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OHIO DORMANT MINERAL ACT HAS BEEN RESOLVED AND THE CASE LAW WILL NOW BECOME “DORMANT”

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On September 15, 2016, the Ohio Supreme Court in Corban v. Chesapeake Exploration L.L.C., 2016-Ohio-5796 ruled that the 1989 version of the Ohio Dormant Mineral Act (“DMA”) did not operate automatically to allow severed oil, gas and mineral rights to be deemed abandoned and vested in a surface owner.  Rather, the surface owner was required to seek a judicial decree under the 1989 DMA that the mineral rights were abandoned.  If the surface owner failed to file suit before the 2006 DMA went into effect on June 30, 2006, the surface owner could not rely on the 1989 version of the DMA.

In other words, the argument over whether the 1989 version of the DMA was “self-executing” has been laid to rest. As a result, a surface owner who claims that an interest was abandoned before 2006, but failed to file suit before the 2006 DMA went into effect, can no longer argue that the pre-2006 version of the DMA should be applied.  This is consistent with the opinion we presented in our February 26, 2016 blog article that the Supreme Court wanted to encourage the development of mineral resources by allowing parties to rely on a record chain of title, and that the Court would support the valuable right of severed mineral interest holders to preserve their claims and to avoid forfeiture when no judicial decree had been rendered before the 2006 DMA went into effect.

In Corban, the Supreme Court also clarified that any surface owner attempting to merge the surface and mineral rights after 2006 had to follow the 2006 version of the DMA.  The 2006 DMA requires the surface owner to provide notice to the severed mineral interest holders of his intent to have the mineral rights abandoned.  Notice must be served by certified mail or, if after a diligent search the severed mineral interest holders cannot be located, by publication. Thereafter, the mineral interest holders have an opportunity to prove they intend to preserve their rights.  They can either demonstrate that a saving event occurred within the 20-year period preceding service of the notice of intent to cause forfeiture, or they have to file a preservation claim with the county recorder within 60 days after being served with the notice of intent to cause forfeiture.

However, not all is lost for surface owners.  If the mineral interest holder does not demonstrate that a saving event occurred within the 20-year period preceding service of the notice, and fails to file a preservation claim within 60 days, the mineral interest will be deemed abandoned.  This is what happened in the Corban case.  Chesapeake Exploration argued that payment of delay rentals was a saving event under the statute that would preserve the mineral interest holder’s rights, but the Supreme Court disagreed.

On the same day that Corban was decided, the Supreme Court ruled on the pending case of Albanese v. Batman, 148 Ohio St.3d 85, 2016-Ohio-5814.  This was another battle between the surface owners and the heirs of the property owner who first severed the mineral interests.  The surface owners did not file their complaints until after the effective date of the 2006 DMA.  The Supreme Court held that the Corban decision was dispositive, and rendered moot the argument that the 1989 DMA applied and that the mineral rights were automatically merged back with the surface title.

The Albanese court set forth the four criteria for a severed mineral interest to be deemed abandoned and vested in the surface owner.  The mineral interest (i) cannot be in coal, (ii) or held by certain entities, (iii) no saving event can have occurred during the relevant period, and (iv) the surface owner shall have served notice and filed the required statutory affidavit.  The notice and affidavit obligations are mandatory, and since the surface owner in Albanese had not provided forfeiture notice to the mineral rights holder, the Albanese court held the mineral rights could not be deemed abandoned.

The Court of Appeals for the Seventh District has been a hotbed of oil and gas litigation.  In February and March 2017 they rendered four decisions based on Corban.  In all four cases they found that if the surface owner did not file suit before the effective date of the 2006 DMA, any claim under the 1989 DMA was lost and became moot.  See Stalder v. Bucher, 2017-Ohio-725; Williams v. Stillion, 2017-Ohio-714; M&H Partnership v. Hines, 2017-Ohio-923; and Vintilescu v. Schaffner, 2017-Ohio-924.

Since we first began writing on the DMA, the General Assembly amended the DMA in 2014, eliminating the requirement that a surface owner request the county recorder to memorialize an abandonment if the severed mineral interest holder did not file a claim of preservation within the 60-day period after service of a notice of intent to cause forfeiture.  Therefore, the only step required to be taken after the 60 days passes is to file a notice of failure to file, meaning that the severed mineral interest holder did not take any steps to record a document to preserve his mineral interests. As a result, the DMA now deems the mineral interest to vest in the surface owner immediately after the surface owner files notice that the severed mineral interest holder failed to take the necessary steps to preserve his interest.

The Corban and Albanese decisions should eliminate almost all litigation under the DMA.  There have been a number of decisions from the Ohio Supreme Court and the courts of appeal interpreting what constitutes a saving event under the DMA; therefore, this source of litigation should dissipate or become “dormant” soon.

We anticipate that the only areas left to litigate are (i) vesting under the Marketable Title Act using a 40 year lookback before the DMA was adopted (see Warner v. Palmer, 2017-Ohio-1080, decided March 22, 2017); and (ii) whether any savings event occurred within the 20 years before the notice of forfeiture is sent.  This will only apply where the mineral interest holder did not timely file a claim to preserve his mineral interests and later attacks the forfeiture documents filed with the county recorder by the surface owner.  In addition, if a mineral interest holder challenges the revesting of the mineral rights in the surface owner after a forfeiture, disputes will likely arise as to whether the surface owner exercised the necessary due diligence in attempting to locate all of the severed mineral interest holders, making this another source of future DMA litigation.

With the opportunity to create a tax parcel for a severed mineral interest, or to file an affidavit to preserve a mineral interest claim, and with support from exploration companies seeking severed mineral interest holders to preserve their claims and then enter into leases with the exploration companies, the opportunity to cause forfeiture has been significantly diminished.

Am. Sub. Senate Bill 257 was recently enacted and is effective April 6, 2017.  The bill shortens the time period to challenge the validity of recorded real estate documents and creates rebuttable presumptions regarding the documents, once recorded.  The bill makes clear, however, that it has no impact on the obligations required by the DMA to cause forfeiture of severed mineral interests or oil and gas leases.

If you have questions regarding oil and gas leases, pipelines, eminent domain, or any other issues involving mineral rights, please e-mail Dale Markowitz at dmarkowitz@tddlaw.com or call him at (440) 285-2242.