Opinion
2022-L-081
07-31-2023
STEELHEAD FARMS, LLC, Plaintiff-Appellant, v. NORTHEAST OHIO NATURAL GAS CORP., Defendant-Appellee.
Joseph E. Altomare, (Plaintiff-Appellee). John P. Archer and Alexander M. Welsh, Kohrman Jackson & Krantz LLP, (For Defendant-Appellee).
Civil Appeal from the Court of Common Pleas Trial Court No. 2020 CV 000795
Judgment: Affirmed
Joseph E. Altomare, (Plaintiff-Appellee).
John P. Archer and Alexander M. Welsh, Kohrman Jackson & Krantz LLP, (For Defendant-Appellee).
OPINION
MATT LYNCH, J.
{¶1} Plaintiff-appellant, Steelhead Farms, LLC, appeals from the judgment of the Lake County Court of Common Pleas, granting summary judgment in favor of defendant-appellee, Northeast Ohio Natural Gas Corp. (NEO). For the following reasons, we affirm the judgment of the lower court.
{¶2} On June 24, 2020, Steelhead Farms filed a Complaint against NEO, amended on July 22, 2020. The Amended Complaint alleged that NEO utilized and maintained pipelines for the transport of natural gas on property owned by Steelhead Farms without legal authority to do so. It raised claims for Trespass, Ejectment, and Quiet Title, requesting that NEO be ordered to cease its use of and remove the pipelines and pay damages.
{¶3} NEO filed an Answer and Counterclaim on August 5, 2020. It requested a declaratory judgment declaring that it may continue lawful operation of the pipeline. It asserted that it possessed a valid easement, purchased through receivership proceedings, allowing it to operate the pipeline on Steelhead Farms' property.
{¶4} Steelhead Farms filed a motion for partial summary judgment on March 8, 2021, arguing NEO did not have a valid easement. The trial court denied the motion.
{¶5} NEO filed a Motion for Summary Judgment on April 15, 2022, advancing its argument that it was permitted to operate the pipeline since it legally acquired the pipeline and easement necessary for its operation when it purchased such assets from Orwell Trumbull Pipeline Co., LLC (OTP) through the receivership sale. It contended that there was an implied easement granted by the owner, Richard M. Osborne, to OTP and that Steelhead Farms was aware of such easement. Steelhead Farms filed a response in which it argued that NEO's easement was invalid since the owner whose assets had been sold in the receivership, OTP, did not have a valid easement and thus, it could not be reached by the receiver.
{¶6} The following evidence was presented through the summary judgment motions:
{¶7} William Dawson testified that he created Steelhead Farms, LLC, for the purchase of the property at issue in the present matter from Williams Rd., LLC, a company owned by Richard Osborne. He testified that at the time of the purchase, he was aware that there was oil and gas infrastructure on the property. He was aware that Osborne operated natural gas pipelines and "assumed" that he had installed a gas pipeline on the property purchased by Steelhead Farms.
{¶8} Records presented regarding the foregoing property demonstrated the history of its ownership. Steelhead Farms purchased the property from Williams Rd. LLC. The deed was executed by Richard Osborne, managing member of Williams Rd. on April 26, 2019. Williams Rd. purchased the property by Sheriff's Deed dated November 14, 2014, following proceedings against Richard Osborne, Trustee, by the Lake County Treasurer. Richard Osborne, as Trustee of the Richard Osborne Trust, acquired the property from Richard Osborne via a quit-claim deed dated February 12, 2001. Richard Osborne purchased the Property from Charles Galayda by Warranty Deed dated October 31, 1995.
{¶9} Across the Steelhead Farms property runs a pipeline called the Orwell Trumbull Pipeline System, which is 137 miles long and provides natural gas to properties across Northeast Ohio. This pipeline was constructed by OTP in the mid-2000s and continued to be operated by that company until 2019. Jessica Carothers, Account Manager for OTP, stated that OTP was majority owned by Richard M. Osborne as Trustee of the Richard Osborne Trust. Osborne was the Chairman and CEO of OTP and copies of OTP's operating agreement indicated Richard M. Osborne, Trustee, owned 85.93% of OTP. According to Carothers, OTP operated the Pipeline "through properties owned by Richard M. Osborne, Sr.'s various holding companies * * * with Richard M. Osborne Sr.'s knowledge." She maintained that OTP operated the pipeline until a court appointed receiver took possession of it in connection with a receivership in Richard M. Osborne, et al., v. Park View National Savings Bank in Cuyahoga County Court of Common Pleas Case No. CV 14-822810.
