32 nd Mineral Law Conference Energy & Mineral Law Foundation CONFLICTS IN MINERAL DEVELOPMENT William M. Mattes, Esq. Dinsmore & Shohl LLP 175 S. Third.

32nd Mineral Law ConferenceEnergy & Mineral Law Foundation

CONFLICTS IN MINERAL DEVELOPMENT

William M. Mattes, Esq.Dinsmore & Shohl LLP175 S. Third Street, Suite 1000Columbus, Ohio 43213Telephone: (614) [email protected]

CONFLICTS IN MINERAL DEVELOPMENT

COAL RIGHTS V. GAS RIGHTSA CASE STUDY

American Energy Corporation, et al.v.

Charles Datkuliak, et al.

Monroe County Ohio Case Number: 2007-152 & 153On appeal

Seventh District Court of Appeals, Ohio Case Number: 07 MO 03

William M. Mattes, Esq.Dinsmore & Shohl LLP

THE FACTS

1922 Coal Severance Deed

Coal severance deed granted:

A. The right to mine “all” coal

B. Without reservation or liability for damages to surface or improvements upon the surface

C. The right and privilege to use necessary surface over coal to construct and maintain air shafts to ventilate mines

THE FACTS

1922 Coal Severance Deed

Reserved

The Grantors stated they:

“reserve unto themselves and their heirsand assigns the right to drill and operatethrough said vein of coal for oil and gasand any and all other minerals.”

THE FACTS

• October 1984

• Ohio Department of Natural Resources issued a Coal Mining Permit for the area

THE FACTS

• 1989

• Datkuliaks – successor grantors of surface estate-leased to Oxford Oil the right to drill and operate a gas well.

THE FACTS

• Due to lack of production, Oxford sold well and all liability to the Datkuliaks in May of 1990 for $3,000

• Complete waiver obtained

THE FACTS

• 1995 - Consolidated Land Company purchased the coal rights

• 2003 - Leased right to American Energy Corporation

THE FACTS

• American Energy Corporation applied for a Permit to plug

• ODNR said – American Energy Corporation does not own the well and cannot plug

• Datkuliaks refused to “realistically” negotiate for sale of well

THE LAWSUITS

On the 6th of May, 2007, Plaintiffs filed their lawsuit alleging several counts:

1.Declaratory Judgment2.Preliminary and Permanent Injunction3.Mandatory Injunction4.Specific Performance5.Conversion6.Trespass7.Private Nuisance

THE LAWSUITS

One day later – instead of a compulsory Counter-Claim, Defendants filed a Complaint with a single count for Declaratory Judgment on the rights of the Parties

TRIAL COURT DECISION

Matter of Deed Construction

Key rulings:Deed language is clear and

unambiguous

Allowed Court to construe as a matter of law

TRIAL COURT DECISION

Key rulings:Deed language constitutes a complete

and clear waiver “without reservation or liability for

damage that may arise by reason of mining said coal or the operation of said mine or mines to the surface or to the improvements upon the surface over said coal…”

Damages were contemplated by the parties

TRIAL COURT DECISIONKey rulings:

Waiver of damages:“does not conflict with right to drill for gas”

Continued use of gas well:“interferes with right to mine ALL coal and effectively sterilizes coal”

Right to mine ALL coal coupled with Waiver of damages grants “enormous entitlement” to mine coal.

TRIAL COURT DECISIONKey rulings:

Construe as a matter of lawClear and unambiguous – deed is

conclusively presumed to express intent of parties

No extrinsic evidence may be admitted

Language in deed is dispositive of all questions of intent

TRIAL COURT DECISIONReservation v. Exception

In this case the Datkuliaks only had a reservation which allowed them “to drill and operate through said vein of coal”

Coal owned by PlaintiffsReservation – they did not keep title

to any coalException – You except out a portion

of what is granted – i.e. you may except or keep ownership in the coal around the well

TRIAL COURT DECISIONClear right to mine all coalGas well sterilizes coalReservation does not diminish ability to mine all

coal

Defendants ordered to:“immediately plug and cap the gas well at issue to assure their well does not interfere with Plaintiffs’ mining and Defendants are further prohibited from interfering with Plaintiffs’ right to safely mine all of its said coal.”

