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Additional Dormant Minerals Act (DMA) Questions Certified to Supreme Court Of Ohio

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.

In Corban v. Chesapeake, the US District Court for the Southern District of Ohio certified two additional questions to the Supreme Court of Ohio concerning application of the Ohio Dormant Mineral Act (“DMA”) as originally enacted and as amended in 2006. The issues certified were:

  1. Which version of the DMA applies to a claim asserted after the DMA was amended in 2006, alleging the oil, gas and other minerals were abandoned and thus automatically vested in the surface estate holder prior to the 2006 amendment?
  2. 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 DMA?

BACKGROUND
The parties in Corban disputed which version of the DMA applied to a severance of oil, gas and other mineral rights to approximately 164.5 acres in Harrison County in 1959 by The North American Coal Corporation (“NACoal”), and in the event the 1989 DMA applied, whether a savings event had occurred which precluded its application.

NACoal had entered into an oil and gas lease in 1984 for a five-year primary term. No production occurred under the lease, but delay rentals were paid annually in accordance with the lease terms in 1985, 1986, 1987 and 1988. This lease expired in 1989, at the end of the primary term.

No other transfer of the previously reserved oil, gas and mineral rights occurred until 2008. Subsequently, in 2009, a new oil and gas lease was entered into, and a well was drilled, completed and put into production in 2011.

THE DISTRICT COURT’S ANALYSIS

      Which version of the DMA applies?

Plaintiff contended the mineral rights automatically vested in him under the 1989 DMA and therefore, the 2006 DMA was inapplicable and could not retroactively divest him of his property rights. Defendants argued the 2006 DMA applied because it was the law in effect at the time plaintiff brought suit in 2013 and thus, the court must apply the law as it exists at the time of the claim.

In addressing the dispute over which version of the DMA to apply, the Corban court noted the Supreme Court of Ohio has yet to address the issue, and the trial courts are split on which version of the DMA applies to claims brought after its amendment in 2006, but which arose prior to that amendment. However, the basis of the court’s split, the trial court decisions in M&H Parntership and Dahlgren, have been rejected by the Seventh District Court of Appeals recently in Walker v. Shondrick-Nau, which held the 1989 DMA was operative until the amendment in 2006, and therefore, to the extent a severed mineral interest qualified for abandonment under the 1989 DMA, it automatically vested with the surface owner regardless of whether the claim was asserted after the 2006 amendment. For a more detailed discussion of Walker click here.

In Corban, the court viewed the Seventh District decision in Walker as internally inconsistent with its prior decision in Dodd v. Croskey, which applied the 2006 DMA without discussion.  It is worth noting that the Dodd case did not involve any claims brought under the 1989 DMA and alleged abandonment solely under the 2006 DMA.  Therefore, the issue of which version of the DMA to apply was not before the court in Dodd, but was squarely presented in Walker.  Viewed in this light, the decisions of the Seventh District are in accord.

The Supreme Court of Ohio has accepted an appeal of Dodd solely on the issue of whether a notice of preservation timely filed after an abandonment notice was effective to preserve a mineral interest where no savings events occurred within the 20 years preceding the abandonment notice. For a more detailed discussion of the Dodd decision click here.

Due to the lack of controlling precedent from the Supreme Court of Ohio and the court’s perceived belief that the only Ohio appellate court to consider the issue has been internally inconsistent, the court held the best course of action was to certify this important question of state law to the Supreme Court of Ohio.

     Savings Events – Do delay rentals qualify as a title transaction?

Under R.C. 5301.56(B)(3)(a), one savings event is whether “[t]he mineral interest has been the subject of a title transaction that has been filed or recorded in the office of the county recorder of the county in which the lands are located,” within the 20-year period.

Assuming the 1989 DMA was applicable, the determinative issue in Corban was whether the unrecorded expiration of the 1984 oil and gas lease, and/or payment of delay rentals (in 1985, 1986, 1987 and 1988) during the primary term were “saving events.” The court noted the plaintiff failed to address this argument.

The defendants argued the abandonment should not begin at any time before the termination of the lease and the return to NACoal of its oil and gas rights in 1989.

The court stated if the payments of delay rentals are considered title transactions qualifying as savings events, abandonment would be precluded until 2008 at the earliest (20 years after the last delay rental payment), at which time the 2006 DMA would control.

Because of a lack of any precedent concerning this novel issue, the court stated the issue was one best addressed by the Supreme Court of Ohio. The court further noted that the Supreme Court of Ohio’s conclusions regarding whether the unrecorded expiration of oil and gas lease constitutes a savings event would apply to this case. That issue was previously certified in Chesapeake Exploration, LLC v. Buell, as well as whether an oil and gas lease is a title transaction which qualifies as a savings event. The Supreme Court of Ohio has accepted review of these questions.

MOVING FORWARD

While the Supreme Court of Ohio previously accepted review of the questions certified in Buell, it may accept or decline review of the additional questions certified in Corban. However, given the related nature of the issues, the Supreme Court of Ohio may agree to hear these issues to bring further clarity to the DMA’s application.

Should you have any questions, please contact Attorney Gregory W. Watts or Attorney Ian R. Hoke  of Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A. at 877-876-9958.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

 
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