Court Opinion

ID: 2824376
Source: CourtListenerOpinion
Date Created: 2015-08-11 04:44:35.971235+00
Date Added: 2024-06-11T11:31:13.493198
License: Public Domain

131 Nev., Advance Opinion    IS
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                BULLION MONARCH MINING, INC.,                           No. 61059
                Appellant,
                vs.
                                                                                     FILED
                BARRICK GOLDSTRIKE MINES, INC.,                                      MAR 2 6 2015
                Respondent.                                                              1E K. L)NDEMAN
                                                                                                          RT
                                                                               BY
                                                                                    CHIEF DE     CLERK

                            Certified questions under NRAP 5 concerning whethei - the
                rule against perpetuities applies to an area-of-interest provision in a
                commercial mining agreement for the payment of royalties and, if so,
                whether reformation of the agreement is available under NRS 111.1039.
                United States Court of Appeals for the Ninth Circuit; Sidney R. Thomas,
                Chief Circuit Judge, M. Margaret McKeown and William A. Fletcher,
                Circuit Judges.
                            Question answered.

                Lewis Roca Rothgerber LLP and Daniel F. Polsenberg and Joel D.
                Henriod, Las Vegas,
                for Appellant.

                Parsons, Behle & Latimer and Michael R. Kealy, Reno; Parsons, Behle &
                Latimer and Francis M. Wikstrom, Salt Lake City, Utah,
                for Respondent.

                Baker & Hostetler LLP and Mary P. Birk, Denver, Colorado,
                for Amicus Curiae Mary Ann Schmidt.

                BEFORE THE COURT EN BANC.

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                                                OPINION
                By the Court, CHERRY, J.:
                            The Ninth Circuit Court of Appeals certified two questions to
                this court concerning Nevada's rule against perpetuities. The first
                question asks whether Nevada's "Rule Against Perpetuities appl[ies] to an
                area-of-interest provision in a commercial mining agreement." The second
                asks whether, if the rule applies, courts may reform such agreements
                under NRS 111.1039(2). We accepted the certified questions and directed
                briefing.
                            We conclude that Nevada's common-law rule against
                perpetuities does not extend to area-of-interest royalties created by
                commercial mining agreements. Courts developed the rule to promote
                public policy by ensuring that property remained alienable. Applying the
                rule to area-of-interest royalty agreements does not further public policy.
                Our Legislature has said as much by exempting commercial, nondonative
                transfers from the statutory rule against perpetuities. Even though the
                statutory rule was not in effect when this agreement was made, we see no
                reason to disagree with the Legislature in our own policy analysis.
                Because we answer the first question negatively, we do not need to
                consider the second.
                                 FACTS AND PROCEDURAL HISTORY
                            "This court's review is limited to the facts provided by the
                certification order. . . ." In re Fontainebleau Las Vegas Holdings, 128 Nev.
                   „ 289 P.3d 1199, 1207 (2012). Those facts are as follows.
                            Bullion Monarch Mining, Inc. (Bullion), alleges that Barrick
                Goldstrike Mines, Inc. (Barrick), owes royalty payments to Bullion under
                an area-of-interest provision in a 1979 agreement. According to Bullion,
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                its predecessor-in-interest entered into the agreement with a mine
                operator, Barrick's predecessor-in-interest, to develop Bullion's
                predecessor's mining claims in the Carlin Trend.
                            The area-of-interest provision requires the mine operator to
                pay Bullion a royalty on production resulting from the operator's mining
                claims that the operator might subsequently acquire within the area of
                interest. Under the agreement, Bullion is to receive royalty payments on
                production from after-acquired claims in the area of interest for 99 years.
                            Bullion filed suit in Nevada federal district court seeking
                royalty payments on production from after-acquired claims in the area of
                interest. Barrick argued that it did not owe royalties because the area-of-
                interest provision is void under the rule against perpetuities. Bullion
                responded that the rule does not apply to area-of-interest royalty
                agreements. In the alternative, Bullion sought reformation of the
                agreement under NRS 111.1039(2).
                            The federal district court granted summary judgment to
                Barrick based on the rule against perpetuities. Bullion appealed. The
                Ninth Circuit Court of Appeals then certified these questions to this court.
                                               DISCUSSION
                            "The common-law rule [against perpetuities] is usually stated
                thus: No interest is good unless it must vest, if at all, not later than
                twenty-one years after some life in being at the creation of the interest."
                Sarrazin v. First Nat'l Bank of Nev., 60 Nev. 414, 418, 111 P.2d 49, 51
                (1941) (internal quotation omitted). In Nevada, the rule is codified in our
                Constitution: "No perpetuities shall be allowed except for eleemosynary
                purposes." Nev. Const. art. 15, § 4. But in 1987, Nevada adopted a
                statutory rule against perpetuities. See NRS 111.1031; 1987 Nev. Stat.,

