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Circuit Court rules in favor of utility

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The 7th Circuit Court of Appeals has affirmed summary judgment in favor of a Louisville utility in a dispute as to whether landowners could eject the utility from their property after violating portions of the lease. The appellate judges also declined to certify a question to the Indiana Supreme Court.

Cedar Farm owns land along the Ohio River, which contains Indiana’s only antebellum plantation complex. The complex is on the National Register of Historic Places, and part of the land is considered a “classified forest” by the Indiana Department of Natural Resources. The property has various public uses.

Cedar Farm and Louisville Gas and Electric Co. have had leases for storing and extracting oil and natural gas from portions of the property since 1947. An amended lease in 1996 only allows termination at any time by LG&E, or if the utility fails to make timely payments to Cedar Farm. There is a specific provision that LG&E will pay for damages caused by its operations.

Cedar Farm filed a lawsuit claiming LG&E repeatedly breached the lease and its crews, or crews hired by it, caused damage to the property and even prevented the owners from access the land in December 2008. Cedar Farm wanted to evict LG&E, terminate the lease, and sought damages.

The District Court granted summary judgment in favor of LG&E on the ejectment claim, rejecting Cedar Farm’s arguments that lack of a clause regarding termination for the conduct committed by LG&E did not bar its ejectment action. Cedar Farms later dismissed its damages claim with prejudice so it could appeal the ejectment claim.

In Cedar Farm, Harrison County Inc. v. Louisville Gas and Electric Co., No. 10-2234, the 7th Circuit judges noted that under Indiana law, courts generally will enforce forfeiture or termination clauses in these kinds of leases before drilling begins, but after drilling begins courts are reluctant to enforce even explicit forfeiture provisions if damages can adequately compensate the lessor.

“But to survive summary judgment in this case and under this Lease, Cedar Farm needed to provide specific evidence in order to show a trier of fact the environmental impact of LG&E’s actions and why writing a check would be insufficient,” wrote Judge Ann Claire Williams. “An affidavit or other form of proof along these lines was necessary, and Cedar Farm did not submit, and does not argue it was prevented from submitting, such evidence to the district court.”

The federal appellate court also declined Cedar Farm’s request to certify a question to the Indiana Supreme Court – “whether Indiana would allow a lessor to terminate an oil-and-gas lease where recurring breaches of the lease threaten to inflict intangible, irreparable harm on the subject property.” Cedar Farm seeks to certify the question of whether the type of recurring damage alleged would suffice, which is not an appropriate question for certification, the judges held.

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