Oral Argument Previews for Wednesday, Jan. 6, 201

Wednesday, Jan. 6, 2016

In the Matter of Ohio Edison Company, the Cleveland Electric Illuminating Company, and the Toledo Edison Company for Authority to Provide for a Standard Service Offer Pursuant to Section 4928.143, Revised Code, in the Form of an Electric Security Plan, Case no. 2013-0513
Public Utilities Commission of Ohio

Mark Albanese, Executor of the Estate of James Albanese v. Nile Batman, et al., Case no. 2015-0120 Wayne Lipperman, et al. v. Nile Batman, et al., Case No. 2015-0121
Ninth District Court of Appeals (Wayne County)

Dayton Bar Association v. John Joseph Scaccia, Case no. 2015-1628
Montgomery County

Was PUCO’s Approval of FirstEnergy’s Third Electric Security Plan Improper?

ISSUES:

Did the Public Utilities Commission of Ohio (PUCO) follow the proper statutory procedure for determining whether a proposed electric security plan (ESP) was more favorable than a market-rate offer (MRO)?
Did the PUCO unlawfully approve items in a company’s proposed ESP when the specific language of the relevant statute excludes the items?
If the PUCO is permitted to consider qualitative factors, did it consider inappropriate qualitative factors because they fall outside the relevant statutes?
Was the PUCO-approved ESP less favorable in quantitative terms than the expected MRO price?
May the PUCO take administrative notice of testimony offered in the company’s hearing for its prior ESP application to support its application in the current case?
Did the company applying for an ESP fail to show that the stipulation it offered was the result of serious bargaining among the parties and represented the broad interests of the customers?
Did the company’s application comply with Ohio Admin. Code 4901:1-35-03(C)(1), requiring applications to include a “complete description of the ESP and testimony explaining and supporting each aspect of the ESP”?

BACKGROUND:
An electric distribution utility provides electricity to customers, but doesn’t generate the electricity. Instead, such a company must buy wholesale power to resell to its customers. A company must provide a “standard service offer” to explain how it will obtain the necessary electricity for those customers who decide not to shop among various competitive electricity suppliers. The standard service offer sets the rates, terms, and conditions of the service, and is established either through an electric service plan (ESP) or a market-rate offer (MRO), which is based on a competitive bidding process described in state law. For the PUCO to approve an ESP, the company must show that the ESP is more favorable than an MRO when considering all of the ESP’s elements together.

Company Seeks Approval of Third Plan
FirstEnergy refers collectively to three companies in the state – Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company. FirstEnergy filed an application with the PUCO in April 2012 for its third ESP, asking for an extension of the provisions in its second ESP, effective through May 2014, along with additional changes. The adjustments in the proposed third ESP would allow FirstEnergy to purchase some electricity on a staggered schedule (an approach called “laddering”) and permitting a three-year, rather than a one-year, timeframe and would extend the recovery period for renewable energy credit costs. The application included an agreement, referred to as a “stipulation,” signed by many organizations that would be affected by the plan. In July 2012, the PUCO adopted the stipulation and approved the ESP, finding that the plan was more beneficial than the expected results under an MRO structure.

The Northeast Ohio Public Energy Council (NOPEC) and the advocacy organization Environmental Law and Policy Center (ELPC) appealed the decision to the Ohio Supreme Court. NOPEC is a group of governments in 10 northeastern Ohio counties that provides “electric aggregation service” to customers in that area.

Government Aggregator Lays Out Several Claims
Attorneys for NOPEC contend that state law and decisions from the Ohio Supreme Court show that the PUCO is permitted to consider only pricing and other quantifiable items when determining whether an ESP is more favorable than an expected MRO. They maintain that a 2011 Court ruling explained that the nine items listed in a state public utilities law are quantitative and form the basis for any PUCO decision when comparing ESPs to MROs.

In their view, the qualitative aspects of FirstEnergy’s ESP cited by the PUCO can’t be used to support the PUCO’s analysis of the plan. And even if the law allows the PUCO to weigh qualitative factors, NOPEC’s attorneys argue that the qualitative factors mentioned in the commission’s ruling aren’t included in the relevant statutes.

