Our colleagues on Porter Wright’s product liability team shared an alert about a decision that should be of interest to our manufacturing readers. In Butts v. OMG, Inc., et al., the Sixth Circuit Court of Appeals clarified that a plaintiff’s burden, when bringing a design defect or inadequate warnings claim under the Ohio Products Liability Act, is to prove the injury was reasonably foreseeable to the manufacturer. Read more…
Litigation over Ohio’s Dormant Mineral Act, R.C. 5301.56, (DMA) began as a trickle in 2012 and turned into a flood in 2014 that continues to confound mineral title attorneys and challenge judges. Questions about the DMA have all but paralyzed oil and gas companies still looking to acquire and develop mineral leases. Now all eyes are on the Ohio Supreme Court for guidance on myriad questions regarding the validity and application of the statute. This post provides an update of DMA appeals and issues pending before the Ohio Supreme Court to date.
Though the Ohio Supreme Court hasn’t yet issued any decisions related to DMA, that is about to change. The court has accepted five DMA cases for review — all accepted in 2014. These five cases present a total of 15 questions of DMA law. Only two of these cases (Dodd and Buell) have been argued, at least in part (the question accepted sua sponte in Dodd was not argued). The other cases have yet to be scheduled for oral argument. In addition, six more cases present another 20 questions of law that have been appealed to the Ohio Supreme Court but are not yet accepted for review.
The overlap between many of the cases and issues highlights the hottest current DMA issues. However, this list of questions and issues is far from complete. In hindsight, we may find that the wave of DMA litigation crested in 2014, but experienced oil and gas attorneys expect litigation surrounding …
In Eastham v. Chesapeake Appalachia, L.L.C., 6th Cir. No. 13-4233, 2014 U.S. App. LEXIS 10531 (June 6, 2014), the Sixth Circuit court of appeals considered whether a provision in a 2007 oil and gas lease that granted Chesapeake the option to “extend or renew under similar terms a like lease” was ambiguous and whether it required Chesapeake to renegotiate the lease when it expired. The court held that the plain language of the lease allowed Chesapeake to “extend” the lease on the same terms. The decision contains insights about Ohio law and important lessons in contract drafting and interpretation.
Facts of the case
On April 9, 2007, William and Frostie Eastham signed an oil and gas lease with Great Lakes Energy Partners, LLC (“Great Lakes”) for their 49.066 acre parcel in Jefferson County, Ohio. The five-year primary term of the lease required Great Lakes to either drill a well or make delay rental payments to Mr. and Mrs. Eastham in the amount of $10.00 per acre per year until a well was drilled. The lease also provided that if the lease expired, Great Lakes would have the following option:
Upon the expiration of this lease and within sixty (60) days thereinafter, Lessor grants to Lessee an option to extend or renew under similar terms a like lease.
Sometime before the lease expired, Great Lakes assigned the lease to Chesapeake. There was apparently no dispute that the assignment was authorized by the lease and that all required delay rentals were …
The Ohio Supreme Court recently accepted a new group of civil cases; among them is Chesapeake Exploration, LLC v. Buell. In this case, the Supreme Court has agreed to answer the following two questions of Ohio law certified by United States District Judge Watson of the Southern District of Ohio in Case No. 2:12-cv-916:
- Is the recorded lease of a severed subsurface mineral estate a title transaction under the Ohio Dormant Mineral Act, R.C. 5301.56(B)(3)(a)?
- Is the expiration of a recorded lease and the reversion of the rights granted under that lease a title transaction that restarts the 20-year forfeiture clock under the ODMA at the time of the reversion?
In February 2013, we reported that the Ohio Environmental Protection Agency (Ohio EPA) had issued proposed revisions to its Model General Permit for oil and gas well-site production operations. On April 4, Ohio EPA announced that it had finalized those revisions. The revisions bring the Model General Permits up-to-date with changes in the law since Ohio EPA originally issued the permits and make other changes to respond to industry comments. The revisions also include revised leak detection and repair requirements, which have been the subject of much recent discussion.
