Case Title: Swords Creek Land P'ship v. Belcher

Citation: 

Docket Number: 131590

State: virginia

Court: Virginia Supreme Court

Date: 2014-09-12T00:00:00Z

Document:
PRESENT:  Lemons, Goodwyn, Millette, Mims, and Powell, JJ.,  
and Russell and Koontz, S.JJ. 
 
SWORDS CREEK LAND PARTNERSHIP 
 
 
 
OPINION BY 
v.  Record No. 131590 
SENIOR JUSTICE CHARLES S. RUSSELL 
 
 
 
September 12, 2014 
DOLLIE BELCHER, ET AL. 
 
FROM THE CIRCUIT COURT OF RUSSELL COUNTY 
Michael L. Moore, Judge 
 
 
This appeal requires us to revisit the questions arising 
from the interpretation of a severance deed conveying ownership 
of, and the right to remove, coal and timber.  The dispute 
before us is between the present owners of the surface of the 
land and the successors-in-interest to the grantees of the coal 
rights.  The parties assert conflicting claims to royalties 
generated by the extraction of coal bed methane gas (CBM) from 
the coal seams underlying the property. 
Facts and Proceedings 
 
There are no material facts in dispute.  In 1887, 
Christopher Richardson and Amanda Richardson, his wife, owned a 
891 3/4-acre tract of land in Russell County.  On February 7, 
1887, they executed a deed conveying to Joseph I. Doran and W. 
A. Dick 
all of the coal, in, upon or underlying a 
certain tract of land and the timber and 
privileges hereinafter specified as 
appurtenant to said tract of land [metes and 
bounds description follows] to enter on, 
over, upon, and through said tract of land 
for the purpose of digging, mining, or 
 
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otherwise securing the coal and other things 
in and on said tract of land hereinbefore 
specified, and removing the same from off 
said land . . . . 
 
And, as appurtenant to said tract of land, 
and the rights hereinbefore granted, all the 
timber except as hereinbefore excepted on 
said tract of land that may be necessary to 
use to successfully and conveniently mine 
said coal and other things above mentioned 
and granted; and the right to the said 
[grantees and their assigns] to enter on, 
over, upon, and through said tract of land 
for the purpose of digging, mining, or 
otherwise securing the coal and other things 
in and on said tract of land hereinbefore 
specified, and removing the same from off 
said lands; the right to pass through, over, 
and upon said tract of land by railway or 
otherwise, to reach any other lands 
belonging to the said [grantees] for the 
purpose of digging for, mining, or otherwise 
securing the coal and other things 
hereinbefore specified, and removing  same 
from off such other land . . . . 
 
This severance deed included a general warranty of title and 
covenants of quiet possession and freedom from encumbrances. 
 
 
The parties to this appeal are Dollie Belcher, Doris E. Dye 
and Ruby Lawson, successors-in interest to the grantors named in 
the 1887 severance deed (the Surface Owners) and Swords Creek 
Land Partnership, successor-in-interest to the grantees named in 
the deed (the Coal Owner). 
 
In 1991, the Coal Owner entered into a lease with 
Pocahontas Gas Partnership, granting to the lessee "all rights 
[the lessor] has" to all the natural gas, including CBM, 
 
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underlying the Russell County tract described in the 1887 
severance deed.  The lease was for a term of 10 years and was to 
continue thereafter as long as gas production or drilling and 
other exploratory operations should continue.  The lessee was to 
pay the Coal Owner a royalty of 12.5% of the value of the gas 
produced.  The lease granted the lessee the exclusive right to 
enter, drill, inject liquids into, explore and have access to 
the coal seams under the land.  CNX Gas Company, LLC. (CNX) is 
the successor-in-interest to the original lessee.  Neither CNX 
nor its predecessor lessees acquired any rights from the Surface 
Owners. 
 
