IN THE COURT OF APPEALS OF OHIO SEVENTH APPELLATE DISTRICT

Transcription

1 IN THE COURT OF APPEALS OF OHIO SEVENTH APPELLATE DISTRICT Thomas Dundics, et al.. Plaintiffs-Appellants, V. Eric Petroleum Corp., et al.. CASE NO MA 156 On Appeal from the Mahoning County Court of Common Pleas, Case No CV Defendants-Appellees. MOTION OF THE AMERICAN ASSOCIATION OF PROFESSIONAL LANDMEN FOR LEAVE TO FILE AMICUS CURIAE BRIEF Pursuant to Rule 17 of the Ohio Rules of Appellate Procedure, the American Association of Professional Landmen ( AAPL ) moves for leave to file an amicus curiae brief in support of Appellants Thomas Dundics and Ibis Land Group Ltd. Pursuant to Appellate Rule 17, a copy of the amicus brief is attached hereto and conditionally filed with this Motion. The AAPL has served as the voice of the landman profession for 60 years. Its mission is to promote the highest standards of performance for all land professionals and encourage sound stewardship of energy and mineral resources, while ensuring ethical business practices and professional service of its members through enforcement of its Code of Ethics and Standards of Practice. With nearly 18,000 members nationwide, and approximately 450 in Ohio, the AAPL has a significant interest in the employment and regulation of its members. The decision below will greatly affect the livelihoods of not only AAPL s members, but all landmen in Ohio. The trial court s holding, as it now stands, effectively abolishes the profession of landman in Ohio. It places landmen in the unenviable position of being unable to seek compensation for their services without being licensed as real estate brokers while -1-

2 simultaneously being unable to beeome licensed as real estate brokers because their work negotiating oil and gas leases is not recognized as satisfying the requirements for licensure. Therefore, the AAPL moves this Court for leave to participate in this appeal and to provide the Court with its unique perspective regarding the important issues raised therein. In the amicus brief attached to this Motion, the AAPL urges this Court to recognize the inherent difference in kind between transactions involving oil and gas leases and those involving other interests in real estate regulated by the Ohio Legislature and the Ohio Department of Commerce Division of Real Estate and Professional Licensing, and to allow landmen to seek compensation for their services performed without application of R.C s bar. The American Association of Professional Landmen should be permitted to participate as an amicus party in this appeal and argue that, in order to avoid abolishing the profession of landman in Ohio, this Court should find in favor of Appellants and reverse the decision below. Respectfully submitted. Thorny B. McGranor ( ) Ahtchell A. Tobias ( ) VoRYS, Sater, Seymour & Pease LLP 52 E. Gay Street, P.O. Box 1008 Columbus, OH Tel: (614) Fax:(614) Counsel for Amicus Curiae Association of Professional Landmen -2-

3 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served upon the following via regular U.S. mail, postage prepaid, this day of December 2015: David A. Detec ( ) Thomas F. Hull II ( ) Manchester Newman & Bennett 201 E. Commerce St., Atrium Level 2 Youngstown, OH Tel: (330) Fax:(330) ddetec@mnblawyers.com thull@mnblawyers.com Counsel for Appellants/Plaintiffs Thomas A. Hill ( ) Eric Petroleum Corporation 6075 Silica Rd., Suite A Austintown, OH Tel: (330) Fax:(330) Counsel for Appellees/Defendants Mitmell A. Tobias

4 IN THE COURT OF APPEALS OF OHIO SEVENTH APPELLATE DISTRICT Thomas Dundics, et al, Plaintiffs-Appellants, V. Eric Petroleum Corp., et al., CASE NO MA 156 On Appeal from the Mahoning Coimty Court of Common Pleas, Case No CV Defendants-Appellees. MERIT BRIEF OF AMICUS CURIAE AMERICAN ASSOCIATION OF PROFESSIONAL LANDMEN IN SUPPORT OF APPELLANTS MERIT BRIEF David A. Detec ( ) Thomas F. Hull II ( ) Manchester Newman & Bennett 201 E. Commerce St., Atrium Level 2 Youngstown, OH Tel: (330) Fax: (330) ddetec@mnblawyers.com thull@mnblawyers.com Counsel for Appellants/Plaintiffs Thomas A. Hill ( ) Eric Petroleum Corporation 6075 Silica Rd., Suite A Austintown, OH Tel: (330) Fax:(330) Counsel for Appellees/Defendants Timothy B. McGranor ( ) Mitchell A. Tobias ( ) VoRYS, Sater, Seymour & Pease LLP 52 E. Gay Street, P.O. Box 1008 Columbus, OH Tel: (614) Fax: (614) Counsel for Amicus Curiae Association of Professional Landmen