Ohio law generally requires each new source of air pollution to obtain a pre-construction permit from Ohio EPA’s Division of Air Pollution Control before “begin[ning] actual construction, erect[ing], locat[ing] or affix[ing] [the] air contaminant source.” Ohio law also requires sources of air pollution to obtain operating permits. Larger sources typically obtain permits-to-install (PTIs) and “Title V” operating permits; smaller sources typically obtain combined permits-to-install and operate (PTIOs). Ohio EPA may also develop Model General Permits — model PTIs and PTIOs — for categories of sources. Sources may choose to apply for regular PTIs or PTIOs if they like, but Model General Permits can be obtained more quickly, because, as Ohio EPA has explained, “all the terms and conditions of the permit have been developed in advance.”…
Ohio Gov. John Kasich’s mid-biennium review plan calls for an increase in Ohio oil and gas severance taxes, as proposed in House Bill 472. These increased taxes would fund certain local governmental initiatives and the Ohio Department of Natural Resources. They also would help offset personal income tax cuts outlined in the mid-biennium plan.
The current production-based severance tax scheme does not distinguish between production generated by conventional oil and gas wells and production generated by horizontal wells. The current severance tax under R.C. § 5749.02 is levied at a rate of $0.10 per barrel of oil and $0.025 per thousand cubic feet (MCF) of natural gas.
For conventional oil and gas wells, the tax under H.B. 472 would remain a volume-based tax but the rates would increase to $0.20 per barrel of oil and $0.03 per MCF of natural gas. The tax would be imposed on the “severer,” defined for conventional wells as the person who actually removes the oil or gas from the ground. Other changes to the state’s regulatory scheme are intended to militate against this tax increase, however, resulting in no economic change to the costs of production for conventional wells.1 Moreover, low-producing conventional wells would be completely exempt from the severance tax.…
From time to time we share news about educational opportunities that may be of interest to our subscribers. Members of Porter Wright’s Appellate and Supreme Court practice will hold a roundtable April 8 to discuss the benefits of amicus advocacy before the Ohio Supreme Court.
Too often, the Ohio Supreme Court decides issues that affect an industry statewide without first hearing from the industry itself. Trade associations and companies can address this issue by filing “friend of the court” briefs. To learn more about how your organization can be part of this process, join Kathleen Trafford, Brad Hughes and Dennis Hirsch for a breakfast briefing. Using a roundtable format, they plan to cover the benefits of amicus advocacy, strategies for effective amicus advocacy and the rules governing “friend of the court” briefs.
Tuesday, April 8, 2014
7:30 a.m. – 8 a.m. — Registration and breakfast
8 a.m. – 9 a.m. — Roundtable discussion
41 S. High St., 29th Floor
Columbus, OH 43215
Register online for this complimentary event.…
An agreement to enter into an oil and gas lease is an enforceable contract in Ohio
Landowner enters into an agreement to sign an oil and gas lease, finds outs there may be a better deal elsewhere and tries to get out of the first deal. A federal court in Ohio says, “No, a deal is a deal.” Bruzzese v. Chesapeake Exploration, LLC, U.S. District Court for the Southern District of Ohio, Eastern Division (Feb. 13, 2014).
A group of landowners in eastern Ohio had engaged attorneys to negotiate oil and gas leases on their collective behalves. They signed an Agreement to Accept Lease Offer from Chesapeake Exploration, LLC. About 75 members of the group later sued Chesapeake Exploration, LLC, claiming that the agreement was unenforceable. Chesapeake settled with all the landowners except Stephen and Elizabeth Albery.
