Ohio Pub. Works Comm. v. Barnesville
Citation2022 Ohio 4603
Date Filed2022-12-22
Docket2020-1129
JudgeStewart, J.
Cited3 times
StatusPublished
Syllabus
Property law—Conveyance of oil and gas interests—Ohio Public Works Commission and Clean Ohio Conservation Fund, R.C. 164.20 et seq.—Deed restrictions on use and transfer—Remedies available at law and in equity—Use and development restrictions in deed apply to both the surface and subsurface of the properties—Court of appeals' judgment affirmed.
Full Opinion (html_with_citations)
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as Ohio Pub. Works Comm. v. Barnesville, Slip Opinion No.2022-Ohio-4603
.]
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-4603
OHIO PUBLIC WORKS COMMISSION, APPELLEE, v. THE VILLAGE OF
BARNESVILLE ET AL., APPELLANTS; ET AL.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Ohio Pub. Works Comm. v. Barnesville, Slip Opinion No.
2022-Ohio-4603.]
Property law—Conveyance of oil and gas interests—Ohio Public Works
Commission and Clean Ohio Conservation Fund, R.C. 164.20 et seq.—
Deed restrictions on use and transfer—Remedies available at law and in
equity—Use and development restrictions in deed apply to both the surface
and subsurface of the properties—Court of appeals’ judgment affirmed.
(No. 2020-1129—Submitted September 21, 2021—Decided December 22, 2022.)
APPEAL from the Court of Appeals for Belmont County,
No. 19BE0011, 2020-Ohio-4034.
_________________
SUPREME COURT OF OHIO
STEWART, J.
{¶ 1} In this case, the Seventh District Court of Appeals held that use and
development and alienation restrictions in a deed apply to both the surface and
subsurface of the properties at issue and that appellant the village of Barnesville
violated those restrictions when it transferred oil and gas rights to another entity,
which later leased those rights to appellant Gulfport Energy Corporation
(“Gulfport”), without obtaining written permission from appellee, Ohio Public
Works Commission (“OPWC”). Gulfport and the village appealed. We agree with
the Seventh District and affirm.
I. FACTS AND PROCEDURAL HISTORY
A. Clean Ohio Conservation Fund
{¶ 2} In 2000, Ohio voters passed a constitutional amendment authorizing
the state to issue bonds to pay for environmental conservation and revitalization
projects. See Ohio Constitution, Article VIII, Section 2o. Subsequently, the
General Assembly created the Clean Ohio Conservation Fund (the “fund”) and
enacted several provisions to implement the constitutional amendment. See
Am.Sub.H.B. No. 3, 149 Ohio Laws, Part III, 5942, 5984-5995; R.C. Chapter 164.
OPWC is charged with administering the fund. R.C. 164.27(A). Political
subdivisions and nonprofit organizations may apply for grants to fund projects that,
inter alia, “[p]rovide for open space acquisition, including the acquisition of
easements, or the related improvement of open spaces * * * for parks, forests,
wetlands, natural areas that protect an endangered plant or animal population, other
natural areas, and connecting corridors for natural areas,” R.C. 164.22(A); see R.C.
167.27(A). Ohio voters reauthorized the fund in 2008. See Ohio Secretary of State
Frank LaRose, November 4, 2008 Election Results, https://www.sos.state.oh.us
/elections/election-results-and-data/2008-election-results/state-issue-2-november-
4-2008/ (accessed Nov. 10, 2022) [https://perma.cc/Z78H-KW7Z].
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{¶ 3} In 2002, the village applied for two grants to partially fund the
purchase of land in Belmont County. The first grant involved a request for
$150,000 to purchase 92.1194 acres of land adjacent to the Slope Creek Reservoir
as an “open space” project, which the village proposed would provide more public
access, connect corridors around the reservoir, and preserve wetlands, natural areas,
and natural habitat (the “reservoir project”). The village explained that Slope Creek
Reservoir “accounts for 750 million gallons of raw water” and that the reservoir’s
integrity is “critical to the village water customers.” The second grant involved a
request for $38,850 to purchase 12 acres of land adjacent to the Barnesville #1
Reservoir as an “open space” project for the purpose of, inter alia, preserving water
quality and wetlands (the “wetlands project”). The village explained that the
purchase of this land would allow it to “control all watershed area around [the]
reservoir.” OPWC approved both of the village’s grant applications.
{¶ 4} OPWC and the village entered into project grant agreements for both
projects. Pursuant to these agreements, the village was required to include deed
restrictions in the property deeds or other instruments conveying the land. The
village agreed that the deed restrictions would be “perpetual” and would not be
“amended, released, extinguished or otherwise modified without the prior written
approval” of OPWC. The village purchased the properties in 2003, memorializing
the transfers in general warranty deeds containing the required deed restrictions.1
The relevant deed restrictions are as follows:
1. Use and Development Restrictions. Declarant hereby
agrees, for itself and its successors and assigns as owners of the
Property, that the property shall be subject to the following: The
1. The village originally recorded a deed for the reservoir project that did not contain the required
deed restrictions. It later filed a corrected deed that contained the required deed restrictions.
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Property shall only be used for open space with trails, and for
passive recreational appurtenances.
2. Perpetual Restrictions. The restrictions set forth in this
Declaration shall be perpetual and shall run with the land for the
benefit of, and shall be enforceable by, OPWC. This Declaration
and the covenants and restrictions set forth herein shall not be
amended, released, extinguished or otherwise modified without the
prior written consent of OPWC, which consent may be withheld in
its sole and absolute discretion.
