cite as energy & min. l. inst. chapter 8 dormant mineral acts: … · 2018-06-29 · 6 pifer,...

CITE AS33 Energy & Min. L. Inst. 8 (2012)

Chapter 8

Dormant Mineral Acts:Addressing Severed Mineral Interests

in a Fractional WorldGregory D. Russell Lauren N. Fromme

Vorys, Sater, Seymour and Pease LLPColumbus, Ohio

Synopsis§ 8.01. Introduction ......................................................................................288§ 8.02. The Problem of Dormant Minerals ...............................................289 [1] — Fractionalization ......................................................................289 [2]—DifficultyofDevelopingandTransferring DormantMinerals ....................................................................290 [3]—InadequacyofTraditionalRemedies ...................................... 291§ 8.03. Overview of Dormant Mineral Legislation ..................................293§ 8.04. The Marketable Title Approach to Dormant Mineral Legislation..........................................................................296

[1] — Texaco, Inc. v. Short:ConstitutionalityofMineral LapseLegislationUpheld ........................................................296 [2]—Michigan’s“Self-Executing”MineralLapse Statute .......................................................................................299

[3]—Ohio:NoticeandOpportunitytoCure ................................... 301 [a]—NutsandBoltsoftheOhioDormant MineralAct .................................................................... 301 [b]—ProceduralRequirementsoftheOhio DormantMineralAct ....................................................302 [4]—Tennessee:QuietTitleProcedure ...........................................304 [a]—ProceduralRequirementsoftheTennessee DormantMineralAct ....................................................305§ 8.05. The Pennsylvania Trusteeship Approach .....................................306§ 8.06. Hybrid Dormant Mineral Legislation ...........................................309 [1]—WestVirginia ...........................................................................309 [a]—ProcessforEstablishingaTrust ....................................309

[b]—ProcessforVestingTitleinthe SurfaceEstate .......................................................................... 311 [2]—Kentucky .................................................................................. 312 [a]—ProcessforEstablishingaTrust .................................... 312

[b]—ProcessforVestingTitleintheSurface Estate .............................................................................. 314

§ 8.07. Conclusion .........................................................................................315

ENERGY & MINERAL LAW INSTITUTE

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§ 8.01

§ 8.01. Introduction.TheUticaandMarcellusshaleregionhasafractionalizationproblem.

SinceColonelEdwinDrakestruckoilnearTitusville,Pennsylvaniain1859,1 peoplehavebeensevering,splitting,andsharingmineralinterestsunderlyingtheeasternproducingstates.Often,theseseveredmineralinterestsareverysmall—leftcollectivelytosleepbelowthesoilwithunknown,andperhapsuninterestedownerswhohave little incentive to claim them.Dormantmineralsnotonlycreatepotentialtitleambiguitiesthatcanimpedethesaleofaproperty,buttheyoftenfrustratetheabilityofthesurfaceandothermineralownerstodeveloptheproperties.

Traditional remedies applicable to non-consenting cotenants andcommon-lawapproachestoreunitingthesurfacewiththemineralestate

are often inadequate for curing title defects andmay be of uncertainapplication. The legislative bodies in several states, includingOhio,Michigan,Pennsylvania,Kentucky,Tennessee andWestVirginia, haveenacteddormantminerallegislationtocombatthisproblem,withvaryingdegreesofsuccess.2Thischaptersurveys theconstitutionality, structure,andmeaningofdormantminerallegislationintheeasternproducingstates.PartOneexplainstheproblemsthatthesestatesfaceandtheinadequacyofcommon-lawsolutionstofractionalizedownership.PartTwoprovidesanoverviewofthesolution,withPartsThree,Four,andFiveexplainingthethreeprimaryapproachestodormantminerallegislationinthisregion:the“marketable title,”“trusteeship,”and“hybrid”approaches.Eachof theseapproachesattemptstoreconcilethepropertyrightsofunlocatableand/orinactivemineralinterestownerswiththeproblemscausedbyleavingminerals“dormant.”PartSixconcludesthatclearlegislativeguidanceisanecessarystepto“strikingoil”again.

1 RossH.Pifer,“DrakeMeetsMarcellus:AReviewofPennsylvaniaCaseLawupontheSesquicentennialoftheOilandGasIndustry,”6Tex. J. Oil Gas & Energy L.47,48(2011).2 NewYorkisoneoftheonlystatesintheMarcellusandUticashaleregionthathasnotenactedsomeformofdormantminerallegislation.

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§ 8.02

§ 8.02. The Problem of Dormant Minerals.[1] — Fractionalization.Mineralestates,justlikesurfaceestates,canbeownedinfeesimple.3

Theycanbesevered,split,andsharedamongcotenants.Theycanbedevised,granted,orreserved.

Forthepurposesofthischapter,a“dormant”mineralestateisanestatethatisinactiveandunabletobedevelopedbecauseitsownerisunlocatableorunknown.4Severalcommentatorsattribute theprevalenceofdormantmineralstothefluctuatingeconomicprosperityoftheoilandgasindustry.5 Intimesofprosperity,suchasthe“boom”thatfollowedColonelDrake’sdiscoveryin1859,6thereisa“flurryofactivity”whenmineralinterestsaresevered.7Landownershopingtoquicklyrealizethevalueoftheirmineralswillsellportionsoftheirmineralestatestowillingbuyers.8Investorswillhedgetherisksofownershipbyacquiringafractionalshare.9Aftereachgeneration,thoseinterestsbecomefurtherandfurtherfractionalizedastheestateisdividedamongeachinterest-holder’srespectiveheirs.10

3 PureOilCo.v.Kindall,156N.E.119,120(Ohio1927);see alsoWilliams&Meyers,Oil and Gas Law§202.2(Martin&Kramer,2004).4 ThisisthesamedefinitionusedbytheUniformDormantMineralInterestsAct,draftedbytheNationalConferenceofCommissionersonUniformStateLawsin1986(hereinafterthe“UniformAct”).5 See JoshuaE.Teichman,Comment, “DormantMineralActsandTexaco v. Short: UnderminingtheTakingsClause,”32Am. U. L. Rev.157,159(1982)(“Freeholdmineralinterestsusuallyarecreatedduringaperiodofmining inagiven locality.”) JeffreyA.Townsend,“TheModelDormantMineralInterestsAct:LimitedPracticability,”8E. Min. L. Inst.§20.02(1987)(“Duringaperiodofhighactivityinmineralproduction,mineralinterestsarelikelytobecomeseveredfromthesurfaceestate.”).6 Pifer,supra.note1at48(explainingthat,“[w]ithColonelDrake’saccomplishment,Pennsylvania became the birthplace of the oil and gas industry, andNorthwesternPennsylvaniaexperienceda‘goldrush’ofsortsasspeculatorsanddevelopersmovedintotheareatocapitalizeonthepotentialeconomicopportunities.”).7 Townsend,supranote5at§20.02.8 VanSlootenv.Larsen,410Mich.21,46(Mich.1980)(citingKuntz,“OldandNewSolutionstotheProblemoftheOutstandingUndevelopedMineralInterest,”22Institute on Oil & Gas Law & Taxation 81 (1971)).9 Id. 10 Id.


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“Asmineralexplorationand/orproductionactivitysubsides,titleholdersbecomedisinterestedintheirmineralrights”11—theyforgettheyhavethem,orhavelittleincentivetoact.12Whenthetimecomes,again,togoexploringforoilandgas,thesefractionalownersareoftennowheretobefound.

[2] — Difficulty of Developing and Transferring Dormant Minerals. Dormantmineralsareaproblembecausetheymakedevelopmentand

productionmoredifficult,andcanimpedethesaleofaproperty.InLaw v. Heck Oil Co.,13 forexample,theWestVirginiaSupremeCourtheldthatremovalofoilandgasbyacotenantconstitutesenjoinable“waste,”suchthatevena1/768thinterest-holdermustconsenttoexploration;otherwise,thecotenantcommitsactionabletrespass.InMichigan,itislikewiseapparentthattheremovalofmineralsbyacotenantwithouttheconsentofothercotenantsconstituteswaste,14however,thereisastatutewhichprovidesthatamajorityoftheownersofmineralrightsinlandmaydevelopthelandforoilandgasafteradecreebythecircuitcourtissueduponcomplaintfiledinaccordancewithaprescribedprocedure.15Amajorityofstates,16includingPennsylvaniaandKentucky,haveruledthateachcotenanthastheundividedrighttodrillforandproduceoilandgaswithouttheconsentoftheothercotenants.17 However,eveninthesestates,thecotenantmayonlygiveavalidleaseasto

11 Townsend,supranote5at§20.02.12 PhillipE.Norvell,“DormancyMineralLegislation:ACurefortheMaladyorAnotherAffliction?,”16E. Min. L. Inst.12.01432-33(1997)(“Locatingthe‘lostandunknown’mineralownerwhoisnotassessedtaxesontheseveredinterest,mayhaveneverlivedinthearea,orhaslongsincedeparted,isdifficultifnotimpossible.Eveniftheownerislocated,acquiringaleaseisanothermatter.Becausethebonusandroyaltyshareastosmallfactionalinterestsisrelativelyinsignificant,thesmallinterestownerhasnoincentivetonegotiateorgrantthelease.”).13 See Lawv.HeckOilCo.,145S.E.601(W.Va.1928)(holdingthatacotenantcommitswasteifheorshedrillsforoilandgaswithoutconsentfromtheotherowners).14 Campbellv.HomerOreCo.,309Mich.693(1944).15 Mich.Stat.Ann.§§13.140(1)–13.140(10).16 ThisalsoincludesAlabama,California,Florida,Georgia,Kansas,Montana,NorthDakota,Oklahoma,Texas,andUtah.1-5Kuntz,LawofOilandGas§5.3n.1(LexisNexis2012). 17 TimothyC.Dowd,“ClearingTitleofLong-LostMineralOwners,”54Rocky Mt. Min. L. Inst.,§30.02(2008).

