Oil and Gas
With just over a week left until echoes of “Hang on Sloopy” and chants of “O-H” and “I-O” can be heard from Buckeye faithful across the nation, we thought we would provide you with some light reading to hold you over until that long awaited 3:30 kick off. In this edition of our Ag Law Harvest, we focus on three recent Ohio Supreme Court cases that could potentially impact business owners, Northern Ohio landowners, and Ohio taxpayers.
Assault and Battery: Is it Covered Under an Insurance Policy?
A victim of a stabbing at an Ohio adult care facility is unable to collect judgment from the facility’s insurance company after a recent decision by the Ohio Supreme Court. The victim was living at the facility when another resident stabbed him. The perpetrator was later indicted on criminal charges but found not guilty by reason of insanity.
The victim then filed a civil lawsuit against the perpetrator and the facility to recover for damages resulting from the stabbing injuries. The victim ultimately dropped his lawsuit against the perpetrator and entered into a settlement agreement with the facility. As part of the settlement agreement, the victim agreed not to pursue the judgment against the facility, and instead, sought to collect his judgment from the facility’s insurance company.
At the time of the stabbing, the adult care facility had a commercial general liability policy. When the victim sought judgment from the facility’s insurance company, the insurance company refused to provide coverage. The insurance company explained that the insurance policy contained a provision that specifically excluded coverage for any bodily injury resulting from an assault or battery. The specific provision at issue stated:
The victim argued that because the perpetrator was found to be not guilty by reason of insanity in the criminal trial, the exclusion provision was nullified because the perpetrator lacked the subjective intent to commit any assault or battery.
The Ohio Supreme Court disagreed. The Court explained that the plain language of the exclusion provision of the insurance policy at issue is clear – there is no intent requirement included in the exclusion language. Therefore, the Court held that coverage did not exist for the willful assault on the victim. The Court sympathized with the victim but ultimately could not interpret the insurance policy language to include a subjective intent requirement where none existed.
This case demonstrates the importance of reading and understanding your business insurance policy. Insurance policies are, at the core, contracts between two parties and the language contained within the policy will usually govern that contractual relationship. What you assume is covered under your policy may not necessarily be the case. Furthermore, not all insurance policies are the same. We have seen Ohio cases where an insurance policy does require the presence of some subjective intent in order for an assault and battery exclusion to apply. Speak with your insurance agent and/or attorney to make sure you understand when and where coverage exists, knowing this can be critical to protecting you, your farm, and/or your business.
Ohio Supreme Court Approves Northern Ohio Wind Farm.
Residents of Huron and Erie Counties along with Black Swamp Bird Conservatory (the “Plaintiffs”) recently lost their battle in court to prevent the construction of a new wind farm in Northern Ohio. The Plaintiffs argued that the Ohio Power Siting Board (the “Board”) failed to satisfy Ohio law before granting the new wind farm its certificate of environmental compatibility and public need. Specifically, the Plaintiffs assert that the wind farm could “disrupt the area’s water supply, create excessive noise and ‘shadow flicker’ for residents near the wind farm, and kill bald eagles and migrating birds.”
The Ohio Supreme Court found otherwise. The Court concluded that the Plaintiffs failed to establish that the Board’s granting of the certificate was unlawful or unreasonable. As approved, the new wind farm will consist of up to 71 turbines and cover 32,000 acres of leased land. To read more about the Ohio Supreme Court’s decision visit: In re Application of Firelands Winds, L.L.C.
Ohio Supreme Court Sets New Precedent on Interpreting Ohio Tax Law.
In Ohio, most retail sales are subject to sales tax unless a certain exemption applies. Ohio law does have a sales tax exemption for equipment used directly in the production of oil and gas. A fracking business recently challenged a decision by Ohio’s Tax Commissioner and Board of Tax Appeals that levied the sales tax on certain equipment purchased by the business. The fracking equipment at issue included: a data van, blenders, sand kings, t-belts, hydration units, and chemical-additive units.
The Tax Commissioner concluded that the fracking equipment was not used directly in the extraction of oil and gas, only indirectly, and therefore, did not qualify for the tax exemption. The Ohio Supreme Court felt differently.
The Court found that all the equipment, except the data van, is used in unison to expose the oil and gas. Because the equipment is used to expose the oil and gas – a necessary part of fracking – the Court had little difficulty concluding that the equipment is being used directly in the production of oil and gas.
In addition to the equipment’s direct use in the production of oil and gas, the Court also recognized that the fracking equipment may also have a storage or delivery function/purpose. However, the Court reasoned that a piece of equipment’s function must be viewed through the “primary purpose” lens. For example, the Court held that although the blender equipment in this case performs a holding function, the primary use of the blender is to mix “the critical ingredients in the fracking recipe seconds before the mixture is inserted into the well.” Therefore, the Court found that the blender’s holding function did not disqualify it from Ohio’s sales tax exemption.
Additionally, in this case, the Court also issued an opinion on how Ohio courts should interpret tax law moving forward. Normally, courts use the ever-important legal principal of stare decisis to help it decide on new cases. Stare decisis is the principal that courts and judges should honor the decisions, rulings, and opinions from prior cases when ruling on new cases. Here, the Court took its opportunity to acknowledge that in the past the Court interpreted tax exemptions against the taxpayer, favoring tax collection. But the Court made clear that from here on out, the Court “will apply the same rules of construction to tax statutes that [it applies] to all other statutes” without a slant toward one side or the other. The Court concluded that its task “is not to make tax policy but to provide a fair reading of what the legislature has enacted: one that is based on the plain language of the [law].”
To read the Ohio Supreme Court’s decision visit: Stingray Pressure Pumping, L.L.C. v. Harris
We’re back! We are excited to bring back our regular Ag Law Harvest posts, where we bring you interesting, timely, and important agricultural and environmental legal issues from across Ohio and the country. This month’s post provides you with a look into Ohio’s ongoing legal battle of some provisions in the recently enacted “Chicken Bill”, a brief dive into the U.S. Department of Labor’s new H-2A wage rules, a warning about conservation easement fraud, and an explanation of a court’s recent decision to release an insurance company from its duty to defend its insured in a lawsuit.
Battle of “Chicken Bill.”
Ohio House Bill 507 (“HB 507”), sometimes referred to as “the Chicken Bill” went into effect last month and was widely known for reducing the number of poultry chicks that can be sold in lots (from six to three). However, HB 507 contained other non-poultry related provisions that have caused quite a stir. Environmental groups have sued the State, seeking a temporary restraining order, a preliminary and permanent injunction to prevent HB 507 from going into effect, and a declaratory judgement that HB 507 violates Ohio’s Constitution. Two provisions within HB 507 have specifically caught the attention of the Plaintiffs in this case: (1) a revision to Ohio Revised Code § 155.33 that requires state agencies to lease public lands for oil and gas development (the “Mandatory Leasing Provision”); and (2) a revision to Ohio Revised Code § 4928.01 that defines “green energy” to include energy generated by using natural gas, so long as the energy generated meets certain emissions and sustainability requirements (the “Green Energy Provision”).