The Virginia Gas and Oil Act, Code §§ 45.1-361.1 et seq. 
(the Act), first adopted in 1982, was amended in 1990 to permit 
CBM production to go forward in cases in which there was 
conflict or uncertainty as to the ownership of the CBM produced.  
Code § 45.1-361.22 permits a CBM well operator, such as CNX in 
the present case, to produce and sell CBM when any claimant 
petitions the Virginia Gas and Oil Board (the Board), after 
giving notice to all other claimants, to enter a "pooling 
order."  The claimants' interests are "pooled" by the Board's 
order and an interest-bearing escrow account for the benefit of 
all claimants is established.  Id.  The well operator is 
required to pay into the escrow account a royalty of 1/8 of the 
value of all CBM produced.  Id.  The funds remain in escrow 
 
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until all claimants have either reached a voluntary settlement 
of their claims, the interests of the claimants have been 
finally determined by a court of competent jurisdiction, or a 
final award of arbitration has taken effect pursuant to Code § 
45.1-361.22:1.  Id. 
 
On the petition of CNX, the Board entered such a pooling 
order on June 16, 1992, followed by several supplemental orders.  
Since that date CNX has been producing CBM from the coal seams 
underlying the land and paying the required royalties into the 
Board's escrow account.  At the time of the circuit court's 
hearing, CNX was operating six gas wells on the property. 
 
On April 25, 2011, the Surface Owners filed this action in 
the circuit court against the Coal Owner, seeking a declaratory 
judgment.  The Surface Owners contended that they were the sole 
owners of the CBM produced from their land and entitled to all 
the royalties therefrom, including those held in escrow by the 
Board and those yet to accrue.  CNX was not made a party. 
 
Because the parties agreed that no material facts were in 
dispute, the court heard the case on the Surface Owners' motion 
for summary judgment.  On September 17, 2013, the court, by a 
letter opinion, held that the 1887 severance deed was 
unambiguous, that it conveyed to the Coal Owner only coal, 
timber and access rights pertaining to those two commodities and 
that CBM is a "distinct mineral estate" that was not conveyed by 
 
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the severance deed.  The court entered an order declaratory of 
the Surface Owners' ownership of the CBM and right to receive 
the royalties therefrom.  We awarded the Coal Owner an appeal. 
Analysis 
 
The dispositive question in this appeal is whether the 
granting clause in the 1887 severance deed embraced CBM as well 
as coal.  A decade ago, we considered a case involving the same 
legal question and very similar facts.  Harrison-Wyatt, LLC v. 
Ratliff, 267 Va. 549, 593 S.E.2d 234 (2004), was a dispute 
between surface owners and a coal owner over escrowed funds held 
by the Board as royalties accruing from the production of CBM. 
The decision depended upon the interpretation of a 19th century 
severance deed that conveyed to the coal owner's predecessor 
"all the coal in, upon, and underlying" the land.  Id. at 551, 
593 S.E.2d at 235.  After considering the scientific evidence in 
the record, the decisions of the highest courts of sister states 
and the Supreme Court of the United States, Justice Stephenson 
wrote, for a unanimous Court: 
We do not believe the term "coal," as it was 
used in the late 19th century, is ambiguous.  
As commonly understood at the time, the term 
"coal" meant a solid rock substance used as 
fuel, and nothing in the record indicates 
that CBM is a part of coal itself.  On the 
other hand, although CBM has a weak physical 
attraction to coal and escapes from coal 
when coal is mined, it is a gas that exists 
freely in the coal seam and is a distinct 
mineral estate.  Moreover, the parties could 
 
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not have contemplated at the time the 
severance deeds were executed that CBM would 
become a very valuable energy source.  We 
hold, therefore, that title to the CBM did 
not pass to the Coal Owner. . . .1 
 
Id. at 556, 593 S.E.2d at 238 (citations omitted). 
 
 
We adhere to that holding.  The Coal Owner argues, however, 
that Harrison-Wyatt is inapposite because that case involved the 
production of CBM from "gob wells" where the gas had "migrated" 
away from the coal and had collected elsewhere in the mine, 
while the CBM in the present case remains within the coal seam 
until the seam is fractured or otherwise disturbed.  Because of 
our view that CBM is not a constituent part of coal at any time 
but rather is a separate mineral estate, we do not agree with 
the Coal Owner. 
 
