Ohio’s Dormant Minerals Act – Ohio’s Courts Weigh In

Below is an excerpt from a presentation I gave on November 8, 2013 for the Ohio Association of Justice Seminar.  A broader overview of Ohio’s Dormant Mineral’s Act can be found here.

I.  Introduction

Commencing in the spring of 2010, eastern Ohio experienced an unprecedented oil and gas leasing boom due to the discovery of the Utica Shale.  In the recent past, Ohio landowners might expect to receive $10-20/acre for signing an oil and gas lease.  Presently, prices in the range of $3,000-6,000 have become the norm.  Hundreds of wells have now been drilled throughout eastern Ohio into the Utica shale, with some being prolific producers.

Private ownership of lands in Ohio began around the mid 1800’s when grants were given out by the government.  Due to the fact that oil and coal has long been produced in Ohio, it is not unusual to find a situation where minerals were severed from the surface sometime during the last 150 years.

Often, a landowner will take title to property knowing that the minerals have been severed, however, many landowners, who assumed that they were acquiring the related minerals, later discover that an earlier reservation of the minerals had been made by a prior owner.  Such knowledge is often gained after a landowner has signed an oil and gas lease and is later told by the lessee, after its due diligence, that a prior mineral severance has been made.

Due to the value of gas and oil rights in the Utica shale (and other formations that may be produced with newly available technologies) there has been a flurry of litigation concerning such minerals.  As an example, a 100 acre farm in a “hot” area of leasing could be leased presently for $6,000/acre.  Additionally, the rights owned by the landowner pursuant to that lease could also be sold for an equivalent amount.  Thus, there is $1,200,000 at stake for this hypothetical landowner.

 

II.  How Mineral Severances are Dealt with in Many Other States

In many oil and gas producing states (e.g., Texas), when a mineral severance is made it is permanent.  If rancher Jones reserves the oil and gas rights on 1,000 acres, that interest remains in his name unless he assigns it of record.  It is not unusual, particularly where a mineral interest is inactive (i.e., not generating any income), that the executor of party who dies owning mineral rights is unaware of the asset.  When this occurs, things can get a bit complicated.

Assume rancher Jones reserves the oil and gas rights on 1,000 acres in 1900 and dies in 1920.  No mention of the asset is made in his probate estate.  Rancher Jones is survived by his wife and five children.  By 1999, when drilling interest has heated back up in the area, there are several generations of Jones’ who have a claim to the oil and gas rights that are still titled in rancher Jones.  An oil and gas company interested in drilling on that 1,000 acres must (an often will) go to great lengths to establish the family history, and review probate estates and wills so that the proper parties can identified to sign an oil and gas lease.  Only then can drilling occur.

 

III.  How Ohio and Some Other States Deal with Severed Minerals

In an effort to somewhat streamline the process of dealing with severed mineral interests, Ohio and some other states have enacted what are referred to as dormant mineral laws.  The general idea behind these laws is that where a severed mineral interest has remained ‘dormant’ or unused for a period of time, a process is used to allow the surface owner to acquire title to the minerals.  When that occurs, an oil and gas company need not worry about determining and tracking down the heirs to the record owner of the minerals and may simply deal with the current landowner in lease negotiations.   This would tend to make development of minerals throughout the State more likely.

 

IV.  Ohio’s Dormant Minerals Statute

Exceptions:  Does not apply to coal, nor to interests held by federal, state or local government.

Section (B)(3) – Twenty year look-back to determine whether any of the following have occurred concerning the severed mineral interest (i.e., has the interest been dormant).

i. the mineral interest was subject to a ‘title transaction’ – query whether this would apply where a mineral severance is carried from deed to deed.

ii.  there has been actual production – either from the subject lands or from a drilling unit that incorporates the subject lands.

iii.  land is used for underground storage purposes.

iv.  a drilling permit has been issued to the holder of the severed interest and the holder has recorded an affidavit to that effect in the county where the land is recorded.

v.  a “claim to preserve the mineral interest” has been recorded in appropriate county.  Such a claim merely requires holder to set out the interest owned and recite that he does not intend to abandon same.  Note when there are multiple owners of the severed mineral interest, a claim filed by one owner would cover all other owners.

vi.  the mineral interest has been set up as a separate parcel by the auditor and is being taxed as such.

Section (E)(1) – If twenty year look-back is satisfied, next step is to serve notice.

i.  Certified mail is to be used to notify each holder of the severed mineral interest or each holder’s successors or assigns at the last known address of each.  Does not permit serving less than all owners with notice (i.e., cherry picking only those interests you think are easily obtainable).

ii.  Notice can be published in a local newspaper in the county where the land is located where “service of notice cannot be completed to any holder.”  This would seem to apply where the holder cannot be located or is out of business.  Probably also applies where someone has refused to accept certified mail.  Query, what level of effort is required by the landowner to find the current owners or heirs?

iii.  Required contents of notice (whether by letter or newspaper) are clearly set out in the statute.

