In French v. Ascent Resources-Utica, L.L.C., Slip Opinion No. 2022-Ohio-869, the Ohio Supreme Court held that an action seeking a declaratory judgment that an oil and lease has expired by its own terms is a controversy “involving the title to or possession of real estate” and is thus exempt from arbitration under state law, R.C. 2711.01(B)(1).
In general, R.C. 2711.01 provides that an arbitration clause in a written contract shall be enforceable as to controversies that subsequently arise out of the contract. However, there are certain statutory exceptions, including R.C. 2711.01(B)(1), which excludes “controversies involving the title to or possession of real estate.”
Based on prior precedent, the Court found that an action seeking to declare that a lease had expired by its own terms involves issues of both title and possession of real estate. In reaching its conclusion that an oil and gas lease affects title to the land, the Court cited its decision in Karas v. Brogan[1] in which it held that when an oil and gas lease burdens property, it prevents the landowner from passing title free and clear of all liens and encumbrances. The Court also cited its decision in Chesapeake Exploration, L.L.C. v. Buell[2] in which it determined that an oil and gas lease constitutes a title transaction under Ohio’s Marketable Title Act, because it affects title. In concluding that an oil and gas lease affects the possession of the land, the Court reasoned that while a lease is active, “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.”
And addressing specifically whether the expiration of an oil and gas lease involves title to and possession of real estate, the Court found that it did because, upon the expiration or termination of an oil and gas lease, the lease no longer encumbers the land or affects title to it, and the lessee has no right to possess it. As a consequence, the Court found that the exception in R.C. 2711.01(B)(1) applied.
Notably, the Court did not address whether this exception is preempted by the Federal Arbitration Act (“FAA”), 9 U.S.C. §1, et seq. The United States Supreme Court has stated, “When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341 (2011). Accordingly, the issue of whether lease expiration claims may be arbitrated will likely continue to be litigated.
[1] Karas v. Brogan, 55 Ohio St.2d 128, 129, 378 N.E.2d 470 (1978)
[2] Chesapeake Exploration, L.L.C. v. Buell, 144 Ohio st.3d 490, 2015-Ohio-4551, 45 N.E.3d 185