5 TABLE OF CONTENTS Page TABLE OF AUTHORITIES 11 STATEMENT OF AMICUS CURIAE INTEREST 1 STATEMENT OF APPELLANTS ASSIGNMENTS OF ERROR, 2 STATEMENT OF THE ISSUE PRESENTED BY AMICUS CURIAE STATEMENT OF FACTS LAW AND ARGUMENT I. THE TRIAL COURT ERRED IN CONCLUDING THAT LANDMEN ARE SUBJECT TO THE PROVISIONS OF R.C A. A Real Estate Broker s License Has No Application in the Context of an Oil and Gas Lease An Oil and Gas Lease Is Inherently Different from a Surface Lease, Acknowledging that Oil and Gas Leases and Landmen Fall Outside the Scope of R.C. Chapter 4735, the Ohio Legislature Considered a New System of Registration and Licensure B. The Education and Experience Requirements for a Real Estate Broker s License Demonstrate the Exclusive Statutory Focus on Residential and Commercial Surface Estates The Educational Requirements Do Not Include Topics Relevant to Oil and Gas Leasing or Drilling The Experience Requirements Do Not Include Leasing of Oil and Gas Rights... 8 C. The Ohio Legislature Could Not Have Intended the Unreasonable and Absurd Result That R.C. Chapter 4735 Be Applied to Landmen II. CONCLUSION 11 CERTIFICATE OF SERVICE 12-1-

6 TABLE OF AUTHORITIES Cases Bernard Philip Dedor Revocable Declaration of Trust v. Reserve Energy Exploration Co., llthdist. Portage No P-0001, 2014-Ohio Page 4 Chesapeake Exploration, L.L.C. v. Buell, Ohio St.3d, 2015-Ohio Harris v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E. 502 (1897)... Herman v. Grange Mut. Casualty Co., 11th Dist. Ashtabula No. 935, 1978 Ohio App. LEXIS 8995 (July 31, 1978)... Hutchison v. Sunbeam Coal Corp., 519 A.2d 385 (Pa. 1986)... In re Topco, Inc., 894 F.2d 727 (5th Cir. Tex. 1990)... Jacobs V. CNG Transmission Corp., 332 F. Supp.2d 759 (W.D. Pa. 2004)... Kanistros v. Holeman, 2d Dist. Montgomery No , hio Kramer v. PAC Drilling Oil & Gas, LLC, 197 Ohio App.3d 554, 2011-Ohio-6750 (9th Dist. 2011)... Moore v. Indian Camp Coal Co., 75 Ohio St. 493, 80 N.E. 6, 4 Ohio L. Rep. 673 (1907) ,5 5 Nat l Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188 (Tex. 2003) 4 Rayl V. East Ohio Gas Co., 46 Ohio App.2d 167 (9th Dist. 1973) 5 State ex rel. Cooper v. Savord, 153 Ohio St. 367 (1950) 10 State ex rel. Moore v. Sanders, 65 Ohio St.2d 72 (1981)... State ex rel. Toledo Edison Co. v. City of Clyde, 16 Ohio St.3d 508 (1996) Wellington Res. Group LLC v. Beck Energy Corp., 975 F.Supp.2d 833 (S.D. Ohio 2013) 5 Statutes R.C R.C R.C ,2,3 R.C