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his own interestintheestate,andmustproperlyaccountforhiscotenant’sshareoftheprofits.18Somestatecourtshavenotspokenontheissue.19

Inadditiontodevelopmentconcerns,thePrefatoryNotetotheUniformDormantMineralInterestsActrecognizesthat“[s]urfaceownersarealsoconcernedwith theownershipof themineralsbeneath theirproperty.”20 Because“[a]mineralinterestincludestherightofreasonableentryonthesurface forpurposesofmineral extraction; this caneffectivelyprecludedevelopment of the surface and constitutes a significant impairment ofmarketability.”21

[3] — Inadequacy of Traditional Remedies.Atcommonlawandoutsideofdormantminerallegislation,theclosest

“solutions”tothetwoproblemsofdevelopmentandmarketabilityareeitherincompleteordifficulttoapply.22Forexample,consentingcotenantsandlesseeswhooperateintheplaceofsuchcotenantscanseektheprotectionofstatepartition,compulsorypooling,andreceivershipstatutes.23Althoughthesemethodsfacilitatethedevelopmentofthemineralestate,theydonotresolvethetitleambiguitiesaffectingthesurfaceestate,andthereforedonotaddresstheissueofmarketability.24

Judicialtaxsalesandcommon-lawtheoriesofabandonmentandadversepossessionaresimilarlyunsatisfactory“alternatives” todormantminerallegislation.Adversepossession requires a clamaint toprove the “actual,public,notoriousanduninterruptedworkingofthemineralsforthestatutory

18 See e.g.,Littlev.MountainViewDairies,35Cal.2d232(1950);MacIntoshv.Ropp,217P.2d416(1912).19 ThisincludesOhioandNewYork.20 UniformAct,supranote2,atpg.2,note4.21 Id. 22 See generallyTownsend,supranote5at§20.03(explainingwhy“[t]raditionallegalmethodshaveprovenineffectivetokeeptheownershipofseveredmineralinterestsinamarketablestate.”).023 CherylOuterbridge,“MissingandUnknownMineralOwners,”25Rocky Mt. Min. L. Inst.20-1,10-27(1979).24 Id.

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period,”25whichisanywherefrom10to21years.26Thismeansthatmerepossessionofthesurface,ortheexecutionorrecordingofdeedsorleaseswillgenerallynotbesufficienttoquiettitletotheminerals.27Becausetheminingoperationsmustbecontinuousandactive,obtainingtitlebyadversepossessioncanbeexceedinglyexpensiveandultimatelyexposestheclaimanttosignificantrisk.

Second, the doctrine of “abandonment” only applies “tomineralinterest[s] that theparticular jurisdiction recognizes as ‘incorporeal.’”28 Underanincorporealinteresttheory,theinterestinlandonlyincludestherighttousethelandanddoesnotrecognizetheowner’spresentrightofpossessionofoilandgasintheground.29Conversely,corporealownershipofoilandgasiswheretheinterestintheoilandgasincludestherightofownershipandpossession.30CourtsinOhiohavevacillatedastowhetherseveredoil andgas interests throughgrantor reservation in adeedare“corporeal”or“incorporeal”innature.31Althoughmostjurisdictionsadheretotheownershipinplacetheory,32evenwheresuchinterestsareconsidered

25 Williams&Meyers,supranote3at§224.4.26 InOhioandPennsylvania,thestatutoryperiodis21years.InWestVirginia,theperiodis10years.27 Williams&Meyers,supranote3at§224.4.See alsoMorgensternv.NationalCityBankofCleveland,1987OhioApp.LEXIS5677,at*24-25(4thApp.Dist.Wash.Cty.1987)(citationomitted)(“[I]thasbeenheldthattheexecutionorrecordingofdeedsorleasesdoesnotgivetitletothemineralsbyadversepossessionabsentanydrilling.Astherewasnoactiontakenupontheseleases,astoremovalofanyoftheminerals,therecannotbeaclaimofadversepossession.”).28 Townsend,supranote5at§20.03[1].29 See BruceM.KramerandOwenL.Anderson,“TheRuleofCapture—AnOilandGasPerspective,”35Envtl. L.899,903(2005).30 Id.31 ComparePureOilCo.v.Kindall,116OhioSt.188,202,156N.E.119,123(Ohio1927)(characterizingoilandgasinterestsascorporeal)withBackv.Ohio,160OhioSt.81,86,113N.E.2d865,867-68(Ohio1953)(characterizingoilandgasinterestsasincorporeal).32 See, e.g.,RathbunvMichigan,284Mich.521,534280N.W.35(1938)(collectingauthority)(“Mineralsinplacemaybeseveredfromtheremainderofthelandbyproperconveyances.Severanceofallthemineralsfromtheremainderofthelandsmaybeeffectedbyareservationinthedeed.Uponseveranceofthetitleofmineralsfromthatoftheremainderoftheland,eachestatemaybeafree-holdofanestateinfeesimple.”).

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“incorporeal,”theclaimantmustpresentevidenceofanintenttoabandontheinterestoverandabovemerenonuse.33

Finally,althoughataxsaleofseveredmineralscouldeffectivelytransfertitle,therearedifficultieswithachievingthisresultinpractice.Inmanystates,mineralsarenotassessedseparatelyfromthesurface,eitherbyoperationofthelaworasacommonpractice.34Forexample,underNewYork’srealproperty tax law, ‘real property, property, or land’means and includes mines,minerals,quarriesandfossilsinandundertheland,exceptminesbelongingtothestate.35Eveninstateswherethemineralinterestsaretaxedapartfromtheland,ataxsaledoesnotguaranteethatthemineralswillbe“reunited”withthesurfaceestatebecauseofthepossibilityofanoutsidebidder.36Atleastonecommentatorhasexplainedthatan“outsideparty”maydesiretopurchasethemineralrightseithertoprofitfromproduction,ortoextortahighpricefromthesurfaceownerwhoselandvalueisreducedbytheexistenceseveredestate.37Thus,thesetraditionalmethodsarenotidealforfacilitatingdevelopmentandmarketability,promptingtheenactmentofdormantminerallegislation.

§ 8.03. Overview of Dormant Mineral Legislation.In and surrounding theMarcellus andUtica shale region, there

are three basic types of dormantmineral legislation. The first is the“trusteeshipapproach,”whichallowsfordevelopmentofmineralsownedbyunknownpersons through the creation of a trust for their benefit.38

33 SeeBeerv.Griffith,399N.E.2d1227(Ohio1980).34 Townsend,supranote5at§20.03[4].35 N.Y.RealProp.TaxLaw§102(12).Whenmineralrightsareassessedwiththelandandseparatelyaswell,theseparateassessmentisvoid.Casev.W.H.LoomisTalcCorp.,265A.D.296,38N.Y.S.2d746(N.Y.Ct.App.1942).In2002,thePennsylvaniaSupremeCourtheldthattheimpositionofrealestateoradvaloremtaxesonoilandgasinterestswasimproperbecausetheseinterestsdidnotfallwithinthedefinitionof“realestate”or“lands”asusedinP.S.§5020-201(a).Indep.Oil&GasAss’nofPa.v.Bd.OfAssessmentAppeals,814A.2d180(Pa.2002).36 Townsend,supranote5at§20.03[4].37 Id. 38 See JeffreyA.Townsend, “TheModelDormantMineral InterestsAct:LimitedPracticability,”8E. Min. L. Inst.20.11(1987)(discussingthetwocategoriesofdormantminerallegislation).

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Underthisapproach,whichhasbeenadoptedinPennsylvania,39titletothefractionalizedmineralinterestsisnottransferredtotheownerofthesurfaceestate.Likepartitionactionsandreceivershipstatutes,thisapproachonlyaddressesoneofthetwomajorproblemswithdormantmineralsandwillnotresolvetheambiguitiesaffectingtitle.

