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Beardslee v. Inflection Energy, LLC

United States District Court, N.D. New York

November 15, 2012

BEARDSLEE, Walter R. & Elizabeth A.; Walter R. Beardslee, Andrea R. Menzies & John A. Beardslee as Co-Trustees of The Drusilla W. Beardslee Family Trust; Benson, Phyllis L. & Coccia, Lynda B.; Donnelly, Nathan J. & Carolyn B. & Kevin P.; Donnelly, Rose Ann & Marie S.; Haner, William J. & Joseph, James; Lawton, Margaret; Martin, Glen & Lynn M.; McTamney, Joseph E. & B. Louise; Mead, Bonnie D. & R. Dewey; Middendorf, Wayne R. & Cynthia L.; Mosher, Jr., Floyd E. & Lesa D. (a/k/a Lesa Huntington); Mountain Paradise Club N.Y. 31 LLC, and James W. Reynolds as Trustee of the James W. Reynolds Trust; Pfeil-Ellis, Mary A. & Ellis, Kerry K.; Salamida, Paul R. & Pauline M.; Shay, Gary D. & Bonita K.; and Vargason, Brad A., Plaintiffs,
INFLECTION ENERGY, LLC; Victory Energy Corporation; and Megaenergy, Inc., Defendants.

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Coughlin & Gerhart, LLP, Peter H. Bouman, Esq., Robert R. Jones, Esq., of counsel, Binghamton, NY, for Plaintiffs.

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The West Firm, LLP, Thomas S. West, Esq., of counsel, Albany, NY, for Defendants.


DAVID N. HURD, District Judge.


Plaintiffs Walter and Elizabeth Beardslee and other landowners [1] (collectively " plaintiffs" ) brought this declaratory judgment action against defendants Inflection Energy, LLC (" Inflection" ), Victory Energy Corporation (" Victory" ), and Megaenergy, Inc. (" Mega" ) (collectively " defendants" ) seeking a declaration that certain oil and gas leases entered into between the parties expired at the conclusion of the primary terms of those leases and that the terms have not been extended by force majeure. See Compl. Defendants counterclaim seeking a declaration that the leases were extended due to force majeure.

Plaintiffs moved for summary judgment declaring that no force majeure event occurred and that the leases have expired. Defendants opposed plaintiffs' motion and cross-moved for summary judgment declaring that the leases were extended by force majeure and are in full force and effect. Plaintiffs opposed defendants' motion and replied in support of their motion. Defendants replied in support of their motion.

Oral argument was heard on August 30, 2012, in Utica, New York. Decision was reserved.


A. Oil and Gas Industry in New York State

Gas drilling in New York State is governed by the Environmental Conservation Law. Under the authority of that statute, the State Environmental Quality Review Act (" SEQRA" ), N.Y. Envtl. Conserv. Law section 8-0101, was passed " to inject environmental considerations directly into governmental decision making." City Council of Watervliet v. Town Bd. of Colonie, 3 N.Y.3d 508, 515, 789 N.Y.S.2d 88, 822 N.E.2d 339, 341 (2004) (internal quotations omitted).

SEQRA requires all New York State agencies, including the New York State Department of Environmental Conservation (" DEC" ), to prepare or cause to be prepared an Environmental Impact Statement (" EIS" ) for " any action ... which may have a significant effect on the environment." N.Y. Envtl. Conserv. Law § 8-0109(2).[2] Where the impacts from separate actions are common and predictable, a generic EIS (" GEIS" ) may be prepared to analyze the impact of all such actions generally and cumulatively instead of preparing an individual (or site-specific) EIS for each action. See N.Y. Comp.Codes R. & Regs tit. 6, § 617.10(a). The purpose of a GEIS is to provide a comprehensive review of the potential environmental impacts of an activity and how those impacts could be mitigated. Subsequent proposed actions which may significantly affect the environment, but which are not adequately addressed by a GEIS, require either a supplemental GEIS (" SGEIS" ) or a site-

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specific EIS. See id. § 617.10(d)(4); N.Y. Envtl. Conserv. Law § 8-0109(2).

In 1992, the DEC issued a GEIS addressing the environmental impacts associated with oil and gas exploration. N.Y.S. Dep't of Envtl. Conservation, Generic Envtl. Impact Statement on Oil, Gas, and Solution Mining Regulatory Program (1992), available at http:// www. dec. ny. gov/ energy/ 45912. html. The 1992 GEIS contemplated conventional well fracturing using 20,000 to 80,000 gallons of fluid.

During 2008 there was an increased interest in the issuance of permits for horizontal drilling [3] and high volume hydraulic fracturing (" HVHF" or " hydro fracking" ) [4] to develop the Marcellus Shale and other low-permeability gas reservoirs.[5] According to the DEC, the Marcellus Shale is a shale formation extending deep underground from Ohio and West Virginia northeast into Pennsylvania and southern New York. It is as deep as 7,000 feet or more below ground in some areas. See N.Y.S. Dep't of Envtl. Conservation, Marcellus Shale (2012), available at http:// www. dec. ny. gov/ energy/ 46288. html. Geologists estimate that it may contain up to 489 trillion cubic feet of natural gas.[6] Id. Although the gas potential in the Marcellus Shale is not a new discovery, drilling companies abstained from exploration and extraction because of the difficulty and expense associated with drilling such a deep formation. However, recent advancements in technology and the use of HVHF prompted drilling companies to reconsider opportunities in the Marcellus Shale.

As a result of the interest in horizontal drilling combined with HVHF, and the unknown environmental impact caused by it, on July 23, 2008, Governor David Paterson directed the DEC to update its 1992 GEIS covering oil and gas drilling. See N.Y. Envtl. Conserv. Law— Oil and Gas Wells, L. 2008 ch. 376, 2008 N.Y. Sess. Laws 1658-59 (McKinney) (" Directive" ). He directed the DEC's update " to address potential new environmental impacts from drilling, including horizontal drilling in Marcellus shale formations." Id. Important concerns included " potential impacts on groundwater resources, procedures for the treatment and transport of process water contaminated during drilling operations, potential impacts on local infrastructure

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from increased heavy truck traffic, the safety of fluids used in the hydraulic fracturing of geologic formations and potential cumulative ...

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