Posted by: Patricia Salkin | September 3, 2020

MO Appeals Court Finds Genuine Issue of Fact Existed as to Whether Oil Wells Failed to Produce Oil with Respect to Inverse Condemnation Claim

This post was authored by Matthew Loescher, Esq.

The central issue of this case was whether the City of Grandview’s denial of JTC Oil Company, Inc. (“JTC”) and Jerry Kerr’s application to install oil wells on land, pursuant to JTC’s oil and gas lease, constituted inverse condemnation. The trial court granted the City’s motion for summary judgment, finding that JTC’s oil and gas lease had terminated prior to JTC filing its application with the City, and resultantly, JTC and Jerry Kerr—successor lessor of the oil and gas lease—had no “valuable property right” that could be taken by the City.

JTC and Kerr first argued on appeal that the trial court erred in granting summary judgment because they presented evidence showing the wells did not cease production, and thereby created a genuine issue of material fact that precluded summary judgment. The record reflected that the City relied on the records of the State Oil and Gas Council, which the City claimed showed several time periods when the Lease was not producing oil. In response, JTC and Kerr submitted evidence indicating that those records reflected sales, rather than production, and that the wells had continuously produced oil throughout the life of the Lease.

JTC and Kerr further argued that the trial court erred in finding the Lease terminated for lack of production without determining whether the periods of non-production were mere temporary cessations in production as opposed to abandonment of the Lease. The court noted that after a finding that periods of non-production occurred, the inquiry then becomes whether the non-production constituted abandonment of the Lease. Thus, the question of fact becomes whether the lessee intentionally and actually abandoned the premises and relinquished possession thereof, or whether the non-production excusable under the temporary cessation of production doctrine. Accordingly, it was error for the trial court to conclude that the Lease terminated for non-production without determining that the Lease was abandoned. For this reason, the court reversed the judgment of the trial court and remanded the case.

JTC Oil Company, Inc. v City of Grandview, 604 SW 3d 806 (MO App. 9/1/2020)

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