Plaintiffs argue that the Mandatory Leasing Provision will cause irreparable harm to their members’ “environmental, aesthetic, social, and recreational interests” in Ohio’s public lands. Additionally, Plaintiffs assert that the Mandatory Leasing Provision and Green Energy Provision violate Ohio’s Constitution by not following the “One-Subject Rule” and the “Three-Consideration Rule” both of which require transparency when creating and passing legislation in Ohio. The Franklin County Court of Common Pleas recently denied Plaintiffs’ request for a temporary restraining order, reasoning that no new leases would likely be granted until the Oil and Gas Land Management Commission adopts its rules (as required by Ohio law) and that there is “no likelihood of any immediate and irreparable injury, loss, or damage to the plaintiffs.” Since the hearing on Plaintiffs’ request for a temporary restraining order, the State of Ohio has filed its answer denying Plaintiffs’ claims and currently all parties are in the process of briefing the court on the merits of Plaintiffs’ request for a preliminary injunction.
New H-2A Wage Rules: Harvesting Prosperity or Sowing Seeds of Despair?
On February 28, 2023, the U.S. Department of Labor (the “DOL”) published a final rule establishing a new methodology for determining hourly Adverse Effect Wage Rates (“AEWR”) for non-range farm occupations (i.e. all farm occupations other than herding and production of livestock on the range) for H-2A workers. The new methodology has been in effect since March 30th. Late last month Rep. Ralph Norman and the Chairman of the House Committee on Agriculture, Rep. Glenn “GT” Thompson, introduced a resolution of disapproval under the Congressional Review Act, seeking to invalidate the DOL’s final rule. Similarly, the National Council of Agricultural Employers (“NCAE”) released a statement declaring that it has filed a Motion for Preliminary Injunction against the DOL’s new methodology.
Opponents of the new rule argue that the increased wages that farmers and ranchers will be required to pay will put family operations out of business. On the other hand, the DOL believes “this methodology strikes a reasonable balance between the [law’s] competing goals of providing employers with adequate supply of legal agricultural labor and protecting the wages and working conditions of workers in the United States similarly employed.” Producers can visit the DOL’s frequently asked questions publication to learn more about the new H-2A wage rule. As it stands, the new H-2A regulations remain in effect and producers should be taking all possible steps to follow the new rules. Make sure to speak with your attorney if you have any questions about compliance with H-2A regulations.
Conservation Easement Fraud – Protecting Land or Preying on Profits?
For a while now, conservation easements have been utilized by farmers and landowners to preserve their land while also obtaining a substantial tax benefit. But not all actors in the conservation easement sphere are good ones. Earlier this month, a land appraiser in North Carolina pled guilty to conspiring to defraud the United States as part of a syndicated conservation easement tax shelter scheme. According to a press release by the U.S. Department of Justice (“DOJ”), Walter “Terry” Douglas Roberts II of Shelby, North Carolina conspired with others to defraud the United States by inflating the value of conservation easements which led to $1.3 billion in fraudulent tax deductions. Roberts is guilty of inflating the value at least 18 conservation easements by failing to follow normal appraisal methods, making false statements, and manipulating or relying on knowingly manipulated data to achieve a desired tax deduction amount. Roberts faces a maximum penalty of five years in prison and could be forced to pay back a specified amount to the U.S. Government.
Conservation easement fraud is not new, however. The Internal Revenue Service (“IRS”) has been monitoring the abuse of the conservation easement tax deductions for some time. The IRS has included these fraudulent transactions on its annual “Dirty Dozen” list of tax avoidance scams. The IRS has seen taxpayers, often encouraged by promoters armed with questionable appraisals, take inappropriately large deductions for these types of easements. These promoters twist the law to develop abusive tax shelters that do nothing more than “game the tax system with grossly inflated tax deductions and generate high fees for promoters.” The IRS urges taxpayers to avoid becoming entangled by these dishonest promoters and that “[i]f something sounds too good to be true, then it probably is.” If you have questions about the tax benefits of a conservation easement, make sure to speak with your attorney and/or tax professional.
Alleged Intentional Acts Not Covered by Insurance.
An animal feed manufacturer is in hot water, literally. A city in Mississippi has accused Gold Coast Commodities, Inc. (“Gold Coast”), an animal feed manufacturer, of intentionally dumping hot, greasy wastewater into the City’s sewer system. Prior to the City’s investigation into Gold Coast’s alleged toxic dumping, Gold Coast purchased a pollution liability insurance policy from Crum & Forster Specialty Insurance Company (“Crum & Forster”). After an investigation conducted by the City and the Mississippi Department of Environmental Quality, the City filed a lawsuit against the feed manufacturer alleging that it intentionally dumped toxic waste into the City’s sewer system. Gold Coast then notified its insurance company of the potential claim. However, Crum & Forster denied coverage for Gold Coast’s alleged toxic dumping. According to the insurance policy, coverage exists for an “occurrence” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Crum & Forster refused to provide a defense or coverage for Gold Coast in the City’s toxic dumping lawsuit because the City alleges multiple times that Gold Coast acted intentionally, and therefore, Gold Coast’s actions were not an accident and not covered by the policy.
In response, Gold Coast filed a lawsuit against Crum & Forster asking a federal district court in Mississippi to declare that Crum & Forster is required to defend and provide coverage for Gold Coast under the terms of the insurance policy. On a motion to dismiss, the federal district court in Mississippi dismissed Gold Coast’s lawsuit against the insurance company. The district court reasoned that in the underlying toxic dumping lawsuit, the City is not alleging an accident, rather the City asserts that Gold Coast intentionally dumped the toxic waste. Thus, Crum & Forster is not obligated to provide a defense or coverage for Gold Coast, under the terms of the policy. Gold Coast appealed to the Fifth Circuit Court of Appeals (which has jurisdiction over federal cases arising in Texas, Louisiana, and Mississippi).
The Fifth Circuit affirmed the decision of the federal district court, rejecting Gold Coast’s claim that Crum & Forster is obligated to provide a defense and coverage for Gold Coast in the City’s toxic dumping lawsuit. Gold Coast argued that the City seeks to recover under the legal theory of negligence in the toxic dumping case, therefore Gold Coast’s actions are accidental in nature. The Fifth Circuit was unconvinced. The Fifth Circuit explained that when reading a complaint, the court must look at the factual allegations, not the legal conclusions. The Fifth Circuit found that the factual allegations in the City’s lawsuit all referred to Gold Coast’s intentional or knowing misconduct and any recovery sought under the theory of negligence is not a factual allegation, instead it is a legal conclusion. The Fifth Circuit concluded that using terms like “negligence” do not “transform the character of the factual allegations of intentional conduct against [Gold Coast] into allegations of accidental conduct constituting an ‘occurrence.’” Thus, the Fifth Circuit affirmed the federal district court’s decision to dismiss Gold Coast’s lawsuit against its insurer. Unless the Supreme Court of the United States decides to take up the case, it looks like Gold Coast is all on its own in its fight against the City. The lesson here is that although insurance is important to have, its equally as important to speak with your insurance agent to understand what types of incidents are covered under your insurance policy.
