Court News Ohio
Court News Ohio
Court News Ohio

Wednesday, May 6, 2015

In the Matter of the Application to Modify … the Exemption Granted to The East Ohio Gas Company d/b/a Dominion East Ohio …, Case no. 2013-0433
Public Utilities Commission of Ohio

Navistar Inc. v. Richard A. Levin [Joseph A. Testa], Tax Commissioner of Ohio, Case no. 2014-0140
Ohio Board of Tax Appeals

Hans M. Corban v. Chesapeake Exploration, L.L.C., Case no. 2014-0804
U.S. District Court for the Southern District of Ohio, Eastern Division

Toledo Bar Association v. Robert P. DeMarco, Case no. 2014-1738

Did PUCO’s Approval of Change to Natural Gas Supplier Choices Meet Statutory Requirements?

In the Matter of the Application to Modify … the Exemption Granted to The East Ohio Gas Company d/b/a Dominion East Ohio …, Case no. 2013-0433
Public Utilities Commission of Ohio


  • Did the Public Utilities Commission of Ohio (PUCO) first find an exemption order invalid, as required by statute, before modifying the order?
  • Did the evidence support the finding that the 2008 exemption order was no longer valid?
  • Was it established that the natural gas company, suppliers, and customers would be adversely affected if the “standard choice offer” service was continued?
  • Did the PUCO show that the public’s interest would be advanced by modifying the 2008 order?

In June 2012, the East Ohio Gas Company, doing business as Dominion East Ohio, and a group of Ohio gas marketers filed a motion with the PUCO asking to modify a 2008 PUCO order.

As part of the industry’s deregulation, utilities are transitioning away from purchasing natural gas from suppliers to resell it to customers. Instead, a customer selects a supplier, and the utility delivers the gas from that supplier. Dominion offers nonresidential customers various options when choosing a supplier: customers can contract directly with individual suppliers; join a “governmental aggregation,” which establishes a price for a group of customers through a bidding process; choose from a list of suppliers that set their own market variable rate (MVR); or select the standard choice offer (SCO), in which the utility holds an auction for suppliers and the winning bid sets the price. If a customer chooses none of these, their supplier choice defaults to the SCO option.

In the motion to the PUCO, Dominion and the marketers asked to eliminate the SCO and to assign the nonresidential customers using that option to one of the MVR suppliers.

Ohio Partners for Affordable Energy (OPAE), an organization that advocates for affordable energy policies and whose members assist low- and moderate-income customers served by Dominion, intervened in the action, opposing the request to get rid of the SCO option for nonresidential customers.

However, the PUCO granted the motion in January 2013. OPAE appealed the decision to the Ohio Supreme Court.

State Law
R.C. 4929.08 states that “the commission, upon its own motion or upon the motion of any person adversely affected by such exemption … may abrogate or modify any order granting such an exemption ... only [if it] determines that the findings upon which the order was based are no longer valid and that the abrogation or modification is in the public interest.”

Energy Group’s Claims
Attorneys for OPAE argue that the PUCO didn’t identify part of its 2008 order that was no longer valid. They contend that the 2008 order requires Dominion to submit an application for PUCO approval before eliminating the SCO and creating a “full choice commodity service,” which forces customers to directly select a natural gas supplier and allows Dominion to end its traditional role as a reseller of natural gas. They assert that Dominion didn’t file the separate application, as required.

They also maintain that neither Dominion nor the marketers are adversely affected by the 2008 order so the modification isn’t warranted. While Dominion and the marketers argue that nonresidential customers have stopped moving from the SCO to the other options, flattening out the market for new customers for the suppliers, OPAE’s attorneys counter that the 14,000 nonresidential customers using the SCO option may have done so because they think it’s the best deal.

They add that eliminating the SCO isn’t in the public interest. They disagree with the PUCO’s claim that the SCO is “hindering the development of a fully-competitive marketplace” and contend that getting rid of the SCO will actually raise customer prices.

Unlike the MVR option – where SCO customers will be assigned – the SCO price is determined through a competitive auction, and its terms are transparent, OPAE’s attorneys assert. The SCO is one of the innovative, competitive approaches for supplying natural gas to customers and should not be eliminated, they maintain.

