French v. Ascent Resources-Utica, L.L.C. (Slip Opinion) , 2022 Ohio 869 ( 2022 )


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  • [Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
    French v. Ascent Resources-Utica, L.L.C., Slip Opinion No. 
    2022-Ohio-869
    .]
    NOTICE
    This slip opinion is subject to formal revision before it is published in an
    advance sheet of the Ohio Official Reports. Readers are requested to
    promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
    South Front Street, Columbus, Ohio 43215, of any typographical or other
    formal errors in the opinion, in order that corrections may be made before
    the opinion is published.
    SLIP OPINION NO. 
    2022-OHIO-869
    FRENCH ET AL., APPELLANTS, v. ASCENT RESOURCES-UTICA, L.L.C.,
    APPELLEE.
    [Until this opinion appears in the Ohio Official Reports advance sheets, it
    may be cited as French v. Ascent Resources-Utica, L.L.C., Slip Opinion No.
    
    2022-Ohio-869
    .]
    Property law—Contracts—R.C. 2711.01(B)(1)—An action seeking a determination
    that an oil and gas lease has expired by its own terms is a controversy
    involving the title to or the possession of real estate and, under R.C.
    2711.01(B)(1), is not subject to arbitration—Court of appeals’ judgment
    reversed and cause remanded.
    (No. 2021-0166—Submitted January 26, 2022—Decided March 24, 2022.)
    APPEAL from the Court of Appeals for Jefferson County,
    No. 19 JE 0015, 
    2020-Ohio-4719
    .
    _________________
    SUPREME COURT OF OHIO
    KENNEDY, J.
    {¶ 1} This discretionary appeal from a judgment of the Seventh District
    Court of Appeals presents a single question: is an action seeking a determination
    that an oil and gas lease has expired by its own terms a controversy “involving the
    title to or the possession of real estate” so that the action is exempt from arbitration
    under R.C. 2711.01(B)(1)?
    {¶ 2} The answer to that question is yes. An oil and gas lease grants the
    lessee a property interest in real estate that affects the title to the land and permits
    the lessee to physically occupy the land to the extent reasonably necessary to the
    production of oil and gas—i.e., the lessee acquires the right to enter the property
    and construct wells, buildings, telephone lines, pipelines, powerlines, and roads.
    And once an oil and gas lease expires under its own terms, the property interest
    granted under the lease reverts to the lessor by operation of law and the lessee no
    longer has any right to occupy the land. Consequently, an action seeking a
    determination that an oil and gas lease has expired is a controversy involving the
    title to or the possession of real estate and, under R.C. 2711.01(B)(1), the action is
    not subject to arbitration.
    {¶ 3} Because the trial court correctly declined to stay the action at issue in
    this case pending arbitration, we reverse the contrary judgment of the court of
    appeals and remand the matter to the trial court for further proceedings consistent
    with this opinion.
    I. Facts and Procedural History
    {¶ 4} Appellants, Michael P. French, Karen L. French, Thomas E.
    Sutherland, Cynthia L. Sutherland, John D. Sutherland (trustee of the Sutherland
    Family Revocable Trust), and Lloyd D. and Mary Ann Boyd (trustees of the Lloyd
    and Mary Ann Boyd Irrevocable Trust) (collectively, “French”), are the joint
    owners of a tract of land in Smithfield Township known as the “Sutherland Farm.”
    Appellee, Ascent Resources-Utica, L.L.C., acquired leases to the oil and gas rights
