August 25, 2014 Articles

Five Things You Should Know about the Ohio Dormant Mineral Act

A guide to the law and court opinions surrounding mineral interests in the state of Ohio.

By Ariel Forbes – August 25, 2014

1. The Ohio Dormant Mineral Act (ODMA) has two different versions, and the variations among Ohio courts in interpreting and applying each version has resulted in a flurry of litigation.

The 1989 version of the ODMA was enacted on March 22, 1989, and is regarded by some Ohio courts as a “use it or lose it” statute. Under the 1989 version, a mineral interest “shall be deemed abandoned and vested in the owner of the surface” if the mineral interest owner did not “use” its mineral rights during a 20-year period. Ohio Rev. Code § 5301.56(B)(1)(c) and (B)(2) (1989). The 1989 version of the ODMA does not specify any procedure for notice to the mineral-interest owner about an abandonment claim, for the holder of the mineral rights to contest the alleged abandonment, or for anyone to record the abandonment.

In 2006, the ODMA was substantially revised to clarify the procedure for declaring a mineral interest abandoned and vested in the surface owner. According to the 2006 version, a surface owner must comply with a multipart process before the mineral estate will merge with the surface estate, including the following steps:

  • Confirm that the mineral interest has not been used within the preceding 20-year period by being the subject of a “savings event.” Such events include a “title transaction filed or recorded in the county recorder’s office,” production of oil or gas, underground-storage operations involving the mineral interest, issuance of a drilling or mining permit, the recording of an affidavit to preserve the mineral interest, and the creation of a separate tax-parcel number for the severed mineral interest. Ohio Rev. Code § 5301.56(B).
  • Serve notice by certified mail on the mineral-interest holder (or the holder’s successors or assignees) of the surface owner’s intent to declare the mineral interest abandoned, or publish such notice. Id. § 5301.56(E)(1).
  • Confirm that the mineral-interest holder has not—within 60 days of service or publication of the notice—recorded a claim to preserve the mineral interest, or an affidavit identifying a savings event. Id. § 5301.56(C).
  • File an affidavit of abandonment in the county recorder’s office at least 30 days, but not more than 60 days, after the date on which the surface owner served or published the notice. Id. § 5301.56(G).

As the result of the significant uptick in value of oil and gas rights in the Utica Shale in recent years, Ohio courts have witnessed a flood of lawsuits brought by surface owners claiming mineral abandonment under the 1989 or 2006 versions of the ODMA. One question that Ohio courts have faced is which version of the statute to apply to surface-owner claims brought post-2006, where the surface owner is claiming that abandonment occurred at a time when the 1989 version of the ODMA was still in effect. This question has yet to be determined by the Ohio Supreme Court but is currently one of several certified issues before the court, as discussed below.

2. Numerous questions regarding the interpretation and application of the ODMA are currently before the Ohio Supreme Court.

Chesapeake Exploration, L.L.C. v. Buell et al. On March 26, 2014, the Supreme Court of Ohio agreed to hear two questions certified by Judge Watson of the U.S. District Court for the Southern District of Ohio in Chesapeake Exploration, L.L.C. v. Buell, No. 2014-0067.

In Buell, Powhatan Mining Co. originally reserved the mineral rights in 1958. In 1959, Powhatan merged with North American Coal Co., resulting in a transfer of the mineral interest to North American. North American then leased the mineral interest in 1973 to National Petroleum Corp. for a primary term of 10 years. National Petroleum Corp. assigned its interest in that lease to American Exploration Company in 1975. At the expiration of that lease, the mineral interest reverted to North American, which subsequently leased the mineral interest to C.E. Beck. C.E. Beck then assigned its interest to Carless Resources in 1985. In 1989, the 1984 lease expired and the mineral interest reverted back to North American. The current record owner of the mineral interest is North American. The crucial question in Buell comes down to whether a recorded lease and expiration of lease qualify as title transactions that would preclude abandonment under the ODMA.