PUCO’s Position
Attorneys for the PUCO respond that the 2008 order was designed to encourage customers to engage in a competitive market by directly choosing a natural gas supplier. They contend that this effort has plateaued, with about 20 percent of Dominion’s nonresidential customers still using the default SCO option.

They argue that the purpose of the SCO was to assist in developing direct relationships between customers and retail suppliers, and that purpose has been exhausted. Because the SCO is no longer meeting its goal, the 2008 order’s findings were no longer valid and the commission had the authority to modify the order, they maintain.

In the PUCO’s view, Dominion is adversely affected because the SCO is slowing the move toward a fully competitive natural gas market. Suppliers have also been harmed because the customers are no longer actively participating in the competitive market for suppliers, the commission’s attorneys assert. They note that the suppliers believe that getting rid of the SCO will attract new suppliers to Ohio and cause suppliers to invest more in Dominion’s service area.

They add that a separate application wasn’t required because Dominion is not yet moving to a full choice commodity service but is instead changing the method for assigning suppliers to customers.

Modifying the 2008 order by eliminating the SCO also serves the public’s interest, they argue. Moving to a more competitive marketplace with more customers participating will bolster innovation, efficiency, and jobs, according to the suppliers’ testimony. They note that the PUCO will protect customers as well by monitoring the effects of ending the SCO option and will reestablish the SCO if this step is found to be unjust or unreasonable.

Intervening Parties
Dominion received approval from the Supreme Court to participate in the case and filed a merit brief in the case. The Ohio Gas Marketers Group and Retail Energy Supply Association also received permission to intervene in the case and together submitted a merit brief.

Friend-of-the-Court Brief

An amicus curiae brief supporting neither side has been submitted by the Ohio Consumers’ Counsel.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing Ohio Partners for Affordable Energy: Colleen Mooney, 614.488.5739

Representing the Public Utilities Commission of Ohio from the Ohio Attorney General’s Office: Steven Beeler, 614.728.9481

Representing East Ohio Gas Company, doing business as Dominion East Ohio: Mark Whitt, 614.224.3911

Representing the Ohio Gas Marketers Group and the Retail Energy Supply Association: M. Howard Petricoff, 614.464.5414

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May Tax Commissioner Adjust CAT Credit Based on Updated Financial Statements?

Navistar Inc. v. Richard A. Levin [Joseph A. Testa], Tax Commissioner of Ohio, Case no. 2014-0140
Ohio Board of Tax Appeals


  • Must the commercial activities tax (CAT) credit be based on a company’s books and records existing at the end of 2004 and filed by June 30, 2006, or may the tax commissioner rely on a later restatement of a company’s financials to determine the appropriate CAT credit?
  • Does the decision by the Board of Tax Appeals fail to give effect to the statutes governing CAT?

In 2005, the General Assembly enacted R.C. 5751.53, which created the commercial activities tax (CAT) credit to allow a taxpayer with a certain amount of net operating losses to apply the losses against future tax liabilities for 20 years. The amount is reduced by a “valuation allowance.”

Section (D) of the statute states, “Unless extended by mutual consent, the tax commissioner may, until June 30, 2010, audit the accuracy of the amortizable amount available to each taxpayer that will claim the credit, and adjust the amortizable amount or, if appropriate, issue any assessment or final determination, as applicable, necessary to correct any errors found upon audit.”

Company Files for Credit
Navistar Inc., which builds commercial trucks, buses, and military vehicles at its manufacturing plant in Springfield, submitted a report to the state for a CAT credit based on the financial statement it filed in early 2005 with the Securities and Exchange Commission (SEC) for the 2004 fiscal year. The report listed an amortizable net operating loss amount of $27,048,726 to be used to determine its CAT credit.

The company underwent an audit of its financial statements for 2003, 2004, and 2005. Following the review, Navistar fired its outside auditor and filed amended paperwork with the SEC in December 2007. In these “restatements,” or revised financial statements, the company reported its 2004 net operating losses as zero.

Based on these changes, the state’s tax commissioner in January 2010 eliminated Navistar’s CAT credit. The company appealed to the Board of Tax Appeals (BTA), which agreed with the commissioner. Navistar then filed an appeal with the Ohio Supreme Court.