One of the core principles of the American legal system is that people are free to enter into contracts and negotiate those terms as they see fit. But sometimes the law prohibits certain rights from being “signed away.” The interplay between state and federal law and the ability to contract freely can be a complex and overlapping web of regulations, laws, precedent, and even morals. Recently, the Ohio Supreme Court ruled on a case that demonstrates the complex relationship between Ohio law and the ability of parties to negotiate certain terms within an oil and gas lease.
The Background. Ascent Resources-Utica, L.L.C. (“Defendant”) acquired leases to the oil and gas rights of farmland located in Jefferson County, Ohio allowing it to physically occupy the land which included the right to explore the land for oil and gas, construct wells, erect telephone lines, powerlines, and pipelines, and to build roads. The leases also had a primary and secondary term language that specified that the leases would terminate after five years unless a well is producing oil or gas or unless Defendant had commenced drilling operations within 90 days of the expiration of the five-year term.
After five years had passed, the owners of the farmland in Jefferson County (“Plaintiffs”) filed a lawsuit for declaratory judgment asking the Jefferson County Court of Common Pleas to find that the oil and gas leases had expired because of Defendant’s failure to produce oil or gas or to commence drilling within 90 days. Defendant counterclaimed that the leases had not expired because it had obtained permits to drill wells on the land and had begun constructing those wells before the expiration of the leases. Defendant also moved to stay the lawsuit, asserting that arbitration was the proper mechanism to determine whether the leases had expired, not a court.
What is Arbitration and is it Legal? Arbitration is a method of resolving disputes, outside of the court system, in which two contracting parties agree to settle a dispute using an independent, impartial third party (the “arbitrator”). Arbitration usually involves presenting evidence and arguments to the arbitrator, who will then decide how the dispute should be settled. Arbitration can be a quicker, less burdensome method of resolving a dispute. Because of this, parties to a contract will often agree to forgo their right to sue in a court of law, and instead, abide by any arbitration decision.
Ohio law also recognizes the rights of parties to agree to use arbitration, rather than a court, to settle a dispute. Ohio Revised Code § 2711.01(A) provides that “[a] provision in any written contract, except as provided in [§ 2711.01(B)], to settle by arbitration . . . shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.” What this means is that Ohio will enforce arbitration clauses contained within a contract, except in limited circumstances. One of those limited circumstances arises in Ohio Revised Code § 2711.01(B). § 2711.01(B)(1) provides that “[s]ections 2711.01 to 2711.16 . . . do not apply to controversies involving the title to or the possession of real estate . . .” Because land and real estate are so precious, Ohio will not enforce an arbitration clause when the controversy involves the title to or possession of land or other real estate.
To be or not to be? After considering the above provisions of the Ohio Revised Code, the Jefferson County Court of Common Pleas denied Defendant’s request to stay the proceedings pending arbitration. The Common Pleas Court concluded that Plaintiffs’ claims involved the title to or possession of land and therefore was exempt from arbitration under Ohio law. However, the Seventh District Court of Appeals disagreed with the Jefferson County court. The Seventh District reasoned that the controversy was not about title to land or possession of land, rather it was about the termination of a lease, and therefore should be subject to the arbitration provisions within the leases.
The case eventually made its way to the Ohio Supreme Court, which was tasked with answering one single question: is an action seeking to determine that an oil and gas lease has expired by its own terms the type of controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under Ohio Revised Code § 2711.01(B)(1)?
The Ohio Supreme Court determined that yes, under Ohio law, an action seeking to determine whether an oil and gas lease has expired by its own terms is not subject to arbitration. The Ohio Supreme Court reasoned that an oil and gas lease grants the lessee a property interest in the land and constitutes a title transaction because it affects title to real estate. Additionally, the Ohio Supreme Court found that an oil and gas lease affects the possession of land because a lessee has a vested right to the possession of the land to the extent reasonably necessary to carry out the terms of the lease. Lastly, the Ohio Supreme Court provided that if the conditions of the primary term or secondary term of an oil and gas lease are not met, then the lease terminates, and the property interest created by the oil and gas lease reverts back to the owner/lessor.
In reaching its holding, the Ohio Supreme Court concluded that Plaintiffs’ lawsuit is exactly the type of controversy that involves the title to or the possession of real estate. If Plaintiffs are successful, then it will quiet title to the farmland, remove the leases as encumbrances to the property, and restore the possession of the land to the Plaintiffs. If Plaintiffs are unsuccessful, then title to the land will remain subject to the terms of the leases which affects the transferability of the land. Additionally, the Ohio Supreme Court concluded that if Plaintiffs were unsuccessful then Defendant would have the continued right to possess and occupy the land. Therefore, the Ohio Supreme Court found that Plaintiffs’ controversy regarding the termination of oil and gas leases is the type of controversy that is exempt from arbitration clauses under § 2711.01(B)(1).
Conclusion. Although Ohio recognizes the ability of parties to freely negotiate and enter into contracts, there are cases when the law will step in to override provisions of a contract. The determination of title to and possession of real property is one of those instances. Such a determination can have drastic and long-lasting effects on the property rights of individuals. Therefore, as evidenced by this Ohio Supreme Court ruling, Ohio courts will not enforce an arbitration provision when the controversy is whether or not oil and gas leases have terminated. To read more of the Ohio Supreme Court’s Opinion visit: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-869.pdf.
Did you know that Hippopotamuses cannot swim? It’s true. When hippos submerge themselves underwater, they don’t swim back up to the surface, instead they walk along the bottom until they reach shallow water. That is unless the hippo decides to chase you out of its territory, then it will gladly run, jump, and charge right at you.
Like the hippo, this week’s Ag Law Harvest is a little territorial. We bring you recent Ohio court decisions, a federal order allowing Colombian hippos to take the testimony of Ohio residents, and the Ohio Department of Agriculture’s directives as it ramps up its fight against Ohio’s newest pest.
Well, well, well. A recent Ohio case demonstrated the complex issues a landowner can run into when dealing with an oil and gas lease. The Plaintiff in this case owns land in Hebron, Ohio and brought suit against his neighbors and the Ohio Department of Taxation claiming that he was not the owner of a gas well located on his property or that he was responsible for paying taxes and maintaining the well under Ohio law. The Hebron, Ohio property at issue in this case passed through many hands before becoming the property of the Plaintiff. One of the prior owners was a man named William Taggart (“Taggart”). As mentioned earlier, the property also has a gas well which was subject to an oil and gas lease. The oil and gas lease passed to multiple parties and ended up with Taggart while he owned the Hebron property. After having both the property and the oil and gas lease, Taggart deeded the property to Plaintiff’s parents which eventually passed onto Plaintiff. Plaintiff argued that he is not the rightful owner of the well because the last person that was assigned the oil and gas lease was Taggart, making him the owner of the well. The Fifth District Court of Appeals disagreed. The court found that Plaintiff’s parents registered as owners of the well under Ohio Revised Code § 1509.31 which requires a person to register a well before they can operate it. Further, the court determined that when the oil and gas lease was assigned to Taggart the rights of the landowner and the lessee merged, essentially making Taggart the only individual with any property interest in the well. Relying on § 1509.31, the court found that when the entire interest of an oil and gas lease is assigned to the landowner, the landowner then becomes responsible for compliance with Chapter 1509 of the Ohio Revised Code. Therefore, when the property passed to Plaintiff’s parents, they became the owners of the well and were responsible for making sure the well was in compliance with Chapter 1509. Because this responsibility passed onto Plaintiff, the court found Plaintiff to be liable for the taxes and ensuring that the well is compliant with Ohio law. The court also denied Plaintiff’s attempt to argue that Taggart was the responsible party because the oil and gas lease was still in effect due to the fact that Plaintiff’s neighbors use the gas well for domestic purposes. The court found that the oil and gas lease had expired by its own terms, pursuant to the habendum clause contained within the lease. A habendum clause essentially defines the property interests and rights that a lessee has. The specific habendum clause in this case stated that the lease would terminate either within three years or when the well no longer produced oil and gas for commercial purposes. The lease at issue was well beyond the three-year term and, as the court found, the lease expired under Taggart because the well no longer produced oil or gas for commercial purposes. The use of the well for domestic purposes did not matter. The Fifth District ultimately held that because Plaintiff could not produce any evidence to show that another party had an interest in the well, Plaintiff is ultimately responsible for the well.
