CHESAPEAKE EXPLORATION, L.L.C., ET AL., v. BUELL ET AL.
No. 2014-0067
Supreme Court of Ohio
Submitted August 20, 2014—Decided November 5, 2015
[Cite as Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490, 2015-Ohio-4551.]
O‘CONNOR, C.J.
{¶ 1} In this case, which is before us on the certification of state-law questions by the United States District Court for the Southern District of Ohio, Eastern Division, we address whether, under Ohio‘s Dormant Mineral Act, codified in
RELEVANT BACKGROUND
{¶ 2} The parties dispute who is the legal owner or holder of the mineral rights. The federal court provided the facts, circumstances, and allegations from which the legal questions of ownership arise.
The Leases
{¶ 3} In 1958, Powhatan Mining Company severed the surface rights from the mineral rights of a 90.2063-acre parcel located in Harrison County by transferring the surface rights to Clarence and Anna Bell Sedoris and retaining the oil, gas, coal, or other mineral rights for itself and its successors. Powhatan transferred the mineral rights to North American Coal Corporation in 1959 when the two companies merged. Over the years since then, both the surface and mineral rights have been the subjects of various transfers and transactions.
{¶ 4} The history of the mineral-rights leases is labyrinthine.
{¶ 5} North American Coal leased the mineral rights in 1973 and reсorded the lease in Harrison County in February 1974, but the leased rights eventually reverted to North American Coal at the expiration of the lease term. The next lease of mineral rights was recorded in 1984, but in 1989, the lease expired by its terms, and the rights reverted again to North American Coal.
{¶ 6} In 2008, North American Coal transferred the mineral rights to North American Coal Royalty Company (“Coal Royalty“) by quitclaim deed.
{¶ 7} By the most recent lease, dated January 28, 2009, the lessor, Coal Royalty, ultimately leased the mineral rights, following multiple assignments, to Dale Property Services Penn, L.P., which then assigned its interest to the lessee Ohio Buckeye Energy, L.L.C. Dale Property Services reserved a 1.25 percent royalty interest, which it assigned to Dale Pennsylvania Royalty, L.P. (“Dale“), in 2012 (the “2009 Lease“).
{¶ 8} In October 2011, Buckeye Energy assigned a portion of its interest to Larchmont Resources, L.L.C. In November 2011, Buckeye Energy assigned another portion of its interest to CHK Utica, L.L.C.
{¶ 9} In December 2011, Buckeye Energy merged with Chesapeake Exploration, L.L.C., which resulted in Chesapeake holding the remainder of Buckeye Energy‘s interest in the 2009 lease.
{¶ 10} On December 30, 2011, Chesapeake transferred a portion of its interest to Total E&P USA, Inc., but retained the remainder.
{¶ 11} Currently, petitioner Coal Royalty is the record owner of the mineral rights. Petitioners CHK Utica and Larchmont lease a portion of the mineral rights by assignment. Petitioners Chesаpeake and Total E&P are lessees of the remainder of the lease with petitioner Dale holding a 1.25 percent royalty interest in the lease.
{¶ 12} Respondents are property owners who, through various transfers originating from the Sedorises, own surface rights to a portion of the 90-plus acres of property.1
{¶ 13} In October 2012, Chesapeake, CHK Utica, Larchmont, and Dale Pennsylvania Royalty, all claiming an interest in the leased mineral rights as lessees, filed a complaint in federal court to quiet title to the oil and gas rights against respondent surface property owners, as well as against Coal Royalty and Total E&P. The surface property owners counterclaimed and also filed cross-claims against Coal Royalty and Total E&P to quiet title. Coal Royalty, Dale Property Services, and Total E&P were realigned as plaintiffs in the trial court action and are petitioners here together with Chesapeake, CHK Utica, Larchmont, and Dale.
The Questions of State Law
{¶ 14} The federal court concluded that the interpretation of Ohio‘s Dormant Mineral Act in the context of an oil and gas lease is determinative of the case, but it declined to decide the questions before it, given the lack of available authority from Ohio courts. Finding no controlling precedent on the determinative issue in Ohio case law, the federal сourt certified the following questions to us for answers:
- Is the recorded lease of a severed subsurface mineral estate a title transaction under the [Ohio‘s Dormant Mineral Act],
Ohio Revised Code § 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 twenty-year forfeiture clock under the [Ohio‘s Dormant Mineral Act] at the time of the reversion?
{¶ 15} Thus, the questions are limited to recorded leases, and we offer no opinion on any other kind of transaction that may have occurred in this case. Petitioners contend that we should answer both questions in the affirmative
ANALYSIS
Oil and Gas Leases
{¶ 16} The oil and gas lease is central to the oil and gas industry. 1 Brown, Brown & Gillaspia, The Law of Oil and Gas Leases, foreword (2d Ed.2014). “The principal or basic consideration for a [mineral rights] lease is the agreement by the lessee to develop the premises for oil and gas and pay royalties thereon to the lessor.” Id. at Section 3.01(2). In this context, “royalty” generally refers to the “share of the product or profit reserved by the owner of land for permitting another to develop his land for oil or gas.” Id. at Section 6.01.
