Court Opinion

ID: 808343
Source: CourtListenerOpinion
Date Created: 2012-09-12 15:10:25+00
Date Added: 2024-06-11T18:00:30.055115
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 11-2923
                        ___________________________

                                 Robert G. Fowler

                       lllllllllllllllllllll Plaintiff - Appellee

                                          v.

                          LAC Minerals (USA), LLC,
                      a Delaware limited liability company

                      lllllllllllllllllllll Defendant - Appellant
                                      ____________

                    Appeal from United States District Court
                  for the District of South Dakota - Rapid City
                                  ____________

                            Submitted: March 13, 2012
                            Filed: September 12, 2012
                                 ____________

Before MURPHY and GRUENDER, Circuit Judges, and ROSS,1 District Judge.
                         ____________

GRUENDER, Circuit Judge.

      LAC Minerals (USA), LLC (“LAC”) and Robert Fowler are bound by an
agreement relating to 944 acres of property once targeted for mining development.

      1
        The Honorable John A. Ross, United States District Judge for the Eastern
District of Missouri, sitting by designation.
Fowler filed suit, arguing that the agreement required LAC to assign to Fowler certain
portions of the property no longer needed for mining operations. LAC
counterclaimed, seeking to quiet title. After resolving certain issues on cross motions
for summary judgment and the remaining issues at a bench trial, the district court2
held that LAC’s current refusal to assign any land to Fowler did not breach the
agreement but that Fowler retains a reversionary interest in the land. LAC now
appeals, arguing that the district court erred in not declaring Fowler’s interest in the
land extinguished. For the reasons that follow, we affirm.

I.    BACKGROUND

      Fowler’s predecessor-in-interest, Viable Resources, Inc. (“Viable”), and LAC’s
predecessor company, St. Joe American Corporation, entered into a joint venture
agreement in 1984 with the goal of developing certain mining prospects in Lawrence
County, South Dakota.3 As part of the joint venture, in 1985 Viable deeded 90 mining
claims involving approximately 944 acres of land to LAC. In the deed, Viable
reserved a right “to obtain a reconveyance in the property . . . as specified in” an
amended joint venture agreement.4 The parties agree that a 1988 Restated Joint
Venture Agreement (“RJVA”) superseded the amended joint venture agreement

      2
       The Honorable Jeffrey L. Viken, United States District Judge for the District
of South Dakota.
      3
        Through a series of corporate name changes, St. Joe American Corporation
became St. Joe Gold Corporation, which eventually became Bond Gold Richmond
Hill, Inc. After additional name changes and a merger, the company became LAC.
For simplicity, we subsume all of these entities under the name “LAC.”
      4
        One of the ninety mining claims that “was previously inadvertently omitted”
in the parties’ initial agreement was transferred by a separate deed in 1987, and that
deed also referred to rights reserved to Viable under the amended joint venture
agreement. Because no party argues that this second deed should be construed
differently from the first deed, we refer solely to the first deed.

                                          -2-
referenced in the deed and that the RJVA is the controlling agreement. The parties
also agree that the right to obtain a reconveyance referred to in the deed is defined in
section 4.3 of the RJVA, which reads as follows:

      Release of Property - During the course of the conduct of mineral
      exploration under this Agreement the Manager [LAC] may in its sole
      discretion determine that certain portions of the Property have little
      potential for containing minerals of economic value or will not be
      required for mineral development or mining facilities. Upon annual
      review the Manager may eliminate such portions of the Property from
      the terms of this Agreement, and in such event [LAC] will reassign any
      such portions to Viable.

       Section 2.1 of the RJVA establishes a minimum term of fifty years for the
agreement, subject to extension under certain conditions. In 1992, however, state
mining regulators issued a “stop order” for all mining operations on the property
because of problems with acid drainage. There is no dispute that, as a result of the
“stop order,” no mineral exploration has occurred since 1993. LAC is obligated by
state regulations to continue environmental reclamation and monitoring on certain
portions of the property for the indefinite future.

       Fowler, one of the original organizers of Viable, succeeded to Viable’s rights
in the property in November 1999.5 On October 11, 2001, Fowler formally requested
the release of land not being used for mining purposes. Over the next several years,
LAC sent occasional communications indicating that it was in the process of
determining which portions of the 944 acres could be released, but it never made such
a determination. In 2008, Fowler sued (1) for a declaratory judgment that LAC was
obligated to reassign any portion of the property that became unneeded for mining or
reclamation efforts, (2) for specific performance of that obligation with respect to

      5
       Fowler acquired the rights from a friend and business associate, Donn C.
Douglass, Viable’s largest shareholder in 1999, who in turn acquired the rights from
Viable in 1997.

                                          -3-
portions currently not needed, and (3) to quiet title for such portions. LAC
counterclaimed for a declaratory judgment that it owned the 944 acres “absolutely . . .
as against Fowler and all persons claiming under him” and to quiet title “against all
claims of Fowler and all persons claiming under him.”