Navistar’s Perspective
Attorneys for Navistar assert that the tax commissioner cannot update the company’s CAT credit based on information that surfaced after the 2006 filing deadline for the credit. They contend that R.C. 5751.53 requires the credit to be based on the company’s financials as they existed at the end of fiscal year 2004.

“[T]he BTA had before it a statute that is clear, concise, and explicit in its language; yet, it chose to ignore the provisions laid down by the General Assembly,” they write in the company’s brief to the court. “R.C. 5751.53 fixed a ‘snapshot’ in time for the information that is to be used to calculate the amount of the credit. The plain language of the statute expressly required Navistar to calculate its credit using the valuation allowance that was on its books and records at a fixed point in time, i.e., the 2004 year-end.”

If the CAT credit is allowed to be adjusted based on later data, then it must be reviewed and updated based on new calculations on an ongoing basis – an approach that lacks finality, they argue. This “infinite review authority” for the tax commissioner wasn’t granted by the legislature, they maintain.

They assert that the commissioner’s audit authority in division (D) is limited by the 2004 and 2006 statutory deadlines.

Tax Commissioner’s View
Attorneys for the tax commissioner respond that, according to the statute, the CAT credit must be based on the taxpayer’s books and records used to prepare its financial statements “in accordance with generally accepted accounting principles [GAAP].”

When Navistar filed the restatement of its 2004 financials, it noted that it had not correctly applied the accounting principles and that a new valuation allowance, which cut the company’s losses claimed for the CAT credit to zero, was appropriate, the commissioner’s attorneys maintain.

They argue that the tax commissioner was required to use the amended and GAAP-compliant financial statements when determining the CAT credit. Division (D) of the statute states that the commissioner was authorized before June 30, 2010, to audit the amount’s accuracy and adjust it if needed. The commissioner has a later deadline than taxpayers under the statute, they note.

Additional Brief

An amicus curiae brief supporting Navistar’s position has been submitted by the Ohio Manufacturers’ Association and Ohio Chamber of Commerce.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing Navistar Inc.: Maryann Gall, 614.947.5199

Representing Ohio Tax Commissioner Joseph W. Testa from the Ohio Attorney General’s Office: Barton A. Hubbard, 614.466.5967

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If Mineral Rights Transferred to Surface Property Owner Before 2006 Legislation, Does Law Apply if Suit Was Filed After 2006?

Hans M. Corban v. Chesapeake Exploration, L.L.C., Case no. 2014-0804
U.S. District Court for the Southern District of Ohio, Eastern Division


  • Does the 2006 version or the 1989 version of the Ohio Dormant Mineral Act (ODMA) apply to a claim filed after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in the surface land holder before the 2006 amendments took effect?
  • Is the payment of a delay rental during the term of an oil and gas lease a “title transaction” and “savings event” under the ODMA?

This case was under consideration in federal district court, but that court has indicated that the issues above are unresolved questions of state law. The federal judge has submitted the questions to the Ohio Supreme Court and has stayed the federal court proceedings pending this court’s decision.

The parties dispute ownership of oil, gas, and other mineral rights below 164.5 acres in Harrison County. In 1959, the North American Coal Corporation sold the property to Orelen H. Corban and Hans D. Corban, but retained the oil, gas, and mineral rights beneath the land. The surface property rights have been transferred several times. Hans M. Corban, the current property owner and plaintiff, received the property in 1999.

In 1984, North American Coal Corporation entered into a lease with a company, and the five-year lease was recorded with the county recorder. Lessees made “delay payments” or “delay rentals” in 1985, 1986, 1987, and 1988 to postpone production. No oil or gas production occurred during this time. In 1989, the lease reverted back to North American Coal, which had changed its name to Bellaire. Bellaire then transferred the mineral rights to North American Coal Royalty Company (a different entity) in 2008. North American Royalty leased the mineral rights the next year. The lessee finished building a well on the property in 2011 and began production a few months later.

In 2013, Corban filed a lawsuit to establish that years earlier the mineral rights had automatically transferred back to him under the 1989 ODMA and that he owns the rights to the minerals below his property.

Chesapeake Exploration claims that it currently owns the property’s mineral rights, and CHK Utica, Total E&P USA, Dale Pennsylvania Royalty, Larchmont Resources, and North American Royalty lease those rights.