{¶ 17} In Ohio, during an oil boom in the mid-1960s, it was estimated that over three-fourths of Ohio was leased for oil and gas. Cissel, Oil and Gas Law in Ohio, Ohio Legislative Service Commission, Staff Research Report No. 63, at 13 (1965). With the recent advances in techniques for extracting oil and natural gas from shale beds, such as the Marcellus and Utica Shale regions underlying parts of eastern Ohio, oil and gas leases are potentially lucrative instruments for both landowners and energy developers. Richardson, Hite v. Falcon Partners: A Model Rule for Marcellus and Utica Shale States Precluding the Use of Delay Rental Payments to Extend the Primary Term in an Oil and Gas Lease, 46 Akron L.Rev. 1133, 1135–1136 (2013). The lease provides a mechanism by which an owner of mineral rights can permit others to explore and exploit the land‘s mineral resources in exchange for royalties and other consideration. Brown at Section 3.01(2); Garman v. Conoco, Inc., 886 P.2d 652, 656 (Colo.1994); Bibikos & King, A Primer on Oil and Gas Law in the Marcellus Shale States, 4 Tex.J. Oil, Gas, & Energy L. 155, 156–167 (2009).
{¶ 18} The difficulty arises when, as demonstrated in this case, the history of transfers, assignments, reservations, and leases involving the mineral rights creates confusion as to who holds legal ownership and the corresponding ability to lease the valuable mineral rights.
{¶ 19} We review the multiple ownership interests that may exist for a given mineral-rich tract of land.
{¶ 20} Oil and gas can be viewed as realty or as personalty depending on the location of the oil and gas relative to the land in which it lies.
{¶ 22} Ohio‘s view is consistent with the majority of the states, including neighboring states Pennsylvania and West Virginia, which enjoy the same oil and gas-rich shale beds. Bibikos & King, 4 Tex.J. Oil, Gas, & Energy L. at 158, fn. 11 (“Most jurisdictions agree that the mineral estate can be severed and transferred independently of the surface estate“). “Pennsylvania adheres to the ownership theory,” id. at 171, and “[i]t is fairly well-settled that, like other states, West Virginia follows the ownership theory,” id. at 184. See also Marshall v. Mellon, 179 Pa. 371, 373, 36 A. 201 (1897); Robinson v. Milam, 125 W.Va. 218, 24 S.E.2d 236 (1942), paragraph three of the syllabus.
{¶ 23} The owner who conveys the surface estate may retain an interest in the mineral estate by reservation. Pure Oil at 202. Although the surface land may be separately owned, we have recognized the “truism” that when the interests have been severed, “neither the owner of the surface interest nor the owner of the mineral interest has full ownership” because “[e]aсh has rights that are subject to the rights of the other.” Snyder v. Ohio Dept. of Natural Resources, 140 Ohio St.3d 322, 2014-Ohio-3942, 18 N.E.3d 416, ¶ 13. “Unless the language of the conveyance by which the minerals are acquired repels such construction, a severed mineral estate is considered to include those rights to use of the surface as are reasonably necessary for the proper working of the mine and the obtaining of the minerals.” Quarto Mining Co. v. Litman, 42 Ohio St.2d 73, 83, 326 N.E.2d 676 (1975).
{¶ 24} Through a lease, the owner of the mineral estate, whether or not also the owner of the surface estate, may convey to another the rights to the minerals that lie beneath the surface. See, e.g., Brown v. Fowler, 65 Ohio St. 507, 521, 524, 63 N.E. 76 (1902) (identifying an instrument granting the oil and gas, along with the land for the purposes of obtaining the oil and gas, as a lease, and not a license, for a definite and certain term); Harris v. Ohio Oil Co., 57 Ohio St. 118, 128, 48 N.E. 502 (1897) (noting that even if the lease is termed a sale of all the oil underlying the land, the oil remaining under the property after the lease expires
Ohio‘s Dormant Mineral Act
{¶ 25} In 1989, Ohio enacted the Dormant Mineral Act, codified in
{¶ 26} Pursuant to the current version of
(a) 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.
(b) There has been actual production or withdrawal of minerals by the holder from the lands, from lands covered by a lease to which the mineral interest is subject, from a mine a portion of which is located beneath the lands, or, in the case of oil or gas, from lands pooled, unitized, or included in unit operations * * *.
(c) The mineral interest has been used in underground gas storage operations by the holder.
(d) A drilling or mining permit has been issued to the holder * * *.
(e) A claim to preserve the mineral interest has been filed in accordance with division (C) of [
R.C. 5301.56 ].
(f) In the case of a separated mineral interest, a separately listed tax parcel number has been created for the mineral interest in the county auditor‘s tax list and the county treasurer‘s duplicate tax list in the county in which the lands are located.
{¶ 27} The certified questions involve the saving event in subsection (a): that “[t]he 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.”2
{¶ 28} At the time the General Assembly enacted the Dormant Mineral Act, one question, at least in the minds of the land-title insurance industry, was whether an oil and gas lease would meet the definition of a title transaction under the act so that it would serve as a saving event and preclude the leased mineral rights from being deemed abandoned. Title Topics: Ohio Land Title Association 5 (May 1989). We have not previously had the opportunity to provide guidance on this issue or, specifically, determine whether the language of the Dormant Mineral Act permits such an interpretation. Thus, this is a case of first impression.
{¶ 29} Answering the certified questions requires an interpretation of the term “title transaction” under the Dormant Mineral Act as well as a review of the nature of a recorded oil and gas lease under Ohio law. If the recorded lease or its expiration is a “title transaction” within the meaning of the act, we must next determine whether either qualifies as a saving event under
{¶ 30} The first question asks whether the recorded lease of severed mineral rights is a title transaction under
What is a title transaction?
