As the demand for oil and gas rights along with other mineral rights continues to grow in Ohio, more disputes will almost certainly arise and end up in the courts. It is therefore important to keep an eye on such cases as the law governing such rights takes further shape. As a case in point, the Northern District of Ohio recently issued an interesting ruling in Binder v. Trinity OG Land Development and Exploration, LLC, No. 4:11-cv-02621, 2012 WL 1970239 (ND May 31, 2012), regarding commissions for the leasing of mineral rights, which may have impact oil and gas leasing practices.
The plaintiff in that case, Binder, alleged that he was a deal maker. In 2009, he entered into an oral agreement with the defendants to identify property owners in Northeast Ohio and Western Pennsylvania who might be willing to sell mineral rights. This agreement purportedly provided that Binder would receive from $50 to $200 for every acre of mineral rights the defendants leased or purchased from land owners whom Binder referred to them. According to Binder, the defendants obtained mineral rights to over 10,000 acres through his efforts. Binder calculated that, as a result, the defendants owed him at least $500,000.
Rather than pay Binder anywhere near that amount, the defendants sent him a check for $22,012.94. With it, the defendants included language stating that the check was full and final payment for any money they owed, suggesting that if Binder accepted and cashed the check, he would waive any claims he had against the defendants for more money. Whether that gambit would have worked in this case is not clear. Under Ohio law, in order for a party to prevail on an “accord and satisfaction” defense under Ohio Rev. Code §1303.40, the party asserting it must show that there was a bona fide dispute regarding the debt in question. If the debt amount was not in dispute, but the defendants simply wanted to pay Binder less money, the defense would have failed, and Binder could have cashed the check without risk. See Morgan v. The Village Printers, Inc., 2004-Ohio-3751,¶¶ 9-10, 2004 WL 1585553 (1st Dist. July 16, 2004). In any event, it didn’t matter because instead of cashing the check, Binder filed suit for fraud and breach of contract.
To read more on Binder’s claim and the result, read on after the jump.
Binder’s chief claim was the defendants had intentionally duped him into introducing them to property owners knowing the defendants didn’t intend to pay Binder the agreed upon commissions. Binder might have been correct: the defendants might have intended to deceive him. Problem was, Binder was not a licensed real estate broker in Ohio at the time he entered into the agreement with the defendants. Under Ohio law, Ohio Rev. Code §§ 4735.01(A)(7) and 4735.21, only licensed real estate brokers are entitled to fees for brokering the sale of real estate or assisting licensed brokers in procuring purchasers or negotiating transactions. And, the court held, it is well settled in Ohio that real estate includes “mineral rights, specifically ‘rights to coal, oil and gas.’” Id. at *3, quoting Colusy v. D & H Coal Co., 21 Ohio Op.2d 216, 186 N.E.2d 767 (Tuscarawas Common Pleas 1961.) See also Ohio Rev. Code §4735.01(B). The district court therefore deemed that Binder, in finding and referring sellers of interests in mineral rights, was acting as a real estate broker in his dealings with the defendants. But because Binder did not hold a real estate broker’s license, he was not entitled to receive a fee or commission regarding the leased mineral rights as a matter of law, regardless of any agreement the parties entered or the defendants’ alleged attempt to mislead him. The court had little choice but to grant the defendants’ motion for judgment on the pleadings, dismissing Binder’s claims.
But is this the correct result?
Binder also raised a breach of contract claim in his complaint which the court did not address (because the parties did not press it). On first blush it would appear that a breach of contract claim must fail irrespective of whether Binder had a real estate license because the claim was based on an oral agreement. The statute of frauds, which Ohio generally follows, see Ohio Rev. Code § 1335.05, typically requires contracts dealing with real estate to be in writing. But there are several Ohio decisions in which courts held that agreements between a party referring prospective real estate customers to sellers need not be in writing because they effectively did not deal with the sale of real estate. See, e.g., Link-Hellmuth, Inc. v. Carey, 101 Ohio App.3d 604 (2d Dist. 1995)(referral of prospective purchasers to home builder not a real estate transaction, and agreement for commissions need not be in writing); and McHugh v. Marshall, 30 Ohio App. 225, 227-29 (1928)(court held that agreement to pay commissions for referring prospective real estate purchasers need not be in writing because it did not deal with the sale of real estate but payment for services rendered). If the transactions in these cases were not dealing with real estate such that they needed to be in writing to satisfy the statute of frauds, then doesn’t it hold that Binder’s referrals to the defendants were not real estate transactions? But see Ohio Rev. Code § 4735.01(B). And if they were not real estate transactions, shouldn’t Binder have been able to enforce his agreements with the defendants — even in the absence of a real estate license —assuming the agreements were otherwise enforceable? Interesting issues. But they need not present serious concern.
How does this affect industry players?
Parties dealing with oil, gas, and mineral rights in Ohio should bear these issues in mind when entering into substantive discussions about selling or obtaining mineral rights. From a practical standpoint, it would be prudent to reduce all agreements related to oil and gas rights to writing, whether agents are involved or not, so that the parties may carefully set forth the precise terms upon which they wish to be bound. See Flat Fee Co. v. Verbinski, 1994 Ohio App. Lexis 133 (Cuyahoga Jan. 20, 1994) (“it is preferable to have a contract for brokerage in writing”). By routinely reducing such agreements to writing, parties can avoid much of the uncertainty that afflicts oral agreements and the considerable costs that too often attend litigation arising from a lack of clarity.