Corban v. Chesapeake Exploration, L.L.C.

• Decision Date: 15 September 2016
• Docket Number: No. 2014–0804.,2014–0804.
• Citation: 2016 Ohio 5796,76 N.E.3d 1089,149 Ohio St.3d 512
• Parties: CORBAN v. CHESAPEAKE EXPLORATION, L.L.C., et al.
• Court: Ohio Supreme Court

149 Ohio St.3d 512

76 N.E.3d 1089

2016 Ohio 5796

CORBAN

v.CHESAPEAKE EXPLORATION, L.L.C., et al.

No. 2014–0804.

Supreme Court of Ohio.

Submitted May 6, 2015.

Decided Sept. 15, 2016.

Volkema, Thomas, Miller & Scott, L.P.A., Michael S. Miller, and Daniel R. Volkema, Columbus; and Critchfield & Johnston and Steven J. Shrock, Millersburg, for petitioner.

Jones Day, Jeffery D. Ubersax, Cleveland, and Dean C. Williams; and Thornburg & Bean and Charles H. Bean, St. Clairsville, for respondent North American Coal Royalty Company.

Reed Smith, L.L.P., Nicolle R. Snyder Bagnell, and Kevin C. Abbott, for respondents Chesapeake Exploration, L.L.C., CHK Utica, L.L.C., Dale Pennsylvania Royalty, L.P., Larchmont Resources, L.L.C., and Total E & P USA, Inc.

Kegler Brown Hill & Ritter Co., L.P.A., Andrew J. Sonderman, John P. Brody, and Margeaux Kimbrough, Columbus, in support of petitioner, for amici curiae Gulfport Energy Corporation, Protégé Energy III, L.L.C., and Paloma Resources, L.L.C.

Michael DeWine, Attorney General, Eric E. Murphy, State Solicitor, and Samuel C. Peterson, Deputy Solicitor, in support of petitioner, for amicus curiae the state of Ohio.

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., Gregory W. Watts, Matthew W. Onest, David E. Butz, and William G. Williams, Canton, in support of petitioner, for amici curiae Jeffco Resources, Inc., Christopher and Veronica Wendt, Carol S. Miller, Mark and Kathy Rastetter, Douglas Henderson, John Yaskanich, Djuro and Vesna Kovacic, Brett and Kim Trissel, and Steven E. and Diane Cheshier.

Bricker & Eckler, L.L.P., Matthew W. Warnock, Daniel C. Gibson, and Daniel E. Gerken, Columbus, in support of respondents regarding the first certified question, for amici curiae the Noon, Shepherd, Greegor, Merecka, and Kinney Families.

O'DONNELL, J.

{¶ 1} The United States District Court for the Southern District of Ohio, Eastern Division, submitted two certified questions of Ohio law in accordance with S.Ct.Prac.R. 9.01:

1. 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 land holder prior to the 2006 amendments as a result of abandonment?

AND

2. Is the payment of a delay rental during the primary term of an oil and gas lease a title transaction and "savings event" under the [Dormant Mineral Act]?

{¶ 2} For the following reasons, we conclude that the 2006 version of the Dormant Mineral Act, which is codified at R.C. 5301.56, applies to all claims asserted after June 30, 2006, and that a payment of delay rental is neither a title transaction nor a saving event.

Facts and Procedural History

Transfers of the Surface Estate

{¶ 3} In July 1959, the North American Coal Corporation conveyed the surface rights to 164.5 acres of land in Harrison County, Ohio, to Orelen H. Corban and Hans D. Corban, reserving to itself all oil, gas, and mineral rights. Orelen quitclaimed his interest in the surface estate to Carol Ann Corban in 1962, and she and her husband conveyed that share of the surface rights to Hans in 1967 by quitclaim deed, making him the sole owner of the surface rights. Hans transferred the property to Gretchen Corban by quitclaim deed in 1980, and she quitclaimed the property to Hans Michael Corban in 1999 through a deed expressly "subject to conditions, restrictions and easements if any, contained in prior instruments of record."

Transactions Relating to the Mineral Interests

{¶ 4} In January 1974, North American Coal leased its oil and gas rights to the National Petroleum Corporation, and that entity recorded the lease but assigned it to the American Exploration Company, which obtained a drilling permit and assigned the lease in 1978 to C.E. Beck, acting for and on behalf of RSC Energy Corporation. No production of oil or gas resulted, however, and that lease terminated in 1984.

{¶ 5} In January 1984, North American Coal leased the oil and gas rights to Beck, and that lease was recorded. RSC Energy then obtained a drilling permit, and Beck assigned his lease to Carless Resources, Inc., in an assignment recorded in May 1985. No production of oil or gas occurred, however, but North American Coal did receive delay rental payments in 1985, 1986, 1987, and 1988. That lease expired in January 1989.