{¶ 31} We start with the interpretation of “title transaction” under the Dormant Mineral Act. Our role in cases of statutory construction is to determine legislative intent by looking to the language of the statute and the purpose to be accomplished by the statute. Boley v. Goodyear Tire & Rubber Co., 125 Ohio St.3d 510, 2010-Ohio-2550, 929 N.E.2d 448, ¶ 20.
{¶ 32} The Dormant Mineral Act does not define “title transaction.” However, the Marketable Title Act,
{¶ 33} Respondents contend that because a lease is not mentioned in this definition аnd because an oil and gas lease does not affect title, it cannot be a “title transaction.” Petitioners contend that a “title transaction,” as defined in
{¶ 34} We have long held that the use of the term “any” in a phrase encompasses “every” and “all” examples of the subject described. State v. Gardner, 118 Ohio St.3d 420, 2008-Ohio-2787, 889 N.E.2d 995, ¶ 33; Wachendorf v. Shaver, 149 Ohio St. 231, 240, 78 N.E.2d 370 (1948). Thus, we presume that the use of the term “any” to describe “transaction” and “interest” is intended here to encompass “every” and “all” transactions affecting title to “every” and “all” interests in land. The word “any,” by definition, is not a word of limitation.
{¶ 35} Rather, the word “any” has a flexible meaning and should be interpreted in its context. Wachendorf at 239. Here, the definition uses the term “including” to list examples of qualifying transactions, not to limit them. The word “including” indicates a partial list. Black‘s Law Dictionary 880 (10th Ed.2014). It does not signify a limitation in the way that the terms “such as” or “similar to” might. Accordingly, we do not read the definition of “title transaction” under
{¶ 37} Indeed, other uses of the phrases “title transaction” and “interest in land” in R.C. Chapter 5301 demonstrate that the terms are not as limited as the separate concurring and dissenting opinion asserts. For example,
{¶ 38}
{¶ 39} In sum, the plain language of
Is a recorded oil and gas lease a transaction that affects title to any interest in land?
{¶ 40} Where the statute‘s meaning is clear and unambiguous, we apply the statute as written. Boley, 125 Ohio St.3d 510, 2010-Ohio-2550, 929 N.E.2d 448, at
{¶ 41} There is no question that oil and gas leases are unique, as they “seemingly straddle the line between property and contract: they are neither residential leases nor commercial contraсts for the sale of goods.” Keeling & Gillespie, The First Marketable Product Doctrine: Just What Is the “Product“?, 37 St. Mary‘s L.J. 1, 6 (2005). “Oil and gas leases are unusual in that they are not technically leases at all.” Richardson, 46 Akron L.Rev. at 1144.
{¶ 42} There is general consensus among the states that an oil and gas lease creates a property interest, but there is disagreement about the nature of that property interest. Keeling & Gillespie, 37 St. Mary‘s L.J. at 7. Some states have held that it is a fee simple determinable “in which the lessee enjoys title to all of the oil, gas, and other minerals * * * as long as the lease remain in effect,” while others have concluded that it is an incorporeal interest in the minerals “in which the lessee enjoys the exclusive right to take all of the oil, gas, and other minerals.” Id.
{¶ 43} To resolve this question under Ohio law, we look to our courts for historical guidance on the characterization of an oil and gas lease in Ohio.
{¶ 44} We addressed a related question more than a century ago in Harris v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E. 502 (1897). We described an oil and gas lease as “more than a mere license” because it created a “vested, though limited, estate in the lands for the purposes named in the lease.” Id. at 129–130.
{¶ 45} Respondent property owners contend that any reliance on this court‘s decision in Harris is misplaced because it conflicts with our subsequent decision in Back v. Ohio Fuel Gas Co., 160 Ohio St. 81, 113 N.E.2d 865 (1953). In its order certifying the questions now before us, the federal court stated that our decisions in Harris and Back “take divergent views of the nature of oil and gas leases” and that “neither concerns whether a lease of severed subsurface mineral rights is a title transaction under the [Dormant Mineral Act].” The divergence seems to have arisen from the different language used in the granting clauses of the instruments at issue.
{¶ 46} Significantly, in Back, the instrument at issue was not a lease. The instrument stated that the grantors “‘do give, grant, bargain, sell and convey unto the said grantee * * * all the oil and gas in and under the following described premises‘” along with the right and privilege of operating on the premises to obtain the oil and gas. (Emphasis by Back court deleted.) Id. at 83. The grant of the oil and gas rights was “forever.” Id. at 84. The court
{¶ 47} In contrast, the instrument in Harris, which was indisputably a lease, “‘granted, demised, and let unto the [lessee], for the purpose and with the exclusive right of drilling, operating for petroleum, oil, and gas, all that certain tract of land.‘” 57 Ohio St. at 118. The court held:
An instrument in such form is more than a mere license. It is a lease of the land for the purposе and period limited therein, and the lessee has a vested right to the possession of the land to the extent reasonably necessary to perform the terms of the instrument on his part.
Id. at 129–130.
{¶ 48} The differences in the language of the instruments at issue in Harris and Back are significant, and therefore Back is not in direct conflict with Harris. The cases demonstrate that the nature of the instrument and its effect on the parties’ property interest in the oil and gas is determined by the language of the granting clause.3
{¶ 49} But, for purposes of our analysis, this is a distinction without a difference. The General Assembly has recently made clear that both licenses and leases of oil and gas rights create an interest in real estate.
