A dispute over an unpaid bill owed by the purchaser of underground mineral and oil rights to the company that negotiated with the land owner for those rights will dramatically change real estate practices, limiting third parties who can negotiate with landowners to obtain those rights to licensed real estate brokers and attorneys.
This past week, the Ohio Supreme Court in Dundics et al. v. Eric Petroleum Corp., Slip Opinion No. 2018-Ohio-3826 (http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-Ohio-3826.pdf) ruled against Thomas Dundics and his company, IB Land Group LLC, on their claims against Eric Petroleum, a well-known energy producer, for compensation for their services in locating properties owners and negotiating terms of oil and gas leases for Eric Petroleum.
Mr. Dundics and his company are better known as landmen. Landmen have thrived in Ohio and elsewhere over the past several decades as oil and gas companies who engage in various types of high-risk and high reward production of oil and gas (“E & P’s”) have relied upon on them to acquire various types of subsurface mineral and surface rights from landowners on their behalf in exchange for compensation. Using the rights acquired by these landmen, the E & P’s handle the remaining aspects of oil and gas exploration and production, from seismic testing to constructing and operating largescale compression and fractionation facilities.
Being a landman is a well-paying job, recognized in 2015 by CNN Money as the 3rd best job in America with a median salary of $103,000. Becoming a landmen does not require any type of formal training or certifications, merely an interest in the energy field. Landmen are often transient workers, migrating from state to state, project to project, and E & P to E & P, oftentimes without a firm understanding of the regulations which are applicable to individual states or projects. The industries laissez-faire practice has been shaken by the Ohio Supreme Court decision of Dundics et al. v. Eric Petroleum Corp.
Eric Petroleum had a simple strategy to avoid paying Dundics. It successfully argued that because Dindics was not a licensed real-estate broker, it was precluded by R.C. 4735.21 from asserting a cause of action for a breach of contract where compensation was derived from performing real estate services. The trial court granted Defendant’s motion to dismiss and the Seventh District Court of Appeals affirmed, which resulted in Dindics obtaining review of those decisions in the Ohio Supreme Court.
This week, the Ohio Supreme Court agreed with the lower courts, holding that an oil and gas lease falls within the definition of real estate set forth in R.C. 4735.01(B) and the negotiation of which requires a real-estate-broker’s license pursuant to R.C. 4735.01(A) and 4735.02(A). The Court’s decision, while recognizing the historical role unlicensed oil and gas landmen played in Ohio, reasoned that the plain meaning of the statutes was unambiguous and clearly expressed the general assembly’s intent to include negotiating oil and gas leases within the scope of activities that require a real estate broker’s license.
This opinion is likely to have wide-spread effect on the oil and gas industry in Ohio by curtailing the use of landmen within the state. Individuals and companies are free to negotiate these leases for themselves, without a real estate broker’s involvement, so E & P’s now have the option of using their own employees to negotiate the leases or revert to more traditional methods of acquiring rights in real estate, such as using real estate agents or attorneys.
While the opinion is limited to a claim to collect compensation due for negotiating an oil and gas lease, the reasoning used by the Court can likely be extended to bar the use of unlicensed landmen in acquiring ancillary agreements (such as easements, surface use agreements, and the like) which are customary and necessary in the oil and gas and other businesses. While the Court’s opinion is clear, it seems likely that the landmen will turn to the General Assembly for relief in the coming years.