Butler v. Charles Powers Estate ex rel. Warren
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Full Opinion
OPINION
We granted allowance of appeal to consider whether a deed executed in 1881, which reserved to the grantor the subsurface and removal rights of âone-half [of] the minerals and Petroleum Oilsâ contained beneath the subject property, includes within the reservation any natural gas contained within the shale formation beneath the subject land known as the Marcellus Shale Formation.
I.
Appellants in this matter, John and Mary Josephine Butler, own 244 acres of land in Susquehanna County. Appellantsâ predecessors in title obtained the land in fee simple by deed in 1881 from Charles Powers. The deed contained the following reservation:
[O]ne-half the minerals and Petroleum Oils to said Charles Powers his heirs and assigns forever together with all and singular the buildings, water courses, ways, waters, water courses, rights, liberties, privileges, hereditaments, and appurtenances, whatsoever there unto belonging or in any wise appertaining and the reversions and remainders rents issues and profits thereof; And also all the estate right, title interest property claimed and demand whatsoever there unto belonging or in any wise appertaining in law equity or otherwise however of in to or out of the same.
On July 20, 2009, Appellants filed a complaint to quiet title in the Susquehanna County Court of Common Pleas, alleging ownership of the property in fee simple and ownership, through adverse possession, of all (as opposed to one-half) of the minerals and petroleum oils contained beneath the property. The Estate of Charles Powers and his heirs and assigns were originally named as defendants. After some initial difficulty in locating representatives of the estate, on September 21, 2009, William and Craig Pritchard (Appel-lees) surfaced as rightful heirs to the Powersâ Estate. Eventually, Appellees filed a motion for declaratory judgment, seeking a holding from the trial court that the deed reservation included one-half of all natural gas located within any Marcellus shale
The trial court agreed with Appellants, sustained the demurrer, and denied Appel-leesâ request for declaratory relief. The court noted that Pennsylvania law has long recognized a rebuttable presumption that âif, in connection with a conveyance of land, there is a reservation or an exception of âmineralsâ without any specific mention of natural gas or oil, ... the word âmineralsâ was not intended by the parties to include natural gas or oil.â Highland, 161 A.2d at 398 (citing Dunham, 101 Pa. at 44). This precept, commonly known as the Dunham Rule, may be rebutted by a challenger through clear and convincing evidence that the intent of the parties, at the time of the conveyance, was to include natural gas and/or oil. Id. at 400. The trial court finally stated that the notion that natural gas and oil are not, for purposes of private deed transfers, considered minerals is âentrenchedâ within Pennsylvania law. See C.C. Marvel, Annotation, Oil and gas as âmineralsâ within deed, lease, or license, 37 A.L.R.2d 1440, at *3.
Appellees appealed to the Superior Court, a panel of which reversed in a published opinion. Butler, 29 A.3d at 43. The panel also remanded the case to the trial court for an evidentiary hearing replete with expert testimony âon whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed reservation.â Id. While the court extensively recounted Dunham, Highland, and related cases, it determined that those âdecisions do not end the analysisâ because of a 1983 decision of this Court, United States Steel Corporation, v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983) (Hoge II). Briefly, the Hoge II Court considered which party controlled access to âcoalbed gas,â a dangerous by-product of coal mining contained within coal seams, pursuant to reservations contained within various private deeds. Those reservations gave U.S. Steel the exclusive rights to mine and remove coal within a specific coal seam, while keeping with the property owners all oil and natural gas rights below the coal seam. In considering which party possessed the right to the coalbed gas, the Hoge II Court noted, âas a general rule, subterranean gas is owned by whoever has title to the property in which the gas is resting.â Id. at 1383. Without discussing the Dunham Rule, the Hoge II Court concluded, âsuch gas as is present in coal must necessarily belong to the owner of the coal.â Id. Thus, U.S. Steel, as the owner of the coal, possessed the rights to the coalbed gas contained within the coal seam. Id.
