The (un)settling of Ohio's Dormant Mineral Act

Feb. 15, 2017


By Alexander McElroy

The Supreme Court of Ohio has settled a key issue regarding Ohio’s Dormant Mineral Act, but Ohio’s Oil and Gas Industry has been unsettled by the ruling.

Imagine you were the owner of 100 acres of pristine farm land in Belmont County, Ohio in the 1960's. You decided to sell your land and move away, and reserved the mineral estate when you sold. Years later, you've forgotten about your mineral interest on your old farm until you hear about the shale gas boom going on all around southeast Ohio. It's now 2004, and you make a few calls to some old friends and neighbors seeking information on who may be interested in buying or leasing your mineral interest under your old farm. Weeks later, a landman calls you and says he works for a mineral buying company and they would be interested in your mineral interest, subject to a lawyer confirming your mineral ownership. Months later, the landman calls you back and informs you that you no longer own your mineral interest, because the 1989 version of Ohio's Dormant Mineral Act ("1989 Statute") reunited your severed mineral interest with the current surface owner in 1993. Before the landman hangs up, he says, "You have to use it, or you automatically lose it!" Prior to Sept. 15, 2016, and based upon the authority prior to that time,[1] this landman would have been right. But, after a quarter century since Ohio enacted the 1989 Statute, it turns out that you did not "automatically" lose your mineral interest in and under your old farm.

The Past

Prior to the shale gas revolution in the 2000's, it was rare that a surface owner attempted to obtain a judicial ruling under the 1989 Statute. Only within the past few years did cases appear regarding the self-executing and automatic nature of the 1989 Statute, and in light of a 2006 amendment to the Act, it turned out that there were multiple issues that had to be resolved in addition thereto.[2] As stated above, the majority of Ohio courts have interpreted the 1989 Statute to say that a severed mineral interest automatically reunited with the surface estate after 20 years of non-use. [3] Yet, after Sept. 15, 2016, in Corban v. Chesapeake Exploration, L.L.C., the Supreme Court of Ohio rejected that interpretation, reversed course, and held that the 1989 Statute was not automatic and self-executing.[4] Suddenly, landowners who thought that they owned the oil and gas estate by virtue of the 1989 Statute no longer owned what they thought they did. Only two groups of people benefit as a result of the Supreme Court of Ohio's decision in Corban: (1) Previous severed mineral interest holders who for the last two decades, or so, thought that they lost their mineral interest based on the plain reading of the language in the 1989 Statute, and (2) the lawyers who will be hired by their clients to resolve the new, and unexpected, issues created by the Supreme Court's decision.


As a quick refresher, in 1961, the General Assembly enacted Ohio's Marketable Title Act ("MTA") in order to simplify and facilitate land title transactions by "extinguishing" ancient claims and interests in land that had become stale.[5] Under the MTA, a person who has an unbroken chain of title or record to any interest in land for forty years or more has a marketable record title to such interest, unless certain exceptions apply.[6] Marketable record title "operates to extinguish" all other prior interests, which "are hereby declared to be null and void."[7] Originally, the MTA did not apply to mineral interests, but in 1973, the MTA was amended to allow property owners to clear their titles of disused mineral interests. [8] As a result, the MTA "extinguished" oil and gas rights by operation of law 40 years from the effective date of the root of tile, unless a savings event preserving the interest appeared in the record chain of title.[9] The Ohio General Assembly further amended the MTA when it enacted the 1989 Dormant Mineral Act.[10] Effective June 30, 2006, the 1989 Statute was subsequently amended ("2006 Amendment"),[11] and yet again by amendment effective January 30, 2014 ("2014 Amendment").[12] The 1989 Statute provides that any mineral interest held by any person, other than the surface owner of the lands subject to the interest, "shall be deemed abandoned and vested in the owner of the surface" unless it is a coal interest, or owned by the government, or has been subjected to a "Savings Event" within 20 years known as the look-back period.[13] Under the 2006 Amendment, the oil and gas estate can only be deemed abandoned if a prior 20 year period without a savings event occurs and subsequent notice requirements are met.[14] The notice requirements include notification by certified mail, or newspaper publication, that the surface estate holder intends to have the severed oil and gas estate deemed abandoned.[15] The severed mineral estate holder then has 60 days to respond by filing either 1) A claim to preserve the mineral interest, or 2) An affidavit that describes a "savings event" within the 20 years immediately preceding the date on which notice was served.[16] If 60 days pass without a response, then, under the 2014 Amendment version, the surface owner must file a Notice of Failure to File, and immediately after the notice of failure to file is recorded the mineral estate will vest in the owner of the surface of the lands formerly subject to that interest.[17] The original 2006 Amendment version provided that if 60 days pass without a response, the surface owner shall have the county recorder memorialize the abandonment on record in each applicable county with a notation that "This mineral interest abandoned pursuant to affidavit of abandonment recorded in volume …., page ……"[18] The 2006 Amendment, and 2014 Amendment, are identical in all other respects.