{¶10} Ken Oostman, the president of NEO, which provides natural gas service in Northeast Ohio, testified that in October 2019, NEO "purchased the Pipeline and related property rights from a court-appointed receiver by means of the Sale Order and Asset Purchase Agreement," which include easements used by or belonging to OTP and those relating to operating and distributing natural gas. Oostman indicated that the ability to operate the pipeline is necessary to continuing to provide gas service to customers, carry on NEO's business, and is "essential to NEO's uninterrupted operation of the purchased assets as ordered by the Receivership Court."
{¶11} Pursuant to filings in Cuyahoga County Court of Common Pleas Case No. CV 14-822810, a Notice of Sale of the assets of OTP was filed on March 15, 2019. On September 9, 2019, the court issued an Order Granting Receiver's Motion for Approval of Sale. The court found that Park View Federal Savings Bank held a lien against the assets of OTP, that there had been an Asset Purchase Agreement entered and that the sale was approved. Pursuant to the Asset Purchase Agreement, NEO agreed to purchase, for $3,000,000, OTP's rights and interest in "all pipeline owned by Seller, including without limitation all pipeline locations, farm taps, stations, and valves shown on the attached maps and GPS coordinates, as well as real property and easements used in the 'specified business,' which is 'the high-pressure distribution of natural gas.'" The court's order approving the sale states that it "shall be construed and shall constitute for any and all purposes a full and complete general assignment, conveyance, and transfer" of the "Debtor's interests in the Assets, including any and all necessary easements, licenses, leases, rights of way of other agreements reasonably necessary for the effectuation of the Purchased Assets and uninterrupted operation of the Assets."
{¶12} The trial court issued a Judgment Entry on July 29, 2022, granting NEO's Motion for Summary Judgment. It found that there was no genuine issue of material fact and that "NEO has provided evidence showing that it purchased all rights necessary to operate the pipeline at issue in this case, including all easements via a valid and binding Receivership Sale which is a complete defense to Plaintiff's claims" and NEO "has a valid implied easement that it purchased from the aforementioned receivership and is entitled to continue operating the pipeline through Plaintiffs property without further disruption." It dismissed the claims raised by Steelhead Farms and found the ruling "disposes of Defendant's Counterclaim in favor of the defendant."
{¶13} Steelhead Farms timely appeals and raises the following assignments of error:
{¶14} "[1.] The trial court erred in rejecting as hearsay the admission by an employee that NEO knew that it had no easement to maintain the pipeline on the Steelhead property.
{¶15} "[2.] The trial court erred in granting summary judgment in favor of NEO based on the erroneous conclusion of law that 'NEO has a valid Implied Easement that it purchased from the [Receiver].'
{¶16} "[3.] The trial court erred in granting summary judgment in favor of NEO because the record does not support any other basis of doing so.
{¶17} "[4.] The trial court erred in relying on the binding effect of the Receivership Courts' rulings."
{¶18} Pursuant to Civil Rule 56(C), summary judgment is proper when (1) the evidence shows "that there is no genuine issue as to any material fact" to be litigated, (2) "the moving party is entitled to judgment as a matter of law," and (3) "it appears from the evidence * * * that reasonable minds can come to but one conclusion and that conclusion is adverse to the party against whom the motion for summary judgment is made, that party being entitled to have the evidence * * * construed most strongly in the party's favor."
{¶19} A trial court's decision to grant summary judgment is reviewed by an appellate court under a de novo standard of review. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). "A de novo review requires the appellate court to conduct an independent review of the evidence before the trial court without deference to the trial court's decision." Peer v. Sayers, 11 th Dist. Trumbull No. 2011 -T-0014, 2011 -Ohio-5439, ¶ 27.
{¶20} In its first assignment of error, Steelhead Farms argues that the lower court erred by rejecting as hearsay testimony regarding an admission by an NEO employee that NEO knew it had no easement to maintain the pipeline on Steelhead property. It argues that it was admissible as an admission made in the scope of employment.
{¶21} The statement at issue was relayed in Dawson's testimony. According to Dawson, he inquired of NEO whether it had an easement on his property in relation to the pipeline. Dawson testified that NEO representative Jeff Heidnik "admitted * * * that there was no easement here." The trial court found that Steelhead Farms' "reliance upon inadmissible hearsay" as well as other facts "do not create a genuine issue of material fact." Steelhead Farms argues that Heidnik's admission that there was no easement was not hearsay since it was a statement made by an agent within the scope of his agency, citing Evid.R. 801(D)(2)(d).
{¶22} Evid.R. 801 (D)(2)(d) provides that a statement is not hearsay if it is offered against a party and it is "a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship."
