Note: The following legal update was featured in Michael Late Benedum Chapter of the AAPL’s The Wildcatter: Vol 4: Issue 5 – October 2023.
In Collingwood Appalachian Minerals III, LLC v. Erlewine,[1] a case sure to catch the attention of the state legislature, the West Virginia Supreme Court of Appeals addressed the recurring issue of whether an improper tax assessment of an unsevered mineral interest separate from the surface estate warrants the invalidation of tax sales of those mineral estate interests.
In 1909, a 135-acre tract of land (the “Property”) was conveyed to James W. Sivert, but “one-half of all the oil and gas royalty” was reserved to the grantor therein.[2] As a result, the County Assessor began taxing Sivert’s unsevered fifty percent interest in the oil and gas interest separately from the Property. Sivert then conveyed the Property and a twenty-five percent interest in the oil and gas estate to Joseph and Myrtle Rogers but reserved “one-fourth of all the oil and gas royalty.” Subsequently, the Rogerses conveyed the Property and their twenty-five percent oil and gas estate interest to Osburn Dunham. Sivert later conveyed “one-fourth of all the oil and gas royalty” to Joseph Palmer, and Palmer then conveyed “the undivided 1/4 interest of all the oil and gas royalty” to Dunham. Accordingly, as of 1945, Dunham owned the Property and fifty percent of the oil and gas, which he continued paying separate tax assessments on.
In 1968, Dunham conveyed to Russell Stiles “the same land” that the Rogerses conveyed to Dunham. That deed stated, “[t]here is reserved and excepted from this conveyance all exceptions and reservations contained in all prior deeds.” After the 1968 conveyance, Dunham continued paying taxes on his twenty-five percent interest in the oil and gas estate, and Stiles paid taxes on the Property and his twenty-five percent interest in the oil and gas estate.
Thus, by 1988, Stiles owned the Property and a twenty-five percent interest in the oil and gas estate, and Dunham owned the other twenty-five percent interest in the oil and gas estate.[3] However, that year, Stiles paid neither the tax on the Property nor the tax on his twenty-five percent interest in the oil and gas estate, which were separately assessed.[4] Due to the resulting tax delinquency, there was a sheriff’s sale at which Richard Erlewine bought the Property, and Trio Petroleum Corporation and Waco Oil & Gas Company (“Petitioners”) bought Stiles’s twenty-five percent oil and gas estate interest.[5] Subsequently, Dunham also failed to pay taxes on his interest, resulting in another sheriff’s sale whereby the Petitioners purchased Dunham’s twenty-five percent oil and gas estate interest, bringing their total interest in the oil and gas estate to fifty percent.[6]
In 2020, Erlewine filed suit seeking a declaratory judgment that he owned Petitioners’ fifty percent oil and gas estate interest. Erlewine claimed that the first tax deed conveying the twenty-five percent oil and gas estate interest to Petitioners was void ab initio because the assessor lacked the authority to separately assess the delinquent taxpayer for the Property and the unsevered twenty-five percent oil and gas estate interest.[7] Erlewine also claimed that the second tax deed was also void ab initio because Dunham transferred his full fifty percent interest in the oil and gas estate when he conveyed it to Stiles. Thus, according to Erlewine, the county possessed no interest to transfer in the second tax deed. The circuit court found that both tax deeds received by the Petitioners were void ab initio and granted summary judgment in favor of Erlewine.[8]
First Tax Deed
Relying heavily on Orville Young, LLC v. Bonacci,[9] the circuit court determined that the issue underlying the first tax deed was whether an assessor was permitted to separately assess the surface estate and the mineral estate when they were unsevered.[10] However, the Supreme Court of Appeals has previously held that the assessor may not separately tax unsevered mineral estates.[11]
Thus, the issue before the Supreme Court of Appeals was whether a separate, unauthorized assessment of a mineral estate invalidates a tax deed conveying it when the owner became delinquent on it and the taxes assessed for the rest of the property.[12] Unlike the owner in Bonacci, Stiles had not paid taxes on either the Property or the oil and gas estate interest.[13]
Ultimately, the Court held that the severance of title through two separate tax deeds represented a procedural “irregularity, error, or mistake.”[14] However, under West Virginia Code § 11A-3-63, an irregularity, error, or mistake cannot invalidate a tax deed unless the legislature created a specific cause of action allowing it, which they have not.[15] Accordingly, the Court held that the Petitioners purchased a valid tax deed.[16]
Second Tax Deed
The resolution of the second tax deed hinged on a deed interpretation question. The circuit court agreed that Dunham owned no mineral interest that the tax deed could convey. However, the Petitioners argued that the plain language of the 1968 deed conveyed “the same land” as the 1945 deed which reflected, among other things, the twenty-five percent oil and gas estate interest at issue.[17] The Petitioners also argued that the conduct of the parties after executing the 1968 deed reflected the intent of the parties to convey the twenty-five percent oil and gas estate interest.[18]
When construing a deed, the goal of the court is to effectuate the intent of the parties.[19] If the deed is unambiguous, there is no need to go further than the plain text of the deed.[20] By using the term “the same land,” the Court held that the deed unambiguously reserved a twenty-five percent oil and gas estate interest to Dunham.[21] Thus, the Court determined there was no need to consider the conduct of the parties after the deed was executed.[22] As a result, the second tax deed conveying a twenty-five percent oil and gas estate interest to Petitioners was valid.[23]
Dissent
In a strongly worded dissent, Justice Hutchison called the legislature into action, noting that tax assessors illegally taxing the surface estate separate from the mineral estate is an ongoing problem in the State of West Virginia. Justice Hutchison argued that the majority opinion overextends West Virginia Code § 11A-3-63 by interpretation, calling the majority’s assertion that this was just an “irregularity, error, or mistake” an avoidance of the tax assessor’s blatant disregard of substantive law.[24] In Justice Hutchison’s view, the majority allows assessors to “get away” with multiple assessments on land interests, which he asserted is not the intention of the legislature.[25]
Authored by Ryan Stewart and Matthew Gibson
[1] 2023 W. Va. LEXIS 276.
[2] Id. at 4.
[3] Id. at 6.
[4] Id.
[5] Id.
[6] Id. at 7.
[7] Id.
[8] Id. at 8.
[9] 866 S.E.2d 91 (W. Va. 2021).
[10] Erlewine, at 10.
[11] Id. at 9; citing Orville, at Syl. Pt. 2.
[12] Id. at 10.
[13] Id. at 12.
[14] Id. at 13.
[15] Id.
[16] Erlewine, at 15.
[17] Id. at 16.
[18] Id. at 17.
[19] Id.
[20] Id. at 18.
[21] Id. at 19
[22] Id.
[23] Id.
[24] Erlewine, at 21-34.
[25] Id. at 33-34.
Ryan represents clients in connection with transactional matters, due diligence, complex mineral titles, lease analysis, surface use issues and title curative. In addition, Ryan has extensive experience in the drafting and review of original drilling title opinions, as well as supplemental drilling title opinions and limited acquisition title opinions. He also assists in litigation and regulatory matters, including unitizations.