The End! – not quite

ON APPEAL

Datkuliaks raise several issues:Trial Court erred by determining

right to mine coal is paramount to right to operate gas well

Trial Court erred by refusing expert testimony

Order to plug and cap without compensation is an unconstitutional taking without due process

CURRENT STATUS

Well is capped and plugged at the Datkuliak’s expense

MSHA approval pendingNo decision on Appeal

APPLICABLE CASE LAW1. Parties to deed stand in same position as parties

to original deed.US Coal Co. v. Wayne

Coal Co.,(1919), 12 Ohio App. 1,4

2. Language from other deeds is irrelevant.Wiseman v. Cambria

Products Co.,(1989), 61 Ohio App.3d

294, 301

3. Clear and unambiguous deed language is conclusively presumed to express the intent of the parties at time of execution of the deed.

Sword v. Sword,

(1993), 86 Ohio App.3d at 161, 166

APPLICABLE CASE LAW4. No extrinsic evidence allowed to demonstrate intent of

parties to a deed.Consolidated Land Co. v. Capstone Holding

Co., (Ohio App. 7 District 2002), 2002 Ohio

7378 at p. 27

5. The right to drill for gas through a coal seam does not compromise the mining operator’s right to mine for coal.

Redman v. Ohio Dept. of Natural Resources,

1997 Ohio App. LEXIS 4209 at 9-10

6. Right to mine coal and waiver of damages provided in deed can be superior and dominant over surface rights of gas company.

The Ohio Valley Coal Co. v. The East Ohio Gas Co.,

Court of Common Pleas, Belmont County, Ohio, (1992), Case No. 91-CIV-210

APPLICABLE CASE LAW7. If gas operator interferes with mining operator’s ability

to mine its coal, the coal estate is entitled to damages.Skivolocki v. East Ohio Gas Co., (1974), 38 Ohio St.2d 244

8. New wells can be prevented by objections from coal estate.

A.W. Tipka Oil and Gas, Inc. v. American

Energy Corp., No. 2006-80 (Div. of Mineral

Resources Mgmt., ODNR Resources,

June 28, 2006).

9. Reservation – entire title to property passes to grantee – just reserve a limited benefit.

Clark v. Guest,

(1896), 54 Ohio St.298, 302-303

APPLICABLE CASE LAW10. Reservation – strictly construed against

the grantor.Campbell v. Johnson,(1993), 87 Ohio App.3d

543

11. Exception – grantor retains title to past excepted – grantee takes subject to exception.

Campbell v. Johnson,

(1993), 87 Ohio App.3d 543

12. Intent should be manifested in deed.Smith v. Newell,

(Ohio Ct. App. 2007), 2007 Ohio 72, p.24

Applicable Case Law13. Deeds are strongly construed against Grantor.

Pure Oil Co. v. Kindall,(1927), 116 Ohio St. 188, 203

14. No extrinsic evidence allowed to prove “latent ambiguity” if document is clear and unambiguous.

Shifrin v. Forest City Enterprises, Inc.,

(1992), 64 Ohio St.2d 244

15. Pennsylvania Case Law

Even if right to drill through coal for gas exists, it must be suspended during coal mining activities to prevent interferences with coal operator’s right to mine its coal.

If interference occurs, surface owner “must respond in damages.”

Chartiers Block Coal Co. v. Mellon,

152 Pa. 286, 297 (1893)

Attachments

William M. Mattes, Esq.Dinsmore & Shohl LLP175 S. Third Street, 10th FloorColumbus, Ohio 43215Telephone: (614) 628-6880mattes.dinslaw.com

1. Court decision

2. 1922 deed