{¶23} It has been held, however, that "[admissions of liability against an employer, including statements of opinion regarding liability, are not within an employee's scope of employment and are therefore inadmissible under Evid.R. 801(D)(2)(d)." Semco, Inc. v. Sims Bros., Inc., 3d Dist. Marion No. 9-12-62, 2013-Ohio-4109, ¶ 26; State ex rel. Cahill v. Lake Cty. Dept. of Utilities, 11th Dist. Lake No. 97-L-112, 1998 WL 637685, *4, fn. 1 (Sept. 4, 1998) ("[admissions of liability against an employer, however, are not within an employee's scope of employment"). Statements regarding whether there was an easement relate to whether there is a valid legal dispute in this matter. Steelhead Farms argues that Heidnik's statement that there was no easement "is dispositive" and should have resulted in a judgment in its favor. This buttresses a conclusion that the statement at issue is one that offers an opinion of liability. We do not find that the statement of an NEO employee should be admissible and dispositive of the legal rights of the parties in this appeal. It is evident, as will be discussed in subsequent assignments of error, that the existence of an easement and a right to utilize the property is a complex legal issue that is resolved through legal analysis and a judgment by the court.
{¶24} The first assignment of error is without merit.
{¶25} In its second assignment of error, Steelhead Farms argues that the lower court erred in finding an implied easement existed that was sold to NEO and that there was no easement to be acquired in the receivership proceedings.
{¶26} An easement may be created by grant, implication, prescription, or estoppel. Ranallo v. First Energy Corp., 11th Dist. Lake No. 2005-L-187, 2006-Ohio-6105, ¶ 33; Shiloh Ministries, Inc. v. Simco Exploration Corp., 2019-Ohio-2291, 138 N.E.3d 504, ¶ 38 (11th Dist.), citing Trattar v. Rausch, 154 Ohio St. 286, 95 N.E.2d 685 (1950), paragraph two of the syllabus. "Two types of implied easements are recognized in the law-those based on prior use and those based on necessity." Fairport Real Estate LLC v. Nautical Ridge Condominium Owners' Assn., Inc., 2018-Ohio-791, 108 N.E.3d 101, ¶ 40 (11th Dist.).
{¶27} To establish an implied easement by prior use, the party seeking the easement must prove: "(1) A severance of the unity of ownership in an estate; (2) that, before the separation takes place, the use which gives rise to the easement shall have been so long continued and obvious or manifest as to show that it was meant to be permanent; (3) that the easement shall be reasonably necessary to the beneficial enjoyment of the land granted or retained; [and] (4) that the servitude shall be continuous as distinguished from a temporary or occasional use only." Ciski v. Wentworth, 122 Ohio St. 487, 172 N.E. 276 (1930), syllabus.
{¶28} Steelhead Farms argues that the elements of an implied easement were not met. In particular, it contends that there was a lack of severance of the unity of the ownership in the estate.
{¶29} In cases of an implied easement, the severance of unity of ownership occurs when the owner initially owns the entire estate but its ownership is then split. "Easements by implication arise where property has been held in a unified title, and during such time an open and notorious servitude has apparently been impressed upon one part of the estate in favor of another part, and such servitude, at the time that the unity of title has been dissolved by a division of the property or a severance of the title, has been in use and is reasonably necessary for the fair enjoyment of the portion benefited by such use." (Citation omitted.) Id. at 495. In determining whether an implied easement exists, courts consider, inter alia, "the relationship of the parts separated to each other." (Citation omitted.) Id. "Where an owner of two parcels of land subjects one of them to an easement in favor of the other and where such owner sells the dominant parcel without providing for that easement in his grant and where the enjoyment of such easement is reasonably necessary to the beneficial enjoyment of the parcel granted, it may reasonably be inferred that the parties mutually intended there should have been a grant of such easement." (Citation omitted.) Cadwallader v. Scovanner, 178 Ohio App.3d 26, 2008-Ohio-4166, 896 N.E.2d 748, ¶ 17 (12th Dist.). In those instances where an implied easement has been found, the property was initially one parcel that was split into multiple parcels with different owners, thereby necessitating and justifying an implied easement. See Ciski at 487 (right of way "becomes, when the lands are severed and pass into other hands, an easement by implication"); Cadwallader at ¶ 21 (unity was severed when owner sold one lot and retained the other); Raines v. Hodgson, 12th Dist. Brown No. CA2019-09-011, 2020-Ohio-3404, ¶ 70 (land split into multiple tracts from one, which met the element of "severance of a prior unified estate"); Kraus v. Dotson, 6th Dist. Lucas No. L-78-084, 1979 WL 207095, *1-2 (May 11, 1979) ("[t]he law of implied easements arising from a severance of a parcel from a larger tract owned by a common owner" applied where there were two lots). Here, the parcel was not divided into two estates but was sold to Steelhead Farms as one property.
