01 Oct 2018

Did the Bad Guys Win? Dundics v. Eric Petroleum

Morgan Griffith, CPL

Attorney, Claire Sergent Walls Legal Group

What started out as a lawsuit to get paid for work performed turned into a groundbreaking case in Ohio for landmen. Instead of telling Eric Petroleum to pony up the money it owed to landman Thomas Dundics, the Ohio Supreme Court determined that oil and gas land professionals who help obtain oil and gas leases for oil and gas development companies must be licensed real estate brokers when they engage in procuring interests and negotiating transactions. Because Dundics, not a real estate broker, engaged in activities that required a real estate broker’s license, he was precluded from bringing a cause of action to recover compensation for those activities.

In 2010, Thomas Dundics, owner of IBIS Land Group, Ltd., met with Eric Petroleum to discuss an arrangement in which Dundics would obtain oil and gas leases from property owners on behalf of Eric Petroleum. Dundics was to receive payment for every leased acre (and a 1% working interest in wells drilled on the leases acquired by Dundics).

Dundics acquired the leases, and Eric Petroleum refused to pay. In 2014, Dundics sued Eric Petroleum in the Mahoning County Common Pleas Court. In January, 2015, Eric filed a motion to dismiss. Basically, Eric Petroleum asked the Mahoning County Common Pleas Court to dismiss the case because Dundics, a landman, was not a licensed real-estate broker, and oil and gas leases were real estate which required a broker to negotiate, and as such, R.C. 4735.21 prevented him from bringing a lawsuit to recover compensation. R.C. 4735.21 states:

No right of action shall accrue to any person, partnership, association or corporation for the collection of compensation for the performance of acts mentioned in section 4735.01 of the Revised Code, without alleging and proving that such person, partnership, association or corporation was licenses as a real estate broker or foreign real estate dealer.

(R.C. 4735.01(A) defines real estate broker as one who engages in certain specified conduct for compensation, including the procuring of prospects or the negotiating of any transaction. R.C. 4735.01(B) defines real estate, which includes leases.)

In May of 2015, the Magistrate dismissed the case for failure to state a claim on which relief could be granted. The Magistrate concluded that Dundics was required to have a real estate broker’s license to perform the alleged services (acquiring oil and gas leases). Dundics appealed to the Court of Appeals for the Seventh District. Dundics argued that oil and gas landmen who perform only the duties of landmen did not need to obtain a real estate broker’s license, and historically, oil and gas leases had never been conclusively recognized as interests in land by Ohio courts. In short, oil and gas leases were not the type of leases that would require a real estate license to broker.

In its February, 2017 opinion, the Seventh District Court agreed with the lower court. Dundics then appealed to the Supreme Court of Ohio. Oral argument was heard in May, 2018. On September 25, 2018, the Supreme Court of Ohio issued its opinion, affirming the trial court’s decision. 2017-0448. Dundics v. Eric Petroleum Corp., Slip Opinion No. 2018-Ohio-3826.

The Court noted that the law provides a broad definition of real estate that “includes leaseholds as well as any and every interest or estate in land situated in this state...” It disagreed with Dundics’ contention that the law was ambiguous. The Court found that “[t]here is simply no exception in the statutes governing real estate broker’s licenses for oil and gas leases or oil and gas land professionals.”

Though Dundics argued that the requirement that landmen be licensed real estate brokers to lease minerals had never been enforced, the Court stated that “[t]he assertion that this requirement has historically not been enforced in the oil-and-gas industry does not give this court permission to write an exception into the statute.” If landmen disagree, they should take it up with the Ohio Legislature.