3. Enforcement. If Declarant, or its successors or assigns as
owner of the Property, should fail to observe the covenants and
restrictions set forth herein, the Declarant or its successors or
assigns, as the case may be, shall pay to OPWC upon demand, as
liquidated damages, an amount equal to the greater of (a) two
hundred percent (200%) of the amount of the grant received by
Declarant, together with interest accruing at the rate of six percent
(6%) per annum from the date of Declarant’s receipt of the grant, or
(b) two hundred percent (200%) of the fair market value of the
Property as of the date of demand by OPWC. Declarant
acknowledges that such sum is not intended as, and shall not be
deemed, a penalty, but is intended to compensate for damages
suffered in the event a breach or violation of the covenants and
restrictions set forth herein, the determination of which is not readily
ascertainable. OPWC shall have the right to enforce, by any
proceedings at law or in equity, all restrictions, conditions and
covenants set forth herein. Failure by OPWC to proceed with such
enforcement shall in no event be deemed a waiver of the right to
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enforce at a later date the original violation or a subsequent
violation.
4. Restriction on Transfer of the Property. Declarant
acknowledges that the grant is specific to Declarant and that
OPWC’s approval of Declarant’s application for the grant was made
in reliance on Declarant’s continued ownership and control of the
Property. Accordingly, Declarant shall not voluntarily or
involuntarily sell, assign, transfer, lease, exchange, convey or
otherwise encumber the Property without the prior written consent
of OPWC, which consent may be withheld in its sole and absolute
discretion.
(Underlining sic.) After the village purchased the land, it requested and received
reimbursement from OPWC.
B. Oil and gas lease, water lease, and electric-line easement
{¶ 5} In 2012, without obtaining OPWC’s consent, the village entered into
an oil and gas lease with Antero Resources Appalachian Corporation (“Antero”),2
in which the village leased to Antero the rights to “oil, gas and other liquid
hydrocarbons, insofar and only insofar as to the depths and formations below the
base of the Ohio Shale formation (top of the Java formation) at a depth of
approximately 4195 feet * * * to a depth of two hundred feet (200’) below the base
of the Utica (Point Pleasant) Shale in, on and under” 1,047.5047 acres of land
identified in the lease. The oil and gas lease with Antero included the reservoir-
project and wetland-project properties.
2. Antero originally filed a notice of appeal in this case. It later filed an application to be dismissed
from the case, which this court granted. Therefore, Antero is no longer a party to this appeal.
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{¶ 6} In 2014, also without obtaining OPWC’s consent, the village entered
into a “water lease” with Antero that included two parcels of land that were part of
the reservoir-project property. The water lease gave Antero the right to withdraw
1.5 million gallons of water per day from Slope Creek Reservoir. The water lease
also gave Antero an “easement and right-of-way on and across the Premises to
construct and maintain a ‘Water System’ consisting of a temporary staging area(s)
with a temporary access road(s) for [Antero’s] exclusive use, and an easement and
the right to lay above or below ground water line(s), set pump(s) and other
equipment as needed for the withdrawal of water from the Reservoir.” The water
lease expired in January 2019.
{¶ 7} In 2014, Antero assigned its interest and rights under the oil and gas
lease for the reservoir-project property to Gulfport, and in 2015, Antero assigned
its interest and rights under the oil and gas lease for the wetlands-project property
to Eclipse Resources I, L.P. (“Eclipse”).
{¶ 8} Also in 2014, the village granted, again without OPWC’s consent, an
electric-line right-of-way easement” to South Central Power Company (“South
Central”); OPWC alleges that this easement affected the reservoir-project property.
The right-of-way easement gave South Central the right, inter alia, “to construct,
reconstruct, re-phase, relocate, install, inspect, upgrade, repair, extend, operate and
maintain on, over, across, under, and through * * * electric transmission and/or
distribution lines or systems; to make such excavation as may be reasonably
necessary to carry out the foregoing * * * ; to cut, trim, remove and control growth
of trees, shrubbery, and vegetation within such right-of-way.”
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C. Trial-court proceedings
{¶ 9} In April 2018, OPWC brought an action against the village, Antero,
Gulfport, Eclipse, and South Central.3 OPWC sought an injunction (or another
equitable remedy) permanently enjoining the village, Antero, Gulfport, Eclipse,
and South Central from violating the deed restrictions, ordering the defendants to
cease all activity on the subject properties that violate the deed restrictions, ordering
any entity or individual holding any kind of interest in the properties to assign their
interests back to the village, and ordering the merger of surface and mineral rights
on the properties. OPWC further sought a declaratory judgment against the village,
Antero, Gulfport, Eclipse, and South Central voiding all transfers of interest (leases,
easements, and encumbrances) on the properties and declaring that the surface and
mineral rights of the properties merge and that the village breached the deed
restrictions when it transferred its interests in the subject properties. Finally,
OPWC sought money damages against the village, Antero, Gulfport, and Eclipse.
{¶ 10} The parties filed multiple motions. Gulfport and OPWC moved for
judgment on the pleadings. The village filed a motion for summary judgment, and
Antero filed a motion for summary judgment and “joinder in co-defendant
Gulfport’s motion for judgment on the pleadings.”