{¶30} Further, as to the third element, "that the easement shall be reasonably necessary to the beneficial enjoyment of the land granted or retained," similar concerns apply. The easement to utilize the pipeline is not applicable to granted or retained land as it is on the entirety of the land sold to Steelhead Farms.
{¶31} Of note, implied easements apply when there is an easement appurtenant, since they run with the land and are transferable to future buyers. An easement appurtenant "attaches to the property and requires a dominant estate and a servient estate. The dominant estate receives the benefit of the easement, while the servient estate is burdened by the easement." Acorn Dev., LLC v. Sanson Co., 8th Dist. Cuyahoga Nos. 110530 and 111003, 2022-Ohio-2576, ¶ 21. In contrast, an easement in gross conveys to another "a personal privilege to use the land" and exists independently of ownership of land, but that privilege expires "with the party to whom the privilege belongs." (Citations omitted.) Id. at ¶ 20. "An easement appurtenant runs with the land and is transferable to future buyers," while an "easement in gross is personal only to the grantee and, therefore, does not run with the land." Walbridge v. Carroll, 172 Ohio App.3d 429, 2007-Ohio-3586, 875 N.E.2d 144, ¶ 17 (6th Dist.). It has been observed that easements of a commercial character, like a gas pipeline, are easements in gross. Acorn at ¶ 43 (Gallagher, J., dissenting). See also Am. Premier Underwriters, Inc. v. Marathon Pipe Line Co., 3d Dist. Mercer No. 10-2001-08, 2002 WL 437998, *5 (Mar. 20, 2002) (where an easement "did not exist for the benefit of any land" but instead so that an oil pipeline could be utilized for profit, it was not appurtenant to the land).
{¶32} Nonetheless, even presuming that there was not an implied easement that runs with the land, we do not find the right to utilize the pipeline was improperly conveyed to NEO, since it constituted a license coupled with an interest. While a license is a privilege to do an act upon land terminable at the will of a licensor, a license coupled with an interest, also called an irrevocable license, is a license that is intended to be permanent. Helfrich v. Foor Family Invests., LLC, 5th Dist. Licking No. 2021 CA 00070, 2022-Ohio-3446, ¶ 76; Varjaski v. Pearch, 7th Dist. Mahoning No. 04 MA 235, 2006-Ohio-5268, ¶ 13 ("[i]f the parties intend the agreement to be permanent in nature, the license is said to be coupled with an interest") (citation omitted). It has been held that "[licenses coupled with an interest can be, in effect, easements which either have not complied with the formalities necessary to create an easement or easements by parol agreement." Kamenar R.R. Salvage, Inc. v Ohio Edison Co., 79 Ohio App.3d 685, 691, 607 N.E.2d 1108 (3d Dist. 1992); Dalliance Real Estate, Inc. v. Covert, 2013-Ohio-4963, 1 N.E.3d 850, ¶ 34 (11th Dist.); Helfrich at ¶ 76 ("a license coupled with an interest is an easement that arises from circumstances that do not fulfill other requirements for the creation of an easement"). "This is because there is not merely permission to do the act, but a right to do the act. If so construed to be a right it takes on those qualities. One such quality of a right is that it is not revocable." Kamenar at 691. A license coupled with an interest "is no longer terminable at the will of the licensor, and constitutes a right to do the act rather than a mere privilege to do it." Dalliance at ¶ 33, citing Cambridge Village Condominium Assn. v. Cambridge Condominium Assn., 139 Ohio App.3d 328, 333-334, 743 N.E.2d 954 (11th Dist.2000).
{¶33} A license coupled with an interest has been found where the parties' intention was to create a permanent and perpetual contract. Id. at ¶ 35. In Kamenar, where the parties intended to grant a utility company a permanent right in the land, a license coupled with an interest was created which was irrevocable, transferable and assignable. Thus, the "right to maintain and construct wires, cables, and the like upon the railroad's right-of-way did not terminate when" the railroad conveyed its interest in land to another party. Kamenar at 692-693. A license coupled with an interest has also been found where a party invested "effort and expense" in creating and maintaining a drain system on another's property, since these facts demonstrated the parties intended that utilization of the property for that purpose would be permanent. Helfrich at ¶ 80. Courts have observed that the existence of a license for an extended period of time lends further support to a conclusion that the parties intended for the license to be permanent and irrevocable. Varjaski at ¶ 15 ("common sense would dictate that the permission granted twenty years ago to build a stockade fence enclosing an in-ground swimming pool constitutes something more permanent than a mere license"); Hampton Ridge Condominium Assn. No. 1 v. Hampton Woods Condominium, Inc., 9th Dist. Summit No. 22036, 2005-Ohio-9, ¶ 7 (a license existed for 25 years before a party attempted to revoke it).
