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Lick Branch Unit, LLC v. Reed
United States District Court, E.D. Tennessee, Knoxville
November 3, 2016
LICK BRANCH UNIT, LLC, AND FOREXCO, INC., Plaintiffs,
JIM REED, CHARLES BRUCE REED, AND JAMES LUEKING, Defendants. JAMES LUEKING, CHARLES BRUCE REED, AND JIM REED Individually, and as Attorney in Fact for Jean Reed, Freda Reed Davis, James Russell Reed, Deborah Reed Brandon, and Michael Allen Reed, Counterclaim-Plaintiffs,
LICK BRANCH UNIT, LLC, FOREXCO, INC, FOREXCO ENERGY, LLC, MICHAEL GAMBLIN, CAMBRIDGE RESOURCES, INC, PDC RESOURCES, INC, LICK BRANCH UNIT JOINT VENTURE, CITIPOWER, LLC, CITIENERGY, LLC, and DANIEL R. FORSBERG, Counterclaim-Defendants and Third-Party Defendants.
Magistrate Judge, Christopher Steger
L. COLLIER, UNITED STATES DISTRICT JUDGE
the Court are cross motions for partial summary judgment.
Defendants/Counterclaim-Plaintiffs Jim Reed et al.
(“Defendants”) moved for partial summary judgment
pursuant to Federal Rule of Civil Procedure 56(a) seeking a
determination that Plaintiffs/Counterclaim-Defendants Lick
Branch Unit, LLC et al. (“Plaintiffs”)
do not own a working interest in the oil, gas, and minerals
beneath Defendants' property. (Doc. 97.) Plaintiffs also
moved for partial summary judgment seeking dismissal of the
Counter-Complaint and Third-Party Complaint on the ground
that Plaintiffs' ownership of a working interest in the
oil, gas, and minerals beneath Defendants' property
renders Defendants' claims untenable. (Doc. 101.) Both
Plaintiffs and Defendants filed responses (Docs. 104 &
106, respectively) and replies (Docs. 107 & 108,
reasons explained below, the Court finds Defendants own the
working interest in the oil, gas, and minerals beneath their
property. The Court will therefore GRANT Defendants'
motion for partial summary judgment (Doc. 97) and DENY
Plaintiffs' motion for partial summary judgment (Doc.
and their predecessors in interest leased the working
interest in their land to Plaintiffs and Plaintiffs'
predecessors in interest in the 1960s. Defendants argue that
under Tennessee law the working interest in their land
reverted back to them due to a six-month stop in production
occurring in 1994 and 1995.
own land above a geological formation containing oil, gas,
and other minerals. (Doc. 97.) In 1965 and 1967, Defendants
and their predecessors in interest leased the mineral rights
to their property to Plaintiffs' predecessors in interest
in two separate leases (the “Underlying Leases”).
(Id.) These leases granted Plaintiffs'
predecessors in interest a “working interest” in
Defendants' property. (Id.) The owner of a
working interest under an oil and gas lease has the exclusive
right to develop and produce oil and gas from the property,
but must pay all costs of doing so, and normally must also
pay royalties to the lessor. (Id. (citing Howard R.
Williams & Charles J. Meyers, Manual of Oil and Gas
Terms, (13th ed. 2006); Black's Law
Dictionary, (10th ed. 2014)).) This was true of the
Underlying Leases in this case.
Tennessee, all oil and gas leases, including those at issue
here, are governed by Tennessee Code Annotated §
66-7-103. See Tengasco, Inc. v. Eastern Am. Energy
Corp., No. 03A01-9703-CV-81, 1997 WL 476797, at *5
(Tenn. Ct. App. Aug. 1, 1997) (“In effect, the
provisions of  § 66-7-103 are written into every oil
and gas lease.”). According to § 66-7-103(a)(1):
Any lease or oil or natural gas rights or any other
conveyance of any kind separating such rights from the
freehold estate of land shall expire at the end of ten (10)
years from the date executed unless, at the end of such ten
(10) years, natural gas or oil is being produced from such
land for commercial purposes. If, at any time after the
ten-year period, commercial production of oil or natural gas
is terminated for a period of six (6) months, all such rights
shall revert to the owner of the estate out of which the
leasehold estate was carved. No assignment or agreement
to waive the provisions of this subsection (a) shall be valid
different landowners control the land above the oil and gas
reservoir at issue here. (Doc. 97.) In order to more
efficiently explore and exploit the oil and gas beneath their
land, Defendants, Defendants' predecessors in interest,
and Plaintiffs' predecessors in interest executed a unit
agreement in 1976 (the “Unit Agreement”).
(Id.) The Unit Agreement created the “Lick
Branch Unit, ” an agreement between the various
landowners and the owners of the working interests to
facilitate efficient and productive extraction of the oil and
gas from the single reservoir beneath the various
landowners' properties. (Id.) Unitization of
this kind was expressly permitted by Tennessee law and the
Underlying Leases, and this particular unitization agreement
was approved by the Tennessee Oil and Gas Board in 1977.
language of the Unit Agreement did not extinguish the
Underlying Leases, create any new property rights, or vary
the terms of the Underlying Leases with regard to
Defendants' rights as relevant to § 66-7-103(a)(1).
(See Doc. 1-1.) Three passages from the Unit
Agreement are particularly instructive:
3.3 AMENDMENT OF LEASES AND OTHER AGREEMENTS
The provisions of the various leases, agreements, division
and transfer orders, or other instruments covering the
respective tracts or the production therefrom are amended to
the extent necessary to make them conform to the provisions
of this agreement, but otherwise shall remain in effect.
3.5 TITLES UNAFFECTED BY UNITIZATION
Nothing herein shall be construed to result in the transfer
of title to the oil and gas rights by any party hereto to any
other party or to [the] Unit Operator. The intention is to
provide for the cooperative development and operation of the