Amending a contract doesn’t always erase the past. Two companies (“Plaintiffs”) recently filed suit against a former managing member (“Defendant”) for allegedly using business funds and assets for personal use during his time as managing member. The primary issue in this case was whether or not an arbitration clause in the original operating agreement is enforceable after the operating agreement was amended to remove the arbitration clause. Defendant’s alleged misconduct occurred while the original operating agreement was in effect. The original operating agreement would require the parties to settle any disputes through the arbitration process and not through the court system. However, shortly before filing suit, the original operating agreement was amended to remove the arbitration provision. Plaintiffs filed suit against the Defendant arguing that the arbitration provision no longer applied because the operating agreement had been amended. Defendant, however, argued that his alleged misconduct occurred while the original operating agreement was in effect and that the amended operating agreement could not apply retroactively forcing him to settle the dispute in a court rather than through arbitration. The trial court, however, sided with the Plaintiffs and allowed the case to move forward. Defendant appealed the trial court’s decision and the Ninth District Court of Appeals agreed with him. The District Court found that the amended operating agreement did not expressly state any intention for the terms and conditions of the amended operating agreement to apply retroactively. Further, the court held that Ohio law favors enforcing arbitration provisions within contracts and any doubts as to whether an arbitration clause applies should be resolved in favor of enforcing the arbitration clause. The Ninth District reversed the trial court and found that the dispute of Defendant’s alleged misconduct should be resolved through arbitration.
Animal advocates claim victory in pursuit of recognizing animals as legal persons. A recent order issued by a federal district court in Ohio allows an attorney for Colombian Hippopotamuses to take the testimony of two expert witnesses residing in Ohio. According to U.S. law, a witness may be compelled to give testimony in a foreign lawsuit if an “interested person” applies to a U.S. court asking that the testimony be taken. The Animal Legal Defense Fund (“ALDF”) applied to the federal court on behalf of the plaintiffs, roughly 100 hippopotamuses, from a lawsuit currently pending in Colombia. According to the ALDF, the lawsuit seeks to prevent the Colombian government from killing the hippos. The interesting thing about this case is that hippos are not native to Colombia and were illegally imported into the country by drug kingpin Pablo Escobar. After Escobar’s death the hippos escaped his property and relocated to Colombia’s Magdalena River and have reproduced at a rate that some say is unsustainable. In Colombia, animals are able to sue to protect their rights and because the plaintiffs in the Colombian lawsuit are the hippos themselves, the ALDF argued that the hippos qualify as an “interested person” under U.S. law. After applying for the authorization, the federal court signed off on ALDF’s application and issued an order authorizing the attorney for the hippos to issue subpoenas for the testimony of the Ohio experts. After the federal court’s order, the ALDF issued a press release titled “Animals Recognized as Legal Persons for the First Time in U.S. Court.” The ALDF claims the federal court ruling is a “critical milestone in the broader animal status fight to recognize that animals have enforceable rights.” However, critics of ALDF’s assertions point out that ALDF’s claims are a bit embellished. According to critics, the order is a result of an ex parte application to the court, meaning only one side petitioned the court for the subpoenas and the other side was not present to argue against the subpoenas. Further, critics claim that all the federal court did was sign an order allowing the attorney for the hippos to take expert testimony, the court did not hold that hippos are “legal persons” under the law.
Ohio Department of Agriculture announces quarantine to combat the spread of the Spotted Lanternfly. According to the Ohio Department of Agriculture (“ODA”) the Spotted Lanternfly (“SLF”) has taken hold in Jefferson and Cuyahoga counties. The ODA announced that the SLF is now designated as a destructive plant pest under Ohio law and that the ODA was issuing quarantine procedures and restricting the movement of certain items from infested counties into non-infested areas of Ohio. The ODA warns that the SLF can travel across county lines in items like tree branches, nursery stock, firewood, logs, and other outdoor items. The ODA has created a checklist of things to look for before traveling within or out of infested counties. Nurseries, arborists, loggers, and other businesses within those infested counties should contact the ODA to see what their obligations and rights are under the ODA's new quarantine instructions. Under Ohio law, those individuals or businesses that fail to follow the ODA’s quarantine instructions could be found guilty of a misdemeanor of the third degree on their first offense and a misdemeanor of the second degree for each subsequent offense. For more information visit the ODA’s website about the SLF.
Did you know that the “wise old owl” saying is a myth? Generally speaking, owls are no wiser than other birds of prey. In fact, other bird species like crows and parrots have shown greater cognitive abilities than the owl. An owl’s anatomy also helps dispel the myth because most of the space on an owl’s head is occupied by their large eyes, leaving little room for a brain.
This week’s Ag Law Harvest brings you EPA bans, Ohio case law, USDA announcements, and federal case law which could make your head spin almost as far as an owl’s.
EPA banning use of chlorpyrifos on food crops. The EPA announced that it will stop the use of the pesticide chlorpyrifos on all food to better protect producers and consumers. In its final rule released on Wednesday, the EPA is revoking all “tolerances” for chlorpyrifos. Additionally, the EPA will issue a Notice of Intent to Cancel under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) to cancel all registered food uses of chlorpyrifos. Chlorpyrifos is an insecticide used for a variety of agricultural uses, including soybeans, fruit and nut trees, broccoli, cauliflower, and other row crops, in addition to non-food uses. The EPA’s announcement comes in response to the Ninth Circuit’s order directing the EPA to issue a final rule in response to a petition filed by opponents to the use of chlorpyrifos. The petition requested that the EPA revoke all chlorpyrifos tolerances because those tolerances were not safe, particularly because of the potential negative effects the insecticide has on children. For more information about chlorpyrifos and the EPA’s final rule, visit the EPA’s website.