{¶34} In this matter, although OTP did not own the land on which the pipeline was situated, it is evident it was given permission to permanently utilize a portion of the land for operation of the pipeline from Richard Osborne, as Trustee of the Richard Osborne Trust, who owned the property at the time the pipeline was constructed. Richard Osborne, Trustee, also owned the majority of OTP's shares. OTP built the pipeline in the mid-2000s, applied for and received authorization from the Public Utilities Commission of Ohio to operate the pipeline to transport natural gas, and continued to operate the pipeline continuously for over a decade and a half, while the property was under the ownership of several different companies (owned by Osborne) which allowed the pipeline to operate. This demonstrated the intention for the use of the property to be permanent. Where the parties' agreement "evinces an intent for the use to be permanent and irrevocable," there is an irrevocable "license coupled with an interest." Dalliance at ¶ 35-36 ("a license coupled with an interest can be interpreted as an easement without complying with all of the rules or formalities of establishing an easement"). For these reasons, OTP maintained an irrevocable license over the property which could be reached and sold by the receiver.
{¶35} The second assignment of error is without merit.
{¶36} In its third assignment of error, Steelhead Farms raises various arguments relating to the trial court's grant of summary judgment. First, Steelhead Farms argues that the receiver sold the easement as an asset of OTP "because he believed OTP was owned by RMO, the Receivership debtor," and that Richard Osborne, individually, was not a member and did not hold an ownership interest. It contends that the trial court erred by treating Osborne individually and Osborne as Trustee as alter egos.
{¶37} Here, NEO purchased the pipeline and accompanying easements through a receivership sale. In Cuyahoga County Court of Common Pleas Case No. CV 14-822810, the court entered judgment against various counterclaim defendants, including the Richard M. Osborne Trust, Richard M. Osborne, and OTP. The court subsequently granted a request to appoint a receiver to sell real and personal property owned by "Richard M. Osborne, * * * the Richard M. Osborne Trust, * * * [and] Orwell-Trumbull Pipeline, Co., LLC." NEO then entered into an Asset Purchase Agreement, approved by the court, to purchase the pipeline owned by OTP as well as real property and easements associated with the "specified business," i.e., "the high-pressure distribution of natural gas."
{¶38} The trial court did not need to, and did not, determine whether Osborne individually and Osborne as Trustee were alter egos. Osborne was not the only debtor in the receivership. A judgment was entered against OTP in the receivership proceedings and the receiver was appointed to sell its property, regardless of whether Osborne individually or as trustee was its owner.
{¶39} To the extent that Steelhead Farms generally argues that the receiver lacked authority to reach the assets and seeks to essentially invalidate the sale order and the rights conveyed to NEO when it purchased OTP's property for $3,000,000 through a valid sale, we reject this argument. Steelhead Farms did not seek to challenge the action in the receivership court and has not previously objected to the transport of natural gas across its property via the pipeline for well over a decade. It has been observed that the authority of a receiver cannot be collaterally attacked in another court. Natl. Contracting Group, Ltd. v. P&S Hotel Group, Ltd., 2021-Ohio-2940, 177 N.E.3d 308, ¶ 18 (10th Dist.). The court's authority to appoint the receiver and to allow him to reach the assets of the foregoing parties is not subject to dispute here.
{¶40} NEO bought the property through a valid sale. Receivership assets are no longer available once they are sold to a bona fide purchaser. State ex rel. Horvath v. Zmuda, 6th Dist. Lucas No. L-12-1009, 2013-Ohio-55, ¶ 15. See R.C. 2325.03 ("[t]he title to property, which title is the subject of a final judgment or order sought to be vacated, modified, or set aside by any type of proceeding or attack and which title has, by, in consequence of, or in reliance upon the final judgment or order, passed to a purchaser in good faith [including a purchaser at a duly confirmed judicial sale], shall not be affected by the proceeding or attack"). We do not find that Steelhead Farms sets forth an argument, supported by legal authority, which permits it to challenge a valid order of sale through receivership in a separate action many months after the sale was approved. Steelhead Farms cannot prevail on claims for Trespass, Ejectment, and Quiet title since NEO properly purchased the pipeline and accompanying right to utilize the pipeline, as will be discussed further below. See H & S Co., Ltd. v. Aurora, 11th Dist. Portage No. 2003-P-0104, 2004-Ohio-3507, ¶ 10 (a party with a right to enter or use property is not a trespasser since "trespass requires an interference with the exclusive possessory interest of the property owner"); Northwest Ohio Properties, Ltd. v. Cty. of Lucas, 6th Dist. Lucas No. L-17-1190, 2018-Ohio-4239, ¶ 43 (finding an ejectment claim to lack merit where a defendant is not "wrongfully in possession of real property").