Thesecondapproachismoretraditionallythoughtofindiscussionsof“minerallapse”statutes.InstatessuchasOhio,40Michigan,41Tennessee,42 and Indiana,43 these statutes reunite the severedmineral estatewith thesurfaceestateaftersomespecifiedperiodofnon-use.This issometimescalleda“marketabletitle”approach.44“Marketabletitle”legislationiseither“self-executing,”whichmeansthatthemineralinterestautomaticallyreuniteswiththesurfaceestateaftertheprescriptionperiodhasrun,45orrequiressomefurthereffortbythepetitioningparty.Asdiscussedbelow,theOhioandTennesseeminerallapsestatutesarenotself-executing,forexample,becausetheyrequire60-daynoticepriortoapendinglapse.

ThethirdcategoryofdormantminerallegislationisthehybridapproachfollowedinKentucky46andWestVirginia.47Althoughthe“hybridapproach”is actuallya subcategoryof the“marketable title”-type legislation, thesestatutesmeritanindependentanalysisbecauseoftheirtwo-stepproceduraldevice.AsinPennsylvania,thesestatutesdeclareatrustandappointatrustee

39 58 P.S. § 701.1 et seq., the“DormantOilandGasAct,”effectiveJuly11,2006, isdiscussedinfra. 40 OhioRev.CodeAnn.§5301.56,originallyenactedin1989andasamendedin2006,isdiscussedinfra. 41 Mich.Comp.LawsAnn.§554.291(LexisNexis2012),enactedin1963,providesthatdormantmineralandgasinterests,exceptforinterestsunderlyingstateandfederallands,andlandsforgasstorage,unitized,andsecondaryrecoveryoperations,automaticallyreunitewiththesurfaceafter20yearsofnon-use.42 Tenn.CodeAnn.§66-5-108(LexisNexis2012).43 Ind.Code§§32-23-10-1through8providesforextinguishmentofinterestsincoal,oilandgas,andothermineralsifunusedforaperiodof20yearsunlessastatementofclaimistimelyfiled.Theconstitutionalityofthisstatute,asaddressedinTexaco v. Short,isdiscussedinfra. 44 Townsend,supranote5,at§20.11.45 TheMichiganandIndianastatutesareself-executing.46 Ky.Rev.Stat.Ann.§§353.460-353.476wasenactedin1983.47 W.Va.Code§55-12A-1et seq.,enactedin1986,isdiscussedinfra.

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fortheunknownormissingownersofseveredmineralinterests,enablingthesurfaceownertodevelopthemineralestate.However,if,aftersomeperiodoftime,theownersofthemineralinterestsremainunknownormissing,thenthesurfaceownersmayobtainavestedrighttotheseveredinterest.48 Thus,the“hybrid”statutesaddressthedevelopmentproblemimmediately,andthenaddressmarketabilityafteraperiodofnoticetoapotentialclaimant.

Asstatedabove,eachofthesethreeapproachesattemptstoreconcilethepropertyrightsofunlocatableand/orinactiveownerswiththepracticalproblemsassociatedwith“dormant”minerals.Bothunderthe“trusteeshipapproach”andthenon-selfexecutingsubsectionofthe“marketabletitle”approach, the landowner or cotenant is typically required to conduct asearchtofindthemissingownerbeforethemineralscanbetransferredand/ordeveloped.Althoughthishelpstoprotectlocatable,butinactiveowners,sucharequirementcanalsofrustratethegoalofthestatutewherethescopeoftherequiredsearchisunclear.Forexample,theNorthDakotalegislaturerecentlychangeditsdormantmineralstatutetospecificallyenumeratethestepsthatasurfaceownermusttaketofindtheownerofthestalemineralclaim.49Prior to thisamendment, theNorthDakotaSupremeCourthadheld thatwhether the surface owner conducted a “reasonable inquiry”underthestatutewasafact-intensivedeterminationrequiringcase-by-casereview.50Thishighlysubjectivestandardaddedsubstantialexpenseandrisktotheprocessofclearingtitle,withoutanapparentcorrespondingbenefittotheinterestsoftheunknownowners.Therisk,ofcourse,isthatfailing

48 Id. 49 Asof2009,N.D.Cent.Code,§38-18.1-06,subsection6,nowprovides:“Toconstituteareasonableinquiryasprovidedinsubsection2,theownerorownersofthesurfaceestateortheowner’sauthorizedagentmustconductasearchof:a.Thecountyrecorder’srecordsfortheexistenceofanyusesasdefinedinsection38-18.1-03bytheownerofthemineralinterest;b.Theclerkofcourt’srecordsfortheexistenceofanyjudgments,liens,orprobaterecordswhichidentifytheownerofthemineralinterest;c.Thesocialsecuritydeathindexforthelast-knownresidenceoftheownerofthemineralinterest,ifdeceased;andd.Oneormorepublicinternetdatabasestolocateoridentifytheownerofthemineralinterestoranyknownheirsoftheowner.Theownerorownersofthesurfaceestatearenotrequiredtoconductinternetsearchesonprivatefeeinternetdatabases.”50 SpringCreekRanch,LLCv.Svenberg,1999N.D.113,NaN-P20,595N.W.2d323,328(N.D.1999).

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toundertakeasufficientsearchwillvoidasubsequentconveyanceofthemineralinterestunderthelapsestatute.51Asexplainedbelow,mostdormantmineralstatutescouldlikelybenefitfromsimilarprovisionsandamendmentsthatincreaseclarityastoownershipoftheminerals,andreducetheriskthattherewillbefurtherlitigation.

§ 8.04. The Marketable Title Approach to Dormant Mineral Legislation.

Themarketabletitleapproach,whichveststitleinthesurfaceestate,containstwosubcategories:self-executingandnon-selfexecutinglegislation.Michiganseemstohaveenactedself-executinglegislation,whereastheOhioandTennesseestatutesrequirea60-daynoticeandanswerperiod.

[1] — Texaco, Inc. v. Short: Constitutionality of Mineral Lapse Legislation Upheld.Because“marketable title”-typemineral lapsestatutesdivest the lost

orunknownfractionalmineralinterestownersoftheirtitletotheseveredmineralinterests,theconstitutionalityofthesestatuteshasbeenquestioned.52 Inandaroundthelate1970s,severalstatesupremecourtsdeclaredlegislationofthisnatureunconstitutionalunderthetakingsanddueprocessclausesoftheU.S.Constitutionaswellasparallelstateconstitutionalprovisions.53 However,inTexaco, Inc. v. Short,54theU.S.SupremeCourtrejectedthese

51 See, e.g.,Davis v. Schimmel, 252Ark. 1201, 1212 (1972) (holding that, underArkansaslaw“judgments,ordersanddecreesmadeagainstanyonewithoutnotice,actualorconstructive,andallproceedingshadthereunderareabsolutelynullandvoid”).52 See generallyJoshuaE.Teichman,Comment,“DormantMineralActsandTexaco v. Short:UnderminingtheTakingsClause,”32Am. U. L. Rev. 157 (1982). 53 See, e.g.,Wilsonv.Bishop,412N.E.2d522(findingthataminerallapsestatutewasunconstitutionalunder thedueprocessclauseof theFourteenthAmendmentwhere themineralinterestsautomaticallyreunitedwiththesurfaceestateafter25years);Wheelockv.Health,272N.W.2d768(Neb.1978)(same,underthetakingsclause,withadormancyperiodof23years);Chicago&N.W.Transp.Co.v.Pedersen,259N.W.2d316(Wis.1977)(same,withaone-timeregistrationofmineralrights).54 Texaco,Inc.v.Short,454U.S.516(1982).

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argumentswithregardtothenearlyidenticalIndianaminerallapsestatute,upholdingthelegislationina5-4decision.55

At the time thatTexacowasdecided, the IndianaDormantMineralInterestsAct(hereinafterreferredtoas“IndianaAct”orthe“Act”),provided(inrelevantpart)thataseveredmineralinterestthatisnot“used”foraperiodof20yearsautomaticallylapsesandrevertsbacktothecurrentsurfaceowneroftheproperty,i.e.,the“interestoutofwhichitwascarved.”56TheIndianaActappliedtoallmineralinterests,includinginterestsincoalandoilandgas.EffectiveSeptember2,1971, it “containeda2-yeargraceperiod inwhichownersofmineralintereststhatwerethenun-usedandsubjecttolapsecouldpreservethoseinterestsbyfilingaclaimintherecorder’soffice.”57 Importantly,theIndianaActdefinedthe“use”ofamineralinterest“sufficienttoprecludeitsextinction”asincludingactualorattemptedproductionofminerals,paymentofrentsorroyalties,orpaymentofseparatelyassessedtaxes.58Amineralownercouldalsoprotecthisinterestbyfilingastatementofclaimwiththelocalrecorderofdeedswithinthe20-yearstatutoryperiod.59

TheTexacoplaintiffs’constitutionalchallengestotheIndianaActwereprimarilybasedonthis“extinction”ofthemineralestate.60Foroneoftheconsolidatedcases, the severedmineral estatewascreatedonMarch1,1954.“Onthatdate,appellantsPondandBobeconveyedlandtoappelleesbyawarrantydeedthatcontainedareservationofthemineralestate.OnJune17,1976,PondandBobeexecutedacoalminingleasewithappellantConsolidatedCoalCo.”61EventhoughPondandBobewerethemineralinterestownersofrecord,“[they]didnotusetheinterestorfileastatementofclaimintheRecorder’sOffice.Thus,onMarch1,1974,adatemorethan

55 The dissenting justices argued that retrospective application of the statute,notwithstanding the“two-yeargraceperiod,”wasunconstitutional, but agreed that thestatutewasconstitutionalasappliedprospectively.56 Texaco,454U.S.at518(citingandexplainingInd.Code.§§32-5-11-1though32-5-11-8(1976)(repealedbyP.L.2-002,§128)).57 Id. at 519.58 Id. 59 Id. 60 Id. In Texaco,twocaseswereconsolidatedfortheappeal.61 Id. at 521.

