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August 26, 2013

SECOND CIRCUIT CONSIDERS FORCE MAJEURE

Last week, the Court of Appeals for the Second Circuit heard arguments in Beardslee v. Inflection Energy, LLC.  Judges Ralph K. Winter, Richard C. Wesley and Susan L. Carney heard the case and indicated that they would rule on the appeal at a later date.   Beardslee is one of the New York force majeure cases in which the Honorable David N. Hurd, a federal district court judge sitting in the Northern District of New York, held that the oil and gas leases at issue terminated at the expiration of their primary term and had not been extended upon grounds of force majeure in the face of New York’s more than four-year moratorium on high-volume hydraulic fracturing.  (See http://hblaw.com/alerts/New-York-Federal-Court-Rejects-Claims-of-Force-Majeure-Terminates-Oil-and-Gas-Leases-11-20-20121).  The other case, Aukema v. Chesapeake Appalachia, LLC has reportedly settled. On appeal, the defendants-appellants asked the Second Circuit to reverse the district court’s decision granting summary judgment to the lessors and, in turn, grant their cross-motion for summary judgment declaring the leases to be in full force in effect.  At issue is the specific leases’ force majeure clauses, which, importantly and unfortunately ignored by the lower court, specifically identify drilling delays as force majeure events.  Also at issue on appeal is the district court’s ill-advised finding that New York’s moratorium was foreseeable. Although this case only affects leases with approximately 35 landowners, the Second Circuit’s decision is expected to have broader reach.  The case could impact many more New York leases that were taken before the onset of the now five-plus year moratorium on high-volume hydraulic fracturing, which has effectively prevented operators from drilling viable wells. Stay tuned…

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