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In the oil and gas rich regions of Ohio, it is often the case that prior owners of properties long ago separated the oil and gas rights from the surface rights in the property. They sold the surface rights but kept or "reserved" for themselves all or a part of the oil and gas interests.
For the better part of the 20th century, there was little oil and gas development in Ohio. Prior owners and their heirs held reserved interests for decades without any production taking place. And then came the natural gas boom of recent years.
To facilitate this development, the Ohio Legislature passed, and then revised, the Ohio Dormant Mineral Act. The DMA allows surface owners of properties to use a statutory process to claim the oil and gas rights under their properties, even though prior owners had reserved such rights.
The DMA provides that to obtain the oil and gas rights, the surface owners must file a "notice of abandonment" stating that there has not been any oil and gas development or title activity with respect to their property in the preceding 20 years and that the oil and gas rights have been abandoned.
As a condition to obtaining so-called dormant rights, the surface owners must use due diligence to locate the prior owners or their heirs (who are called holders) and provide them notice of the potential-abandonment by certified mail. If they can't find the holders despite such efforts, the surface owners can publish notice in a local newspaper, rather than contacting the holders directly.
If the holders fail to respond within 60 days of the publication of notice (or receiving notice through mail), the surface owners can declare that the reserved rights are abandoned and claim those rights for themselves. These rights often are valued in the hundreds of thousands and sometimes even millions of dollars.
In applying the DMA, Ohio courts have struggled with a central question: How hard must the surface owners look for the holders before they are permitted to publish notice? The question is important because most of the original holders reserved their rights 60 or more years ago. Their heirs may not know these rights exist and will never see a small legal notice published in a local newspaper.
Practically, then, when counsel for surface owners can't find the holders and decide to publish notice, they know that their clients are likely to obtain these valuable rights.
It is my contention that, where valuable rights are to be taken from holders and given to people who did not pay for such rights, the surface owners should be required to make real efforts to find the holders and should use those means which developers and landmen within the industry regularly use to find heirs.
Our firm now has successfully represented holders in a number of claims, where we prevented oil and gas rights from being taken from them. The most well-known of these claims are Fonzi vs. Brown and Fonzi vs. Miller, companion cases heard by the Ohio Supreme Court.
In the Fonzi cases, the surface owners limited their search for holders to a review of the county records where the properties are located. They asserted that they could not find the holders in such records and published notice in their local paper.
Because the holders did not respond to the notice (not having seen it), the surface owners filed documents declaring the interests abandoned and owned by them.
We made two arguments in these cases regarding the diligence of the surface owners. The deeds in which the rights were reserved indicated that the holders lived in nearby Washington County, Pa., at the time of the reservation. Logically, we argued that the surface owners should be required to search in Washington County, where they knew the holders lived at the time of the reservation.
Next, we argued that, in this day and age, a diligent search must include some online searching, using readily available search engines and databases, which include a trove of information useful to someone attempting to locate heirs.
The Ohio Supreme Court only addressed our first argument. It "declined a bright-line rule" for searching and refused to require that any specific search tools be used. Instead, it held that the courts should examine whether a search was reasonable under the circumstances. Internet searching or the use of other applications would not be required but may be part of a reasonable search under particular circumstances.
The court indicated that a search of available property and court records "in the county where the land" is located "will generally establish a baseline of reasonable diligence." The court did not plainly indicate when a search must go beyond such records.
Finally, where the surface owners do find information indicating that the holders lived somewhere else, they cannot ignore it. So, in the Fonzi cases, the surface owners' decision not to search in Washington County was considered unreasonable and invalidated their abandonment claim.
While our clients were pleased with the results of our cases, we remain disappointed with the current law. In almost every DMA case which we have reviewed, the holders were made aware of their rights by developers or landmen. These industry professionals could find the holders without unreasonable efforts -- because their efforts were geared toward finding the holders.
Put differently, a party who is financially interested in finding holders (i.e., developers) very often is able to find them, even in cases where the surface owners have been unable to do so.
In our view, surface owners should be required to use similar efforts to find the holders, before they take rights which they do not own and did not pay for.
Industry professionals use Google, ancestry.com and similar ancestry sites, and other people finder sites, which are readily available and either free or low cost. Given the substantial value of these rights, it is counter-intuitive that use of these methods is not required as part of a "reasonable" search by surface owners.
As the Fonzi court stated: "Requiring that a surface owner exercise reasonable diligence is not tantamount to requiring the owner to engage in futile or vain acts.
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 the holders of the mineral interest."
In the event that counsel for surface owners cannot identify holders in the local county records, he or she should minimally be required to perform reasonable internet searches and some basic ancestry research, which methods are typical in the oil and gas industry. This is not asking too much from counsel and surface owners, given the valuable rights at stake.
Such an approach is consistent with the fundamental American notion of protecting property rights and not allowing such rights to be easily stripped. Fonzi was a good start in protecting the rights of holders. Another important step is required.
(Fischer, a resident of Steubenville, is managing shareholder at the Pittsburgh law firm of Yukevich, Marchetti, Fischer & Zangrilli P.C. He represents oil and gas rights holders in Ohio and Pennsylvania, including individuals, investors and acquisition companies. Yukevich, Marchetti, Fischer & Zangrilli focuses on commercial and business law, including oil and gas matters.)