In part 2 of this series, we reviewed the application of the Marketable Title Act (MTA) in a 1982 case involving a severed mineral interest and two independent chains of title. The Ohio courts appeared to struggle with the application of the MTA to the facts of that case. Courts and legislatures in neighboring states also struggled with how to handle dormant severed minerals. Those states’ case law and statutes played a role in the formulation of the Ohio Dormant Minerals Act, which was enacted in 1989 as part of the MTA. Examples of such influential laws and cases from Illinois and Indiana follow.
Illinois DMA held unconstitutional in 19801
In Illinois, at common law, once a mineral estate has been severed from the surface estate, it cannot be terminated by mere nonuse or abandonment. Uphoff v Trustees of Tufts College, 351 Ill 146, 155, 184 NE 213, 216 (Ill 1932). Thus, mineral interests can lie dormant, even through several transfers of title. This situation, over time, can result in missing or unknown owners. The difficulty in ascertaining and locating severed mineral owners had a substantial deterrent effect on would-be gas and oil developers.
The Illinois legislature responded by enacting the Dormant Mineral Interests Act in 1969. The act was intended to facilitate development of dormant oil and gas interests by permitting consolidation of mineral ownership in one person in instances where it had formerly been diffused among many unknown or missing persons. The act provided that unless an individual duly recorded his interest, his failure to actually produce oil or gas in any 25-year period created a presumption of abandonment. There was great uncertainty among oil and gas title examiners regarding the act’s validity because, at common law, abandonment required both intent to abandon and an affirmative act of relinquishment. Furthermore, the act did not require entities who sought a ruling of abandonment to give unknown mineral owners notice or an opportunity to be heard.
A decade after its enactment, the act was ruled unconstitutional by the Illinois Supreme Court in Wilson v Bishop, 82 Ill 2d 364, 412 NE2d 522 (Ill 1980). The court held that oil and gas owners’ severed mineral interests constituted protected property interests that were entitled to procedural due process safeguards. The court further held that the act provided no notice nor an opportunity for the oil and gas owners to be heard, and therefore unconstitutionally violated their right to due process.
Texaco v. Short validates the Indiana Mineral Lapse Act in 1982
The next, and most significant milestone that laid the foundation for the Ohio DMA was a decision from the United States Supreme Court in Texaco, Inc. v. Short, 454 U.S. 516, 102 S. Ct. 781, 70 L. Ed. 2d 738, (1982) which declared the Indiana Mineral Lapse Act constitutional.
The Indiana Mineral Lapse Act, Ind. Code § 32-5-11-4, enacted on Sept. 2, 1971 was nearly identical to the first version of the Ohio DMA that would be passed in 1989. According to the Indiana statute, a severed mineral interest that was not used for a period of 20 years automatically lapsed and reverted to the current surface owner of the property, unless the mineral owner filed a statement of claim in the local county recorder’s office.
Displeased with this scheme, several owners and lessees of lapsed mineral interests filed actions challenging the constitutionality of the statute , claiming, inter alia, that a) the lack of prior notice of the lapse deprived them of property without due process of law, and b) the statute effected a taking of private property without just compensation — both in violation of the 14th Amendment.
The Circuit Court of Gibson County, Ind., agreed and ruled that the act was unconstitutional. On appeal, the Supreme Court of Indiana reversed, rejecting all claims of the mineral interest owners and declaring the act constitutional.
On further appeal, the U.S. Supreme Court held that the Indiana statute was constitutional. The court specifically struck down the mineral owners’ claims that:
- The state failed to adequately notify the owners of the legal requirements of the statute;
- The two-year grace period in the statute foreclosed any argument that the statute was invalid because mineral owners may not have had an opportunity to become familiar with its terms; and
- The absence of a requirement for the surface owner to give the mineral owner advance notice that the 20-year period is about to expire violates the due process clause.
The court also held that the state law did not constitute a taking of private property without just compensation. The course said there was no “taking” in requiring the severed mineral owner to come forward and file a current statement of claim. The court explained that it was the owner’s failure to make use of the property, not any action by the state, that caused the lapse of the property right under the Indiana statute. In other words, with its grace period, the statute was constitutional with no requirement of specific notice to the mineral holder.
But it was a close case. Four justices dissented, expressing the view that pre-extinguishment notice was constitutionally required before a person, otherwise without notice of his or her obligations under statute, might be deprived of property “by operation of law.”