 

Section (E)(2) – Next step is to record an affidavit of abandonment.

i.  Timing is critical here – needs to be done 30-60 days after the above notice is served or published.

ii.  Required contents of affidavit are clearly set out in statute.

 

Section (H)(1) –  What if Severed Mineral Holder Objects to Process

i.  Holder can file an affidavit setting out that 20 year look-back was satisfied or, lacking that, simply file a “claim to preserve mineral interest.”

ii.  Either of above must be recorded in proper county within 60 days of receipt of notice.  Holder also has to copy the landowner on this filing.

iii.  Timely filing by any holder effectively shuts down landowner’s attempt to re-claim minerals via the County Recorder discussed below.

 

Section (H)(2)  Final step in the process

i.  Where no holder of the severed mineral has timely recorded a claim or affidavit as provided above, Landowner, after the 60 day period has expired, “shall cause the county recorder of each applicable county to memorialize the record on which the severed interest is based” with a notation that the mineral interest was abandoned pursuant to the affidavit of abandonment recorded in volume ____ page ____. “ This would be a marginal notation on the original deed that contained the mineral severance.

ii.  This section also indicates that, in any subsequent litigation concerning the mineral interest, the court shall not allow introduction of the original deed as evidence.

iii.  Section also indicates that the process only applies to lands owned by the party who filed the affidavit of abandonment – so, for example, an old conveyance of minerals on 200 acres of ground would not be completely knocked out by a claim made by a present owner of 50 of those acres.  Makes sense to approach neighbors in these situations to clean it all up in a group effort.

 

Recourse Where a Holder files a Claim to Preserve Mineral Interest

i.  Prior version of O.R.C. 5301.56 (first enacted in 1989) was significantly different than today’s version.  It had same 20 year look-back and the same look-back items (‘savings events’).  It stated, simply, that if nothing was done by mineral holder in a 20 year period, the interest “shall be deemed abandoned and vested in the owner of the surface.”   This earlier version did not, however, provide the notice/affidavit/cancellation by the recorder process in the current statute.

ii.  The new statute contains the same language as that underlined above, however, at part (E) it says “Before a mineral interest becomes vested under (B)” the owner has to give notice to the mineral holder and file an affidavit of abandonment.  The new statute also allows the holder to file a claim after the landowner’s affidavit is filed.

 

V. Major Issues Involving Ohio’s Dormant Mineral Statute

1.   Which version of ORC 5301.56 can/should be used in a presently filed case?

      Under the present version of the statute, an inquiry is made into whether a savings event occurred within the twenty years preceding the landowner’s required notice to the mineral owner of their intent to recapture the minerals.  In situations where a savings event had clearly occurred within such time frame, a landowner would be out of luck under the new statute – thus a creative argument was made by such landowners that they could, nevertheless, use the older version of the statute to acquire their minerals.  Proponents of this theory say that the prior version of the statute “deemed” the mineral to be abandoned in the absence of a savings event; thus, if a 20 year dormant period is shown to have occurred prior to the passage of the new statute, the minerals “automatically” reverted to the surface owner under the old statute.  Opponents of this theory argue that a quiet title suit filed presently should use the current statute (not the old one) to determine the rights of the parties.

2.  Assuming that the old version of the statute applies, what 20 year period is to be examined for savings events?

     Under the prior version of the statute, quoted above, the look back period is less clear – it indicates that no savings event could have occurred “within the preceding twenty years.”  The question that arises is:  Preceding what?  Some argue that the landowner must have filed a lawsuit claiming the minerals and the look back period is 20 years from the date the complaint is filed.

3.   Pursuant to the new statute, how much effort need by made by a landowner to track down and notify all persons who may claim an interest in the minerals?

      The statute requires that certified mail notice be sent to “each holder or each holder’s successors or assignees, at the last known address of each…”  Though “holder” is defined in the statute (the record holder or any person who derives their rights from the record holder), “successors” and “assignees” are not defined.  The notice requirements are thus unclear.  For example, where a mineral reservation was made by Jones in 1900, and there are no assignments of that interest of record and no probate estate shown for Jones in the county where the land is located, what is required as far as notice?  The statute does make provision for notice by publication where certified mail service is not achieved.  Under the above example, does that get the job done?  Or, is a landowner required to do an exhaustive investigation into Jones’ family history and heirs to determine all possible claimants and their present location?  Query, whether the requirement of such an investigation defeats the whole purpose of the statute?

