operative language of the O&G Leases. Inflection Brief, at 42-43. Finally, the unrebutted factual reality that conventional drilling methods could not yield any production from the Leaseholds also defeats the Beardslee Lessors’ attempt to mischaracterize the issue as being a matter of Lessees’ choice of drilling method due to profitability concerns. See Beardslee Brief, Point V, at 43-49. This is not a situation as in Perlman (see Beardslee Brief, at 48-49), where there was a methodology other than the operator’s preferred method that was known to be effective at developing the resource. See Perlman v. Pioneer Ltd. P’ship, 918 F.2d 1244, 1246, 1249 (5th Cir. 1990) (holding that the force majeure clause did not excuse performance where governmental regulation requiring additional studies was a standard requirement for the water usage necessitated by operator’s preferred method; expressly observing that there were “other methods used in Wyoming to produce coal seam gas [that did] not yield as much water” as the process that was subject to the stricter regulation). Here, no matter how much money the Inflection Lessees would spend on conventional drilling methodologies, 17 the record stands unrebutted that none of these conventional methods would yield any production from the Leaseholds.4 See Inflection Brief, Point 1.A. (and record citations therein). The situation here is also not akin to that in Macalloy Corp. (see Beardslee Brief, at 17, 31), where the plant operator voluntarily shut down its operations due to the increased costs of application of an existing regulation about which the operator “was fully aware . . . prior to entering into the contract.” See 284 A.D.2d at 228. That is, the circumstance in Macalloy Corp. involved costs associated with compliance of an already-existing regulation and did not involve a sweeping, unprecedented statewide ban enacted after contract execution. Nor is the situation here analogous to that in Kel Kim (see Beardslee Brief, at 46-47), which involved a typical landlord-tenant arrangement, where the building and premises could be put to another use, such as a skating rink versus a grocery store. See Kel Kim Corp.v. Central Mkts., 131 A.D.2d 947, 947-49 (3d Dep’t 1987). There is no actual choice here available to the Inflection Lessees – because there is no method other than HVHF that can possibly yield any production from these Leaseholds. Id. 4 Perlman is distinguishable from the circumstances here for the additional reasons that it did not involve a regulatory denial of a permit, let alone an outright ban on permit issuance. Rather, the lessee had unilaterally determined, based solely on conversations with regulators, that a permit using the preferred method would not be issued; and, therefore, lessee never applied for a permit. Id. at 1248-49. Accordingly, the court found that there was no material hindrance by the government and, therefore, no force majeure event. Id. Hence, Perlman is wholly inapt. 18 Thus, with all due respect to the Beardslee Lessors’ innovative, but nonsensical, hypothetical about choosing to grow corn versus medical marijuana (see Beardslee Brief, at 47-48), this case is not a matter of choosing one development technology over another. Were there a conventional drilling method that had the potential to yield production from the Leaseholds, the corn versus marijuana scenario might arguably be a potentially apt analogy, but that is not the case. Once again, the record evidence stands unrefuted that any other drilling and completion technique would be futile, because it would not yield any production. Id. Accordingly, the evidence establishes that the Inflection Lessees had no choice but to use HVHF and horizontal drilling if they were to obtain any production from the Leaseholds. That option is banned by the Moratorium, through no fault of the Inflection Lessees. Thus, the drilling delay is beyond Lessees’ control and, therefore, is a “force majeure” event. C. That Lessees Could Have Drilled Multiple Dry Holes On The Leaseholds Is Irrelevant Also without merit is the Beardslee Lessors’ argument that the Inflection Lessees cannot claim “force majeure” because they could have drilled dry hole after dry hole on the Leaseholds. As already amply detailed, there is no issue of fact that utilizing conventional drilling methods on the Leaseholds would