The new rules mostly serve to clarify the statutory requirements, but there are few substantive additions that aren’t required by statute:

• Affidavit of attempts to lease. Most notably, the new rules require applicants to describe their efforts to lease the remaining acres in a proposed unit. The operator must identify specific details of each attempt to lease the mineral rights, including the dates of the attempts and the names of people contacted. This has long been an aspect of mandatory pooling, and has been a part of recent unitization orders, but until now was not a prerequisite to apply for unitization.
• Visual depictions of the proposed unit. The rules describe specific dimensions and content requirement for maps and aerial photographs of proposed units.
• Description of geological formations. The rules require a gamma-ray density log depicting the geological formations to be drilled in the proposed unit.
• Large exhibits at hearings. As the audiences grow at unitization hearings, the new rules require applicants to bring large visual exhibits depicting many parts of the application (including the maps and aerial photographs of the proposed unit, and depictions of the geological formation).

Check out the new rules at the ODNR website. Issuing these new rules confirms what we’ve written before — unitization is a vital part of the legal and regulatory landscape of Ohio’s shale play.

For background on unitization and why ODNR has received a swell of new unitization applications, check out our blog series on mandatory pooling and unitization:

Part I: Mandatory Pooling and Unitization in Ohio, Part I: History and Constitutionality
Part II: A Tool of Last Resort: Mandatory Pooling in Ohio
Part III: Unitization in Ohio: Compelled Participation in the New Context of the Utica Shale

The lease was granted by Noah Moser to The Sun Oil Co., an Ohio corporation, on Sept. 19, 1901. The recordation of this transaction is hand written into the Putman County records by the recorder. The consideration, what is today called the “signing bonus,” was $80 for a 160-acre parcel. (In today’s dollars, that’s an “economic power” of $56,300, or $352 per acre.)

In the two-page document, Mr. Moser granted all the oil and gas in and under the described premises together with the right to enter at all times for the purpose of drilling and operating for oil, gas or water. This included the right to erect, maintain and remove all buildings, structures, pipelines and machinery necessary, provided that Mr. Moser retained the right to farm the land not actually used. Just what one would expect. But here’s where Mr. Moser shows he knew what he was doing:

• The grant would become null and void if a well was not completed within 90 days. A payment of $20 per month, now called a “delay rental,” would prevent the termination.
• Should oil be found in paying quantities, a royalty of 1/6 of the oil produced was to be delivered to Mr. Moser. (Later, a 1/8 royalty would become the de facto standard.)
• If gas were found in paying quantities, Mr. Moser would receive $100 annually, and he had the right to use free gas to heat and light his house.
• Pipelines were to be buried, if Mr. Moser so requested.
• “No well shall be drilled nearer than 300 feet to any building on this premises.” This set back requirement is analogous to today’s standards.

Express Development Provision With a Pugh Clause

There are no pooling or unitization clauses as we know them today, but the lease does contemplate that the described premises could be operated jointly with adjoining property. Though the oil company might say that such provisions are necessary for the efficient operation of wells on contiguous land, others would argue that they lead to abuse by the oil company, which could thereby hold acreage without developing it. The debate continues to this day.

Did the oil company hoodwink Mr. Moser? Hardly. The lease goes on to provide that 30 days after the last producing well was drilled:

“this lease shall become null and void and all rights hereunder shall cease and terminate excepting as to 10 acres around each well already completed unless second party [the oil company] shall complete one additional well each 90 days after the completion of the first well, until 6 wells are completed, unavoidable accidents and delays excepted.”

An express development clause — and a harsh one by today’s standards — enforced, remarkably, by what we call today a Pugh clause! A Pugh clause is the language used in an oil and gas lease to spell out what happens to the portion of the leased acreage that does not either contain a well or is not included within a producing petroleum pool or unit. They can be horizontal and/or vertical.

The conventional wisdom is that a Pugh clause is named after Lawrence Pugh, a Crowley Louisiana attorney who developed the clause in 1947, apparently in response to the Hunter v. Shell Oil Co., 211 La. 893 (1947), which was considered by some to unfairly favor the oil company. In this case, the Louisiana Supreme Court held that production from a unit including a portion of a leased tract will maintain the lease in force as to all lands covered by the lease even if they are not contiguous.