Trusts aren’t to be used as shields. An Ohio appeals court recently reinforced the concept that under Ohio law, trusts are not be used as a way to shield a person’s assets from creditors. Recently, a plaintiff filed a lawsuit against a bank alleging breach of contract and conversion, among other things. Plaintiff, an attorney and real estate developer, claimed that the bank removed money from his personal account and a trust account in violation of Ohio law and the terms of the loan agreement between the parties. Prior to the lawsuit, plaintiff established a revocable trust for estate planning purposes and to acquire and develop real estate. This dispute arose from a $200,000 loan from the bank to the plaintiff to help establish a restaurant. A provision of the loan agreement, known as the “Right to Setoff” provision, allowed the bank to “setoff” or effectively garnish all accounts the plaintiff had with the bank. The setoff provision explicitly prohibited any setoff from any IRA or trust accounts “for which setoff would be prohibited by law.” Plaintiff made all monthly payments but failed to make the final balloon payment on the loan. Plaintiff argued that the bank broke the loan contract and violated Ohio law by taking funds from the trust account to pay off the remaining balance of the loan. The court disagreed. The court noted that under Ohio law, a settlor’s property in a revocable trust is subject to the claims of the settlor’s creditors. A settlor is a person who creates or contributes property to a trust. In this case, plaintiff was the creator, settlor, and sole beneficiary of the revocable trust. Because of that, the court concluded the bank did not violate Ohio law when using the trust account to setoff the balance of the loan. Additionally, the court found that the bank did not violate the terms of the loan agreement because a setoff from the trust account was not prohibited by law. The court noted that Ohio law did not intend to allow a settlor who is also a beneficiary of the trust to use a trust as a “shield” against creditors. Although trusts can be a useful estate planning tool, there are limits to what a trust can do, as evidenced by this case.
Renewable fuel supporters file appeal on E15 summer sales. Corn farmers have joined forces with the biofuel industry (“Petitioners”) to ask the D.C. Circuit Court of Appeals for a new hearing on a ruling that struck down the EPA’s 2019 decision to allow year-round E15 sales. Earlier this year, the same D.C. Circuit Court of Appeals issued an opinion that ruled the legislative text in the law supporting the biofuel mandate does not support the Trump administration’s regulatory waiver that allowed E15 to be sold during the summer months. In their petition, Petitioners argue that the D.C. Circuit Court made “significant legal errors.” Petitioners contend that the court should rehear the case because the intent behind the nation’s biofuel mandate is better served by the sale of E15 through the summer months because it is less volatile, has less evaporative emissions, and is overall better for the environment than other fuel sources. Petitioners also believe the court’s original decision deprives American drivers the choice of lower carbon emitting options at the gas pump.
Monsanto asks Supreme Court to review Ninth Circuit’s Roundup Decision. In its petition to the Supreme Court of the United States Monsanto Company (“Monsanto”) asked the Supreme Court to review the $25 million decision rendered by the Ninth Circuit Court of Appeals. In that decision, the Ninth Circuit held that the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”) did not preempt, or otherwise prevent, the plaintiff from raising California failure-to-warn claims on Roundup products and allowed plaintiff to introduce expert testimony that glyphosate causes cancer in humans. In trial, the plaintiff argued that Monsanto violated California’s labeling requirements by not including a warning on the Roundup label that glyphosate, which is found in Roundup, causes cancer. Monsanto argues that FIFRA expressly preempts any state law that imposes a different labeling or packaging requirement. Under FIFRA, Monsanto argues that the EPA did not require Monsanto to include a cancer warning on its Roundup label. Therefore, Monsanto maintains, that because California law differed from FIFRA, Monsanto was not required to follow California law when it came to labeling its Roundup product. Secondly, the Ninth Circuit allowed plaintiff to present expert evidence that glyphosate could cause non-Hodgkin’s lymphoma in the general public and that glyphosate caused the plaintiff’s lymphoma. Monsanto contends that the lower courts have distorted established precedent by allowing the expert testimony because the testimony is not based on generally accepted scientific principles and the scientific community has consistently found that glyphosate does not cause cancer in humans.
USDA working to protect nation’s dairy industry. The USDA’s Agricultural Marketing Service (“AMS”) has struck a deal with the European Union (“EU”) to satisfy the EU’s new import requirements on U.S. dairy. The EU will require new health certificates for U.S. dairy products exported to the EU to verify that the U.S. milk used for products exported to the EU is sourced from establishments regulated under the Grade “A” Pasteurized Milk Ordinance or the USDA AMS Milk for Manufacturing Purposes. Officials representing the U.S. Dairy Export Council and International Dairy Foods Association claim that the deal will allow U.S. producers to comply with the EU’s mandates while also satisfying the concerns within the American dairy industry. The deal pushes back the EU’s deadline for new health certificates to January 15, 2022, to allow U.S. producers and exporters enough time to bring their products into compliance. The USDA also announcedthat it is providing around $350 million to compensate dairy producers who lost revenue because of market disruptions due to the COVID-19 pandemic and a change to the federal pricing formula under the 2018 farm bill. Additional details are available at the AMS Dairy Program website.
Tale as old as time. An Ohio appeals court recently decided a dispute between neighbors about a driveway easement. The driveway in dispute is shared by both neighbors to access their detached garages. Defendants used the driveway to access their garage and then the driveway extends past the Defendants’ garage onto Plaintiff’s property and ends at Plaintiff’s garage. The dispute arose after Defendants built a parking pad behind their garage and used parts of the driveway they never used before to access the parking pad. The original easement to the driveway was granted by very broad and general language in a 1918 deed, when the property was divided into two separate parcels. In 1997, a Perpetual Easement and Maintenance Agreement (“Agreement”) was entered into by the two previous property owners. The Agreement was much more specific than the 1918 deed and specifically showed how far the easement ran and what portions of the driveway could be used by both parties. The 1997 Agreement did not allow for Defendants to use the portion of the driveway necessary to access their parking pad. Plaintiffs argue that the 1997 Agreement controls the extent of the easement, whereas Defendants argue that the broad general language in the 1918 deed grants them authority to use the whole length of the driveway. The Court found the more specific 1997 Agreement to be controlling and ruled in favor of the Plaintiffs. The Court reasoned that the 1918 deed creates an ambiguity as to the extent of the easement and there is no way of knowing what the original driveway looked like or how it was used. The Court concluded that the 1997 Agreement does not contradict or invalidate the 1918 deed, rather the 1997 Agreement puts specific parameters on the existing easement and does not violate any Ohio law. The Defendants were found liable for trespass onto the Plaintiffs’ property and is expected to pay $27,500 in damages. The lesson to be learned from all of this? Make sure your easements are as specific and detailed as possible to ensure that all parties are in compliance with the law.
"Farm Office Live" returns this summer as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis, and other related issues. Targeted to farmers and agri-business stakeholders, our specialists digest the latest news and issues and present it in an easy-to-understand format.