{¶ 11} The trial court denied OPWC’s motion for judgment on the
pleadings and granted Gulfport’s motion for judgment on the pleadings and the
village’s and Antero’s motions for summary judgment. The court concluded that
(1) “because open space is not underground,” the use and alienation restrictions
“apply solely to the surface of the Premises and not to the subsurface estate,” (2)
OPWC “has no basis to obtain either injunctive relief or declaratory relief”
3. After OPWC filed its complaint in this case, Eclipse released all rights, title, and interest to the
wetlands-project property. The trial court subsequently issued an agreed judgment entry in July
2018 dismissing Eclipse from the case. In January 2019, OPWC also voluntarily dismissed South
Central from the case without prejudice.
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regarding the Water Lease because it expired in January 2019, (3) monetary
damages “would be the sole and exclusive remedy available to [OPWC] for any
alleged breach” of the use and alienation restrictions and therefore, OPWC’s claims
seeking injunctive and declaratory relief should be dismissed, and (4) OPWC failed
to submit sufficient evidence to create an issue of material fact to establish that the
defendants “made use of the surface of the Premises pursuant to either the Oil &
Gas Lease or the Water Lease, and, even if there had been surface use, that [OPWC]
was damaged by such use.” Belmont C.P. No. 18 CV 144, 2019 WL 11025466,
*3-4 (Mar. 29, 2019). Finally, the trial court also concluded that
the alienability of the subsurface (whether by lease, deed, mortgage,
or otherwise) has no impact on the open space on the Premises.
There is no conflict between the use of the subsurface and open
space on the surface of the Premises. Therefore, this court concludes
that the Alienation Restriction does not apply to the subsurface. As
a result, any transfer of the subsurface estate (including the Oil and
Gas Lease) does not violate the Alienation Restriction.
Id. at *4.
{¶ 12} OPWC appealed to the Seventh District Court of Appeals.
D. Court of appeals’ decision
{¶ 13} In a two-to-one decision, the Seventh District affirmed the trial
court’s judgment in part, reversed it in part, and remanded the case to the trial court.
2020-Ohio-4034, ¶ 51. First, the Seventh District held that the trial court erred
when it granted Gulfport’s motion for judgment on the pleadings. Id. at ¶ 30. The
appellate court then held that the trial court’s judgment denying OPWC’s motion
for judgment on the pleadings was proper. Id. at ¶ 31.
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{¶ 14} In so holding, the Seventh District relied heavily on its previous
decision in Siltstone Resources, L.L.C. v. Ohio Pub. Works Comm., 2019-Ohio-
4916, 137 N.E.3d 144(7th Dist.), which, the court of appeals stated, “involved very similar facts,”2020-Ohio-4034 at ¶ 33
, and very similar deed restrictions, id. at
¶ 34. The appellate court held that the use and development restrictions and
alienation restriction applied to both the surface and subsurface and that OPWC
could obtain monetary damages and equitable relief as remedies for a breach of the
deed restrictions.
{¶ 15} Gulfport, Antero, and the village timely appealed, and this court
accepted jurisdiction of the case.4 See 160 Ohio St.3d 1459,2020-Ohio-5332
,157 N.E.3d 786
. We accepted three propositions of law:
1. An absolute prohibition on the transfer of interests in a
Clean Ohio grant-funded property, subject only to the sole and
unlimited discretion of the Commission, is void as against Ohio
public policy.
2. Deed restrictions, which are contractually enforceable by
an award of liquidated damages that include rescission of the grant
itself, cannot be enforced by injunction.
3. Mere transfers of interests in the development of deep
minerals beneath real property do not violate a deed restriction that
permits the use of the property only as an “open space.”
See id.5
4. As previously stated, Antero’s appeal has been dismissed.
5. The propositions of law quoted here are Gulfport’s. The village raised four propositions of law
but we accepted only the first three, which are essentially the same as Gulfport’s three propositions
of law.
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II. LAW AND ANALYSIS
A. Siltstone Resources v. Ohio Pub. Works Comm., L.L.C.
{¶ 16} As previously noted, the Seventh District relied heavily on its prior
decision in Siltstone, 2019-Ohio-4916,137 N.E.3d 144
. This court recently affirmed that judgment in Siltstone Resources, L.L.C. v. Ohio Pub. Works Comm., _ Ohio St.3d. _,2022-Ohio-483
, _ N.E.3d _. A thorough review of these decisions
is necessary.
{¶ 17} In Siltstone, OPWC had approved a $430,200 grant from the Clean
Ohio Conservation Fund to the Guernsey County Community Development
Corporation (“Guernsey”) for the purpose of purchasing a 228.45 acre tract of land.
2019-Ohio-4916,137 N.E.3d 144
, at ¶ 4-6. Per the terms of the grant, Guernsey
was required to record several restrictions in the deed to the property. Id. at ¶ 6-7.
All but the use and development restrictions were nearly identical to the restrictions
in the current case and thus will not be repeated here. The use and development
restrictions in Siltstone stated:
Declarant hereby agrees, for itself and its successors and
assigns as owners of the Property, which Property shall be subject
to the following: This property will not be developed in any manner
that conflicts with the use of the Premises as a green space park area
that protects the historical significance of this particular parcel.
Only current structures will be maintained and no new structures
will be built on the premises.
Id. at ¶ 7.
