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Questions Concerning the Validity of Prior Assignments of Oil and Gas Lease Avoids Federal Court Jurisdiction

04.29.15 written by

The United States District Court, Southern Division of Ohio in Rauh et al., v. Viking International Resources Co. et al. remanded the action to the Monroe County Court of Common Pleas. The issue before the court was whether the plaintiffs had joined prior assignors of the lease to evade removal.

The plaintiff-lessor’s argued the premise of their case was that various defendants’ abandonment or forfeiture of the lease meant the lease has terminated and under this rationale, any assignment to Viking was of no effect because the non-diverse Ohio defendants purported to assign that which they did not have. Plaintiffs relied on the declaratory relief statute that all persons who have or claim any interest that would be affected by the declaration shall be made parties to the action.

Viking filed a notice of removal alleging Plaintiffs fraudulently joined the Ohio defendants, it held all right, title, and interest in the Lease, and the other defendants’ assignments extinguished those defendants’ rights and interests, leaving only controversy between plaintiffs and Viking.

This Court agreed that an unqualified assignment extinguishes the rights of the assignor. However, they recognized that in this case, plaintiffs named the non-diverse defendants because plaintiffs’ theory of the case is that the assignments must essentially be rolled back so that each interest is extinguished until plaintiffs obtain a declaration that they hold a clear title. The Court reasoned that to conclude that this theory does not present a viable state claim would be to reject a core premise of the theory from the outset. 

The Court reached this conclusion with some hesitation and acknowledging there was not much in the way of on-point authority. However, as all doubts as to the propriety of removal are resolved in favor of remand, and all ambiguities of state law are to be resolved in favor of the non-removing party, the court concluded that Viking had not met its heavy burden. While admitting it was debatable, the Court concluded that Ohio law “might” enable Plaintiffs to obtain the declaration they seek.

On remand, Rauh will continue before the Monroe County Court of Common Pleas. 

Rauh, et al., v. Viking Int’l Res. Co. et al., S.D. Ohio No. 2:14-CV-2246 (Apr. 22, 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.