Judge Watson certified the following two questions to the Ohio Supreme Court:

  • Is the recorded lease of a severed subsurface mineral estate a title transaction under the ODMA?
  • Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the 20-year forfeiture clock at the time of the reversion?

Briefing in this case has concluded, and oral argument on the merits is currently set for August 20, 2014.

Dodd v. Croskey. The Ohio Supreme Court also accepted Dodd v. Croskey, No. 2013-1730, on March 12, 2014, which decides an appeal from the Seventh District Court of Appeals. In Dodd, the plaintiff surface owner published a notice of intent to declare abandonment as to a mineral interest that was originally reserved in 1947. Within 30 days after publication of the notice of abandonment, the mineral-interest owner filed a claim of preservation stating that he and his relatives intended to preserve their interests in the mineral rights.

The Ohio Supreme Court will decide the following question in Dodd:

  • Does the ODMA require a showing by the party claiming the preservation of a prior mineral interest of a “savings event” that occurred in the 20 years prior to notice being served and not a “savings event” after the date of the notice being served?

Corban v. Chesapeake Exploration, L.L.C., et al. On May 14, 2014, Judge Watson certified two additional questions to the Ohio Supreme Court in Corban v. Chesapeake Exploration, L.L.C., et al., No. 2:13-cv-246. The appeal, No. 2014-0804, was accepted by the court on July 23, 2014.

In Corban, North American Coal reserved the mineral interest in 1959 and, in 1974, entered into an oil and gas lease with a 10-year primary term. The lease was subsequently assigned, but because there was no production under the lease, the mineral interested reverted back to North American in 1985. North American entered into a second oil and gas lease in 1984 with a five-year primary term and subsequently assigned the 1984 lease to Carless. The assignment of the 1984 lease was recorded in 1985. Delay rentals were paid under the lease from 1985 to 1988, but no production occurred and the mineral interest reverted in 1989. The mineral interest is currently leased.

The plaintiff in Corban claims to own the mineral interest by virtue of automatic abandonment under the 1989 version of the ODMA, which the plaintiff argues occurred in 1992 or, at the latest, in 2005. The primary question before the trial court was whether the payment of delay rentals qualified as a savings event that would preclude abandonment, and which version of the ODMA to apply to the plaintiff’s 2013 claim. The following two questions have been certified:

  • Does the 2006 version or the 1989 version of the ODMA apply to claims asserted after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in the surface land holder prior to the 2006 amendments as a result of abandonment?
  • Is the payment of a delay rental during the primary term of an oil and gas lease a title transaction and “savings event” under the ODMA?

Walker v. Shondrick-Nau. On May 16, 2014, a notice of appeal was docketed inWalker v. Shondrick-Nau, No. 2014-0803, also on appeal from the Seventh District Court of Appeals,with respect to the following questions:

  • Is the 2006 version of the ODMA the only version of the ODMA to be applied after June 30, 2006, the effective date of the statute?
  • To establish a mineral interest as “deemed abandoned” under the 1989 version of the ODMA, must a surface owner have taken some action to establish abandonment prior to June 30, 2006?
  • To the extent the 1989 version of the ODMA remains applicable, is the 20-year look-back period to be calculated starting on the date a complaint is filed that first raises a claim under the 1989 version of the ODMA?
  • Under Ohio Revised. Code section 5301.56(B)(3), is a severed oil and gas mineral interest the “subject of” a title transaction that specifically identifies the recorded document creating that interest by volume and page number, regardless of whether the severed mineral interest is actually transferred or reserved?
  • Irrespective of savings events under Ohio Revised Code section 5301.56(B)(3), can the limitations in Ohio Revised Code section 5301.49 separately bar a claim under the ODMA?
  • Does the 2006 version of the ODMA apply retroactively to severed mineral interests created prior to its effective date?