Also note the 10-acre spacing, which was incorporated into the Ohio Revised Code in the mid-1960s, as appropriate for shallow wells.

Mile-long horizontal wells and fracking are revolutionary, no doubt. But the tensions, principles, concepts, contracts and laws that govern them are only evolutionary. So, for his day, and only 20 years after northwest Ohio became a major source of oil, Mr. Moser was well-informed or well-counseled. Members of the Moser family still own the land.

At the federal level, the U.S. Securities and Exchange Commission (SEC) issued an investor alert aimed at private oil and gas offerings. In addition to the usual cautions to investors to do their homework on these deals, the SEC encouraged investors to verify that the person offering the investment is licensed as a broker-dealer. The SEC recently stepped up its efforts to pursue “finders” and other unlicensed persons compensated by issuers to assist in finding investors. Companies raising investment funds need to understand that persons who they engage to assist in selling investments are required to have a securities license. Failure to do so exposes the issuer to civil liability, including rescission claims by investors, and potential criminal liability in cases where material misstatements or omissions are made in the private placement memorandum or other offering material, or other fraudulent activity is present. The investor alert cites several examples of recent enforcement actions where such illegal activity was involved.

At the state level, the North American Securities Administrators Association (as the name implies, an association in which all the securities administrators are members), recently issued a similar investor alert. This covers much of the same ground as the SEC investor alert, but focuses more on recommended investor due diligence.

Though these alerts are directed at investors, they are useful to issuers and their advisors in two respects:

1. They highlight compliance issues that need to be addressed in any oil and gas securities offering, and
2. They offer guidance on key disclosures unique to oil and gas offerings that should be included in any private placement memorandum or similar disclosure document.

These investor alerts suggest that federal and state securities regulators are giving heightened scrutiny to offerings of oil and gas investments. Issuers and other participants would be well advised to examine their offering processes and disclosure documents with an eye toward compliance with the securities laws.

The case highlights the importance of taking steps to protect the secrecy of confidential and proprietary business information, including securing confidentiality agreements before sharing such information with other parties such as investors, customers and marketing partners. Because the plaintiff — Wellogix, Inc. — established that it had disclosed its proprietary software and technology to the defendant subject to a confidentiality agreement, it was able to meet its burden of showing that it had taken sufficient measures to guard the secrecy of its software and that the defendant had improperly relied on Wellogix’s software to pursue another business opportunity in breach of the parties’ confidential relationship.

The case also is a reminder to businesses that receive confidential information from other parties as part of a prospective deal or partnering relationship that they should take steps to protect themselves against future claims of misappropriation. A business should take care to keep track of the confidential information it receives from the other party and then return or destroy that information after their relationship has ended. This safeguard can help defend against a claim that the business received certain information and used it for another unauthorized purpose.

Background

Wellogix developed “complex services” software for oil and gas companies before any other companies offered this type of software. The software featured “dynamic templates” that adjusted cost and supply estimates based on “intelligence built into” the underlying source code, a “workflow navigator” that provided a framework for planning and procuring services, and “electronic field tickets” that allowed suppliers to record information about orders.

To promote its software, Wellogix entered into six marketing agreements with the defendant — Accenture, LLP — beginning in 2000. Wellogix also participated in pilot projects with oil companies. Wellogix shared its source code and provided access to its technology with both Accenture and the oil companies, subject to confidentiality agreements.

One of the oil companies that Wellogix worked with was BP America, Inc. After Wellogix worked with Accenture on a pilot project for BP called “eTrans,” BP sought to implement global software with broader functionality than just complex services. BP instructed Accenture to select a software provider for the new pilot project.

Without notifying Wellogix, Accenture and software provider SAP began developing the complex services component for the new BP software project. SAP had previously agreed to integrate Wellogix’s complex services software into SAP’s accounting software, and SAP had even made a joint presentation with Wellogix for the new BP project.

