oil and gas law

State lawmakers have been busy crafting new legislation since the 133rd General Assembly took shape in January.  As promised, here are some highlights and summaries of the pending bills that relate to agriculture in Ohio:

• Senate Bill 57, titled “Decriminalize hemp and license hemp cultivation.”  The Ohio Senate Agriculture and Natural Resources Committee held a second hearing about the bill on March 13th, and numerous farm organizations spoke in support of the bill.  As of now the language of the bill has not changed since we last discussed Ohio’s hemp bill in a blog post, but some changes could be made when the bill is sent out of the committee.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• Senate Bill 2, titled “Create state watershed planning structure.”  The one sentence bill expresses the General Assembly’s intent “to create and fund a comprehensive statewide watershed planning structure to be implemented at the local soil and water conservation district level.”  It further expresses the intent “to provide authorization and conditions for the operation of watershed programs implemented by local soil and water conservation districts.”  Click HERE for more information about the bill.

• House Bill 24, titled “Revise humane society law.”  The bill would make various changes to Ohio’s Humane Society Law, including changes to enforcement powers, appointment and removal procedures, training, and criminal law applicability.  One of the significant changes would expand to all animals the seizure and impoundment provisions that currently apply only to companion animals.  This change would allow an officer to seize and impound any animal that the officer has probable cause to believe is the subject of a violation of Ohio’s domestic animal law.  At the same time, the bill would remove certain provisions from current law that pertain to harm to people, thereby focusing the new law solely on the protection of animals.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• House Bill 124, titled “Allow small livestock on residential property.”  Under this bill, counties and townships would no longer be allowed to restrict via zoning certain noncommercial agricultural activities on residential property conducted for an individual’s personal use and enjoyment.  Instead, owners of residential property that is not generally agricultural would be allowed to keep, harbor, breed, and maintain small livestock on their property.  Small livestock includes goats, chickens and similar fowl, rabbits, and similar small animals.  Roosters are explicitly excluded from this definition.  However, the owner would lose his or her rights to keep small livestock if the small livestock create a nuisance, are kept in a manner that causes noxious odors or unsanitary conditions, are kept in a building that is unsafe as defined under the statute, or if the number of animals exceeds a certain ratio of animals to acres as defined under the statute.  The ratio may be modified by the local jurisdiction to allow for more animals per acre.  Click HERE for more information about the bill.

• House Bill 55, titled “Require oil and gas royalty statements.”  Owners of oil and gas wells would have to provide mandatory reports to holders of royalty interests under this bill.  Current law only requires disclosure of the information upon request, but this bill would make the disclosure mandatory.  The bill would expand the types of information that the reports must include, and allows the holder of royalty interests to sue to enforce the new rights.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• House Bill 94, titled “Ban taking oil or natural gas from bed of Lake Erie.”  The Ohio Department of Natural Resources handles oil and gas permitting in Ohio, and this bill would bar the agency from issuing permits or making leases “to take or remove oil or natural gas from and under the bed of Lake Erie.”  Click HERE for more information about the bill.

• House Bill 95, titled “Revise Oil and Gas Law about brine and well conversions.”  The bill would ban the use of brine in secondary oil and gas recovery operations.  It would also ban putting brine, crude oil, natural gas, and other fluids associated with oil and gas exploration in ground or surface waters, on the ground, or in the land.  This restriction would apply even if the fluid received treatment in a public water system or other treatment process.  Further, brine disposal permits would not be allowed to utilize underground injection or disposal on the land or in surface or ground water.  Click HERE for more information about the bill.

• House Bill 100, titled “Revise requirements governing abandoned mineral rights.”  Ohio has a statute that governs when a surface owner can take the mineral rights held or claimed by another by operation of law, essentially because of the passage of time.  The bill would require a surface owner to attempt to give notice to a holder of mineral rights by personal service, certified mail, or if those are unsuccessful then by publication.  Currently, if a holder of mineral rights believes that his or her interest remains valid, he or she may file an affidavit that complies with Ohio Revised Code (ORC) § 5301.56(H)(1) in the county property records.  If the holder of mineral rights fails to file an affidavit, the surface owner may then file an affidavit under ORC § 5301.56(H)(2) that effectively vests the mineral rights in the surface owner.  The new law would allow the surface owner to challenge a holder of mineral rights’ ORC § 5301.56(H)(1) affidavit.  This process would require the surface owner to obtain a court determination that the affidavit is invalid.  Then the surface owner would be able to file the new ORC § 5301.56(H)(3) affidavit to obtain the mineral rights.  Click HERE for more information about the bill.

There are also some bills that could have some indirect implications in the agricultural and natural resources sectors.  These indirect effects make this next set of bills noteworthy, or at least interesting.