In addition, they dispute the quantitative evaluation done by the PUCO. When certain credits and costs are removed from the ESP, the quantitative benefit of the ESP is less than the MRO, which should cause the PUCO to reject the plan, they contend.

They also challenge the PUCO’s action to incorporate “the entire, massive records” from FirstEnergy’s second ESP application into the current case through “administrative notice.” Such incorporation of materials into the record is allowed only if the other side has the opportunity to prepare and respond, and NOPEC’s attorneys assert they weren’t given sufficient time to do that. They add that FirstEnergy was obligated to identify the documents that met its burden of proof in the matter, but the PUCO released them of that requirement.

They also contend that the PUCO rushed through the process of approving the stipulation and plan preventing “serious bargaining” among the involved parties and instead satisfying the limited interests of a portion of the affected residential customers.

Environmental Group Contends Supporting Evidence Is Lacking
Attorneys for the EPLC argue that FirstEnergy’s application was incomplete and didn’t include a “complete description of the ESP and testimony explaining and supporting each aspect of the ESP,” quoting a state regulation. They claim that testimony and documentation didn’t explain why most elements were part of the proposal. They also dispute the inclusion of the record from FirstEnergy’s second ESP application, asserting that it’s irrelevant in a changing market. The PUCO must adhere to its own standards and rules and should’ve denied FirstEnergy’s application, they conclude.

Commission Explains Its Decision
Attorneys for the PUCO respond that because FirstEnergy’s application was essentially an extension of the second ESP, the company didn’t need to again support each element of the third ESP because it was substantially the same as the earlier one. A full filing wasn’t required, they maintain.

They also argue that the commission must consider not only pricing but also the policy goals set out by the legislature in state law when evaluating whether an ESP is more beneficial than an MRO. In doing that, the PUCO determined that FirstEnergy’s ESP would better meet statutory requirements and goals than an MRO would, they state. In the commission’s view, the ESP was found to be both quantitatively and qualitatively better than the alternative approach. On the quantitative side alone, the PUCO concluded that the ESP would cost $21 million less than an MRO.

They add that incorporating evidence from an earlier PUCO proceeding is an accepted procedure that prevents lengthy delays. In this case, the commission determined that no party would be harmed if evidence from the second ESP application were incorporated into the case record through administrative notice. The PUCO’s attorneys argue that NOPEC was given fair warning of the notice and time to rebut the evidence. They maintain that FirstEnergy’s obligation to prove its case was not somehow lessened by this step and that only a portion of the documents from the second ESP application, not the entire record, were folded into the current case.

They also counter that the interests of residential customers weren’t excluded from the negotiations that led to the stipulation, as proven by multiple organizations who signed the agreement.

Electric Companies Argue Plan Was Proper
The Supreme Court permitted the companies that make up FirstEnergy to intervene in this case and file a brief. Attorneys for FirstEnergy agree with the PUCO that the commission had the authority to consider the ESP’s qualitative benefits, that the evidence supported approval of the plan, that the PUCO’s inclusion of the earlier record was proper in this case, and that all parties were given the chance to participate in the bargaining process that led to the stipulation.

They also assert in the brief to the Court that state regulations do not mandate that applications “include an encyclopedic treatise or minimum page count.” Contrary to ELPC’s claim, FirstEnergy’s application was supported by the included documents, the stipulation, and other testimony and exhibits, they argue.

They conclude that the earlier ESP has been successful and that the adjustments made to that plan for the current ESP will ensure more consistent and stable rates for customers during the plan’s term.

- Kathleen Maloney

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Contacts
Representing the Environmental Law and Policy Center: Robert Kelter, 614.488.3301

Representing FirstEnergy (Ohio Edison Company, Cleveland Electric Illuminating Company, and Toledo Edison Company): David Kutik, 216.586.3939

Representing the Northeast Ohio Public Energy Council: Glenn Krassen, 216.523.5405

Representing the Public Utilities Commission of Ohio from the Ohio Attorney General’s Office: Thomas McNamee, 614.466.4396

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Can Oil and Gas Rights Owners Time Filing of Out-of-State Will to Act as Saving Event Under Ohio’ s Dormant Mineral Act?

