Ohio Court Ruling Clarifies Rights Under the Dormant Mineral Act and Enforces Champerty Doctrine in Cardinal Minerals, LLC v. Miller

In a significant ruling for mineral rights and property law in Ohio, the Seventh District Court of Appeals rendered a decision in Cardinal Minerals, LLC v. Miller, 2024-Ohio-2133, that underscores the complexity of the Dormant Mineral Act (DMA) and the limitations placed on entities attempting to revive long-abandoned mineral interests. This case provides critical insights into how Ohio courts interpret standing under the DMA and the application of the Doctrine of Champerty and Maintenance.

Background of the Case

The case traces its origins back to 1922, when the Pfalzgrafs conveyed a piece of property in Monroe County, Ohio, but explicitly excepted all oil and gas rights from this conveyance. Over the years, ownership of the property transferred to the Miller family, who were unaware of the specificities surrounding the mineral rights retained by the Pfalzgrafs.

In the 2010s, the Millers attempted to lease the property to Eclipse Resources, a company interested in exploiting the oil and gas reserves. However, Eclipse flagged the Pfalzgraf’s retained mineral interests as a potential title defect. To resolve this, the Millers initiated the Dormant Mineral Act abandonment process in 2013.

Dormant Mineral Act Process

The Dormant Mineral Act (DMA) in Ohio allows surface owners to claim severed mineral rights if certain conditions are met. One critical requirement is notifying the heirs or assigns of the severed mineral rights holder. The Millers engaged a title company to handle this process. The title company identified several heirs of the Pfalzgrafs but opted to serve notice of abandonment via newspaper publication rather than certified mail, a less direct method permitted under specific conditions.

Following the procedures outlined in the DMA, the county recorder added a notation of abandonment to the severance deed, thereby transferring the mineral rights back to the Millers. Consequently, in 2014, the Millers entered into an oil and gas lease with Eclipse Resources.

Cardinal Minerals’ Acquisition and Lawsuit

Fast forward to 2021, Cardinal Minerals, LLC, a company formed with the strategic aim of acquiring and litigating over severed mineral interests, began identifying properties where mineral rights had been deemed abandoned under the DMA, particularly focusing on cases where notice was served by publication. This search led Cardinal to the Pfalzgraf interest.

In 2022, Cardinal obtained several quitclaim deeds from heirs of the Pfalzgrafs, each conveying any potential interest the heirs might have had in the oil and gas rights. Cardinal paid each heir $100 for these deeds and also obtained separate “Assignments of Claims,” which purported to transfer any legal claims the heirs might have had regarding the mineral interests.

With these acquisitions, Cardinal filed a six-count complaint against the Millers and their lessee, alleging conversion, trespass, and other claims. However, the trial court dismissed Cardinal’s claims, granting summary judgment to the Millers and their lessee on the grounds that the Pfalzgraf interest was legally abandoned in 2013 and that Cardinal’s interests were non-existent in the public record. Moreover, the court invoked the Doctrine of Champerty and Maintenance, declaring Cardinal’s purchases and assignments void.

Court of Appeals’ Decision

On appeal, the Seventh District Court of Appeals affirmed the lower court’s decision, addressing several pivotal issues:

Lack of Standing and Interest: The court first addressed Cardinal’s standing to sue. Standing is a legal concept determining who is entitled to bring a lawsuit. Cardinal argued that it had acquired the Pfalzgraf interest via quit-claim deeds. However, the court found that the mineral rights were effectively abandoned and vested in the Millers in 2013. Since none of the Pfalzgraf heirs contested this abandonment through a timely claim or affidavit of preservation, there were no interests left to convey to Cardinal. Thus, Cardinal could not acquire a valid interest through the quit-claim deeds.
Service by Publication: Cardinal contended that the abandonment process was flawed because the Millers served notice by publication rather than certified mail, despite having information on some of the Pfalzgraf heirs. Citing precedents from Gerrity v. Chervenak and Fonzi v. Brown, Cardinal argued that personal service was necessary. However, the court distinguished these cases, noting that the mineral rights in those cases had not been judicially declared abandoned before their transfer, unlike the Pfalzgraf interest, which was properly noted as abandoned in 2013. Therefore, the lack of personal service did not invalidate the abandonment.
Doctrine of Champerty and Maintenance: Finally, the court reinforced the trial court’s application of the Doctrine of Champerty and Maintenance. This doctrine is designed to prevent the purchase of legal claims for the sole purpose of litigation and prohibits assisting a party in a lawsuit in exchange for a share of the proceeds. Cardinal’s actions were scrutinized under this doctrine because they sought out vulnerable mineral interests with the intent to file lawsuits. The court noted that Cardinal explicitly informed the Pfalzgraf heirs of its intention to buy their interests to litigate and promptly filed suit after acquiring them. Moreover, Cardinal’s acquisition of the “Assignment of Claims” from the heirs was a clear attempt to buy rights to a lawsuit, rendering these transactions void.

Implications of the Ruling

The Cardinal Minerals decision highlights several critical points for entities dealing with severed mineral interests and the DMA in Ohio:

Standing in DMA Claims: Only parties with a legally recognized interest can challenge an abandonment under the DMA. Simply acquiring a quit-claim deed after an abandonment does not confer standing if the interest was properly noted as abandoned.
Notice Requirements: While the court did not rule directly on the adequacy of publication notice versus certified mail, it emphasized the importance of following the statutory procedures meticulously and the timing of judicial declarations in the validity of such notices.
Champerty and Maintenance: Ohio courts are vigilant in applying this doctrine to prevent litigation strategies that exploit dormant or abandoned claims purely for financial gain. Entities must be cautious in how they acquire and litigate interests in property to avoid transactions being declared void under this doctrine.

This case serves as a cautionary tale for companies like Cardinal Minerals and underscores the need for diligence and adherence to legal and ethical standards in property and mineral rights transactions.