Lawsuit

After Wellogix learned that Accenture and SAP were developing the complex services component without it, Wellogix sued Accenture, SAP and BP in the Southern District of Texas for trade secret misappropriation and other claims. The court dismissed SAP from the action for improper venue. BP agreed to arbitrate the claims asserted against it, and Wellogix lost those claims in the arbitration. The claims against Accenture proceeded to a jury trial.

During the nine-day trial, Wellogix introduced evidence showing that SAP had accessed Wellogix’s “dynamic templates” source code while SAP and Accenture worked together on the complex services component and that Accenture prepared a document referencing the “creation of … complex service templates” and then stating below, “Use Wellogix content.” Accenture wrote in the same document that the templates “better deliver similar or better functionality than Wellogix or we may have a problem.” Other Accenture documents also referenced Wellogix’s templates.

The evidence also showed that Accenture stated it could “easily replicate[ ]” and “[l]ift Wellogix technology and that Accenture “harvested[ed]” Wellogix technology while engaged in confidential partnerships with Wellogix. Accenture also recognized that “[w]e may be at risk if Wellogix claims that we used knowledge of their product through involvement in eTrans to design and develop a solution for BP.” Moreover, a BP employee told Wellogix that the company should “sue Accenture … [b]ecause Accenture was utilizing [Wellogix’s] confidential information and building out [its] functionality.”

Based on this evidence, the jury awarded $26.2 million in compensatory damages and $68.2 million in punitive damages. Wellogix accepted the trial court’s remittitur of the punitive damages award to $18.2 million. Accenture appealed.

Trade Secret Misappropriation Claim

Wellogix’s trade secret misappropriation claim against Accenture was decided under Texas common law, as Texas just adopted the Uniform Trade Secrets Act on May 2, 2013. Under Texas law, Wellogix had to prove that

1. a trade secret existed;
2. the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and
3. Accenture’s use of the trade secret without authorization from Wellogix.

In defense of the claim, Accenture argued that Wellogix’s software was not secret because Wellogix disclosed it to the public in patents and patent applications. “[A] patent destroys the secrecy necessary to maintain a trade secret only when the patent and the trade secret ‘both cover the same subject matter.’” Wellogix, slip op. at 6. Accenture did not introduce Wellogix’s patents into evidence. It simply argued that it was Wellogix’s burden to show that the patents did not cover the same subject matter. The Fifth Circuit rejected this argument and held that the jury could have concluded that Wellogix’s patents did not reveal its trade secrets based on the evidence submitted to it.

Accenture also argued that it had not acquired Wellogix’s trade secrets. The Fifth Circuit rejected this argument and concluded that there was sufficient evidence that Accenture improperly acquired Wellogix’s trade secrets because “a jury could have inferred that Accenture gained such access by entering into six confidentiality agreements with Wellogix.” Wellogix, slip op. at 9.

Accenture also argued that it did not use Wellogix’s trade secrets. The Fifth Circuit stated that “the standard for finding ‘use’ is not whether Accenture’s templates contained Wellogix templates, but whether Accenture ‘rel[ied] on trade secret[s] to assist or accelerate research or development’ of its templates.” Wellogix, slip op. at 10. Accordingly, the Fifth Circuit concluded that there was sufficient evidence for the jury to find that Accenture relied on Wellogix’s templates to develop its own templates.

Damages

Having concluded that there was sufficient evidence to support the jury’s finding of trade secret misappropriation, the Fifth Circuit also upheld the jury’s award of compensatory damages. Emphasizing that a “flexible approach” is used to calculate damages for trade secret misappropriation, the Fifth Circuit stated that the following evidence supported the jury’s award of $26.2 million in compensatory damages: Wellogix was valued at $27.8 million at the time of the misappropriation; an Accenture employee believed the BP work could generate annual fees in excess of $20 million if Accenture controlled Wellogix; no other company had technology like Wellogix from 2000 to 2005; the misappropriation put Wellogix at a competitive disadvantage; this disadvantage caused Wellogix to lose out on potential deals with other oil and gas companies; and this disadvantage caused Wellogix’s value to drop to “zero.”