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                ch. 25, §§ 2-8, at 62-65. The new statutes added a wait-and-see provision,
                which, as amended, gives contingent property interests 365 years to vest
                before they are invalidated.      See NRS 111.1031(1)(b). The statutory
                scheme exempts nondonative transfers from the rule against perpetuities.
                NRS 111.1037(1). It also lets courts reform agreements made before its
                enactment to bring them into conformity with the rule. NRS 111.1035.
                Nevada's statute was not in effect at the time of the agreement at issue in
                this case.
                             We are thus confronted with the question of whether Nevada's
                common-law rule against perpetuities, as codified by the Nevada
                Constitution, applies to commercial mining agreements for the payment of
                area-of-interest royalties. We hold that it does not.
                             Barrick argues that the perpetuities provision in the Nevada
                Constitution confines our analysis of the rule. It argues that we ought to
                apply the rule as it existed when the Constitution was adopted. It then
                asserts that, because commercial agreements may have been subject to the
                rule in 1864, all commercial agreements are still subject to the common-
                law rule. We disagree.
                             As a creature of the common law, the rule against perpetuities
                is not static. Our Constitution may have adopted the common-law rule,
                but it did not freeze the rule's application. See Jack M. Balkin, Original
                Meaning and Constitutional Redemption, 24 Const. Comment. 427, 433
                (2007). The meanings of the Constitution's words remain constant, but
                their application may vary with the circumstances of time and place. See
                generally. Lawrence B. Solum, The Interpretation Construction Distinction,
                                                                   -

                27 Const. Comment. 95-118 (2010) (distinguishing between discovery of
                textual meaning and application of text to case at bar). For example,

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                when interpreting the Second Amendment, the United States Supreme
                Court reasoned that "arms" was not limited to weapons in existence at our
                nation's founding:
                                  Some have made the argument, bordering
                            on the frivolous, that only those arms in existence
                            in the 18th century are protected by the Second
                            Amendment. We do not interpret constitutional
                            rights that way. Just as the First Amendment
                            protects modern forms of communications, e. g.,
                            Reno v. American Civil Liberties Union, 521 U.S.
844, 849 (1997), and the Fourth Amendment
                            applies to modern forms of search, e. g., Kyllo v.
                            United States, 533 U.S. 27, 35-36 (2001), the
                            Second Amendment extends, prima facie, to all
                            instruments that constitute bearable arms, even
                            those that were not in existence at the time of the
                            founding.
                District of Columbia v. Heller, 554 U.S. 570, 582 (2008).
                            We confronted a similar issue in Rupert v. Stienne, 90 Nev.
397, 528 P.2d 1013 (1974). There, this court considered NRS 1.030, which
                states that "[t]he common law of England, so far as it is not. . . in conflict
                with [Nevada or federal law] shall be the rule of decision in all courts of
                this State." Id. at 399, 528 P.2d at 1014 (quoting NRS 1.030). In spite of
                this statute, this court refused to apply the old common-law rule of
                interspousal immunity. Id. at 404, 528 P.2d at 1017. This court noted
                that "[h]aving been created and preserved by the courts, the doctrine is
                subject to amendment, modification and abrogation by the courts if
                current conditions so dictate."   Id. at 399, 528 P.2d at 1014. The court
                concluded that "we believe that the time has arrived to abrogate the
                doctrine [of interspousal immunity]." Id. at 403, 528 P.2d at 1017. The
                common law, though adopted in broad form by statute, continued to evolve
                as new circumstances required new application.
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                            Likewise, in our case, the word "perpetuities" in the Nevada
                Constitution applies to precisely that: perpetuities. But we must for the
                first time decide whether an area-of-interest royalty is indeed an
                unenforceable perpetuity under the common law of Nevada. This inquiry
                into the common law is informed by both precedent and policy.
                            Nineteenth century legal dictionaries define perpetuities in
                reference to donative transfers, not commercial ones. An 1888 legal
                dictionary provides an example of a trust income that, upon the death of
                the beneficiary, is conferred upon his son, and after the son's death to his
                son, and so on:
                                  Perpetuity properly signifies a disposition of
                            property by which its absolute vesting is
                            postponed forever; as, for instance, if property
                            were conveyed to trustees upon trust to pay the
                            income of A. for life, and after his death to his
                            eldest son for life, and after his death to his eldest
                            son, and so on. Such dispositions are contrary to
                            the policy of the law, because they "tie up"
                            property and prevent its free alienation.
                2 Stewart Rapalje and Robert L. Lawrence, A Dictionary of American and
                English Law 953 (Jersey City, N.J., Frederick D. Linn & Co., 1888),
                available at http://goo.gl/yiEmzA . An 1850 legal dictionary defines
                perpetuity as "[t]he condition of an estate being rendered
                perpetually. . . unalienable by the act of the proprietors." Henry James
                Holthouse, A New Law Dictionary 302 (Boston, Charles C. Little and
                James Brown, 2d ed. 1850), available at http://goo.gl/ABNUp5 . These
                definitions do not appear to contemplate a business agreement that might
                outlive the real persons executing it, but won't outlive the business
                entities that own the interest. And because royalty interests can be
                exchanged, bought, or sold, there is no obvious restraint on alienation.
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                Indeed, Barrick and Bullion were not the original parties to the
                agreement; they acquired those interests. This shows that alienation is
                not restricted in the traditional sense, where property is tied up with
                descendants through the dead-hand power of century-ago settlors. So it is
                not obvious from the definition of "perpetuity" that it encompasses
                commercial mining interests.
                              While the traditional articulation of the rule against
                perpetuities does not distinguish between commercial and donative
                transfers, see Sarrazin, 60 Nev. at 418, 111 P.2d at 51 (stating common-
                law rule without distinguishing between commercial and donative
                transfers), the modern trend is to not apply the rule rigidly or
                mechanistically. 70 C.J.S. Perpetuities § 10 (2014). Many courts refuse to
                apply the rule where its purposes will not be served.         Id.   The rule
                developed "to curb excessive dead-hand control of property retained in
                families through intergenerational transfers." Restatement (Third) of
                Prop.: Servitudes § 3.3 cmt. b (2000). Thus, courts have held that certain
                commercial agreements are not subject to the common-law rule against
                perpetuities because to hold otherwise would contravene public policy. See
                Atl. Richfield Co. v. Whiting Oil & Gas Corp., 320 P.3d 1179, 1184 (Colo.
                2014) ("[W] e have avoided applying the rule against perpetuities to certain
                types of interests in commercial settings where we have concluded that
                the purposes of the common law rule would not be advanced."). 1

