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Failure to Join Necessary Parties Renders Forfeiture of Oil and Gas Lease Inappropriate

06.26.15 written by

The Fourth District Court of Appeals, in Holland v. Gas Ents. Co. reversed a decision from the Washington County Court of Common Pleas finding an oil and gas lease forfeited for lack of production in paying quantities on the basis of the lessors’ failure to join all parties with an interest in the lease pursuant to O.R.C. § 5301.10. 

The lessors in Holland brought suit alleging insufficient production from wells drilled pursuant to an oil and gas lease granted in 1930, which the lessors argued caused the lease to have expired. In answering the lessors’ complaint, the lessee asserted the affirmative defense that the lessors have failed to join all necessary and indispensable parties, and further presented evidence of the sufficiency of production under the lease. The trial court agreed with the lessors, declaring the lease void by virtue of insufficient production. 

On appeal, the lessee argued the trial court improperly found in favor of the lessors because not all those with an interest in the lease were made parties to the suit as required by statute. O.R.C. § 5301.10 provides:

The plaintiff in an action to cancel a lease . . . in order to finally adjudicate and determine all questions involving such lease or license in such action, need only make those person defendants, so far as such lease . . . is involved, who claim thereunder and are in actual and open possession, and those who then appear of record, or by the files in such office, to own or have an interest in such lease or license. * * *

The lessee asserted that the lessors’ failure to join an owner of an overriding royalty interest in the lease prohibited the trial court’s finding for the lessors. The Fourth District agreed, finding O.R.C. § 5301.10 “unambiguously requires the joinder of all known interested persons and entities as a condition precedent to the adjudication and determination of all questions involving the lease in a suit seeking its cancellation.” The Court further disagreed with the lessors’ argument that the failure to join the overriding interest holder was waived by the lessee, finding the lessee sufficiently raised the issue in its opposition to the lessors’ motion for summary judgment filed with the trial court. The Court found “[o]nce a genuine issue arose over whether [the party holding the override] had an interest in the lease, the landowners had a duty under [O.R.C. § 5301.10] to either join it as a defendant for their claim to proceed or establish [the party holding the override] had no legitimate interest.” 

Holland v. Gas Ents. Co., 4th Dist. Washington No. 14CA35, 2015-Ohio-2527 (Jun. 15, 2015) 

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.

If you have any questions concerning this client alert, please contact Attorney Gregory W. Watts at 330-497-0700.