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Eisenbarth Decision Narrows Application of DMA

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

Recently, in Eisenbarth v. Reusser the Seventh District Court of Appeals issued another decision regarding application of the former version of Ohio R.C. § 5301.56 (1989 DMA), narrowing its application. The court’s opinion, authored by the Honorable Joseph J. Vukovich, affirmed the Monroe County Court of Common Pleas grant of summary judgment in favor of the mineral interest holders, specifically holding that: (1) a recorded oil and gas lease covering the entire mineral interest operated as a savings event for the entire mineral interest, (2) the “look-back” period under the statute is fixed from the date of enactment subject to the grace period, and not rolling, and (3) the bonus payment under an oil and gas lease is derived from ownership of the mineral interest, and not the executory right.

Background

In 1954 William Eisenbarth conveyed approximately 154 acres of land to Paul and Ida Eisenbarth, but reserved from that conveyance a one-half interest in the minerals underlying that land. Notwithstanding his reservation of one-half of the minerals, William Eisenbarth also conveyed the right to lease the entire mineral interest, including what he had reserved.  This provided Paul and Ida Eisenbarth the ability to lease both their one-half interest and William’s one-half interest, which they did several times. The last oil and gas lease Paul and Ida entered into was recorded on January 23, 1974.

The interest of William Eisenbarth (reserved one-half of the mineral interest) was transferred several times, with the property eventually ending up in the hands of the defendants, the Reussers. The interest of Paul and Ida Eisenbarth (surface and one-half of the mineral interest and the right to lease) was transferred several times as well, with a portion of the property ultimately residing in the hands of the plaintiffs, the Eisenbarths.

In 2012, the Eisenbarths executed another oil and gas lease for which they received a signing bonus, however, half of the bonus was placed into escrow pending resolution of the dispute over ownership of the one-half interest. As a result, the Eisenbarths filed the underlying suit seeking: (1) to have the Reussers’ one-half mineral interest deemed abandoned under the 1989 DMA, and (2) seeking a declaration that they were entitled to the entire bonus payment. Upon cross motions for summary judgment, the trial court held for the Reussers, quieting title to their one-half mineral interest and awarding them half of the signing bonus.

Is an oil and gas lease a title transaction, as defined under R.C. § 5301.47 (Marketable Title Act)?

In affirming the trial court’s holding that a recorded oil and gas lease covering the mineral interest sought to be abandoned was a savings event, the court focused its analysis on the statutory definition of a “title transaction” set forth in R.C. § 5301.47, which states that a title transaction is any transaction “affecting” title to an interest in land. The court went on to point out that in Dodd v. Croskey they concluded that “merely repeating a prior mineral reservation in a surface deed was not a savings event because that reserved mineral interest was not the ‘subject of’ that title transaction,” as required by R.C. 5301.56 (both 1989 and Present).

The Eisenbarths argued the oil and gas lease at issue could only affect their own leasing rights, but not that of the Reussers. However, the court stated that because the Eisenbarths held the executive right for the entire mineral interest, when they executed the oil and gas lease they “affected” the entire mineral interest.

The Court went on to note that there is no requirement that a savings event be a voluntary act, for example, a court decree is a stated title transaction and it is not a voluntary act. The court of appeals noted that they considered staying this case pending a potential decision by the Supreme Court of Ohio on the identical issue in Chesapeake v. Buell, however, they decided to proceed notwithstanding that fact.

What is the applicable “look-back” period under the 1989 DMA?

In affirming the trial court’s holding that the relevant look-back period is fixed, the court of appeals emphasized the statute’s ambiguity. They noted that “[t]he use of the words ‘preceding twenty years,’ without stating the preceding twenty years of what, does not create a rolling look-back period.” Further, the court pointed out that if the legislature had intended for a savings event in the initial look-back period to preserve the mineral interest for only twenty years, thereby creating a rolling look-back period, they could have clearly stated this, but did not.

The court also looked to the Fifth District Court of Appeals’ decision in Riddel v. Layman, stating that in Riddel the Fifth District had applied a twenty-year fixed, look-back period preceding the date of enactment. Riddel involved a reservation that occurred in a deed executed in 1965, but which was not recorded until 1973. The Riddel court held that the reservation was a title transaction that was a savings event upon recording in 1973. In analyzing the Riddell decision, the court of appeals in the instant case glossed over the argument set forth by the Eisenbarths, that the Riddel court was only looking at the first applicable period because a claim to preserve was filed on May 28, 1992, prior to the lawsuit and within the twenty-year period after the June 1973 recording of the reserving deed. Thus, the Riddel courts’ only concern was whether the execution of the reserving deed in 1965, or its recording in 1973 was the relevant savings event. The court of appeals declined to address this issue beyond noting that the Eisenbarths had raised it.

The court also relied on the legal principle that forfeiture is abhorred by the law, and therefore the court of appeals refuses to extend the look-back period from fixed to rolling citing State ex rel. Falke v. Montgomery Cty. Resid. Dev., Inc., which involves a statute that specifically discusses the situation where a corporation has forfeited its corporate rights. Whether R.C. §5301.56, is treated as an abandonment statute or a forfeiture statute is important as abandonment involves a willful relinquishment, whereas forfeiture implies a loss as a penalty for wrongdoing, such as forfeiting a lease for failing to comply with its terms. Finally, the court in addressing why the legislature would enact a dead letter law, meaning it would not apply prospectively, but would only cover events occurring within one specified period, found the legislature may have intended to refresh stale mineral claims in the original look-back period only, and could have further intended to enact a new version for the next twenty year period if public policy reasons existed at that time.

Is a holder of the right to lease entitled to bonus payments under a lease?

The court affirmed the trial court’s holding that the owner of the mineral interest retains the right to receive that portion of the bonus payment attributable to his ownership. In doing so, the court examined the nature of the reservation and concluded that it was more than a reservation of a non-participating royalty interest. It went on to note that the interest reserved a large fractional share, the right to develop and remove half, which includes ingress and egress rights. The court stated that the deed did grant away the right to lease, which was one stick in the bundle, however, the other rights attributable to the mineral estate, such as the right to receive a bonus under a lease were retained.

Concurring Opinion in Judgment Only.

Interestingly, the Honorable Judge Mary DeGenaro, concurred with the majority in judgment only. In short, she stated that she agreed with the majority’s analysis on the issues of whether an oil and gas lease was a title transaction and whether the executive right alone confers the right to receive bonus payments under a lease. However, believed the current version of R.C. § 5301.56 was controlling and therefore disagreed that the 1989 DMA was applicable. Notwithstanding that fact, assuming the 1989 DMA was applicable, then she disagrees with the majority’s application of the 1989 DMA to a fixed period, noting “[b]ecause R.C. 5302.56(D)(1) [sic] refers to successive filings, the 1989 ODMA contemplated that the holder of severed mineral rights was required to renew that interest of record every 20 years.”

Conclusion

The Eisenbarth holding currently narrows application of the 1989 DMA concerning the relevant look-back period and the treatment of an oil and gas lease.  However, a number of issues are currently pending before the Supreme Court of Ohio which will likely decide a number of key issues related to Ohio’s Dormant Mineral Act in the coming months.  

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.

 To read the complete Eisenbarth court decision, click on the link below:

 
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