       On cross motions for summary judgment, the district court concluded that LAC
held the property in fee simple subject to a condition subsequent requiring it “to
reassign the property back to” Fowler “when the mining deed’s purposes are
exhausted.” After an ensuing bench trial, the district court found that the transfer of
Viable’s reversionary rights to Fowler was not precluded by S.D.C.L. § 43-4-3, which
states that “[a] mere right of reentry, or of repossession for breach of a condition
subsequent, cannot be transferred to anyone except the owner of the property affected
thereby,” because the deeds and RJVA established a covenant running with the land,
rather than a “mere” right of reentry. However, the district court held that LAC had
“acted in good faith in its decision to not release any of the [land] for reversion under
Section 4.3 . . . at this time” and that LAC was not required to release any of the land
at that time.

       LAC now appeals, arguing that the district court erred in holding that Fowler
retains an interest in the land. In support, it contends that (i) section 4.3 of the RJVA
did not create a condition subsequent, but rather a contractual covenant for which
damages would be the only remedy for breach; (ii) even if the RJVA did create a
condition subsequent in favor of Viable, Viable was precluded from transferring its
associated rights by S.D.C.L. § 43-4-3; and (iii) whatever rights Fowler might have
had under the RJVA to obtain the property are a nullity because mineral exploration
ended in 1993.

                                          -4-
II.   DISCUSSION

       “When the district court conducts a bench trial as it did here, we review the
district court’s fact finding for clear error, and we review legal conclusions and mixed
questions of law and fact de novo.” Eckert v. Titan Tire Corp., 514 F.3d 801, 804 (8th
Cir. 2008). Our jurisdiction in this case is based on diversity of citizenship, and the
parties agree that South Dakota law governs. See Kaufmann v. Siemens Med.
Solutions USA, Inc., 638 F.3d 840, 843 (8th Cir. 2011).

       Under South Dakota law, “[w]e interpret a deed as we would a contract.” Full
House, Inc. v. Stell, 640 N.W.2d 61, 63 (S.D. 2002). “Construction of a deed is a
question of law,” and we must “examine the instrument as a whole to determine what
type of conveyance was intended. If the language of a deed leaves doubt on the
intention of the parties, we will consider all the attendant circumstances existing at the
time of execution.” Swaby v. N. Hills Reg’l R.R. Auth., 769 N.W.2d 798, 808 (S.D.
2009) (internal citation omitted). “In order to ascertain the terms and conditions of
a contract, we must examine the contract as a whole and give words their ‘plain and
ordinary meaning.’” Gloe v. Union Ins. Co., 694 N.W.2d 252, 260 (S.D. 2005)
(quoting Elrod v. Gen. Cas. Co. of Wis., 566 N.W.2d 482, 486 (S.D. 1997)).

      LAC first asserts that section 4.3 of the RJVA establishes a contractual
covenant, rather than a condition subsequent. “The chief distinction between a
condition subsequent and a covenant pertains to the remedy in the event of a breach,
which in the former subjects the estate to a forfeiture and in the latter is merely a
ground for recovery of damages.” Rowbotham v. Jackson, 5 N.W.2d 36, 37 (S.D.
1942) (quoting Rooks Creek Evangelical Lutheran Church v. First Lutheran Church
of Pontiac, 124 N.E. 793, 795 (1919)). “Whether a clause shall be construed to be a
condition subsequent or [a] covenant must depend upon the contract or circumstances
and the intention of the party creating the estate.” Id. (quoting Rooks Creek, 124 N.E.
at 795). “Forfeitures and condition subsequent not being favored in law, a deed will

                                           -5-
not be construed to create a conditional estate unless the language used unequivocally
indicates an intention . . . to that effect.” DeHaven v. Hall, 753 N.W.2d 429, 435
(S.D. 2008) (omission in original) (quoting City of Huron v. Wilcox, 98 N.W. 88, 89
(S.D. 1904)).

       In this case, the deed specifically refers to a “right[] to obtain a reconveyance
in the property . . . as specified in” the parties’ agreement (emphasis added). In turn,
the referenced agreement states that, should certain specified events occur with respect
to any portion of the property, LAC “will reassign any such portions to Viable”
(emphasis added). This express language unequivocally establishes the grantor’s right
to reacquire the relevant portions of the deeded estate upon occurrence of the stated
conditions. Cf. DeHaven, 753 N.W.2d at 436-37 (finding a deed established a
covenant that was susceptible to a remedy only of damages, rather than a condition
subsequent to be remedied by reversion to the grantors, where the deed stated a duty
to maintain the granted easement but included “no language that expressly or
implicitly provides that the easement will be forfeited if [the grantees] fail to maintain
it”). As a result, we agree with the district court that the deed here establishes a
condition subsequent, rather than a covenant.

