Last week, in Cardinal Minerals, LLC v. Miller, 2024-Ohio-2133, Ohio's Seventh District Court of Appeals held that the appellant, Cardinal Minerals, a mineral buyer, lacked standing to bring a lawsuit contesting the validity of an abandonment under the Dormant Mineral Act (DMA).
As background, in 1922, the Pfalzgrafs conveyed property in Monroe County, Ohio, excepting all oil and gas rights. That property was eventually acquired by several members of the Miller family, who subsequently attempted to lease the property to Eclipse Resources. After discovering the Pfalzgraf's interest in the oil and gas, Eclipse informed the Millers that they needed to cure the mineral title issue if they wanted to lease the property.
In 2013, the Millers hired a title company to initiate the DMA abandonment process on their behalf. The title company searched the county records and identified the names of several of the Pfalzgrafs' heirs. However, the title company did not attempt to serve a notice of abandonment on any of those heirs by certified mail, instead resorting to service by newspaper publication. After the title company followed the remaining abandonment procedures, the county recorder added a notation of abandonment to the severance deed. In 2014, the Millers signed an oil and gas lease with Eclipse.
After being formed in 2021, Cardinal began searching the public records for severed oil and gas interests that were (i) located within a producing unit and (ii) the subject of DMA proceedings where the affidavit of abandonment was served via publication. Cardinal sought to acquire such oil and gas interests to file lawsuits to undo the prior abandonment process. In 2022, Cardinal attempted to acquire the Pfalzgraf interest by way of several quit-claim deeds from certain of the Pfalzgraf heirs. Thereafter, Cardinal filed a six-count complaint against the Millers and their lessee alleging, among other claims, conversion and trespass. After filing suit, Cardinal also paid each heir $100 for a separate "Assignment of Claims." Following a hearing, the trial court granted the Appellees' motions for summary judgment finding the Pfalzgraf interest was statutorily abandoned in 2013, Cardinal subsequently accepted quit-claim deeds of an interest that does not exist in the public record, and, therefore, Cardinal has no interest in the property and lacked standing to pursue its claims. In addition, the trial court found that the purported transfers of the Pfalzgraf interest to Cardinal were void under the Doctrines of Champerty and Maintenance because intended to purchase the Pfalzgraf interest for the sole purpose of filing a lawsuit.
On appeal, the Seventh District held that Cardinal lacked standing to pursue its claims. First, the court rejected Cardinal's argument that it acquired the Pfalzgraf interest via quit-claim deeds from the Pfalzgraf heirs. The court noted that the Pfalzgraf interest was "deemed abandoned and vested" in the Millers pursuant to the abandonment performed in 2013, and none of the Pfalzgraf heirs timely filed a claim to preserve or affidavit identifying a savings event to prevent the abandonment. Consequently, the court concluded that the Pfalzgraf interest ceased to exist in the public record and the quit-claim deeds did not convey any interest in the property to Cardinal.
Next, the court rejected Cardinal's argument that under Gerrity v. Chervenak1 and Fonzi v. Brown,2 the abandonment was ineffective because notice by publication was deficient when the Millers had knowledge of the Pfalzgraf heirs and did not attempt to serve them by certified mail. The court noted that, unlike the Pfalzgraf heirs, the heirs of the mineral holders in Gerrity and Fonzi sought a judicial declaration that the mineral interest was not properly abandoned before any purported record transfer.
Finally, the court held that the assignment of rights to a lawsuit are void in Ohio under the Doctrine of Champerty and Maintenance, which seeks to preclude frivolous lawsuits by prohibiting (i) the purchase of right or interest for the sole purpose of pursuing a lawsuit or (ii) assistance to a litigant in return for a share of the proceeds from the lawsuit. Specifically, the court highlighted Cardinal's targeted search efforts to identify mineral interests vulnerable to a lawsuit, Cardinal telling the Pfalzgraf heirs that it wanted to purchase their mineral interest for the purpose of filing a lawsuit, and then filing suit almost immediately after acquiring the Pfalzgraf interest. In addition, the court pointed out that Cardinal also negotiated and acquired an "Assignment of Claims" from the Pfalzgraf heirs after filing suit. The court determined that this instrument was clearly an assignment of rights to a lawsuit and void under Ohio law as champerty.
Footnotes
1. 2020-Ohio-5705.
2. 2022-Ohio-901.
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