Court Opinion

ID: 2656460
Source: CourtListenerOpinion
Date Created: 2014-03-12 18:53:42.410231+00
Date Added: 2024-06-11T09:12:25.436062
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 12-2273

CLIFTON G. VALENTINE,

                     Plaintiff – Appellant,

           v.

SUGAR ROCK, INC.; GERALD D. HALL; TERESA D. HALL,

                     Defendants – Appellees.

Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg.    Irene M. Keeley,
District Judge. (1:10-cv-00193-IMK)

Argued:   December 10, 2013                 Decided:   March 12, 2014

Before KING, GREGORY, and FLOYD, Circuit Judges.

Published Order of Certification to the Supreme Court of Appeals
of West Virginia. Judge King prepared the Order, in which Judge
Gregory and Judge Floyd joined.

ARGUED: James Scott Huggins, THEISEN BROCK, LPA, Marietta, Ohio,
for Appellant.   W. Henry Lawrence, IV, STEPTOE & JOHNSON PLLC,
Bridgeport, West Virginia, for Appellees.       ON BRIEF: Daniel
Patrick Corcoran, THEISEN BROCK, LPA, Marietta, Ohio, for
Appellant.    Amy Marie Smith, William J. O'Brien, STEPTOE &
JOHNSON PLLC, Bridgeport, West Virginia, for Appellees.
                     ORDER OF CERTIFICATION TO THE
               SUPREME COURT OF APPEALS OF WEST VIRGINIA

KING, Circuit Judge:

     Availing ourselves of the privilege afforded by the State

of West Virginia through the Uniform Certification of Questions

of Law Act, West Virginia Code sections 51-1A-1 through 51-1A-

13, we hereby request that the Supreme Court of Appeals of West

Virginia   exercise     its    discretion    to      answer    the   following

certified question of law:

     Whether the proponent of his own working interest in a
     mineral lease may prove his entitlement thereto and
     enforce his rights thereunder by demonstrating his
     inclusion within a mining partnership or partnership
     in mining, without resort to proof that the lease
     interest has been conveyed to him by deed or will or
     otherwise in strict conformance with the Statute of
     Frauds.

We perceive that the answer to the foregoing question of West

Virginia   law   may   be    determinative   of     the    cause   now   pending

before   us.     Moreover,    it   appears   that    the    decisions    of   the

Supreme Court of Appeals of West Virginia provide no controlling

precedent dispositive of the question.              To fully illustrate the

nature of the controversy out of which the question arises, we

next recite the relevant facts.

                                      2
                                             I.

                                             A.

     Clifton      G.      Valentine     filed          this        diversity    action      on

November 8, 2010, in the Northern District of West Virginia,

alleging that       he    is   the    owner       of   certain       fractional      working

interests in four Ritchie County mining partnerships:                            Cuthright

Oil & Gas Co. (stated working interest of 3/32), Iams Gas Co.

(2/32), Iams Oil Co. (5/32), and Keith Gas Co. (1/32).                                 Three

wells produce oil and gas on Cuthright’s leasehold, with single

wells in production for each of the other three partnerships on

their respective, discrete leaseholds.

     Named as defendants in Valentine’s lawsuit are Sugar Rock,

Inc.,    which   is      the   operator      of    the    wells,        and    two    of   its

officers,      Gerald     D.   Hall    and       Teresa       D.    Hall   (collectively,

“Sugar    Rock”).         Valentine     demands          an    accounting       and    seeks

compensatory and punitive damages, together with reimbursement

of his attorney fees and litigation costs.                          On January 13, 2011,

Sugar Rock answered the complaint and filed a counterclaim “in

excess    of   $14,191.00,”       representing           the       cumulative    operating

expenses attributable to Valentine’s asserted working interests

in the six wells.         See J.A. 27. 1

     1
       Citations herein to “J.A. ___” refer to the contents of
the Joint Appendix filed by the parties to the appeal underlying
this Order of Certification.