The Alberys had printed out the agreement, filled in blanks, signed it and emailed it to the group attorneys on July 16, 2011. Immediately thereafter, Mrs. Albery’s sister told them that she had heard that other energy companies were making better offers to landowners. Under the apparent understanding that they could back out of the agreement because they believed they could still opt out of the landowners group, the Alberys sent a letter to counsel on July 24, 2011, stating that they wished to terminate the agreement.…
In the previous three parts of this series (read part 1, part 2 and part 3), we reviewed the Ohio Marketable Title Act (MTA), its application to severed minerals, and the experience of neighboring states, all of which played a role in the development of the Ohio Dormant Minerals Act (DMA).
- The MTA was enacted in 1961 to make land titles marketable, i.e., free of stale claims. It included a grace period and did not require notice before a chain of title was extinguished in favor of another.
- The MTA generally applies to any property interest (presumably still including oil and gas interests) where no conveyance or claim to preserve has been filed during the past 40 years.
- The MTA does not necessarily extinguish all old severed mineral interests, even those with a root of title more than 40 years old, because the severed interest may be a separate chain of title.
- The Illinois DMA was found unconstitutional by the Illinois Supreme Court in 1980 as violating due process because it did not require severed mineral owners to be given notice and an opportunity to be heard.
- Indiana’s Dormant Mineral Interests Act, Ind. Code §§ 32-5-11-1 through 32-5-11-8 (1976) — which includes a grace period, a 20-year use-it-or-lose-it attribute and no notice requirement — was held to be constitutional by the U.S. Supreme Court in 1982. Texaco, Inc. v. Short, 454 U.S. 516, 102 S. Ct. 781, 70 L. Ed. 2d 738, (1982)
- Illinois enacted
In part 2 of this series, we reviewed the application of the Marketable Title Act (MTA) in a 1982 case involving a severed mineral interest and two independent chains of title. The Ohio courts appeared to struggle with the application of the MTA to the facts of that case. Courts and legislatures in neighboring states also struggled with how to handle dormant severed minerals. Those states’ case law and statutes played a role in the formulation of the Ohio Dormant Minerals Act, which was enacted in 1989 as part of the MTA. Examples of such influential laws and cases from Illinois and Indiana follow.
Illinois DMA held unconstitutional in 19801
In Illinois, at common law, once a mineral estate has been severed from the surface estate, it cannot be terminated by mere nonuse or abandonment. Uphoff v Trustees of Tufts College, 351 Ill 146, 155, 184 NE 213, 216 (Ill 1932). Thus, mineral interests can lie dormant, even through several transfers of title. This situation, over time, can result in missing or unknown owners. The difficulty in ascertaining and locating severed mineral owners had a substantial deterrent effect on would-be gas and oil developers.
The Illinois legislature responded by enacting the Dormant Mineral Interests Act in 1969. The act was intended to facilitate development of dormant oil and gas interests by permitting consolidation of mineral ownership in one person in instances where it had formerly been diffused among many unknown or missing persons. The act provided that …
In a case involving the assignment of oil and gas leases from one company to another, an Ohio appellate court enforced an anti-assignment provision in the original lease. Harding v. Viking Internatl. Resources Co., Inc., 4th Dist. Washington No. 13CA13, 2013-Ohio-5236.
The Hardings owned property in Washington County that was subject to three oil and gas leases signed by the prior property owners, their parents. All of the leases contained the following anti-assignment clause:
The rights of the Lessor may be assigned in whole or in part and shall be binding upon their heirs, executors and assigns. The rights and responsibilities of the Lessee may not be assigned without the mutual agreement of the parties in writing.
The original lessee, Carlton Oil Corporation, assigned the leases to Viking in 2011. Though the assignment was recorded, the Hardings were not parties nor did they provide written consent to the assignment. However, after the assignment, the Hardings completed and returned a W-9 form that Viking mailed to them and they accepted and cashed royalty checks from Viking for eight months before they objected to the assignment and filed suit against Viking to have the court declare the leases void and forfeited because of the violation of the assignment provision.…
In the first part of this series, we reviewed a 2010 Licking County case, which held that Ohio’s Marketable Title Act (MTA) extinguished an adjoining landowner’s claim against former railroad property. This article discusses how the MTA was used to reconcile competing claims to a severed mineral interest before Ohio’s Dormant Minerals Act was passed.