                      1-See also Weber v. Texas Co., 83 F.2d 807, 808 (5th Cir. 1936) ("The
                [oil lease] option under consideration is within neither the purpose of nor
                the reason for the rule. . . . [The option] does not restrain free alienation
                by the lessor. He may sell at any time. . . . The option is therefore not
                objectionable as a perpetuity."); Bauermeister v. Waste Mgmt. Co. of Neb.,
                                                                  continued on next page . . .
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                                 For example, in Juliano & Sons Enterprises, Inc. v. Chevron,
                    U.S.A., Inc., 593 A.2d 814, 818-19 (N.J. Super. Ct. App. Div. 1991), a New
                    Jersey appellate court decided that the rule against perpetuities does not
                    apply to commercial transactions. Juliano is similar to this case because
                    the transaction at issue took place before the enactment of New Jersey's
                    statutory rule. Id. at 815, 817. Even though the statutory rule was not in
                    effect at the time of the transaction, the court applied it anyway in order
                    "to effectuate the current policy declared by the legislative body."   See id.
                    at 819. The court noted that "Mlle fact that nondonative commercial
                    transactions are excluded from the Act is not dispositive" of the issue.   Id.

                    . . . continued

                    783 N.W.2d 594, 600 (Neb. 2010) ("There are sound public policy reasons
                    which support the conclusion that contractual options to repurchase, such
                    as the one at issue in this case, are not subject to the rule against
                    perpetuities."); Metro. Transp. Auth. v. Bruken Realty Corp., 492 N.E.2d
379, 385 (N.Y. 1986) ("[W]e hold that the rule against remote vesting does
                    not apply to preemptive rights in commercial and governmental
              01-   transactions. . . ."); Rich, Rich & Nance v. Carolina Cons! Corp., 558
S.E.2d 77, 80 (N.C. 2002) ("[Olur common law rule against perpetuities
                    does not exclude commercial interests from its application. . . . [However,
                    ci ommercial transactions that do not violate the underlying policies
                    behind the rule against perpetuities. . . do not fit under the umbrella of
                    the common law rule."); Producers Oil Co. v. Gore, 610 P.2d 772, 774
                    (Okla. 1980) (agreeing with federal district court that the rule against
                    perpetuities "should not apply and no worthwhile social or economic
                    purpose is served by applying it to this common, frequent and useful type
                    of oil and gas transaction. The provision in question does not clog
                    alienation." (citation omitted)); Robroy Land Co., Inc. v. Prather, 622 P.2d
367, 371-72 (Wash. 1980) ("By so holding, we believe we more nearly meet
                    the needs of a commercial society than by strictly enforcing the rule
                    against perpetuities as it has come to us from the common law.").