                                             3
        Valentine maintains that he purchased the working interests

from Frank “F.A.” Deem, the original owner of the leaseholds, in

the late 1950s.           For about forty years, Valentine received his

proportionate share of the net proceeds generated by the well

operations.       Those payments stopped in 1999, however, when Frank

Deem’s son and successor in interest, William “W.A.” Deem, sold

the majority interest in the partnerships to Sugar Rock.                                After

Sugar    Rock    became     the     operator      and    managing     partner       of    the

partnerships, the wells began to operate at a net annual loss,

in amounts reflected on the tax documents (IRS Schedule K-1 to

Form    1065)     that     each     partnership         has   continued      to    deliver

annually    to    Valentine.         Sugar       Rock    billed     Valentine      for    his

share of the deficiencies, but he refused to remit payment.                                In

2001, Sugar Rock filed suit in state court against Valentine to

recover    the     costs        incurred   to     that     point;     the     action      was

dismissed in 2004 for failure to prosecute.

        The parties engaged in discovery in the district court,

after which Sugar Rock moved for summary judgment on the ground

that Valentine could produce no written instrument conveying him

ownership of the working interests in dispute.                           In support of

its     position,       Sugar     Rock   observed        at   the    outset       that,    in

accordance       with    West     Virginia   law,       the   creation      of    the    four

leaseholds transferred interests in real property.                          See J.A. 127

(citing Syl. Pt. 1, McCullough Oil, Inc. v. Rezek, 346 S.E.2d

                                             4
788 (W. Va. 1986)); cf. Miller v. Schwartz, 354 N.W.2d 685, 689

(N.D. 1984) (explaining that “[t]he interest acquired by the

lessee under an ordinary oil and gas lease is known as a working

interest     and     is     an    interest     in    real        property”      (citation     and

internal quotation marks omitted)).

         Next,    Sugar     Rock      advanced      the     uncontroversial          corollary

that any subsequent assignment by the lessee of a portion of its

working interest in an oil and gas lease similarly conveys an

interest     in     real     property.         See    J.A.        127   (citing      37   C.J.S.

Statute      of     Frauds        § 77   (2011));          see     also    Exxon     Corp.     v.

Breezevale         Ltd.,         82   S.W.3d        429,     436        (Tex.     App.    2002)

(instructing that, “[u]nder Texas law, a conveyance of a working

interest in oil and gas is a real property interest”); Fry v.

Farm Bureau Oil Co., 119 N.E.2d 749, 750 (Ill. 1954) (same,

applying         Illinois    law).        Given       that        the     working    interests

asserted by Valentine are real property interests, Sugar Rock

maintained that their purported transfer could only be effected

by   a    writing     contemplated         by       the    West     Virginia        Statute   of

Frauds:

         No estate of inheritance or freehold, or for a term of
         more than five years, in lands, or any other interest
         or term therein of any duration under which the whole
         or any part of the corpus of the estate may be taken,
         destroyed, or consumed, except for domestic use, shall
         be created or conveyed unless by deed or will.

                                                5
W. Va. Code § 36-1-1.          Thus, Sugar Rock reasoned, Valentine’s

want of proper documentation evidencing ownership of the working

interests in question doomed his claim.                    See J.A. 128 (citing

Arbaugh v. Raines, 184 S.E.2d 620, 623 (W. Va. 1971), which held

that    a   written     agreement      between    the      lessee      and     investors

conveying shares in a gas well enterprise and providing for the

distribution      of   proceeds     was    “neither        a    deed     nor    a    will”

transferring to the investors any interest in the minerals in

place).

       In   response,    Valentine        disavowed     the      “direct       ownership

interest in real estate” that might have been transferred via a

conforming    writing     indicating       the   conveyance         of    the       subject

working interests.        J.A. 307.        Valentine contended instead that

he possessed “an ownership interest in a partnership” arising

under operation of law, and thus an indirect ownership interest

in the four oil and gas leases.                Id.      The specific portion of

each    working    interest    to      which     he   is       entitled      need     not,

according    to   Valentine,      be   established       in     strict       conformance

with the Statute of Frauds, but can be proved by parol evidence

and by the parties’ course of conduct.

