Dormant Mineral Act Did Not Automatically Transfer Rights to Surface Owners
The Ohio Supreme Court ruled today that the 1989 version of the Ohio Dormant Mineral Act (ODMA) did not operate automatically to allow oil, gas, and mineral rights to be deemed abandoned and vested in a surface owner, but required the surface owner to seek a judicial decree that the mineral rights were abandoned.
In an opinion written by Justice Terrence O’Donnell in the case Corban v. Chesapeake Exploration L.L.C.,, the Supreme Court also clarified that any attempt by a surface owner to merge the surface and mineral rights after 2006 had to follow the 2006 version of the ODMA. That version requires providing notice to the dormant mineral owners of the attempted merger.In a concurring opinion, Justice Shaorn L. Kennedy agreed that the 2006 version of the ODMA applied. Unlike the majority, Justice Kennedy found the language of the statute requires a court to make two separate findings before the dormant mineral interests were deemed abandoned. First, the trial court must determine whether any of the provisions of the statute apply. Second, the trial court must then determine whether the holder of the dormant mineral interests intended to abandon them.
In a dissenting opinion, Justice Paul E. Pfeifer wrote the General Assembly in 1989 passed a law that was “bluntly efficient” and required no action by the surface owner if the mineral rights owners did nothing for decades to preserve their rights. He also stated that requiring surface owners who claimed the abandoned mineral rights before 2006 to follow the notice requirement of the newer version of the law would be unconstitutional.
Federal Court Asks for Guidance
The U.S. District Court for the Southern District of Ohio sought guidance about the application of the ODMA and submitted two certified questions to the Ohio Supreme Court: Does the 2006 version of the ODMA apply to claims asserted after 2006 by surface rights owners who alleged that rights to oil, gas, and other minerals were deemed abandoned and merged with the surface rights under the 1989 version of the ODMA? And does the advanced schedule of future payments called a “delay rental” count as a title transaction that would serve as a “saving event” under the ODMA? A “saving event” is a term that denotes preservation of rights by the current owner.
The federal case involves the North American Coal Corporation, which conveyed 164.5 acres of land in Harrison County to Orelen H. and Hans D. Corban in 1959. North American Coal reserved for itself all oil, gas, and mineral rights, while the Corban families conveyed the surface rights to their children to the point when Hans M. Corban became the property owner in 1999.
In 1974, North American Coal leased the oil and gas rights to National Petroleum Corporation, which recorded the lease, but made further assignments over the years. Companies receiving the assignments ultimately allowed the lease to terminate in 1984 with no production of oil or gas taking place during Corban’s ownership. In 1984, North American Coal leased the oil and gas rights to C.E. Beck, which assigned the lease to other companies that recorded the assignment. No oil or gas production occurred, but North American Coal received delay rental payments from 1985 to 1988 from the companies leasing the rights. The delay rentals are payments that extend the life of the lease, but the lease expired in 1989.
North American Coal changed its name to Bellaire Corporation and took no further action on the mineral rights until 2008 when it conveyed them to North American Coal Royalty Company. That company leased the oil and gas rights to Mountaineer Natural Gas Company, which recorded the lease. The lease changed hands through various energy companies until it ultimately was acquired by Chesapeake Exploration. Three other companies acquired partial interests in the lease as well.
Corban Seeks to Quiet Title
In 2013, Corban filed an action in Harrison County against Chesapeake Exploration, North American Coal Royalty, and five other energy companies to quiet title to the oil and gas rights and seek compensation from the companies for extracting the minerals. The action was transferred to federal court, where that court concluded it could not determine which parties owned the mineral rights without an interpretation of which version of the ODMA should be applied. Under these circumstances, the federal court certified the two questions to the Supreme Court of Ohio, which agreed to answer them.
Corban argued the 1989 version of the ODMA was “self-executing” and afforded him a vested right in the minerals under his land. He claimed North American Coal abandoned the rights by not attempting to drill for oil and gas for more than 20 years. The 2006 version of the ODMA required giving notice to those with claims of mineral rights ownership, but Corban claimed that since the mineral rights were already abandoned before 2006, the new law did not apply to him.
He also argued that the delay rental payments that ended in 1988 were not “title transactions” under the ODMA. A title transaction defined by R.C. 5301.47(F) can be considered a saving event under the ODMA that would indicate to Corban that Bellaire did not abandon its mineral rights.
The energy companies argued the 1989 act was not self-executing, but only “deemed” the mineral interests to be abandoned and vested in the surface owner. They maintained the law did not expressly extinguish or declare the rights null and void. They argued the legislature intended the surface owner to take legal action to obtain ownership. Since Corban took no action before 2006 to obtain the mineral rights, North American Coal Royalty remained the title holder, and by the time Corban acted in 2013, he was required to use the procedures in the 2006 version of the law.