7 R.C. Chapter Regulations Ohio Adm. Code 1301:5 Ohio Adm. Code 1301: passim 1 9 Proposed Legislation 2011 H.B.NO H.B.No

8 STATEMENT OF AMICUS CURIAE INTEREST For 60 years, the American Association of Professional Landmen ( AAPL ) has served as the voice of the landman profession to encourage fair contractual terms that work in the best interest of all parties, wise utilization of natural resources, and responsible employment of the land s surface. The AAPL s mission is to promote the highest standards of performance for all land professionals and encourage sound stewardship of energy and mineral resources, and the AAPL ensures ethical business practices and professional service of its members through enforcement of its Code of Ethics and Standards of Practice. With nearly 18,000 members nationwide, and approximately 450 in Ohio, the AAPL has a significant interest in the employment and regulation of its members. The decision in this case will greatly affect the livelihoods of not only AAPL s members, but all landmen in Ohio. The trial court s holding, as it now stands, puts Ohio landmen in the untenable position of being unable to seek compensation for their services without being licensed as real estate brokers while simultaneously being unable to become licensed as real estate brokers by the state of Ohio due to the type of transactions their work involves: the leasing of oil and gas rights. The AAPL therefore urges this Court to recognize the inherent difference in kind between transactions involving oil and gas leases and those involving other interests in real estate regulated by the Ohio Legislature through R.C. Chapter 4735 and the Ohio Department of Coimnerce Division of Real Estate and Professional Licensing through Ohio Adm. Code 1301:5, and to allow landmen to seek compensation for their services performed without application of R.C s bar. Appellants raise two assigmnents of error in this appeal. In this brief, however, the AAPL will focus only on the first, which directly affects most, if not all, landmen in Ohio. -1-

9 STATEMENT OF APPELLANTS ASSIGNMENTS OF ERROR The trial court erred in granting Defendants/Appellees Motion to Dismiss. The trial court erred in failing to allow Plaintiffs/Appellants to amend their complaint to clarify the facts at issue and state a claim that it not harred by R.C STATEMENT OF THE ISSUE PRESENTED BY AMICUS CURIAE Whether the trial court erred in concluding that oil and gas landmen, who are not subject to regulation or licensing by the Ohio Department of Commerce Division of Real Estate and Professional Licensing, are absolutely precluded from seeking compensation for services performed for third parties by operation of R.C {See Appellants Assignment of Error No. 1.) STATEMENT OF FACTS The A APE adopts the Statement of Facts in the Appellants merit brief. -2-

10 LAW AND ARGUMENT This Court should correct the mistakes of the trial court and recognize that landmen negotiating oil and gas leases are not subject to R.C While the Ohio Legislature has recognized that an oil and gas lease is an interest in real estate, Ohio law has also recognized that such leases are inherently different from surface leases and other interests in real estate. Aeknowledging that difference in kind, and that landmen do not fall within the scope of R.C. Chapter 4735 as a result, the Ohio Legislature has made attempts to create a system to license and register landmen. And as further evidenced by the educational and experience requirements for obtaining a real estate broker s license, Ohio s real estate licensing laws and regulations are undeniably and exclusively focused on those other interests. The trial court s ruling would effectively eliminate the profession of landman in Ohio, by denying landmen the right to compensation for services performed as landmen unless they were also engaged in the traditional real estate profession, i.e., the purchase and sale of commercial and residential property. Put simply, landmen do not perform services in subject areas that would permit them to become licensed as real estate brokers, and no system of landman licensure has been created that covers the work done by landmen. That absurd and unreasonable result could not be the intent of the Legislature in enacting R.C. Chapter The trial court s ruling should be reversed. I. THE TRIAL COURT ERRED IN CONCLUDING THAT LANDMEN ARE SUBJECT TO THE PROVISIONS OF R.C The trial court failed to recognize the nature of Ohio s real estate licensing system and the interests sought to be regulated thereunder, and the differing natures of both an oil and gas lease and the services performed by oil and gas landmen. As a result, the trial court erred in reaching the absurd and unreasonable result that oil and gas landmen ^who perform services -3-

