Contract Terms
Happy Fall Y’all! We are back with another monthly edition of The Ag Law Harvest. This month’s edition brings you an Ohio Supreme Court case that clarifies a party’s obligations under express indemnification provisions in a contract, an Ohio woman’s fight against a local zoning ordinance that sought to remove her pet ducks, and agricultural labor updates.
Common Law Notice Requirements May No Longer Exist Under Express Indemnification.
The Ohio Supreme Court recently made a significant decision regarding indemnification clauses in contracts. Indemnification is the right of one party to be fully reimbursed for payments they made on behalf of another party who should have made those payments. There are two types of indemnity: express and implied. Express indemnity is when a written contract explicitly states that one party will reimburse the other under certain circumstances. Implied indemnity is a common law principle where each party is responsible for their own wrongdoing, and the wrongdoer should reimburse the injured party.
In this case, Discovery Oil and Gas contracted with Wildcat Drilling, which included an express indemnification provision. Wildcat was supposed to indemnify Discovery for any fines related to pollution or contamination from drilling. When Wildcat violated Ohio law by using brine improperly, Discovery settled with the Ohio Department of Natural Resources for $50,000 without notifying Wildcat and requested reimbursement. Wildcat refused, arguing that Discovery didn't follow Ohio common law, which requires notice before settling a claim.
The Ohio Supreme Court sided with Discovery, stating that the express clause in the contract indicated the parties' intent to deviate from common law principles. The court clarified that notice requirements for indemnification are determined by the contract terms. Depending on the contract, parties may not need to provide notice before settling a claim and seeking reimbursement. This ruling emphasizes the importance of contract language in determining indemnification obligations.
Medina County Woman Has All Her Ducks in a Row.
A Medina County woman is able to keep her pet ducks after a battle with the Village of Seville and an interpretation of its zoning ordinances. Ms. Carlson, the owner of the ducks at issue, fought to keep her pet ducks after being ordered to remove them from her property by Wadsworth Municipal Court. Ms. Carlson appealed the municipal court’s ruling, arguing that Seville’s zoning ordinance against “poultry and livestock” is unconstitutionally vague. The appellate court agreed with Ms. Carlson. The appellate court found that Seville’s ordinance against poultry focused on hens, roosters, coop hygiene, and the sale of poultry byproducts such as meat and eggs. The court held that an ordinary person would not be able to understand that keeping other birds, such as ducks, as companion animals would violate Seville’s ordinances. Therefore, Ms. Carlson could not be found to have committed an unclassified misdemeanor by owning pet ducks. However, had Ms. Carlson been keeping the ducks and selling their byproducts such as duck eggs and meat, there might have been a different outcome.
Farm Labor Stabilization and Protection Pilot Program.
The U.S. Department of Agriculture (“USDA”) has announced the opening of the Farm Labor Stabilization and Protection Pilot Program (“FLSP”). The FLSP will award up to $65 million in grant funding to provide support for agricultural employers to implement new hearty labor standards/procedures and update existing workplace infrastructure to help promote a healthy and safe work environment. The USDA states that the purpose of the FLSP program is “to improve food and agricultural supply chain resiliency by addressing challenges agricultural employers face with labor shortages and instability.” The FLSP has three goals: (1) drive U.S. economic recovery and safeguard domestic food supply by addressing current labor shortages in agriculture; (2) reduce irregular migration from Northern Central America through the expansion of regular pathways; (3) improve working conditions for all farmworkers. Qualified applicants can receive grants ranging from $25,000 - $2,000,000. The application window closes on November 28, 2023. For more information, view the USDA’s fact sheet on the FLSP.
Department of Labor Publishes Proposed Rule to Amend H-2A Regulations.
The U.S. Department of Labor (“DOL”) Employment and Training Administration (“ETA”) has published a proposed rule titled “Improving Protections for Workers in Temporary Agricultural Employment in the United States.” The proposed rule seeks to amend several H-2A program regulations by:
- Adding new protections for worker self-advocacy.
- Clarifying when a termination is “for cause.”
- Making foreign labor recruitment more transparent.
- Making wages more predictable.
- Improving workers’ access to safe transportation.
- Enhancing enforcement to improve program integrity.
Read more about the proposed rule by visiting the DOL’s news release. The comment period on the proposed rule ends November 14, 2023.
Department of Homeland Security Publishes Proposed Rule Amending H-2 Program.
The U.S. Department of Homeland Security (“DHS”) has published a proposed rule titled “Modernizing the H-2 Program Requirements, Oversight, and Worker Protections.” The DHS announced its intent to strengthen protections for temporary workers through the H-2A and H-2B worker programs by providing greater flexibility and protections for participating workers, and improving the programs’ efficiency. The proposed rule would:
- Provide whistleblower protection to H-2A and H-2B workers who report their employers for program violations.
- Extend grace periods for workers seeking new employment, preparing for departure from the United States, or seeking a change of immigration status.
- Establish permanent H-2 portability, allowing employers to hire H-2 workers who are already lawfully in the United States while the employer’s H-2 petition for the worker is pending.
The comment period for the proposed rule ends on November 20, 2023.
