Corban v. Chesapeake Exploration, L.L.C.
In Corban v. Chesapeake Exploration, L.L.C., Slip Opinion No. 2016-Ohio-5796, the Supreme Court of Ohio issued a significant decision addressing the interpretation and application of Ohio’s Dormant Mineral Act. In Corban, the Court considered two questions certified by the United States District Court for the Southern District of Ohio, Eastern Division.
Certified Question One
Does the 2006 version or the 1989 version of the Dormant Mineral Act apply to claims asserted after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in the surface owner prior to the 2006 amendments as a result of abandonment?
The surface owners argued that the 1989 version of the Dormant Mineral Act, Ohio Revised Code Section 5301.56 (“1989 DMA”), was self-executing. According to that position, the statute did not require any affirmative action or judicial determination for a severed mineral interest to be deemed abandoned and vested in the surface owner.
Chesapeake Exploration, L.L.C., along with other interested parties, took a different view. They asserted that the 1989 DMA was not self-executing because, while it deemed certain mineral interests abandoned and vested in the surface owner, it did not expressly extinguish those interests or declare them null and void. Under this interpretation, a surface owner was required to pursue a quiet title action to obtain ownership of the severed mineral interest.
In analyzing this issue, the Supreme Court began with the Marketable Title Act (“MTA”), Ohio Revised Code Sections 5301.47 through 5301.56, which became effective in 1961.
The MTA provides that a marketable record title—defined as an unbroken chain of title of record for 40 years or more—“shall be held by its owner and shall be taken by any person dealing with the land free and clear of all interests, claims, or charges whatsoever” that predate the root of title. R.C. 5301.50. The statute further explains that such prior interests are extinguished by operation of law and declared null and void. (Corban, ¶ 17).
In 1973, the General Assembly amended the MTA to allow property owners to clear title of unused mineral interests. The Court noted that, following this amendment, oil and gas interests could be extinguished by operation of law after 40 years from the effective date of the root of title, unless a saving event appeared in the record chain of title. (Id. ¶ 18).
In 1989, the General Assembly enacted the Dormant Mineral Act. The 1989 DMA stated that qualifying mineral interests “shall be deemed abandoned and vested in the owner of the surface of the lands subject to the interest.” Unlike the MTA, however, the 1989 DMA did not use the term “extinguish” and did not declare dormant mineral interests null and void. (Id. ¶ 21).
The Court concluded that the use of the word “deemed” created a conclusive presumption of abandonment when no saving event occurred within the statutory 20-year period. This presumption eased the evidentiary burden previously faced by surface owners in proving abandonment. Nevertheless, the Court determined that the presumption was an evidentiary tool rather than a mechanism that transferred ownership automatically by operation of law. (Id. ¶¶ 25–26).
As a result, the Court held:
“[T]he 1989 law was not self-executing and did not automatically transfer ownership of dormant mineral rights by operation of law. Rather, a surface holder seeking to merge those rights with the surface estate under the 1989 law was required to commence a quiet title action seeking a decree that the dormant mineral interest was deemed abandoned.” (Id. ¶ 28).
The Court further explained that the 2006 amendments to the DMA added notice requirements, giving mineral interest holders an opportunity to preserve their interests. Claims asserted after June 30, 2006, are governed by the amended statute. Because the 1989 DMA was not automatic, applying the 2006 notice provisions did not violate the Retroactivity Clause of the Ohio Constitution.
Certified Question Two
Is the payment of a delay rental during the primary term of an oil and gas lease a title transaction and a “saving event” under the Dormant Mineral Act?
The Supreme Court of Ohio answered this question in the negative. The Court reasoned that a delay rental payment is not recorded in the office of the county recorder and is not a document required to be maintained in the public record. Additionally, the payment does not affect title to any interest in land. (Id. ¶ 38).
Because delay rental payments occur outside the record chain of title and do not alter ownership interests, the Court concluded that they are neither title transactions nor saving events under the Dormant Mineral Act. (Id. ¶ 39).
Discussion
The Corban decision provides important clarification regarding the operation of the Dormant Mineral Act. The Court confirmed that, under the 1989 DMA, a surface owner was required to file a quiet title action to obtain severed mineral interests deemed abandoned, and that such an action needed to be commenced before the statute was amended on June 30, 2006. Filing affidavits or similar notices alone was not sufficient.
The decision also raises considerations regarding the Marketable Title Act. The Court distinguished the automatic operation of the MTA from the non-automatic nature of the DMA. As noted by the Court, the 1973 amendments to the MTA allowed severed mineral interests to be extinguished by operation of law after 40 years, absent a saving event.
Ohio courts have recognized that, following the 1973 amendments, holders of severed mineral interests were provided a grace period to preserve those interests. In Hartman v. Patton, 4th Dist. No. 1343, 1987 WL 16564 (Sept. 1, 1987), the Fourth District Court of Appeals explained that this grace period extended through December 31, 1976. Any analysis under the MTA must account for that timeframe.
Overall, Corban simplifies many aspects of Dormant Mineral Act analysis while also emphasizing the continuing relevance of the Marketable Title Act. When reviewing title, practitioners should consider whether a severed mineral interest may have been extinguished under the MTA after the expiration of the grace period and before the enactment of the Dormant Mineral Act on March 22, 1989.
Dated: September 16, 2016