ISSUES:

Is the recording of an out-of-state will a title transaction that constitutes a savings act under the 1989 Ohio Dormant Minerals Act?
Can oil and gas companies with drilling rights participate in a case on behalf of an alleged mineral owner defending against claims by a landowner that the mineral rights were abandoned?

BACKGROUND:
Two Belmont County landowners in separate cases are fighting claims by Nile and Kathryn Batman over mineral rights they claim underneath the land. Attorneys, who represent the landowners in both cases, note that Nile Batman’s mother, Frances, filed an affidavit in Belmont County claiming ownership interests in more than 100 properties spread throughout the county a month before she died. Frances Batman’s ownership was based on claims of mineral interest reserved by her grandfather in 1925 when he began to sell parcels of his land to others. Both landowners have sought to use the 1989 version of the Ohio Dormant Mineral Act (ODMA) to quiet title to their property and claim all the mineral rights under their land.

Albanese Claim
As the executor of the estate of James Albanese III, Mark Albanese has title to 104 acres in Smith Township. The Batmans claim a one fourth interest in the oil and gas rights underneath the land. Attorneys for Albanese note that John A. Clark died in 1930 leaving the land to his wife and daughter, the mother of Frances Batman. The Batman family claims the land and mineral interests were passed down to Frances even though no actions listing specific preservations of mineral interests were noted in Belmont County deed records. Frances Batman died in Nebraska in 1981, and Nile Batman filed an “Affidavit of Notice of Claim of Interest in Land” in Belmont County claiming mineral ownership interests in the land below the Albanese’s land and more than 100 other properties. A copy of her will was filed in Belmont County in April 1989 without any descriptions of the property, but only claiming she willed all her land interests to her son, Nile. In 2008, the Batmans entered an oil and gas lease with Mason Dixon Energy for the Albanese property and another with Reserve Energy in 2009. James Albanese entered a lease for the oil and gas underneath his land with Hess Ohio Development in 2011, and he died in May 2013. In November 2013, Mark Albanese filed a complaint to quiet title against the Batmans and the drillers asking for a determination of the ownership rights. A Belmont County Common Pleas Court granted summary judgment to the Batmans and gas companies.

Albanese appealed to the Seventh District Court of Appeals, which affirmed the trial court’s decision in favor of the Batmans, in December 2014. While Albanese contested the validity of filing the will in 1989 as a way for the Batmans to demonstrate they didn’t abandon their ownership rights, the Seventh District took a different approach. The Seventh District concluded that the 1989 version of the ODMA had a “fixed lookback period,” and under that theory, once the Batmans filed the 1981 affidavit, landowners could never use the ODMA to merge the oil and gas interest with the surface land interest. The landowners would have to pursue other legal methods if they wanted to invalidate Batmans’ ownership claims, the court ruled.

Lipperman Claim
Wayne Lipperman is the owner of 41 acres of land in Pultney Township where the Batmans claimed a 50 percent ownership in the oil and gas interest underneath the property. The claim is the same as in Albanese in that Frances Batman inherited it all from her grandfather and then transferred all her ownership to her son in the 1981 will filed in Nebraska where she died. Nile Batman filed and recorded a copy of the Nebraska will in Belmont County in 1989. Lipperman leased the oil and gas rights to Reserve Energy Exploration in April 2006 and the Batmans signed a lease with Reserve Energy in 2008. Reserve assigned its lease to Equity Oil and Gas, and further assigned a portion of those rights to Phillips Exploration, which is now part of XTO Energy. In February 2012, Lipperman filed to quiet title against the Batmans and the oil companies. The trial court found for the Batmans, and the Seventh District affirmed the decision based on the same theory it used to side with the Batmans in the Albanese case.

Court Agrees to Limited Arguments
Both Albanese and Lipperman appealed to the Supreme Court. The Court noted that it already has under consideration another case determining whether the Seventh District fixed lookback period is correct. If the Court were to rule so, the Batmans’ use of the out-of-state will would not be a factor as their rights would have been preserved by the 1981 affidavit. However, if the Court was to decide the “lookback period” under the 1989 law were rolling, then the Batmans would have to have taken an action in 1989 to have the right to enter leases in 2008 and 2009. The Court agreed to hear Albanese’s and Lipperman’s arguments on whether the recording of the out-of-state will was a title transaction, which is one way a mineral rights’ owners can prove they haven’t abandoned their rights, and the surface rights owners can’t claim their mineral interest using the ODMA.