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                at 818.     The court acknowledged that the "Legislature, as the
                authoritative source of public policy, has now decided the types of
                transactions which should be subject to the rule against perpetuities and
                which should not." Id. at 819. The court reasoned that "[n]either the
                Legislature nor this court can perceive any danger to titles or alienability
                of real properties requiring continued application of the rule to
                nondonative commercial transactions even where they occurred prior to
                the effective date of the Act."      Id.   The court concluded that "the
                nondonative commercial transaction. . . is no longer subject to the
                common-law rule against perpetuities." Id. at 815.
                            The Colorado Supreme Court very recently refused to apply
                the rule against perpetuities to a 25-year option to repurchase a shale oil
                property. Atl. Richfield Co., 320 P.3d at 1181. The court said that "we
                will apply the rule against perpetuities only where the purposes of the rule
                are served." Id. at 1187 (quotation omitted). "Looking to whether the
                purposes of the common law rule are served," the court reasoned "that
                the. . . option did not discourage valuable improvements to the land"
                because each party possessed sufficient incentives to improve or invest in
                the land. Id. at 1190. Accordingly, the court held that the common-law
                rule against perpetuities did not apply. See id. at 1181.
                            An area-of-interest royalty agreement is an agreement
                whereby one party agrees to pay a portion of not-yet-acquired mineral
                interest's output to the other party because that mineral interest lies
                within an area of interest. The provision may exist, for example, in an
                agreement for the sale of a mineral interest. The mineral interest's
                current owner is often "of the opinion that it is as a result of his efforts
                that the [interest buyer] is in the 'area' and that he should participate in

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                any proceeds derived from that locale." Larry D. Clark, Area of Interest
                Provisions, 12C Rocky Mtn. Min. L. Inst. 6, 6-1 (1981). It is often unclear
                how far a mineral vein will run. The owner of the interest wishes to
                receive, in a sense, a finder's fee in the form of a royalty, in case the mine
                operator discovers that the vein runs farther than the location of the
                conveyed mineral interest.       See Mark T. Nesbitt, Area of Interest
                Provisions—Two-Edged Swords, 35 Rocky Mtn. Min. L. Inst. 21, § 21.02
                (1989).
                            We are persuaded that public policy weighs against applying
                the rule against perpetuities to area-of-interest royalty agreements.
                Because such provisions compensate explorers, applying the rule this way
                appears efficient. And because the agreement is a commercial one, there
                is no human decedent exercising dead-hand control over still-living
                descendants. CI Atl. Richfield, 320 P.3d at 1184 ("[Tlhe vesting period of
                the common law rule, based on lives in being plus twenty-one years,
                makes little sense in the world of commercial transactions."). Further, as
                noted above, even if the interest remains on the land, nothing appears to
                prohibit alienation of the interest. Bullion and Barrick are both
                successors in interest, not by birth, but by commercial exchange. This is
                not the kind of "entailed estate[ 1" that the rule against perpetuities was
                intended to prevent.       Debates & Proceedings of the Nevada State
                Constitutional Convention of 1864, at 741 (Andrew J. Marsh off. rep.
                1866); see Restatement (Third) of Prop.: Servitudes § 3.3 cmt. b (2000).
                Our Legislature has determined that, as a matter of policy, nondonative

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                transfers should not be subject to the rule against perpetuities.   See NRS
                111.1037. We see no reason to disagree with this policy in our application
                of the rule. Cf. Juliano, 593 A.2d at 819 ("Neither the Legislature nor this
                court can perceive any danger . . . requiring continued application of the
                rule to nondonative commercial transactions even where they occurred
                prior to the effective date of the Act.").
                             Therefore, in response to the first certified question, we
                answer that the rule of perpetuities does not apply to area-of-interest
                royalty provisions in commercial mining contracts. Because the rule does
                not apply, there is no need to address the second certified question.

                                                      CCherry

                We concur:

                                             , C.J.
                Hardesty

                                                                Saitta

                Gibbons

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