The Superior Court in this case found that because of the Hoge II decision, the trial court erred in sustaining Appellantsâ demurrer based upon Dunham and Highland without first conducting an evidentia-ry hearing to determine whether: Marcel-lus shale natural gas constitutes that which is contemplated by the Dunham Rule; Marcellus shale itself is a mineral; and Marcellus shale is similar to coal so that the Hoge II holding should apply to this case, resulting in Appellees owning one-half of the natural gas rights because of the situs of the gas in shale. Id. In effect, the remand order directed the trial court to consider whether the Hoge II Courtâs logic vis-a-vis coalbed gas and coal scientifically and legally applied to natural gas contained within the Marcellus Shale. Appellants petitioned this Court for allowance
In interpreting a deed reservation for âminerals,â whether the Superior Court erred in remanding the case for the introduction of scientific and historic evidence about the Marcellus [SJhale and the natural gas contained therein, despite the fact that the Supreme Court of Pennsylvania has held (1) a rebuttable presumption exists that parties intend the term âmineralsâ to include only metallic substances, and (2) only the partiesâ intent can rebut the presumption to include non-metallic substances.
Butler v. Powers Estate, 41 A.3d 854 (Pa.2012) (per curiam).
II.
(A) The Dunham Rule and its Progeny
Before delving into the partiesâ arguments, we find it prudent to recount the history of the Dunham Rule to facilitate a full understanding of the issues before us. While Dunham was decided in 1882, the doctrine for which that case has become well-known has its genesis in the 1886 decision of Gibson v. Tyson, 5 Watts 34 (Pa.1836). In Gibson, a deed reserved to the grantor of land âall minerals or magnesia of any kindâ contained beneath the property. Id. at 36. The Court was tasked with determining whether chrome (also known as chromate of iron) should be encompassed within the âall mineralsâ portion of the reservation. The Court noted that âthe first, and indeed the only matter then is, to ascertain, if possible, what the parties intended and gave their assent to by making the agreement in question.â Id. at 41. In determining the partiesâ intent, the court continued, to people âentirely destitute of scientific knowledge in regard to such things ... [to] the bulk of mankind, ... [n]othing is thought by [minerals] to be such unless it be of a metallic nature, such as gold, silver, iron, copper, lead, [etc.]....â Id. Reluctantly, the Court determined that chrome would be considered by âthe bulk of mankindâ as a mineral because it was commonly thought to be of a metallic nature, akin to gold or silver, as demonstrated by parol evidence introduced before the trial court. Id. at 42. Thus, the Court held the reservation specifying minerals included chrome based upon a common usage understanding, as opposed to any scientific basis.
A year later, this Court reaffirmed the holding of Gibson that contracts such as those presented in deed reservation cases should be examined from a non-scientific viewpoint. Schuylkill Nav. Co. v. Moore, 2 Whart. 477 (Pa.1837). The Moore case, which considered how a contract concerning hydraulic machinery should be examined, first noted that âthe best construction is that which is made by viewing the subject of the contract, as the mass of mankind would view it; for it may be safely assumed that such was the aspect in which the parties themselves viewed it.â Id. at 491. It then concluded that the interpretation of the contract should be governed by common or lay understanding, and not scientific principles. Id. at 493.
With the notion that the common-man comprehension of terms included in contracts should be used, this Court in Dun-ham examined an 1870 deed, which reserved to the grantor âall the timber suitable for sawing; also all minerals,â to determine whether the reservation included oil within the term âall minerals.â Dunham, 101 Pa. at 37. The Court first noted the reluctance of the Gibson Court to find chrome a mineral absent parol evidence; thus, it queried whether oil, which unquestionably was regarded âby science and lawâ as a mineral solely because of its inorganic character, should likewise be considered a mineral to lay
The Court followed the lead of Gibson and Moore and held that a common understanding of the word âmineralsâ should be used. The Court resolved that, should the scientific construction of the term mineral, ie., anything inorganic, be used, the term would be as âextensive as the grant, hence work[ing] its own destruction.â Id. Accordingly, using the common understanding of mankind, the court determined that oil is not a mineral pursuant to the framework laid by the Gibson Court that minerals are of a metallic nature. Thus, for the deed reservation to include oil, it must specifically be included within the clause.
