23 N.Y.3d 151 (2014)

A force majeure clause in an oil and gas lease does not modify the lease’s primary term (habendum clause) unless the habendum clause explicitly references or incorporates the force majeure clause.

Summary

This case addressed whether a force majeure clause in oil and gas leases, triggered by a government-imposed moratorium on hydraulic fracturing, extended the leases’ primary terms. The New York Court of Appeals held that the force majeure clause did not modify the habendum clause’s primary term, and thus, the leases expired at the end of their initial five-year period. The court emphasized that the force majeure clause, while potentially relevant to the secondary term, did not explicitly alter the duration of the primary term because the habendum clause did not reference it.

Facts

Landowners in Tioga County, New York, leased oil and gas rights to energy companies. The leases had a five-year primary term and continued as long as the land was operated for oil or gas production. Each lease contained a force majeure clause excusing delays caused by governmental actions. In 2008, the governor of New York mandated environmental reviews of high-volume hydraulic fracturing, which led to a moratorium on certain drilling activities. The energy companies argued the moratorium triggered the force majeure clause, extending the leases beyond their primary terms. The landowners sued, claiming the leases expired at the end of the primary term because there was no production.

Procedural History

The landowners sued in the U.S. District Court for the Northern District of New York seeking a declaration that the leases had expired. The District Court granted summary judgment to the landowners, finding that the force majeure clause did not extend the leases’ terms. The Second Circuit Court of Appeals then certified two questions to the New York Court of Appeals regarding the interpretation of the leases under New York law. The Court of Appeals addressed only the second certified question.

Issue(s)

1. Whether the force majeure clause in the oil and gas leases modified the habendum clause, thereby extending the primary term of the leases.

Holding

1. No, because the force majeure clause did not modify the habendum clause and therefore did not extend the primary terms of the leases.

Court’s Reasoning

The court applied principles of contract interpretation under New York law. The court stated, “[c]ourts may not ‘by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing’”. The court found the leases’ habendum clause unambiguous and that it did not incorporate the force majeure clause or contain any language subjecting it to other lease terms. The force majeure clause stated that any delay “shall not be counted against Lessee,” but did not specifically refer to the habendum clause. It did not conflict with the habendum clause’s primary term. The court found that the “notwithstanding” language in the force majeure clause did not modify the primary term of the lease because the clause only conflicted with the secondary term. Therefore, the court determined that the force majeure clause did not extend the leases’ primary terms.

Practical Implications

This decision provides a framework for interpreting force majeure clauses in oil and gas leases. Parties drafting such leases need to be precise. If parties intend a force majeure clause to affect the habendum clause’s primary term, they must explicitly state so. This decision reinforces that, in New York, broad language such as “anything in this lease to the contrary notwithstanding” will not override other clauses unless there is an express conflict. This case serves as a reminder that, when interpreting oil and gas leases or any contract, courts prioritize the plain meaning of the language used in the contract.