{¶ 50} The Seventh District Court of Appeals recently decided the specific issue now before us in Eisenbarth v. Reusser, 2014-Ohio-3792, 18 N.E.3d 477 (7th Dist.).4 Eisenbarth held that a recorded oil and gas lease is a title transaction under the Dormant Mineral Act. Id. at ¶ 30. In reaching that conclusion, the appellate cоurt analogized an oil and gas lease to a mortgage, which is one of the enumerated examples of a title transaction in the statutory definition, even though it does not transfer title. Id. at ¶ 29–30. It held that a recorded oil and gas lease affects title in a manner similar to a mortgage because it is an encumbrance on title that “remains with the realty if title is transferred during its terms.” Id. at ¶ 30.
{¶ 51} The decision in Eisenbarth is in accord with a decision of the Columbiana County Common Pleas Court, Bender v. Morgan, Columbiana C.P. No. 2012-CV-378 (Mar. 20, 2013). Eisenbarth at ¶ 22. In Bender, the common pleas court held that to qualify as a title transaction under the statute, the transaction need not be a conveyance in the traditional sense. Bender at 4. The court concluded that an oil and gas lease conveyed a fee simple determinable in the severed mineral rights subject to a reverter on the conditions described in the lease, and therefore, the lease constituted a title transaction. Id. at 4–5.
{¶ 52} Bender is not the only case to characterize an oil and gas lease as a unique type of lease that conveys a fee simple determinable. In Kramer v. PAC Drilling Oil & Gas, L.L.C., 197 Ohio App.3d 554, 2011-Ohio-6750, 968 N.E.2d 64, ¶ 11 (9th Dist.), the Ninth District Court of Appeals described an oil and gas lease as granting a fee simple determinable to the lessee, who takes ownership of all minerals in place that the lessor intended to lease, subject to the possibility of reverter upon the occurrence of the termination events specified in the lease.
{¶ 53} In Harris, we recognized that “[t]he rights and remedies of the parties to an oil or gas lease must be determined by the terms of the written instrument.” Harris, 57 Ohio St. at 129. In Harris,
the lessor, for a valuable consideration, granted, demised, and let the lands described to the lessee, for the purpose and with the exclusive right of drilling and operating for petroleum, oil, and gas for five years, and as much longer as oil and gas are found in paying quantities.
{¶ 54} Here, the 2009 Lease includes the following language:
Lessor hereby leases exclusively to Lessee all the oil and gas * * * underlying the land herein leased, together with such exclusive rights as may be necessary or convenient for Lessee, at its election, to explore for, develop, produce, measure, and market production from the Leasehold, and from adjoining lands * * *.
In exchange for the lessee‘s exclusive right to the oil and gas underlying the land and the concomitant use of the land, the lessor is entitled to a bonus, a delay rental payment per acre, and a royalty for oil and gas extracted. This language differs from the granting language in the lease in Harris, but not materially, because both instruments grant the lessee the exclusive right to the subterranean mineral estate owned by the lessor to develop and produce the oil and gas found therein.
{¶ 55} The 2009 Lease includes other provisions that demonstrate the sweeping rights and privileges to the mineral estate enjoyed by the lessee. For example, the lease specifies that in addition to all the oil and gas underlying the land leased, the lessee has “such exclusive rights as may be necessary or convenient for Lessee, at its election, to explore for, develop, produce, measure, and market production from the Leasehold, and from adjoining lands.” This expressly includes:
the right to conduct geophysical and other exploratory tests; to drill, maintain, operate, cease to operate, plug, abandon, and remove wells; to use or install roads, electric power and telephone facilities, and to construct pipelines * * *, to use non-domestic water sources, free of cost, to store gas of any kind underground, regardless of the source thereof.
{¶ 56} The lease further restricts the use and control of the surface estate: “Lessor shall not erect any building or structure, or plant any trees within 200 feet of a well or within 25 feet of a pipeline without Lessee‘s written consent.
{¶ 57} Additionally, “[a]ll rights, duties, and liabilities” under the lease are binding not only on the lessor, but also the lessor‘s successors and assigns. The lessee may surrender and cancel the lease, but there is no similar provision for the lessor. In fact, the lease “shall be construed against termination, forfeiture, cancellation or expiration and in favor of giving effect to the continuation of this Lease” where the circumstances comport with the terms of the agreement.
{¶ 58} We find that by these or substantially similar terms, the mineral interest has been the subject of a title transaction because the oil and gas lease affects title to the surface and mineral interests in land in a number of ways.
{¶ 59} As discussed above, a “title transaction” as defined in
{¶ 60} The rights and privileges granted under an oil and gas lease, although limited to the purposes of the lease, are sufficiently vast to affect the possession and custody of the mineral estate, even if not its ownership. As this court recognized in Harris, the oil and gas lease grants the lessee a “vested right to the possession of the land” for the purposes of the lease. Id., 57 Ohio St. at 130. Because the lessee also enjoys reasonable use of the surface estate to accomplish the purposes of the lease, the lease also similarly affects the surface estate. Thus, the lease affects the possession and custody of both the mineral and surface estates.