    2
    January Term, 2022
    to the property. The leases permitted the lessee to physically occupy the land and
    granted it the rights to construct wells and buildings, to erect telephone lines,
    pipelines, and powerlines, and to build roads. The leases had a primary term of five
    years and a secondary term for “as long thereafter as oil or gas * * * or either of
    them, is produced from said land by the Lessee, its successors and assigns.” They
    also provided that the primary term could be extended under the following
    circumstances:
    If at the expiration of the primary term, oil or gas is not being
    produced on the leased premises or on acreage pooled therewith, but
    Lessee is engaged in drilling, deepening, plugging back or
    reworking operations thereon or shall have completed a dry hole
    thereon within ninety (90) days prior to the end of the primary term,
    this lease shall remain in force so long as operations on said well, or
    for the drilling, deepening, plugging back, or reworking of any
    additional well, are prosecuted with no cessation of more than ninety
    (90) consecutive days and, if they result in the production of oil or
    gas, so long thereafter as oil or gas is produced from the leased
    premises, or upon acreage pooled therewith.
    As subsequently amended, the leases further stated:
    Commencement of operations shall be defined as Lessee
    having secured a drilling permit from the State and further entering
    upon the herein described premises with equipment necessary to
    build any access road(s) for drilling of a well subsequently followed
    by a drilling rig for the spudding of the well to be drilled, and the
    commencement and completion of the drilling of a well.
    3
    SUPREME COURT OF OHIO
    {¶ 5} The amended leases also purported to require arbitration: “Any
    questions concerning th[e] lease or performance there under shall be ascertained
    and determined by three disinterested arbitrators * * * and the award of such
    collective group shall be final and conclusive.”
    {¶ 6} French brought an action for declaratory judgment in the Jefferson
    County Court of Common Pleas, alleging that the oil and gas leases had terminated
    because Ascent failed to produce oil or gas or to commence drilling operations
    within the terms of the lease.          Ascent answered French’s complaint and
    counterclaimed for a declaration that the leases had not expired. It alleged that it
    had obtained permits to drill wells on the land and had begun constructing them
    before the expiration of the leases, and it alleged that it began drilling and producing
    oil or gas thereafter.
    {¶ 7} Ascent subsequently moved to stay the action pending arbitration.
    The trial court denied the request for a stay, concluding that French’s claims
    involved the title to or the possession of real property and therefore were exempt
    from arbitration pursuant to R.C. 2711.01(B)(1).
    {¶ 8} The Seventh District reversed, reasoning that “even though oil and
    gas leases create an interest in real estate, they are not issues concerning title to or
    possession of real estate. There is no dispute that [French holds] title to the
    Sutherland Farm. There is also no indication that [French’s] title to or possession
    of the Sutherland Farm is at stake regardless of how this action is resolved.” 2020-
    Ohio-4719, ¶ 24. The appellate court concluded that R.C. 2711.01(B)(1) did not
    preclude arbitration of the controversy, and it remanded the matter to the trial court
