Who has standing to challenge abandonment of a mineral interest under the Ohio Dormant Mineral Act (“DMA”)?1Ohio Rev. Code § 5301.56. Earlier this year in two cases, both styled Cardinal Minerals, LLC v. Miller,22024-Ohio-2133 (7th Dist. 2024), jurisdiction declined, 2024-Ohio-5104; and 2024-Ohio-3121, (7th Dist. 2024). the 7th District Court of Appeals of Ohio held that only the record holder of the mineral interest at the time the DMA process is completed, and not a subsequent purchaser of the interest, has standing to challenge the abandonment process.
The court’s holding implies two key points:
- A purchaser who acquires a mineral interest subject to completed DMA filing acquires nothing, because under under Ohio Rev. Code § 5301.56(H)(2)(c), that interest was deemed abandoned and vested with the surface estate upon completion of the DMA process; and
- The only way to revive a statutorily abandoned mineral interest under the DMA is for a holder with proper standing to obtain a judicial determination that the abandonment process was invalid.
I. Background and Facts
The Cardinal cases involved a 36-acre tract of land, and an 80.32-acre tract of land located in Monroe County, Ohio. Through a series of conveyances, S.E. Pfalzgraf and his wife, Emma Pfalzgraf reserved all of the oil and gas in and under both properties (the “Pfalzgraf Interest”).32024-Ohio-2133, ¶ 5 (7th Dist. 2024), jurisdiction declined, 2024-Ohio-5104.
The Millers (Appellees) acquired the surface of the property in the late 1990s and attempted to enter into an oil and gas lease with Eclipse Resources I, LP (“Eclipse”) in 2012. When the Millers received a defect notice indicating that they did not own the oil and gas leasing rights, they hired a title company to perform research on the Pfalzgraf Interest and initiate the abandonment process provided under the DMA. Beginning in August of 2013, the title company published notice of abandonment on behalf of the Millers in the Monroe County Beacon, filed an affidavit of abandonment in the Monroe County Official Records.4Id. at ¶ 8. Notable, notice was only served by publication, rather than on the Pfalzgraf Heirs at their last known addresses, even though they were identified in the Miller’s title search.
After the DMA process was completed, the Millers leased oil and gas interest to Eclipse in 2014. Wells were drilled in 2015 and 2016, and Eclipse began paying royalties to the Millers.5Id. at ¶ 9.
Appellant Cardinal Minerals, LLC was formed in 2021 to “scout out” producing oil and gas interests for purchase by searching the Monroe County records for Affidavits of Abandonment and identifying those where notice was only served by publication. Cardinal would then track down the heirs to the original reserving party that may not have received notice by publication and offer to purchase the interest, with the intent to file a lawsuit challenging the abandonment process.6Id. at ¶ 11.
In January of 2022, Cardinal Minerals, LLC found the heirs to the Pfalzgraf Interest, purchased their abandoned interest, and made it clear that their intent was to pursue litigation against the surface owners (the Millers) and the operator. Cardinal also obtained an “Assignment of Claims” to pursue the lawsuit.7Id. at ¶ 11.
II. Procedural History
In April and May of 2022, Cardinal filed complaints in the Monroe County Court of Common Pleas seeking, among other things, declaratory judgment regarding the Miller’s reasonable diligence in the search to locate the holders of the Pfalzgraf Interest, to quiet title to the mineral interest in Cardinal, and a declaration that the Miller’s lease to Eclipse was void.
On October 11, 2023, the trial court granted Appellees’ motions for summary judgment and overruled Appellant’s cross-motion for partial summary judgment. In particular, the trial court found that the Pfalzgraf Interest was “deemed abandoned of record and vested in the Millers for approximately nine years prior to the purported transfers to Appellant.”8Id. at ¶ 18. For this reason, Cardinal, who purchased from the Pfalzgraf Heirs, had no interest in the property, and therefore lacked standing to assert its claims. The trial court further found that the transfers of claims to Cardinal were “void under the Doctrines of Champerty and Maintenance.”9Id.
III. Appeal
Cardinal argued in both appeals, among other things, that “when the holders conveyed their minerals to Appellant via quit-claim deed, the holders transferred all their rights at the time of the conveyance to Appellant, which conferred standing on Appellant to file the claims” in the lawsuit.” The 7th District Court of Appeals disagreed:
Contrary to its position, Appellant cannot “step in the shoes” of the Pfalzgraf Heirs because the record supports the trial court’s finding that only the Pfalzgraf Heirs had standing and thus, Appellant lacks standing to pursue its claims.
