Hess Ohio Devs., L.L.C. v. Belmont Cty. Bd. of RevisionHess Ohio Devs., L.L.C. v. Belmont Cty. Bd. of Revision
JUDGMENT: Vacated and Dismissed.
Atty. Stephen K. Hall, Atty. Richard C. Farrin, Zaino Hall & Farrin, LLC, 41 South High Street, Suite 3600, Columbus, OH 43215, for Appellants CNX Gas Company, LLC and Ascent Utica Minerals, LLC and
Atty. Kelley A. Gorry, Rich & Gillis Law Group, LLC, 6400 Riverside Drive, Suite D, Dublin, OH 43017, for Cross-Appellant Harrison Hills Schools Board of Education and
Atty. Gary W. Smith, Smith Law Firm, 316 South Main Street, P.O. Box 599, Woodsfield, OH 43793-0599, for Cross-Appellant Union Local Schools Board of Education and
Atty. Jonathan T. Brollier, Bricker & Eckler, LLP, 100 South Third Street, Columbus, OH 43215, for Cross-Appellant Bellaire Local Schools Board of Education and
Atty. Christian M. Williams, Atty. Samantha A. Vajskop, Pepple & Waggoner, Ltd., Crown Centre Building, 5005 Rockside Road, Suite 260, Cleveland, OH 44131-6808, for Cross-Appellants Switzerland of Ohio Local School District Board of Education and Barnesville Exempted Village School District Board of Education and
Atty. Anthony L. Ehler, Vorys, Sater Seymour and Pease, LLP, 52 East Gay Street, P.O. Box 1008, Columbus, OH 43216-1008, for Amicus Curiae Ohio Oil and Gas Association (supporting Hess Ohio Developments, CNX Gas Company, LLC and Ascent Utica Minerals, LLC).
Dated: September 28, 2020
D’APOLITO, J.
{¶1} Appellants/Cross-Appellees Hess Ohio Development LLC (“Hess”), CNX Gas Company LLC (“CNX”), and Ascent Utica Minerals, LLC (“Ascent”) (collectively “subsurface owners”), and Appellees/Cross-Appellants, Barnesville Board of Education, Switzerland of Ohio Local School District, Bellaire Local School District, Harrison Hills City School District, and Union Local School District (collectively “school districts”) appeal the decision of the Board of Tax Appeals (“BTA”), in these administrative appeals to the Board of Revision (“BOR”), filed pursuant to
(a) Any classification made under section
5713.041 of the Revised Code;* * *
(d) The determination of the total valuation or assessment of any parcel that appears on the tax list, except parcels assessed by the tax commissioner pursuant to section
5727.06 of the Revised Code;* * *
{¶3} Because the subsurface owners do not challenge the auditor’s calculation of the value or assessment of the parcels, but, instead, seek a determination of their ownership rights in the real property, we find that the BOR was without statutory authority to render a decision in the administrative appeals. Accordingly, the decisions of the BOR and the decision of the BTA are vacated and this matter is dismissed for lack of subject matter jurisdiction.
FACTS AND PROCEDURAL HISTORY
{¶4} CNX is a subsidiary of CONSOL Energy Inc. and was created for the sole purpose of oil and gas development. In 2011, Consolidation Coal Company, another subsidiary of CONSOL Energy Inc., conveyed to CNX the subsurface rights in 462 parcels in Belmont County, Ohio.
{¶5} Fourteen deeds conveying the subsurface rights from Consolidation to CNX in 2011 are captioned “Quitclaim Deed,” and convey “all Hydrocarbons within and underlying tracts or parcels of land * * * (the “Mineral Interests”) and “any units or pooling arrangements wherein the minerals are pooled or unitized * * *[and] any wells owned by
{¶6} CNX requested that separate parcel numbers be assigned to the subsurface rights for tax purposes. According to CNX and Ascent’s merit brief, the separate parcel numbers were created to generate a savings event under the Dormant Mineral Act.
{¶7} Pursuant to
210 - Coal lands - surface and rights
220 - Coal rights - working interest
230 - Coal rights - separate royalty interest
240 - Oil and gas rights - working interest
250 - Oil and gas rights - separate royalty interest
260 - Other minerals
{¶8} The auditor coded 451 parcels – “260 OTHER MINERALS,” and attributed a value of $1,500.00 per acre. The remaining eleven parcels were later assigned separate parcel numbers with the same code and value. The auditor assessed real estate taxes on all of the parcels beginning in Tax Year 2012.