have 19 failed to yield any production. That the Lessees could have drilled multiple dry holes with conventional methods is simply not relevant to whether the delay in drilling caused by the Moratorium is beyond Lessees’ control. Indeed, the Beardslee Lessors’ argument – i.e., that the Inflection Lessees’ failure to engage in knowingly unproductive (i.e., bad faith) drilling activities precludes invocation of the “drilling delay . . . beyond Lessees’ control” language – is nothing short of absurd because it renders that language meaningless. The question of whether the drilling delay is beyond Lessees’ control must be viewed with a rule of reason and cognizant of the purpose of the O&G Leases (i.e., to obtain production for the mutual benefit of Lessor and Lessee). The Beardslee Lessors simply ignore this purpose, the intended mutuality of benefit, and the implied covenants which bind the Inflection Lessees as to all of their activities on the Leaseholds. See Inflection Brief, at 28-31 & Point I.B. In short, to adopt the view that the “force majeure” language cannot be invoked because Lessees did not act in bad faith and create environmental impacts on Lessors’ properties by drilling dry hole after dry hole, knowing that there would be no countervailing benefit in terms of any resource production, is a nonsensical result. Notably, the Beardslee Lessors have cited no precedent in support of this absurd proposition. See generally Beardslee Brief. 20 To the extent the Beardslee Lessors cite Howard and Trinidad Petroleum for the broader view that oil and gas lease interpretation is not governed by notions of common sense, commercial sense, good faith, or prudent operations, they are simply wrong. See Beardslee Brief, at 42-43, 53-54 (discussing, respectively, Howard v. Hoffeld, 221 N.Y. 546 [1917] and Trinidad Petroleum Corp. v. Pioneer Natural Gas Co., 416 So. 2d 290 [La. Ct. App. 1982]). Howard does not involve interpretation of a force majeure clause and, likewise, has no relevance to the issues here in any event. See generally 221 N.Y. at 546. In Howard, the lease had express provisions mandating that the lessee compensate lessors by (1) furnishing free gas and laying the pipes to carry such gas to lessors’ homes; and (2) paying royalties on any gas sold. Id. The lessee drilled a well and found gas but not in commercial quantities sufficient for sale. Id. The lessee then abandoned the property, and lessors brought an action for damages after they, themselves, laid the piping. Id. The lower court found for the lessor, and this Court affirmed without opinion. Id. The holding in this case is based on express contract language that imposed an obligation on lessee to install the piping, regardless of whether commercial quantities of gas were found and royalties paid thereon. Id. This case does not, however, support the Beardslee Lessors’ view that the Inflection Lessees are precluded from invoking force majeure because they did 21 not undertake bad faith, futile, environmentally intrusive actions on the Leaseholds. Trinidad Petroleum also does not support the Beardslee Lessors’ position that Lessees’ failure to knowingly drill dry holes precludes their invoking “force majeure.” In Trinidad Petroleum, the court found that even had lessee acted as a prudent operator, the force majeure clause did not relieve lessee from recommencing drilling operations because the lease contained an express contract clause directing that, to hold the lease, drilling had to be commenced within 60 days of cessation of production. 416 So. 2d at 296-97. In other words, this express contract requirement prevailed over the lessee’s implied obligation to act as a reasonably prudent operator. Just as significantly, however, the court also observed that the evidence “clearly” established that the lessee could have drilled in sections of the leasehold that were deemed to be “within the producing area” and not affected by any hazardous condition. Id. at 300-02. Accordingly, in Trinidad Petroleum, the alleged inability to drill with the bona fide aim of achieving production was not foreclosed by the claimed force majeure event. See id. Thus, Trinidad Petroleum actually supports the view that the ability to pursue production in good faith is relevant to the force majeure analysis. 