       In opposition, LAC argues that section 4.3 cannot create a condition subsequent
because it gives the grantor no power to terminate the estate. “A conveyance that
creates a fee simple estate subject to a condition subsequent provides the grantor,
heirs, and successors a power to terminate upon the happening of the stated event, i.e.,
when a condition is broken.” Swaby, 769 N.W.2d at 808. LAC contends that it, rather
than Viable, enjoyed sole power to terminate the estate because section 4.3 gives LAC
“sole discretion [to] determine that certain portions of the Property” will not be
needed for mining purposes and states that LAC “may eliminate such portions of the
Property from the terms of this Agreement” (emphases added). To be sure, LAC is
vested with broad discretion in determining which portions of the property are
unneeded for mining operations and eliminating those portions from the scope of its

                                           -6-
mining management. However, this determination constitutes the condition
subsequent itself, not the resulting power to terminate. If, for whatever reason, the
determination and elimination decisions are made, section 4.3 states that “in such
event [LAC] will reassign any such portions to” the grantor (emphasis added).
Because the grantor has the power to terminate by demanding reassignment if the
condition subsequent comes to pass, the basic structure of a condition subsequent is
satisfied, regardless of the degree of LAC’s control over the condition subsequent.

         LAC next asserts that Viable was precluded from transferring its rights
associated with the condition subsequent by S.D.C.L. § 43-4-3. Section 43-4-3
prohibits the assignment to a third party of a grantor’s right of reentry or repossession
unless the original instrument contemplated such assignments or otherwise indicated
an intent for the restriction to run with the land. See Rowbotham, 5 N.W.2d at 37-38
(holding that an identically worded predecessor statute prohibited the assignment of
a grantor’s rights under a reverter clause where the “reverter language used in the deed
. . . runs to [the grantors] personally, and not to their assigns”). Here, we agree with
the district court that the RJVA expressly contemplated the assignment of Viable’s
right of repossession under section 4.3. In particular, section 11.1 of the RJVA
expressly authorizes each party to assign “its rights in the Agreement” to any affiliate
of that party, without restriction.6 LAC identifies no provision of the deed or the
RJVA that would suggest Viable’s reversionary rights under section 4.3 were
somehow excluded from the general assignment provisions of section 11.1. Because
the plain language of the parties’ agreement, see Gloe, 694 N.W.2d at 260, establishes
Viable’s right to make certain assignments, Viable held more than a “mere” right of
repossession, see S.D.C.L. § 43-4-3. Thus, the transfer of Viable’s right of
repossession to Fowler was not precluded by statute.

      6
       The district court found that both Douglass (the intermediate assignee) and
Fowler were “affiliates” of Viable for purposes of section 11.1, and LAC does not
challenge that finding.

                                          -7-
       Finally, LAC contends that Fowler’s right to obtain reassignment of the
property has become a nullity because mineral exploration ended in 1993. LAC
argues that, under the plain language of section 4.3, it is only “[d]uring the course of
the conduct of mineral exploration under this Agreement” that LAC may identify
“certain portions of the Property [that] have little potential for containing minerals of
economic value or will not be required for mineral development or mining facilities.”
In LAC’s view, because it never identified such portions of the property before
mineral exploration ended in 1993, there never will be “such portions of the Property”
to reassign as mandated in the second sentence of section 4.3. LAC also makes a
corollary argument that the statute of limitations on Fowler’s declaratory judgment
claim must have begun to run no later than 1993. Fowler responds that LAC’s duty
to reassign “such portions” in the second sentence of section 4.3 reaches not only
those portions that were specifically identified “[d]uring the course of the conduct of
mineral exploration” but also any similar portions no matter when they are identified.

       We must resolve the dispute by giving the words used in the RJVA their “plain
and ordinary meaning.” Gloe, 694 N.W.2d at 260 (quoting Elrod, 566 N.W.2d at
486). In this case, the word “such” has two potentially applicable definitions: “of the
character, quality, or extent previously indicated or implied,” and “of the same class,
type, or sort.” Merriam-Webster’s Collegiate Dictionary 1247 (11th ed. 2005). As
a result, the reference to “such portions” of property in the second sentence of section
4.3 means not just the specific portions of property identified during the time frame
mentioned in the first sentence, but also any other portions of property with the same
“character, quality, or extent” or “of the same class, type, or sort” as that established
in the first sentence—that is, portions that are unnecessary for the stated mining
purposes. Accordingly, under the second sentence of section 4.3, LAC has a
continuing duty to “reassign any such portions” to Fowler, regardless of whether the

                                          -8-
portions were identified prior to 1993.7 The district court did not err in holding that
Fowler retains an ongoing reversionary interest in the property.

          III. CONCLUSION

        For the foregoing reasons, we affirm the district court’s judgment that Fowler
retains a reversionary interest in the land.
                           ______________________________

      7
        The district court noted LAC’s broad discretion in reviewing the use of the
property under section 4.3 and found that, as of the time of the district court’s
judgment, LAC had exercised this continuing duty in good faith. Fowler did not
appeal the district court’s ruling. To the extent LAC argues in its reply brief that the
district court erred by determining that an implied duty of good faith and fair dealing
applies to its exercise of discretion under section 4.3, we decline to address the merits
of the argument. See Cavegn v. Twin Pipe Trades Pension Plan, 333 F.3d 879, 882
n.2 (8th Cir. 2003) (declining to address an argument raised for the first time in a reply
brief).

                                           -9-