{¶9} In 2012, CNX conveyed to Hess a 50% undivided interest in the subsurface rights in 313 of the parcels, and retained an undivided 50% interest. Pursuant to a joint venture agreement, Hess was responsible for the extraction of oil and gas from the property and CNX for the capital to fund the project.
{¶11} The Real Property Conveyance Fee Statement of Value and Receipt for each of the 2012 deeds is in the record. In the space provided for the address of the property, the Grantee wrote “oil and gas interest.” However, in the auditor’s portion of the form, the auditor provided the following description, “Mineral Only* Multiple Parcels.” The Residential Review Property Record Cards, which are also in the record, also reflect the “mineral only” designation by the auditor.
{¶12} In the administrative proceedings, Hess and CNX argued that the proper code for each parcel was “270 OIL & GAS RIGHTS.” Code 270 is a code introduced by the auditor in 2015, (Andrew Sutak Depo. at 24-25), and appears to correspond to code 240 in the Ohio Administrative Code. The subsurface owners predicated their improper coding argument on the nineteen deeds in the record. They asserted that the deeds conveyed only oil and gas rights, not the rights to other minerals.
{¶13} According to the deposition testimony of the auditor, the owners of the parcels demanded that separate parcel numbers be assigned to the interests. In haste, the auditor relied on “a breakdown of the statutory minerals that [the previous auditor] did sometime over the last 20, 30 years.” (Id. at 17.) The auditor explained that the calculations had never been updated “because [the auditor’s office] had never had a [all mineral deed] before.” (Id.) He further testified that the “other minerals” valuation was based on various coals, various shales, clays, sand, gravel, and limestone, but did not include oil and gas. (Id. at 22.)
{¶14} In 2015, the auditor adopted a written policy regarding oil, gas, and mineral deed parcels. The policy plainly states that oil and gas deeds will have a zero-value parcel created per tract. Further, oil, gas, and mineral deeds will have two parcels created
{¶15} The auditor’s zero-value oil and gas policy is predicated upon longstanding practice in the county, as well as
{¶16} The auditor provided the following explanation of the statute’s effect:
Form 6 basically is the gas and oil extractor’s, when they extract, and the company gets the volume of gas and the barrels of oil and the other what they may have here, the blow-offs and things like that, they submit it to the county auditor’s office.
From there we have a formula the state sets up and what is still left in the ground from the extraction and from the barrels of oil and gas we come up with an assessed value.
(Andrew Sutak Depo., 28.) The auditor did not issue a tax bill on oil and gas parcels until a Form 6 was supplied. (Id. at 34.) It is undisputed that the subsurface owners have not actively developed, extracted, or sold any gas or oil from the parcels.
{¶17}
Coal, mineral deposits, oil and gas - Coal and minerals shall be valued in the same manner and on the same price level as other real property. Some of the factors that shall be considered in valuing coal and mineral deposits are the quality and extent of the deposit, the active working area which at current production will be mined in five years, active reserves that will not be worked in five to ten years, inactive reserves that will not be worked after ten years, and mined out or depleted areas.
Separate oil and gas rights shall be valued in accordance with the annual entry of the tax commissioner in the matter of adopting a uniform formula in regard to valuation of oil and gas deposits in the eighty-eight counties of the state.
THE ADMINSTRATIVE APPEALS
{¶18} Hess (for Tax Year 2015) and then Hess and CNX (for Tax Year 2016), filed complaints with the BOR, a statutorily created board tasked with hearing “complaints relating to the valuation or assessment of real property as the same appears upon the tax duplicate of the then current year.”
{¶19} In both appeals, Hess and CNX alleged that they owned only oil and gas rights in the real property, rather than mineral rights in general. They further argued that there could be no taxable value attributed to the oil and gas parcels until the oil and gas was extracted.