{¶ 18} Guernsey subsequently leased the property’s oil and gas rights and
sold mineral rights to third parties without OPWC’s written permission. Id. at
¶ 9-12. Siltstone Resources, Inc. (“Siltstone”), which purchased mineral rights to
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January Term, 2022
approximately 187 acres from Guernsey, filed an action against OPWC, Guernsey,
and Gulfport, seeking a declaration that Guernsey did not violate the deed
restrictions when it signed the oil and gas lease and seeking “to quiet title to the
mineral[ rights] it had purchased from” Guernsey. Id. at ¶ 15-16. Siltstone
additionally argued that OPWC could recover only monetary damages if the court
determined that any of the defendants were liable. Id. at ¶ 16.
{¶ 19} OPWC filed counterclaims and cross-claims, seeking declaratory
and injunctive relief. Id. at ¶ 17. OPWC requested “an injunction restraining all
parties from violating the deed restrictions” and “that the interest be assigned back
to” Guernsey. Id. OPWC also sought “liquidated damages as set forth in the deed.”
Id.
{¶ 20} The trial court determined that OPWC could obtain only monetary
relief because R.C. 164.26(A) did not give it the right to equitable relief. 2019-
Ohio-4916, 137 N.E.3d 144, at ¶ 18. The trial court further determined that “the
Use and Development Restriction was unambiguous and did not apply to the
subsurface because green space is not underground.” Id. at ¶ 19. And it found that
“the Restrictions on transfer of the Property constituted an illegal, unreasonable
restraint on alienability.” Id. OPWC then appealed to the Seventh District.
{¶ 21} The Seventh District agreed with the trial court that the use and
development restrictions were clear and unambiguous and applied only to the
surface because the restrictions prohibited only actions that interfered with the
property’s being used for a “green space park area,” which the appellate court
determined did not include the subsurface. Id. at ¶ 42-46. Therefore, the appellate
court held that the oil and gas lease and mineral-rights sale did not violate the use
and development restrictions. Id. at ¶ 46.
{¶ 22} However, the Seventh District disagreed with the trial court’s
determination that the alienation restriction, i.e., the restriction on the transfer of
the property, applied only to the surface of the property. Siltstone, 2019-Ohio-
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4916, 137 N.E.3d 144, at ¶ 51. The appellate court concluded that because
Guernsey did not obtain OPWC’s consent prior to any of the transactions, Guernsey
violated the deed’s restrictions on the transfer of property. Id. at ¶ 50. It reasoned
that in the alienation restriction, there was “no reference to ‘green space park area’
to modify ‘property’ ” as there was in the use and development restrictions. Id. at
¶ 51.
{¶ 23} Finally, the Seventh District reversed the trial court’s judgment with
respect to possible remedies that OPWC could obtain. The appellate court
explained that “nothing in R.C. 164.26(A) prevents equitable relief.” Siltstone at
¶ 66. The court further stated, “the Enforcement Restriction clearly and
unambiguously provides that * * * OPWC has the right to enforce the deed
restrictions in equity.” Id. at ¶ 68.
{¶ 24} Siltstone (and two other companies involved in the lower-court case)
appealed to this court, and we accepted jurisdiction of the case.6 See 158 Ohio
St.3d 1443,2020-Ohio-1032
,141 N.E.3d 969
. Siltstone challenged the court of
appeals’ holding that the alienation restriction applied to both the surface and
subsurface of the properties and that OPWC could obtain equitable as well as
monetary relief.
{¶ 25} This court affirmed the Seventh District. Siltstone, _ Ohio St.3d _,
2022-Ohio-483, _ N.E.3d _, ¶ 48. We held that the transfer restriction in the deed applied to the surface and subsurface of the property and that Guernsey “violated the restriction when it leased and transferred the mineral rights.” Id. at ¶ 35. We further held, “[T]he language and authority in R.C. 164.26 is clear and does not forbid OPWC from seeking remedies at law and in equity, as is provided for in the agreement between [Guernsey] and OPWC.” Id. at ¶ 47. 6. In Siltstone, _ Ohio St.3d _,2022-Ohio-483
, _ N.E.3d _, Guernsey and Gulfport (and two
additional companies that were parties in the lower courts) filed amicus briefs with this court in
support of Siltstone, but they were not parties to the appeal.
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B. Alienation restriction and remedies
{¶ 26} Gulfport’s and the village’s first two propositions of law as well as
the arguments they make in support of these propositions are similar to Siltstone’s
arguments and propositions of law in Siltstone, _ Ohio St.3d _, 2022-Ohio-483, _
N.E.3d _. Therefore, this court’s decision in Siltstone answers the questions
presented in Gulfport’s and the village’s first two propositions of law.
{¶ 27} In support of its first proposition of law, Gulfport argues that “Ohio
public policy highly disfavors restraints on the alienability of real property and
encourages and promotes the responsible development of oil and gas resources
throughout the state.” The village similarly argues in support of its first proposition
of law that “Ohio has a clear public policy against restraints on the alienation of
real property” and that “Ohio also has a clear public policy favoring the responsible
development of oil and gas resources on public as well as private lands.” In
Siltstone, we explained:
The general rule may favor alienability, but no rule, statute, or other
authority supports a complete ban on transfer restrictions. 61
American Jurisprudence 2d, Perpetuities and Restraints on
Alienation, Sections 90-91 (2021). The transfer restriction in this
case is sufficiently supported by the public-policy purpose
authorized by the Ohio Constitution in Article VIII, Section 3, and
moreover, was contracted for by the parties for that specific public
purpose.