Chesapeake Exploration, L.L.C., filed an amicus curiae brief in support of jurisdiction on May 19, 2014. The court has yet to accept the appeal.

Shannon and Swartz v. Householder. Finally, on July 16, 2014, a notice of appeal was docketed in Shannon v. Householder, No. 2014-1209, and its companion case, Swartz v. Householder, No. 2014-1208, as to the following issues:

  • Does the 1989 version of the ODMA apply after the effective date of the 2006 version of the ODMA?
  • For a mineral interest to vest under the 1989 version of the ODMA, must the surface owner take some action to establish abandonment prior to the effective date of the 2006 ODMA?
  • Does the 2006 ODMA operate retrospectively and apply to severed mineral interests created before its effective date?

These questions echo the same one faced by the Ohio Supreme Court in Corbanand in Walker, if the appeal is accepted.

3. With some exceptions, Ohio courts have held that the following transactions qualify as “savings events” under the ODMA:

  • A recorded will. See, e.g.Lipperman v. Batman, No. 12-CV-0085 (Ohio Ct. Com. Pl. Belmont Cnty. Dec. 16, 2013); Albanese v. Batman, No. 12 CV 0044 (Ohio Ct. Com. Pl. Belmont Cnty. Apr. 28, 2014) (holding that a recorded will qualifies even where no certificate of transfer is filed and recognizing the principle that title to real estate passes by testate succession via a will at the time of property owner’s death). But see Shannon v. Householder, No. 12CV226 (Ohio Ct. Com. Pl. Jefferson Cnty. July 17, 2013) (holding that recorded certificate of transfer that only generally referred to exceptions and reservations “in Grantor’s chain of title” was insufficient to constitute a title transaction), aff’d, No. 13 JE 24 (Ohio Ct. App. June 2, 2014), appeal docketed, No. 2014-1208 (Ohio July 16, 2014).
  • An oil and gas lease filed of record. See, e.g.Bender v. Morgan, No. 2012 CV 378 (Ohio Ct. Com. Pl. Columbiana Cnty. Mar. 20, 2013) (holding that oil and gas leases create fee simple determinable interests); Taylor v. Crosby, No. 11 CV 472 (Ohio Ct. Com. Pl. Belmont Cnty. Sept. 16, 2013); M&H P’ship v. Hines, No. CVH-2012-0059, *9 (Ohio Ct. Com. Pl. Harrison Cnty. Jan. 14, 2014). But see Swartz v. Householder, No. 12CV328 (Ohio Ct. Com. Pl. Jefferson Cnty. July 17, 2013), aff’d, No. 13 JE 24 (Ohio Ct. App. June 2, 2014), appeal docketed, No. 2014-1208 (Ohio July 16, 2014).
  • Recorded release of an oil and gas lease. Schucht v. Bedway Land and Minerals, No. CVH 2012-0010 (Ohio Ct. Com. Pl. Harrison Cnty. (Apr. 21, 2014) (holding that given the nature of the interest conveyed by an oil and gas lease, a release of an oil and gas lease also affects title to the mineral interest);McLaughlin v. CNX Gas Co., No. 5:13CV1502, 2013 U.S. Dist. LEXIS 174698 (N.D. Ohio Dec. 13, 2013) (because “the lease was a title transaction, there can be no dispute that the release of rights under that lease qualifies as a title transaction as well”).

Courts have generally declined to regard a conveyance of the surface estate that specifically references the severed mineral interest as a qualifying title transaction. For example, inWalker v. Shondrick-Nau, 2014-Ohio-1499 (Ohio Ct. App. 7th Dist. Apr. 3, 2014) (appeal filed Apr. 17, 2013), the court determined that the mere referencing of a mineral reservation in a conveyance did not mean that the mineral interest was “the subject of” the title transaction and affected only the surface estate. See also Dodd v. Croskey, 2013-Ohio-4257 (Ohio Ct. App. 7th Dist. Sept. 23, 2013) (on appeal to the Ohio Supreme Court); Taylor v. Crosby, No. 11 CV 472 (Ohio Ct. Com. Pl. Belmont Cnty. Sept. 16, 2013).

