Siltstone Resources, LLC v. Ohio Public Works Commission, 18 BE 0042

• Decision Date: 25 November 2019
• Docket Number: No. 18 BE 0042,18 BE 0042
• Citation: 137 N.E.3d 144,2019 Ohio 4916
• Parties: SILTSTONE RESOURCES, LLC, Plaintiff-Appellee, v. State of OHIO PUBLIC WORKS COMMISSION, et al., Defendants-Appellants.
• Court: Ohio Court of Appeals

137 N.E.3d 144

2019 Ohio 4916

SILTSTONE RESOURCES, LLC, Plaintiff-Appellee,

v.State of OHIO PUBLIC WORKS COMMISSION, et al., Defendants-Appellants.

No. 18 BE 0042

Court of Appeals of Ohio, Seventh District, Belmont County.

Dated: November 25, 2019

OPINION AND JUDGMENT ENTRY

DONOFRIO, J.

{¶1} Defendant-Appellant Ohio Public Works Commission (OPWC) appeals from Belmont County Common Pleas Court judgments granting Plaintiff-Appellee's Siltstone Resources, LLC; Defendant-Appellee's Guernsey County Community Development Corporation; Cross-Claim Defendants-Appellees' Gulfport Energy, Corporation; Axebridge Energy, LLC; Eagle Creek Farm Properties, Inc.; Windsor Ohio, LLC; The Bank of Nova Scotia; Whispering Pine, LLC; American Energy-Utica Minerals, LLC; Patriot Land Company, LLC; and James Coffelt (collectively referred to as Appellees) motions to dismiss, granting Appellees' motions for partial summary judgment and denying Appellant OPWC's motion for partial summary judgment. The motions for partial summary judgment concerned whether certain deed restrictions applied to the subsurface of the property at issue. The trial court found the restrictions did not apply to the subsurface.

{¶2} This case concerns the Clean Ohio Conservation Program and approximately 228.45 acres of property in Belmont County, Ohio.

{¶3} In 2000, Ohio voters approved a constitutional amendment to create a tax-exempt bond fund to be used for environmental conservation and revitalization purposes. Ohio Constitution, Article VIII, Section 2o (A). The amendment permitted the General Assembly to enact laws in accordance with the amendment. Ohio Constitution, Article VIII, Section 2o (B). As a result of the amendment, the Clean Ohio Fund Green Space Conservation Program was created and Appellant OPWC was tasked with administering the program.

{¶4} In 2005, Defendant-Appellee Guernsey County Community Development Corporation (Guernsey) applied for a $430,200 grant from the Clean Ohio Conservation Fund for the Leatherwood Creek Riparian Project. The money was to be used to purchase the 228.45 acre tract of land in Belmont County that parallels Leatherwood Creek. Appellee Guernsey was going to restore the area to its natural state. It appears this 228.45 acre tract abuts land in Guernsey County paralleling the Leatherwood Creek. The abutting tract appears to be owned by Appellee Guernsey and is part of the Leatherwood Creek Riparian Project. The 228.45 acres includes a railway bed to be turned into a hike and bike trail.

{¶5} The 228.45 tract of land was previously strip mined and was being reclaimed by Capstone Holding Company.

{¶6} Appellant OPWC approved the grant and a project agreement was entered into between Appellant OPWC and Appellee Guernsey in 2006. As part of the agreement, deed restrictions were required to be recorded with the deed.

{¶7} In 2007, Appellee Guernsey purchased the 228.45 acres from Capstone. The deed contained the following restrictions:

1. Use and Development Restrictions. Declarant hereby agrees, for itself and its successors and assigns as owners of the Property, which Property shall be subject to the following: This property will not be developed in any manner that conflicts with the use of the Premises as a green space park area that protects the historical significance of this particular parcel. Only current structures will be maintained and no new structures will be built on the premises.

2. Perpetual Restrictions. The restrictions set forth in this deed shall be perpetual and shall run with the land for the benefit of, and shall be enforceable by, Ohio Public Works Commission (OPWC). This deed and the covenants and restrictions set forth herein shall not be amended, released, extinguished or otherwise modified without the prior written consent of OPWC, which consent may be withheld in its sole and absolute discretion.

3. Enforcement. If Grantee, or its successors or assigns as owner of the Property, should fail to observe the covenants and restrictions set forth herein, the Grantee or it is successors or assigns, as the case may be, shall pay to OPWC upon demand, as liquidated damages, an amount equal to the rate of (a) two hundred percent (200%) of the amount of the Grant received by Grantee, together with interest accruing at the rate of six percent (6%) per annum from the date of Grantee's receipt of the Grant, or (b) two hundred percent (200%) of the fair market value of the Property as of the date or demand by OPWC. Grantee acknowledges that such sum is not intended as, and shall not be deemed, a penalty, but is intended to compensate for damages suffered in the event a breach or violation of the covenants and restrictions set forth herein, the determination of which is not readily ascertainable.