{¶ 6} Sometime before the lease expired, North American Coal changed its name to the Bellaire Corporation, and Bellaire conveyed the mineral estate to the North American Coal Royalty Company in 2008.

{¶ 7} In January 2009, North American Coal Royalty leased its oil and gas rights to the Mountaineer Natural Gas Company, which recorded the lease and assigned it to Dale Property Services Penn, L.P., in May 2010. That October, it assigned the lease to Ohio Buckeye Energy, L.L.C., reserving a royalty interest that it later assigned to Dale Pennsylvania Royalty, L.P. An oil and gas well was drilled, and it began production in June 2011.

{¶ 8} Ohio Buckeye Energy transferred a portion of its interest in the lease to Larchmont Resources, L.L.C., in October 2011 and another part of the interest to CHK Utica, L.L.C., the next month. In December 2011, Ohio Buckeye Energy merged with Chesapeake Exploration, L.L.C., which transferred part of the remaining interest to Total E & P USA, Inc.

Procedural History

{¶ 9} In 2013, Hans Michael Corban filed this action in the Harrison County Common Pleas Court against North American Coal Royalty, CHK Utica, Chesapeake Exploration, and Total E & P USA, seeking to quiet title to the oil and gas rights under his surface lands and requesting a declaratory judgment, a permanent injunction, and compensation for conversion. The defending parties removed the matter to federal court on the basis of diversity jurisdiction and counterclaimed for a declaratory judgment and to quiet title in their favor. Corban amended the complaint to add Dale Pennsylvania Royalty and Larchmont Resources as parties and to bring a claim for unjust enrichment.

{¶ 10} The parties moved for summary judgment; the district court concluded that its ruling on those motions required a clarification of two areas of Ohio law: (1) whether the 1989 or the 2006 version of R.C. 5301.56, the Dormant Mineral Act, should be applied to a quiet title action filed after 2006 that asserts that the rights to minerals vested in the surface owner as a result of abandonment prior to 2006 and (2) whether the payment of delay rental during the term of an oil and gas lease constituted a title transaction. The district court certified these questions to our court, and we agreed to answer them. Corban v. Chesapeake Exploration, L.L.C., 139 Ohio St.3d 1482, 2014-Ohio-3195, 12 N.E.3d 1228.

Positions of the Parties

{¶ 11} Corban contends that the 1989 version of R.C. 5301.56 is self-executing because nothing in the statute required any affirmative action or judicial confirmation establishing that the mineral interest had been deemed abandoned and vested in the owner of the surface estate and the legislature intended the statute to encourage development by extinguishing unused mineral interests. He notes that although the General Assembly largely adopted the Uniform Dormant Mineral Interests Act in enacting R.C. 5301.56 in 1989, it rejected the uniform act's requirement that the claimant file an action to terminate the dormant mineral interest. Corban notes that the United States Supreme Court has upheld statutes that automatically extinguish mineral interests without advance notice to the owner against various constitutional challenges, and because the 1989 version of R.C. 5301.56 was self-executing and afforded him a vested right in the minerals under his land, he contends, the General Assembly cannot retroactively extinguish that right. He concludes that because the surface and mineral estates vested in him prior to the 2006 amendment to R.C. 5301.56, the amendment does not apply to him.

{¶ 12} Regarding the second certified question, Corban urges us to hold that a delay rental payment is not a "title transaction" as defined by R.C. 5301.47(F). He maintains that an oil and gas lease is not a title transaction, because it grants a license to prospect for minerals but does not transfer any interest in real property and cannot affect an interest in land, and therefore an action taken by a lessee to extend the life of that lease by making delay rental payments is not itself a title transaction. He also notes that the 117th General Assembly rejected language in the Uniform Dormant Mineral Interests Act and in the 1989 act as introduced in the legislature that would have expressly provided that an oil and gas lease is a saving event. But even if the expiration of a lease or a delay rental payment were a title transaction, he explains, neither suffices to preserve the mineral interest if not recorded.

{¶ 13} In separately filed briefs, North American Coal Royalty and Chesapeake Exploration, CHK Utica, Dale Pennsylvania, Larchmont Resources, and Total E & P USA assert that the 1989 law was not self-executing, because that statute deemed dormant mineral interests abandoned and vested in the surface owner without expressly extinguishing them or declaring them null and void, and the legislature therefore intended the surface owner to take legal action to obtain ownership of the mineral interest. These parties note that the General Assembly codified the 1989 law as a supplement to the Marketable Title Act, R.C. 5301.47 et seq., which was intended to simplify and facilitate land title transactions by allowing reliance on the record chain of title. But automatic vesting, they note, would occur outside the chain of title and would be in derogation of the common law presumption against a forfeiture. They claim that because Corban took no action to obtain record title to the mineral interest, North American Coal Royalty remained the record title holder, and after June 30, 2006, Corban was required to use the...