11 entirely unrelated to those regulated by Ohio s real estate licensing laws are subject to R.C. Chapter 4735 and the regulations promulgated under the authority of that Chapter of the Ohio Revised Code. A. A Real Estate Broker s License Has No Application in the Context of an Oil and Gas Lease. Oil and gas leases and the negotiation of such leases fall outside of the system of licensure and regulation set forth by the Ohio Legislature and Ohio Department of Commerce Division of Real Estate and Professional Licensing. The unique nature of oil and gas leases- -as compared with all other interests in real estate makes clear that such leases do not fall within the definition of real estate for purposes of R.C. Chapter Moreover, the Ohio Legislature has recognized that fact by proposing an entirely new system of registration and licensure for landmen. 1. An Oil and Gas Lease Is Inherently Different from a Surface Lease. There is a key inherent distinction between oil and gas leases and traditional commercial and residential leases: a commercial or residential lease grants a right to possess and use space or land for a specific period of time. See Kanistros v. Holeman, 2d Dist. Montgomery No , hio-660, If 15. Conversely, [a]n oil and gas lease is not a lease in the traditional sense of a lease of the surface of real property. In a typical oil or gas lease... the lessee/grantee acquires ownership of all the minerals in place that the lessor/grantor owned and purported to lease, subject to the possibility of reverter in the lessor/grantor. Kramer v. PAC Drilling Oil & Gas, LLC, 197 Ohio App.3d 554, 201 l-ohio-6750, Tf 11 (9th Dist. 2011) (quoting Nat l Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188, 192 (Tex. 2003)); see also Bernard Philip Dedor Revocable Declaration of Trust v. Reserve Energy Exploration Co., 11th Dist. Portage No P-0001, 2014-Ohio-5383, ^f 20; Rayl v. East Ohio Gas Co., 46 Ohio -4-

12 App.2d 167, 172 (9th Dist. 1973) (distinguishing an oil and gas lease, as an exploitation of the minerals under the surfaee of an owner s land, from a rental agreement for the use of the lessor s land ). Thus, an oil and gas lease, by its very nature, eonveys only an interest in a mineral estate not in a surface estate. See Kramer, at 11 (citing Harris v. Ohio Oil Co., 57 Ohio St. 118, 130, 48 N.E. 502 (1897) and Moore v. Indian Camp Coal Co., 75 Ohio St. 493, 499, 80 N.E. 6, 4 Ohio L. Rep. 673 (1907)). [F]rom the earliest cases on this issue, Ohio courts have treated oil and gas leases as different from other interests in real estate. Wellington Res. Group LLC v. Beck Energy Corp., 975 F.Supp.2d 833, 839 (S.D. Ohio 2013) (string citing cases); see also Herman v. Grange Mut. Casualty Co., 11th Dist. Ashtabula No. 935, 1978 Ohio App. LEXIS 8995, at *3^ (July 31, 1978) ( An oil and gas lease differs from the ordinary lease of land for use by the lessee. ). Indeed, the transfer of ownership conveyed in an oil and gas lease is why courts explain that the term lease is a misnomer because the interest created by an oil and gas lease is not the same as an interest created by a lease governed by landlord tenant law. In re Topco, Inc., 894 F.2d 727, 740 (5th Cir. Tex. 1990); see also Jacobs v. CNG Transmission Corp., 332 F. Supp.2d 759, 772 (W.D. Pa. 2004) (citing Hutchison v. Sunbeam Coal Corp., 519 A.2d 385 (Pa. 1986)). The Supreme Court of Ohio has recently reiterated the inherent difference between oil and gas leases and traditional surface leases, recognizing that [t]here is no question that oil and gas leases are unique, as they seemingly straddle the line between property and contract: they are neither residential leases nor commercial contracts for the sale of goods. Chesapeake Exploration, L.L.C. v. Buell, Ohio St.3d, 2015-Ohio-4551, ] 41 (slip opinion) (also noting that [o]il and gas leases are unusual in that they are not technically leases at all ). -5-