{¶20} Hess and CNX both sought corrections to the valuations going back to Tax Year 2012, rather than the current year, based on the alleged miscoding of the parcels, which they characterized as a “clerical error.” Pursuant to
{¶21} The BOR conducted hearings on the complaints and countercomplaints, and ultimately concluded that CNX and Hess owned only oil and gas rights in the real property. In the Tax Year 2015 appeal, the BOR found that the 2012 CNX to Hess deeds
{¶22} Specifically, in the Tax Year 2015 appeal to which CNX was not a party, the BOR found that 2012 deeds from CNX to Hess “lack[ed] a conveying clause of any other identifiable mineral interest other than the undivided 50% interest in the oil and gas mineral fee interests.” (BOR decisions dated November 30, 2016, December 29, 2016, p. 4.) A 2011 Consolidated to CNX deed and a 2012 CNX to Hess deed were admitted into evidence as representative of the relevant deeds. However, the BOR predicated its decision that Hess owned only oil and gas rights in the 313 parcels exclusively on the 2012 CNX to Hess deed. As a consequence, the BTA found that the Hess complaints relative to Tax Year 2015 were well taken.
{¶23} Accordingly, the BOR ordered the auditor to issue a tax credit pursuant to
{¶24} The BOR later amended its decision regarding the 2015 tax bill in a letter dated December 29, 2016. The BOR explained that the treasurer had discovered Hess had not paid any real estate taxes on the parcels for Tax Year 2015. As a consequence, the BOR rescinded that part of the decision ordering the auditor to issue a credit to Hess. The BOR also rescinded the part of the decision instructing the treasurer to issue bills to CNX.
{¶25} In the 2016 Tax Year appeal to which both Hess and CNX were parties, the BOR found that the 2011 deeds from Consolidation to CNX “lack[ed] a conveying clause of any other identifiable mineral interest other than interest in the oil and gas mineral.” (BOR decision dated September 13, 2017, p. 4.) Thus, the BOR found that “CNX, and ultimately Hess, hold an oil and gas mineral interest, only, in the parcels identified within the Complaint.” (Id.) As a consequence, the BOR concluded that the complaints filed by
{¶26} The BOR further observed:
The [BOR] notes that no party presented any testimony and/or exhibit at the hearing as evidence contesting the $1,500.00 per acre value the Auditor assesses against “other minerals.” However, based on the findings of the [BOR] above, the [BOR] finds that the valuation of the assessed minerals is moot for Tax Year 2016 and/or Tax Year 2012-2015.
(Id., p. 7.)
THE BTA APPEAL
{¶27} Hess, CNX, and the school districts appealed the BOR decisions to the BTA. Hess and CNX argued that the BOR erred when it failed to find that the parcels should have been coded 270, rather than 260, in 2011, that the miscoding constituted a clerical error, and that no tax was due from any owner of the parcels from 2011 to 2016.
{¶28} The school districts argued that the BOR and, as a consequence, the BTA, were without jurisdiction to determine the ownership of property rights or to determine the propriety of the auditor’s coding of the parcels. In the alternative, the school districts challenged the BOR’s legal conclusions that the deeds conveyed only oil and gas rights, and that oil and gas rights have a zero value for tax purposes prior to extraction. In 2018, during the pendency of the BTA appeal, Ascent acquired the real property.
{¶29} The subsurface owners argued that the BOR derived its jurisdiction over the complaints on both
{¶30} However, the BTA found that the BOR was without statutory authority to order the auditor to recode the parcels pursuant to
Although there was some discussion about the applicability of
R.C. 5715.19(A)(1)(a) as a complaint against the auditor’s classification of the parcels made underR.C. 5703.041 , this code section is not applicable. As the [school districts] correctly pointed out, the auditor’s classification underR.C. 5703.041 is limited to two categories, (1) residential/agricultural or (2) nonresidential/agricultural real property, the latter of which includes minerals or rights to minerals. This board has previously declined to engage in further determinations regarding the “sub type” of property within these two classifications. Fairview Park City School District Bd. of Ed. v. Cuyahoga County Board of Revision (April 8, 2014), BTA No. 2011-4331; LTC Properties Inc. v. Licking Cty. Bd. Of Revision (June 7, 2011), BTA No 2008-A-1010. In the case, there is no request that the subject parcels be valued as residential/agricultural, thereforeR.C. 5715.19(A)(1)(a) is irrelevant.
(BTA Dec., at p. 3.)
