CEDAR FARM v. LOUISVILLE GAS AND ELECTRIC COMPANY (September 29, 2011)

Cedar Farm owns almost 2500 acres of property bordering the Ohio River in southern Indiana. The property is unusual. It contains, among other things, an antebellum mansion listed on the National Register of Historic Places and a habitat for a number of rare and endangered species. Almost 90% of the property is encumbered by an oil and gas lease with Louisville Gas and Electric Company. Under the express terms of the Lease, it terminates if: a) Louisville stops using it for gas production or storage, b) Louisville surrenders it (for $1.00), or c) Louisville fails to make required payments after a demand and 30 days to cure. The Lease also requires Louisville to pay for any damages it causes the property. Cedar Farm brought suit against Louisville, alleging that Louisville removed trees unnecessarily, installed unsightly pump jacks, and dumped construction debris, among other things. Although its original complaint sought both damages and ejectment, Cedar Farm ultimately dismissed its damages count with prejudice and proceeded solely on its ejectment claim. Judge Hamilton (S.D. Ind.) granted summary judgment to Louisville, concluding that the only remedy in the Lease for Louisville's alleged conduct is damages. Cedar Farm appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Wood and Williams affirmed. Under Indiana law, a lessee under an oil and gas lease acquires a property interest once it begins production. After that point, courts are reluctant to terminate leases if the lessor can be adequately compensated by damages. Cedar Farm contends that this is such a case, given the property's historical and environmental significance and Louisville's egregious treatment of the land. The Court conceded that such could be the case but concluded that Cedar Farm could not simply rely on its allegations at summary judgment stage. Since there is no evidence in the record supporting the complaint's allegations, and no claim that Cedar Farm was prevented from presenting such evidence, summary judgment for Louisville was appropriate. The Court also declined Cedar Farm's request for certification to the Indiana Supreme Court.