Several cases have provided further clarification of the Texaco, Inc. v. Short decision. For example, one federal district court interpreting Indiana law concluded that an oil and gas lease did not qualify as a use under the statute because the statutory provision governing qualifying uses excludes leasing from the activities that qualify as a use. For this reason, and because appellant mineral owners did not file a statement of claim within the two-year grace period, the district court held that appellants’ interest had lapsed. Affm’d by McCoy v. Richards, 771 F.2d 1108 (7th Cir. Ill. 1985).
Illinois responds with the Severed Mineral Interest Act in 1983
After the Illinois Supreme Court’s decision in Wilson v Bishop rescinded the Illinois DMA, mineral interests in Illinois could not be terminated through abandonment. However, clever surface owners claimed that unused severed mineral interests could be acquired by adverse possession. But because severance creates two separate estates in land, “each estate is incapable of possession by the mere occupancy of the other… even if the [deed or conveying instrument] purports to convey the whole property.” Uphoff, 351 Ill at 154, 184 NE at 216.
Thus, an adverse claimant was required to show more than mere title to, or possession of, the overlying surface estate. To claim adverse possession of the minerals, the claimant had to “engage in open and regular removal of solid minerals, or production of oil or gas, or perform other acts for a period of 20 years, so as to apprise the community that the mineral interest is in the exclusive use and enjoyment of the adverse claimant.” Pickens v Adams, 7 Ill 2d 283, 292, 131 NE2d 38, 43 (Ill 1955). Kusmierczak, supra. The Illinois legislature saw an opportunity.
Possibly emboldened by the Texaco v Short case, Illinois enacted the Severed Mineral Interest Act in 1983. [Public Act 83-571, S.H.A. Chapt. 96 1/2 Section 9201 et seq.]. This act authorizes the commencement of an action in court to have a trustee appointed to lease the interests of oil and gas owners who cannot be located. See, “Oil and Gas Exploration in the Illinois Basin,” Jackson Kelly PLLC, (2012).
The 1983 Illinois statute also provides for presumptive adverse possession. That is, the surface owner may lay an adverse claim to the underlying severed mineral interests of missing or unknown owners by following a specific statutory procedure.
Though the Illinois Severed Mineral Interest Act provides for presumptive adverse possession, it is worth mentioning that before legislatures got involved, the common law has, for centuries, addressed competing claims to the same land. It is possible that a relative newcomer to the land can acquire title by “adverse possession.” The idea is that one who actually uses the property should, after some period of time, have the right to own it. Society benefits from the extinguishment of old, idle claims. So, in Ohio, as in most states, “To acquire title by adverse possession, the party claiming title must show exclusive possession and open, notorious, continuous and adverse use for a period of twenty-one years.” Grace v. Koch, 81 Ohio St. 3d 577, 1998-Ohio-607, 692 N.E.2d 1009, 1998 Ohio LEXIS 1202 (Ohio 1998).
But it’s not easy. As the Ohio Supreme Court emphasized, adverse possession is disfavored. “A successful adverse possession action results in a legal titleholder forfeiting ownership to an adverse holder without compensation. Such a doctrine should be disfavored, and that is why the elements of adverse possession are stringent.” So, the court opined: “We hold that to acquire title by adverse possession, a party must prove, by clear and convincing evidence, exclusive possession and open, notorious, continuous, and adverse use for a period of twenty-one years.” Id. at 580.
Finally, we should consider another Ohio provision relevant to the forfeiture of oil and gas interests: R.C. 5301.332. This provision addresses the problem of unreleased oil and gas leases, which also cloud mineral titles. It provides that the lessor may, after providing 30 days’ notice to the lessee by certified mail or by publication, file an affidavit for forfeiture when the lessee has failed to abide by covenants in the lease or when the term of the lease has expired. If there is no response within the next 30 days, the lessor may record the affidavit. If, on the other hand, the lessee claims that the lease is in full force and effect, it files an affidavit to that effect suspending the statutory forfeiture.
As the dispute may turn on facts not ascertainable at the recorder’s office, the law does not reconcile the competing claims in MTA fashion. Often, reconciliation relies on negotiation or litigation.
Considering the opinions of Illinois and Indiana courts, and using its lease termination statute as an example, Ohio had a course to follow in crafting its own statute to address issues posed by severed dormant mineral interests. That’s what part 4 of this series will discuss: the adoption of the Ohio Dormant Minerals Act.