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twoyearsaftertheeffectivedateoftheDormantMineralInterestsAct,astatutorylapseoccurred.”62Thepartiesjointlyfiledalawsuit“toresolvetheirconflictingclaimstothemineralrights.”BoththemineralownersandthecoalcompanyarguedthattheActviolatedtheFifthAmendmentasaregulatory“taking”withoutjustcompensation.63Additionally,theyarguedthattheActviolatedtheirrighttodueprocessoflawbyfailingtoprovidepriornoticeoftheforthcominglapseoftheirmineralinterests.

Rejectingbothofthesearguments,theSupremeCourtbeganitsanalysisbyrecognizingthatthepurposeofIndianaActwastoresolveuncertaintiesintitleandtheimpedimentstomineraldevelopment—“legitimate”policygoalsofthestate.64TheCourtobservedthat,“justasaStatemaycreateapropertyinterestthatisentitledtoconstitutionalprotection,”itcanconditionthe retentionof that right “on theperformanceof reasonable conditionsthat indicatepresent intention toretain the interest.”65Findingthe“use”conditionssetbytheIndianaActtobereasonable,andinfurtheranceoftheState’slegitimateinterests,theCourtfurtherexplainedthatlossoftheinterestcouldnotbeproperlyconsidereda“taking”becausethelossaroseoutofthemineralowner’s“ownneglect,”andnotoutofanyaffirmative“actionoftheState.”66Inotherwords,theSupremeCourtconcludedthatdormantminerallegislationmerelydefinestheparametersfor“abandonment,”ratherthanactivelytransferringpropertyfromAtoB.

Addressingthemineralowners’dueprocessarguments,theCourtfurtherheld thatnonoticewas requiredunder theConstitution,evenasappliedretrospectively,becausepersonsare“presumedtohaveknowledge”ofthelaw.67Analogizing the IndianaAct toa statuteof limitations, theCourtexplainedthat“itisessentialtorecognizethedifferencebetweentheself-executingfeatureofthestatuteandasubsequentjudicialdeterminationthat

62 Id. at 522.63 Id.64 Id. at 529.65 Id.at526-528.(“TheIndianastatuteissimilarinoperationtoatypicalrecordingstatute.Suchstatutesprovidethatavalidtransferofpropertymaybedefeatedbyasubsequentpurportedtransferiftheearliertransferisnotproperlyrecorded.”).66 Id. at 530. 67 Id. at 533.

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aparticularlapsedidinfactoccur.”Althoughdueprocesswouldrequirenoticetopartiesinajudicialquiettitleaction,“nospecificnoticeneedbegivenofanimpendinglapse”underthestatuteitself.68

In Van Slooten v. Larsen,69whichwasdecidedtwoyearsbeforeTexaco,theMichiganSupremeCourt similarlyupheldMichigan’s self-executingmineral lapse statuteunderboth theMichiganandU.S.Constitution. Inparticular,theVan Slootencourtfocusedonthe“important”stateinterestofpreventing fractionalization,ascompared to the“minimal”burdenofrecordingamineralinterest:70

[T]hedormantmineralactwaspassedtoreducethelikelihoodthatthepresenceofunknownorunlocatableownersorfractionalizedownership of severed interestswould unnecessarily hinder orpreventthedevelopmentof[oilandgas]byrequiringanownertodocertainspecifiedactsindicatingownershiporrecordaclaimofinterestevery20years.Itplacesnoundueburdenuponowners.Withoutsucharequirement,knowledgeoftheownershipcouldbelostintime.Potentialresourcesgoundevelopedintheabsenceofviableownership.

Thesecasesillustrateshowcourtswillemployabalancingtestwhenevaluatingtheconstitutionalityofminerallapselegislation,comparingthe“reasonableness”oftheburdenuponmineralownerswiththe“important”goalsoffacilitatingdevelopmentandmarketability.71

[2] — Michigan’s “Self-Executing” Mineral Lapse Statute.Michigan’smineral lapse statute, the constitutionalityofwhichwas

upheld inVan Slooten v. Larsen, issimilar to theIndianaActupheld in

68 Id. 69 VanSlootenv.Larsen,299N.W.2d704,712(Mich.1980).70 Id.at46-47.71 Other state supremecourtshaveupheld similarmineral lapse statutes in light ofTexaco, Inc. v. Short. See, e.g.,Hayesv.Howell,308S.E.2d170(Ga.1983)(upholdingaminerallapsestatuteprovidingthatasurfaceownermay“gaintitletosuchmineralrightsbyadversepossession if theownerof themineral rights . . . [has]neitherworkednorattemptedtoworknorpaidanytaxesonthemforaperiodofsevenyearssincethedateoftheconveyance...”).

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Texaco. TheMichiganDormantMineralsAct,MCL544.291 et seq.,originallyenactedin1963,providesthatanypersonholdinganinterestinoilorgasinanyland,otherthanthesurfaceowner,shallbedeemedtohaveabandonedsuch interest in favorof thesurfaceownerunlesswithinanytwenty-yearperiodheorshedoesoneofthefollowing:(1)securesadrillingpermit; (2)actuallyproducesorwithdrawsgasoroil,either individuallyoraspartofapool;(3)sells,leases,mortgagesortransfers72suchinterestbyrecordedinstrument;or(4)usesthesubjectpropertyforundergroundstorage.73Alternatively,theholderofamineralinterestmaypreservehisrightsbyrecordinganoticeofinterestwiththelocalregisterofdeedswithintwentyyearsofthelastmineralactivityorwithinthreeyearsoftheeffectivedateofthestatute,whicheverislater.74

TheActdoesnotapplytointerestsincoaloraninterestinoilorgasownedbyagovernmentalbodyoragency.75Oncethemineralinterestis“deemedabandoned” for failure toexerciseoneof theenumerated“actsofpossession,”76 the interest “vest[s]”with the surfaceestate “asof thedateofsuchabandonment...inkeepingwiththecharacterofthesurfaceownership.”77

Importantly, theMichigan statutedoes not require that the surfaceownerattempt to locateor identify inactivemineralownersprior to thetimewhenaninterestis“deemedabandoned.”Thestatutealsolacksanypublicprocedureforassertingdormancy,possiblycreatinguncertaintyforpotentiallesseesandotherdevelopersastowhoactuallyownsthemineralrightswhenthereisanidentifiable,butapparentlyinactivemineralowner

72 Thereversionthatoccursattheterminationofarecordedleaseconstitutesatransferbyrecordedinstrumentwithinthemeaningofthedormantmineralsact.Energetics,Ltd.vWhitmill,497N.W.2d497(Mich.1993),128O.G.R.245.73 Mich.Comp.LawsAnn.§554.291(1).74 Id. at § 554.293(1).75 TheActdoesnotapplytoaninterestinoilorgasownedbyagovernmentalbodyoragency.Mich.Comp.LawsAnn.§554.292(5).76 SeeSouthwesternOilCo.vWolverineGas&OilCo.,450N.W.2d1(Mich.1989),108OGR459(holdingthattheenumerated“actsofpossession”inthestatuteareexhaustive).77 Mich.Comp.LawsAnn.§554.291(2).

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ofrecord.78Because“use”asdefinedinthestatutecanonlybeconclusivelysettled“byadeclaratoryjudgmentoranactiontoquiettitle,”79itisunclearwhetherMichigan’sself-executingstatuteeffectivelyachievestheresultsoffacilitatingmarketabilityanddevelopment.

[3] — Ohio: Notice and Opportunity to Cure.Ohio’sDormantMineralAct,whichwaspassedaspartoftheMarketable

TitleAct in 1989 underO.R.C. Section 5301.56, and amended 2006(hereinafter referred toas the“OhioAct”) isalsosimilar to theIndianaActinthatitallowsthesurfaceownertogaintitletounderlyingmineralinterests,whichare“deemedabandoned”aftera20-yearperiodofspecifiednon-use.However,theOhioAct,atleastonitsface,isnotself-executing—thesurfaceownermustgivenoticeofapendinglapse,whichtriggersthe20-yearlook-backperiod.