The live broadcast is presented monthly. In months where two shows are scheduled, one will be held in the morning and one in the evening. Each session is recorded and posted on the OSU Extension Farm Office YouTube channel for later viewing.
|July 23, 2021||10:00 - 11:30 am||December 17, 2021||10:00 - 11:30 am|
|August 27, 2021||10:00 - 11:30 am||January 19, 2022||7:00 - 8:30 pm|
|September 23, 2021||10:00 - 11:30 am||January 21, 2022||10:00 - 11:30 am|
|October 13, 2021||7:00 - 8:30 pm||Februrary 16, 2022||7:00 - 8:30 pm|
|October 15, 2021||10:00 - 11:30 am||February 18, 2022||10:00 - 11:30 am|
|November 17, 2021||7:00 - 8:30 pm||March 16, 2022||7:00 - 8:30 pm|
|November 19, 2021||10:00 - 11:30 am||March 18, 2022||10:00 - 11:30 am|
|December 15, 2021||7:00 - 8:30 pm||April 20, 2022||7:00 - 8:30 pm|
Topics we will discuss in upcoming webinars include:
- Coronavirus Food Assitance Program (CFAP)
- Legislative Proposals and Accompanying Tax Provisions
- Outlook on Crop Input Costs and Profit Margins
- Outlook on Cropland Values and Cash Rents
- Tax Issues That May Impact Farm Businesses
- Legal Trends
- Legislative Updates
- Farm Business Management and Analysis
- Farm Succession & Estate Planning
To register or to view a previous "Farm Office Live," please visit https://go.osu.edu/farmofficelive. You will receive a reminder with your personal link to join each month.
The Farm Office is a one-stop shop for navigating the legal and economic challenges of agricultural production. For more information visit https://farmoffice.osu.edu or contact Julie Strawser at firstname.lastname@example.org or call 614.292.2433
Tags: Farm Office Live, farm management, Farm Succession, Estate Planning, Farm Business, Dairy Production, Farm Tax, Agricultural Law, Resource Law
As planting season draws to a close, new agricultural issues are sprouting up across the country. This edition of the Ag Law Harvest brings you federal court cases, international commodity news, and new program benefits affecting the agriculture industry.
Pork processing plants told to hold their horses. The USDA’s Food Safety and Inspection Service (“FSIS”) is not going to appeal a federal court’s ruling that requires the nation’s hog processing facilities to operate at slower line speeds. On March 31, 2021, a federal judge in Minnesota vacated a portion of the USDA’s 2019 “New Swine Slaughter Inspection System” that eliminated evisceration line speed limits. The court held that the USDA had violated the Administrative Procedure Act when it failed to take into consideration the impact the new rule would have on the health and safety of plant workers. The court, however, only vacated the provisions of the new rule relating to line speeds, all other provisions of the rule were not affected. Proponents of the new rule claim that the rule was well researched and was years in the making. Further, proponents argue that worker safety was taken into consideration before adopting the rule and that the court’s decision will cost the pork industry millions. The federal court stayed the order for 90 days to give the USDA and impacted plants time to adjust to the ruling. All affected entities should prepare to revert to a maximum line speed of 1,106 head per hour starting June 30, 2021.
Beef under (cyber)attack. Over the Memorial Day weekend, JBS SA, the largest meat producer globally, was forced to shut down all of its U.S. beef plants which is responsible for nearly 25% of the American beef market. JBS plants in Australia and Canada were also affected. The reason for the shut down? Over the weekend, JBS’ computer networks were infiltrated by unknown ransomware. The USDA released a statement showing its commitment to working with JBS, the White House, Department of Homeland Security, and others to monitor the situation. The ransomware attack comes on the heels of the Colonial Pipeline cyber-attack, leading many to wonder who is next. As part of its effort, the USDA has been in touch with meat processors across the country to ensure they are aware of the situation and asking them to accommodate additional capacity, if possible. The impact of the cyber-attack may include a supply chain shortage in the United States, a hike in beef prices at the grocery store, and a renewed push to regulate other U.S. industries to prevent future cyber-attacks.
Texas has a new tool to help combat feral hogs. Texas Agriculture Commissioner, Sid Miller, announced a new tool in their war against feral hogs within the state. HogStop, a new hog contraceptive bait enters the market this week. HogStop is being released in hopes of curbing the growth of the feral hog population. According to recent reports, the feral hog population in Texas has grown to over 2.6 million. It is estimated that the feral hogs in Texas have been responsible for $52 million in damage. HogStop is an all-natural contraceptive bait that targets the male hog’s ability to reproduce. HogStop is considered a 25(b) pesticide under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”), which allows Texas to use it without registering the product. Commissioner Miller thinks HogStop is a more humane way to curb the feral hog population in Texas and hopes that it is the answer to controlling the impact that feral hogs have on farmers and ranchers. More information about HogStop can be found at their website at www.hogstop.com.
USDA announces premium benefit for cover crops. Most farmers who have coverage under a crop insurance policy are eligible for a premium benefit from the USDA if they planted cover crops this spring. The USDA’s Risk Management Agency (“RMA”) announced that producers who insured their spring crop and planted a qualifying cover crop during the 2021 crop year are eligible for a $5 per acre premium benefit. However, farmers cannot receive more than the amount of their insurance premium owed. Certain policies are not eligible for the benefit because those policies have underlying coverage that already receive the benefit or are not designed to be reported in a manner consistent with the Report of Acreage form (FSA-578). All cover crops reportable to the Farm Service Agency (“FSA”) including, cereals and other grasses, legumes, brassicas and other non-legume broadleaves, and mixtures of two or more cover crop species planted at the same time, are eligible for the benefit. To receive the benefit, farmers must file a Report of Acreage form (FSA-578) for cover crops with the FSA by June 15, 2021. To file the form, farmers must contact and make an appointment with their local USDA Service Center. More information can be found at https://www.farmers.gov/pandemic-assistance/cover-crops.
Federal court vacates prior administration’s small refinery exemptions. The Tenth Circuit Court of Appeals issued an order vacating the EPA’s January 2021 small refinery exemptions issued under the Trump administration and sent the case back to the EPA for further proceedings that are consistent with the Tenth Circuit’s holding in Renewable Fuels Association v. EPA. The Tenth Circuit held that the EPA may only grant a small refinery exemption if “disproportionate economic hardship” is caused by complying with Renewable Fuel Standards. The EPA admitted that such economic hardship may not have existed with a few of the exemptions granted and asked the court to send the case back to them for further review. The order granted by the Tenth Circuit acknowledged the agency’s concession and noted that the EPA’s motion to vacate was unopposed by the plaintiff refineries.
Michigan dairy farm penalized for National Pollutant Discharge Elimination System violations. A federal district court in Michigan issued a decision affirming a consent decree between a Michigan dairy farm and the EPA. According to the complaint, the dairy farm failed to comply with two National Pollutant Discharge Elimination System (“NPDES”) permits issued under Section 402 of the Clean Water Act. The violations include improper discharges, deficient maintenance and operation of waste storage facilities, failing to report discharges, failing to abide by its NPDES land application requirements, and incomplete recordkeeping. The farm is required to pay a penalty of $33,750, assess and remedy its waste storage facilities, and implement proper land application and reporting procedures. The farm also faces potential penalties for failing to implement any remedial measures in a timely fashion.
Energy is a hot topic at the statehouse these days. The Ohio General Assembly is reviewing several proposals dealing with energy sources, including solar and wind facilities, oil, gas, and gas pipelines. The proposals raise a critical question about where control over energy production activities should lie: with the state or with local communities? The proposals offer contrasting views on the answer to that question.