The Marketable Title Act and severed minerals: coal excepted, but not oil and gas
When the MTA was first enacted in 1961, it expressly excepted all mineral interests . But in 1973 the Ohio Legislature amended the mineral interest exception so that only coal was excepted from the operation of the MTA. That amendment set the stage for Heifner v. Bradford, 5th Dist. Muskingum No. CA-81-10, 1982 Ohio App. LEXIS 14859 (Jan. 29, 1982), overruled by Heifner v. Bradford, 4 Ohio St. 3d 49; 446 N.E.2d 440 (1983).…
We are in the process of posting a series of articles on the Ohio Dormant Minerals Act (DMA), in which we’ll provide analysis about Dahlgren-v-Brown, Carroll C.P., 13CVH27445, (Nov. 5, 2013). However, today we wanted to share news about this Carroll County opinion and what it may portend for future cases.
Leora Dahlgren owned severed minerals pursuant to a reservation in a deed to Walter Dunlap in 1949. When Leora passed away in 1977, her estate was probated and a Certificate of Transfer conveying the minerals to her heirs was issued and recorded — at the Probate Court rather than the Recorder’s Office — in 1978.1 More than 30 years later, in 2009, the mineral owners leased their oil and gas. During that same period of time, the surface had become owned by successors to Dunlap pursuant to deeds reciting the reservation in the 1949 deed. The surface owners filed a DMA notice of abandonment in March 2012. Within the following 60-day period, the Dahlgren mineral heirs filed their notice of claim and, in 2013, sued to quiet title.…
This is the first in a series of articles delving into the history and influence of the Ohio Dormant Minerals Act since it was enacted in 1989.
The oil boom at the turn of the last century led property owners selling their land to reserve from the sale, for themselves, “the oil and gas and other minerals” — thus creating severed mineral interests. During the next 40 to 50 years there were two world wars, divorces, deaths and myriad other family-changing events. In many cases, the ownership of severed mineral interests became clouded. Through the years, legislatures in the Midwest have worked to address the situation through mineral lapse acts or dormant minerals acts, whereby the severed interest is reunited with the surface.
With the advent of horizontal wells, consternation around determining who owns the minerals has become exacerbated. Horizontal wells and fracking have made severed interests, even small ones, a matter of animated debate. Furthermore, any time the legislature tries to decide who wins, the loser is bound to argue that the Constitution requires restitution. As Justice Oliver Wendell Holmes Jr. said in one of his famous dissents, “Great cases, like hard cases, make bad law.” Northern Securities Co. v. United States, 193 U.S. 197 (1904). The severed mineral interest issue pits two fundamental principles against each other: the certainty title to land vs. the need to extinguish dormant claims so that development can proceed.
The objective of this series of articles is to trace the history and …
Businesses active in Ohio’s current oil and gas boom should be aware of how oil and gas leases are treated in bankruptcy. Unsettled Ohio law regarding whether a debtor owns unextracted oil and gas as part of the debtor’s real property can make this a difficult issue. This eBook discusses recent court opinions and examines the question of just who owns unextracted oil and gas in a bankruptcy context. Download Oil and Gas Leases in Bankruptcy.…
The plaintiffs in this case are a group of landowners in Nobel County who, from 2008 to 2010, entered into oil and gas leases, some of which were assigned to Chesapeake Exploration, LLC. Some of the leases had a three-year primary term, some five years, with typical provisions to extend the primary term. However, the lease provision really at issue was titled “Preferential Right to Renew,” referred to as “paragraph 14.” Both the plaintiffs and defendants filed motions for summary judgment. Judge Edmund A. Sargus Jr. of the federal District Court in Columbus decided the case on Sept. 26, 2013. Wiley v. Triad Hunter LLC, 2013 U.S. Dist. LEXIS 143058 United States District Court for the Southern District of Ohio, Eastern Division.