The Present

This summer, the Supreme Court of Ohio had 12 cases pending before it involving the Dormant Mineral Act, but in one fell swoop it decided them all. On September 15, 2016, the Supreme Court of Ohio ruled on all 12 cases, with Corban v. Chesapeake Exploration, L.L.C. as the lead case.[19][20] Based on the Corban decision, the Supreme Court provided an analysis for two other cases Walker v. Shondrick-Nau[21] and Albanese v. Batman,[22] and also affirmed four cases while reversing five cases.[23] The primary issue before the Supreme Court in Corban, which was a key issue in all 12 cases, was whether the 1989 Statute, or 2006 Amendment, applied to claims asserted after June 30, 2006, and/or did the previously severed mineral interest automatically vest in the surface owner as a result of "deemed" abandonment under the 1989 Statute?[24] In Corban, the North American Coal Corporation conveyed the surface rights to 164.5 acres in Harrison County, Ohio, to Orelen H. Corban and Hans D. Corban, reserving to itself all oil, gas and mineral rights.[25] North American Coal leased its mineral rights twice during the 70's and early 80's, but Corban contended that, as the surface owner, between May 1985 and May 2005 no savings events had occurred and therefore he was automatically vested with the mineral estate as of May 2005.[26] Chesapeake Exploration, et al. ("Chesapeake"), successor to North American Coal Corporation, argued that the 1989 Statute did not automatically divest the severed mineral interest holder of their mineral interest.. Specifically, Chesapeake argued that the legislature's use of the term "deemed" in the 1989 Statute, as opposed to a term such as "extinguished," or declaring the dormant mineral interests "null and void," meant that the legislature intended the surface owner to take legal action to have the mineral interest declared abandoned and vested in them.[27] The Supreme Court of Ohio ruled in favor of Chesapeake and determined that the 1989 Statute was not self-executing, and did not automatically transfer ownership of dormant mineral rights by operation of law.[28]