Id. at ¶ 34. We further recognized Ohio’s public policy favoring “oil and gas
production in a manner consistent with the health, safety, and welfare of the citizens
of Ohio” but declined to find that deed restrictions impeded or violated that public
policy. Id. at ¶ 33, citing Newbury Twp. Bd. of Trustees v. Lomak Petroleum, Inc.,
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62 Ohio St.3d 387,583 N.E.2d 302
(1992). Notably, in Siltstone, it was Gulfport and other amici who argued that the “deed restrictions violate[d] public policy in so far as they impede[d] oil and gas development,” citing Newbury in support of their argument.Id.
But we distinguished Newbury in Siltstone, explaining that Newbury involved a local zoning ordinance that regulated oil and gas exploration and that the ordinance was preempted by former R.C. 1509.39.Id.,
citing Newbury
at 389-392.
{¶ 28} In their second propositions of law, Gulfport and the village argue
that OPWC was not entitled to equitable relief. In Siltstone, however, we affirmed
the Seventh District and agreed with OPWC that “nothing in R.C. 164.26 limits
[OPWC’s] remedies exclusively to liquidated damages and that to do so would run
counter to the purpose of the Clean Ohio Fund program, essentially allowing
disingenuous recipients to ‘buy their way out’ of long-term stewardship.” _ Ohio
St.3d _, 2022-Ohio-483, _ N.E.3d _, at ¶ 42-43.
{¶ 29} Based on our decision in Siltstone, we find no merit to Gulfport’s
and the village’s arguments set forth in their first and second propositions of law.
C. Use restriction
{¶ 30} In their third propositions of law, Gulfport and the village maintain
that the Seventh District erred when it held that the village violated the use and
development restrictions in the deeds when it entered into the lease transferring oil
and gas rights without obtaining OPWC’s consent. Gulfport and the village argue
that transfers of interests in property that involve only the development of minerals
do not violate deed restrictions that limit surface activity on the property. They
further argue that entering into the lease alone cannot be a breach of the use
restriction in the deeds because the deed restrictions forbid only actual uses of the
properties, not possible uses. Or as Gulfport phrases it, “a paper transaction in the
right to develop the minerals thousands of feet beneath a property is not, itself, a
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‘use’ of that property—let alone of its ‘open space’—by any ‘common, ordinary
meaning’ of those terms.”
{¶ 31} We first note that our decision in Siltstone is not helpful in
determining this issue because no party appealed the Seventh District’s holding
regarding the use and development restrictions in that case. Therefore, we must
turn to the language of the deeds. The use and development restrictions in this case
state in pertinent part that “[t]he Property shall only be used for open space with
trails, and for passive recreational appurtenances.”
{¶ 32} The construction of instruments of conveyance is a matter of law that
is subject to de novo review. Graham v. Drydock Coal Co., 76 Ohio St.3d 311,
313,667 N.E.2d 949
(1996). When interpreting a deed, the primary goal of this court is to look to the terms of the deed to give effect to the intentions of the parties. See Koprivec v. Rails-to-Trails of Wayne Cty.,153 Ohio St.3d 137
,2018-Ohio-465
,102 N.E.3d 444
, ¶ 23. The best way to do that is to look at the words found within
the four corners of the deed itself and to adhere to the plain language used there.
See id. at ¶ 29.
{¶ 33} Looking at the relevant language of the deeds here, we conclude that
the Seventh District correctly determined that the village violated the use and
development restrictions when it leased the oil and gas rights to Antero without
obtaining OPWC’s consent. As we stated in Browne v. Artex Oil Co., 158 Ohio
St.3d 398,2019-Ohio-4809
,144 N.E.3d 378
, ¶ 23:
In describing the property interest created by an oil and gas
lease, we have acknowledged that the lease affects the possession
and custody of both the mineral and surface estates. [Chesapeake
Exploration, L.L.C. v. Buell, 144 Ohio St.3d 490,2015-Ohio-4551
,
45 N.E.3d 185,] ¶ 60. During the term of the lease, “the lessor
effectively relinquishes his or her ownership interest in the oil and
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gas underlying the property in favor of the lessee’s exclusive right
to those resources.” Id. at ¶ 62. The lessee also enjoys reasonable
use of the surface estate to accomplish the purposes of the lease. Id.
at ¶ 60.
{¶ 34} Therefore, by transferring oil and gas rights to Antero (who later
assigned them to Gulfport) without obtaining OPWC’s prior consent, the village
violated the use and development restrictions in the deeds. Gulfport obtained oil
and gas rights to the property, which meant that it also obtained the right to use the
surface of the property to gain access to the oil and gas below the surface of the
property. This is in direct contradiction to the use and development restrictions in
the deeds that plainly prohibited any use of the property that did not involve “open
space with trails” and “passive recreational appurtenances.”
{¶ 35} To the extent that Gulfport and the village argue that there was no
breach in this case because the property had yet to be disturbed in any way, neither
the surface nor the subsurface, we find no merit to that argument. Antero and later
Gulfport obtained a real-property interest when the transfer of oil and gas rights
was complete. See Browne at ¶ 22, citing Chesapeake Exploration, L.L.C. v. Buell,
144 Ohio St.3d 490,2015-Ohio-4551
,45 N.E.3d 185, ¶ 42-43, 49
; Keeling &
Gillespie, The First Marketable Product Doctrine: Just What is the “Product”?,
37 St. Mary’s L.J. 1, 6-7 (2005); R.C. 5301.09, 2014 Sub.H.B. No. 9 (effective Mar.
23, 2015) (recognizing that oil and gas leases “create an interest in real estate”).