22 Accordingly, the Beardslee Lessors’ position is unsupported – beyond that, it makes no sense and would be environmentally unsound policy. Indeed, had the Inflection Lessees knowingly drilled dry hole after dry hole on the Leaseholds, they could have been potentially subject to liability for claims of breach of covenant. See Wadkins v. Wilson Oil Corp., 6 So. 2d 720, 724 (La. 1942) (holding that evidence supported the finding that lessee’s failure to further develop the property by drilling new wells with a modern process which had proved successful on nearby properties constituted breach of lease warranting cancellation); BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66, 68 (Tex. 2011) (finding the claim barred by statute of limitations, but noting evidence of bad faith where the operator recompleted the well at a depth where a reasonably prudent operator would have known the well would never produce in paying quantities). In the end, if the drilling delay language of the “force majeure” clause cannot be invoked because the Inflection Lessees did not first consciously act unreasonably and in bad faith, counter to the undisputed purpose of the O&G Leases and their implied duties, then the “force majeure” language will never be invoked, rendering it meaningless. This absurd result must be rejected.5 5 To the extent the Beardslee Lessors baldly assert that Lessees could have conducted non- drilling “operations” on the Leaseholds to carry the O&G Leases into the secondary term, they are internally inconsistent and are, indeed, wrong. See Beardslee Brief, at 54. Under Lessors’ own argument that the habendum clause requires production, seismic exploration, geologic studies, and the procurement of farmouts and subleases do not qualify as “the said land being 23 D. That Lessees Did Not Have The Obligation To Drill Is Irrelevant Also misguided is the Beardslee Lessors’ strident focus on common law notions and a variety of other legal principles that are simply irrelevant to this analysis. See Beardslee Brief, at 14-15, 20-21, 38-40, 48, 51, 61, 63. Common law notions regarding excusing performance of obligations, limiting damages, or seeking specific performance are not at issue here. See id. The “force majeure” analysis is governed by the operative language of the O&G Leases (see Inflection Brief, at 23-28 & Point I.B), and the operative language is the first sentence of that clause containing the drilling delay language, not the second sentence which contains the excuse of covenants language. See A. 46, ¶ 6. Modern jurisprudence – including oil and gas law from sister jurisdictions – recognizes that, like any other contract provision, so-called “force majeure” clauses come in all sizes and shapes and are to be applied according to their plain terms. See Inflection Brief, at 25. Notably, the precedent on which the Beardslee Lessors rely does not detract from this conclusion, including under this Court’s articulations and holding in Kel Kim. See generally Beardslee Brief, Point V. Regarding Kel Kim (see id. at 44-45), it is an “obligations” case, meaning that the lessee was seeking to be excused from performance of a contractual obligation; Kel Kim is not an extension of rights case. See 70 N.Y.2d at 901-02. operated by Lessee in the production of oil or gas.” See A. 51, ¶ 1. Therefore, these non- production activities would not have carried the O&G Leases into the secondary term. 24 Accordingly, since lessee’s rights were not at issue in the “force majeure” clause in Kel Kim, this case cannot validly be cast so broadly as to support the Beardslee Lessors’ position that contracting parties can never agree to the extension of rights upon the happening of specified “force majeure” events. This is particularly so in light of longstanding precedent in New York that “an unambiguous written contract is enforced according to the plain meaning of its terms,” and courts are not at liberty to add, excise or alter otherwise clear contract language. See Starke v. United Parcel Serv., Inc., 513 F. Appx. 87, 88 (2d Cir. 2013); see also Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475-76 (2004). The Beardslee Lessors’ argument is inconsistent, not only with this principle, but also with this Court’s articulation in Kel Kim that “force majeure” clauses will be applied to the events identified in the clause and those of like kind. See 70 N.Y.2d at 902-03. Thus, nothing in Kel