       A “mining partnership” of the sort Valentine posits, may be

formed “where tenants in common of mines or oil leases . . .

actually engage in working the same, and share, according to the

interest of each, the profit and loss.”                    Childers v. Neely, 34

                                           6
S.E. 828, 829 (W. Va. 1899) (citation and internal quotation

marks omitted).            In such instances, “the partnership relation

subsists . . . though there is no express agreement . . . to be

partners      or   to    share    profits      and    loss.”     Id.   (citation         and

internal      quotation      marks      omitted).         From     Childers    and       the

learned    legal        literature,     the    district    court     distilled       three

essential elements of a mining partnership:                      (1) co-ownership of

lands    or   leases      constituting        a   property     interest;      (2)   joint

operation thereof; and (3) sharing of profits and losses.                                See

J.A. 777; see also Drake v. O’Brien, 130 S.E. 276, 280 (W. Va.

1925) (confirming that “[a] mining partnership exists between

the tenants in common of a mine who work it together and divide

the profits in proportion to their several interests”).

       The district court, by its Memorandum Opinion and Order

(the    “Opinion”),        determined     that       Valentine’s     assertion      of    an

interest in the Sugar Rock mining partnerships failed at the

threshold,     in   that     he   had    not      satisfied    the   first    essential

element.      See Valentine v. Sugar Rock, Inc., No. 1:10-cv-00193,

2012 WL 4320850 (N.D. W. Va. Sept. 18, 2012).                           In Childers,

there was no dispute that the prospective partners each owned a

properly documented share of the subject property prior to joint

development of the minerals in place.                      By contrast, Valentine

was unable to produce a writing in conformance with the Statute

of   Frauds.        The     district      court       concluded,     therefore,      that

                                              7
Valentine could not properly evidence receipt of the disputed

working        interests,        which       in     turn        precluded           him     from

demonstrating the requisite ownership interest in any of the

subject leases.          See Opinion 13, 20-21.                 The court consequently

granted Sugar Rock’s motion and entered summary judgment on its

behalf.        Valentine timely appealed by notice filed on October

12,    2012.      We    possess        jurisdiction           over    Valentine’s         appeal

pursuant to 12 U.S.C. § 1291.

                                             B.

                                             1.

       During    the     pendency      of    this       appeal,       on    April    8,    2013,

Valentine filed a contested motion to supplement the record with

pleadings and additional materials filed in a putative class

action    in    state    court     against        the    defendants         herein    by    nine

other purported owners of working interests in the four mining

partnerships.          See Washburn v. Sugar Rock, Inc., No. 11-C-61

(Cir.    Ct.    Ritchie        Cnty.).       Valentine’s             motion   was     deferred

pending oral argument.

       In the meantime, by its memorandum Order of July 19, 2013

(the    “Washburn       Order”),       the   state       circuit       court    denied      the

defendants’       motions       for    judgment         on    the     pleadings      and     for

summary    judgment,       and    it     granted        the    plaintiffs’       motion      for

partial summary judgment.               In so ruling, the court declared that

the    plaintiffs       were    partners      in    the       mining       partnerships      and

                                              8
owned the claimed working interests, notwithstanding that such

assertions could not be corroborated by deed or will.                    Valentine

submitted    the   Washburn     Order        in   accordance     with    the   rule

permitting   us    to    be   notified       of   “pertinent     and    significant

authorities [that] come to a party’s attention” while the appeal

is yet pending.         See Fed. R. App. P. 28(j).               Inasmuch as the

state court materials previously offered for our consideration

will likely be useful in understanding the Washburn Order, we

are   satisfied    to   grant   Valentine’s        motion   to    supplement    the