{¶ 61} The lease in this case grants the lessee an unequivocal and exclusive right to the mineral estate for a fixed term plus an indefinite extended term upon the happening of certain conditions, such as actual production of oil and gas or a prescribed payment to the lessor. Based on the vested nature of this grant, the oil and gas lease has been construed as transferring to the lessee a fee simple determinable in the mineral estate with a reversionary interest retained by the lessor that can be triggered by events or conditions specified in the lease. Id. at 129–130. Even if the lessor conveys title to the surface or mineral estates during the lifetime of the lease to a third party, the lease is binding on those successors and is therefore an encumbrance that remains with the realty. Eisenbarth, 2014-Ohio-3792, 18 N.E.3d 477, ¶ 30. A purchaser would take either estate subject to the lease and the vested right of the lessee.
{¶ 62} During the lease, the lessor effectively relinquishes his or her ownership interest in the oil and gas underlying the property in favor of the lessee‘s
{¶ 63} Additionally, a recorded lease in the chain of title notifies all others with a potential interest in the surface or the mineral estate that the land is encumbered. An oil and gas company searching land records for potential lеasable mineral estates would find an estate already encumbered by a lease. In this way, the lease resembles more of an encumbrance than an easement or a mortgage. The lease forecloses the ability of the lessor or any third party to freely access the property for exploration, development, and extraction of mineral resources.
{¶ 64} In addition to affecting the value of the property, the lease also affects the transferability of the surface and mineral estates and the right of the lessor to use the surface and mineral estates without restriction, and ultimately, grants title in the oil and gas underlying the property to the lessee during the term of the lease. This effect on ownership, possession, and custody is an inherent attribute of an oil and gas lease.
{¶ 65} Even if the lease transfers to the lessee something less than a determinable fee,5 the effect is the same when the instrument grants the exclusive right to the mineral estate, i.e., the exclusive right and privilege to possess, use, and alter the estate to explore, develop, and produce oil and gas resources found therein.
{¶ 66} Thus, under
{¶ 67} We turn now to the second certified question.
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 clock under the Dormant Mineral Act?
{¶ 68} The second question asks whether the expiration of the recorded oil and gas lease and the reversion of the rights granted under that lease is also a title transaction that restarts the 20-year forfeiture clock under the Dormant Mineral Act. We answer this question in the negative. The mere unrecorded expiration of a recorded lease and the reversion of rights cannot restart the clock.
{¶ 69} In certifying the question, the federal court found no authority from this court on this issue. So it looked to a decision from the Michigan Supreme Court, Energetics, Ltd. v. Whitmill, 442 Mich. 38, 497 N.W.2d 497 (1993). In Energetics, the Michigan court considered the Michigan Dormant Minerals Act (“MDMA“), Mich.Comp.Laws Ann. 554.291 et seq., which provides that any interest in a severed oil and gas interest shall be deemed abandoned unless a certain event occurs within a 20-year period, including a transfer of the interest by recorded instrument. Mich.Comp.Laws Ann. 554.291(1). The court concluded that a transfer of an interest in oil and gas occurs both when a recorded lease with a primаry term of less than 20 years takes effect and at the termination of that lease. Energetics at 47 and 51. Therefore, both events trigger the commencement of a 20-year period during which the mineral rights cannot be deemed abandoned. Id. at 51. But the federal court stated that while the analysis in Energetics was instructive, it was not binding, given differences in the definition of a saving event between Ohio‘s Dormant Mineral Act and the MDMA.
{¶ 70} We conclude that the decision in Energetics is neither persuasive nor instructive here because the relevant language in the two statutory schemes differs for purposes of this case. In the Michigan statute, a mineral interest is deemed abandoned unless, during a 20-year period, the interest has been “sold, leased, mortgaged, or transferred by instrument recorded” in the appropriate county office. Mich.Comp.Laws Ann. 554.291(1). In Ohio, however, the mineral interest is saved if it is “the subject of a title transaction that has been filed or recorded in the office of the county recorder.”
{¶ 72} Petitioners contend that three Ohio courts have held that the release of rights under an oil and gas lease qualifies as a title transaction. See McLaughlin v. CNX Gas Co., N.D.Ohio No. 5:13CV1502, 2013 WL 6579057, at *5; Schucht v. Bedway Land & Minerals Co., Harrison C.P. No. CVH 2012-0010, 2014 WL 6709949, at 9 (Apr. 21, 2014) (citing McLaughlin); Davis v. Consolidation Coal Co., Harrison C.P. No. CVH-2011-0081, at 3, 7 (Aug. 28, 2013). The court in McLaughlin summarily concluded that because “the lease itself was a title transaction, there can be no dispute that the release of rights under that lease qualifies as a title transaction as well.” Id. at *3. And Schucht and Davis are not helpful here, as they both involved a formally recorded release of rights, not the automatic expiration and reversion of rights under the terms of an oil and gas lease. The issue of a formal transaction releasing rights under a lease is not before us in this case.
{¶ 73} These cases do not persuade us that the unrecorded expiration of a lease constitutes a title transaction. It is self-evident that the termination or expiration of a lease returns the lessor and the mineral estate to the status quo prior to the lease. Upon expiration, the lessee loses his status as lessee by virtue of the terms of the agreement and no longer has an exclusive, vested right to the mineral estate. Thus, the expired or terminated lease no longer affects the lessor‘s title in the mineral estate.
{¶ 74} As noted, we are not presented with a recorded termination or expiration of a lease. The Dormant Mineral Act requires a title transaction to be filed or recorded in the county recorder‘s office in order to constitute a saving event.
{¶ 76} But petitioners contend that the statute‘s recording requirement is satisfied by the recorded lease itself because it provides notice of both the lease term and the expiration date. Petitioners further contend that the lease itself should stop the 20-year clock for the entire term of the lease because it would be “clearly improper” to say that the mineral interests were “abandoned” while subject to an active oil and gas lease. We disagree.
