Release of Oil and Gas Lease Held to be a “Title Transaction” under Ohio Dormant Mineral Act in Northern District of Ohio
Contributor, Bethany Hunt
In December 2013, the Eastern Division of the Northern District of Ohio held that a release of an oil and gas lease is considered a “title transaction” under the Ohio Dormant Mineral Act in the case of McLaughlin v. CNX Gas Co., 2013 WL 6579057 (N.D. Ohio 2013).
A. The Facts
Chain of Title
In McLaughlin, the pertinent chain of events began with a 143-acre tract owned by Consolidation Coal Company (“Consolidation Coal”) in 1957. In 1977, Consolidation Coal entered into an Option to Lease with Republic Steel Corporation, which option Republic exercised in 1979 (“Republic Lease”).
In 1985, within the term of the Republic Lease, Consolidation Coal conveyed the surface only of the 143-acre tract to Conoco, reserving all oil and gas rights. Three years later, in 1988, Conoco conveyed the surface estate to DuPont Energy Coal Holdings. That same year, DuPont conveyed the surface estate to International Environmental Services; this deed specifically noted the reservation of oil and gas rights.
Thus, in 1988, oil and gas rights to the 143-acres were vested in Consolidation Coal by virtue of the 1985 severance, while the surface estate was vested in International Environmental Services.
1992 Release of Oil and Gas Lease
In 1992, Kelt Resources, Inc., (“Kelt”) (presumably a successor-in-interest to the Republic Lease), executed a Partial Release of Oil and Gas Lease which released the 143-acre tract from the Republic Lease.
Parties Acquire Their Interests
The Plaintiff, Nancy McLaughlin (“McLaughlin”) was vested with the surface estate of the 143-acre tract on May 25, 1994, via a sheriff’s sale. Approximately 16 years later, on September 29, 2011, Consolidation Coal conveyed the oil and gas rights to CNX Gas Company (“CNX”), the Defendant.
B. Quiet Title Action Filed 2013
On June 13, 2013, McLaughlin filed a suit to quiet title against CNX, arguing that the oil and gas estate in and under the 143-acre tract merged with the surface estate no later than January 3, 2005 under the Ohio Dormant Mineral Act (“DMA”). This suit was based on the theory that following the 1985 severance, twenty years had passed without a title transaction.
The Court held that a release of an oil and gas lease is considered a “title transaction” under the DMA, such that following the 1985 severance, twenty years had not passed without a title transaction, and therefore, the oil and gas were not reunited with the surface estate of the 143-acre tract under the DMA.
Requirement for Title Transaction Under DMA is Less Than Transfer of Rights
McLaughlin argued that an oil and gas lease in Ohio is not a transfer of real property, but something less, such as a license, and therefore, cannot be considered a “title transaction.” Although whether an oil and gas lease is a transfer of real property or something less is not yet a decided matter in Ohio, the Court determined that the answer to that question was not necessary, or even relevant, to the issue at hand.
The Court interpreted the DMA to require much less than a transfer of property to be considered a “title transaction.” Relying solely on the definition of “title transaction” under the Ohio Marketable Title Act, Ohio Revised Code § 5301.47(F), the Court reasoned that a “title transaction” under the DMA, means “any transaction affecting title to any interest in land.” McLaughlin, 2013 WL 6579057 at *3 (emphasis in original). The Court stated:
even if Defendant’s property interests through the lease are something less than a grant of real property, those interests quite clearly still affect title to the mineral rights in the property. As the lease itself was a title transaction, there can be no dispute that the release of rights under that lease qualifies for a title transaction as well. Accordingly, Plaintiff’s claims must fail as a matter of law. Id. (emphasis in original).
Thus, according to the Northern District of Ohio, a release of an oil and gas lease is considered a “title transaction” under the DMA, and therefore, qualifies as a savings event.
However, stay tuned. Although the Court in McLaughlin determined that the issue of whether an oil and gas lease is a conveyance of real property was not relevant in this case, the Eastern Division of the Southern District of Ohio certified two questions to the Supreme Court of Ohio on January 2, 2014 in Chesapeake Exploration, L.L.C. et al. v. Kenneth Buell, et al., Case. No. 2:12-CV-916 (S.D. Ohio 2014) as follows: (1) Whether an oil and gas lease is a title transaction under the Ohio Dormant Mineral Act, and (2) Whether a lease expiration is a recorded title transaction under the Dormant Mineral Act.
Thus, depending on the holding of the Supreme Court of Ohio on the first question, above, McLaughin’s holding could be impliedly overturned. McLaughlin assumed without justification that an oil and gas lease is a “title transaction” under the DMA, which has never been held or even considered by the Supreme Court of Ohio. If the Supreme Court of Ohio determines that an oil and gas lease is not a title transaction, it would likely follow that a release of that oil and gas lease would also not be a title transaction.
The above information is provided for informational purposes only, and should not be interpreted or construed as legal advice on any subject matter, and may not represent current legal developments. Any person viewing the above should seek legal advice from a licensed attorney prior to acting or refraining from acting, based upon the information provided above. Mazurek, Alford & Holliday, P.C., expressly disclaims all liability with respect to actions taken or not taken based upon any or all of the contents of the information provided above.
 Section 5301.47(F) of Ohio’s Marketable Title Act states that a “‘title transaction’ is any transaction affecting title to any interest in land, including title by will or descent, title by tax deed, or by trustee’s, assignee’s, guardian’s, executor’s, administrator’s, or sheriff’s deed, or decree of any court, as well as warranty deed, quit claim deed, or mortgage.” Ohio Rev. Code Ann. § 5301.47(F).
 It is important to note that because this is a federal district court applying state law, the decision is not binding on any state court; rather, it is merely persuasive authority on the issue regarding whether a release of an oil and gas lease is a “title transaction” under the DMA.