Ohio Dormant Mineral Act
The federal court filing states that the ODMA is designed to return mineral rights that have been severed from the property owner and have been dormant back to the property owner after 20 years. The law was enacted in 1989 and amended in 2006. The 1989 version returns the mineral rights to the land owner if there are no “savings events” for 20 years. The 2006 ODMA, however, requires the property owner to first give notice to the mineral rights holder. The mineral rights owner then has 60 days to file a claim to preserve its rights or an affidavit identifying a savings event.

In Chesapeake Exploration v. Buell, a case currently under review by the Ohio Supreme Court, the same federal court asks this court to address two other issues related to the ODMA.

Property Owner’s Arguments
According to the federal court filing, Corban believes the mineral rights returned to him either in 1992, after the 1989 statute’s three-year grace period expired, or in 2004 or 2005, after 20 years passed with no drilling (and before the 2006 amendments took effect).

Attorneys for Corban argue that the 1989 ODMA required no action for mineral rights to be deemed vested back with the surface property owner after 20 years of dormancy. Unless one of the “savings events” described in R.C. 5301.56(B) occurs in the preceding 20 years, the statute is “self-executing” and the mineral rights automatically return to the surface property owner, they maintain.

While the 2006 amendments to the law added notification requirements, they assert that the original legislation wasn’t somehow legally deficient by not requiring the surface property owner to take a specific action to claim ownership of the mineral rights. They note that some other states also provide for automatic vesting.

They also emphasize that the U.S. Supreme Court upheld Indiana’s dormant mineral act (Texaco Inc. v. Short, 2008), which was self-executing and allowed mineral rights to be restored automatically to a surface owner after a period of inactivity. They argue that Texaco stated the surface owner didn’t have to provide notice to the mineral rights owner that the mineral rights were about to transfer. They maintain that the court only said the mineral rights owner had the right to be notified of and participate in any legal action asking a court to confirm the abandonment of rights.

They contend that the 2006 amendments cannot be retroactively applied to Corban’s acquisition before 2006 of the property’s mineral rights. Because his property rights came to include the mineral rights before 2006, Corban didn’t have to have a court ruling before 2006 confirming that ownership.

They stress that a mineral rights lease only qualifies as a “savings event,” which would restart the 20-year clock under the Ohio statute, if minerals have been produced or withdrawn from the land.

They maintain that the delay payments made in the late 1980s don’t qualify as a type of savings event that would restart the 20-year clock.

Drillers’ Assertions
Attorneys for Chesapeake and four of the lessees counter in their brief that the 1989 ODMA was “ambiguous and inoperable” and was amended in 2006 to clarify “what the ODMA always required” – adherence to specific steps by a surface property owner to secure a claim on the mineral rights.

They argue that Corban must comply with the requirements in the 2006 ODMA because he filed his lawsuit in 2013. They contend that the 2006 amendments only affect the way that rights are recognized, not the rights themselves, so applying the amendments to this case isn’t unlawfully retroactive.

In addition, they respond that the 1989 legislation wasn’t self-executing or automatic. They focus on the language “shall be deemed abandoned and vested” in the statute to conclude that the word “deemed” shows that the rights didn’t transfer automatically after 20 years of dormancy. They argue that “deemed” implies that further action must be taken.

“The ODMA was intended to clarify record title, and a ‘self-executing’ version of the statute would transfer title to the severed mineral interest with no indication whatsoever on the record,” they write. “When a record chain of title cannot be relied upon, the ‘defects in title’ that the ODMA expressly sought to avoid once again come into play, … chilling the development of oil and gas in Ohio because potential oil and gas lessees have no definitive means to determine from whom they should be leasing. As such, finding the ODMA to be self-executing flies directly in the face of the statutory purpose of clearing title to facilitate the production of minerals.”

They also assert that the delay rentals in the late 1980s demonstrate an active mineral rights interest and affect the property’s title, which constitutes a “title transaction” that restarts the 20-year clock. Those rentals show that the mineral interests weren’t abandoned and push the 20-year timeframe out to 2008, after the mandates of the 2006 ODMA went into effect.

Lessee North American Royalty also filed a brief in the case.