Kim supports the Beardslee Lessors’ unsupportable reading of the O&G Leases’ “force majeure” clause. Moreover, because the operative “force majeure” language involves Lessees’ rights and the extension of those rights, and does not involve any asserted excuse relative to performance of obligations, Lessors’ reliance on the covenants portion of the O&G Leases’ “force majeure” clause and cases involving non- performance of obligations is simply irrelevant and wholly misguided. See Beardslee Brief, at 51 (citing Rohm & Haas Co. v. Crampton Corp., Nos. 215 25 NOV.TERM 2001, CONTROL 020435, 2002 WL 1023435 [Pa. Ct. Com. Pleas Apr. 29, 2002]; Martin v. Pa. Dep’t of Envtl. Res., 548 A.2d 675 [Pa. Commw. Ct. 1988]; and Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd., 782 F.2d 314 [2d Cir. 1985]); see also Beardslee Brief, at 18, 63 (relying on covenants portion of “force majeure” clause, which is not at issue here). Likewise, because the operative contract language involves the extension of Lessees’ rights, and this case does not involve Lessees’ attempt to limit damages, the “limit damage” cases cited by the Beardslee Lessors, and their argument that Lessees’ cannot be given “a greater profit than [they] contracted for,” are also irrelevant. See Beardslee Brief, at 14, 15, 20, 38 (discussing United Equities Co. v. First Nat’l City Bank, 52 A.D.2d 154 [1st Dep’t 1976], aff’d, 41 N.Y.2d 1032 [1977]). Also patently irrelevant are: (1) precedent involving strict liability statutes in Wyoming relating to water impoundments/reservoirs, wherein the courts applied common law principles finding no strict liability in the face of acts of god, public enemies or third parties (see Beardslee Brief, at 50, citing Wheatland Irrigation Dist. v. McGuire, 537 P.2d 1128 [Wyo. 1975]); 26 (2) principles relative to catch-all force majeure clauses that, unlike the O&G Leases’ “force majeure” clause, simply recite “force majeure” and do not define specific events (see Beardslee Brief, at 15, 39-40, citing Commonwealth Edison Co. v. Allied-Gen. Nuclear Servs., 731 F. Supp. 850 [N.D. Ill. 1990])6; (3) licensing cases that, beyond involving the issue of excuse of performance of obligations (which is not relevant here), do not concern any contractual force majeure provision, but instead involve an unconditional promise to pay regardless of whether the license was obtained (see Beardslee Brief, at 48, citing Raner v. Goldberg, 244 N.Y. 438 [1927]); and (4) cases that, beyond involving the issue of excuse of non- performance of obligations (which is not relevant here), assert as the force majeure event is the enforcement of a consent order that the plaintiff actually negotiated and that 6 Applying New York law, the court in Commonwealth Edison Co. opined that if a contract clause simply recites “force majeure” or uses a catch-all phrase such as any “reason beyond [the party’s] control” without defining particular events, then common law impossibility principles govern. 731 F. Supp. at 855-56. Where, however, the contracting parties include an express provision defining specific events, contract language controls. See id. In Commonwealth Edison Co., the court ultimately found that the force majeure clause suspended the duty of the defendant-reprocessor of spent fuel during the more than 2-year moratorium on licensing. Id. at 862. 27 was in effect prior to executing the contract as to which the plaintiff is claiming force majeure (see Beardslee Brief, at 51, citing Rohm & Haas Co., Nos. 215 NOV.TERM 2001, CONTROL 0204235, 2002 WL 1023435). The pages and pages of Lessors’ irrelevant contentions aside, the bottom line is that contract language controls the “force majeure” analysis, and the Beardslee Lessors’ contrary arguments must be rejected. See Starke, 513 F. Appx. at 88; Kel Kim, 70 N.Y.2d at 902-03. E. Foreseeability Is Irrelevant To The “Force Majeure” Analysis The O&G Leases’ force majeure clause expressly identifies as a force majeure event delays in drilling resulting from Governmental Orders beyond the Inflection Lessees’ control. There is no language stating that the delay must be unforeseeable. In accord with both Starke and Kel Kim, this language must be applied as written; meaning that unforeseeability is not an element of the analysis. See Starke, 513 F. Appx. at 88-89; Kel Kim, 70 N.Y.2d at 902-03. Where, as here, the