The Supreme Court's decision was primarily based upon the interpretation of the words "shall be deemed abandoned" as used in the 1989 Statute. The Supreme Court analyzed those words to determine whether the 1989 Statute was automatic and self-executing. It found that in contrast to the MTA, the 1989 Statute did not use the word "extinguish," nor did it declare dormant mineral interests "null and void," but instead used the term "deemed," which created a "conclusive presumption." [29] A conclusive presumption, according to the Court, is an inference which makes the law so peremptory that it may not be overcome by any contrary proof, however strong, and therefore it is an evidentiary device.[30] As an evidentiary device, it can only be effective when used in litigation.[31] The Court stated that a legislature may decide to use a conclusive presumption in a statute in order to make a cause of action easier (or harder) to bring where dispositive evidence is difficult, or impossible, to find.[32] By enacting the 1989 Statute, the General Assembly intended to remedy the difficulties faced by a surface owner in seeking to prove, through a quiet title action, that the severed mineral interest holder had abandoned, or relinquished, a dormant mineral interest.[33] The General Assembly therefore provided an effective method of terminating abandoned mineral rights, but only through a quiet title action.[34] As a result, the Supreme Court held that a surface holder seeking to merge the oil and gas estate with the surface under the 1989 Statute was required to commence a quiet title action, seeking a decree that the dormant mineral interest was deemed abandoned.[35] Going further, and as of June 30, 2006, if a judicial ruling had not been obtained regarding the oil and gas estate, then a surface holder seeking to claim the dormant mineral rights merged with the surface estate was required to follow the statutory notice and recording procedures under the 2006 Amendment.[36] As of Jan. 30, 2014, a surface estate holder must follow the notice and recording procedures as specified in the 2014 Amendment.[37]


Prior to the Supreme Court's decision in Corban, a majority of lower Ohio courts that have addressed the issue, including the Fifth, Seventh and 11th District Courts of Appeal, found the 1989 Statute to be automatic and self-executing.[38] It was this strong legal precedent that oil and gas producers, mineral and royalty buyers, and even various surface owners, used to base their decisions on when leasing or purchasing mineral interests. Although the Supreme Court had not determined whether the 1989 Statute was automatic and self-executing, the aforementioned industry participants did not have the luxury to wait for a decision. After all, it's been almost 30 years since Ohio enacted the 1989 Statute. Prior to the Corban decision, if an oil and gas producer examined record title to a tract of land and determined that a severed mineral interest had been "deemed abandoned and vested" in the surface estate under the 1989 Statute, the oil and gas producers had three options if they wanted to lease the tract:

A) Go with the weight of authority at that time and assume that the 1989 Statute was automatic and self-executing and lease the surface owner (who would claim the oil and gas estate based upon the 1989 Statute), or;


B) Assume that the 1989 Statute was not automatic and self-executing and lease the severed mineral interest holders, their successors or assigns, or;


C) Obtain a protective lease by leasing both the surface owner and severed mineral interest owner.

Now, as one applies the Corban decision to the fact scenario above, once that landman calls you back about leasing your mineral interest in and under your old farm in Belmont County, the landman must still confirm whether or not the surface owner pursued abandonment under the 2006 Amendment. If the surface owner did, were the 2006 notice provisions and requirements in the 2006 Amendment complied with? Even if the surface owner complied, if you, the mineral interest owner, were not provided notice by certified mail, and notice was instead given by publication in a local newspaper, whether or not you received proper notice is an issue that is ripe for future litigation. What is a producer supposed to do?


In short, if a tract of land has a prior mineral severance, and the surface owner wants to claim the severed mineral interest has been abandoned and vested in them, the surface owner must show that:

A) There was either a judicial ruling prior to June 30, 2006 granting them, or their predecessors-in-interest, the rights to the mineral estate, or;


B) They had followed, with due diligence and in good faith, the notice and recording procedures as set forth under the 2006 Amendment (or 2014 Amendment, where applicable), and that 60 days had passed without a response from the severed mineral estate holders.

If neither of the above have been met, the surface owner has no right to the severed mineral interest. Any oil and gas producers that have leased those surface estate holders no longer have a valid lease.