Paragraph 14 provides, in summary, that if during the primary term and one year thereafter, the lessor receives an acceptable, bona fide third-party offer to lease, the lessor would provide the lessee with the particulars. The lessee then would have 30 days to advise the lessor of its agreement to match the offer. Also, any lease “granted by lessor in contravention of the purposes of this paragraph shall be deemed null and void.”
The plaintiffs received a bona fide offer to lease their land. At this point, let me digress. Hoping that an existing lease will expire, third parties will offer a new lease to the landowner, sometimes called a “top lease,” that will take effect upon the existing lease’s termination. Paragraph 14 would seem to protect …
For estate planning purposes, in 2005 Willard and Ruth Liggett put real estate they owned into a revocable trusts with themselves as trustees. In 2008, the Liggetts signed an oil and gas lease in their personal capacity. In 2012, Plaintiffs Willard and Ruth Liggett, co-trustees under 10/10/05 Liggett Trusts, filed a complaint in Tuscarawas County. The Lessee, Chesapeake Exploration, L.L.C., counterclaimed. The case was removed to federal court in Youngstown, Ohio. See Liggett v. Chesapeake Exploration, L.L.C., 2013 U.S. Dist. LEXIS 147392, United States District Court for the Northern District of Ohio, Eastern Division.
The Liggetts claimed the lease was unenforceable because it was signed by them personally, not as trustees, and asked for summary judgment. Chesapeake asked for a declaratory judgment that the lease is valid and enforceable, and filed counterclaims.
On Oct. 11, 2013, Judge Benita Y. Pearson ruled that the lease is valid and enforceable. Chesapeake’s motion for summary judgment for its claims against the Liggetts remain pending for trial. They are:…
An essential function of the law is to provide predictability as questions arise. When legal questions arise in the oil field regarding ownership rights, a consensus in the law — especially in the common law — is crucial. With that consensus, the attributes of conveyances related to those hydrocarbons (rights) can be examined. Specifically, what are the landowner’s rights with regard to the hydrocarbons under a piece of land in Ohio? Does he or she actually own them, or do they just have the right to capture them? If he or she would grant a lease to an oil company, what does the oil company own — is it an interest in real estate or is it simply a right to search? And, if found, what is the nature of the interest owned by the oil company pursuant to the lease? These fundamental questions have not been answered clearly in Ohio despite the fact that courts have struggled with them for over a century.
This ambiguity in the law puts federal courts in a potentially difficult position. Absent a clear indication of state law, federal judges deciding these issues under Ohio law are required to consider how the Ohio Supreme Court would decide the issue. Recently, a federal judge weighed in on the nature of an oil and gas lease in the case of Wellington Resource Group LLC v. Beck Energy Corporation, Case No. 2:12-CC-104 in the United States District Court for the Southern District of Ohio, Eastern Division, …
In our previous two segments on Section 16 lands — Part 1 and Part 2 — we examined the dedication, by Congress, of one section in each Ohio township, usually Section 16, for the support of public education. Initially, while retaining title to such lands in trust, Ohio vested administrative control in township trustees. However, the allocation of authority to the townships did not go well and in 1914 and 1917 the legislature reallocated responsibility to the Auditor of State as administrator of school lands remaining in state hands.
From 1827 to 1917, when the township trustees were authorized to sell or lease school land to private individuals, mineral title typically passed with the fee simple title. However, this practice ended in 1917 when the auditor assumed authority.
