On Friday, the Sixth Circuit affirmed the Southern District of Ohio’s decision granting summary judgment to Chesapeake Appalachia, L.L.C. in Eastham v. Chesapeake Appalachia, L.L.C., 2014 U.S. App. LEXIS 10531 (6th Cir. Ohio June 6, 2014). The court held that Chesapeake had the right to extend its oil and gas lease with the Easthams on the same terms the parties originally entered into when they signed the lease for the initial five-year term.
The Easthams had argued that a provision in their lease stating that Chesapeake had an option to “extend or renew under similar terms a like lease,” was ambiguous and required Chesapeake to renegotiate the lease. The Court disagreed, holding that “extend” and “renew” have different meanings under Ohio law, and, accordingly, that Chesapeake had the right to unilaterally “extend” the lease under its original terms for a new period of years. The Court also held that Chesapeake would have had the right under this clause to renegotiate for a “renewed” lease on like, similar terms.
The Court also rejected the Easthams’ argument that, in light of the lease’s provision that the option to renew or extend had to be exercised “[u]pon expiration of this lease and within sixty days thereafter,” Chesapeake exercised its option to renew too early when it did so about a month before the expiration of the lease, finding no support under Ohio law for such a restriction.
Finally, the Court rejected the Easthams’ argument that Chesapeake’s option to extend the lease was “grossly unfair” and should be held void as against public policy, stating that the Easthams had failed to identify any such policy that the lease could have violated.