This Court next encountered a deed reservation and the Dunham Rule in Silver v. Bush, 213 Pa. 195, 62 A. 832 (1906). There, the deed contained a reservation clause specifically for âthe mineral underlying the [property], and the right of way to and from said mineral....â Id. at 833. The Court took the case explicitly to resolve the question of how oil and natural gas should be construed in the reservation. In answering the question, the Court viewed the term âmineralâ from three different vantages: scientifically, commercially, and ordinarily. Scientifically, oil and gas are clearly minerals because the world of science has three âkingdomsâ of material â animal, plant, and mineral â and oil and gas are obviously not animals or plants. Id. Commercially, minerals had been said to include anything from the ground that has value upon being separated from its situs. Id. In an ordinary sense, however, the Silver Court reaffirmed the notion that minerals are those substances that the âpopular estimationâ would consider minerals. Id.
The Court then cited, and approved, the Dunham holding vis-a-vis petroleum oil: that the general consensus of non-scientists was that oil is not a mineral because it is not metallic in nature. Id. It then held, albeit in conclusory fashion, the same concerning natural gas: âa fortiori, natural gas would not be so included.â Id. The Court concluded that the Dunham Rule has been a rule of property law upon which many Pennsylvania lands of title rest and, therefore, absent clear and convincing intent by the parties to the contrary, the deed reservation did not include oil or natural gas. Id. at 833-34.
Shortly thereafter, this Court again reaffirmed Dunham, and indeed Silver, in Preston v. S. Penn Oil Co., 238 Pa. 301, 86 A. 203 (1913). The Preston Court noted that other jurisdictions have not followed the Dunham Rule, and instead favored oil and natural gas being included within general mineral grants. However, in holding that an 1876 deed reserving all mineral and mining rights and the appurtenances thereto did not include petroleum or natural gas rights, we stated that the dissonance between jurisdictions could be attributed to differences in the popular understanding of the character of petroleum oil as its production became more widespread. Id. at 204. Nevertheless, this Court reiterated that Dunham âhas been the law of this state for 30 years, and very many titles to land rest upon it.â Id. Accordingly, as a rule of property, this Court refused to disturb it. Id.
Forty years later, this Court again considered the Dunham Rule in Bundy v. Myers, 372 Pa. 583, 94 A.2d 724 (1953), which involved a deed reservation that excepted out âoil, coal, fire clay and minerals of every kind and character with rights of entry for the purpose of removal of the
First, we again recognized that as oil and gas production expanded throughout the country, other states had come to differing results concerning the status of oil and gas as minerals vis-a-vis deed reservations. Id. at 726. Echoing the Silver and Preston Courts, however, our Court stated that the Dunham Rule had now been Pennsylvania law for seventy years and remained a viable and well-established rule of property not to be disturbed. Id. For purposes of the deed reservation in question, then, â[i]f the oil and gas were intended to be included in the âmineralsâ reserved, then why was the oil expressly reserved? Expressio unius est exclusio alterius.â Id.
Our extensive examination of the Dun-ham Rule concluded in 1960 in Highland v. Commonwealth, 400 Pa. 261, 161 A.2d 390 (1960). Highland concerned the grant of several tracts of land by several different deeds, some of which only reserved the subsurface rights to âcoal, coal oil, fire clay and other minerals of every kind and character,â while other deeds expressly contained reservations for natural gas. Id. at 393. Citing to the litany of cases already discussed above, the Highland Court put into plain and simple terms what over one hundred years of case law had combined to say:
If, in connection with a conveyance of land, there is a reservation or an exception of âmineralsâ without any specific mention of natural gas or oil, a presumption, rebuttable in nature, arises that the word âmineralsâ was not intended by the parties to include natural gas or oil. [ ... ] To rebut the presumption [ ... ] there must be clear and convincing evidence that the parties intended to include natural gas or oil within [minerals].