{¶ 77} Typically, an oil and gas lease, like the lease in which petitioners assert an interest here, contains a primary fixed term and a secondary term that extends the lessee‘s rights under the lease only on certain conditions described in the lease. If the conditions of the secondary term are not met, “the lease terminates by the express terms of the contract * * * and by operation of law and revests the leased estate in the lessor.” Tisdale v. Walla, 11th Dist. Ashtabula No. 94-A-0008, 1994 WL 738744, *3 (Dec. 23, 1994), quoting Am. Energy Servs., Inc. v. Lekan, 75 Ohio App.3d 205, 212, 598 N.E.2d 1315 (5th Dist.1992).
{¶ 78} Additionally, the lease may describe any number of events that would either extend the term of the lease or cause the lease to expire. A lease might provide that it will terminate by the lessee‘s decision to surrender it. Kramer v. PAC Drilling, 197 Ohio App.3d 554, 2011-Ohio-6750, 968 N.E.2d 64, ¶ 12. Or the lease may cease by the permanent abandonment, lack of production, or the exhaustion of oil and gas resources on the property. See Tisdale at *3; Harris, 57 Ohio St. at 130–131; Moore v. Indian Camp Coal Co., 75 Ohio St. 493, 499, 80 N.E. 6 (1907).
When that period shall arrive, whether caused by the exhausting of the oil and gas, or by the permanent abandonment of production, the lease will cease, and the whole estate in the premises will become the property of the owner of the fee, not by forfeiture, but by virtue of the terms of the lease.
Id. at 130–131.
{¶ 80} As these cases demonstrate, mere inaction by the lessee can result in the lease‘s expiration. Although the terms of the lease might describe the events by which expiration could occur, the lease itself does not provide notice of the actual occurrence of the lease expiration and the reversion of rights in the lessor. And either party to a lease might abandon that lease during its term without any record notice if, for example, the mineral resources are not accessible, not productive, or not profitable. A title searcher looking at the lease will not be able to tell that the parties’ inaction has triggered the expiration or termination of the lease. In fact, the lease could expire in any number of ways that would not be discernible from a review of the lease itself.
{¶ 81} Thus, the terms of a recorded oil and gas lease cannot provide sufficient notice of activity under the lease to toll the 20-year clock during the life of the lease, nor can the expiration of such a lease be considered a “title transaction that has been recorded or filed” within the meaning of
{¶ 82} This conclusion does not unfairly prejudice a lessor or mineral-rights holder. Any party to an oil and gas lease (or other mineral-rights holder) can employ other saving devices to restart the 20-year clock. These saving devices encourage the mineral-rights holder to pay attention to his or her mineral rights. If a lessee fails to record a release upon expiration, an attentive mineral-rights holder can act to ensure that a saving event preserves the mineral interest. In other words, a lease is not the exclusive mechanism to preserve mineral interests. A holder can take other steps to ensure that the interest is not deemed abandoned. For example, actual production or withdrawal of minerals during the term of the lease could restart the 20-year clock under
{¶ 83} Construing the mere expiration of a lease as constituting a saving event would not contribute to the clarity of the record of title that the Dormant Mineral Act seeks. Likewise, allowing the mere existence of an oil and gas lease to toll the 20-year time period for abandonment during its life does not further the purpose of the statute. Thus, we hold that the unrecorded expiration of an oil and gas lease and the accompanying reversion of rights to the lessor is not a title transaction that restarts the 20-year clock under the Dormant Mineral Act.
CONCLUSION
{¶ 84} We answer the first certified state-law question in the affirmative and the second in the negative. A recorded oil and gas lease is a title transaction under
So answered.
LANZINGER, FRENCH, and O‘NEILL, JJ., concur.
PFEIFER and O‘DONNELL, JJ., concur in part and dissent in part.
KENNEDY, J., concurs in the answers to the certified questions and concurs in part.
PFEIFER, J., concurring in part and dissenting in part.
{¶ 85} The federal court certified two questions to this court. I dissent from the majority‘s response to the first question; I would hold that the recorded lease of a subsurface mineral estate is not a title transaction under
{¶ 86} We are asked whether the execution of a lease is one of the six saving events under
“Title transaction” means any transaction affecting title to any interest in land, including title by will or descent, title by tax deed, or by trustee‘s, assignee‘s, guardian‘s, executor‘s, administrator‘s, or sheriff‘s deed, or decree of any court, as well as warranty deed, quit claim deed, or mortgage.
