Siltstone Res., L.L.C. v. Ohio Pub Works Comm’n: The Effect of Deed Restrictions on Mineral Right

In Siltstone Res., L.L.C. v. Ohio Pub Works Comm’n, 2022-Ohio-483, the Ohio Supreme Court examined whether the lease and transfer of subsurface mineral rights in property purchased with a grant from the Clean Ohio Conservation Fund conflicts with its agreed use and operation as a green-space park area.[1]  In 2005, the Guernsey County Community Development Corporation (the “CDC”) executed a grant agreement with the Clean Ohio Conservation Fund, administered by the Ohio Public Works Commission (the “OPWC”) for the purchase of a 228.485 acre property in Belmont County, Ohio.[2]  The deed for the property contained two essential restrictions: (1) a prohibition on the use of the property in any manner conflicting with its use as green-space park area, and (2) a prohibition on selling, assigning, transferring, leasing, exchanging, conveying, or encumbering the property without the prior written consent of the OPWC.[3]  These restrictions were for an indefinite period.

The CDC subsequently entered into an oil and gas lease covering the property and executed numerous transfers of the subsurface mineral rights to various entities, including Siltstone Resources, L.L.C. (“Siltstone”).[4]  However, the CDC did not obtain the prior written consent of the OPWC before entering into said transfers and lease.[5]  In 2015, Gulfport Energy Corporation, as a subsequent assignee of said lease, suspended its mineral royalty payments in response to concerns that the CDC may have been restricted by the deed from transferring the subsurface mineral rights.[6]  Siltstone then filed suit to quiet title to its ownership of the mineral rights in the subsurface of the property.[7]  The trial court held that the leases and transfers of the mineral rights of the property were valid.[8]  The appellate court reversed and held that the transfer restrictions applied to both the surface and subsurface rights of the property and that the OPWC was entitled to equitable remedies.[9]

The Supreme Court of Ohio considered whether the leasing and transfer of subsurface mineral rights in the property conflicted with the agreed use and transfer restrictions stated in the deed.[10]  The Court also evaluated, generally, the potential for restraints on the use and transferability of property to violate public policy interests.[11]

In this case, the Court determined that the restraints contained in the deed were clearly stated and reasonable in light of the purpose of the Clean Ohio Conservation Fund.[12]  Additionally, the indefinite duration of the restriction was consistent with the public purpose of land conservation and preservation.[13]

Thus, because the CDC was obligated to seek written consent from the OPWC for the transfer or lease of the green-space park area, the CDC violated the restriction when it leased and transferred the subsurface mineral rights to Siltstone.[14]

The Court then examined the issue of remedies; specifically, whether the OPWC’s request for injunctive relief against CDC and Siltstone to halt mining activities was an appropriate remedy.  The Court held that the OPWC is not exclusively limited to liquidated damages as a remedy, and that imposing such limitation would be contrary to the purpose of Clean Ohio Conservation Fund.[15]  The “Enforcement” clause in the deed provided that a violation may be remedied through liquidated damages or “by proceedings in law or in equity.”[16]

This case serves as a reminder that the fundamental right of parties to contract freely with the expectation that their agreement will be enforced is largely upheld.  This case also reminds us that transfer restrictions supported and contracted for public policy purposes are enforceable despite the general rule favoring alienability.

This article was authored by Ryan Stewart and Julianna Mathiellis.

[1] Siltstone Res., L.L.C. v. Ohio Pub Works Comm’n, 2022-Ohio-483.

[2] Id. at ¶¶ 5-6.

[3] Id. at ¶¶ 7-8.

[4] Id. at ¶ 9.

[5] Id. at ¶¶ 9-10.

[6] Id. at ¶ 11.

[7] Id.

[8] Id. at ¶ 12.

[9] Id. at ¶ 13.

[10] Id. at ¶ 22.

[11] Id. at ¶¶ 23-25.

[12] Id. at ¶ 26.

[13] Id. at ¶ 25.

[14] Id. at ¶¶ 10, 35.

[15] Id. at ¶ 42.

[16] Id. at ¶ 42.