13 Thus, it is well settled that an oil and gas lease is of a different nature and kind from other types of interests in real estate. And it is for transactions involving those other types of interests in real estate which the Ohio Legislature sought regulation in the form of R.C. Chapter Acknowledging that Oil and Gas Leases and Landmen Fall Outside the Scope of R.C. Chapter 4735, the Ohio Legislature Considered a New System of Registration and Licensure. The 129th General Assembly recognized that oil and gas leases and the landmen who negotiated such leases were not subject to R.C. Chapter 4735 when it introduced legislation in 2012 seeking to establish requirements governing oil and gas land professionals H.B. No Nowhere in the proposed legislation was there any reference to R.C. Chapter 4735 which, were it applicable, would have required amendment to harmonize the new law with the existing law. Thus, 2011 H.B. No. 493 provides further evidence that the Ohio Legislature believed that R.C. Chapter 4735 was inapplicable to oil and gas leases and landmen. The proposed legislation would have given the Chief of the Ohio Division of Oil and Gas Resources Management authority to regulate land professionals, defined as persons primarily engaged in negotiating the acquisition or divestiture of mineral rights regarding the extraction of oil or gas, negotiating business agreement that provide for the exploration for or development of oil or gas, and securing the pooling of interests in oil and gas H.B. No (A). Such a land professional, colloquially known as a landman, would have been required to register with the Chief of the Ohio Division of Oil and Gas Resources Management and identify the Ohio counties in which the person intended to work as a landman. Id (A), (B), (C)(1). While the proposed legislature did not become law, there have been no amendments to R.C. Chapter 4735 to expand the scope of that section to include the registration and licensure of landmen or to reference oil and gas leases. -6-

14 B. The Education and Experience Requirements for a Real Estate Broker s License Demonstrate the Exclusive Statutory Focus on Residential and Commercial Surface Estates. The laws and regulations applicable to real estate brokers provide ample evidence that the focus of R.C. Chapter 4735 is those engaged in transactions involving interests in residential and commercial surface estates and not transactions involving oil and gas leases. Moreover, because of the unique nature of an oil and gas lease, it is imcertain whether an oil and gas landman could ever satisfy the experience requirements promulgated by the Ohio Department of Commerce Division of Real Estate and Professional Licensing to obtain a real estate broker s license. 1. The Educational Requirements Do Not Include Topics Relevant to Oil and Gas Leasing or Drilling. The educational requirements to obtain licensure as a real estate broker include the following: Forty hours of classroom instruction in real estate practice'. Forty hours of classroom instruction that includes the subjects of Ohio real estate law, municipal, state, and federal civil rights law, new case law on housing discrimination, desegregation issues, and methods of eliminating the effects of prior discrimination. Twenty hours of classroom instruction in real estate appraisal. Twenty hours of classroom instruction in real estate finance'. Three quarter hours, or its equivalent in semester hours, in financial management; Three quarter hours, or its equivalent in semester hours, in human resource or personnel management; -7-

15 Three quarter hours, or its equivalent in semester hours, in applied business economics; and Three quarter hours, or its equivalent in semester hours, in business law. R.C (emphasis added); see also R.C (setting forth requirements for a real estate salesperson, including association with a real estate broker and satisfaction of the first four educational requirements applicable to a real estate broker). As related to oil and gas landmen, notably missing from the list of educational requirements is any training in oil and gas leasing or drilling. Rather, because the system of licensure is focused on possessory surface estates, courses on civil rights laws and housing discrimination are mandatory, notwithstanding the fact that such coursework is entirely irrelevant to the leasing of oil and gas rights. 2. The Experience Requirements Do Not Include Leasing of Oil and Gas Rights. Similarly, the experience required to obtain licensure as a real estate broker includes the completion of [a]t least twenty real estate transactions, in which property was sold for another by the applicant while acting in the capacity of a real estate broker or salesperson. R.C (B)(5)(a). The rules promulgated by the Ohio Department of Commerce Division of Real Estate and Professional Licensing further define the types of transactions which will satisfy the experience requirements, with none apparently satisfied by the lease of oil and gas rights; One consummated bona fide sale of a real property and the improvements thereon for the account of another in which the applicant received compensation and was the procuring or selling agent, shall constitute one-half transaction; -8-