• Senate Bill 1, titled “Reduce number of regulatory restrictions.”  The bill would require each state agency to count its total number of regulatory restrictions, and then reduce the number of restrictions based on that baseline by 30% by 2022.  Once an agency meets its reduction target, it would not be able to increase the number of regulatory restrictions without making additional cuts elsewhere.  The bill would target agency rules that require or prohibit specific acts.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• Senate Bill 21, titled “Allow corporation to become benefit corporation.”  Much like the LLC merged the principles of a corporation and a partnership, the benefit corporation merges the principles of a corporation and a non-profit.  A benefit corporation must follow the formalities of a corporation, but the articles of incorporation can designate a social purpose for the business to pursue, such as promoting the environment through sustainable practices.  One of the unique traits of benefit corporations is that benefit corporations cannot be held liable for damages for failing to seek, achieve, or comply with their beneficial purpose, or even obtain a profit; however, certain individuals may seek a court ordered injunction to force the company to pursue those interests.  In a sense, the benefit corporation reduces the traditional fiduciary duties expected in general corporations.  The bill purports to maintain the traditional fiduciary duties, but by allowing a social purpose other than profit to guide decisions, the traditional fiduciary duties are in effect modified.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• House Bill 33, titled “Establish animal abuse reporting requirements.”  Under the bill, veterinarians and social service professionals would have to report their knowledge of abuse, cruelty, or abandonment toward a companion animal.  Social service professionals would include licensed counselors, social workers, and marriage or family therapists acting in their professional capacity.  Companion animals include non-wild animals kept in a residential dwelling, along with any cats and dogs kept anywhere.  These individuals would be required to report the neglect to law enforcement, agents of the county humane society, dog wardens, or other animal control officers.  Further, dog wardens, deputy dog wardens, and animal control officers would become mandatory reporters of child abuse.  Lastly, the bill explains the information that must be reported, the timing, and the penalties for failure to comply.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

• House Bill 48, titled “Create local government road improvement fund.”  The bill proposes to deposit into a new local government road improvement fund some of the surplus funds generated when the state spends less than it appropriates in the general revenue fund.  Under current law, this surplus is split between the budget stabilization fund, also known as the “rainy day fund,” and the income tax reduction fund, which would redistribute remaining surplus to taxpayers.  Click HERE for more information about the bill.

• House Bill 54, titled “Increase tax revenue allocated to the local government fund.”  The bill would increase the proportion of state tax revenue allocated to the Local Government Fund from 1.66% to 3.53%.  Click HERE for more information about the bill.

• House Bill 74, titled “Prohibit leaving junk watercraft or motor uncovered on property.”  The bill would allow a sheriff, chief of police, highway patrol officer, or township trustee to send notice to a landowner to remove a junk vessel or outboard motor within 10 days.  The prohibition applies to junk vessels, including watercraft, and outboard motors that are three years or older, apparently inoperable, and with a fair market value of $1,500 or less.  Failure to cover, house, or remove the item in ten days could result in conviction of a misdemeanor.  Click HERE for more information about the bill, and HERE for the current official bill analysis.

As more bills are introduced, and as these bills move along, stay tuned to the Ag Law Blog for updates.

Written by: Evin Bachelor, Law Fellow, and Ellen Essman, Sr. Research Associate

The end of the year is here, and there is a flurry of news coming across our desks.  We wish you a prosperous 2019 and look forward to keeping you up to date on what is happening in the agricultural law world.

Here’s our latest gathering of agricultural law news that you may want to know:

GMO labeling rule released by USDA.  The Agricultural Marketing Service posted the National Bioengineered Food Disclosure Standard rule on the Federal Register, located here, on Friday, December 21, 2018.  According to the rule page, the rule “establishes the new national mandatory bioengineered (BE) food disclosure standard (NDFDS or Standard).”  The standards require foods labeled for retail sale to disclose certain information either through a new symbol, inclusion of a QR code that provides a link to a website, including a phone number to text for more information, or including the term “bioengineered” on the label.  The rule defines bioengineered food as food that contains genetic material modified through changing DNA or other modifications that could not be done through conventional breeding or otherwise found in nature.  Exemptions for foods served in restaurants and very small food manufacturers with gross receipts of less than $2.5 million limit the rule’s applicability.  The rule will take effect on February 19, 2019, with compliance becoming mandatory by January 1, 2022.  For more information, or to see the new label, visit the USDA Agricultural Marketing Service’s BE Disclosure webpage here.

Farm Bill provides good news for dairy farmers.  Under the 2018 Farm Bill Conference Report, available here, the Margin Protection Program (MPP) was renamed the Dairy Margin Coverage (DMC).  The name was not the only change made to the program.  Per the USDA, the program “is a voluntary risk management program… offer[ing] protection to dairy producers when the difference between the all milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer.”  The Farm Bill lowers the premium rates for risk coverage.  Furthermore, the bill adds coverage levels of $8.50, $9.00 and $9.50 for a dairy operation’s “first five million pounds of participating production.”  If a farmer covers his first five million pounds at $8.50, $9.00, or $9.50, he then has the option to cover anything in excess of five million pounds at coverage levels of $4.00-$8.00 (in fifty cent increments).  Another notable change—the Farm Bill allows farmers who maintain “their coverage decisions, including coverage level and covered production, through 2023,” to “receive a 25% discount on their premiums each year.”  The DMC language can be found in section 1401 of the Farm Bill.