Law Enacted to Make Interest Ownership Clearer
Justice O’Donnell wrote that before the legislature enacted laws regarding mineral rights, Ohio common law considered that mineral rights severed from surface rights were not subject to claims of abandonment or termination for failure to produce oil or gas, or to extract other minerals. To show abandonment of an interest in property, proof was required that the owner intended to abandon it. Abandonment could not be presumed merely from nonuse.
Ohio mineral rights became further fractured as they were passed down through generations or conveyed to others. Energy companies seeking to extract the minerals often had difficulty locating the owners, Justice O’Donnell explained. The legislature first addressed issues related to abandoned property rights with the 1961 Marketable Title Act. The purpose of the act was to simplify and facilitate land title transactions by allowing persons to rely on a record chain of title.
Justice O’Donnell noted the act aimed to provide land owners with a title clear of prior interests, and automatically extinguished all claims in the land that were based on events occurring prior to the time the “root title” was recorded in the local county recorder’s office. In 1973, the General Assembly amended the statute so that the Marketable Title Act extinguished oil and gas rights by operation of law after 40 years from the effective date of the root of title, unless a saving event preserving the interest was reflected in the record chain of title.
Dormant Mineral Act Added
Justice O’Donnell wrote that the legislature amended the Marketable Title Act in 1989 when it enacted the ODMA to provide a method for terminating dormant mineral interests and the vesting of their title in surface owners. The law states in part that “(A)ny mineral interest held by any person, other than the owner of the surface of the lands subject to the interest, shall be deemed abandoned and vested in the owner of the surface,” unless the mineral interests are related to coal, the interests are held by a government body, or one of several “savings events” had been initiated by the mineral rights owners. One of the saving events is realized by use of the property, including actual production or withdrawal of the minerals, and the underground storage of gas. Others are related to documentation and include: “The mineral interest has been the subject of a title transaction that has been filed or recorded in the office of the county recorder of the county in which the lands are located;” or a “claim to preserve the interest has been filed” with the county recorder’s office where the minerals are located.
Term “Deemed Abandoned” Leads to Judicial Action Requirement
Justice O’Donnell wrote that in contrast to the Marketable Title Act, the 1989 ODMA did not use the words “extinguish” or declare mineral interests “null and void.” Rather, it stated the dormant mineral interests “shall be deemed abandoned and vested in the owner of the surface.” He cited a 1995 U.S. Sixth Circuit Court of Appeals decision that stated the word “deemed” when used in a statute has been interpreted by courts to mean a “conclusive presumption” is created.
Justice O’Donnell explained a conclusive presumption is an “evidentiary device” to make it easier for a surface owner to prove the mineral rights were abandoned. He wrote that the law created the conclusive presumption that a mineral rights owner abandoned the rights if the 20-year period stated in the law had passed without a saving event. That change eliminated the need for the surface owner to prove the mineral owner intended to abandon the rights, and replaced the common law requirement that to declare property rights abandoned, there needed to be proof the owner intended to abandon it.
“Thus, by providing a conclusive presumption that the mineral interest had been abandoned in favor of the surface owner if the holder failed to take timely action to preserve it, the legislature provided an effective method of terminating abandoned mineral rights through a quiet title action,” he wrote. “But because the conclusive presumption of abandonment was only an evidentiary device that applied to litigation seeking to quiet title to a dormant mineral interest, the Dormant Mineral Act does not automatically transfer the interest from the mineral rights holder to the surface owner by operation of law.”
Law Updated Process for Claiming Mineral Rights
Justice O’Donnell explained the sequence of the passage of laws demonstrated lawmakers wanted to encourage the development of mineral resources by allowing parties to rely on a record chain of title to them. He found it “apparent” that “the legislature did not intend title to dormant mineral interests to pass automatically and outside the record chain of title.” To the Court majority, a surface owner needed to use a quiet title action so the ownership change would be clear in the chain of title.
The 2006 ODMA retained the same saving events as the 1989 version, but added a provision to R.C. 5301.56(E) that requires the surface owner to give advance notice to mineral rights owners that it seeks to have a court declare the mineral rights abandoned. The rights owners then have an opportunity to prove they preserved their rights. Justice O’Donnell wrote that as of June 2006, any surface holder seeking to claim dormant mineral rights and merge them with the surface estate is required to follow the notice and recording procedures in the 2006 law. The law applies equally to those, such as Corban, who claim the mineral rights were abandoned prior to June 2006, he concluded.
Delay Rentals Not Savings Events
Once a dormant mineral rights owner receives notice from a surface rights owner of the intent to merge the interests, the mineral rights owner will have to demonstrate that a saving event occurred within the proceeding 20 years.
The energy companies maintained the delay rental payment was a saving event because it is a payment for the privilege to postpone drilling or other operations without losing the rights to the land.
Justice O’Donnell wrote a delay rental is not a “title transaction” because it is not filed or recorded in the county recorder’s office. He noted that if the General Assembly intended the payment of delay rentals to be title transactions, it would have required records of delay rental payments to be filed with the county recorder. Delay rental payments occur outside of the change of title, thus also making them neither a title transaction nor saving event, he concluded.