Finally, the Fifth Circuit applied the guideposts articulated by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), to review the jury’s award of punitive damages. The Fifth Circuit concluded that the “ratio” guidepost strongly favored Wellogix because the ratio of punitive to compensatory damages was less than 1:1, and that the “reprehensibility” guidepost was neutral. The Fifth Circuit also concluded that there was sufficient evidence for the jury to conclude that Accenture acted with malice.

Who owns the minerals underneath public roads in Ohio? This is really two questions:

1. What ownership interest does the state, county, or township have in the land underlying the road? 
2. What is the rule for abutting landowners in the event the government owns less than a fee simple absolute?

Historical Ownership Interest of the State, Counties and Municipalities

Over time, the interest acquired in the land underlying roads has changed for states, counties, and townships. Ownership interests are transaction specific, but there is a general trend. Municipal roads were usually taken in fee, while roads outside municipalities are likely to be easements unless they were granted in the past 30 years, in which case they are likely to be held in fee.

Until 1953, Ohio law distinguished between “country” and “municipal” roads. Country roads consisted of all state and county highways not located within a municipality. Their ownership interests were predominantly easements, leaving the fee interest in the abutting landowners:

[a]s to country highways it seems to be settled in this state that while the public has the right of improvement and uninterrupted travel, the abutting owner has the right to all uses of the land not inconsistent with this right of travel and improvement.

Callen v. Columbus Edison Electric Light Co., 66 Ohio St. 166, 172 (1902); see also Chagrin Falls & Cleveland Plank-Road Co. v. Cane, 2 Ohio St. 419, 426 (Ohio 1853)( “The public had acquired…perpetual easement in the land covered by the road, which gave the right to all persons to pass and re-pass over it at pleasure…”). Furthermore, land appropriated for roadway purposes through the power of eminent domain was typically taken as an easement, not a fee. Henry v. Columbus Depot Co., 20 N.E.2d 921, 923 (Ohio 1939) (“where an easement is sufficient, only an easement may be taken.”). However, the state was permitted, through purchase or grant, to acquire in fee simple. This left a “mixed bag” of interests in roads, with a bias toward easements.¹

Municipal roads, in contrast, were granted in fee to the municipality, but not in total:

It seems plain that the effect of the [granting statute] is not to vest in the municipality a fee simple absolute in the streets, but only a determinable or qualified fee, and that what is granted to the city is to be held in trust for the uses intended, viz.: for street uses, and street uses only.

Id., at 173; Reese v. Cleveland, 18 Ohio Dec. 12, 14 (Ohio C.P. 1907)(“The fee is in the city in trust for street purposes…”). The general rule held into the 1960s:

The weight of authority makes a distinction between the character of the title of the municipality to its public streets and the character of the title to public highways outside municipalities. The city owns the fee to its streets in trust for street purposes; outside of municipalities, abutting-property owners own the fee to the highway, subject to the easement of the public to use the highway for purposes of travel.

Friedman Transfer & Construction Co. v. City of Youngstown, 198 N.E.2d 66, PIN (Ohio 1964); see also Cincinnati & S.G.R.A.S.R. Co. v. Cumminsville, 14 Ohio St. 523 (1863).

Current Law Regarding Ownership Interest of the State, Counties and Municipalities

In 1953, the state legislature established the current classifications of roads: state roads, county roads and township roads. R.C. 5535.01. The old “country” roads classification was split in two with the establishment of the state and county highway systems. State roads are those in the state highway system. R.C. 5535.01(A). County roads are those that are part of the county highway system, which are specifically commissioned and constructed by a board of county commissioners. R.C. 5541.02. The new township road classification bundled together the old “municipal” roads, plus any leftover “country” roads not included in the county and state highway systems.² R.C. 5535.01(C).

Also in 1953, the legislature codified the rule that municipalities took fee interests in their streets. Parcels of land titled to municipal corporations, including “streets, alleys, ways, commons or other public uses” were taken in fee “to be held in the corporate name in trust to and for the uses and purposes set forth in the instrument.” R.C. 711.07.