{¶31} Turning to the merits, the BTA affirmed the BOR’s legal conclusion that the parcels were comprised solely of oil and gas rights, but found that
STANDARD OF REVIEW
{¶33} Challenges to the jurisdiction of a board of revision are a question of law that we review de novo. Akron Ctr. Plaza, L.L.P. v. Summit Cty. Bd. of Revision, 128 Ohio St.3d 145, 2010-Ohio-5035, 942 N.E.2d 1054, ¶ 10, citing State v. Consilio, 114 Ohio St.3d 295, 2007-Ohio-4163, 871 N.E.2d 1167, ¶ 8. The lack of subject matter jurisdiction cannot be waived, and may be raised at any time, even for the first time on appeal. State ex rel. Tubbs Jones v. Suster, 84 Ohio St.3d 70, 75, 701 N.E.2d 1002 (1998).
ANALYSIS
CROSS-APPELLANTS HARRISON HILLS, UNION, AND BELLAIRE‘S ASSIGNMENTS OF ERROR
- The BTA erred in determining that the Belmont County Board of Revision (the “BOR”) has jurisdiction pursuant to
R.C. 5715.19(A)(1) to consider and determine the ownership of the subject parcels. (June 6, 2019, BTA Decision and Order, p. 3-4). - The BTA erred in determining that the BOR had jurisdiction pursuant to
R.C. 5715.19(A)(1) to consider and determine what mineral interests the subject parcels contained (i.e. oil and gas or other mineral interests). (June 6, 2019, BTA Decision and Order, p. 3-4).
The BTA abused its discretion in determining that the BOR had jurisdiction to re-code the subject parcels as oil and gas parcels when the Belmont County Auditor coded the subject parcels as other minerals. (June 6, 2019, BTA Decision and Order, p. 3-4). - The BTA exceeded its jurisdiction in reviewing deeds transferring the subject parcels to Appellants/Cross-Appellees CNX Gas Company, LLC (“CNX“) and Hess Ohio Development, LLC (“Hess“) and making a legal determination as to what mineral interests were conveyed, and to whom they were conveyed, pursuant to the deeds. (June 6, 2019, BTA Decision and Order, p. 4).
CROSS-APPELLANTS BARNESVILLE AND SWITZERLAND‘S ASSIGNMENTS OF ERROR
- The BTA erred in affirming that the Belmont County Board of Revision (“BOR”) had jurisdiction to consider and determine the question of ownership over the subject parcels. (June 6, 2019, BTA Decision and Order, p. 3-4).
- The BTA erred in affirming that the BOR had jurisdiction to consider and determine the scope of ownership interests contained within the subject parcels (i.e., whether the interests in the subject parcels included the rights to oil and gas, rights to other minerals, or both). (June 6, 2019, BTA Decision and Order, p. 3-4).
- The BTA erred in affirming that the BOR had jurisdiction to re-code the subject parcels as oil and gas parcels. (June 6, 2019, BTA Decision and Order, p. 3-4).
- The BTA exceeded its jurisdiction and erred in interpreting the ownership interests conveyed under the deeds transferring the subject parcels to CNX Gas Company LLC and Hess Developments, LLC. (June 6, 2019, BTA Decision and Order, p. 3-4).
{¶35} In order to invoke the jurisdiction of the BOR, a complaint must be timely filed with the auditor. When the complaint claims at least $17,500.00 of overvaluation or undervaluation,
{¶36}
{¶37} The school districts argue that Hess and CNX sought a determination of their ownership rights in the real property at issue in this appeal, which the school districts assert is outside of the BOR’s limited statutory jurisdiction to value and assess real property. The school districts further argue that the BTA expressly recognized the BOR’s lack of jurisdiction over the alleged miscoding of the parcels, but, nonetheless, affirmed the BOR’s de facto re-coding of the parcels from “other minerals” to “oil and gas.”
{¶38} The subsurface owners counter that the determination of ownership rights undertaken by the BOR was essential to the BOR’s statutory mandate to value and
{¶39} A review of Ohio case law reveals that the evidence offered in valuation appeals to boards of revision is a recent arms-length sale of the real property, or, in the absence of such a sale, competing appraisals of the real property. See generally, State ex rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio St. 410, 412, 195 N.E.2d 908 (1964); Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129, 363 N.E.2d 722 (1977); Schutz v. Cuyahoga Cty. Bd. of Revision, 153 Ohio St.3d 23, 2018-Ohio-1588, 100 N.E.3d 362, ¶ 11; Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 140 Ohio St.3d 248, 2014-Ohio-3620, 17 N.E.3d 537, ¶ 18; Olentangy Local Schools Bd. of Edn. v. Delaware Cty. Bd. of Revision, 152 Ohio St.3d 331, 2017-Ohio-8843, 96 N.E.3d 228, ¶ 18. However, in the Tax Year 2015 and 2016 appeals, the subsurface owners do not challenge the auditor’s calculation of the value of the other minerals. They offered no evidence to show that the other minerals were overvalued, and did not assert that the auditor’s valuation was contrary to the laws concerning the valuation of real property. As a consequence, we find that the complaints did not invoke the BOR’s statutory authority to correct an inaccurate calculation of the true value of the parcels.