We therefore turn to the four corners of the severance deed 
to ascertain whether its granting clause can be construed to 
convey any mineral estate beyond coal.  The Coal Owner contends 
that it is ambiguous, requiring resort to traditional rules of 
construction. (Wh. Br. 15-20)  In CNX Gas Company, LLC v. 
Rasnake, 287 Va. 163, 166-67, 752 S.E.2d 865, 867 (2014), we 
stated the following:  "Where the language of a deed clearly and 
                     
1In 2010, the General Assembly added Code § 45.1-361.21:1 to the 
Act, which provides in part:  "A conveyance, reservation, or 
exception of coal shall not be deemed to include coalbed methane 
gas." See 2010 Acts chs. 730, 762. 
 
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unambiguously expresses the intention of the parties, no rules 
of construction should be used to defeat that intention.  Where, 
however, the language is obscure and doubtful, it is frequently 
helpful to consider the surrounding circumstances and probable 
motives of the parties."  In that case, decided earlier this 
year, we found the granting clause under consideration to be 
ambiguous, capable of reasonable interpretation in at least 
three different ways.  It required us to go outside the four 
corners of the deed in order to ascertain the intent of the 
parties.  Id. at 167-69, 752 S.E.2d at 867-68.  Examination of 
the granting clause in the present case brings us to the 
opposite conclusion and, accordingly, to the opposite result. 
 
We agree with the circuit court's conclusion that the 
granting clause is an unambiguous grant of coal, timber and 
access rights to those two commodities.  While not concise, its 
frequent references to "other things" and "rights and 
privileges" are invariably limited by such qualifying phrases as 
"hereinafter specified," "hereinbefore specified," "hereinbefore 
granted," and "above mentioned."  Each of these qualifying 
phrases refers the reader back to coal, timber, and access 
rights pertaining to those commodities.  In light of the 19th 
century understanding of the meaning of the word "coal," there 
is no ambiguity as to the intentions of the parties to the 
severance deed. 
 
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The Coal Owner finally contends that it has conferred a 
benefit upon the Surface Owners by causing CBM to be produced 
from their property, resulting in unjust enrichment to the 
Surface Owners.  The Coal Owner argues that the circuit court 
erred in refusing to impose a constructive trust on the 
royalties in its favor.  We agree with the circuit court's 
ruling that this contention lacks merit. 
 
We hold that the CBM was at all times the property of the 
Surface Owners, and the Coal Owner conferred no benefit upon the 
Surface Owners.  The Coal Owner further argues that it had the 
"exclusive right of access" to the coal seam under the severance 
deed and that the Surface Owners could never have obtained CBM 
from it without the Coal Owner's consent.  That argument 
overlooks the fact that the Coal Owner's right of access to the 
coal seam is limited by the severance deed to access for the 
sole purposes expressed in the deed, namely, the mining, 
extraction and removal of coal, together with limited quantities 
of timber. 
 
In Harrison-Wyatt, we declined to consider the issue 
whether the surface owner has the right to fracture a coal seam, 
because the issue had not been raised by the parties at trial or 
on appeal.  267 Va. at 557 n.3, 593 S.E.2d at 238 n.3.  That 
issue is not before us in the present case because here the Coal 
Owner, by entering into its lease with CNX, permitted the 
 
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fracturing of the coal seam without any participation by the 
Surface Owners.2  We find no evidence in the record from which it 
may be inferred that the Surface Owners could reasonably be 
expected to repay the Coal Owner for the inevitable release of 
CBM as a result of the fracturing of the coal seam by the Coal 
Owner's lessee.  Therefore, the Coal Owner has no equitable 
claim against the Surface Owners for unjust enrichment. 
Conclusion 
 
We conclude that the Surface Owners have at all times owned 
all mineral estates within their lands except coal, and are 
entitled to all royalties accrued from the production of CBM 
therefrom and those yet to accrue.  For the reasons stated, we 
will affirm the judgment. 
 
 
 
           
Affirmed. 
                     
2 CNX is not a party to this case and our holding has no effect 
upon the mutual rights and obligations arising under its lease.