By Mark Fischer
By a unanimous decision in the Supreme Court of Ohio, the rights of two oil and gas royalty holders were upheld against attempts to have such rights deemed abandoned by the current surface owners of the properties. The decision was issued by the Court on March 24, 2022 in the matters of Fonzi vs. Brown and Fonzi vs. Miller.
In oil and gas rich regions, 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, by selling the surface rights but reserving to themselves all or a part of the oil and gas interests. Under the Ohio Dormant Mineral Act (DMA), surface owners seeking to develop oil and gas on their property can use a statutory process to claim those reserved rights for themselves, where there has been no oil and gas development or activity in the preceding 20 years.
To do so, however, the surface owners first must make reasonable efforts to locate the interest holders or their heirs and serve them notice of the claim of abandonment. If they cannot locate the holders after a reasonable search, the surface owners are permitted to publish notice in the local newspaper.
The notice provision is a key component of the DMA, as the same statute that provides the surface owners an opportunity to take oil and gas rights, also provides the interest holders the opportunity to preserve those rights by filing a “notice to preserve” within 60 days of the date of the surface owners’ notice. If the surface owners file such notice to preserve, the abandonment process is prevented and ends immediately.
In the Fonzi cases, in which our firm represented the heirs of the interest holders, the surface owners limited their search for the holders to the Monroe County records where the properties are located. They asserted that they could not find the holders and accordingly published notice in their local paper. Because the holders did not respond to the notice (not having seen the notice published in Monroe County), the surface owners filed documents declaring the interests abandoned and owned by them. The question in these cases was how hard do the surface owners need to look for the interest holders. We never argued that a surface owner is required to turn over every stone to find the interest holders or their heirs, but we insisted that a reasonable search be performed and that, when the surface owners have information about where the holders might be located, they must follow up on that information. The Supreme Court agreed:
“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 cases like those before us today, the issue is not whether the surface owner could have located all mineral-rights holders by exercising reasonable diligence. Instead, the question is whether the surface owner did exercise reasonable diligence. If the surface owner did not exercise reasonable diligence, then the mineral rights could not have been deemed abandoned under the DMA.”
In these cases, in the very deeds in which the Fonzis reserved their rights, it was plainly indicated that these holders lived in Washington County, Pennsylvania. Despite this knowledge, the surface owners did not make any attempts to search in Washington County. As it happens, there was ample evidence in the records of Washington County with respect to the identity and location of the Fonzis’ heirs. The Court found that these efforts were not sufficient under the DMA and therefore the Fonzi heirs continued to own the oil and gas interests reserved by their parents.
The Court’s decision in Fonzi will provide substantial direction to Ohio trial courts in future cases involving the DMA.
Published June 3, 2022 in the Lawyers Journal for the Allegheny County Bar Association.