The Future

The Supreme Court of Ohio's decision is already causing problems for landowners, oil and gas producers, and mineral buyers. Any oil and gas producers who leased oil and gas mineral rights based on the assumption that the owners obtained their rights thorough the 1989 Statute's automatic and self-executing nature now have invalid leases. Mineral buyers who purchased mineral rights based on that assumption now suddenly own nothing. They do have one potential saving grace, whereby the surface estate holders can regain the rights to the oil and gas estate by following the 2014 Amendment notice and recording procedures. If 60 days pass without a response from any of the severed mineral interest holders, then the oil and gas estate will vest in the surface estate holders. On the other hand, if at least one severed mineral interest owner responds and files a claim to preserve, or notes a savings event within the preceding 20-year period, then the surface owner cannot claim the mineral interest is abandoned and vested in them. In the case of oil and gas producers, they could possibly now have producing units with one, or more, unleased tracts of land. This may result in potential problems with pooling unitization, trespass, and royalty payment issues for oil and gas producers. Even the surface owner who has been collecting royalties each month from a producing well may be financially burdened when the royalty checks stops. For some mineral buyers, they purchased oil and gas interests that no longer exist based upon the Corban decision. They will have to look at their contract language to determine if they have a cause of action for breach of warranty against the seller. These issues, and many others, will lead to a whole new world of expensive litigation, forcing the oil and gas industry, already strapped for cash, to make further painful decisions on where and when to spend their valuable time and limited money. This could mean less production, which means less taxes and royalties, within Ohio. In Corban, the Supreme Court of Ohio settled the major issue as to how the 1989 Statute and the 2006 Amendment fit together, but by going against the established prior precedent, it has unsettled the oil and gas industry. The 1989 Statute, 27 years after being enacted, has effectively been "rendered toothless."[39]

Author bio

Alexander McElroy is a Partner with Lenington, Gratton & Alexander, LLP.

Endnotes

[1] See Walker v. Shondrick-Nau, 2014-Ohio-1499, appeal allowed, 140 Ohio St. 3d 1414, 2014-Ohio-3785, 15 N.E.3d 883, and rev'd 2016-Ohio-5793; See also, e.g., Wendt v. Dickerson, 5th Dist. Tuscawarus No. 2014 AP 01 0003, 2014-Ohio-4615, appeal allowed, 142 Ohio St. 3d 1464, 2015-Ohio-1896, 30 N.E.3d 973, and rev'd, 2016-Ohio-5822; Thompson v. Custer, 2014-Ohio-5711, 26 N.E.3d 278 (11th Dist.), appeal allowed, 143 Ohio St. 3d 1416, 2015-Ohio-2911, 34 N.E.3d 929, and rev'd, 2016-Ohio-5823.

[2] See Fenner L. Stewart,When the Shale Gale Hit Ohio: The Failures of the Dormant Mineral Act, Its Heroic Interpretations, and Grave Choices Facing the Supreme Court, 43 Cap. U. L. Rev. 435 (2015). See also Alexander McElroy, Ohio's Dormant Mineral Act: Current and Unresolved Issues, 44 Cap. U. L. Rev. 325 (2016).

[3] See Wiseman v. Potts, Morgan County Common Pleas No. 2008CV145, See also, e.g., Walker v. Shondrick-Nau, 2014-Ohio-1499, appeal allowed, 140 Ohio St. 3d 1414, 2014-Ohio-3785, 15 N.E.3d 883, and rev'd 2016-Ohio-5793; Wendt v. Dickerson, 5th Dist. Tuscawarus No. 2014 AP 01 0003, 2014-Ohio-4615, appeal allowed, 142 Ohio St. 3d 1464, 2015-Ohio-1896, 30 N.E.3d 973, and rev'd, 2016-Ohio-5822; Thompson v. Custer, 2014-Ohio-5711, 26 N.E.3d 278 (11th Dist.), appeal allowed, 143 Ohio St. 3d 1416, 2015-Ohio-2911, 34 N.E.3d 929, and rev'd, 2016-Ohio-5823.

[4] No. 2:13-cv-246, 2014 U.S. Dist. LEXIS 182735 (S.D. Ohio May 14, 2014), certified question answered, 2016-Ohio-5796.

[5] Ohio Rev. Code Ann. § 5301.50 (West 2014).

[6] Id. § 5301.51.

[7] Corban v. Chesapeake Exploration, L.L.C., Slip Opinion No. 2016-Ohio-5796, ¶17.

[8] Id. at ¶18.