OPWC shall have the right to enforce by any proceedings at law or in equity, all restrictions, conditions, and covenants set forth herein. Failures by OPWC to proceed with such enforcement shall in no event be deemed a waiver of the right to enforce at a later date the original violation or subsequent violation.

4. Restrictions on transfer of the Property. Grantee acknowledges that the Grant is specific to Grantee and that OPWC's approval of Grantee's application for the Grant was made in reliance on Grantee's continued ownership and control of the Property. Accordingly, Grantee shall not voluntarily or involuntarily sell, assign, transfer, lease, exchange, convey or otherwise encumber the Property without the prior written consent of OPWC, which consent may be withheld in its sole and absolute discretion.

(2007 Deed from Capstone Holding Company to Appellee Guernsey).

{¶8} Although the deed does not contain any oil and gas mineral reservation language, it is undisputed that about 10 acres of the land conveyed had a prior mineral interest, known as the Devine reservation. The remainder of the minerals were conveyed to Appellee Guernsey with the surface. Consequently, Appellee Guernsey owned the mineral rights to approximately 218 acres.

{¶9} In 2011, without written permission from Appellant OPWC, Appellee Guernsey entered into a lease with Appellee Patriot Energy for all the oil and gas underlying the property. This lease contains language prohibiting storage and disposal. But it does permit the drilling of one water well with lessor's consent and removal of timber after appraisal. Also, the language of the lease does not appear to prohibit disturbing the surface. The lease specifically states the construction or installation of access road and pipeline rights of way would be done in a way to minimize any related soil erosion, but does not require Appellee Guernsey's permission prior to surface disturbing activity. (¶17 Patriot Lease). As part of the lease, Appellee Guernsey acquired a 14% royalty interest on any oil and gas extracted from the Property.

{¶10} In 2012, Appellee Patriot assigned the lease to Appellee Gulfport.

{¶11} In 2013, without written permission from Appellant OPWC, Appellee Guernsey sold 6/7 of its mineral interest to Appellee Siltstone Resources, Inc., which amounted to 186.9189 mineral acres. (12/17/13 Purchase Agreement).

{¶12} In 2014, Appellee Guernsey, without written permission from Appellant OPWC, sold 29.595 mineral acres to Triple Crown Energy LLC and that interest was eventually assigned to Appellee American Energy-Utica Minerals, LLC.

{¶13} The parties agree that various interests in the lease and mineral estate were transferred between and among various Appellees.

{¶14} It is undisputed that to date the surface of the property has not been disturbed. No wells have been drilled on the surface, no access roads have been built on the surface, and no removal of trees has occurred. The land is potentially being drilled through use of lateral wells or preparation for drilling has begun.

{¶15} In 2017, Appellee Siltstone filed suit against Appellant OPWC, Appellee Guernsey, and Appellee Gulfport. The complaint was amended twice. The remaining Appellees were eventually added as necessary parties and OPWC filed a counterclaim against Appellee Siltstone and cross-claims against the other appellees. This included Appellee Gulfport, Appellee Guernsey, and Appellant OPWC filing cross-claims against each other.

{¶16} Appellee Siltstone sought a declaration that Appellee Guernsey did not violate the deed restrictions when it signed the oil and gas lease. Appellee Siltstone also sought to quiet title to the minerals it had purchased from Appellee Guernsey. Appellee Siltstone additionally argued Appellant OPWC could only recover monetary damages if it was determined any Appellee was liable.

{¶17} OPWC's counterclaim and cross-claims sought declaratory and injunctive relief. It asked for an injunction restraining all parties from violating the deed restrictions and asked that the interest be assigned back to Appellee Guernsey. Appellant OPWC also asked for liquidated damages as set forth in the deed.

{¶18} Appellees filed motions to dismiss asserting Appellant OPWC could not pursue nonmonetary relief to enforce the deed restrictions. The trial court granted Appellees' motions to dismiss in part. (10/13/17 J.E.; 12/18/17 J.E.). It indicated it would not make a ruling on whether or not the restrictive covenants were void ab initio.

(10/13/17 J.E.; 12/18/17 J.E.). Instead, the trial court determined injunctive relief was not available to Appellant OPWC. It determined there was no language in the statute, R.C. 164.26(A), entitling Appellant OPWC to obtain equitable relief. The only relief set forth in that statute was grant repayment and liquidated damages, i.e., monetary relief. (10/13/17 J.E.; 12/18/17 J.E.).

{¶19} Following that ruling, all parties filed motions for partial summary judgment regarding whether the Use and Development Restriction and the Restrictions on transfer of the Property applied to the subsurface. On July 20, 2018, following a hearing, the trial court granted Appellees' motions for partial summary...