The Supreme Court of Ohio decided two disputes today involving oil and gas drilling rights in eastern Ohio.

• In Fonzi v. Brown, the Supreme Court ruled that Monroe County landowners did not reasonably attempt to locate the mineral rights owners when seeking to declare the mineral rights abandoned.
• In French v. Ascent Resources-Utica LLC, the Court ruled that controversies over the expiration of an oil and gas lease are exempt from any lease provision requiring arbitration.

In the unanimous opinions, the Supreme Court affirmed the judgment of the Seventh District Court of Appeals in Fonzi and reversed the Seventh District in French.

Surface Owners Conduct Limited Search for Mineral Rights Holders
In Fonzi, the Court consolidated two cases concerning adjacent parcels of land in Monroe County. In 1952, Elizabeth Henthorn Fonzi sold a parcel of land she inherited to Donald and Eva Brown. In records related to that parcel, it was noted that, at the time Fonzi obtained the land, she resided in Finleyville, Pennsylvania, which is located in Washington County, Pennsylvania.

That same year, Fonzi sold adjacent land to Everette and Pearl Henthorn. In that deed, Fonzi noted she lived in Washington County, Pennsylvania. The Henthorns later sold their property to members of the Miller family.

In both sales, Fonzi reserved an interest in the oil and gas rights in the land. Beginning in 2011, the Browns and the Millers — the surface property owners — began the process of having Fonzi’s mineral interests declared as abandoned. The surface owners hired an attorney, who searched the Monroe County public records, conducted limited internet searches, and did not uncover any information about Elizabeth Fonzi or any potential heirs. The surface owners did not conduct any search beyond Monroe County.

In 2012, the surface owners began publishing notices in a Monroe County newspaper of their intent to declare the Fonzi mineral interests abandoned. The surface owners then filed affidavits of abandonment with the county recorder, who subsequently declared the mineral rights were abandoned.

In 2017, the Fonzi heirs filed a complaint in Monroe County Common Pleas Court seeking a declaratory judgment to retain their mineral rights. The Fonzi family members argued the surface owners did not exercise reasonable diligence in attempting to locate them. The surface owners then filed their own declaratory judgment case in Monroe County, arguing that under the Dormant Mineral Act (DMA), they took the appropriate steps to acquire the mineral rights.

The trial court sided with the surface owners, finding they made reasonable efforts to locate the heirs, and the Fonzi family waited too long to file a claim to preserve their mineral rights.

The Fonzis appealed to the Seventh District, which reversed the trial court. The surface owners appealed the decision to the Supreme Court, which agreed to hear the case.

Decision Delayed Pending Ruling in Similar Lawsuit
When the Court accepted the Fonzi cases, it announced it would hold the cases pending its decision in Gerrity v. Chervenak. After deciding Gerrity in December 2020, the Court resumed deliberations on the Fonzi cases.

Writing for the Court, Justice Patrick F. Fischer explained the Gerrity decision played an important role in resolving the Fonzi disputes. Today’s opinion explained that the DMA, which is R.C. 5301.56, sets forth the process for having mineral rights declared abandoned. The Court has ruled that to claim mineral rights under R.C. 5301.56(E), a surface owner must “exercise reasonable diligence to identify all holders of the severed mineral interest,” the opinion noted.

Justice Fischer noted the Court did not set a bright-line rule for what constitutes reasonable diligence, but stated that, generally, a review of the public records in the county where the mineral interest is located will establish the baseline for reasonable diligence.

In Gerrity, the Court ruled that there is no need to search outside of the county where the mineral interest is located if the documents recording the transfer of rights do not indicate whether the mineral-interest holder had died, moved, or transferred the rights to someone else.

“Surface owners are not required to do the impossible and locate undiscoverable holders; instead, they must exercise reasonable diligence in attempting to identify and locate holders of the mineral interest,” the opinion stated.

The Court concluded, though, that the Fonzi cases are “markedly different” from Gerrity, where no records in the county with the mineral rights indicated where the last mineral-rights holder was last known to reside.

In Fonzi, the surface owners did not attempt to search Washington County, Pennsylvania, records even though the Monroe County documents listed the last known address of Elizabeth Fonzi in Finleyville. The Court concluded that the surface owners did not exercise reasonable diligence and the surface owners cannot declare the rights were abandoned.

2020-0773 and 2020-0861. Fonzi v. Brown, Slip Opinion No. 2022-Ohio-901.

View oral argument video of this case.

Exploration Company Sought to Arbitrate Contract Dispute
In French, Michael and Karen French, along with several other joint owners of a tract in Jefferson County known as the Sutherland Farm, leased the property’s oil and gas rights to Ascent Resources-Utica.

The leases permitted Ascent to occupy the land and granted it the rights to construct wells, buildings, and other structures to facilitate oil and gas exploration and production. They had the traditional terms of an oil and gas lease, with a primary term lasting five years and a secondary term that allowed the leases to continue as long as oil and gas was being produced.

The leases also contained a provision extending the five-year primary term if Ascent secured permits and conducted some aspects of drilling operations more than 90 days before the leases expired. The parties agreed to submit any disputes concerning the “lease or performance under” the lease to arbitration.

In 2018, French brought an action in Jefferson County Common Pleas Court to declare that Ascent’s oil and gas leases had expired by operation of law because the company failed to produce oil or gas or commence drilling within the five-year primary lease term. The company countered that the leases were still in effect because Ascent obtained permits to construct wells and had begun constructing them before the leases expired, and the wells subsequently began producing oil and gas.

Ascent asked the trial court to stay the proceedings, claiming they were subject to mandatory arbitration under the leases. The trial court denied the stay, concluding that French’s claims involve title or possession to real estate, making them statutorily exempt from arbitration.

Ascent appealed to the Seventh District, which reversed the trial court’s decision. The Seventh District acknowledged that oil and gas leases create an interest in real estate, but it held that the dispute regarding Ascent’s compliance with the lease was not exempt from arbitration because it did not affect title or possession of real estate

The landowners appealed to the Supreme Court, which agreed to hear the case.

Supreme Court Examined Arbitration Law
Writing for the Court, Justice Sharon L. Kennedy stated that resolution of the issue began with examining R.C. 2711.01, the law requiring courts to enforce agreements to use arbitration to settle disputes. However, R.C. 2711.02(B) provides that arbitration requirements “do not apply to controversies involving the title to or the possession of real estate.”

The Court noted its prior rulings stating that oil and gas leases grant a lessee, such as Ascent, a “property interest in the land.” It also pointed out that R.C. 5301.09 requires all oil and gas leases to be recorded in the applicable county’s land records.

Citing its 2015 Chesapeake Exploration LLC v. Buell decision, the Court explained that an oil and gas lease constitutes a title transaction because it affects title to real estate. The opinion also stated that a lease affects possession of the land because the one leasing it enjoys the reasonable use of the surface to prospect for minerals below it and to produce them when found.

“The action in this case is therefore a controversy involving the title to or the possession of real property,” Justice Kennedy concluded.

Because the lease dispute was not subject to arbitration, the Court remanded the case to the trial court for further proceedings.

2021-0166. French v. Ascent Resources-Utica LLC, Slip Opinion No. 2022-Ohio-869.

View oral argument video of this case.

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