{¶41} As to Steelhead Farms' argument that OTP could not own an easement since the property on which the pipeline was located belonged to Osborne or Osborne, Trustee, we do not find an error in reaching and selling these assets. There can be no question that Osborne allowed OTP to utilize the easement, as it was necessary for OTP's operation of the pipeline. Osborne himself, or as Trustee, did not operate the pipeline for which the easement was created. Rather, it was operated by OTP, which received authorization from the Public Utilities Commission of Ohio in 2005 to operate an intrastate pipeline company to transport natural gas. See In the Matter of the Application of Orwell-Trumbull Pipeline Co, LLC for Approval of a Tariff to Become a Pipeline Company and Regulated Public Utility, PUCO Case No. 05-67-PL-ATA. For years, OTP was operating a pipeline with the consent of Osborne and NEO purchased the rights to continue to operate in this manner, for the high-pressure distribution of natural gas. Even if it is open to dispute whether Osborne (as trustee or otherwise) or OTP owned the right to use an easement or license on the property, we also observe that the suit in Cuyahoga County and receivership included Osborne, the Osborne Trust, and OTP. All three were subject to the authority of the receiver who could reach their assets. In either instance, the easement would have been subject to his authority to conduct a sale.
{¶42} Next, Steelhead Farms contends that "any defense that Steelhead has no standing to contest the presence of the Pipeline on its property is unavailing" under the terms of the purchase agreement. As the court made no finding that Steelhead lacked standing and NEO does not advance such an argument, we need not address this issue.
{¶43} Steelhead Farms also presents arguments against a finding that there was an easement by estoppel. Since the lower court did not address an easement by estoppel and it is unnecessary to determine this issue to resolve the appeal for the reasons stated above, we find this issue is moot.
{¶44} Steelhead Farms also raises arguments relating to the existence of an implied easement. As this issue is fully addressed in the second assignment of error, we decline to address it here.
{¶45} The third assignment of error is without merit.
{¶46} In its fourth assignment of error, Steelhead Farms argues that the lower court erred in relying on the receivership court's ruling authorizing the sale of OTP's assets given the "quit claim basis" of the sale to NEO. In particular, it cites to Recital A in the Assignment And Assumption of Easements document attached to the Asset Purchase Agreement which states: the "Assignor [the receiver] hereby assigns and transfers to Assignee [NEO] * * * on a 'as-is' 'where-is' basis without any representations or warranties, all of Assignor's right, title, claims, and interest, in and to all easements, rights of way, licenses, leases, agreements, and other rights * * * being held and/or deemed to be held by OTP in connection with the Pipeline Assets * * *."
{¶47} While it is accurate that the foregoing clause exists, this clause relates to the protection of the receiver, who is the assignor/seller under the Asset Purchase Agreement. It protects the assignor from claims by the buyer. It does not relate to claims between the buyer and third parties. While the receiver makes no warranties in relation to his sale of the property, it is useful to further examine the agreement and order of sale. The sale order, section L (V) states: "[T]his Order is and shall be effective as a determination that all Mortgages, Liens, claims, encumbrances and interests shall be and are, without further action by any person or entity, released with respect to the Assets as of the Closing date." Section L (VIII) further provides:
On the Closing Date, this Order shall be construed and shall constitute for any and all purposes a full and complete general assignment, conveyance, and transfer by to the Purchaser of Debtor's interests in the Assets, including any and all necessary easements, licenses, leases, rights of way or other agreements reasonably necessary for the effectuation of the Purchased Assets and uninterrupted operation of the Assets. Purchaser as successor in interest to ownership of the Assets, or in its own name, is authorized to do any and all things necessary or advisable to reduce the Assets to Purchaser's exclusive unrestricted ownership and possession, including entering into any and all necessary easements, licenses, leases, rights of ways of other agreements reasonably necessary for the effectuation of the transfer of the Assets to the Purchaser.