force majeure language lacks an unforeseeability requirement and further includes specific events that are not traditional “act-of- god” type force majeure events, there is no basis to impose an unforeseeability requirement. See Starke, 513 F. Appx. at 89 (rejecting unforeseeability requirement where contract clause identified exclusions other than “acts of God”); 28 see also Perlman, 918 F.2d at 1248 (stating “the ‘doctrine’ of force majeure should not supersede the specific terms bargained for in the contract”). Accordingly, foreseeability is another non-issue, and the Beardslee Lessors’ contrary argument must be rejected. F. Even If Foreseeability Were Relevant, The Moratorium Was Unforeseeable Any discussion of foreseeability must begin with identifying the relevant event. As already explained (see Point I.A, supra), the pertinent event here is not the existence of SEQRA, the 1992 GEIS, or the 2008 Directive. See Beardslee Brief, Point II. As the Second Circuit recognized, the asserted “force majeure” event is the long-term ban on HVHF and horizontal drilling that has resulted from the 2008 Directive and multiple Executive Orders, the combined effect of which has been in force for now over six years. A. 17-18, n.13, Second Circuit Decision (citing Wallach v. Town of Dryden, 23 N.Y.3d 728 [2014]). This Moratorium on HVHF and horizontal drilling was not in effect when the O&G Leases were executed or extended between 2001 and 2006. Moreover, contrary to the Beardslee Lessors’ unsubstantiated assertions (see Beardslee Brief, at 22-26), the unrebutted record evidence establishes that neither the existence of SEQRA, nor the 1992 GEIS, rendered even the 2008 Directive foreseeable, let alone the Moratorium. Although the Beardslee Lessors’ persist in 29 ignoring the facts and making unsubstantiated claims (see id.), the facts remain that: (1) there are no volume thresholds in the 1992 GEIS automatically triggering the need for an EIS if a frac exceeded 80,000 gallons; (2) the Department issued several permits for high-volume fracs pursuant to the 1992 GEIS (i.e., exceeding the 80,000 gallons by an order of magnitude) without requiring additional environmental review, and, thus it was not “illegal” to issue permits for higher volume fracs without site-specific environmental review; and (3) horizontal drilling has been an established technology in New York since 1989. A. 195, Inflection Statement, ¶ 50; A. 651, Sovas Aff., ¶¶ 14, 15; A. 653-54, Sovas Aff., ¶¶ 21-25; A. 826, Billman Aff., ¶ 25; see also Inflection Brief, at 20. Accordingly, there was nothing foreseeable about the Moratorium. See Moyer v. City of Little Falls, 134 Misc. 2d 299, 301-02 (Sup. Ct. Herkimer Cnty. 1986) (voiding the contract under impossibility/frustration principles where agency action resulted in a monopoly with 666% higher costs; stating that although “enforcement efforts . . . were foreseeable,” “the creation of a monopoly enterprise was not,”); Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312, 319-20 (S.D.N.Y. 1989) (stating “the fact that routine mechanical breakdowns were foreseen[ ] does not necessarily mean major breakdowns were foreseeable,” particularly where no breakdowns of that magnitude had ever occurred before). 30 Moreover, the fact that the 1992 GEIS took twelve years to develop also does not render the Moratorium foreseeable; actually, the opposite is true. See Beardslee Brief, at 9. Critically, unlike the instant situation, in developing the 1992 GEIS, the Department did not impose a moratorium on permitting during that time, but instead issued permits allowing resource development to proceed. If anything, this prior practice of the Department relative to development of the 1992 GEIS further underscores just how unforeseeable the Moratorium was. And, as already discussed, the Beardslee Lessors are dead wrong in claiming that protracted bureaucratic delay in issuing a permit under an existing regulatory program can never qualify as a force majeure event. See Point I.A, supra. POINT II THE “FORCE MAJEURE” CLAUSE TOLLS THE O&G LEASES DURING THE DELAY “ANYTHING IN TH[E] LEASE TO CONTRARY NOTWITHSTANDING,” THUS MODIFYING THE HABENDUM CLAUSE As fully explained in the Inflection Brief (Point II), as a matter of both oil and gas law and New York contract law, the “force majeure” clause modifies the habendum clause and