Solar and wind projects. We reported in March that companion bills H.B. 118 and S.B. 52 were on hold due to conflicts with the proposals, which would have allowed citizens to use the referendum process to reject proposed large scale wind and solar energy developments in their communities. On May 12, the bill sponsors offered a substitute bill to the House Public Utilities Committee. The new approach in the substitute bill would allow a township to adopt a resolution designating all or parts of the township as “energy development districts.” Doing so would allow wind and solar facilities to be constructed within the designated district(s) and would prevent the Ohio Power Siting Board from approving any projects that are not within a designated district. The residents in a township, however, would have the right to petition an energy development district designation and submit it to a vote by township residents. Sponsor Sen. Rob McColley (R-Napoleon) explained that the new approach would allow a township to let energy developers know “up front” that the community is “open for business.” The committee will hear responses to the substitute bill in additional hearings, not yet scheduled.
Fossil fuel and gas pipelines. A proposal regarding energy generation from fossil fuels and gas pipelines takes an opposite approach on local control. H.B. 192, sponsored by Rep. Al Cutrona (R-Canfield) would prohibit counties, townships, and municipal corporations from prohibiting or limited the use of fossil fuels for electricity generation and the construction or use of a pipeline to transport oil or gas. About a dozen opponents testified against the bill at its third hearing before the House Energy and Natural Resources last week, with most arguing that the proposal removes rights of local communities to control their energy sources and violates the home rule authority for municipalities provided in Ohio’s Constitution. The bill is not yet scheduled for an additional committee hearing.
Natural gas. A bill that guarantees access to natural gas passed the House of Representatives on May 6, largely along party lines. H.B. 201, sponsored by Rep. Jason Stephens (R-Kitts Hill), guarantees that every person has a right to obtain any available distribution service or competitive retail natural gas service from gas suppliers, and bars a political subdivision from enacting laws that would limit, prevent, or prohibit a consumer within its boundaries from using distribution services, retail natural gas service, or propane. Opponents argue that the bill violates home rule authority and is unnecessary, since no community in Ohio has ever banned the use of natural gas. The bill was referred to the Senate Energy and Public Utilities Committee on May 12.
We'll keep you posted on the progress of these bills as the Ohio General Assembly continues to deal with the question of local versus state control of energy production and distribution in Ohio.
In our final part of our blog series analyzing the Ohio Supreme Court's recent decisions on mineral rights, we analyze the Court's decision in West v. Bode regarding the relationship between the Dormant Mineral Act and Ohio’s Marketable Title Act.
West v. Bode
Timeline of Events:
1902: George and Charlotte Parks sold 1/2 of the royalty interest in the oil and gas under their 66 acres of land located in Monroe County (the “severed royalty interest”) to C.J. Bode and George Nally; the transfer was recorded.
1916: Bode and Nally transferred the severed royalty interest to E.J. Wichterman, Clara Thompson, and M.M. Mann; the transfer was recorded.
1929: Parks transferred to Lettie West the 66 acres, but retained their 1/2 royalty interest in the oil and gas under the property and mentioned the severed royalty interest; the transfer was recorded.
1959: The surface land was transferred to George West; the transfer was recorded but did not mention the severed royalty interest (the “root title”).
1996: George West transferred property to Wayne West; the transfer was recorded but did not mention the severed royalty interest.
2002: Wayne West transferred a portion of the 66 acres to Rusty West; the transfer was recorded but did not mention the severed royalty interest.
Wayne and Rusty West (the “Wests”) filed an action in Monroe County Court of Common Pleas asking for a declaratory judgment that Ohio’s Marketable Title Act extinguished the severed royalty interest, and that the severed royalty interest had vested in the Wests. The remaining interested parties filed a counterclaim arguing they were owners of a portion of the severed royalty interest (the “interested parties”).
The interested parties claimed that the Wests failed to state a valid claim under the Marketable Title Act because the more specific provisions of Ohio’s Dormant Mineral Act displace the general provisions of the Marketable Title Act. The Wests argued that since neither the transfer from Lettie West to George West nor any recorded document since mentioned the severed royalty interest, the severed mineral interest vested back to the Wests under Ohio’s Marketable Title Act.
The Monroe County Court of Common Pleas agreed with the interested parties and declared them owners of the severed royalty interest. The Seventh District Court of Appeals reversed and asked the Common Pleas Court to adjudicate the case under the Marketable Title Act. The interested parties then appealed to the Ohio Supreme Court.
Does the Dormant Mineral Act Supersede the Marketable Title Act?
The Ohio Supreme Court was tasked with determining whether Ohio’s Marketable Title Act applies to severed interests in oil and gas because of the enactment of the newer Dormant Mineral Act.
The Dormant Mineral Act (R.C. §5301.56) is part of a series of laws known as the Ohio Marketable Title Act (§R.C. 5301.47 et seq.) Under Ohio law, courts should interpret potentially conflicting statutes in a way that gives effect to both laws. However, if there is an irreconcilable conflict between two laws, a more specific law will prevail over a more general one. Therefore, the Ohio Supreme Court determined that the issue in this case was whether there existed an irreconcilable conflict between the Marketable Title Act and the Dormant Mineral Act.
First, the Court looked at the intent of each act. The Court found that the Ohio General Assembly enacted the Marketable Title Act to extinguish interests and claims in land that existed prior to the root title so as to simplify and facilitate land transactions by allowing individuals to rely on a record chain of title. Similarly, the Ohio Supreme Court found that the Ohio Legislature enacted the Dormant Mineral Act to provide a method to terminate dormant mineral interests and reunify the abandoned mineral interest with the surface interests in order to promote the use of the minerals under the land.
But how do the two operate together? The Ohio Supreme Court analyzed that under the 1961 Marketable Title Act, property interests are extinguished after 40 years from the effective date of the “root title” unless some saving event has occurred. Once an interest has been extinguished under the Marketable Title act, it cannot be revived. An event that would save an interest from being extinguished under the Marketable Title Act include: (1) the interest being identified in the documents that form the record chain of title; (2) the interest holder recording a notice claiming the interest; or (3) the interest arose out of a transaction that was recorded subsequent to the effective date of the root title.
The Court also explained that the Dormant Mineral Act was enacted in 1989 (and amended in 2006) to supplement the Marketable Title Act. In order for mineral interests to be deemed abandoned the surface landowner must either send notice to holders of the mineral interest or publish the notice if the holders cannot be located. If a holder does not respond, a surface landowner can file with the county recorder an affidavit showing that notice was sent and published, and no saving event occurred within the 20 years prior to the notice. A saving event under the Dormant Minerals Act include: (1) existence of title transactions; (2) use of the minerals; (3) use of the interest for underground gas storage; (4) issuance of a permit to use the interest; (5) claims of preservation; and (6) issuance of separate tax parcel number for the interest.
The Ohio Supreme Court held that the Dormant Mineral Act operates differently than the Marketable Title Act thus no irreconcilable conflict exists. The Marketable Title Act extinguishes interests by operation of law, whereas the Dormant Mineral Act deems interests abandoned and vested in the owner of the surface. Essentially, the Court found that the two acts work in conjunction with one another, not against each other. The Court reasoned that the Dormant Mineral Act is not self-executing like the Marketable Title Act, but rather provides evidence that a surface owner may use in a quiet-title action to eliminate the abandoned mineral interest.