[a] — Nuts and Bolts of the Ohio Dormant Mineral Act.

TheOhioRevisedCodeSection5301.56providesthatamineralinterestis“deemedabandoned”unlessthemineralinterestisincoal,themineralinterest is heldby theUnitedStates, the state ofOhio, or anyof theirpoliticalsubdivisionsoragencies,or,atsomepointwithinthe20-yearperiodimmediatelyprecedingnotice,oneofsixenumeratedsavingeventsoccurred:

(1) Themineral interestwas the subject of a recorded titletransaction;

(2) Therehasbeenactualproductionbytheholderofthemineralinterest(includingfrompooledlands,solongastherelatedpoolinginstrumenthasbeenrecorded);

(3) Themineralinteresthasbeenusedinundergroundstorageofnaturalgasbytheholder;

(4) Adrillingpermithasbeenissuedtotheholderofthemineralinterest(providedthatanaffidavitstatingthenameofthe

78 Teichman,supranote52at163(“Regardlessofwhetheragoodrecordtitletoamineralinterestexists,theActcanextinguishtitlefornon-useorfailuretofileaclaim.”).79 Id.

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permitholder,permitnumberandtype,andlegaldescriptionofthelandhasalsobeenrecorded);

(5) AclaimtopreservethemineralinteresthadbeenproperlyfiledandrecordedpursuanttoO.R.C.Section5301.56(C);or

(6)Aseparatetaxparcelnumberhasbeencreatedbythecountytaxingauthorities.

Among other things, the “claim to preserve”must include: (1) astatementasto“thenatureofthemineralinterestclaimedandanyrecordinginformationonwhichtheclaimisbased”;aswellas(2)astatementthat“theholderdoesnotintendtoabandon,butinsteadpreserve,theholder’srights in themineral interest.”The“claim”mustotherwisecomplywiththenoticeandtherecordingrequirementsundertheOhioMarketableTitleAct, includinganaccurate landdescription.Pursuant toO.R.C.Section5301.56(C)(3),partiestoanundergroundstorageagreementmaymake“asingleclaim”without“describingeachseparateinterestclaimed,”providedthatitdefinestheboundariesofthestoragefieldorpoolanditsformations.“Theclaimisprimafacieevidenceoftheuseofeachseparateinterestinundergroundstorageoperations.”Underthisframework,amineralinterest“maybepreservedindefinitelyfrombeingabandoned”basedonthetimingofthesespecifiedtransactions,includingthe“successivefilingsofclaimstopreserve.”80

[b] — Procedural Requirements of the Ohio Dormant Mineral Act.

AnotherfeatureoftheOhioDormantMineralActisthattheownerofthesurfaceestatehastofollowthepropernoticeandproceduralrequirementsbefore the severedmineral interests canbe“deemedabandoned.”Theserequirements,whichwereintroducedtotheActin2006,proceedasfollows:

First,thesurfaceownermustprovide“notice”oftheowner’sintenttodeclare themineral interestabandoned,firstbycertifiedmail to the lastknownaddress,returnreceiptrequested,andthen,failingeffectiveservice,publicationoftheintendedabandonment“atleastonceinanewspaperof

80 OhioRev.CodeAnn.§5301.56(D)(1).

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generalcirculationineachcountyinwhichthelandsubjecttotheinterestislocated.”Thenoticemustinclude,amongotherthings,adescriptionoftheaffectedlandsanda“recitationofthefactsconstitutingtheabandonment.”

Uponnotice,themineralownerthenhas60daystorespondbyeitherfilingaclaimtopreservethemineralinterestoranaffidavitdescribingoneofthesavingsevents.Atthesametime,thesurfaceownermustfilewithinthe60-dayperiodan“affidavitofabandonment,”statingwhyheorshebelievesthattheinteresthasbeenabandoned.

Afterthe60-dayperiod,ifthereisnoresponse,thesurfaceownercandirectthecountyrecordertomemorializetheabandonmentontherecordonwhichtheseveredmineralinterestisbased.Aftersuchmemorialization,astotheparticularsurfaceownerwhofiledtheaffidavitofabandonment,themineralinterestvestsintheownerofthesurfaceestate.81

The requirement that the surface ownermust file an “affidavit ofabandonment”puts theworldonnotice that theunderlyingmineralsaredormant(or,atleast,areconsideredtobeso),creatingmorecertaintyastoownershipforpotentialdevelopersandlessees.However,forsurfaceowners,theseproceduralrequirementsseemtoinvolvesomeunknownlevelofeffort,creatingpracticalproblemsfordevelopmentandclearingtitle.Asaninitialmatter,thenoticeandopportunitytocureprovisioncreatesincentivesadversetothefullandeffectivedevelopmentofmineralsbyallowingmineralownersto“waitandsee”iftheirinterestswillbechallengedbeforetakinganyactionwithrespecttotheirproperty.Moreover,theprocessallowssignificantroomforerror.Ohiocourtshavenotclarifiedwhata“diligentsearch”inthiscontextmeans,possiblysubjectingsurfaceownerstosubsequenttitledisputes.82

81 Memorializationisbasedonthefollowingstatement:“Thismineralinterestabandonedpursuanttoaffidavitofabandonmentrecordedinvolume____,page_____.”82 Inthecontextofcivillitigation,theOhioSupremeCourthassuggestedthat“reasonablediligencerequirescounseltousecommonandreadilyavailablesourcesinhissearch,suchasacheckofthetelephonebook,countyrecordssuchastheautomobiletitledepartmentortheboardofelections,callstothetelephonecompany,oraninquiryofformerneighbors.”Sizemorev.Smith,6OhioSt.3d330,331(1983).Cf.Barbosav.DanaCapitalGroup,Inc.,No.07-cv-1724,2009WL902339,at*4(E.D.Pa.Mar.31,2009)(notingthatagoodfaithefforttolocateandservethedefendantmayalsoincludesearchingtheInternet,callingtelephonedirectoryassistance,andhiringprivateinvestigatorsorskiptracerservices).Formoreonthistopic,seeSeanCassidy,“WhatConstitutesaDiligentSearchforaDefendant

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[4] — Tennessee: Quiet Title Procedure.LikeOhio,Tennessee’sstatutesimilarlyrequiresthesurfaceownerto

fileacomplaint,publishing“notice”beforetitlevestsinthesurfaceestate.83 Tennessee’sstatute,however,includesseveredinterests“incoal,”84anddoesnotseemtoprovideforanopportunitytocureinthe60-daywaitingperiod,butanopportunityto“answerallegingaclaimtothemineralinterest”andpresentevidenceofuse.85Thus,theTennesseeActismoreakintotruncatedquiet-titlelitigation,resultinginajudicialdeterminationthattransferstitle.86

Enactedin1987, theTennesseegeneralassembly’sfindingswerethat“manysurfaceowners[couldnot]discoverfromrecordsattheircourthouseswhether theyown[ed] theunderlyingmineralestate . . .caus[ing]unduehardshipandtitleuncertaintyforsurfaceowners.”87Thegeneralassemblyfurther found that“where thereareabandonedmineralestates, thoseonwhichnodevelopmenthas takenplace,notaxespaidandnoclaimfiledpursuantto[thestatute],therationaldevelopmentofmineralsinTennesseeishindered.”88

Underthisframework,Tenn.CodeAnn.Section66-5-108(d)providesthattitleto“[a]nyinterestincoal,oilandgas,andothermineralsshall”reverttotheownerofthesurfaceestate“ifunusedforaperiodoftwenty(20)years...unlessastatementofclaimisfiled”inthecountywherethepropertyislocated.89“Uponfilingofthestatementofclaimwithinthetimeprovided,

WhoseLocationorIdentityIsNotKnown?,” Energy & Mineral Law Foundation, Resolving Title Issues in Shale Development(May10-12,2012).83 Tenn.CodeAnn.§66-5-108(e)(3)(LexisNexis2012).84 Id.at§66-5-108(b)(1).85 Id. 86 Id.at§66-5-108(e)(4).87 Id.at§66-5-108(a)(4).88 Id.at§66-5-108(a)(5).89 See also id.at§66-5-108(b)(3):“‘Useofmineralinterest’meansthatamineralinterestshallbedeemedtobeusedwhenthereareanymineralsbeingproducedthereunderorwhenoperationsarebeingconductedthereonfor injection,withdrawal,storageordisposalofwater,gasorotherfluidsubstances,orwhenrentalsorroyaltiesarebeingpaidtotheownerthereofforthepurposesofdelayingorenjoyingtheuseorexerciseofsuchrights,orwhenanysuchuseisbeingcarriedoutonanytractwithwhichsuchmineralinterestmaybeunitizedorpooledforproductionpurposes,orwhentaxesarepaidonsuchmineralinterestbytheowneroftheland.”

