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Oil and Gas Royalty Interest Miscalculated in 1954 Not Extinguished

Image of a rig and derrick used for fracking

The Court ruled a 1954 deed may have preserved a mineral interest that an oil and gas company sought to eliminate.

Image of a rig and derrick used for fracking

The Court ruled a 1954 deed may have preserved a mineral interest that an oil and gas company sought to eliminate.

An oil and gas company cannot claim the full mineral rights to property in Belmont County because a claim to one-quarter interest of the minerals might still be owned by the heirs of a man who sold the property in 1954, the Supreme Court of Ohio ruled today.

In a 4-3 decision, the Supreme Court noted that George Russell made an error in 1954 when he tried to convey a three-quarter oil and gas interest in an 86-acre tract of land and retain a one-quarter oil and gas interest, when in fact he only owned a three-eighth interest at the time. Senterra Ltd., which ultimately bought the surface property, asked Ohio courts to use a longstanding oil and gas industry rule, known as the “Duhig rule,” to invalidate the Russell heirs’ ownership claim.

While the trial court agreed with the company to extinguish the decades-old claim to the mineral rights to the property, the Seventh District Court of Appeals ruled that Russell’s one-quarter interest has survived Senterra’s challenge. The Supreme Court affirmed the Seventh District’s decision, but remanded the case to Belmont County Common Pleas Court to determine if yet another mineral rights law wiped out the claim.

Writing for the Court majority, Justice Melody Stewart stated the Duhig rule is narrower than Senterra argues it should be. Russell’s claim to a one-quarter interest is not automatically invalid because he conveyed more rights than he actually owned, she wrote.

Chief Justice Maureen O’Connor and Justices Michael P. Donnelly and Jennifer Brunner joined Justice Stewart’s opinion.

In a dissenting opinion, Justice R. Patrick DeWine wrote that a property owner cannot convey more land than he owns and simultaneously except and reserve land for himself. And “when it is not possible to give effect to both a conveyance and a reservation, then the conveyance prevails.”

Because Russell over-conveyed, his 1954 exception of mineral interests was void from the start. Thus, the trial court was correct to award Senterra the complete mineral rights, the dissent concluded.

Justices Sharon L. Kennedy and Patrick F. Fischer joined Justice DeWine’s dissent.

Mineral Rights Divided Over the Years
In 2012, Senterra acquired 77.5 acres of land in Belmont County. The deed noted that the oil and gas rights had been severed from the surface property rights. The genesis of the splits occurred in 1925 when two families, the Winlands and the Dermots, owned an 86-acre tract of land. The Winland-Dermot land was sold that year to Joseph and George Russell, but the Winland-Dermot families retained a one-quarter interest in the underlying oil and gas.

In 1941, Joseph and George Russell conveyed the surface property solely to George Russell. The transfer retained “all oil and gas rights,” meaning Joseph and George split the mineral rights they owned. The deed did not mention that one-quarter of the property’s minerals was still owned by the Winland-Dermot family.

In 1954, George Russell transferred the tract to Stanley and Margaret Juzwiak. Russell retained a one-quarter interest in the oil and gas for himself. He did not mention the prior exceptions in the deed transfer or the ownership rights of Joseph or the Winland-Dermot families. George Russell transferred the land as if he owned all the mineral rights and was granting three-fourths of those minerals to the Juzwiaks.

In 1971, the Juzwiaks transferred 77.5 acres of the 86-acre track to a coal company. That deed indicated George Russell retained a one-quarter interest in the mineral rights. The deed transferred four more times between 1971 and 2012, when, ultimately, Senterra bought it. Each deed transfer made some mention of Russell’s ownership of the one-quarter mineral interest.

Company Seeks Restoration of Mineral Rights
In 2018, Senterra filed a lawsuit in Belmont County Common Pleas Court to extinguish all the oil and gas interests claimed by the heirs of the former landowners. The company argued the Winland-Dermot rights and Joseph Russell’s rights were extinguished by the Ohio Marketable Title Act (MTA), and that George Russell’s claim was not legally valid under the Duhig rule.

The Court explained the Duhig rule comes from the 1940 Supreme Court of Texas decision in Duhig v. Peavy-Moore Lumber Co. The Court said Senterra overstated the impact of the Duhig rule, which states that if a seller breaches the contract by not transferring the full amount of mineral rights owed to the buyer, and the seller has retained the exact amount of mineral rights to correct the mistake, then the seller can avoid being in breach by forfeiting the retained mineral rights.

Senterra also argued that all the oil and gas rights have been abandoned under the Dormant Mineral Act (DMA) because none of the families have taken the appropriate actions over the years to preserve their mineral rights.

The trial court agreed that the Duhig rule voided George Russell’s interest and that the MTA extinguished the other interests. It did not rule on whether the DMA wiped out the claims.

A group of 20 heirs of the former landowners appealed the decision to the Seventh District. The Seventh District agreed the Winland-Dermot and the Joseph Russell interests were extinguished by the MTA. However, the appellate court ruled the Duhig rule did not apply to George Russell’s claim, and that, under the MTA, his claim was still valid.