But the new statutory scheme did not codify the rule for “country” roads (now called state and county highways), which presumably continued to be granted or acquired as easements. This changed in the 1990s, when the state of Ohio shifted toward acquiring fee interests in roads. First, the Department of Transportation adopted a preference for acquiring fee interests in the land underlying their roads.³ Then the policy was codified to allow for acquisition (by purchase or appropriation) of land for state roads in fee. R.C. 5501.31, 5501.32. As a result, recent grants or acquisitions by the state are likely to be in fee, rather than as easements.

Abutting Landowners (Usually) Own to the Center of the Right of Way Unless the State or Municipality Owns in Fee

For landowners abutting a public road in Ohio, the rule has not changed: Unless the government owns in fee, their property interest extends to the center line of the right of way (often demarcated by the road). This was true during the old classification, where ownership of “country” roads extended to the center line. Schaaf v. Cleveland, M. & S. R. Co., 66 Ohio St. 215, 215 (Ohio 1902)(“The plaintiffs are the owners of improved farms which abut on this public road and their titles in fee extend to the center of the road.”); See also Dailey v. State, 51 Ohio St. 348 (1894). It continued after the 1953 reclassification with state and county roads. Miller v. Berryhill Nursery Co., 7 Ohio App.2d 30, 34 (2nd Dist. 1966) (“Frequently the abutting owner holds the fee to the center of the highway.”).

Moreover, a conveyance of land alongside a road is a conveyance to the center line. Greenberg v. L.I. Snodgrass Co., 161 Ohio St. 351, 357 (1954) (“The established inference of law is, that a conveyance of land bounded on a public highway carries with it the fee to the centre of the road…”)(internal citations omitted); Sherck v. Bremke, 2012 Ohio 3527 (9th Dist.).

Of course, this means that landowners within municipalities only own to the border of the road. But in the event a municipality vacates a road, the property is awarded to the abutting landowners, each to the center line:

The rule is well established in Ohio that upon the vacation of a street the fee thereto does not revert to the original dedicator but accretes to the abutting-lot owners, subject only to such rights as other such owners may have in the street as a necessary means of access to their property.

Greenberg v. LI Snodgrass Co., 161 Ohio St. 351, 357 (1954). This rule is demonstrated by Taylor v. Carpenter, 45 Ohio St. 2d 137 (1976). In Taylor the land for an alley was ceded to the municipality by appellee. But when the municipality vacated the alley, the underlying land was given in equal halves to the abutting landowners even though appellee still owned property abutting the alley from which the land for the alley was originally ceded.

In conclusion, the general rule is that land underlying public roads in Ohio, if not held in fee by a government entity, is owned to the center line of the road by the abutting landowners. The complicated question is determining who owns the fee interest in that land. The timing of the acquisition can provide guidance, but because of the variety of political subdivisions and their unique rules, you can’t be sure until you conduct a title search.

___________________

¹ Saffer “Ownership of Minerals Underlying Rivers and Streams, Railroads and Public Roads in Marcellus and Utica Shale Development States”, see page 14.
² Saffer 14
³ Saffer 15

First, a Look Back at 2011

The first production from Ohio’s Utica Shale was realized in 2011 and reported on March 31, 2012. That data showed that merely nine Utica wells were in production during some part of 2011 — all drilled by Chesapeake Appalachian, LLC. Six of those wells were located in Carroll County. The remaining data came from wells in Portage, Harrison and Mahoning counties.

Though none of those nine wells were in production for all of 2011 (all but two were in production for less than six months), combined they still produced 2.56 billion cubic feet of natural gas and 46,326 barrels of oil, which amounted to 3.5% of the state’s overall gas production and 1% of oil production for that year. These are impressive statistics considering that Ohio had more than 50,000 conventional (vertical) wells reporting production in 2011.

“Staggering” 2012 Production Results

On May 16, 2013, ODNR released production results for 2012. There were 87 wells in production for at least part of 2012. Not only has the number of wells expanded since 2011, so has the number of companies drilling those wells and the area in which those wells were drilled. The wells reportedly in production in 2012 were drilled by 12 different operators across 18 counties throughout the eastern half of Ohio.

So how were the results? In the words of ODNR Director James Zehringer, “staggering.” ODNR data shows that the 87 horizontal Utica wells produced 635,896 barrels of oil and 12,836,662 mcf of gas (that’s nearly 13 billion cubic feet of gas). That equates to 12% of Ohio’s total oil production and 16% of its gas production in 2012.