The Court did so while recognizing, as did its predecessors, that mankind generally divided all known matter into three categories â animal, vegetable, and mineral â and that petroleum and natural gas are unquestionably minerals under that broad categorization. Id. at 398. Nonetheless, we reaffirmed that for deed reservations we must assume, absent evidence to the contrary, that mineral is a term of âgeneral language, and presumably is intended in the ordinary popular sense which it bears among English speaking people,â ie., metallic substances and not oil and gas. Id. Thus, the Dunham Rule, a well-established and relied upon rule of property, continues to bind all situations in which a deed reservation does not expressly include oil or natural gas within the reservation. Id. at 398-99. Indeed, such a conclusion was demanded by the longstanding jurisprudence of this Commonwealth concerning property law: âA rule of property long acquiesced in should not be overthrown except for compelling reasons of public policy or the imperative
(B) United States Steel Corp. v. Hoge
As noted, the Superior Court in this case found the Dunham progeny did not end the analysis because of Hoge II. Thus, we turn next to that decision. In the late 1970s, a question was raised concerning so-called âcoalbed gas,â which is a combination of methane, ethane, propane and other gases. Within the coal mining and natural gas industries, coalbed gas, which is found within crevices and empty pockets in coal seams and commonly known among miners as âfiredamp,â bears âlittle if any distinction [from] the gas found in oil-and-gas-bearing sands (natural gas).â U.S. Steel Corp. v. Hoge, 304 Pa.Super. 182, 450 A.2d 162, 173 n. 16 (1982) (Hoge I). As detailed below, the Hoge case examined the ownership of coalbed gas.
In the 1970s, various landowners in Greene County obtained deeds to tracts of land that, through a single predecessor, had already relinquished all rights to the coal contained within the Pittsburgh Coal Seam underlying the surface of the subject properties to U.S. Steel. Id. at 163. U.S. Steel also possessed âthe right of ventilation and drainage and the access to the mines for men and materials.â Id. at 164 n. 3. The landowners retained, however, âthe right to drill and operate through said coal for oil and gas without being held liable for any damages.â Id. at 164. In 1977 and 1978, two related events occurred: U.S. Steel began operations of its Cumberland Mine in Greene County to remove the coal contained beneath the landownersâ property pursuant to the coal reservations, and the landowners began drilling wells through the property âfor the express purpose of recovering coalbed gas containedâ within the subject coal seam. Id. The landowners utilized the process of hydrofracturing to obtain the coalbed gas.
U.S. Steel appealed to the Superior Court, arguing that the coal and coalbed gas were essentially different aspects of the same substance; thus, to the extent U.S. Steel owned the coal, it also owned the coalbed gas.
U.S. Steel pursued a further appeal to this Court, which reversed the Superior Courtâs decision. Without discussing or, indeed, even citing to the merits of the Dunham Rule, this Court began its analysis by noting that â[g]as is a mineral, though not commonly spoken of as such, ... [and therefore] necessarily belongs to the owner in fee, so long as it remains part of the property....â Hoge II, 468 A.2d at 1383. Thus, we held that when a landowner conveys property rights to another, anything contained within the severed property, including all subterranean minerals, becomes subject to the ownership of the grantee. Id. âIn accordance with the foregoing principles governing gas ownership, therefore, such gas as is present in coal must necessarily belong to the owner of the coal, so long as it remains within his property and subject to his exclusive dominion and control.â Id. (emphasis in original).
