Corban v. Chesapeake Exploration, L.L.C. (Slip Opinion No. 2016-Ohio-5796)

In Corban v. Chesapeake Exploration, L.L.C. (Slip Opinion No. 2016-Ohio-5796), the Supreme Court of Ohio issued a landmark decision involving the Dormant Mineral Act. In Corban, the Supreme Court of Ohio addressed two certified questions from the United States District Court for the Southern District of Ohio, Eastern Division.

Question 1: Does the 2006 version or the 1989 version of the [Dormant Mineral Act] apply to claims asserted after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in surface land holder prior to the 2006 amendments as a result of abandonment?

Corban contends that the 1989 version of the Dormant Mineral Act (R.C. 5301.56) ("1989 DMA") is self-executing because nothing in the statute required any affirmative action or judicial confirmation establishing that the mineral interest had been deemed abandoned and vested in the owner of the surface estate. However, Chesapeake, along with numerous other companies that filed opposition briefs with the court, argued that the 1989 DMA was not self-executing because the statute deemed dormant mineral interests abandoned and vested in the surface owner without expressly extinguishing them or declaring them null and void, therefore the surface owner must take legal action to obtain ownership of the mineral interest. Under Chesapeake's interpretation, a land owner who was eligible to take minerals under the 1989 DMA would still have to file a quiet title suit for those minerals to change hands from the record owner to himself.

In answering the question, the Court started with the Marketable Title Act (R.C. 5301.47) ("MTA"), which became effective in 1961.

This legislation provides that marketable record title - an unbroken chain of title to an interest in land for 40 years or more, R.C. 5301.48 -"shall be held by its owner and shall be taken by any person dealing with the land free and clear of all interests, claims, or charges whatsoever, the existence of which depends upon any act, transaction, event, or omission that occurred prior to the effective date of the root of title." R.C. 5301.50. Marketable record title therefore "operates to extinguish" all other prior interests, R.C. 5301.47(A), which "are hereby declared to be null and void," R.C. 5301.50." (¶ 17)

The MTA was amended in 1973 "to enable property owners to clear their titles of disused mineral interests." (¶ 18). The court states, "[t]hus, 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 savings event preserving the interest appeared in the record chain of title...".

Subsequently, the MTA was amended again in 1989 with the creation of the Dormant Mineral Act (R.C. 5301.56) ("1989 DMA"). R.C. 5301.56, stated: "Any 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." The Court notes that in contrast to R.C. 5301.47(A) and 5301.50 of the MTA, the 1989 DMA did not use the word "extinguish" nor did it declare dormant mineral interests "null and void." (¶ 21). Rather it provided that the dormant mineral interests "shall be deemed abandoned and vested in the owner of the surface." (¶ 21).

The Court reasoned that by using the word "deemed" the General Assembly created a conclusive presumption that a mineral rights holder had abandoned a severed mineral interest if the 20-year statutory period passed without a saving event. (¶ 25). Thus, the statute remedied the difficult task of the surface owner having to prove abandonment in a quiet title action, which was the case prior to the 1989 DMA. (¶ 25). However, since the conclusive presumption of abandonment was only an evidentiary device, the 1989 DMA does not automatically transfer the interest from the mineral rights holder to the surface owner by operation of law. (¶ 26).

The court decided:

In accord with this analysis, we conclude that the 1989 law was not self-executing and did not automatically transfer ownership of dormant mineral rights by operation of law. Rather, a surface holder seeking to merge those rights with the surface estate under the 1989 law was required to commence a quiet title action seeking a decree that the dormant mineral interest was deemed abandoned. (¶ 28)

Finally, the DMA was amended in 2006 ("2006 DMA") to require that notice be provided by the surface holder to the mineral rights holder, allowing the mineral rights holder the opportunity to preserve their interest. Any claim brought after the DMA was amended on June 30, 2006, must comply with the amended version of the statute. The Court reasoned that since the 1989 DMA was not automatic, surface owners having to follow the 2006 DMA requirements did not violate the Retroactivity Clause contained in Article II, Section 28, of the Ohio Constitution.

Question 2: Is the payment of a delay rental during the primary term of an oil and gas lease a title transaction and "savings event" under the [Dormant Mineral Act]?

The Supreme Court of Ohio determined that payment of delay rentals is not a title transaction because the delay rental payment is not recorded in the office of the county recorder and it is not a document that the recorder is required to keep. (¶ 38). Also, the delay rental payment does not affect title to any interest in the land. (¶ 38). "Since a delay rental payment does not affect title to any interest in land, occurs outside the record chain of title, and is not filed or recorded in the office of the county recorder, it is neither a title transaction nor a saving event." (¶ 39)

Analysis:

The Corban decision will have a profound effect on the analysis of the Dormant Mineral Act (DMA). By this one decision, the Supreme Court of Ohio has addressed the vast majority of cases which involve the DMA. In this decision, the Supreme Court specifically requires that the landowner commence a quiet title action to obtain the abandoned minerals under the 1989 DMA. In addition, the quiet title action had to be filed before the DMA was amended on June 30, 2006. Presumably, prior to June 30, 2006, if the landowner filed an affidavit or other type of notice that severed mineral interest had vested in the landowner, this would still not be sufficient because the Supreme Court of Ohio specifically required a quiet title action.

One interesting question which arises out of the Corban decision, involves the MTA being automatic and extinguishing severed mineral interest. In Corban, the Court explained why the MTA is automatic while the DMA is not. The Court notes that in 1973 the MTA was amended to include severed mineral interests. In Paragraph 18, the Court states, "[t]hus, 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 savings event preserving the interest appeared in the record chain of title ...." This would certainly seem to suggest that from the time the MTA was amended in 1973 until the DMA was created on March 22, 1989, that the MTA would automatically extinguish severed mineral interest and vest that interest in the surface owner when there was no saving event. In Hartman v. Patton, 4th Dist. No. 1343, 1987 WL 16564, (Sept. 1, 1987), the Fourth District Court of Appeals explained that when the MTA was amended in 1973 the severed mineral interest owners had until December 31, 1976 to preserve their interest. Thus, any analysis as to whether the MTA extinguished a severed mineral interest must take the grace period into account.

Overall, the Corban decision does simplify the application of the DMA and answers many issues related to ownership of severed mineral interest. However, this decision also highlighted the possibility that the MTA could automatically extinguish severed mineral interests. Now that the court has determined the 1989 DMA is not automatic, the title examiner should consider whether the MTA extinguished a severed mineral interest after the cessation of the grace period on December 31, 1976 but before the Dormant Mineral Act was created on March 22, 1989.

Dated: September 16, 2016

Prepared by: Jeremy James