Landowners Claim Will Ineffective to Preserve Mineral Rights
Attorneys representing Albanese and Lipperman argue that the Batmans failed to follow four key areas of the law required to use the out-of-state will as a title transaction that would preserve their mineral rights. First they note that the ODMA defines a title transaction in R.C. 5301.47 as a “transaction affecting title to any interest in land.” They argue that while a person can receive title by will, the Batman will does not count because Frances Batman had “no title to real property at the time of death,” and the trial court was incorrect to assume she had title because she filed the affidavit claiming interest in 1981.

“The record is clear that the last person with actual title to the severed mineral interest in this case was J.A. Clark by transactions which took place in 1925 and 1926. There was no action evidencing ownership of this interest until 1981. Furthermore, there is no mention of the mineral interest or any other property interest in her will,” stated the brief filed by the landowners’ lawyers.

Without any interest in the land, the attorneys contend the will is ineffective as a title transaction that can be used under the ODMA.

Next, they argue the 1981 affidavit was wrongly interpreted by the lower courts to be a “savings event,” and should have been deemed a “claim to ownership.” To make a proper claim, they suggest the law required the Batmans to file a preservation affidavit in addition to the will because the will didn’t describe the mineral interests in it. Next, they offer that the ODMA is part of the state’s Marketable Title Act and claim that the Batmans need an “unbroken chain of title” that would have passed down from Clark to the Batmans in order to preserve the mineral rights. They suggest that the Batman will doesn’t have enough information to make it an effective transfer of the mineral rights. Finally, they argue to use the will, the Batmans would have needed to follow the “ancillary administration” process when submitting the will to the Belmont County Probate Court and a certificate of transfer was required to pass on the property from mother to son.

Batmans Claim Property Preserved
Attorneys for the Batmans counter the four arguments by the landowners stating the Batmans followed Ohio law in documenting continued ownership and interest in preserving the mineral rights. They suggest the law doesn’t require the Batman will to specify the property because the mother left all of her property “wherever situated” to her son. Because the will didn’t exclude the mineral interest, the language effectively included it, they note. In addition, they argue Ohio law created a “chain of title” from John Clark to Frances Batman with no requirement to specify the mineral rights in each of the wills of the family members passing down the property, and the Batmans were empowered to file the 1981 affidavit based on the interests passed down from Clark. They also note the landowners did not challenge the 1981 affidavit in the lower courts and conceded it was a valid savings event under the ODMA.

The attorneys also explain the timing of the affidavit and how filing of the will seven years later makes it a title transaction. They contend when Batman died in 1981, “legal title” to the property transferred from mother to the son. Until the will is recorded, the legal title of the property can be disputed by others who produce an alternate version of a will claiming ownership. In 1989, Nile Batman received “record title” to the land when the out-of-state will was filed and recorded in Belmont County. The recording date triggered the 20-year time of preserving the mineral rights giving them until 2009 to sign oil and gas leases, they contend. In addition, they argue that an ancillary administration and certificate of transfer is optional and not required, making the will a valid transfer under the Marketable Title Act.

Oil Company Standing Questioned
In the Lipperman case, the Court also asked the parties to determine if two drillers, Phillips Exploration and parent company, XTO Energy (XTO companies), had standing to participate in the case. The XTO companies note they acquired interests in leases signed by both Lipperman and the Batmans to ensure they had a valid lease for the mineral interests under the Lipperman property.

Attorneys for Lipperman argue the companies have no standing to appear in the case, where they have argued on behalf of the Batmans, because Lipperman isn’t disputing the validity of the lease between the Batmans and the oil companies. Lipperman’s attorneys argue that since this is only a case to invalidate the Batmans’ title, the oil companies are not harmed because their leases with Lipperman are still valid. They also suggest the XTO companies no longer have an interest in the outcome because they ended their interest in the disputed land during the course of the litigation.