extends the primary terms of the O&G Leases. In arguing to the contrary, the Beardslee Lessors cannot succeed by misstating the law in sister jurisdictions or ignoring the settled law of this state. The Beardslee Lessors’ first patent error is one of logic, where they misguidedly convert an if-then scenario into an “if and only if” scenario without 31 any legal basis. See Beardslee Brief, at 21, 59. In both Wiser and Sun Operating, the habendum clauses admittedly had “subject to” language. See Wiser v. Enervest Operating, L.L.C., 803 F. Supp. 2d 109, 119-20 (N.D.N.Y. 2011); Sun Operating Ltd. v. Holt, 984 S.W.2d 277, 286 (Tex. Ct. App. 1998). Thus, it is fair to conclude that if the habendum clause has “subject to” language, then it is modified by other provisions, assuming the language of other savings provisions admits to such construction. That does not mean, however, that it is a necessary condition for a habendum clause to have “subject to” language in order to be modified by other lease provisions. As the whole-lease analyses in both Gulf Oil and San Mateo (cases on which cases Lessors rely) demonstrate, there is simply no legal basis for the Beardslee Lessors to argue that the habendum clause is modified by other lease provisions “only if” the habendum clause contains “subject to” language. See Gulf Oil Corp. v. Southland Royalty Co., 496 S.W.2d 547, 552 (Tex. 1973); San Mateo Cmty. Coll. Dist. v. Half Moon Bay Ltd., 65 Cal App. 4th 401, 413 (Cal. Ct. App. 1998). It is routine for savings provisions in oil and gas leases to modify the habendum clause and save the lease from termination under the special limitations in the habendum clause; and examples of such savings provisions include, among others, shut-in royalty clauses, cessation of production/continuous operation clauses, drilling commencement/operations clauses, delay in marketing provisions, 32 pooling provisions, and force majeure clauses. See Inflection Brief, at 47-48; see, e.g., Curtis v. Hess Ohio Res. LLC, No. 2:13-cv-0453, 2014 WL 4249857, *5, *8 (S.D. Ohio Aug. 27, 2014) (internal quotations and citation omitted) (“[I]t is common in oil and gas leases to have leasehold savings provisions, such as a drilling operations clause;” “[a] shut-in royalty clause modifies the habendum clause so that the lease may be preserved between the time of discovery of product and marketing the same”); Neuhard v. Range Res.-Appalachia, LLC, Case No. 4:11-cv-01989, 2014 WL1745896, *4 (M.D. Pa. Apr. 30, 2014) (quoting 3-27 Eugene Kuntz, et. al, Kuntz, Law of Oil & Gas § 27.1 [2013]) (emphasis added) (stating “‘the duration of the interest granted [is] subject to modification by other provisions contained in the lease which may provide for an extension of the lease”). Indeed, although the Bearsdlee Lessors assert, on the one hand, “that a habendum clause may be modified by other clauses in the lease, if and only if, the habendum clause incorporated those other clauses by reference” (Beardslee Brief, at 21), they later contradict themselves, acknowledging that clause 9 of the O&G Leases (i.e., the well commencement-completion clause) modifies the primary term of the habendum clause – i.e., even though the habendum clause does not include language of reference/incorporation. See Beardslee Brief, at 59. Lessors 33 cannot have it both ways, and this internal inconsistency merely underscores not only their error, but the unprincipled nature of their argument. The Beardslee Lessors’ acknowledgement in this regard also exposes the meritless of others of their contentions. For example, they complain that the “force majeure” clause cannot modify the habendum clause because it appears as clause 7 – that is, 6 clauses down from the habendum clause. See Beardslee Brief, at 66. Yet, the aforementioned commencement-completion clause is clause 9 (i.e., 8 clauses down from the habendum clause), and Lessors readily admit that it modifies the habendum clause. The Beardslee Lessors also complain that the force majeure clause is in small print – even going so far as to question if anyone can “read this type with the naked eye” and urging that this Court not enforce the clause as written because it is not “readable in . . . format[ ].” Beardslee Brief, at 13 n.5, 67. All substantive lease provisions have the same size print, however. Plainly, Lessors can read this size print because (1) they inserted information in the prefacing paragraph and the Witnesseth clause, (2) in some instances made revisions to the printed lease language (see, e.g., A. 66, ¶ 17; A. 86, ¶ 1; A. 88, ¶ 21), and, (3) in any event, they are also apparently capable of seeing and reading clause 9, because they admit that it modifies the habendum clause. 