Tags: Ohio Supreme Court, Contract Terms, Indemnification, Farm Labor, Agricultural Labor, Zoning Ordinances
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One of the core principles of the American legal system is that people are free to enter into contracts and negotiate those terms as they see fit. But sometimes the law prohibits certain rights from being “signed away.” The interplay between state and federal law and the ability to contract freely can be a complex and overlapping web of regulations, laws, precedent, and even morals. Recently, the Ohio Supreme Court ruled on a case that demonstrates the complex relationship between Ohio law and the ability of parties to negotiate certain terms within an oil and gas lease.
The Background. Ascent Resources-Utica, L.L.C. (“Defendant”) acquired leases to the oil and gas rights of farmland located in Jefferson County, Ohio allowing it to physically occupy the land which included the right to explore the land for oil and gas, construct wells, erect telephone lines, powerlines, and pipelines, and to build roads. The leases also had a primary and secondary term language that specified that the leases would terminate after five years unless a well is producing oil or gas or unless Defendant had commenced drilling operations within 90 days of the expiration of the five-year term.
After five years had passed, the owners of the farmland in Jefferson County (“Plaintiffs”) filed a lawsuit for declaratory judgment asking the Jefferson County Court of Common Pleas to find that the oil and gas leases had expired because of Defendant’s failure to produce oil or gas or to commence drilling within 90 days. Defendant counterclaimed that the leases had not expired because it had obtained permits to drill wells on the land and had begun constructing those wells before the expiration of the leases. Defendant also moved to stay the lawsuit, asserting that arbitration was the proper mechanism to determine whether the leases had expired, not a court.
What is Arbitration and is it Legal? Arbitration is a method of resolving disputes, outside of the court system, in which two contracting parties agree to settle a dispute using an independent, impartial third party (the “arbitrator”). Arbitration usually involves presenting evidence and arguments to the arbitrator, who will then decide how the dispute should be settled. Arbitration can be a quicker, less burdensome method of resolving a dispute. Because of this, parties to a contract will often agree to forgo their right to sue in a court of law, and instead, abide by any arbitration decision.
Ohio law also recognizes the rights of parties to agree to use arbitration, rather than a court, to settle a dispute. Ohio Revised Code § 2711.01(A) provides that “[a] provision in any written contract, except as provided in [§ 2711.01(B)], to settle by arbitration . . . shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.” What this means is that Ohio will enforce arbitration clauses contained within a contract, except in limited circumstances. One of those limited circumstances arises in Ohio Revised Code § 2711.01(B). § 2711.01(B)(1) provides that “[s]ections 2711.01 to 2711.16 . . . do not apply to controversies involving the title to or the possession of real estate . . .” Because land and real estate are so precious, Ohio will not enforce an arbitration clause when the controversy involves the title to or possession of land or other real estate.
To be or not to be? After considering the above provisions of the Ohio Revised Code, the Jefferson County Court of Common Pleas denied Defendant’s request to stay the proceedings pending arbitration. The Common Pleas Court concluded that Plaintiffs’ claims involved the title to or possession of land and therefore was exempt from arbitration under Ohio law. However, the Seventh District Court of Appeals disagreed with the Jefferson County court. The Seventh District reasoned that the controversy was not about title to land or possession of land, rather it was about the termination of a lease, and therefore should be subject to the arbitration provisions within the leases.
The case eventually made its way to the Ohio Supreme Court, which was tasked with answering one single question: is an action seeking to determine that an oil and gas lease has expired by its own terms the type of controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under Ohio Revised Code § 2711.01(B)(1)?
The Ohio Supreme Court determined that yes, under Ohio law, an action seeking to determine whether an oil and gas lease has expired by its own terms is not subject to arbitration. The Ohio Supreme Court reasoned that an oil and gas lease grants the lessee a property interest in the land and constitutes a title transaction because it affects title to real estate. Additionally, the Ohio Supreme Court found that an oil and gas lease affects the possession of land because a lessee has a vested right to the possession of the land to the extent reasonably necessary to carry out the terms of the lease. Lastly, the Ohio Supreme Court provided that if the conditions of the primary term or secondary term of an oil and gas lease are not met, then the lease terminates, and the property interest created by the oil and gas lease reverts back to the owner/lessor.
In reaching its holding, the Ohio Supreme Court concluded that Plaintiffs’ lawsuit is exactly the type of controversy that involves the title to or the possession of real estate. If Plaintiffs are successful, then it will quiet title to the farmland, remove the leases as encumbrances to the property, and restore the possession of the land to the Plaintiffs. If Plaintiffs are unsuccessful, then title to the land will remain subject to the terms of the leases which affects the transferability of the land. Additionally, the Ohio Supreme Court concluded that if Plaintiffs were unsuccessful then Defendant would have the continued right to possess and occupy the land. Therefore, the Ohio Supreme Court found that Plaintiffs’ controversy regarding the termination of oil and gas leases is the type of controversy that is exempt from arbitration clauses under § 2711.01(B)(1).
Conclusion. Although Ohio recognizes the ability of parties to freely negotiate and enter into contracts, there are cases when the law will step in to override provisions of a contract. The determination of title to and possession of real property is one of those instances. Such a determination can have drastic and long-lasting effects on the property rights of individuals. Therefore, as evidenced by this Ohio Supreme Court ruling, Ohio courts will not enforce an arbitration provision when the controversy is whether or not oil and gas leases have terminated. To read more of the Ohio Supreme Court’s Opinion visit: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-869.pdf.
Tags: Arbitration Clauses, oil and gas leases, Contract Terms, contracts, Property Rights, Ohio Law, Agriculture Law
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