Appellant could not buy, and the Pfalzgraf Heirs could not sell, an interest that no longer existed in the public record. By virtue of the abandonment performed in 2013, the Pfalzgraf Interest was “deemed abandoned and vested” in the Millers in the public records of Monroe County, Ohio. Thus, unless the Pfalzgraf Heirs received a judicial declaration that the abandonment performed by the Millers was invalid, the Pfalzgraf Interest ceased to exist and could no longer be the subject of a record transfer.10Id. at ¶ 21-23.
Ohio Rev. Code § 5301.56(H)(2)(c) states:
Immediately after the notice of failure to file a mineral interest is recorded, the mineral interest shall vest in the owner of the surface of the lands formerly subject to the interest, and the record of the mineral interest shall cease to be notice to the public of the existence of the mineral interest or of any rights under it (emphasis added).11Id. at ¶ 30.
The Pfalzgraf Heirs filed neither a claim to preserve, nor an affidavit identifying a savings event within 60 days of the publication of the Notice.12Id. By failing to do so, the Pfalzgraf Interest was statutorily abandoned in 2013.13Id. at ¶ 31.
The court noted that the Pfalzgraf Heirs “may have had standing at one time to challenge the abandonment by seeking a declaration that it was void,” however, they took no such action.14Id. at ¶ 33. Instead, they quit-claimed their interest to Cardinal, and Cardinal accepted an interest that no longer existed in the public record. Therefore, Cardinal did not own a record interest and lacked standing to bring suit.
In other words, once the surface owners completed the DMA abandonment process, the Pfalzgraf Heirs owned nothing but a cause of action against the surface owners to challenge the abandonment process. They had no interest in the Pfalzgraf Interest. The Pfalzgraf Heirs had nothing to convey to Cardinal, and therefore Cardinal did not fit the definition of a “holder” under the DMA.
Furthermore, the 7th District held that the Pfalzgraf Heirs’ cause of action against the surface owner cannot be assigned. Citing the Ohio Supreme Court case Rancman v. Interim Settlement Funding Corp., 2003-Ohio-2721, the 7th District reiterated that “[a]ssignment of rights to a lawsuit are void,”15Id. at ¶ 26. and barred under the doctrines of champerty and maintenance.16Id. at ¶ 35.“Champerty is a subset of maintenance. Maintenance is assistance to a litigant in pursuing or defending a lawsuit provided by someone who does not have a bona fide interest in the case. Rancman at ¶ 10. Champerty is a form of maintenance in which a nonparty undertakes to further another’s interest in a suit in exchange for a part of the litigated matter if a favorable result ensues. Id.” Blue Ash Auto Body, Inc. v. Frank, 2022-Ohio-1292, 190 N.E.3d 1180, ¶ 17 (1st Dist.)
IV. Takeaways
Cardinal Minerals, LLC v. Miller clarified that (1) a “holder” cannot transfer his right to challenge the DMA process on notice grounds after the process has been completed; and (2) the only way to revive a statutorily abandoned mineral interest under the DMA is for a holder with proper standing to obtain a judicial determination that the abandonment process was invalid.
Cardinal Minerals, LLC appealed the 7th District’s decision in both cases to the Ohio Supreme Court. The Ohio Supreme Court denied jurisdiction on case number 2024-Ohio-2133 on October 29, 2024. As of the writing of this article, the court’s jurisdictional decision on case number 2024-Ohio-3121 is still pending.
Law clerk Kaitlyn Richard contributed to this article.
Josh Peterson has been a part of the oil and gas industry for the past ten years. His practice focuses on due diligence, complex mineral titles, pooling issues, lease analysis, JOAs, surface use issues and title curative, drilling title opinions, supplemental title opinions and limited acquisition title opinions for oil and gas operators.
Ally is a versatile attorney who helps clients navigate complex legal issues in corporate and property law in the upstream energy sector. She has extensive experience with title curative, mineral title due diligence, drilling, and division order title opinions across Appalachia and Texas. She also represents clients in quiet title actions and oil, gas, and mineral rights transactions.