The ultimate question regarding the saving event under
{¶ 87} The starting point for analyzing whether the recording of a lease is a title transaction under the ODMA is the plain lаnguage of the statute defining “title transaction.” That definition names certain types of title transactions but does not include leases. Nor does the definition of title transaction include anything like leases. Granted,
{¶ 88} The lack of a reference to leases is significant given the legislative history of the ODMA. When it was first introduced as legislation in Ohio, the ODMA specifically included a lease of рroperty as a saving event. Under the proposed version of
{¶ 89} The question whether a lease is a title transaction was a known issue without a uniform answer among the states at the time the ODMA was being considered. The Prefatory Note of the UDMIA states, “A lease permits the lessee to enter the land and remove minerals for a specified period of time; whether a lease creates a separate title to the real estate varies from state to state.” As the majority relates, “[t]he oil and gas lease is central to the oil and gas industry,” majority opinion at ¶ 16, and “whether an oil and gas lease would meet the definition of a title transaction” was “[a] question, at least in the minds of the land-title insurance industry” at the time of the enactment of the ODMA in 1989, majority opinion at ¶ 28. The General Assembly answered the question: leases, the central documents of the oil and gas industry, are not mentioned as saving events. If the General Assembly intended to include leases, why would it delete the language from the original bill that expressly included leases? And why would it bypass the inclusion of leases recommended in the UDMIA, of which it surely was aware? If the General Assembly intended leases to operate as saving events, why wouldn‘t it simply say so? Other states have. Michigan explicitly includes a lease as a saving event. Mich.Comp.Laws Ann. 554.291(1) (“Any interest in oil or gas in any land owned by any person other than the owner of the surface, which has not been sold, leased, mortgaged, or transferred * * * for a period of 20 years shall * * * be deemed abandoned * * *“). Oklahoma explicitly includes a lease as a title transaction. 16 Okla.Stat.Ann. 78(f) (“‘Title transaction’ means any transaction affecting title to any interest in land, including title by will or descent, title by tax deed, mineral deed, lease or reservation * * *“).
{¶ 90} This is not to say that leases have no role in the ODMA. A saving event occurs when “[t]here has been actual production or withdrawal of minerals by the holder * * * from lands covered by a lease to which the mineral interest is subject * * *.” Simply put, a lease plays a part in a saving event when production begins pursuant to the lease‘s terms, but not while the minerals to
{¶ 91} Since the briefing and oral argument in this case, the General Assembly has amended
{¶ 92} The question presented in this case is whether the recordation of a lease is a saving event under
O‘DONNELL, J., concurs in the foregoing opinion.
KENNEDY, J., concurring in the answers to the certified questions and concurring in the opinion in part.
{¶ 93} Respectfully, while I concur with the answers to both questions, I concur with the analysis only in part. With regard to the second certified question, I agree that the expiration оf an unrecorded oil and gas lease and the
{¶ 94} As to the first certified question—whether a recorded oil and gas lease is a “title transaction” under the ODMA—I agree with the majority that the answer is yes, but I do not agree with the analysis. I reject the dissenting view that the failure of the General Assembly to enact the initial proposed ODMA language, which specifically included leases, manifests the legislature‘s intention not to include a lease as a saving event. See S.B. No. 223, as introduced in the 117th General Assembly. In my view the General Assembly‘s replacement of the four specific transactions “conveyed, leased, transferred, or mortgaged” as they appeared in the bill as introduced with the more general term “title transaction” as finally enacted indicates that the General Assembly intended to broaden the types of transactions that may serve as a saving event.
{¶ 95} However, because the majority answers the first certified question by relying, in part, on a determination of what interest in land a traditional oil and gas lease creates, I concur in the answer only.
{¶ 96} Petitioner North American Coal Royalty Company and amicus curiae the Ohio Oil and Gas Association argue that in order to answer the first question, it is not necessary to address whether an oil and gas lease creates a particular property interest, and to do so with this record and lack of briefing could have unintended negative consequences in the oil and gas industry. Because answering the narrow certified question requires only a consideration of the statutory provisions within the context of the Revised Code and the statutory scheme, I reject the majority‘s analysis and write separately.
{¶ 97} The federal court‘s first certified question is a narrow one: “Is the recorded lease of a severed subsurface mineral estate a title transaction under the ODMA,
{¶ 98} To answer this question requires an examination of the language of the statute and the intention of the General Assembly. In enacting our laws the legislature is presumed to know the meaning of words and to have used the words of the statute advisedly and to have expressed legislative intent by the use of words found in the statute. Wachendorf v. Shaver, 149 Ohio St. 231, 236, 78 N.E.2d 370 (1948), citing Shugars v. Williams, 50 Ohio St. 297, 34 N.E. 248 (1893). In keeping with the tenets of statutory construction, nothing may be read into the statute that is not within the manifest intention of the legislature as gathered from the statute itself. Id.
{¶ 99} The ODMA is part of the Marketable Title Act (“MTA“),
[A]ny transaction affecting title to any interest in land, including title by will or descent, title by tax deed, or by trustee‘s, assignee‘s, guardian‘s, executor‘s, administrator‘s, or sheriff‘s deed, or decree of any court, as well as warranty deed, quit claim deed, or mortgage.
{¶ 100}
{¶ 101} The concurrence in part and dissent in part holds and amicus curiae state of Ohio argues that in order for a transaction to fall within the meaning of “title transaction,” the transaction must shift ownership, i.e., to be a title transaction, the transaction must dispossess the owner of his legal right to own the property. I disagree.
{¶ 102} The nonexhaustive list of examples of “title transactions” in
{¶ 103} In Blakely v. Capitan, the court held that a 1968 court order determining that use restrictions in a deed were valid and enforceable was a title transaction within the meaning of the MTA. 34 Ohio App.3d 46, 48, 516 N.E.2d 248 (11th Dist.1986). Similarly, a mortgage by itself does not affect ownership. Absent foreclosure and sale of the property or a mortgagee extinguishing the mortgagor‘s right to redeem, the owner remains the owner. “In Ohio, a mortgage is merely a security for a debt, and the legal and equitable title to the property remains in the mortgagor until the mortgage is foreclosed and a sale consummated, or until a mortgagee otherwise extinguishes the right of the mortgagor to redeеm.” Fannie Mae v. Winding, 2014-Ohio-1698, 10 N.E.3d 799, ¶ 21 (12th Dist.), citing Stand Energy Corp. v. Epler, 163 Ohio App.3d 354, 2005-Ohio-4820, 837 N.E.2d 1229, ¶ 13 (10th Dist.); Kirshner v. Fannie Mae, 2012-Ohio-286, 969 N.E.2d 340, ¶ 16–17 (6th Dist.). See also Levin v. Carney, 161 Ohio St. 513, 520, 120 N.E.2d 92 (1954) (the legal and equitable title to mortgaged real estate remains in the mortgagor).