These numbers truly are staggering when you keep in mind that Ohio still has about 50,000 active conventional wells and that none of the Utica wells were in production for all of 2012. In fact, 85% (74 wells) of the Utica wells were in production for less than six months and 37% (32 wells) were in production for less than one month. To put this in perspective, ODNR estimates that a single horizontal Utica shale well will produce as much oil as 312 conventional wells and as much gas as 448 conventional wells.

Looking Behind the Numbers

It is important to understand what is, and is not, reflected in the production data. Foremost, the general terms “oil” and “gas” can be misleading to anyone who does not understand the Utica shale play. Utica “oil” is lighter than Brent or even WTI crude oil traded on world exchanges, which means it will not be able to command as high a price. However, Utica “gas” is much more valuable than the natural gas or dry gas traded on the world market because it has a much higher Btu content than dry gas.

While some skeptics have recently decried the Utica shale play, it is apparent that many of those skeptics do not appreciate what the industry has long understood about the play: the value is in the gas. Natural gas liquids can be separated from the rich Utica shale gas and sold for 40% to 60% of the price of a barrel of oil.

Ohio law does not require operators to report the Btu content of their gas but it is clear that operators are excited about their results in Ohio. ODNR reports that as of May 14, 2013 there were 31 active drilling rigs in Ohio and permitting and drilling continues to grow. There were 215 wells drilled in 2012. Another 111 wells were drilled in roughly the first four months of 2013. There are 27 different companies registered with ODNR focused on the Utica shale. With all of this activity, ODNR expects Utica shale wells to out-produce conventional wells in Ohio by 2015.

The data also shows how the play is evolving. When the play first began, much attention was focused in Columbiana, Carroll and Mahoning counties. But, the new production numbers show the reason for the recent interest in the southern portion of the play: oil! The following map helps visualize 2012 production by volume and product (click image to view larger): 

Source: MacKenzie Land & Exploration, Ltd.

What Else Did We Learn?

First, Ohio needs infrastructure. All this oil and gas needs a place to go and a way to get there. Pipelines and processing facilities are being built fast, but right now wells are being drilled faster. The single biggest thing holding back the potential of the Utica shale is lack of pipelines and processing facilities. This lack of infrastructure is the reason so few wells were in production in 2012 — there is simply no good way to get the product to market or to separate the valuable natural gas liquids.

Second, ODNR supports higher severance taxes and quarterly production reporting. The production results news conference conducted by ODNR gave us some insight into ODNR’s position on hot topics in the industry. At that news conference ODNR made clear that it supports the Governor’s plan to boost severance taxes and also believes that quarterly reporting of production results would be beneficial.

Now What?

The real proof of the Utica shale will be slow to develop. The most telling figures will be full year production results when production is not constrained by pipeline capacity problems. This data may not be available for any wells for another year or two. Will Utica shale wells have production curves similar to what we see in the Marcellus or Eagle Ford shale? Time will tell but right now, the Utica shale continues to look very promising.

Who owns the minerals under bodies of water? When oil and gas were being produced in meager quantities, not many people cared. But the story is different when lease bonuses are thousands of dollars per acre and royalties could be worth millions. Now, every acre in eastern Ohio is cast in a different light and suddenly there is enormous interest in figuring out who owns the minerals beneath Ohio’s lakes, rivers, ponds, streams and reservoirs. The following press release helps drive home the point about what is at stake:

The Muskingum Watershed Conservancy District today approved a $40.3 million natural gas lease for 6,500 acres at Seneca Lake in Guernsey and Noble counties.

The lease with Colorado-based Antero Resources was approved 5-0 by the district’s commissioners, despite continued protests from a grassroots group, the Southeast Ohio Alliance to Save Our Water.

The district will be paid a leasing bonus of $6,200 per acre plus a royalty of 20 percent on natural gas, oil and natural gas liquids from Antero wells under district-owned land, said district spokesman Mark Swiger.