Missouri farmer pleads guilty to wire fraud for falsely marketing grains as organic.  Federal prosecutors charged Mr. Randy Constant with wire fraud, alleging that since 2008 he and his associates improperly marketed millions of dollars worth of grain as certified organic while knowing that it was not.  Mr. Constant operated certified organic farms as part of his larger operation, but “at least 90% of the grain being sold was actually either entirely non-organic or a mix,” according to the information filed by the federal prosecutors.  Federal prosecutors sought full restitution of approximately $128 million for victims/purchasers, in addition to the forfeiture of 70 pieces of equipment, ranging from pickup trucks to combines and semi-trucks to GPS yield mapping systems.

On December 20, 2018, Mr. Constant entered a plea of guilty.  The magistrate filed a report indicating that Mr. Constant understood what his plea meant, and that the one count of wire fraud is punishable by (1) a maximum of 20 years in prison, (2) a maximum of 3 years of supervised release following prison, and (3) a maximum fine of $250,000.  Further, Mr. Constant will be barred from receiving USDA benefits, including those from USDA Farm Service Agency, Agricultural Marketing Service National Organic Program, and Federal Crop Insurance Program.  Additionally, Mr. Constant could face restitution to all victims/purchasers of approximately $128 million.  For more information, search for United States v. Constant, 6:18-cr-02034-CJW-MAR (N.D. Iowa 2018).

Japan set to lower tariffs on agricultural commodities from TPP members and the EU.  The United States exports a significant share of the beef, pork, wheat, and other farm products imported by Japan.  However, two major trade agreements set to take effect early in 2019 will result in reduced tariffs for imports into Japan from a number of other countries.  The United States withdrew from the Trans-Pacific Partnership negotiations, but 11 other nations continued to pursue the agreement, which is set to begin taking effect at the start of 2019.  On February 1st, the Japan-EU Economic Partnership Agreement takes effect, and will result in lowered tariffs for a number of agricultural products, especially for beef.  Under the new agreements, chilled or frozen beef from EU and TPP exporters will face a 26.6% tariff, while tariffs on American beef will remain at 38.5%.  Prepared pork from EU and TPP exporters will face a 13.3% tariff, while tariffs on American pork will remain at 20%.  For more information on Japan’s participation in the Trans-Pacific Partnership, visit the Ministry of Foreign Affairs of Japan’s TPP webpage here.  For more information on Japan’s agreement with the European Union, visit the Ministry of Foreign Affairs of Japan’s EU agreement webpage here.

Ohio Case Law Update

• Signing a mortgage is enough to bind signatory despite not being named in the mortgage if the signature demonstrates an intent to be bound by the mortgage.  The Bankruptcy Appellate Panel for the United States Sixth Circuit Court of Appeals asked the Ohio Supreme Court to clarify “whether a mortgage is invalid and unenforceable against the interest of a person who has initialed, signed, and acknowledged the mortgage agreement but who is not identified by name in the body of the agreement.”  In this case, Vodrick and Marcy Perry filed for bankruptcy.  At issue was a piece of property subject to a promissory note and mortgage.  The bank held the promissory note, which was signed and initialed by Mr. Perry only, while the mortgage was signed by both Mr. and Mrs. Perry.  The Ohio Supreme Court held that “the failure to identify a signatory by name in the body of a mortgage agreement does not render the agreement unenforceable as a matter of law against that signatory.”  The focus is on the signor’s intent to be bound by the mortgage, even if the mortgage itself does not mention the signor by name.  The case is cited as Bank of New York Mellon v. Rhiel, Slip Opinion No. 2018-Ohio-5087, and the Ohio Supreme Court’s opinion is available here.
• Specific reference in a deed to a mineral interest preserves the interest despite Marketable Title Act when the reference includes the type of interest created and to whom the interest was granted.  Generally, Ohio’s Marketable Title Act allows a landowner with an unbroken chain of title for forty years or more to take an interest in the land free and clear of other claims that arose before the “root of title.”  However, there is an exception where prior interests will still apply if there is a specific identification of a recorded title transaction, rather than a general reference to an interest.  In this case, Nick and Flora Kuhn conveyed a 60-acre tract of land in 1915, but retained an interest in royalties from any oil and gas extracted from the parcel, specifically naming Nick and Flora Kuhn and their heirs and assigns.  Then in 1969, the Blackstone family purchased the 60-acre parcel, and received a deed that included language “[e]xcepting the one-half interest in oil and gas royalty previously excepted by Nick Kuhn, their [sic] heirs and assigns in the above described sixty acres.”  The Blackstone family sought to quiet title and have the Kuhn heirs’ interest extinguished or deemed abandoned in 2012.  The Ohio Supreme Court interpreted the language in the deed as sufficient to survive Ohio’s Marketable Title Act, which preserves the Kuhn heirs’ oil and gas interest that dates back to 1915.  The case is cited as Blackstone v. Moore, Slip Opinion No. 2018-Ohio-4959, and the Ohio Supreme Court’s opinion is available here.