34 In addition, although the Beardslee Lessors ignore it, there is yet another savings provision that modifies the habendum clause, despite the lack of “subject to” language in the habendum clause: clause 11, the delay in marketing provision. A.52, ¶ 11 (emphasis added) (providing that “upon completion of the first productive well” lessee must make a diligent effort to obtain a pipeline connection, “but any delay shall not be counted against the Lessee provided Lessee shall resume delay rental payments”). This provision is significant in this analysis for two reasons: (1) it provides for lease extension in the absence of production, even though the language of the habendum clause requires production to extend the lease into the secondary term; and (2) it does so under extension language that is legally indistinguishable from the extension language in the “force majeure” clause – i.e., that the time for the delay shall not be counted against the Lessee. See id. That is, even though under the language of the habendum clause the O&G Leases are not propelled into the secondary term unless there is actual production (in contradistinction to having a well merely capable of production), the delay in marketing clause extends the O&G Lease nonetheless (upon the payment of rentals) until a pipeline connection is established to produce the well. Given that extension of the lease is accomplished by virtue of the identical “delay shall not be counted against the Lessee” language, there is nothing ambiguous about this language in either clause: 35 the O&G Lease is extended despite (1) the lack of “subject to” language in the habendum clause, (2) the fact that this clause appears 10 clauses down from the habendum clause, and (3) the size of the type face of this provision. In short, there is nothing ambiguous, unreadable, or uncertain about the meaning of this language.7 As fully detailed in the Inflection Brief (Point II), under New York law, there is also nothing ambiguous or equivocal about the meaning of “anything in th[e] lease to the contrary notwithstanding.” Under a plain language reading and application of New York precedent, the “force majeure” clause trumps all other lease provisions, including the habendum clause, meaning that Lease extension is the undeniable result. Try as they might, the Beardslee Lessors cannot escape this result by ignoring New York precedent or miscasting the caselaw of other jurisdictions. They seek to have this Court ignore settled New York law regarding this common commercial language and further engraft qualifiers (that do not appear in the “force majeure” clause) onto the language – i.e., namely to read the “drilling delay shall 7 Due to the lack of any ambiguity, contrary to the Beardslee Lessors’ argument (see Beardslee Brief, at 6, 13), there is nothing to construe against the drafter, even assuming Lessees are deemed to be the sole drafters, as Lessors have failed to support this claim with any record evidence. See, e.g., A. 66, 86, 88 (showing revisions by Lessors to printed O&G Lease language). The Beardslee Lessors have also failed to provide any evidence supporting their other unsubstantiated assertions that Lessors executed the O&G Leases without being represented by counsel and that the Leases were probably signed with landmen at the kitchen table. See Beardslee Brief, at 6, 13. The record contains not one iota of support for these contentions. 