Both the heirs and Senterra appealed the decision to the Supreme Court, which agreed to hear the case.

Supreme Court Examined Mineral Rights Rules
As the case was pending, the Supreme Court issued its 2020 West v. Bode decision, which held that there is no conflict between the MTA and the DMA.

Justice Stewart explained state lawmakers passed the MTA in 1961 to improve the marketability of property titles by wiping out ancient interests in property that had not been acted upon in years. In 1976, the MTA was amended to allow property owners to clear titles to unused mineral interests.

The marketable record title extinguishes interests and claims existing prior to the date of the “root of title,” which was some transaction purporting to create the interest in the present title. In this case, the parties agreed the 1971 deed that transferred the land from the Juzwiaks to the coal company was the root of title for the Joseph and George Russell exception and 1954 deed that transferred the land from George Russell to the Juzwiaks was the root of title for the Winland-Dermot exception.

Because the Winland-Dermot and the Joseph Russell exceptions or reservations were not noted in the 1954 or 1971 deeds, and no actions were taken in the 40 years after 1954 or 1971 to preserve them, they were extinguished by the MTA, the Court ruled. Those interests were acquired by Senterra.

Effect of Act Keeps Mineral Interest Alive
The Court noted that if the MTA did not serve to wipe out the older interests, George Russell’s claim may have been treated differently. While Russell transferred a three-quarter interest in the minerals at the time, he only owned a three-eighth interest. At the time the deed was executed, the Winland-Dermot family owned a two-eighth interest and Joseph Russell owned a three-eighth interest. If George Russell were to retain a one-quarter interest, the most he could have conveyed to the Juzwiaks was a one-eighth interest, the opinion explained.

Senterra maintained that once Russell attempted to convey more than he owned, he violated the Duhig rule and extinguished all of his ownership rights when he sold the property.

The Court stated that under the Duhig rule, Russell would have to forfeit his oil and gas interest if by doing so, he could fully convey to the Juzwiaks what they purchased. At the time that deed was transferred, the other five-eighth interest had not been extinguished, the opinion explained. If Russell forfeited his one-quarter interest, at most he could provide a three-eighth interest, which is not the three-quarter interest he promised the Juzwiaks, the Court explained, and the Duhig rule does not apply.

The Court also stated that Senterra and the dissent did not point to anything in Ohio law that states an interest is void if property owners attempt to convey more than they own.

Since the trial court’s use of the Duhig rule to wipe out George Russell’s interest was not applicable, the Supreme Court held the MTA controlled the outcome of the case. The opinion noted that Senterra cannot ignore that the MTA extinguished the prior interests claimed by Winland-Dermot in 1925 and Joseph and George Russell in 1941.

The MTA has thus preserved the George Russell one-quarter interest, the Court concluded.

Traditional Property Transfer Rules Extinguished Claim, Dissent Maintained
In his dissent, Justice DeWine explained that “[t]ime-honored principles of property law establish that George Russell could have conveyed only what he owned and that he bore the risk of any overconveyance.” George Russell’s exception was void, because the same interest he purported to reserve for himself he also conveyed, and “the conveyance supersedes the exception.” 

“If I have three apples, and I give three apples away, I can’t keep one for myself,” Justice DeWine explained.

After explaining that George Russell did not reserve any mineral interest for himself in 1954, the dissent next demonstrated that the MTA “does not resuscitate George Russell’s void exception.”  An MTA analysis begins with identifying the “root of title,” which, Justice DeWine explained, must “purport[] to create the interest claimed.”

“One would be hard pressed to say that the 1954 deed ‘purport[ed] to create’ the interest claimed by the George Russell heirs,” the dissent stated. “George Russell’s heirs cannot establish marketable title because they cannot identify a 40-year period following the root of title.”

“The mistake that the majority makes,” Justice DeWine continued, “is to assume that simply because an interest appears in a chain of title for a 40-year period, then the interest is validated by the MTA.” The effect of the majority’s MTA analysis was to create a new interest for the George Russell heirs, “[b]ut the MTA cannot validate defunct interests.”

Justice DeWine added that his conclusion — that “Senterra is entitled to an unencumbered marketable record title to the property” — is consistent with the MTA’s purpose “to reunite severed mineral interests with the surface property subject to those interests.” Instead, “the majority adopts a novel application of the MTA to reach a result contrary to its purpose.”

The dissent also noted that while some heirs to other former property owners have come forward to try to block Senterra’s claim to full ownership, none of George Russell’s heirs made an appearance. 

“The only claim at bar is Senterra’s quiet-title claim,” Justice DeWine wrote. “[T]here is no occasion to analyze whether [the George Russell heirs] could rely on the MTA to establish marketable title.”

The dissent found it “curious, to say the least, that the majority never addresses this issue.”

2020-0197. Senterra, Ltd. v. Winland, Slip Opinion No. 2022-Ohio-2521.

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