record. 2

      In considering the motions before it, the circuit court

acknowledged that Childers requires each partner in a mining

      2
       The district court’s summary judgment order in favor of
Sugar Rock, entered in September 2012, concomitantly denied
Valentine’s motion to voluntarily dismiss his complaint without
prejudice, see Fed. R. Civ. P. 41(a)(2), so that he could join
the putative class action in Ritchie County. Valentine contends
on appeal that the court should have granted his dismissal
motion or, failing that, stayed further action — including
consideration of Sugar Rock’s motion for summary judgment — to
await developments in the state court proceedings.     We reject
Valentine’s assertions of error in this regard, and, with
respect to the dismissal issue, adopt the analysis set forth by
the district court in its unpublished Opinion. Our disposition
of the above-described aspect of Valentine’s appeal removes any
alternative basis to disturb the judgment below and leaves for
resolution solely the question that we certify today, thereby
ensuring that we do not ask the Supreme Court of Appeals of West
Virginia for an advisory opinion.    See State ex rel. Advance
Stores Co., Inc. v. Recht, 740 S.E.2d 59, 64 (W. Va. 2013)
(reinforcing Court’s determination that it “will not answer a
certified question if, in doing so, [it] would have to render a
non-controlling, advisory answer”).

                                         9
partnership        to    possess         an    ownership        interest        in   the    land   or

lease being exploited, but also observed the opinion’s silence

as    to    whether      such       an    interest       may     arise      and      be    evidenced

through some writing other than a deed or will, or, indeed,

through no writing at all.                      See Washburn Order 5 (recognizing

that Childers “does not say that the mines, leases, or lands of

a mining partnership must be titled in the name of each of the

individual         mining       partners”).               The     circuit         court     instead

regarded the Supreme Court’s post-Childers opinion in Lantz v.

Tumlin,      81    S.E.       820   (W.       Va.    1914),     as    more      helpful      to    its

analysis.

       In    Lantz,      one    of       two   participants          in    an     alleged     mining

partnership brought a bill in equity to dissolve the entity and

settle accounts.               The defendant demurred on the grounds that

there was no written partnership agreement and that only the

plaintiff’s name appeared on the property deed.                                       The Supreme

Court       of    Appeals      affirmed,            in   pertinent        part,      the    circuit

court’s entry of judgment in favor of the plaintiff, concluding

that the evidence left “no room for doubt” that the purported

partnership had in fact existed.                          Lantz, 81 S.E. at 820.                   The

evidence to which the Court referred consisted of interactions

and correspondence between the parties, buttressed by the use of

the    partnership        name       on       financial       records       and      on    contracts

undertaken.             See    id.       at    820-21.          The       Court      rejected      the

                                                    10
defendant’s        invocation     of    the    Statute         of    Frauds      in   defense,

instructing that “where persons engage in a joint enterprise for

profit,       by    associating    themselves            together          as   partners      or

otherwise, a relationship of trust and confidence is thereby

established, and that as between them in the conduct of the

joint    or    partnership      business       the       statute      of    frauds     has   no

application.”        Id. at 821 (citations omitted).

      Persuaded by Lantz, the Circuit Court of Ritchie County in

Washburn       denied    Sugar     Rock’s          motion      for       judgment     on     the

pleadings.         The circuit court perceived that the result in Lantz

was     consistent       with     West     Virginia         authorities           permitting

partnership real estate to be treated as personalty for purposes

of    implementing       equitable       remedies         such      as     dissolution       and

settlement.         See Washburn Order 8 (citing, inter alia, Brown v.

Gray, 70 S.E. 276, 277 (W. Va. 1911)).                           Further, according to

the   court,       the   plaintiffs      were       entitled        to     partial    summary

judgment      regarding    their       claims       to   the     working        interests     in

dispute.       The court ruled that — in the absence of any evidence

to the contrary — ownership had been sufficiently demonstrated

by the plaintiffs’ affidavits, appended with documents of record

establishing each partnership, detailing the various interests

therein, and subsequently assigning those interests.                              See id. at

10-12.     The affidavits additionally incorporated the Schedule K-

                                              11
1s that Sugar Rock had, from 1999 through 2011, delivered each

year to the plaintiffs.             See id. at 12.