    for it to decide whether Ascent had lost its right to arbitrate the controversy by
    failing to timely assert that right. Id. at ¶ 26-29.
    {¶ 9} We accepted French’s appeal to review a single proposition of law:
    4
    January Term, 2022
    Whether R.C. 2711.01(B)(1), which excepts controversies
    involving title to or possession of real estate from arbitration, is
    applicable to declaratory judgment actions in which a landowner
    seeks a declaration that title in the landowner’s oil and gas estate has
    reverted to said landowner because an oil and gas lease has expired
    by its own terms due to the lessee’s failure to satisfy certain
    conditions in the lease.
    See 
    162 Ohio St.3d 1437
    , 
    2021-Ohio-1399
    , 
    166 N.E.3d 1254
    .
    {¶ 10} The sole issue in this appeal, then, is whether an action seeking a
    determination that an oil and gas lease has expired involves “the title to or the
    possession of real estate” within the meaning of R.C. 2711.01(B)(1).
    II. Law and Analysis
    A. Standard of Review
    {¶ 11} “The interpretation of a statute is a question of law that [this court]
    reviews de novo.” Stewart v. Vivian, 
    151 Ohio St.3d 574
    , 
    2017-Ohio-7526
    , 
    91 N.E.3d 716
    , ¶ 23.
    B. Statutory Construction
    {¶ 12} In order to resolve the issue before this court, we return to a familiar
    place: statutory interpretation. As we explained long ago, “[t]he question is not
    what did the general assembly intend to enact, but what is the meaning of that which
    it did enact.” Slingluff v. Weaver, 
    66 Ohio St. 621
    , 
    64 N.E. 574
     (1902), paragraph
    two of the syllabus. Moreover, “[a]n unambiguous statute is to be applied, not
    interpreted.” Sears v. Weimer, 
    143 Ohio St. 312
    , 
    55 N.E.2d 413
     (1944), paragraph
    five of the syllabus.
    C. R.C. 2711.01
    {¶ 13} R.C. 2711.01(A) states, “A provision in any written contract, except
    as provided in division (B) of this section, to settle by arbitration a controversy that
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    SUPREME COURT OF OHIO
    subsequently arises out of the contract * * * shall be valid, irrevocable, and
    enforceable, except upon grounds that exist at law or in equity for the revocation of
    any contract.” In turn, R.C. 2711.01(B)(1) provides that R.C. 2711.01 through
    2711.16—a statutory scheme that includes the authority for a court to stay
    proceedings pending arbitration, see R.C. 2911.02(B)—“do not apply to
    controversies involving the title to or the possession of real estate.”
    {¶ 14} This court has explained that “the natural meaning of the word
    ‘involving’ is ‘to relate closely’ or ‘connect.’ ” State ex rel. Suwalski v. Peeler, ___
    Ohio St.3d ___, 
    2021-Ohio-4061
    , ___ N.E.3d ___, ¶ 21, quoting Webster’s Third
    New International Dictionary 1191 (1993). The word “title” means “ ‘[t]he union
    of all elements (as ownership, possession, and custody) constituting the legal right
    to control and dispose of property.’ ” Chesapeake Exploration, L.L.C. v. Buell, 
    144 Ohio St.3d 490
    , 
    2015-Ohio-4551
    , 
    45 N.E.3d 185
    , ¶ 59, quoting Black’s Law
    Dictionary 1712 (10th Ed.2014). And the word “possession” means “the exercise
    of dominion over property.” Black’s Law Dictionary at 1351.
    D. The Nature of Oil and Gas Leases
    {¶ 15} It is well settled in our caselaw that an oil and gas lease grants the
    lessee a property interest in the land. Bohlen v. Anadarko E & P Onshore, L.L.C.,
    
