On May 9, 2014, in a decision it acknowledged “may be seen as unduly harsh,” the Pennsylvania Superior Court upheld the practice of title-washing, which can be used to nullify early oil and gas reservations underlying formerly undeveloped lands. The case is now before the Pennsylvania Supreme Court, appealed by the heirs of Harry and Anna Keller last month. The case originated in 2008 when a drilling company contacted the Herder Spring Hunt Club, expressing an interest in leasing the club's mineral rights if the club could clear up the title. A title search revealed that the 19th-century owners of the land, Harry and Anna Keller, had retained the mineral rights when they sold the land in 1899. The surface property formerly owned by the Kellers was resold several times before the Centre County commissioners acquired title during the Depression for back taxes. The county sold the property in 1941, and the hunt club bought it in 1959.
The hunt club claimed it owned the mineral rights by virtue of the tax sale based upon the concept known as “title washing,” which it said reunited the surface and subsurface properties. Though the Kellers had recorded the mineral rights with the county in 1899, the hunt club claimed the Kellers had not reported the mineral estate to the tax assessor, as it believed was required under an 1804 law. The club argued that the tax sale extinguished the Kellers' mineral rights.
The Centre County Common Pleas Court ruled against the hunt club and awarded the rights to the Keller heirs. However, the three-judge Superior Court panel overturned the ruling and upheld the title wash in its May 9, 2014, ruling.
Specifically, at issue in Herder Spring Hunting Club v. Harry and Anna Keller, 2014 Pa. Super. 100 (May 9, 2014), were the following transactions: (i) the 1899 conveyance by Harry and Anna Keller, wherein they conveyed the subject property but reserved all subsurface minerals, including oil and gas (horizontal severance deed); (ii) the 1935 acquisition of the property by the county commissioners for failure to pay property taxes; (iii) a 1941 tax sale from the commissioners, conveying the property (without any subsurface reservation) to Herder Spring’s predecessor in title; and (iv) a 1959 conveyance to Herder Spring by a deed providing the conveyance was “subject to all exceptions and reservations as are contained in the chain of title” but containing no specific reservations.
Under Pennsylvania law in effect at the time of the horizontal severance deed, persons who acquired unseated land (unimproved land) were required to furnish a description describing the land to the county commissioners, or the board for the assessment and revision of taxes, so that a proper tax assessment could be levied. Although the law did not specifically address the situation where the subsurface rights to a parcel of land were horizontally severed from the surface rights, thereby creating two estates in the same parcel of land, the Court reviewed relevant case law and concluded the statute applied such that, upon the horizontal severance in 1899, the Kellers had a duty to notify the county commissioners of their retention of subsurface rights in the unseated lands so that their reserved interest could be properly assessed. The Kellers did not provide the required notice, and the property continued to be taxed as a whole. Thereafter, in 1935, the treasurer obtained the rights to the property pursuant to a treasurer’s sale. Because the horizontal severance had never been reported to the commissioners, the treasurer obtained the property as a whole and transferred it to the commissioners as a whole. In 1941, the property was sold at a tax sale to a predecessor in title to Herder Spring. The Court noted that under Pennsylvania law, the Keller heirs had two years following the 1941 tax deed to challenge it, and that after the two year period passed without challenge, any subsequent transferee of the title to the property was entitled to rely on the deed containing no reservation of subsurface rights. The 1959 deed to Herder Spring provided the conveyance was subject to all exceptions and reservations as contained in the chain of title, but the Court stated there were no active exceptions or reservations, as the horizontal severance had been extinguished upon the expiration of the two year period after the 1941 tax deed.
The case has now been appealed to the Pennsylvania Supreme Court. "Although this case concerns a dispute over the ownership of oil and natural gas under roughly 433 acres of property, the questions presented potentially affect the mineral ownership rights of hundreds of thousands of acres of property located in this commonwealth," Ronald L. Hicks, a Pittsburgh lawyer who represents the aggrieved heirs, wrote in the Aug. 8 Supreme Court filing.
Jackson Kelly PLLC will continue to monitor this important legal issue. The ultimate resolution of the legal questions involved has the potential to affect the natural resources beneath huge expanses of land in the heart of the Marcellus Shale region, which now accounts for nearly a quarter of the nation's natural gas production.
This article was authored by Whitney Clegg, Jackson Kelly PLLC. For more information on the author, click here.