That makes the district that stretches from southern Akron to the Ohio River one of the biggest beneficiaries of the Utica shale boom in eastern Ohio. It will get $77.4 million for the Antero lease and two earlier leases at other lakes. Additional and significant royalty income is also expected from the wells at the three sites.¹

Though it is clear that there is much at stake, figuring out who owns mineral rights under bodies of water has sometimes proven difficult.

Ohio Law: Background

Riparian Rights

The Ohio Department of Natural Resources (ODNR) has explained riparian rights as follows:

There are two components to a stream, the water flowing in it and the land beneath the water. Water is a “public good” and not ownable as private property. Landowners do have rights to make use of the water flowing through their property including the right to withdraw it and otherwise control it to the extent that nature permits, so long as the rights of others are not infringed upon. Such rights are known as “riparian rights,” meaning they are derived through the ownership of streamside property.²

English Common Law — “… to the middle of the stream”

Regarding ownership of land under a stream, English common law provided that the soil beneath tidal waters, the seashores and banks thereof, was vested in the crown. The soil beneath the non-tidal rivers and streams was vested in the adjacent landowners if the land had been granted. It is noted that even non-navigable tidal waters such as tidal marshes were owned by the crown. All non-tidal rivers that were navigable in fact were subject to a right of public passage, but could be owned privately. See Saffer, Ownership of Minerals Underlying Rivers and Streams, Railroads and Public Roads in Marcellus and Utica Share Development States (hereafter “Saffer”), 1, presented to the Energy and Mineral Law Foundation (2012).

Ohio Has Adopted the English Common Law Rule.

The Ohio Supreme Court applied English common law more than 180 years ago in a case arising from the construction of a dam on the Sandusky River. Faced with an argument that the riverbed was owned by the government — not an abutting property owner — the court responded:

We do not believe that it was the intention of the United States to reserve an interest in the bed, banks, or water of the rivers in the state, other than the use for navigation to the public, which is distinctly in the nature of an easement, and all grants of land upon such waters, we hold to have been made subject to the rule of the common law, which, in this case, is the plain rule of common sense. And it is this: He who owns the lands upon both banks, owns the entire river, subject only to the easement of navigation, and he who owns the land upon one bank only, owns to the middle of the river, subject to the same easement. This is the rule, recognized not only in England, but in our sister states.

(Emphasis added.) Admr’s. of Gavit v. Chambers, 3 Ohio 496, 498 (1828).

The Gavit holding has been applied consistently in modern times. For example, in a case involving construction in the Little Miami River, an Ohio appellate court held that the title of lands bordering on a navigable stream extends to the middle of the stream. State ex rel. Brown v. Newport Concrete Co., 44 Ohio App. 2d 121, 123-124, 336 N.E.2d 453(1st Dist.1975).

Later, in a 2001 quiet title action, there was a ditch, now a depression, used in an 1854 deed to describe the boundaries of abutting property. While the ditch as a monument to effect the boundary may have been unclear, the law was not:

Under Ohio law, as well as under the common law, “owners of lands situated on the banks of navigable streams running through [Ohio], are also owners of the beds of the rivers to the middle of the stream.” Of course, this rule applies where there is no express reference or grant beyond the boundary of the near bank. Where there is an express grant that goes beyond the near bank, the unambiguous language of the deed must be given effect, absent some other rule of law being applicable.

Here the appellees’ deed conforms to the common law rule and expressly grants title to the middle of the stream. However, the appellant’s deed expressly grants title to the low water mark of the far bank, i.e. the west bank. This express grant creates a conflict that cannot be resolved by simply applying the common law rule of Admr’s of Gavit, supra, to render that grant nugatory.

(Citations omitted.) Haynes v. Markel, 4th Dist. No. 01CA2587, 2001 Ohio App. LEXIS 5599, *10 (Dec.10, 2001).