4. Many have questioned the constitutionality of the 1989 version of the ODMA on the basis that it provides for the forfeiture of property rights without due process.

Although the Ohio Supreme Court has yet to address the issue, several lower courts have discussed the constitutionality of the 1989 version of the ODMA. For example, in Tribett v. Shepherd, No. 12-CV-180 (Ohio Ct. Com. Pl. Belmont Cnty. July 22, 2013), the court concluded that the 1989 version of the ODMA was constitutional. The Tribett court based its decision on the U.S. Supreme Court’s opinion in Texaco v. Short, 454 U.S. 516 (1982), in which the Court affirmed the constitutionality of Indiana’s Dormant Mineral Act (DMA), which is similar to the 1989 version of the ODMA.

In Swartz v. Householder, No. 13 JE 24 (Ohio Ct. App. June 2, 2014), the Seventh District Court of Appeals declined to address the appellants’ argument that the 1989 version of the ODMA imposes forfeiture without due process in violation of the Ohio Constitution on grounds that the argument had been waived. The court, however, noted that the 1989 version of the ODMA provides for a three-year notice period—similar to the Indiana DMA’s two-year grace period discussed in Texaco—within which a mineral owner could preserve his or her interest before abandonment and vesting would occur.

In Dahlgren v. Brown Farm Properties, L.L.C., No. 13CVH27445, *17 (Ohio Ct. Com. Pl. Carroll Cnty. Nov. 5, 2013), however, the court noted that “Due Process requirements in both the federal and state constitutions unquestionably mandate notice and an opportunity to respond before a dispute about those rights can be resolved. Courts should construe statutes in a manner that best confirms their constitutionality.” The Dahlgren court also concluded that the absence of savings events under the 1989 version of the ODMA at most “created an inchoate right; it could not and did not transfer ownership without judicial confirmation or at least an opportunity for the disowned party to contest their absence or the effect of their absence.” Id.

The court in M&H Partnership v. Hines, No. CVH-2012-0059, *9 (Ohio Ct. Com. Pl. Harrison Cnty. Jan. 14, 2014), took a similar view, noting that under Texaco v. Short, a party must be afforded “due process before title vested in the surface holder.” Id.

5. The landscape of the law will change significantly in the coming months.

In addition to the cases listed above currently pending before the Ohio Supreme Court (DoddBuellCorbanWalker, and Swartz), keep an eye out for appellate decisions in the following cases throughout the remainder of 2014 and into 2015: Marty v. Dennis, No. 2012-203 (Ohio Ct. Com. Pl. Monroe Cnty.) (appeal filed May 8, 2013); Eisenbarth v. Reusser, No. 2012-292 (Ohio Ct. Com. Pl. Monroe Cnty.) (appeal filed July 3, 2013); Farnsworth v. Burkhardt, No. 2012-133 (Ohio Ct. Com. Pl. Monroe Cnty.) (appeal filed Aug. 7, 2013); Davis v. Consolidated Coal, No. CVH-2011-0081 (Ohio Ct. Com. Pl. Harrison Cnty.); Kross v. Ruff, No. 12CV303 (Ohio Ct. Com. Pl. Jefferson Cnty.) (appeal filed October 11, 2013); Wendt. v. Dickerson, No. CV020135 (Ohio Ct. Com. Pl. Tuscarawas Cnty.) (appeal filed January 27, 2014); and Gentile v. Ackerman, No. 2012-110 (Ohio Ct. Com. Pl. Monroe Cnty.) (appeal filed April 3, 2014).

Keywords: energy litigation, ODMA, mineral rights, surface rights, mineral interest

Ariel Forbes is an associate with Reed Smith LLP in Pittsburgh, Pennsylvania.

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