Friend-of-the-Court Filings
Amicus curiae briefs supporting Corban’s position have been submitted by:

  • Gulfport Energy Corporation, Paloma Resources LLC and Protege Energy III LLC
  • Jeffco Resources Inc., et al. (on the first issue) – a group of Ohio residents who own more than 9,000 acres of property located in Belmont, Carroll, Guernsey, Harrison, Jefferson, and Noble counties, according to the brief.
  • The State of Ohio

The Noon, Shepherd, Greegor, Merecka, and Kinney families, who describe themselves as the “named defendants in active litigation matters involving the Ohio Dormant Minerals Act,” have filed an amicus brief supporting Chesapeake Exploration and the lessees on the first issue.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing Hans M. Corban: Michael Miller, 614.221.4400

Representing Chesapeake Exploration LLC, et al.: Nicolle Snyder Bagnell, 412.288.7112

Representing North American Coal Royalty Company: Jeffery Ubersax, 216.586.7112

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Attorney Discipline

Toledo Bar Association v. Robert P. DeMarco, Case no. 2014-1738

The state disciplinary board recommends that the Supreme Court suspend Robert P. DeMarco of Solon for one year for lying repeatedly to a court, creating a potential harm to an expert witness, and for failing to show remorse for his actions until he was caught.

DeMarco represented a client in a defamation lawsuit against the client’s former business partners. The suit alleged that the former partners wrote and shared defamatory statements about DeMarco’s client with a new employer.

As part of discovery in the case, DeMarco requested copies of the former partners’ hard drives. DeMarco hired Jack Harper, a data expert, to obtain the records. In June 2011, the parties agreed to a protocol for copying and searching the files, and the agreement provided that the judge would conduct an in camera inspection to decide which documents to give to DeMarco.

According to the board’s report, Harper obtained the records, filtered the data according to the agreement, and gave a disk with the filtered results to DeMarco. But the disk wasn’t provided to the judge. DeMarco then searched the data himself.

At a pretrial conference in March 2012, DeMarco told the judge and opposing counsel that he had not looked at the results of the records search. After the conference, he left a voicemail with Harper about his statements.

The parties settled, but the former partners wanted the disk. At a November hearing, opposing counsel focused on questioning Harper about what happened to the disk. In a conversation with the judge and during his testimony, DeMarco never supported the expert or admitted that he had reviewed the filtered data, the board noted.

During the disciplinary proceedings, DeMarco and the Toledo Bar Association, which filed the complaint in the case, agreed that the attorney had violated three professional conduct rules. The panel that reviewed the case also determined that DeMarco acted with a dishonest motive, an aggravating factor, and that there were three mitigating circumstances.

While the panel recommended a one-year suspension with six months stayed, the board recommends a greater sanction of a full one-year suspension.

Attorney’s Objections
DeMarco asks the Supreme Court for a fully stayed one-year suspension. In his view, the panel’s report gave an incomplete explanation of Harper’s role, leading the board to incorrectly conclude that the expert could have been harmed by the attorney’s conduct. DeMarco stated that he believed he was permitted by the agreement to look at the disk contents and that he lied to cover for Harper, who DeMarco said had told the other side that he wouldn’t give the attorney the disk.

DeMarco also contends that the board was unable to properly weigh the aggravating and mitigating evidence because the panel didn’t fully explain the mitigating factors. He further argues that his sincere remorse wasn’t acknowledged by the panel or board and that this incident occurred in an otherwise unblemished decades-long career.

Bar Association’s Responses
Attorneys for the bar association detail 10 lies DeMarco told about viewing the records. They point out that Harper was able to defend himself only because he had saved the attorney’s voicemail after the pretrial conference. They assert that Harper might have been found in contempt of court or charged with perjury if he hadn’t kept the message. In addition, the attorney stated in a hearing that he wasn’t remorseful and only later expressed regret for his actions once his misrepresentations were discovered, they maintain.

The bar association agrees with the recommended increased sanction because of DeMarco’s attempt to shift blame to Harper at the panel hearing and the attorney’s lack of remorse.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Representing the Toledo Bar Association: Michael Bonfiglio, 419.242.4969

Representing Robert P. DeMarco: Richard Alkire, 216.573.0801

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.