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itshallbeprimafacieevidenceinanylegalproceedingsthatsuchmineralinterestwasbeingusedonthedate thestatementofclaimwasfiled.”Apersonmayinstituteaquiettitleaction,however,to“challengeastatementofclaim,”andwillbeawardedattorneysfeesiftheclaimwasnotfiled“ingoodfaith.”“Acourtmayfindthatastatementofclaim...wasnotfiledingoodfaithifsuchwasfiledwithoutreasonableinquiry,withnofactualbasis,andforpurposesofharassment.”

[a] — Procedural Requirements of the Tennessee Dormant Mineral Act.

Individualsowningthesurfaceestateoverlyingthemineral interestswhoseektosucceedto theownershipof those interestsmaycommenceproceedings upon the lapse of the 20-year period and the filing of acomplaint.90Theymustbefiledwiththeclerkandmasterofthecountywherethemineralinterestislocated.TheformforthecomplaintissetoutinSection66-5-108(e)(1).Itstatesthatthesurfaceownerhasinquiredwiththepropertyassessorandisnotawareofanytaxpaidforthemineralestate,andthat“uponreasonableinquiry,”thesurfaceownerisnotawareofany“usebeingmadeofthemineralestate.”Theformofcomplaintrequeststhenameandaddressofthemineralinterestowner,ifknown,butdoesnotonthefaceofthestatuteappeartorequireevidenceofa“search”forsuchownerbeyondaninquiryintotherelevanttaxrecords.

Afterthecomplaintisfiled,theclerkandmasteraretogivenoticethatthemineral interests identifiedinthecomplaintwill lapsein60daysbypublishingthenoticeinanewspaperofgeneralcirculationonceaweekforthreeconsecutiveweeksandsendingacopyofthenoticebycertifiedmailwithintendaystotheknownownerofthemineralinterestidentifiedinthecomplaint.

If,within60daysafter suchpublication, themineral interestownerdoesnotfileananswerallegingaclaimtothemineralinterest,thecourtissuesanorderdeclaringthatthemineralinteresthaslapsedandvestingtitletothesurfaceestate.Importantly,theformoforderprovidedinSection66-5-108(e)(4)containsafindingthat“therehasbeennouseofthemineral

90 Tenn.Code.Ann.at§66-5-108(e)(3).

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interest”forthestatutoryperiodunderlyingthesurfaceestate.Thereisno“opportunitytocure.”

Alternatively, thecourtmayfind that thecomplaintwasnotfiled in“goodfaith,”andmayawardattorneysfeestotheansweringmineralowner.Becauseacomplaintis“deemedtohavebeenfiledingoodfaith”ifthereisnorecordoftaxespaidandnostatementofclaimfiledforthesubjectinterest,thisisunlikelytohappeninpractice.91

AnimportantfeatureoftheTennesseeActisthatitisstyledmoreasamechanism forquieting title to theminerals rather thananautomaticstatutorylapse.InTexaco, theSupremeCourtexplainedthattheIndianaActwasmoreakintoastatuteoflimitations,andthereforedidnotrequirenoticeofapendinglapse.92Althoughseeminglymoresimple,thedrawbackofthisapproachisthatitcontemplatesfurther“quiettitle”-typelitigationtoconclusivelydeterminetheparties’ownershiprights.93Inotherwords,“itisessentialtorecognizethedifferencebetweentheself-executingfeatureof the statuteanda subsequentdetermination that aparticular lapsedidinfactoccur.”94TheTennesseeActappearstoconsolidatethesestepsbyincludingwithinitsprovisionsanadversarial-typeproceedingandjudicialdetermination of lapse.This has the benefit of clarifying the parties’ownershiprights—oneofthestatedpurposesoftheAct.95

§ 8.05. The Pennsylvania Trusteeship Approach.Pennsylvania’sapproachtosolvingtheproblemoffractionalizationis

muchdifferentfromtheapproachesdescribedabove.OnJuly11,2006,thePennsylvaniaGeneralAssemblypassedthe“DormantOilandGasAct”“tofacilitatethedevelopmentofsubsurfacepropertiesbyreducingtheproblemscausedbyfragmentedandunknownorunlocatableownershipofoilandgasinterestsandtoprotecttheinterestsofunknownorunlocatableownersofoilandgas.”96UnliketheminerallapsestatutesinOhio,Michigan,Indiana,

91 Tenn.Code.Ann.§66-5-108(k).92 Texaco,454U.S.at533.93 See id. 94 Id.95 Tenn.CodeAnn.at§66-5-108(a)(4).96 58Pa.Cons.Stat.§701.3.InadditiontotheDormantOilandGasActof2006,asofthepreparationofthischapter,thereispendinglegislationinPennsylvaniathatwouldhelpto

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andTennessee,theeffectofthisstatuteisnot“tovestthesurfaceownerwithtitletooilandgasintereststhathavebeenseveredfromthesurfaceestate.”97 Rather,theActprovidesanopportunityforco-ownersoftheoilandgasrights—thosewhoalreadyhaveamineralinterestinfee,bylease,asroyalty,orby“ownershipofcorrelativerightsinanoilandgasreservoir”—topetitionthecourtofcommonpleastocreateatrustinfavorofallunknownownersoftheoilandgas.98Thetrusteeofthetrustisthenentitledtoenterintoleasesofinterestsinoilandgasunderthetermsandconditionsauthorizedbythecourtofcommonpleas,andcollectroyaltypaymentsandincomeonbehalfofthese“unknown”owners.99

Beforeacourtwilldeclareatrustinfavoroftheunknownowner(s)ofoilorgasinterests,thepartyseekingtodeveloptheoilorgasmustdemonstratethat: (1) therehasbeena thoroughattempt to ascertain the identity and

solvesomeofthetitleissuesassociatedwithfractionalizedmineralinterests.SenateBillNo.1324,introducedNovember10,2011,wasapprovedbytheSenateEnvironmentalResourcesandEnergyCommitteeonFebruary7,2012andreferredtotheJudiciaryonMarch5,2012.SeeSen.GeneYaw,PressRelease:“YawQuietTitleBillApprovedbySenateCommittee,”http://senatorgeneyaw.com/Press/2012/0212/020712.htm(lastvisitedMarch30,2012).ThebasicstructureoftheBillistoamendquiettitlelawinPennsylvania,creatinga“rebuttablepresumption”infavorofthesurfaceownerwhere“anypersonclaimingtoholdthesubsurfacerights”(exceptownersinfeebya“dulyrecordedconveyance”)hasfailedto“exercisethesubsurfacerightsforaperiodinexcessof50years.”OnFebruary7,2011,SenatorsYaw,Solobay,Fontana,andBrewsteralso introducedSenateBill445, the“Title toDormantMineralRightsAct,”whichisstyledasaself-executingmineral lapsestatute, inwhichthemineralsare“deemedabandoned”after21yearsof“non-use.”SeePennsylvaniaGen.Assembly,BillInformation,http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2011&sind=0&body=S&type=B&BN=0445(lastvisitedMarch30,2012).TheproposedActissimilartotheIndianaActanalyzedinTexacointhatitallowsthemineralownertofilea“claimofinterest”withinthe21-yearperiodofnon-useorathree-yeargraceperiodafterenactment.However,therehasbeennofurtheractionwithregardtothisBill. See2011BillTrackingPAS.B.445(LexisNexis2012).97 Id.Aside frompossiblyobtaining titlebyadversepossessionor the enactmentoftheproposedquiet titleanddormantmineral legislation, it isunclearwhether thereareanymethodsofreuniting thesurfaceandmineralestates inPennsylvania. In2002, thePennsylvaniaSupremeCourtheldthattheimpositionofrealestateoradvaloremtaxesonoilandgasinterestswasimproperbecausetheseinterestsdidnotfallwithinthedefinitionof“realestate”or“lands”asusedin72Pa.Cons.Stat.§5020-201(a).Thus,itisdoubtfulthattaxsalesareaproperremedy.98 Id. at § 701.4(a).99 Id. at § 701.5(b).

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locationofallownersofoilandgasinterests;(2)despitethiseffort,thepartyseekingtodeveloptheoilorgascouldnotdeterminetheidentityorlocationofthecurrentowner(s);and(3)appointingatrusteetoactonbehalfoftheunknownowner(s)would“beinthebestinterestofallownersofinterestsintheoilandgas.”Thereafter,administrationofthetrustistobegovernedby20Pa.C.S.(relatingtodecedents,estatesandfiduciaries),andthetrustistoremaininforce“untiltheunknownownersoftheoilandgasinterestsinquestionhavebeenidentifiedtothesatisfactionofthetrusteeandreceivedtheirshareofanyfundsheldintrust.”100Lesseesaresubjecttopenaltiesiftheyfailtotimelymakepaymentstothetrusteeadministeringthetrust.

