Opinion ID: 1830892
Heading Depth: 1
Heading Rank: 7

Heading: override on royalties and the segco claim settlement

Text: The special master made the finding that from January 1975, to March of 1976, DTK mined coal at a location leased from Calvin Jones. A.E. Burgess negotiated the lease on behalf of DTK that paid a $2.00 per ton royalty to Jones. After March 1976, DTK mined on property that had been leased by Burgess Mining and paid the royalty Burgess Mining was obligated to pay under the terms of the lease. Because some of the leases had been in existence for a long time, royalties, as provided for in the leases, were lower than the then-current rate. The special master noted that there was expert testimony in the record to the effect that a reasonable royalty for these leases when DTK mined them, i.e., an override, would have been ten percent of the selling price (five percent going to the owner of the surface rights and five percent going to the owner of the mineral rights). Although there was conflicting testimony as to whether there was an actual agreement between DTK and Burgess Mining that DTK would pay an override on royalty, Burgess Mining sought $186,675 by counterclaim, the amount which it claimed it was owed by DTK for override payments. The special master pointed out, however, that assuming that DTK paid ten percent of its sales as royalty, it would only owe Burgess Mining $180,138.12. In his report, the special master indicated that on May 26, 1977, Burgess Mining filed suit for a declaratory judgment against Southern Electric Generating Company (SEGCO) to determine the two parties' rights under certain agreements which allowed Burgess Mining to mine coal on the property of SEGCO following SEGCO's termination of the agreement. On April 14, 1978, the suit was settled by Burgess Mining's agreeing to pay $43,452.35 as additional royalties for coal mined from June 27, 1977, through March 31, 1978, and $16,462.41 as severance tax. The special master concluded that while DTK had mined some of the coal, DTK was not a party to the law suit or the agreements which were the subject matter of the legal action, and was not consulted during the process of settling the controversy. As to the additional royalties which Burgess Mining claimed DTK owed it, the special master recommended: It was the intention of the parties at the time, that DTK pay the same royalties that Burgess Mining paid and Burgess Mining is not entitled to recover on its claim for additional royalties set out in paragraph 2 of its counterclaim [SEGCO claim]. While it may be customary for parties to agree, in certain instances, to an override royalty, Lees asserts that DTK was never charged more royalty on the coal it mined under Burgess Mining leases than Burgess was obligated to pay, and that DTK paid the royalties it was charged. As to the SEGCO settlement, Lees notes that while the defendants maintain that SEGCO and Alabama Power Company counterclaimed for royalties and a refund of severance taxes, the counterclaim was neither offered into evidence nor put before the special master or the circuit court, and that the record is devoid of any explanation of the settlement. The testimony produced and facts shown at the hearing before the special master lead the Court to the conclusion that the special master's findings and recommendations concerning the additional royalties sought by Burgess Mining are properly supported.