The Court stated that a surface owner may use the Dormant Mineral Act to reunify the surface and mineral interests prior to the 40-year time limit prescribed in the Marketable Title Act, thus making the Dormant Mineral Act a more abrupt way to reunify the two interest. This, the Court rationalized is why the Dormant Mineral Act works in parallel to the Marketable Title Act rather than against it. The Court found that the Dormant Mineral Act provides an additional mechanism to surface owners to reunify surface and mineral interests.
The Court ultimately held that a mineral interest holder’s interest may be extinguished by the Marketable Title Act or deemed abandoned by the Dormant Mineral Act, depending on the surrounding circumstances.
Takeaways from Part I and Part II
Make sure your interests are recorded! With any transaction, recording transfer of title (or mineral interests) can be crucial to protecting your assets. If you have any questions about whether your interests have been recorded, please contact a local attorney, it could be what saves your legacy.
Do the terms “abandoned mineral rights” mean anything to you? Do you currently own land that you don’t have the mineral rights to? Do you own mineral rights, but haven’t really done anything to make sure your rights are still protected?
Mineral rights are valuable asset in our personal portfolios that can allow us to build our legacy and provide for future generations. However, sometimes what we once thought as part of our legacy, is in fact now the legacy of another. The Ohio Supreme Court recently decided two cases dealing with abandoned mineral rights and the procedure in which a surface landowner can reunify the mineral rights with the surface rights.
This two-part blog series will first analyze the Ohio Supreme Court’s opinion regarding the notice requirements under Ohio’s Dormant Mineral Act and the second part will analyze how the Dormant Mineral Act and Ohio's Marketable Title Act work together.
Gerrity v. Chervenak
The Ohio Supreme Court addressed and clarified the notice requirements under the Ohio Dormant Mineral Act, Ohio Revised Code §5301.56.
John Chervenak is a trustee of the Chervenak Family Trust (“Chervenak”) which owns approximately 108 acres in Guernsey County. The rights to the minerals under the Chervenak property were retained by T.D. Farwell, the individual who transferred the 108 acres to the Chervenak family.
In 2012, a title search for the Chervenak property identified Jane Richards, daughter of T.D. Farwell, as the owner of the mineral rights under the property. The records listed a Cleveland address for Ms. Richards. Unfortunately, Ms. Richards passed away in 1997. At the time of her passing, Ms. Richards was a resident of Florida and had one son, Timothy Gerrity.
In 2012, Chervenak sought to reunite the severed mineral interest with the surface estate interest pursuant to Ohio’s Dormant Mineral Act. Chervenak recorded with the Guernsey County Recorder an affidavit of abandonment of the severed mineral interest. The affidavit stated that Chervenak sent notice by certified mail to Ms. Richards at her last known address – the Cleveland address – but the notice had been returned and marked undeliverable. The affidavit also stated that Ms. Richards’ heirs, devisees, executors, administrators, next of kin, and assigns had been served notice of the abandonment by publication in a Guernsey County newspaper.
In 2017, Gerrity filed an action in the Guernsey County Court of Common Pleas seeking to quiet title to the mineral rights under the Chervenak property and for a declaratory judgment that Gerrity was the exclusive owner of the mineral rights. Gerrity claimed that he was the rightful owner to the mineral rights under the Chervenak property as a result of the probate of his mother’s estate in Florida. The Guernsey county records, however, revealed no evidence of Ms. Richard’s death or of Gerrity’s inheritance of the mineral interest.
Further, Gerrity claimed that Chervenak did not comply with Ohio’s Dormant Mineral Act in two ways: (1) Gerrity argued that under the Dormant Mineral Act Chervenak must identify all holders of the mineral interest and notify them by certified mail; and (2) Chervenak did not employ reasonable search methods to locate all holders of the mineral interest before serving notice by publication.
Both the Guernsey County Court of Common Pleas and the Fifth District Court of Appeals declared Chervenak the owner of the mineral rights under the Dormant Mineral Act. Gerrity then sought the Ohio Supreme Court’s review.
The Dormant Mineral Act
Under current Ohio law, unless a severed mineral interest is in coal or is coal related, held by a political body, or a savings event has occurred within the 20 preceding years, a mineral interest will be considered abandoned and vested in the owner of the surface lands, so long as the surface landowner complies with Ohio Revised Code §5301.56(E).
R.C. §5301.56(E) states:
Before a mineral interest becomes vested in the surface landowner, the landowner shall do both of the following:
- Serve notice by certified mail to each holder or each holder’s successors or assignees, at the last known address of each, of the landowner’s intent to declare the mineral interest abandoned. If service of the notice cannot be completed, then the landowner shall publish notice of the landowner’s intent to declare the mineral interest abandoned in a newspaper of general circulation in each county in which the land is located.
- 30 days after serving notice, the landowner must file an affidavit of abandonment in the County Recorder’s office in each county that the land is located in.
Gerrity claimed that under the Dormant Mineral Act, his mineral interest cannot be deemed abandoned and vested in Chervenak because under R.C. §5301.56(E)(1) Chervenak is required to identify Gerrity and serve him Chervenak’s notice of intent to declare the mineral rights abandoned. The Ohio Supreme Court disagreed. While the Ohio Supreme Court agreed that Gerrity was considered a “holder” under the Dormant Mineral Act, Chervenak was not required to identify every possible holder and serve them notice, especially holders that do not appear on public record.
The Ohio Supreme Court found that such a stringent requirement would undo the intent behind the Dormant Mineral Act. The Court analyzed the text of the Dormant Mineral Act and found that because the Ohio General Assembly allows for a surface landowner to publish its notice of intent to declare the mineral rights abandoned in §5301.56(E)(1), the surface landowner is not required to identify and serve notice to each and every potential mineral interest holder.
The Court reasoned that no surface owner, no matter how much effort put forth, will ever really be certain that he or she has identified every successor or assignee of every mineral interest owner who appears on public record. This is why, the Court articulated, that the General Assembly allows for publication of a landowner’s intent to declare the mineral rights abandoned, because there will be instances when a holder may be unidentifiable or unlocatable.
Second, Gerrity argued that Chervenak must employ reasonable search methods to identify and locate all mineral interest holders – which include not only searching public records but also internet searches and searches of genealogy databases before publishing the notice in a newspaper. The Court agreed that a surface landowner must use reasonable diligence to try and identify mineral interest holders but disagreed with Gerrity to the extent in which a surface owner must go in order to have exercised reasonable diligence. The Ohio Supreme Court found that determining whether or not a surface landowner has exercised reasonable diligence to identify mineral interest holders will have to be determined on a case-by-case basis.
In this case, the Ohio Supreme Court found that Chervenak did exercise due diligence in trying to locate all holders. The Court determined that by searching through Guernsey County records and Cuyahoga County records (the county in which Cleveland is located), Chervenak fulfilled their due diligence requirement. The Court declined to impose a requirement that every surface landowner search the internet, especially due to the inconsistent reliability of such searches, or consult with any subscription-based service to identify a potential mineral interest holder. The Court held that a search of county property records and county court records will usually establish a baseline of due diligence by the surface landowner.