Therefore, the fact that Gulfport had yet to disturb the property in any way is of no
consequence.
{¶ 36} Accordingly, we conclude that the Seventh District correctly
determined that the village violated the use and development restrictions when it
transferred oil and gas rights without OPWC’s written consent, because the use and
development restrictions apply to both the surface and subsurface of the properties.
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III. CONCLUSION
{¶ 37} The village requested grant funding from OPWC; if the village “did
not wish to abide by the terms of the grant and thereby the deed restrictions for the
property purchased with grant funding, it could have sought funding for [these
projects] elsewhere,” Siltstone, _ Ohio St.3d. _, 2022-Ohio-483, _ N.E.3d _, at
¶ 32. But when it agreed to accept the funding and include the required deed
restrictions in the deeds, it was bound by the restrictions. Accordingly, we affirm
the judgment of the Seventh District Court of Appeals.
Judgment affirmed.
O’CONNOR, C.J., and DONNELLY and BRUNNER, JJ., concur.
KENNEDY, J., dissents, with an opinion.
DEWINE, J., dissents, with an opinion joined by FISCHER, J.
_________________
KENNEDY, J., dissenting.
{¶ 38} Appellant the village of Barnesville received grants of $38,850 and
$150,000 from the Clean Ohio Conservation Fund to finance the purchase of two
properties for conservation projects to protect land around village reservoirs and to
preserve wetlands. Appellee, Ohio Public Works Commission, asserts that the
village violated transfer and use restrictions in the deeds for the two properties that
were the subject of the grant agreements between the village and the commission.
Because the transfer restrictions in this case use the same language as the transfer
restriction in Siltstone Resources, L.L.C. v. Ohio Pub. Works Comm., __ Ohio St.3d
__, 2022-Ohio-483, __ N.E.3d __, I would hold that the transfer-restriction
provisions in this case are void as unreasonable restraints on alienation. See
Siltstone at ¶ 53 (DeWine, J., dissenting).
{¶ 39} Unlike in Siltstone, id. at ¶ 59 (DeWine, J., dissenting), the issue of
the effect of the use restrictions in this case is properly before this court, and the
court should hold that the village did not violate them under the record before us.
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Therefore, I would reverse the judgment of the court of appeals. Because the
majority does otherwise, I dissent.
Propositions of Law
{¶ 40} This court accepted the following propositions of law:
1. An absolute prohibition on the transfer of interests in a
Clean Ohio grant-funded property, subject only to the sole and
unlimited discretion of the Commission, is void as against Ohio
public policy.
2. Deed restrictions, which are contractually enforceable by
an award of liquidated damages that include rescission of the grant
itself, cannot be enforced by injunction.
3. Mere transfers of interests in the development of deep
minerals beneath real property do not violate a deed restriction that
permits the use of the property only as an “open space.”
See 160 Ohio St.3d 1459,2020-Ohio-5332
,157 N.E.3d 786
.
{¶ 41} In regard to the first proposition of law, as stated above, I would hold
that the absolute prohibition of the transfer of an interest in a Clean Ohio grant-
funded property is void as against Ohio property law. The third proposition of law
raises the issue of the use restrictions in the deeds. Because of my resolution of the
third proposition of law, it is unnecessary to resolve the second proposition of law.
The Use Restriction
{¶ 42} “The general rule, with respect to construing agreements restricting
the use of real estate, is that such agreements are strictly construed against
limitations upon such use, and that all doubts should be resolved against a possible
construction thereof which would increase the restriction upon the use of such real
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estate.” Bove v. Giebel, 169 Ohio St. 325,159 N.E.2d 425
(1959), paragraph one
of the syllabus.
{¶ 43} The key portion of the use restriction in the deeds in this case reads:
1. Use and Development Restrictions. Declarant hereby
agrees, for itself and its successors and assigns as owners of the
Property, that the property shall be subject to the following: The
Property shall only be used for open space with trails, and for
passive recreational appurtenances.
{¶ 44} Appellants, the village and Gulfport Energy Corporation
(“Gulfport”), assert that the mere transfer of interests in the development of deep
minerals beneath real property does not violate a deed restriction that permits the
use of the property only as an “open space.” The majority disagrees.
{¶ 45} The majority finds no merit to the appellants’ argument that because
the property had yet to be disturbed in any way, on either the surface or the
subsurface, there was no breach in this case. The majority holds that the leasing of
oil and gas rights violates the use restriction. Here, Antero Resources Appalachian
Corporation originally signed an oil and gas lease with the village. Antero assigned
its rights to Gulfport. According to the majority, the use restriction was violated
upon the grant of leasing rights to Antero. In my view, however, an oil and gas
lease, in and of itself, does not transfer an interest in real property:
[A]n oil and gas lease “does not vest in [the lessee] the title to the
oil and gas in said land, and is not a grant of any estate therein, but
is simply a grant of a right to prospect for oil and gas, no title vesting
until such substances are reduced to possession by extracting same
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from the earth—an incorporeal hereditament.” Kolachny v.
Galbreath, 1910 OK 229,26 Okla. 772
,110 P. 902, 906
. (Brackets added in Browne.) Browne v. Artex Oil Co.,158 Ohio St.3d 398
,2019-Ohio-4809
,144 N.E.3d 378
, ¶ 72 (Kennedy, J., dissenting).