16 One consummated bona fide sale of a real property and the improvements thereon for the account of another, in which the applicant received compensation and was the listing agent, shall constitute one-half transaction; One lease of individual commercial or industrial property for a term of at least one year, for the account of another in which the applicant received compensation and was the procuring agent, shall constitute one-half transaction; One lease of individual commercial or industrial property for a term of at least one year for the account of another in which the applicant received compensation and was the listing agent, shall constitute one-half transaction; Four leases of residential property for a term of at least one year for the account of another in which the applicant received compensation and was the listing and/or procuring agent, shall constitute one transaction. Ohio Adm. Code 1301:5-3-04(A) (emphasis added). Furthermore, "fi]f leasehold transactions constitute sixteen or more of the required number of transactions, the applicant shall have completed three years full-time experience in property management. Ohio Adm. Code 1301:5-3-04(B) (emphasis added). None of the approved transactions involve the leasing of oil and gas rights. Moreover, even if oil and gas leases were somehow considered to be leases of individual commercial or industrial property or residential property, the experience would satisfy the requirements only if the landman also had three years of full-time experience in property management experience wholly irrelevant to oil and gas leasing. Once again, it is apparent that the system of licensure is directed exclusively to possessory surface estates, not leases of oil and gas rights. -9-

17 C. The Ohio Legislature Could Not Have Intended the Unreasonable and Absurd Result That R.C. Chapter 4735 Be Applied to Landmen. The trial court s holding leads to the unreasonable and absurd result that landmen are subject to a system of licensure under which they could never obtain a license for the work they perform ^thereby precluding them from working in their profession or from being legally entitled to compensation for their services unless they are also engaged in the traditional purchase and sale of commercial and residential property effectively eliminating the profession of landman in Ohio. That could not have been the intent of the Ohio Legislature in enacting R.C. Chapter It is presumed that the General Assembly does not enact laws producing unreasonable or absurd consequences. State ex rel. Moore v. Sanders, 65 Ohio St.2d 72, 77 (1981). Hence it is the duty of the courts... to construe the statute as to avoid such a result. State ex rel. Cooper v. Savord, 153 Ohio St. 367, 371 (1950). Further, [wjhen a statute is susceptible of more than one interpretation, courts seek to interpret the statutory provision in a manner that most readily furthers the legislative purpose as reflected in the wording used in the legislation. State ex rel. Toledo Edison Co. v. City of Clyde, 76 Ohio St.3d 508, 513 (1996). Courts review several factors in order to glean the General Assembly s intent, including... the spirit of the statute (the ultimate results intended by adherence to the statutory scheme), and the public policy that induced the statute s enactment. Id. at (citing R.C. 1.49). Here, the Court can avoid the umeasonable and absurd result reached by the trial court by holding that oil and gas leases, being different from any other type of leasehold or other interest in real estate under Ohio law, do not fall within the definition of real estate in R.C. Chapter The present regulatory scheme for real estate brokers, which includes educational requirements irrelevant to landmen while excluding the ability to rely on oil and gas leases to -10-

18 satisfy the experience requirements, provides ample support for such a holding. Moreover, such a holding would uphold the spirit of the statute and continue to protect the public in purchase and sale transactions involving all other types of real estate, without abolishing the profession of landman of Ohio. Id. The Court should reverse the trial court s holding to the contrary. II. CONCLUSION. The trial court erred in granting Appellees motion to dismiss and holding that oil and gas landmen must be licensed as real estate brokers under R.C. Chapter 4735 to be legally entitled to compensation for performing services related to oil and gas leases. While a superficial review of the statutory language may permit the conclusion reached by the trial court, a detailed review of the system of licensure enacted for real estate brokers demonstrates beyond reproach that it was not and is not intended to apply to oil and gas landmen and to oil and gas leases. For these reasons, the Court should reverse the decision of the trial court and remand for further proceedings. Respectfully submitted. T^hiothy B. McGranor ( ) Mitchell A. Tobias ( ) VoRYS, Sater, Seymour & Pease LLP 52 E. Gay Street, P.O. Box 1008 Columbus, OH Tel: (614) Fax:(614) Counsel for Amicus Curiae Association of Professional Landmen -11-

19 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing was served upon the? I ^ following via regular U.S. mail, postage prepaid, this j day of December 2015: David A. Detec ( ) Thomas F. Hull II ( ) Manchester Newman & Bennett 201 E. Commerce St., Atrium Level 2 Youngstown, OH Tel: (330) Fax: (330) ddetec@mnblawyers.com thull@nmblawyers.com Counsel for Appellants/Plaintiffs Thomas A. Hill ( ) Eric Petroleum Corporation 6075 Silica Rd., Suite A Austintowm, OH Tel: (330) Fax: (330) Counsel for Appellees/Defendants 2345;n70-12-