4.   What is the effect of a mineral owner (or an heir to a mineral owner) timely responding to a notice of intent to recapture minerals by a landowner?

      Under the statute, such a response clearly prevents the county recorder from voiding the mineral interest, but does the response have any additional effects?

 

VI.  Cases Interpreting Ohio’s Dormant Mineral Statute

Though the statute became effective 24 years ago, it was infrequently used and very little case law existed at the time the Utica shale boom took off in 2010.  There was one appellate decision (Riddel, out of the Fifth District) that had been issued which dealt with the initial version of the statute.  There was also one common pleas decision (Wiseman) that dealt with the new version of the statute that was enacted in 2006.  No other case law was available.  Presently there are thought to be dozens of cases pending at the trial court level.  Within the last couple of years there have been several common pleas decisions issued as well as a recent appellate decision (Dodd, out of the Seventh District).  The above referenced decisions are discussed below.

 1.  Riddel v. Layman

The first known case involving the statute ended up in the Fifth District Court of Appeals – Riddel v. Layman, No. 94CA114, 1995 WL 498812.  The primary issue for the Court to determine in that matter was whether a deed recorded in 1973 fell under the definition of a “title transaction” under the original DMS.  The case was decided when the old statute was in effect and the parties did not appear to contest the issue of when the 20 year look back period was triggered.  The Court held that the subject deed was a title transaction and, without any analysis, further held that the statute required that “the title transaction must have occurred within the preceding twenty years from the enactment of the statute which occurred on March 22, 1989.”

2.  Wiseman v. Potts

 The next known decision on the issue occurred many years later and after the DMS had been amended in 2006.  In the case of Wiseman v. Potts, Morgan Co. Common Pleas No. 2008CV145 the parties all agreed via their filings that 20 year look back would be from the effective date of the original dormant mineral statute (March 22, 1989).   They also agreed that the 1989 version of the DMS should be used to govern this case, notwithstanding the fact that it was filed after the new version of the DMS became effective.  Thus, the parties were only contesting whether any of the savings events cited under the original statute had occurred within the agreed time frame.  With that agreement in place, the Court then rendered its very brief decision on that basis.

3.  Wendt v. Dickerson

 Following the Riddel and Wiseman decisions came Wendt v. Dickerson, Tuscarawas Co. Common Pleas, No. 2012 CV 02 0135.  This case had a number of issues and a lengthy opinion was issued on cross motions for summary judgment.  The court initially found that the prior version of the statute could be used in the case, finding that the landowner’s rights had vested thereunder and could not be taken away by an amendment of the statute.  Additionally, since the landowner’s claim was based upon the old statute (which had no notice provision) it was not necessary for the landowner to comply with the notice provisions under the new statute.

Notwithstanding its length, the opinion devoted little discussion to the issue of when the 20 year period should be measured from under the old statute.  It first declared that it should be measured from the DMS effective date of 3/22/1989 and cited the Riddel decision in support of that holding.  It later indicated that the 20 year period should be measured within the twenty years preceding 3/22/1992 (See page 15)  It is noted that, under the old statute at part (B)(2), “a mineral interest shall not be deemed abandoned… until three years from the effective date”  One might surmise that the Court considered (B)(2) in citing a second measurement date, but this is not fleshed out in the opinion.  Nor was it made clear which 20 year period should apply.

Wendt also held that a mineral reservation set out in a recent deed that simply repeated a reservation in an earlier deed was void and therefore did not qualify as a title transaction under the statute.  There were additional claims in the case that were not finally resolved and the matter is not presently under appeal.

4.  Walker v. Noon

 The next known decision on the issue was Walker v. Noon, Noble Co. Common Pleas No. 2012-0098.  Though the matter was filed in 2012, long after the DMS had been amended, the Court nevertheless applied the prior version of the DMS and ruled that the mineral interest had been abandoned.  In support of that ruling the Court relied solely upon Wendt v. Dickerson, supra.  The court also held that a deed which referenced a third party’s reservation of minerals was not a title transaction under the statute.  This case is presently under appeal.

 5.  Marty v. Dennis

 In the case of Marty v. Dennis, Monroe Co. Common Pleas, No. 2012-230, the landowner initially recorded an affidavit claiming ownership of the minerals based upon the old version of the statute.  A month later, the landowner commenced the process of notice/affidavit required under the new statute.  The mineral owner did respond to this second process by recording a timely notice to preserve.  The Court issued a ruling indicating: (1) though the reserved interest was for royalties only, it could be recaptured via the statute; (2) the prior version of the statute could be applied; (3) that the 20 year look back period under the prior version of the statute should be measured from the effective date of the statute, though no authority was cited for this holding; and (4) that, under the new version of the statute, when a mineral owner timely files a response, a lawsuit is required to determine ownership of the minerals, wherein a mineral owner must prove the existence of a timely savings event.