{¶ 46} An incorporeal interest affects neither the surface nor subsurface of
a property. There is no property interest for the lessee until the oil and gas are
extracted from the property, when the extracted material becomes personal
property. Id. at ¶ 73. Therefore, there is no “use” of the subject property involved
in simply entering into a lease agreement.
{¶ 47} The granting of an oil and gas lease therefore cannot be considered
a use. And the commission should not assume that the granting of an oil and gas
lease necessitates the use of the surface. Although “ ‘the mineral estate carries with
it the right to use as much of the surface as may be reasonably necessary to reach
and remove the minerals,’ ” Skivolocki v. E. Ohio Gas Co., 38 Ohio St.2d 244, 249,
fn. 1,313 N.E.2d 374
(1974), quoting 54 American Jurisprudence 2d 389, Mines and Minerals, Section 210, that general rule does not apply when “ ‘the language of the conveyance by which minerals are acquired repels such construction.’ ”Id.
In this case, the use restriction would limit the implied transfer of surface-use rights
usually associated with a lease. Additionally, there is no evidence that Gulfport
used or attempted to use the surface to access its mineral rights.
{¶ 48} Moreover, the majority characterizes the granting of an oil and gas
lease as a transfer of a property interest. If that is true, then the granting of an oil
and gas lease here cannot be a violation of the use restriction. Rather, the granting
of a lease would be a violation of the transfer restriction. And, as set forth above,
in my view, transfer restrictions on a property interest are void as unreasonable
restraints on alienation.
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January Term, 2022
{¶ 49} Finally, in this case the use restriction applies only to the use of the
surface of the property or that which could affect the use of the surface. The use
restriction contemplates only that which would be visible—areas where trails or
passive recreational appurtenances could be installed. The use restriction does not
purport to limit activity like that contemplated by an oil and gas lease and occurring
4,000 feet underground. Nothing that occurs 4,000 feet below the surface is
incompatible with having open space with trails or passive recreational
appurtenances.
Conclusion
{¶ 50} Because the transfer restrictions in this case are void as unreasonable
restraints on alienation and because there has been no use that violates the use
restrictions in the deeds at issue, I would reverse the judgment of the court of
appeals. Because the majority holds otherwise, I dissent.
_________________
DEWINE, J., dissenting.
{¶ 51} This is the second case that this court has decided this year involving
deed restrictions on a property that was purchased with a grant from the Clean Ohio
fund. In the earlier case, a majority upheld a restriction on the transfer of the
property that worked as an absolute restraint on the alienation of the property.
Siltstone Resources, L.L.C. v. Ohio Pub. Works Comm., _ Ohio St.3d. _, 2022-
Ohio-483, _ N.E.3d _. I disagreed with the court’s analysis and dissented from its
judgment. See id at ¶ 50-106.
{¶ 52} In this case, we are asked to review a nearly identical deed provision
that altogether prohibits the transfer of the property at issue. As in Siltstone, I would
hold that this restriction is unreasonable and void as an absolute restraint on
alienation.
{¶ 53} We are also asked to review a restriction on the use of the property
that is different than the use restriction at issue in Siltstone. The majority concludes
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that the village of Barnesville, the owner of the property, violated this use restriction
when it transferred oil and gas rights to the property. I agree with the first dissenting
opinion that the village did not violate the use provision in the deed merely by
entering into a lease regarding the mineral rights to the property.
{¶ 54} In my view, the plain language of the deed’s use restriction prohibits
the use of the property for subsurface mineral extraction. But because the Ohio
Public Works Commission based its claim that the village had violated the use
restriction on the village’s act of leasing the property rather than on any subsurface
activity, I agree with the first dissenting opinion that the commission is not entitled
to relief.
The village purchases land and then leases the mineral rights
{¶ 55} In 2002, the village of Barnesville received grants from the Ohio
Public Works Commission to purchase land in Belmont County. In exchange for
funding, the village was required to include certain conditions in the deeds to the
properties. One condition provides that the village “shall not voluntarily or
involuntarily sell, assign, transfer, lease, exchange, convey or otherwise encumber
the Property without the prior written consent of [the Public Works Commission],
which consent may be withheld in its sole and absolute discretion.” I’ll refer to this
as the Transfer Restriction. The deeds also contained a clause limiting the use and
development of the property, which I’ll call the Use Restriction. Under the Use
Restriction, the village agreed, “for itself and its successors and assigns as owners
of the Property,” that the property “shall only be used for open space with trails,
and for passive recreational appurtenances.” The deeds further provided that the
restrictions “shall be perpetual and shall run with the land for the benefit of, and
shall be enforceable by, [the Public Works Commission].”
{¶ 56} The deeds contain language setting forth the available remedies for
a breach of the deed restrictions. In such event, the village “or its successors or
assigns” must pay to the Public Works Commission liquidated damages of either
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(1) twice the amount of the grant, plus interest or (2) twice the fair market value of
the property. The liquidated damages are “intended to compensate for damages
suffered in the event [of] a breach or violation of the covenants and restrictions set
forth herein, the determination of which is not readily ascertainable.” Further, the
Public Works Commission “shall have the right to enforce, by any proceedings at
law or in equity, all restrictions, conditions and covenants set forth [in the deed
restrictions].”
{¶ 57} The village subsequently leased the mineral rights on the grant-
funded properties to other entities without the permission of the Public Works
Commission. Gulfport Energy Corporation (“Gulfport”) is the current holder of
the oil and gas lease for one of the properties. The Public Works Commission
brought this action against the village and Gulfport, as well as some other entities
that are not involved in this appeal. The commission sought a judgment declaring
that the village had violated the Transfer and Use Restrictions and that the leases
were invalid. It also asked the court to award liquidated damages and injunctive
relief.