Attorneys for the XTO companies counter that they do have standing and that the determination of their interest in the case isn’t based on their present position, but what it was at the time Lipperman filed his complaint. At that time, they argue, XTO was named in the lawsuit and was a “necessary party” in the case with a sufficient interest in the outcome.

Friend-of-the-Court Briefs
Other drillers also filed amicus curiae briefs supporting the Batmans’ position. Hess Ohio Resources and Hess Ohio Developments, which acquired the Batmans’ mineral interest lease for the Albanese property, filed a brief. The companies suggest Albanese continues to shift arguments after losing at the lower levels.

Briefs were also filed jointly by Reserve Energy and Equity Oil & Gas Funds, which each have leases with the Batmans for the mineral interests under the Lipperman land with some of their interests assigned to the XTO companies.

- Dan Trevas

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket (Case No. 2015-0120 and Case No. 2015-0121).

Contacts
Representing Mark Albanese, executor of the Estate of James Albanese, and Wayne Lipperman, et al.: Richard Lancione, 614.676.2034

Representing Nile Batman, et al.: Bruce Smith, 330.821.1430

Representing Phillips Exploration, Inc., and XTO Energy, Inc.: Marion Little, 614.365.7900

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Attorney Discipline

Dayton Bar Association v. John Joseph Scaccia, Case no. 2015-1628
Montgomery County

The Board of Professional Conduct recommends the Ohio Supreme Court suspend Dayton attorney John Scaccia for 18 months, with the final six months stayed on conditions, for violating several professional conduct rules. The board’s disciplinary panel heard in August several alleged instances of misconduct about his dealings with one client.

The Dayton Bar Association filed its complaint against Scaccia in January 2015. It found that Scaccia failed to timely respond to discovery requests from his client’s employer’s attorney and failed to appear at the client’s hearing. After a trial court dismissed the complaint when Scaccia didn’t show up, the attorney failed to timely file an appeal. He also didn’t pay two court-ordered monetary sanctions.

This isn’t the first time Scaccia has faced discipline from the Supreme Court. The Court suspended Scaccia twice in the span of less than a year. In October 2014, he was suspended for one year, with six months stayed, and again in June 2015 for one year, with six months stayed, to run concurrent with his first suspension.

This time, the disciplinary board determined that Scaccia “failed to act reasonably to protect the interest of his client. (The bar association) has proven, by clear and convincing evidence, that (Scaccia) violated his obligations under Prof. Cond. R. 1.3.”

The board stated that because Scaccia has multiple instances of misconduct, has prior disciplinary offenses, and has denied he engaged in misconduct, the Court should give him an 18-month suspension with six months stayed.

Attorney’s Objections
Scaccia argued that he had a host of personal heath and family issues that should’ve been taken into account, including a Vitamin D deficiency that “led to absentmindedness, inattention to detail, and at times (him) ‘literally falling asleep.’”
Scaccia noted that his “personal health and family issues are at a minimum relevant to his unique situation, and set him apart from other cases where attorneys received less severe sanctions than what is recommended against (him).”

With no discipline issues prior to his health problems, Scaccia is asking the Court to take these mitigating factors into account. In a brief his attorney states the Court “should be satisfied that the actual suspension (Scaccia) has already served is more than sufficient to assuage any doubts about his ability to return to the practice of law.” Scaccia is recommending that his prior suspension be sufficient and that the Court place him on probationary status with monitoring and mentoring.

Response from Bar Association
In response to Scaccia’s objections, the bar association filed a brief that argued in regards to the Vitamin D deficiency: “No medical evidence of any kind was presented to substantiate that claim. Respondent recited that sickness of a child and the illness and death of his mother…Respondent did not testify as to how these matters affected him in the practice of law nor that any contributed to his misconduct.”

The bar association is asking the Court to affirm the disciplinary board’s recommendations.

- Jenna Gant

Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.

Contacts
Representing the Dayton Bar Association: Brian D. Weaver, 937.278.9077

Representing John Joseph Scaccia: David P. Williamson, 937.223.3277

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.