In so holding, however, the Hoge II Court went on to make some critical distinctions concerning the unique nature of coalbed gas. It noted that the commercial exploitation of coalbed gas was âvery limited and sporadicâ because it was generally viewed as a dangerous waste product of coal mining, which had to be vented from a coal seam to allow the coal to be safely mined. Id. at 1384. This Court therefore questioned why the landownersâ predecessor would retain the right to a waste product with well-known explosive and dangerous predispositions? Id. at 1385. The answer, in this Courtâs opinion, was in the language of the deed reservations themselves, which explicitly left to the surface owners the unfettered right to all of the oil and gas below the severed coal seam.
We find implicit in the reservation of the right to drill through the severed coal seam for âoil and gasâ a recognition of the parties that the gas was that which was generally known to be commercially exploitable. It strains credulity to think that the grantor intended to reserve the right to extract a valueless waste product with the attendant potential responsibility for damages resulting from its dangerous nature.
Id.
III
Based on the foregoing, we now turn to the partiesâ primary arguments in this case. Appellants, advocating for the reversal of the Superior Courtâs remand order and reinstatement of the trial courtâs judgment, rely exclusively on the Dunham Rule and its consistent application for over one hundred years that natural gas is not included within a deed reservation without either (1) being explicitly contemplated within the reservation; or (2) clear and convincing parol evidence that the parties intended for natural gas to be included within the deed reservation, despite only a general reservation of minerals. As far back as Gibson, minerals have been defined in the law for private deed reservation purposes as those substances which are metallic in nature. Appellants note that the metallic character of the subject material constituted the common understanding of minerals to laypersons in the
From this premise, Appellants next point to the obvious: because ânatural gasâ is contained nowhere in the deed reservation, there was no explicit contemplation that the Powersâ Estate would retain the right to one-half of the subsurface natural gas. Accordingly, Appellees bear the burden of proving, by clear and convincing evidence, that it was the intent of the parties executing the deed in 1881 that natural gas be contemplated within the deed reservation. Harkening back to Gibson and Dunham, Appellants argue that those courts were clear that the deed reservations are to be construed consistent with that which was understood by ordinary people at the time the deed was executed. Thus, before even considering any potential interpretation of the deed reservation, Appellants challenge the remand order by the Superior Court because scientific evidence as to what Marcellus shale is and is not considered presently would have no bearing on Appelleesâ burden of proving, by clear and convincing evidence, that the common-persons who executed the deed in 1881 would have contemplated and understood Marcellus shale, and therefore the gas contained within it, to be a mineral.
Finally, Appellants submit that even if scientific evidence is relevant, the Superior Court still erred in granting a remand because, contrary to Appelleesâ assertion before the Superior Court, natural gas found in the Marcellus Shale is not âunconventional and differentâ from natural gas found in any other geological formation or geographic region. According to the United States Energy Information Administration, natural gas and all shale gas are one and the same substance; it is the manner of drilling and production that is different. Indeed, shale gas is merely natural gas that has been trapped by the shale rock formation from reaching the sandy, higher levels in the ground. See Appellantâs Brief at 22-23 (citing U.S. Energy Info. Agency, Energy in Brief: What is shale gas and why is it important?, available at http:// www.eia.gov/energy_in_brief/article/about^ shale_gas.cfm (last updated Dec. 5, 2012)). The trapping of the natural gas by shale rock forces gas drillers to employ hydrof-racturing to obtain the gas. See supra note 3. Thus, in Appellantâs view, the Superior Court erred in ordering an evidentiary hearing concerning whether Marcellus shale gas and natural gas are different substances because, as an uncontestable matter of fact, they are the same. Accordingly, in summation Appellants assert that Hoge II cannot apply, as this case concerns exclusively natural gas and without (1) an express designation of natural gas within the deed reservation, or (2) clear and convincing evidence through parol evidence that the parties in 1881 intended to include natural gas within the reservation, the Dunham Rule controls and Appellees are not entitled to any natural gas rights.