WithnocaselawinterpretingthePennsylvaniaAct,severalquestionsremainastoitsultimateapplication.Forexample,theActgrantsstandingtopersonswhohave“ownershipofcorrelativerightsinanoilandgasreservoir.”Atleastonecommentatorhassuggestedthatthiscouldbeinterpretedtoconferstanding“tothoseownersofoilorgasrightswhoareinterestedinpursuingdevelopmentoftheirownrights,whichdevelopmentwillimpacttheownershiprightsofanotheradjacentoilorgasowner,whocannotbeidentifiedorlocated.”101Thisnotionofstandingisbroaderthanthatfoundinmanyotherdormantmineralstatutes,withanultimatepotentialeffectakintocompulsorypooling.

Moreover,Section701.4(b)oftheactprovidesthat,“[b]eforeacourtshalldeclareatrustinfavorofanunknownownerorowners,”thepetitionermustshowthatheorshehasmade“a diligent efforttolocatetheowner”oftheinterest.AsinOhio,theActdoesnotdefinewhata“diligenteffort”shouldbe,anditisunclearwhatsucheffortwouldentail,especiallywheretheidentityofthesefractionalownersisunknown.102TheNorthDakotainterpretationwouldsuggestafact-intensivetest,subjecttoacase-by-casedetermination.

100 Id.at§701.5(a),(c).101 LisaMcManus,PennsylvaniaDormantOilandGasAct,LexisNexisEmergingIssuesLawCommunity,January24,2010,http://www.lexisnexis.com/community/emergingissues/blogs/oilgasandenergylaw/archive/2010/01/24/pennsylvania-dormant-oil-and-gas-act.aspx(lastvisitedJuly25,2012).102 ThenotetotheanalogousPennsylvaniaRuleofCivilProceduresimilarlyprovidesthat“anillustrationofagoodfaithefforttolocatethedefendantincludes:(1)inquiriesofpostalauthoritiesincludinginquiriespursuanttotheFreedomofInformationAct,(2)inquiries

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Finally,thisSectionoftheActprovidesthatthepetitionermustshow“tothesatisfactionofthecourt,”that“[a]ppointmentofatrusteewillbeinthebestinterestofallownersofinterestsintheoilandgas.”Theevidentiarybarforestablishingthiselementisnotentirelyclear.Additionally,onlythe“ownersofinterestsintheoilandgas”areconsidered.ThePennsylvaniaActdoesnotaddressthesurfaceowner’sconcernsregardingsurfaceaccessandmarketabilityoftitle.

§ 8.06. Hybrid Dormant Mineral Legislation.[1] — West Virginia.WestVirginia’slegislativesolutiontotheproblemoffractionalmineral

ownershipisahybridofthecurrent“trusteeship”solutioninPennsylvaniaandtheOhio“marketabletitle”approach.103However,unlikethecurrentlegislation inbothPennsylvania andOhio, theWestVirginia104 statuteapplies to any “interest inminerals,” including “any interest, real orpersonal,incoal,oil,gasorothermineral...”105

[a] — Process for Establishing a Trust.InWestVirginia,anypersonwithavestedfeeinthesurfaceestate,

or any personwho owns a fractional interest in the relevantmineralestate,hasstandingtopetitionthecircuitcourtforthe“appointmentofaspecialcommissioner.”106Thepetitiontoappointaspecialcommissionermustcontainseveraldocumentsandfactualassertionsincluding:(1)Theentitlementofthepetitionertofilethepetition(i.e.,proofthatthepetitionerhasavestedfeeinterestinthesurfaceestate,aninterestintheminerals,orisalesseeunderavalidoilandgaslease);(2)Adescriptionofthesubject

ofrelatives,friends,neighbors,andemployeesofdefendant,and(3)examinationsofvoterregistrationrecords,localtaxrecords,andmotorvehiclerecords.”Pa.R.Civ.P.430,note.103 SeeW.Va.CodeAnn.§55-12A-1et seq.(“LeaseandConveyanceofMineralInterestsOwnedbyMissingorUnknownOwnersorAbandoningOwners”).104 Asnoted,theissuesassociatedwiththisproblemareperhapsmostsalientinWestVirginiabecauseconsentisrequiredinorderforcotenantstodrillforoilandgas. See Lawv.HeckOilCo.,145S.E.601(W.Va.1928)(holdingthatacotenantcommitswasteifheorshedrillsforoilandgaswithoutconsentfromtheotherowners).105 W.Va.CodeAnn.at§55-12A-2.106 Id.at§55-12A-4(b)(1)-(2).

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land;(3)Acertifiedcopyofthemostrecentrecordedinstrument;and“suchadditionalinstrumentsasarenecessarytoshowownership.”107

Inaddition,thepetitionermustdescribehisorhereffortstolocatetheunknownowners.TheWestVirginiaActdefinesan“unknownormissingowner”asaperson“whosepresentidentityorlocationcannotbedeterminedfrom the recordsof theclerkof thecountycommission, the sheriff, theassessorandtheclerkofthecircuitcourtinthecountyinwhichtheinterestislocatedorbydiligentinquiryinthevicinityoftheowner’slastplaceofresidence[.]”108Thepetitionmustidentifysuchmissingorabandoningownersas“faraspracticalunderthecircumstances”aswellastheirunknownheirs,successors,andassigns.Itshouldincludeevidence,ifany,thattheunknownownershaverelinquishedorabandonedtheirrightstotheminerals,aswellasanyotherinformation“knowntothepetitionerwhichmightbehelpfulinidentifyingorlocatingthepresentowners.”

Finally,thepetitionermustexplainhisorherpurposeforthefilingbyexplaining thenatureof theproposeddevelopmentof theminerals.Thepetitionmustincludeanassertionthatthe“mineraldevelopmentwouldbeadvantageoustothedefendantsandwouldfurtherthepublicpolicystatedin[thestatute],”whichisto“facilitatethedevelopmentofcoal,oil,gas,andotherminerals[.]”

Tonotifypersonsjoinedas“defendants”totheaction,thestatuteprovidesthatpersonalserviceinaccordancewiththeWestVirginiarulesofcivilprocedureisrequired.Whensuchserviceisnotpossible,thenthepetitionershallservethepetitionbypublicationandfilealis pendens.109Uponthisfiling,thecircuitcourtwillappointaguardianad litemforanyunknownormissingowners,andthepetitionerwillbeorderedtopaycompensationandexpensesforthisguardian. 110

Sixmonthsafterfiling thepetition, thecourtmayappoint a specialcommissionerauthorizedtoleasethepropertyprovidedthatthepetitionerhas

107 Id.at§55-12A-5(c).See alsoBrittA.Freund,“DividedOwnershipandtheAbilitytoDevelopOilandGaswithLessThan100PercentOwnership,”Energy & Mineral Law Foundation, Resolving Title Issues in Shale Development(May10-12,2012).108 W.Va.Code§55-12A-2(5).109 Id.at§55-12A-5(c).110 Id.at§55-12A-5.

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metalloftherequirements,itappearsthatthepetitionerhasmadea“diligenteffort”tolocatethemissingpersonsand“itisprovedthatthedevelopmentofthemineralswouldbeadvantageoustoaprudentowner[.]”111Thecourtwillspecifywhetherthespecialcommissioner’sleasewillbetransactedprivatelyorbywayofpublicauction.Ifpublic,theorderwilldeterminehownoticeistobegiven.Although“thelessee”isultimatelyresponsibleforpayingthecostsassociatedwiththeproceeding,112thepetitionerwillbeorderedtopostabondinfavorofthemissingorunknownownersandtopaythespecialcommissioner’scompensation.113Thespecialcommissionermayselltheleasetothepersonwhoseofferis“mostbeneficial”totheunknownownersand“mostconsistent”withfacilitatingdevelopment,withproceedsinuringtothebenefitofthelostowners.Anyoftheunknownownersorheirsmayreopentheactionwithinsevenyearsofitsinstitution.114

[b] — Process for Vesting Title in the Surface Estate.WestVirginiarequiresareporttothecircuitcourtoncesevenyearshave

passedandtheownersofthemineralinterestsarestillunknown.115Thecourtisthenrequiredtoenteranordernamingthethencurrentsurfaceownerstobegivennoticetoappearandpresentproofoftheirownershipinfeeofthesurfaceestate.Thecourtshallthenorderthespecialcommissionertoconveytotheprovensurfaceowner,bydeed,thesubjectmineralinterest,“[u]ponafindingbythecourtofthepresentownershipinfeeofthesurfaceestate.”116

“After theexpirationof sevenyears from thedateof thespecialcommissioner’slease,noactionmaybebroughtbyanyunknownormissingownerorabandoningowneroranyheir,successor,orassignthereoftorecoveranypastorfutureproceedsaccruedortobeaccruedfromthelease[authorizedunderthestatute],ortorecover

111 Id.at§55-12A-4(a).112 Id.at§55-12A-8.113 Id.at§55-12A-6(b).114 Id.at§55-12A-6.115 See generally id.at55-12A-7.116 Id.at55-12A-7(a)(1).

