The West Virginia Supreme Court of Appeals recently signaled that it would treat arbitration issues under the West Virginia Revised Uniform Arbitration Act, W. Va. Code § 55-10-8, et. al. (the “Act”), exactly the same as arbitration issues that arise under the Federal Arbitration Act (FAA).
In Golden Eagle Resources II, L.L.C. v. Willow Run Energy, L.L.C., No. 19-0384 (Nov. 19, 2019), the Court addressed a written contract by which Willow Run conveyed mineral interests in property to Golden Eagle. The written contract contained an arbitration provision by which the parties agreed that any “disagreement between the Parties concerning this Agreement or performance thereunder” would be submitted to arbitration. A dispute arose about whether a cloud on title existed on the mineral interests conveyed, which led Golden Eagle to withhold payment for those interests, after which Willow Run filed a breach of contract civil action in the Circuit Court of Pleasants County.
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Ohio’s Sixth District Court of Appeals recently ruled that Ohio’s Marketable Title Act (the “MTA”) extinguished restrictive covenants on a parcel located in a residential subdivision due to a gap in excess of 40 years without being identified in the parcel’s chain of title. David v. Paulsen, No. OT-18-032, 2019 Ohio App. LEXIS 2229 (Ct. App. May 31, 2019). The MTA allows an owner to establish marketable title, being title free from reasonable doubt of litigation, by relying on a record chain of title to extinguish interests and claims existing prior to the root of title unless an exception applies. The root of title is the most recent instrument of record at least 40 years prior to the time marketability is being determined. While not immediately impacting the oil and gas industry, at the heart of the dispute in Paulsen was when marketability is determined under the MTA, which may affect future oil and gas ownership claims under the MTA.
The Appellants, members of a subdivision seeking to enforce the restrictive covenant against the landowner Appellees’ building of a shed, argued that the date of the 2009 deed where the landowners took title to the lot should be used to determine marketability. If so, the root of title would be a 1964 deed which predated the restrictions of the subdivision. Therefore, the MTA would not extinguish the restrictions, as they would post-date the root of title. The landowners countered with the argument that the date the members of the subdivision filed their summary-judgment motion, being the date most recent in time, should be the date the court uses to determine marketability.
Finding fault with both positions, the court instead determined marketability when the members of the subdivision sought to enforce their purportedly-superior right, being the date they filed their complaint. Thus, the court found that a July 3, 1973 deed, being the first deed of record 40 years prior to the filing of the complaint, operated as the root of title for the land in dispute. The court concluded that the MTA extinguished the restrictions because the restrictions existed prior to the root of title and were not stated or identified in the July 3, 1973 deed or specifically referenced in any of the documents of the chain of title in the 40 years following the root of title.
While only binding on courts located within the jurisdiction of the Sixth District in northwest Ohio, Paulsen is the first appellate decision in Ohio to analyze the date that marketability is determined under the MTA. If adopted by other courts of appeal, particularly the Seventh District, Paulsen may render the MTA toothless in reclaiming title to previously severed oil and gas interests. Because the court in Paulsen determined marketability on the filing date of the complaint, a landowner would arguably be required to file a quiet title action to claim severed oil and gas interests under the MTA – an action not contemplated by the statute.
On Wednesday, December 19, 2018, Governor Kasich signed SB 263 into law, which amends O.R.C. §4735 to specifically exclude oil and gas land professionals (landmen) from having to be a licensed real estate broker to negotiate oil and gas leases in Ohio. Following the Ohio Supreme Court’s decision in Dundics v. Eric Petroleum Corporation, Slip Opinion No. 2018-Ohio-3826 (September 25, 2018), independent oil and gas landmen faced civil and criminal penalties if they continued to negotiate oil and gas leases without first acquiring a real estate broker’s license. With the passing of SB 263, which goes into effect on March 19, 2019, independent landmen may continue negotiating oil and gas leases without a real estate broker’s license provided they follow the new disclosure requirements set forth in the amendment.
The newly passed legislation specifically exempts landmen from acquiring a real estate license if the transaction involves negotiating an oil and gas lease or pipeline easement. However, the landman must first register annually with the superintendent of real estate and pay a $100 registration fee. Additionally, the landman must provide the superintendent with evidence that the landman is in good standing in a national, state, or local professional organization that has developed ethical performance standards for oil and gas land professionals. When negotiating an oil and gas lease, the landman must now provide the landowner with a disclosure form that discloses their registration information and notifies the landowner that the landman is not a licensed real estate broker. The exemption does not apply to fee simple absolute transactions involving oil and gas rights, which still require the landman to be a licensed real estate broker.
The Ohio Supreme Court has ruled in Dundics v. Eric Petroleum Corporation, Slip Opinion No. 2018-Ohio-3826 (September 25, 2018), that independent landmen (third parties who negotiate oil and gas leases on behalf of E&P companies) must be licensed real estate brokers. In Dundics, an independent landman, who was hired to obtain oil and gas leases for an E&P company in exchange for compensation and a future royalty interest in the leases, sued the E&P company to recover payment on several leases. However, the company moved to dismiss the case on the basis that the landman was not a licensed real estate broker and could not bring a cause of action to recover payment under O.R.C. § 4735.21.
In affirming the Seventh Appellate District’s decision to dismiss the landman’s claims, the Court concluded that the broad definition of “real estate” in O.R.C. § 4735.01(B) applies to oil and gas leases and that an independent landman is a “real estate broker” required to have a license under O.R.C. § 4735.02. The statute defines a “real estate broker” as including “any person, partnership, association, limited liability company, limited liability partnership, or corporation… who for another… and who for a fee, commission, or other valuable consideration… does any of the following…,” which specifically includes the procuring of prospects or the negotiation of leases. See O.R.C. § 4734.01(A)(7). Although there are several exceptions from the definition of “real estate broker,” including one for attorneys, the Court found that the statute is unambiguous and there is no exception for independent landmen.
The Court did not address whether the decision applies to in-house landmen who directly negotiate oil and gas leases on behalf of their employer. Although there is no such explicit exception in the statute, it is arguable that the definition of “real estate broker” itself exempts in-house landmen. Because the definition requires a person to be performing certain activities “for another” and an in-house landman is negotiating for his or her own company, it is possible that they may not be considered real estate brokers for purposes of the statute. The Court also did not discuss the potential liability of an unlicensed landman, who now could be exposed to both monetary and criminal penalties for practicing without a license. This may cause those in the industry to rethink their leasing practices.
The only way this decision could be overturned is if the Ohio General Assembly creates a statutory exception for landmen within the real estate licensure statute.