The 1917 legislation, known as the Garver Act, was enacted to provide for better administration of school lands. H.B. No. 192, 107 Ohio Laws 357, G.C. 3203. One of the issues was confusion about the status and ownership of leases of Section 16 parcels granted by township trustees. Section 23 of the Garver Act —provided procedure by which someone claiming title could file a claim with the state supervisor who, after public notice and if satisfied that the claim was valid, would execute a new lease. The Garver Act also provided a mechanism whereby a lessee could surrender his lease and obtain a fee simple title.…
Porter Wright is pleased to announce a September seminar that focuses on how construction companies can take advantage of opportunities emerging in the oil and gas sector. The half-day event — which Porter Wright is presenting in conjunction with The Builders Exchange of Central Ohio and Shale Directories — is set for Sept. 12, 8am to noon at The Builders Exchange of Central Ohio, 1175 Dublin Rd., Columbus, Ohio 43215.
The “Breaking Into Shale: Construction Opportunities in the Oil and Gas Industry” program features:
- An overview of the Ohio Shale Play, construction opportunities and an update on Ohio permits and drilling
- Gulfport Energy and Caiman Energy will provide an overview of their work in the Utica Shale and discuss how local companies can work with them
- Tips and insight from Kelchner Construction of Dayton about its first-hand experience breaking into the oil and gas industry
- 5 Steps to Success in Shale
- Safety requirements in the oil and gas industry
Though other programs have provided information about what is taking place in the Marcellus and Utica Shale regions, this workshop is geared specifically toward discussing construction opportunities in the industry and how your company can get involved.
As with prior posts about oil and gas leases in bankruptcy (located here and, on Porter Wright’s Banking & Finance Law Report blog, here), this post presents another thorny issue — namely, “Is an oil and gas lease a lease at all?”
Whether an oil and gas lease is a “lease” is significant in the bankruptcy context, because the Bankruptcy Code has several provisions regarding the treatment of leases.
This post considers two cases that interpret 11 U.S.C. § 365(d)(4), which provides that unless the bankruptcy court orders an extension, “an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by … the date that is 120 days after the date of the order for relief [(typically, the commencement of the case)]….” The Code further provides that “the rejection of an … unexpired lease of the debtor constitutes a breach of such contract or lease … immediately before the date of the filing of the petition.”…
In our first post about Section 16 lands, we provided background on such public lands here in Ohio. We summarized that in 1785, a Federal land ordinance granted one square mile — usually Section 16 — out of every six square mile township to be held in trust by the state and to be dedicated to support public education pursuant to federal law. The Ohio Legislature then began leasing the land, and in 1827 it authorized sale of the land with proceeds going to the “Common School Fund.” Interest from the fund was to be paid to the schools within the townships. See, Dr. George W. Knepper, The Auditor of State, The Official Ohio Lands Book, 2002. (“Knepper”).
In regard to the funds collected from the sale of all school lands, the Ohio Constitution provided:
“The principal of all funds, arising from the sale, or other disposition of lands, or other property, granted or entrusted to this state for educational and religious purposes, shall forever be preserved inviolate, and undiminished; and, the income arising therefrom, shall be faithfully applied to the specific objects of the original grants, or appropriations.” Ohio Constitution, Article VI, Section 1 1…
Whether oil and gas drilling poses a legitimate risk for exposure to radiation has been a hot topic of recent debate. Though we occasionally hear anecdotal evidence reported in the newspapers about radioactive drilling waste being rejected by landfills, there seems to be scant evidence that radiation is a common or serious oil and gas industry problem in Ohio. Nonetheless, the Ohio Legislature and Gov. Kasich recently passed new law that all horizontal well operators should understand.
On June 30, 2013, Gov. Kasich signed H.B. 59, the budget bill, into law. The bill created a new section of the Ohio Revised Code — R.C. 1509.074 — which imposes requirements for testing, transporting and disposing “material that results from the construction, operation or plugging of a horizontal well” that might contain unusual levels of radioactivity.
The new law generally requires operators to sample and test such material for Radium-226 and Radium-228, and to dispose of radioactive material “in accordance with all applicable laws.” However, the new law has several important exceptions. An operator of an oil and gas well is not required to perform sampling and testing if:…