Of the many oil and gas disputes pending before the Ohio Supreme Court, some of the most interesting involve the interplay of the notice and vesting rights under the two iterations of Ohio’s Dormant Mineral Act (DMA). The first version of the Act, which was passed in 1989 and became effective in 1992, provided that any mineral estate owned by a party “other than the owner of the surface of the lands…shall be deemed abandoned and vested in the owner of the surface” if none of a set of prescribed conditions were applied or acts had occurred.

Basically, if an owner of only the minerals below a property (typically oil and gas), but not the property’s surface, allowed them to sit idle, or “dormant”, for 20 years by not transferring or producing, they would lose their title to those minerals and it would transfer to the owner of the property’s surface.

Some parties today argue that the text of the law gave rise to an automatic vesting of minerals in the surface-owner upon satisfaction of the conditions of the law, which can be a problem if we care about parties having actual, or at least constructive, notice that they will lose the right to their property.

In effort to remove the uncertainty plaguing the Act, the Ohio Legislature passed a new version of the DMA in 2006, adding notice procedures and statutory language with the stated goal of eliminating the ambiguities of the prior version. Ironically, to date, much of the ambiguity surrounding the 1989 act still lingers and has been compounded by uncertainty regarding the application of the new law to mineral interests that may have been abandoned during the 14 years between Acts.

That interim period between the original DMA and the revisions gives rise to the dispute that forms the basis of Walker v. Shondrick-Nau, in which a property’s current surface owner contends that he is the vested owner of the minerals under his property, but he is opposed by a Trust arguing that their 1965 reservation of those minerals persists, and that the mineral title has not been reunited with the surface title.

In brief, the Successor Trustee of the John R. Noon Trust represents the Estate of John Noon, who was a prominent landowner in Southeast Ohio. In 1965, Noon reserved the minerals underlying the Noble County property in question and conveyed the surface. The surface of the property changed owners at least twice, in 1970 and 1977, with reference made to the reserved mineral interest, but there is no dispute that the reserved mineral estate was never explored or put into production.

John D. Walker, Jr. purchased the surface in 2009 and asserts that the minerals underlying the property automatically vested in him because a 20-year look-back period without a “savings event,” as defined by the Act, elapsed during the effective time of the 1989 Act. Walker filed an Affidavit of Record claiming abandonment pursuant to the 2006 DMA, but said action was blocked by Noon. Walker then brought a quiet title action to have the minerals deemed abandoned pursuant to the 1989 Act and his case has been appealed to the Ohio Supreme Court.

Noon’s Trust argues that if the owner of the surface wants to establish abandonment under the 1989 Act, they should have taken some affirmative steps to demonstrate abandonment of mineral interests prior to the revised DMA taking effect on June 30, 2006. They contend that a “self-effecting” statute, or one that operates by law without any required action of the benefitting landowner, would be unconstitutional and inequitable based upon the Ohio Constitution’s ban on retroactive legislation.

It should be noted that Noon’s Trust does not try to argue that the DMA fails to meet due process standards, deferring to the U.S. Supreme Court ruling in Texaco v. Short, 454 U.S. 516 (1981), an Indiana DMA case decided by a 5-4 decision made during one of the leanest periods of U.S. energy development in recent history and does not consider the issue of retroactive legislation.

Perhaps revisiting whether a law that divests a person of their property without any requirement of notice is a violation of due process is prudent at this point. Of course, rulings on other aspects of this and many other DMA cases facing the court may render that discussion moot.

Walker’s strongest arguments are couched in a strict reading of the statute and the two key words of the 1989 Act: “and vested.” Walker hammers home the point that the plain meaning of the statute requires no action by the surface owner in order to reclaim the minerals because the statute mechanically restores those rights after the certain period of time. Furthermore, and most importantly, the moment that mineral abandonment is effected, title is vested in the surface owner.

Despite statutory shortcomings, if the Court finds the title to be vested in the surface owner, it would be very difficult to argue that title could be “restored” to the former mineral owner.

Noon’s Trust argues, convincingly for the most part, that common law and legislative history support its reading of the 1989 version of the Act. But there is little doubt that, if the text is taken at face value, it favors Walker’s position.

The parties have briefed their positions and the Court heard oral arguments on June 23, 2015. The industry and landowners alike are still awaiting a ruling, because it potentially affects any mineral severance made prior to 1986.

A decision is expected in the fall of 2016 and it is likely to affect the validity of mineral interests across Ohio. To this point, the Supreme Court of Ohio has narrowly decided questions put before it in individual cases. It is difficult to imagine how the court will continue to do so in a series of cases involving broad questions of law fundamental to the application of the DMA. The facts in Walker are nearly identical for many disputed mineral holdings across Eastern Ohio and this decision will have particularly far-reaching consequences.

Check it Out

Full text of the 1989 DMA

Current version of the law