[9] Id.

[10] 1988 Ohio Laws File 314.

[11] 2006 Ohio Laws File 84 (Sub. H.B. 288).

[12] 2013 Ohio Laws File 41 (Sub. H.B. 72).

[13] 1988 Ohio Laws File 314 (B)(I)(a)–(d).

[14] 2006 Ohio Laws File 84 (Sub. H.B. 288).

[15] Id. at (E)–(F).

[16] Id. at (H).

[17] Id.

[18] Sub. H.B. 288, Ohio Laws File 5960 (2006) (amending Ohio Rev. Code Ann. § 5301.56).

[19] Slip Opinion No. 2016-Ohio-5796. In Corban the Supreme Court also determined that delay rental payments are not savings events under the Dormant Mineral Act. Id. at ¶38.

[20]Walker v. Shondrick-Nau was one of the 12 cases, and on December 14, 2016 it was appealed to the United States Supreme Court. No. 16-776, 2016 WL 7336573 (U.S.) (Dec. 14, 2016). The petitioners argued that the Due Process Clause, and Contracts Clause, of the Federal Constitution had been violated by the Supreme Court of Ohio's decision in the DMA cases. On Jan. 17, 2017,  the United States Supreme Court denied the petition; thus, the Supreme Court of Ohio's decision is final.

[21] Slip Opinion No. 2016-Ohio-5793. In Walker, the Supreme Court cited Corban and stated that the 1989 Statute did not apply because Walker, the surface estate holder, asserted his claim to the mineral estate in 2012, after the 2006 Amendment took effect. Id. at ¶17. The Court found that although Walker had filed an affidavit of abandonment pursuant to the 2006 Amendment, the severed mineral estate holder, Noon, timely filed an Affidavit and Claim to Preserve Mineral Interests which qualified as a "savings event," thereby precluding Walker from having the mineral rights deemed abandoned. Id. at ¶19.

[22] Slip Opinion No. 2016-Ohio-5814. In Albanese, the Court applied the Corban decision and found that the mineral rights had not been abandoned because the surface owners, Albanese and Lipperman, filed quiet-title actions in 2012, after the 2006 Amendment took effect. Id. at ¶¶11, 16. Futhermore, Albanese and Lipperman did not follow the 2006 ODMA'statutory notice and affidavit provisions, therefore, the Court determined that the severed mineral interests never vested with them and remained with the severed mineral interest holders, the Batmans. Id. at ¶22.

[23] See Carney v. Shockley, Slip Opinion No. 2016-Ohio-5824; See also e.g., Dahlgren v. Brown Farm Prop. LLC, Slip Opinion No. 2016-Ohio-5818; Eisenbarth v. Reusser, Slip Opinion No. 2016-Ohio-5819; Farnsworth v Burkhart, Slip Opinion No. 2016-Ohio-5816; Swartz v. Householder, Shannon v. Householder Slip Opinion No. 2016-Ohio-5817; Taylor v. Crosby, Slip Opinion No. 2016-Ohio-5820; Thompson v. Custer, Slip Opinion No. 2016-Ohio-5823; Tribett v. Shepherd, Slip Opinion No. 2016-Ohio-5821; Wendt v. Dickerson, Slip Opinion No. 2016-Ohio-5822.

[24] Id. at ¶8.

[25] Id. at ¶3.

[26] Id. at ¶¶11–12.

[27] Id.

[28] Id. at ¶28.

[29] Id. at ¶¶21–22.

[30] Id. at ¶23.

[31] Id.

[32] Id. at ¶24.

[33] Id. at ¶25.

[34] Id.

[35] Id.

[36] Id. at ¶31.

[37] 2013 Ohio Laws File 41 (Sub. H.B. 72).

[38] Walker, supra note 1.

[39] Albanese v. Batman, Slip Opinion No. 2016-Ohio-5814 (Pfeifer, J. concurring in judgment only).




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