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anyright,titleorinterestinandtothemineralinterestsubjecttothelease.”117 Thus, theWestVirginiaActhas theultimateeffectof reuniting the

mineralestatewiththesurfaceestate,eventhoughthisresultiscomparativelydelayed.Additionally,theresultastotheownershipofthemineralsappearstobeconclusive,resultinginwhatisessentiallyaquiet-titleaction,similartotheActinTennessee.

Asofthedateofthischapter,thereisnoreportedcaselawinterpretingtheWestVirginiaAct.TheActdoesnotfullydefinewhata“diligentsearch”maybe,leadingtothesameissuesdescribedabove.

[2] — Kentucky.Kentucky’s “hybrid approach” similarly applies to all “mineral

interests,”118includinginterestsincoalandhasatwo-tieredstructurefordeclaring a trust andvesting title to themineral estate.119However, inKentucky,thesurfaceownersmayonlyobtainavestedrighttotheseveredmineralinterestsoftheunknownorunascertainedownersif,aftersevenyearsfromthe first date of commercial production under the mineral lease,theownersofthemineralinterestsremainunknownormissing.120

[a] — Process for Establishing a Trust.AsinWestVirginia,establishingatrustforthedevelopmentofminerals

isacomplex,multi-stepprocessintegratedwiththeKentuckyRulesofCivilProcedure.First, theclaimantmustestablishstanding.Standingisbroadandincludes:(1)thefeesimpleowneroftheoverlyingsurfaceestate;(2)co-tenantswithavestedfeesimpleinterestintheparticularmineralssoughttobedeveloped;(3)ownersinfeeofthemineralscontiguousandadjacenttothedormantminerals;aswellas(4)lesseeswhohaveenteredintoavalidmineralleasewithoneofthepersonsidentifiedin(2)or(3).121

117 Id.at55-12A-9.118 UnderKy.Rev.Stat.Ann.§353.460,a“severedmineral interest” isanywholeorfractionalinterestinanyorallmineralswhichhavebeenseveredfromthesurfaceestatebygrant,exception,reservationorothermeans.119 See Ky.Rev.Stat.Ann.§353.460et. seq.120 Id. at § 353.470(1).121 Id.at§363.464(2)(a)-(d).NotethatinKentucky(unlikeinWestVirginia),eachcotenanthastheundividedcommon-lawrighttodrillforandproduceoilandgaswithouttheconsent

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Second,thepersonseekingtoestablishatrustmustjoinasdefendantstotheactionallofthepeoplewhoareunknownormissingandtheunknownheirs,successors,orassignsofsuchindividuals.AsinWestVirginia,an“unknownormissingowner”isdefinedas“anypersonvestedwithaseveredmineralinterestandwhosepresentidentityorlocationcannotbedeterminedfromtherecordsofthecountyinwhichthelandislocatedorbydiligentinquiry in thevicinityof theowner’s lastknownplaceof residence.”122 Apetitionfiledunder theKentuckyActmust recite the specificeffortsundertaken to locateor identify these lostandmissingownersand theirunknownheirs,aswellasotherinformationthatwouldbehelpfultothecourtinidentifyingorlocatingthepresentownersoftheminerals.123

Immediatelyafterfilingthepetition,thepetitionermustservenoticeinaccordancewiththeKentuckyRulesofCivilProcedure,124fileanoticeoflis pendensinthecountywherethemineralsarelocated,andadvertisethefilingasprovidedinKRSChapter424.Boththeadvertisementandthelis pendensmustcontainadetailedlistofinformation,including“astatementthattheactionisbroughtforthepurposeofimpressingatrustauthorizingtheexecutionanddeliveryofavalidandpresentmineralleasefordevelopmentoftheparticularmineralsdescribedinthepetition.”125

Thereafter, theKentucky circuit courtwill appoint a “trusteead litem,”whoisalicensed,practicingattorneyintheareaabletoconductanindependentinquiryandsearchfortheunknownormissingownersandfileananswerand“suchotherpleadingsasarenecessaryandpropertofairly

oftheothercotenants—thus,itispossiblethatacotenantcouldenterintoanoilandgasleaseastohisorherowninterest,givingthelesseetherighttodrillforoilandgasintheaffectedareaeventhoughoneormoreoftheco-tenantsisunknown.TimothyC.Dowd,“ClearingTitleofLong-LostMineralOwners,”54Rocky Mt. Min L. Inst. § 30.02 (2008). 122 Ky.Rev.Stat.Ann.§353.460(2).123 Ky.Rev.Stat.Ann.§§353.466(1)-(2).124 SeeKy.CR4.05-.07regarding“warningorders.”Whereanindividual’snameorplaceofresidenceisunknowntotheplaintiff,thecourtshallmakeanorderuponthecomplaintwarningthepartytoappearanddefendtheactionwithin50days.Awarningorderistobemadeupontheaffidavitoftheplaintifforhisattorney,statingthelastknownaddress.Atthattime,thecourtwillappointanattorneyforthedefendant,whomustmake“diligentefforts”toinformthedefendant,bymail,concerningthependencyandnatureoftheactionagainsthim.125 Ky.Rev.Stat.Ann.§353.446(3).

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represent” theowners’ interests.126 If, after thepetitioner follows theseprocedures,itappearstotheKentuckycircuitcourt127thatdevelopmentofthemineralswouldbeadvantageoustotheunknownormissingowners,thenthecourtmayauthorizethetrusteetosell,execute,anddeliveravalidleaseonthepropertyundertermsandconditionscustomaryinthesurroundingarea.

[b] — Process for Vesting Title in the Surface Estate.Withinsevenyearsafterthedateoffirstcommercialproductionofthe

severedmineralinterestunderthetrustee’slease,anyofthe“unknownormissing”mineralownersmaycomeforwardwithproofoftheiridentityandreclaimtheirinterestbyreopeningthejudicialproceeding.128Ifthecourtfindsthattheunknownormissingownershaveestablishedtheiridentityandtitle,thetrusteewillassigntothemineralownerstheirproportionalshareoftheleaseproceeds,andissuetothemaninstrumentdocumentingtheirtitle.129 However,if,aftersevenyearsfromthedateoffirstcommercialproductionunderthelease,theownersofthemineralinterests“remainunknown,”then“thetrusteeshallfileamotionwiththecourtnamingthethenpresentsurfaceownersasadditionalpartiesandrequirethesurfaceownerstoappearandpresentprooftothesatisfactionofthecourtthattheyarevestedwithfeesimpletitletothesurfaceestate.”Uponsuchafinding,thecourtwillorderthetrusteetoconveytitletothesurfaceownersandpaytothemtheaccruedfundsowingtotheownersoftheseveredmineralinterestfromcommercialproductionunderthelease.

Interestingly,theKentuckyActdoesnotdefine“commercialproduction,”whichmayleadtouncertaintyastowhenthemineralestateshouldvest.Kentuckycourtshavedefined“productioninpayingquantities”sufficienttotriggeralease’ssecondarytermas“suchquantitiesasaresusceptibleofdivisionbetweenthepartiesandaswillyieldaroyaltytothelessorthatjustifiestheoccupancyofandinterferencewithhisuseofhislandsbythe

126 Id. at § 353.446(3).127 UnderKy.Rev.Stat.Ann.§353.462, theCircuitCourtof thecountywherein theseveredmineralinterestssoughttobeleased,orthemajorportionthereof,issituatedshallhavejurisdictionoftheseproceedings.128 Ky.Rev.Stat.Ann.§353.468(6).129 Id.

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§ 8.07

operations.”130The legislativehistorydoesnot indicatewhy the surfaceowner’sability toobtain title isdependentuponcommercialproduction,which,inmanycases,isoutofhisorhercontrol.

§ 8.07. Conclusion. Dormantminerallegislationcanprovideanimportantmechanismforsolvingtheproblemoffractionalization,facilitatingthedevelopmentofstalemineralinterests,andensuringmarketabilityoftitle.LegislativebodiesinOhio,Michigan,Pennsylvania,Kentucky,TennesseeandWestVirginiahavetakendifferentapproachestowardsuchlegislation.Althougheachapproachattempts to address the problems associatedwith unidentifiable and/orinactivemineralowners,thestatutesreflectvaryinglegislativepreferencesinbalancingtherightsofsuchownerswiththeneedtocureambiguitiesaffectingtitle.Allof thestatutescouldlikelybenefitfromaddedclarity,whichwouldenhancecertaintyofownershipandfacilitateinvestmentintheland.Thisisevenmoretruetodayasoperatorinterestinthedevelopmentofshaleresourcesinthesestateshasincreased.

130 WarfieldNaturalGasCo.v.Allen,248Ky.646,654(1933).

cite as energy & min. l. inst. chapter 8 dormant mineral acts: … · 2018-06-29 · 6 pifer,...

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