New York’s 2010 moratorium on hydraulic fracturing, culminating in Governor Andrew Cuomo’s formal ban of the practice in his state on December 17, 2014, made many large waves in the political, legal, and public arenas, the residual effects of which have yet to ebb completely.
The latest installment came on August 19, 2015, when the United States Court of Appeals for the Second Circuit held that defendants Inflection Energy LLC, Victory Energy Corp., and Megaenergy Inc. (the “Energy Companies”), which held leases in upstate New York, could not extend their leases in Tioga County, based on the statewide moratorium on hydraulic fracturing, which had been put into effect in 2010.
This case, captioned at Beardslee v. Inflection Energy, LLC, No.12-4897-CV, had taken a circuitous path on its way to this decision. It began in 2012 in the United States District Court for the Northern District of New York, when 35 landowners claimed the Energy Companies’ leases had expired because they had failed to drill any wells pursuant to the leases. In response, the Energy Companies pointed to the force majeure clauses in the leases, claiming New York State’s moratorium on hydraulic fracturing acted as an unforeseen circumstance out of their control, thereby extending the primary term of the leases.
On summary judgment, District Court Judge David Hurd rejected the Energy Companies’ argument, holding they could have drilled vertical wells under the state’s law at the time, thus extending the primary term of the leases in that manner.
Since the appeal in question “‘turn[ed] on significant and novel issues of New York law concerning the interpretation of oil and gas leases, a legal field that is both relatively undeveloped in the State and of potentially great commercial and environmental significance to State residents and businesses,’ [the Second Circuit] certified the following two issues to the New York Court of Appeals:
“1. Under New York law, and in the context of an oil and gas lease, did the State’s Moratorium amount to a force majeure event?
“2. If so, does the force majeure clause modify the habendum clause and extend the primary term of the leases?” Id.
The New York Court of Appeals held that under New York contract law, a force majeure clause did not extend the leases’ primary terms; thus, it did not need to address the issue of whether the hydraulic fracturing moratorium acted as a force majeure event.
Upon review of this Court of Appeals decision, the Second Circuit held that because it “perceive[d] no factual disputes material to the legal question [were] presented, [it] conclude[d] that the District Court correctly granted summary judgment in favor of the Landowners and denied Defendants’ cross-motion for summary judgment.” Id.
In light of New York State’s formal ban on hydraulic fracturing, it is unlikely this opinion will have deep ramifications within those borders in the short term, but it does appear to highlight the antipathy this state appears to hold toward the industry overall.