{¶48} Finally, the Purchase Agreement states that the seller "shall sell, assign, transfer, convey and deliver to Purchaser, free and clear of all Liabilities (other than Assumed Liabilities [liabilities accrued after closing and for 'missing easements']) and Liens and Purchaser shall purchase * * * all of Debtor's right and interest in" the Purchased Assets, which include the Pipeline Assets and all real property and easements used in the "Specified Business," i.e. "the high-pressure distribution of natural gas."
{¶49} The foregoing provisions contradict the argument that the "as is" clause leaves open to dispute "what did NEO actually buy" as Steelhead Farms argues. It can hardly be said that this clause justifies a challenge to a valid and legal order of the court approving the sale of the property months after the sale took place, in a different court and different proceedings. While Steelhead Farms argues that the clause disclaiming warranties creates a quit claim sale and prevents protections for the buyer, it has been held that a "'No Warranty of Title' clause does not convert [an oil and gas lease] into a quitclaim" and protects the landowner from claims subsequently raised by a lessee. Bd. of Edn. Toronto City Schools v. Am. Energy Utica, LLC, 2020-Ohio-586, 152 N.E.3d 378, ¶ 43-44 (7th Dist.). It does not dictate the outcome of any claims arising relating to the property sold.
{¶50} The fourth assignment of error is without merit.
{¶51} For the foregoing reasons, the judgment of the Lake County Court of Common Pleas, granting summary judgment in favor of NEO, is affirmed. Costs to be taxed against appellant.
JOHN J., EKLUND, P.J. concurs,
MARY JANE TRAPP, J., concurs in judgment only in part with a Concurring Opinion.
{¶52} I concur fully in the majority's disposition of the first, third, and fourth assignments of error raised by plaintiff-appellant, Steelhead Farms, LLC ("Steelhead"). I concur in judgment only with respect to Steelhead's second assignment of error, which involves whether defendant-appellee, Northeast Ohio Natural Gas Corp. ("NEO"), obtained a valid implied easement over Steelhead's property.
{¶53} While this case presents a situation that does not fit within the traditional mold, I would find an implied easement exists based on application of the "control test." In particular, Richard Osborne's control over the subject properties through his labyrinth of related entities and transactions resulted in the creation of an implied easement by prior use.
Implied Easement by Prior Use
{¶54} "Easements may be created by express grant, prescription, implication, or estoppel. Tower 10, LLC v. 10 W Broad Owner, LLC, 2020-Ohio-3554, 154 N.E.3d 1060, ¶ 28 (10th Dist.). There is no express easement of record in favor of Orwell Trumbull Pipeline Co., LLC ("OTP"), which installed the pipeline in the mid-2000s and operated it until October 2019, or in favor of NEO, which purchased the pipeline and related easements through receivership. In addition, NEO does not assert it obtained an easement by prescription or estoppel. Thus, the sole issue is whether NEO has an implied easement that permits it to operate and maintain the pipeline.
{¶55} "Easements may be implied in several ways-from an existing use at the time of the severance of ownership in land, from a conveyance describing the premises as bounded upon a way, from a conveyance with reference to a plat or map[,] or from necessity alone, as in the case of ways of necessity." Trattar v. Rausch, 154 Ohio St. 286, 291 -292, 95 N.E.2d 685 (1950). "A prior use easement looks retrospectively at how the land was used before it was severed in order to ascertain what beneficial use the grantor truly intended to convey." Arkes v. Gregg, 10th Dist. Franklin No. 05AP-202, 2005-Ohio-6369, ¶ 14.
{¶56} "An easement implied by prior use has four elements: (1) a severance of the unity of ownership in an estate; (2) the use giving rise to the easement shall exist before severance takes place, and shall have continued and been obvious or manifest for so long as to show that it was meant to be permanent; (3) the easement shall be reasonably necessary to the beneficial enjoyment of the land granted or retained; [and] (4) the servitude shall be continuous rather than temporary or occasional." Kiko v. King Mountain LLC, 7th Dist. Monroe No. 14 MO 9, 2015-Ohio-2688, ¶ 15, originating from Ciski v. Wentworth, 122 Ohio St. 487, 495, 172 N.E. 276 (1930), paragraph one of the syllabus. The "use must be continuous, apparent, permanent, and necessary to be the basis of an implied easement upon the severance of the ownership of an estate." Trattar at 292. Reasonable necessity is sufficient for this type of implied easement. Id.
Severance of Unity of Ownership
{¶57} The only element in dispute in this appeal is the first-i.e., whether there was "a severance of the unity of ownership." Steelhead argues there was no unity of ownership in the pipeline and the Steelhead property because Mr. Osborne's interest in OTP was held in trust, not individually, and because the trust's interest in the Steelhead property terminated in 2001.