 6.  Bender v. Morgan

 In Bender v. Morgan, Columbiana Co. Common Pleas, No. 2012-CV-378, one issue before the court was whether an oil and gas lease qualified as a title transaction under the statute.  The court answered this question in the affirmative.  The court also ruled that the prior version of the statute could be used, and that the look back period under the prior version commenced with the effective date of the statute, citing Riddel in support of such conclusion.  This opinion also suggests, at page 6, that a Court interpreting the 1989 DMS could look “prospectively” forward in time from the date of a title transaction.

7.  Shannon v. Householder

 Another recent case on this issue is Shannon v. Householder, Jefferson Co. Common Pleas No. 2012 CV 226.  That decision is notable because it varies from the rule laid down in Riddel that the 1989 DMS applies only to the period of 1969-1989.  Instead, Shannon, at page 6, indicates that the 20 year period should be measured after the last known savings event.  That is, the statute should be read to move forward in time.  While that makes sense on its face, one must remember that the 1989 statute reads: “within the preceding twenty years, one or more [savings events] has occurred.”

 

8.  Tribbett v. Shepherd

 This case was handled by the Belmont County Common Pleas Court  (12 CV 180).  Here the mineral owner claimed the 1989 version of the statute should not apply as it was superseded by the new version enacted in 2006.  On this issue, citing Wendt, the court held that the old statute did apply.  The court also held that the applicable look back period was 20 years from the effective date of the statute.  Another issue was whether the heirs of the record mineral owner could be deemed “holders” so as to allow them to file responses to the landowners notice of intent to recapture.  The court held that such persons did qualify as holders under the statute.  Last, the court held that a deed that merely references an earlier mineral reservation in the chain of title is not a title transaction under the statute.

9.  Dodd v. Croskey

This case was filed in Harrison County (CVH 2011-0019) and then appealed to the Seventh District who issued a decision on 9/23/13 (case Number 12 HA 6).  Dodd had a number of interesting issues that were raised on appeal. The first was whether a deed in the chain of title that was recorded within the last 20 years could be deemed a savings event “title transaction” because it restated the existence of a prior mineral reservation.  The Court of Appeals overruled the trial court’s decision holding that such a deed was a title transaction.  It based such holding on the fact that the definition of a title transaction is one that “affects” the interest.  Here, the grantor of the recent deed did not own the mineral interest; thus he could not affect it.  Reference to a prior mineral reservation in a new deed, therefore, did not qualify as a title transaction.

Another issue in Dodd was whether sufficient notice had been given by the landowner to the mineral owner claimants.  Here, the evidence indicated that the record owners of the mineral interest were long deceased and a title search showed no transfer of record.  There was also a contention made that a search showed that the record owners did not have probate estates opened in the subject county.  No certified mail was sent by the landowner – only notice by publication was made.  The mineral owners claimed that this did not meet the requirements of the statute, and the trial court agreed.  The Court of Appeals avoided the issue of whether the landowner satisfied the notice requirements and instead found that, because some of the mineral owners did receive actual notice of the claim via the newspaper notice, lack of service by certified mail was “harmless error.”

 The most significant holding in Dodd concerned the ramifications of a mineral owner timely responding to a landowner’s notice of intent to recapture minerals.  Here, certain heirs of the record mineral holder did file “claims to preserve” their interests under 5301.56(C).  This was done within the 60 day window set out in 5301.56(H).  Via a lengthy analysis of the various provisions of the statute, the Court held that such a filing does qualify as a savings event under the statute, notwithstanding the fact that it was recorded outside of the 20 year window defined in 5301.56(B)(3).

10.  Dahlgren v. Brown Farm

 This is the most recent decision issued on dormant minerals and came out of Carroll County (2013 CVH 27445).  This case involved a claim by landowners that they had acquired their minerals via the 1989 version of the dormant mineral statute.  The Court ruled that the 1989 statute “provided no procedure for the holder of the subsurface rights to contest their alleged abandonment, and no procedure for anyone to record the abandonment anywhere.”  The Court further ruled that, based upon the history of the dormant mineral statute and considering issues of due process, the theory of ‘automatic’ vesting of those rights in the landowner did not have merit.  Instead, the Court ruled “that the 1989 version impliedly required implementation before it finally settled the parties’ rights, at least by a recorded abandonment claim that permitted the adverse party to challenge its validity, if not by an appropriate court proceeding to confirm that abandonment.”  Finding that the landowners had failed to pursue either of these two options, the Court found the minerals were properly owned by the holders.