Court Opinion

ID: 2742845
Source: CourtListenerOpinion
Date Created: 2014-10-16 05:15:55.911241+00
Date Added: 2024-06-11T09:55:30.528034
License: Public Domain

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
     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,

                                2
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

                                   3
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

                                  5
     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.   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 unambiguously

1
 In 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.
                                  6
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.

                                   7
     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

                                 8
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.
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