{¶58} The majority finds that the first and third elements are not satisfied. However, the majority concludes that instead of an implied easement, OTP obtained a "license coupled with an interest."
{¶59} NEO did not claim this type of interest in the proceedings below, nor does NEO assert it on appeal as an alternative basis for affirmance. In addition, the cases the majority cites do not support a determination that OTP obtained an irrevocable license as a matter of law. The majority relies on the Third Appellate District's statement in Kamenar R.R. Salvage, Inc. v. Ohio Edison Co., 79 Ohio App.3d 685, 607 N.E.2d 1108 (3d Dist.1992), that a "license coupled with an interest can be, in effect, easements which either have not complied with the formalities necessary to create an easement or easements by parol agreement." Id. at 691. It appears this statement refers to deficient written agreements and to oral agreements, neither of which was alleged in this case.
{¶60} For example, in Kamenar, the parties had written agreements that were not acknowledged as required by statute. Id. In Dalliance Real Estate, Inc. v. Covert, 2013-Ohio-4963, 1 N.E.3d 850 (11th Dist.), the parties had a written agreement but had not gone before the county planning commission. Id. at ¶ 36. The agreement in Helfrich v. Foor Family Invests., LLC, 5th Dist. Licking No. 2021 CA 00070, 2022-Ohio-3446, was not written, but the matter was also not resolved on summary judgment. The appeal challenged the trial court's denial of a motion for a directed verdict on counterclaims for a prescriptive easement, easement by estoppel, and an irrevocable license. See id. at ¶ 64-83. The appellate court found the record contained sufficient evidence from which the jury could reasonably find an easement by estoppel and an irrevocable license. See id. at ¶ 75, 82.
Control Test
{¶61} While this case presents a situation that does not fit within the traditional mold, I would find an implied easement exists based on application of the "control test." Generally, the law treats trusts, corporations, and limited liability companies as separate legal entities. However, this rule is not absolute. In the context of implied easements, courts have applied a "'control test'" to establish unity of ownership, "which considers whether the same party had 'the power to arrange and adapt the properties.'" Anderson v. Fleagane, 7th Dist. Belmont No. 21 BE 0020, 2022-Ohio-1120, ¶ 42, quoting Dabrowski v. Bartlett, 246 Ariz. 504, 515, 442 P.3d 811 (2019). As one court has explained, "Clearly, the underpinning of the unity of ownership requirement is the concept of authority: the ability to impress or reserve an encumbrance on property without which an easement cannot be created." Houston Bellaire Ltd. v. TCP LB Portfolio I, LP, 981 S.W.2d 916, 921 (Tex.App.1998).
{¶62} For example, in M.C. Headrick & Son Ents., Inc. v. Preston, Tenn.App. No. 124, 1989 WL 37262 (Apr. 20, 1989), B individually acquired Lot 1 and built a house; a driveway was built on a 50-foot strip to serve the structure; B was the sole stockholder of a company which acquired the strip; and B "had the power to, and did, deal freely with both Lot 1 and the strip and treat them as though he personally owned them." Id. at *6. The court held "where an individual has had common ownership of certain parcels, but was not technically the owner at all, a dominant interest or influence in a corporation(s) owning those parcels can satisfy the necessary unity of title requirement." Id.
{¶63} In this case, Mr. Osborne controlled the Steelhead property from 1995 until April 2019. Specifically, Mr. Osborne purchased the property in his individual capacity in 1995; he transferred it to himself as trustee in 2001; and he purchased it at sheriff's sale in 2014 through his entity, Williams Rd. LLC. In April 2019, he transferred the property to Steelhead, an unrelated entity.
{¶64} Mr. Osborne's trust owns a controlling interest in OTP. Thus, the pipeline and any related rights were under Mr. Osborne's control from the mid-2000s, when OTP installed the pipeline, until the receiver's sale of OTP's assets to NEO in October 2019.
{¶65} Based on these facts, severance of ownership occurred in April 2019 when Mr. Osborne (through Williams Rd. LLC) transferred the property to Steelhead. Upon such severance, OTP obtained an implied easement in its favor with respect to the Steelhead property. Based on the provisions in the transaction documents, the receiver's transfer of OTP's assets to NEO encompassed this implied easement. Thus, Steelhead's claims against NEO are barred as a matter of law, and the trial court did not err in granting summary judgment to NEO.
{¶66} Accordingly, I would overrule Steelhead's second assignment of error on the foregoing basis.