36 not be counted against Lessee… anything … to the contrary notwithstanding” to apply to drilling delays in only the secondary term, not the primary term. They, thus, urge this Court to read “anything in th[e] lease to the contrary notwithstanding” to mean “anything in th[e] lease to the contrary notwithstanding, except the primary term of the habendum clause.” Of course, no such exception appears in the contract language. In short, the Beardslee Lessors urge this Court to give plain, unambiguous contract language a tortured construction which lacks any basis in the actual contract language and also flies in the face of the settled interpretation that this language has been given by New York courts. Inflection Brief, Point II (discussing New York cases interpreting “anything . . . to the contrary notwithstanding” language); see also BDC Finance L.L.C. v. Barclays Bank PLC, 110 A.D.3d 582, 586 (1st Dep’t 2013) (finding “‘[n]otwithstanding anything in the [contract] to the contrary” language to be “unconditional and absolute” and “plain and unambiguous”); H. Fox & Co. v. Blumenfeld, 24 A.D.3d 722, 722-23 (2d Dep’t 2005) (finding such language to be unambiguous and controlling over any other lease provision). Also, Lessors’ construct would directly contradict the same language in the delay in marketing clause, clause 11, which contemplates an extension of the primary term after a productive well has been drilled, but there is a delay in tying the well into a pipeline for production. In other words, the Lessors put forth an 37 untenable construction that contradicts other provisions of the Lease because limiting the delay in marketing clause to the secondary term makes no more sense than limiting the force majeure clause to the secondary term. Finally, although the Beardslee Lessors discuss two cases in support of their position, both cases are distinguishable. See Beardslee Brief, at 57-58, 61-62 (discussing San Mateo, 65 Cal. App. 4th 401, and Gulf Oil Corp., 496 S.W.2d 547). Regarding San Mateo, as already explained in the Inflection Brief (at 49-50), the force majeure clause in that case lacked “anything . . . to the contrary notwithstanding” language. As the Second Circuit observed, the California court acknowledged that had the force majeure clause contained this language, “then the case may have come out differently.” A. 29, Second Circuit Decision (citing San Mateo, 65 Cal. App. 4th at 412-13). Thus, this case does not support the Beardslee Lessors’ proposed bright-line rule. As for Gulf Oil Corp., at the outset, this case is contrary to the New York rule that clauses similar to “[n]otwithstanding any other provision” trump all other contract terms. See Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 917 (2d Cir. 2010). Additionally, this case is factually distinguishable because the habendum clause contained an express 50-year time limit, measured from the execution date, and that time limit applied, regardless of the presence of 38 production. Gulf Oil Corp., 496 S.W.2d at 548, 552. The court thus felt constrained against interpreting the force majeure clause in a manner that would contradict this clear directive. Id. at 552; see also Sun Operating Ltd., 984 S.W.2d at 287 (distinguishing Gulf Oil Corp. on this basis). In marked contrast, however, the O&G Leases contain no definitive time limit on their duration. Thus, beyond being at odds with New York contract law precepts, Gulf Oil Corp. is also factually inapt. Accordingly, the lack of “subject to” language in the habendum clause is of no moment, and there is nothing ambiguous about the “anything in th[e] lease to the contrary notwithstanding” language. The O&G Leases are extended by the Moratorium, and the second certified question must be answered in the affirmative. CONCLUSION In the end, this case presents nothing more than straightforward issues of contract interpretation. Resolving the certified questions involves simply giving plain language its plain meaning, in accord with fundamental interpretation principles. The Moratorium precludes use of the only means that can yield any production from the Leaseholds; thus, the delay in the ability to drill is beyond the Inflection Lessees’ control and, hence, a “force majeure” event. In turn, the “force majeure” clause unambiguously directs that the time for drilling delays resulting from Governmental Order beyond Lessee’s control shall not be counted against the Lessee, regardless of any other lease provision. Accordingly, the O&G Leases are tolled during the Moratorium, and both certified questions must be answered in the affirmative. Dated: December 22, 2014 Albany, New York THE WEST FIRM, PLLC By: Jfu{h41i ~u.± Thomas S. ~~'Esq. 39 Cindy Monaco, Esq. Attorneys for Defendants- Appellants, Inflection Energy, LLC, Victory Energy Corporation, Megaenergy, Inc. 677 Broadway - 8th Floor Albany, New York 12207 Tel.: (518) 641-0500 Fax: (518) 641-1500 twest@westfi rm law. com