Lakes, Ponds and Reservoirs

The subsurface ownership question has arisen less frequently with regard to lakes, ponds and reservoirs. This could be because the principles for streams are thought to apply, because there are relatively few inland lakes in Ohio, or because the issue simply has not presented itself in conjunction with conventional wells — which may change given the advent of horizontal drilling. But the Supreme Court of Ohio did provide some indication of how the issue would be addressed in a case decided in 1890. See Lembeck v. Nye, 47 Ohio St. 336, 24 N.E. 686 (1890). The plaintiff in Lembeck claimed that he owned the land under Chippewa Lake in Medina County, Ohio, as well as a narrow strip of land that surrounded the lake. The plaintiff brought a trespass action against the defendants, who operated resort-type buildings on the premises, constructed piers extending into the lake and rented boats. The Court found that the title to the lake and the lands enclosing it were susceptible of private ownership and that the plaintiff’s title stemmed from the title acquired by the land’s original owners. Id. at 347, 353.

Because the deed to the plaintiff did not describe the boundary of the lake as a limitation on the property conveyed, the Lembeck court applied the common law theory applicable to streams to determine who owned the lake. But, what makes the Lembeck case complicated, and instructive, is that the deeds from the original property owners fell into three classes:

1. Those in which the lake itself (but not the edge of the lake) is described in the deed as a boundary;
2. Those in which the “margin” of Chippewa lake is included in the description as a boundary; and
3. Those in which the lands conveyed are described by metes and bounds only with no reference to the lake.

For the first class of deeds, the court applied the common law rule applicable to steams, i.e., to the center of the water body: “[P]ublic policy and the presumed intention of the parties will extend the line [to that point].” Id. at 351.

As for the second class of deeds, the court found that, “by the use of these words [expressing that the margin of the lake is a boundary] the parties have declared their intention to make, not the middle, but another part of the lake — the edge of the water — the boundary line.” Id. The Court stated that “[n]o other construction can be given to the words the parties themselves have chosen, without doing violence to their meaning; and an intention contrary to the one expressed by the very words selected by the parties themselves cannot be presumed.” Id.

The defendants in Lembeck held deeds in the third class described above — those that contained only a metes and bounds description with no mention of the lake. As to those deeds, the court held, “[i]n descriptions of this class only the lands within the bounds pass.” Id. at 352. “Indeed, where the parties have by their deed enclosed the land by agreed lines, without any reference whatever to adjacent natural objects, it is difficult to conceive of a principle that would extend those lines to include those natural objects, however convenient they might be to the enjoyment of the land actually conveyed.” Id.

Thus, with the exception of the first class of deeds, where title to abutting land was found to extend to the middle of the lake, the original property owners, and the plaintiff as their successor in title, owned the lakebed. Therefore, the court said:

There should be a decree, therefore, finding, that as against the defendants herein, the plaintiff … is the owner in fee simple and entitled to the exclusive possession of all the lands underlying the waters of Chippewa Lake except those parts thereof that … were conveyed by the [original property owners] to [purchasers whose deeds did not include the lake as a boundary], and restraining the defendants from letting to hire either boats or fishing tackle, to be used on the water overlying the lands so found to belong to him. Id. at 355.

This 1890 case has not been distinguished, embellished upon or even cited in the last 120 years and, therefore, remains good law. The court went out of its way to give effect to the words in the deeds and, when adopting the common law of streams, relented to symmetry and pragmatism.

The lesson learned with regard to lakes and ponds, say, in the case of a residential subdivision that includes a pond, is that one will have to pay special attention to documents that describe the subdivision — especially when the water body is surrounded by privately owned lots. Ownership of a body of water may have been vested in an owners’ association as a common area or may have been retained by the developer. In the absence of either scenario, and absent a deed falling within either class 2 or 3 described above, the lakebed and its mineral interest would be owned by the abutting lot owners, and ownership for each would extend to the center of the water body.
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¹ Downing, District to get $40.3 million for Seneca Lake drilling lease, Akron Beacon Journal Online (Feb. 15, 2013), (last accessed May 8, 2013).

² (Footnote omitted.) Ohio Department of Natural Resources, Ohio Stream Management Guide No. 2 “Who Owns Ohio’s Streams?,”  (last accessed May 8, 2013).

Different states have answered this question in different ways, and the answer is not yet clear in Ohio. But the characterization under Ohio law is critically important in federal bankruptcy law, as Andy Nicoll discusses in his recent post on the Banking & Finance Law Report blog. It is worth the read.