    150 Ohio St.3d 197
    , 
    2017-Ohio-4025
    , 
    80 N.E.3d 468
    , ¶ 12; Harris v. Ohio Oil Co.,
    
    57 Ohio St. 118
    , 129-130, 
    48 N.E. 502
     (1897). Notably, R.C. 5301.09 provides
    that all oil and gas leases must be recorded in the applicable county’s land records,
    “[i]n recognition that such leases and licenses create an interest in real estate.” See
    also R.C. 317.08(A)(25). This is consistent with our prior determination that when
    an oil and gas lease burdens property, it prevents the landowner from passing “title
    free and clear of all liens and encumbrances.” Karas v. Brogan, 
    55 Ohio St.2d 128
    ,
    129, 
    378 N.E.2d 470
     (1978). And our decision in Buell made clear that an “oil and
    gas lease constitutes a title transaction because it affects title” to real estate.
    6
    January Term, 2022
    (Emphasis added.) Id. at ¶ 66; see also R.C. 5301.47(F) (defining “title transaction”
    for purposes of Ohio’s Marketable Title Act, R.C. 5301.47 et seq.).
    {¶ 16} In addition, an oil and gas lease affects the possession of the land.
    As this court said long ago in Harris, an oil and gas lease “is a lease of the land for
    the purpose and period limited therein, and the lessee has a vested right to the
    possession of the land to the extent reasonably necessary to perform the terms of
    the instrument on his part.” (Emphasis added.) Id. at 129-130. Similarly and more
    recently, this court explained in Buell that an oil and gas lease affects the possession
    of the land “[b]ecause the lessee also enjoys reasonable use of the surface estate to
    accomplish the purposes of the lease.” Id. at ¶ 60. That is, the lessee may exercise
    dominion over the part of the real estate that is subject to the lease, sometimes to
    the exclusion of the lessor.
    {¶ 17} What happens, then, when an oil and gas lease expires under its own
    terms? Our precedent also supplies the answer to that question.
    {¶ 18} “Generally, a contemporary oil and gas lease sets forth the duration
    of the lease in a habendum clause that contains two tiers: a ‘primary term’ and a
    ‘secondary term.’ ” Bohlen, 
    150 Ohio St.3d 197
    , 
    2017-Ohio-4025
    , 
    80 N.E.3d 468
    ,
    at ¶ 16. “The primary term sets forth a period of definite duration, and the
    secondary term then sets forth a period of indefinite duration, permitting extension
    of the lease as long as certain conditions are met, typically, when oil and gas are
    produced in paying quantities.” 
    Id.
     If the conditions of the primary term or the
    secondary term are not met, then the lease terminates by its express terms and the
    property interest that it created is revested to the lessor by operation of law. State
    ex rel. Claugus Family Farm, L.P. v. Seventh Dist. Court of Appeals, 
    145 Ohio St.3d 180
    , 
    2016-Ohio-178
    , 
    47 N.E.3d 836
    , ¶ 20. The expiration or termination of
    an oil and gas lease returns the lessor and the lessee to the status quo prior to the
    execution of the lease: the lease no longer encumbers the land or affects title to it,
    7
    SUPREME COURT OF OHIO
    and the lessee has no right to possess it. See Buell, 
    144 Ohio St.3d 490
    , 2015-Ohio-
    4551, 
    45 N.E.3d 185
    , at ¶ 73.
    E. Application of Law to the Leases in this Case
    {¶ 19} The oil and gas leases at issue in this case are no different from the
    typical lease discussed above. The leases grant rights to Ascent to explore the land
    for oil and gas and to produce it, and they permit Ascent to physically occupy the
    land, which includes the rights to construct wells and other facilities, to erect
    telephone lines, pipelines, and powerlines, and to build roads. The leases also
    include a primary term and a secondary term, and they state that the leases terminate
    unless a well is producing oil or gas or unless Ascent has commenced drilling
    operations within 90 days of the expiration of the primary term. Therefore, the oil
    and gas leases may terminate by operation of law if certain conditions stated in their
    terms are not met.
    {¶ 20} The action in this case is therefore a controversy involving the title
    to or the possession of real property. If the action is successful, it will quiet title to
    the property, remove the leases as encumbrances to the property, and restore the
    possession of the land to the lessors. If the action is unsuccessful, however, title to
    the land will remain subject to the leases, affecting the transferability of the
    property. See Buell at ¶ 64. Also, Ascent would have the continued right to possess
    and occupy the land, as permitted by the leases, denying French the right to use the
    property without restriction. See 
    id.
     Either way, the action closely involves the
    title to or the possession of real property and, under R.C. 2711.01(B)(1), the action
    is not subject to arbitration.
    III. Conclusion
    {¶ 21} An action seeking a determination that an oil and gas lease has
    expired by its own terms is a controversy involving the title to or the possession of
    real estate and, under R.C. 2711.01(B)(1), the action is not subject to arbitration.
    The Seventh District Court of Appeals therefore erred in reversing the trial court’s
    8
    January Term, 2022
    judgment declining to stay the action in this case pending arbitration.
    Consequently, we reverse the judgment of the Seventh District and remand the
    matter to the trial court for further proceedings consistent with this opinion.
    Judgment reversed
    and cause remanded.
    O’CONNOR, C.J., and FISCHER, DEWINE, DONNELLY, STEWART, and
    BRUNNER, JJ., concur.
    _________________
    Buckingham, Doolittle & Burroughs, L.L.C., Joshua E. O’Farrell, and Jude
    B. Streb, for appellants.
    Frost Brown Todd, L.L.C., Matthew C. Blickensderfer, Kevin L. Colosimo,
    and Christopher W. Rogers, for appellee.
    Thomas A. Hill and Joseph N. Spano, urging reversal for amicus curiae,
    Eric Petroleum Corporation.
    _________________
    9
    

Document Info

Docket Number: 2021-0166

Citation Numbers: 2022 Ohio 869

Judges: Kennedy, J.

Filed Date: 3/24/2022

Precedential Status: Precedential

Modified Date: 3/24/2022