{¶ 58} Gulfport and the Public Works Commission filed cross-motions for
judgment on the pleadings, and the village filed a motion for summary judgment.
The trial court decided in favor of Gulfport and the village on their motions. The
court determined that both the Transfer and Use Restrictions apply to only the
surface of the property; it therefore concluded that the lease of the subsurface rights
did not violate either restriction.
{¶ 59} The Public Works Commission appealed, and the Seventh District
Court of Appeals reversed. 2020-Ohio-4034. The court of appeals concluded that
the deed restrictions applied to both the surface and subsurface of the property, and
it remanded the case for further proceedings. We accepted the village’s and
Gulfport’s appeals to address the validity and scope of the Transfer and Use
Restrictions.
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SUPREME COURT OF OHIO
The Transfer Restriction is void
{¶ 60} The transfer restriction that was at issue in Siltstone, _ Ohio St.3d. _,
2022-Ohio-483, _ N.E.3d _, is identical in all meaningful respects to the one here.
For the reasons expressed in my dissenting opinion in that case, the Transfer
Restriction contained in the village’s deeds is invalid. It is void under the common-
law rule because it is an absolute restraint on alienation of a fee-simple estate, see
Siltstone at ¶ 61-67 (DeWine, J., dissenting); Dukeminier & Krier, Property, 379
(1981) (“An absolute * * * restraint upon a legal fee simple is almost always held
void”). The restriction is also unreasonable under the modern reasonableness
approach to deed interpretation, which weighs “ ‘the utility of the restraint against
the injurious consequences of enforcing the restraint,’ ” Siltstone at ¶ 69 (DeWine,
J., dissenting), quoting 1 Restatement of the Law 3d, Property, Servitudes, Section
3.4 (2000). Here, the restraint on alienation is an onerous one: it is absolute,
unlimited in time and scope, and applies to all future transferees. And the Transfer
Restriction has virtually no independent utility, as “most, if not all, of the purported
benefit served by the Transfer Restriction is already accomplished by the Use
Restriction,” id. at ¶ 87. For these reasons, I would hold that the Transfer
Restriction is void.
A transfer of property rights does not violate the Use Restriction
{¶ 61} The majority determines that because Gulfport obtained the oil and
gas rights to the property, there has been a violation of the use restriction—
regardless of whether the property has actually been used in any way. As the first
dissenting opinion correctly explains, simply entering into a lease agreement does
not constitute a use of the property.
{¶ 62} By reaching a contrary conclusion, the majority effectively construes
the Use Restriction in a manner indistinguishable from the Transfer Restriction.
This construction makes little sense when applied to other scenarios. Suppose the
village was unable to maintain the property as it had originally planned, so it
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January Term, 2022
transferred the oil and gas rights to a conservation agency. By the majority’s logic,
the village would have violated the Use Restriction through the transfer of the
mineral rights alone, even if the agency had every intention of preserving the
property in accordance with the deed. I therefore disagree with the majority’s
conclusion that a partial transfer of rights violates the Use Restriction.
The Use Restriction prohibits subsurface mining
{¶ 63} I part ways with the first dissenting opinion in its interpretation of
the Use Restriction. The provision states that “[t]he Property shall only be used for
open space with trails, and for passive recreational appurtenances.” (Emphasis
added.) The clause prohibits the use of the property for any purposes other than
“for open space with trails” and “for passive recreational appurtenances.” There is
no language limiting the provision to the surface of the property. Nor can we read
much into the provision’s silence on subsurface activity. Given that the provision
bans all uses except open space with trails and passive recreational appurtenances,
there is little reason to address subsurface uses at all; they would be banned as well.
{¶ 64} Thus, the question whether subsurface drilling would as a practical
matter interfere with the authorized uses is of no consequence under the plain
language of the Use Restriction. Use of the property for mineral extraction simply
does not constitute use “for open space with trails” or “for passive recreational
appurtenances.”
{¶ 65} Nevertheless, the theory advanced by the Public Works Commission
in the trial court was that the village had violated the Use Restriction solely by
transferring the mineral rights to the property. I agree with the first dissenting
opinion that the transfer of mineral rights does not constitute a breach of the Use
Restriction.
Conclusion
{¶ 66} I would reverse the judgment of the Seventh District Court of
Appeals and reinstate the trial court’s judgment in favor of the village and Gulfport.
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SUPREME COURT OF OHIO
Because I would hold that the Transfer Restriction is void and that the Public Works
Commission has not established a breach of the Use Restriction through the
village’s transfer of the property’s mineral rights, there is no need to address the
question whether the commission may pursue injunctive relief in addition to
liquidated damages in the event of a breach.
FISCHER, J., concurs in the foregoing opinion.
_________________
Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General,
Samuel C. Peterson, Deputy Solicitor General, and Caroline Mills, Assistant
Attorney General, for appellee.
Bricker & Eckler, L.L.P., Matthew W. Warnock, Aaron M. Bruggeman,
Christine Rideout Schirra, and Kara H. Herrnstein, for appellant Gulfport Energy
Corporation.
Graham & Graham Co., L.P.A., Robert G. McClelland, Stephen R.
McCann, and Travis M. Jones; and Myser & Myser and Adam L. Myser, for
appellant the village of Barnesville.
_________________
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