Appellees respond, first, by pointing to the plain language of the deed reservation, which reserved âone-half the minerals and Petroleum Oils ... together with all ... appurtenances, ... issues and profits thereof....â In an argument that was not raised below, Appellees contend that natural gas is an appurtenance, issue, or profit of petroleum oil, and thus is included within the plain language of the deed reserva
Appellees further question whether the Dunham Rule is applicable to this appeal in a general sense, because the deed in this case was signed in 1881, one year before this Court announced the decision in Dun-ham. Even more broadly, Appellees question the continued vitality of the Dunham Rule, because various Pennsylvania statutes such as the Municipalities Planning Code, the Hoge II opinion, decisions from other jurisdictions, and written authorities contemporary to 1881 all state generally that natural gas is a mineral. Under this reasoning, and regardless of the viability of the ânatural gas as an appurtenance of petroleum oilâ argument, Appellees urge us to hold the Dunham Rule inapplicable to this case. Either way, in Appelleeâs view, natural gas is specifically contemplated by the deed reservation.
Alternatively, Appellees argue that Hoge II stands for the proposition that âhe who owns the shale owns the gas,â and thus controls this case. Appelleesâ Brief at 22 (citing Hoge II, 468 A.2d at 1383 (âsuch gas as is present in coal must necessarily belong to the owner of the coalâ)). Appel-leesâ argument is essentially that the gas is part of Mareellus shale; thus, to the extent Mareellus shale is a mineral,
Appellants filed a reply brief, challenging three specific parts of Appelleesâ argument. First, Appellants contend that any argument relating to the âappurtenance, issue, and profits of petroleum oilâ portion of the deed reservation is waived pursuant to Rule 302 of the Rules of Appellate Procedure (âIssues not raised in the lower court are waived and cannot be raised for the first time on appeal.â). Appellants aver that Appellees bore the burden in the trial court of proving, by clear and convincing evidence, that natural gas was included in the deed reservation and, failing to make the ânatural gas is an appurtenance of petroleum oilâ argument in the trial court forecloses their ability to make the same contentions before this Court. Ap-pelleesâ argument in the trial court focused solely on the âmineralâ portion of the deed reservation, and therefore they cannot raise the separate appurtenance argument for the first time here.
Second, in Appellantsâ view, whether natural gas is a mineral under certain statutory sections is irrelevant to this case, which strictly involves common property law. Appellants note that recently this Court in Huntley & Huntley, Inc. v. Borough of Oakmont, 600 Pa. 207, 964 A.2d 855, 858 (2009), quoted, in Appellantsâ Reply Brief at 8, explicitly recognized that while natural gas may be classified as a mineral under the Municipalities Planning Code, âPennsylvania common law has applied a rebuttable presumption in the context of a private deed conveyance that the term âmineralâ does not include oil or gas.â
IV.
We agree with Appellants that the appurtenance argument raised by Appel-lees has been waived, the Dunham Rule remains viable and controlling, Hoge II is distinguishable and inapplicable, and the Superior Court erred in ordering a remand for scientific evidence concerning the nature of the gas contained within the Mar-cellus Shale.
A
Initially, as noted above, we agree with Appellants that Appelleesâ contention that Marcellus shale natural gas, or indeed natural gas in general, is an âappurtenance, issue or profit, or substance out ofâ petroleum oil, and therefore contemplated by the plain language of the deed reservation, is waived. Relevant to the issues presented in this appeal, Appellees based their motion for declaratory judgment in the trial court on three distinct arguments: the Dunham Rule is no longer viable in Pennsylvania; Marcellus shale natural gas is a mineral; and/or Marcellus shale is a mineral, and therefore the gas contained within it is contemplated by the deed reservation pursuant to Hoge II. See Brief on Behalf of Defendants in Support of Motion of Declaratory Judgment (filed Nov. 4, 2009), found at Reproduced Record 51a. Nowhere in the motion itself (which consists of a mere six paragraphs) or the more substantive brief in support thereof is the appurtenance argument raised, made, or even insinuated.
As can be expected, the trial court did not reference or discuss the appurtenance argument in its opinion denying the motion for declaratory