{¶40} The subsurface owners further argue that the determination of ownership rights in the parcels falls within the BOR’s authority to assess real property. In response to the school districts jurisdictional challenge based on
{¶41} The BTA cites State ex rel. Rolling Hills Local School District Bd. Of Ed. v. Brown Cty. Auditor, 63 Ohio St.3d 520, 589 N.E.2d 1265 (1992), in which the Ohio Supreme Court held that a school board seeking to challenge the listing of property in the wrong school district has an adequate remedy at law through an appeal to the BOR. Id. at 521. The BTA cites Rolling Hills to demonstrate the BOR has the power to resolve factual issues that are germane to the assessment of the real property.
Further, we are mindful that
R.C. 5715.11 also indicates that a board of revision may correct any assessment complained of, or order a reassessment. The term “assessment” encompasses more than valuation. See, e.g., State ex rel. Rolling Hills Local School Dist. v. Brown Cty. Auditor, 63 Ohio St.3d 520 (1992) (assessing includes assigning parcels to taxing districts). Black’s Dictionary defines “assessment” as: “In connection with taxation of property, *** to make a valuation and appraisal of property, usually in connection with listing of property liable to taxation, and implies the exercise of discretion on the part of officials charged with duty of assessing, including the listing of inventory of property involved, determination of the extent of physical property, and placing of a value thereon.” Such definition clearly encompasses more than valuation and contemplates that an assessor must also determine what property to value and tax. By its own terms, therefore, we find thatR.C. 5715.11 does not limit a board of revision‘s authority to review a county auditor‘s determination that certain items are or are not taxable real property.
(Emphasis added) United Local, supra, at *2.
{¶43} While we recognize that the Ohio Supreme Court has broadly interpreted the term “assessment” to include more than valuation, we disagree that the BOR‘s determination of the ownership of the other minerals in these administrative appeals falls within its statutory authority to assess property. In Rolling Hills, the Ohio Supreme Court predicated the BOR‘s jurisdiction on the auditor’s statutorily prescribed duties:
R.C. 5713.01 authorizes the county auditor to assess all real estate in his county. Under the statute, the auditor views and appraises each lot or parcel and places the correct value of each property on his tax list and on the county treasurer‘s duplicate.The auditor prepares the tax list pursuant to
R.C. 319.28R.C. 319.30 , the auditor, after receiving tax rates from the various taxing authorities, including school boards, determines the taxes to be levied on each parcel and enters this amount on the tax list. On October 1, he delivers one copy, the duplicate, to the treasurer; the treasurer collects taxes per the duplicate.R.C. 319.28 and323.13 . We conclude, after reading these statutes, that assessing real property for taxation includes assigning parcels to taxing districts and recording them accordingly on the tax list.Moreover, the correct listing of a parcel underlies the integration of the listing function into the assessment process. The listing is important to a taxpayer because rates and, consequently, tax billings change according to the taxing district in which the property is situated. This listing is also important to the school district because the total amount of taxes it is due changes with the number of properties listed as being in its district.
{¶44} In Ohio, the resolution of ownership rights in real property is governed by
CONCLUSION
{¶46} In summary, we find that the complaints in these administrative appeals seek a determination of ownership rights in real property. The subsurface owners are required to resolve any dispute involving the allocation of property interests through an action to quiet title in the court of common pleas. Because the BOR exceeded its statutory authority in
Waite, P.J. concurs.
Robb, J. concurs.
A certified copy of this opinion and judgment entry shall constitute the mandate in this case pursuant to Rule 27 of the Rules of Appellate Procedure. It is ordered that a certified copy be sent by the clerk to the trial court to carry this judgment into execution.
NOTICE TO COUNSEL
This document constitutes a final judgment entry.