{¶ 104} There is nothing in
{¶ 105} Therefore, in defining “title transaction” in
{¶ 106} I agree with the majority that using the word “any” to modify “transaction” and “interest in land” in
{¶ 107} The General Assembly enacted the MTA to simplify and facilitate land title transactions by permitting “persons to rely on a record chain of title as described in [
{¶ 108} As defined in the MTA, “marketable record title” is “a title of record, as indicated in [
{¶ 109} “[M]arketable title acts are intended to operate in conjunction with, rather than as a substitute for, the recording statutes.” Spring Lakes, Ltd. v. O.F.M. Co., 12 Ohio St.3d 333, 338, 467 N.E.2d 537 (1984) (Holmes, J., concurring). “[T]he purpose of the recording statutes is to give notice to all persons subsequently acquiring rights or interests in the land.” Marshall v. Ebling, 70 Ohio App. 145, 155, 45 N.E.2d 318 (7th Dist.1942). As noted by the Supreme Court of Rhode Island, “[t]he general purpose of land-recording statutes is to provide a public record of transactions affecting title to land.” (Emphasis added.) In re Barnacle, 623 A.2d 445, 447 (R.I.1993).
{¶ 110} “It is a well-settled rule of statutory interpretation that statutory provisions be construed together and the Revised Code be read as an interrelated body of law.” State v. Moaning, 76 Ohio St.3d 126, 128, 666 N.E.2d 1115 (1996). Where statutes address the same subject matter, “[they] must be construed in pari materia and harmonized so as to give full effect to the statutes.” State ex rel. Westlake v. Corrigan, 112 Ohio St.3d 463, 2007-Ohio-375, 860 N.E.2d 1017, ¶ 20.
{¶ 111} Because a marketable title requires an easily traceable chain of recorded title, consideration of the recording statutes is necessary.
{¶ 112} All the examples in the nonexhaustive list of transactions in
{¶ 113} “All deeds, land contracts * * * and instruments of writing * * * for the conveyance or encumbrance of lands” are required to be recorded in the office of the county recorder in which the land is situated.
{¶ 114} A cursory comparison of
{¶ 115} In considering an earlier, almost identical version of
{¶ 116} Harmonizing the provisions of the MTA with the recording statutes contained in R.C. Chapters 2113, 5301, and 5309 reveals a commonality with the examples of title transactions listed in
{¶ 117} The January 28, 2009 oil and gas lease herein bears the stamp of the Harrison County recorder stating that it was filed for record in that office. Therefore, I agree with the majority that the answer to the first certified question is affirmative, but not with thе majority‘s analysis: a recorded oil and gas lease is a title transaction pursuant to
Jones Day, Jeffery D. Ubersax, and Dean C. Williams; and Thornburg & Bean and Charles H. Bean, for petitioner North American Coal Royalty Company.
Roetzel & Andress, L.P.A., Robert B. Graziano, and Michael R. Traven; and Reed Smith, L.L.P., Nicolle R. Snyder Bagnell, and Kevin C. Abbott, for petitioners Chesapeake Exploration, L.L.C., CHK Utica, L.L.C., Larchmont Resources, L.L.C., Dale Pennsylvania Royalty, L.P., Dale Property Services Penn, L.P., and Total E&P USA, Inc.
Tzangas, Plakas, Mannos, Ltd., Gary A. Corroto, Lee E. Plakas, and Joshua E. O‘Farrell, for respondents.
Vorys, Sater, Seymour & Pease, L.L.P., and John K. Keller, in support of neither side for amicus curiae Ohio Oil and Gas Association.
Michael DeWine, Attorney General, Eric E. Murphy, Solicitor General, and Samuel C. Peterson, Deputy Solicitor, in support of respondents for amicus curiae the state of Ohio.
Ice Miller, L.L.P., Matthew L. Fornshell, and Nicole R. Woods, in support of petitioners for amicus curiae Bedway Land & Minerals Company.
Notes
Importantly, the 2006 amendments did not change the definition of a title transaction or the description of the saving event under
Notably, however, the effect of the 2006 amendment on rights claimed under the earlier version is an open question. The issue is pending before this court, including in the following cases: 2014-0803, Walker v. Shondrick-Nau; 2014-0804, Corban v. Chesapeake Exploration, L.L.C.; 2014-1208, Swartz v. Householder; and 2014-1209, Shannon v. Householder.
Additionally, the Dormant Mineral Act defines “mineral interest” as “a fee interest in at least one mineral regardless of how the interest is created and of the form of the interest, which may be absolute or fractional or divided or undivided.”
A mineral interest may be preserved indefinitely from being deemed abandoned under division (B) of this section by the occurrence of any of the circumstances described in division (B)(3) of this section, including, but not limited to, successive filings of claims to preserve mineral interests under division (C) of this section.