Chief Justice Maureen O’Connor and Justice Judith L. French joined Justice O’Donnell’s opinion. Justice Judith Ann Lanzinger concurred in judgment only without a written opinion.
Concurring Opinion Finds 1989 Law Ambiguous
Justice Sharon L. Kennedy concurred in the answer to the question regarding the delay rental payments, but concurred in judgment only as to the operation of the ODMA. Notably, she agreed with the majority that if a surface owner seeking to recover dormant minerals under the 1989 ODMA does not file a court action until after the effective date of the 2006 amendment to the ODMA, then the 2006 version of the ODMA applies because the 1989 ODMA was not self-executing.
Justice Kennedy disagreed with the majority, however, when it came to what the trial court was required to find when deciding whether dormant minerals were abandoned. She wrote, "(A) surface owner seeking to reacquire a severed mineral estate must not only satisfy the statutory elements of the DMA, but must also provide evidence that the holder intended to abandon the severed mineral interest."
Justice Kennedy reached this conclusion because she considered the 1989 ODMA to be “ambiguous” regarding what would cause a severed mineral interest to be abandoned. When the General Assembly enacted the 1989 ODMA they used the word "abandoned" which had particular meaning in Ohio law requiring "both an action and an intention to abandon," she wrote.
But the 1989 ODMA only required nonuse of a mineral interest to be deemed abandoned.
"Because the 1989 DMA is internally inconsistent, it is ambiguous,” she concluded.
To resolve the ambiguity, Justice Kennedy applied numerous statutory rules of construction. In the end, Justice Kennedy concluded that the mere passage of time was insufficient to deem a dormant mineral interest abandoned. Abandonment also required a finding that the holder of the dormant mineral interest intended to abandon the interest.
Justice Kennedy also responded to the concurring and dissenting opinion’s conclusion that the 1989 ODMA was self-executing.
“If the statute was self-executing, it would create a transfer of ownership without any record in the chain of title, which is exactly what the (Marketable Title Act) seeks to prevent," she wrote.
Dissent Concludes Rights Merged Automatically
In his dissent, Justice Pfeifer wrote that by 2006, the ODMA functioned for 17 years and created vested rights in certain property owners.
“Those vested rights cannot be taken away without running afoul of the Ohio Constitution and the Ohio Revised Code,” he wrote.
He described the 1989 ODMA law as a "bluntly efficient" process to reunify surface and mineral rights. He noted the law gave mineral rights owners a three-year grace period so that those who had done nothing with their mineral rights for the past 20 years had an additional three years to preserve those rights.
“There is no provision requiring the surface owner to affirmatively assert any claim, record any claim, or file any form of suit or other declaration of the vested interests. There is no statutory language that suggests that the vesting of the mineral rights was anything other than automatic. The statute mandated that it ‘shall’ occur,” he wrote.
Justice Pfeifer disagreed with the interpretation of “deemed” and wrote it should be treated to mean the property was abandoned.
“(U)nder the plain meaning of the word ‘deemed’ and under the interpretation of the word by this court, the ‘deemed abandoned’ language in the 1989 ODMA means that the mineral rights were, by operation of law, to be considered or treated as abandoned,” he wrote.
He added a surface owner may choose to seek a quiet title action to enforce their rights to the minerals if disputed, but was not required for the mineral rights to vest in the surface owner.
“The 1989 ODMA vested the right, and a separate quiet-title action would allow the surface owner to confirm that the statutory elements had been met and that the reversion of the mineral rights had occurred. Vesting is not delayed until the surface owner brings a quiet-title action; the quiet-title action simply shows the world that the interest had vested,” Justice Pfeifer wrote.
He also wrote that while the majority discussed in detail the words “deemed abandoned,” it spent little time addressing “vested.” He asserted the 1989 ODMA provided a “vested right” to the surface owner, which means there is no further procedure necessary for the reunification of the mineral and surface rights.
For surface owners who claimed the abandoned mineral rights between 1989 and 2006, applying the 2006 version of the law to those surface owners would violate the Ohio Constitution’s ban on retroactive laws, Justice Pfeifer contended. A law can be retroactive if it impacts a procedure, but not a vested right, Justice Pfeifer noted. The 2006 law can apply to those who claimed their rights to the minerals after June 2006, but not those before the act was amended, he maintained.
Justice Pfeifer concluded by noting that the 1989 version of the law occurred before the advent of hydraulic fracturing, also known as fracking, and at the time most mineral interests in Ohio oil and gas were worthless and lay dormant. That changed with fracking in the 2000s.
“Because of the skyrocketing value of mineral rights in certain parts of our state, some property owners are going to reap profits they never would have imagined when they purchased or inherited their surface or mineral rights,” he wrote.
Justice William M. O’Neill joined Justice Pfeifer’s dissent.
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