                                              2.

       The   district        court      in    the     case     at    bar    was     likewise

presented     with     the        opportunity       to    consider       the   import    and

applicability         of     Lantz.          The    court    concluded         that    Lantz

supported     the     proposition        made       apparent    in       Childers     that    a

mining partnership may arise through words and by conduct.                               See

Opinion 21 (recognizing that “there is, manifestly, no dispute

that    a    written        partnership       agreement        is    not    required     for

individuals to form a common law mining partnership” (citation

omitted)).       According to the court, however, Lantz cannot be

interpreted      as    permitting,           in    derogation       of   the   Statute       of

Frauds, the conveyance of the property interest necessary to

form a mining partnership:                   “What is required, however, is an

interest in property, an interest which [Valentine] does not

purport to have.”           Id.

       True enough, Valentine abandoned all pretense that he had

been directly conveyed by deed or will any property interest in

the    leases;   he        maintained    that       his   working        interest     instead

derived indirectly from his proportional participation in the

partnership, which owns the leases.                       Though the district court

indicated that the absence of a preexisting property interest

documented by deed or will forecloses, ab initio, the creation

                                              12
of a “mining partnership,” it did not consider the possibility

that its chicken-or-the-egg conundrum might be avoided if West

Virginia      law   were      construed      to     recognize       a    “partnership        in

mining,” that is, the formation of an ordinary partnership that

happens     to    have   as    its       primary    purpose     the      exploitation        of

minerals.        Such an approach could help to explain the result in

Lantz, where a partnership was deemed to exist notwithstanding

that one of the partner’s names was nowhere to be found on the

subject lease.

       We     discern,        however,        another         rationale        potentially

supporting the Lantz decision.                   In that dispute, the real estate

owner   of    record     sued       to    hold     his   partner        —   whose    alleged

interest in the same real estate was undocumented — liable for

the indebtedness of the partnership.                     In order to prevail, then,

the plaintiff was constrained to stipulate to the defendant’s

property      interest.        A     stipulation,        as   the       Supreme     Court    of

Appeals has explained, “is a judicial admission.                            As such, it is

binding in every sense, preventing the party who makes it from

introducing evidence to dispute it, and relieving the opponent

from    the      necessity     of    producing        evidence      to      establish       the

admitted fact.”          Lawyer Disciplinary Bd. v. Morgan, 717 S.E.2d

898, 906 (W. Va. 2011) (citation and internal quotation marks

omitted).

                                             13
       Given the plaintiff’s admission in Lantz, consistent with

the entirety of the supporting evidence, it can hardly be said

that       relieving     the   defendant        therein   of        his     partnership

obligations for want of a conforming writing would have served

the purpose of the Statute of Frauds, which is “to prevent the

fraudulent enforcement of unmade contracts, not the legitimate

enforcement of contracts that were in fact made.”                            Hoover v.

Moran, 662 S.E.2d 711, 719 (W. Va. 2008) (citations and internal

quotation marks omitted); see also Timberlake v. Heflin, 379

S.E.2d 149, 153 (W. Va. 1989) (instructing that “a pleading in a

civil       case   may   satisfy     the     requirement       of     a     memorandum”

evidencing a contract for the sale or lease of land).

       In the matter before us, however, we face perhaps a more

typical situation, in that the plaintiff urges a declaration of

his ownership interest in realty not evidenced by deed or will,

such       declaration    being    vigorously      opposed     by     the     owner   of

record.         The    particular    facts      underlying     the        case   at   bar

persuade us that we may appropriately certify the question we

now confront. 3

       3
        Even if the difference in procedural posture that
potentially distinguishes this matter from Lantz is deemed to be
of no legal significance, our resort to the certification
process is nonetheless reasonable and appropriate.      In that
instance, the district court’s Opinion and the Washburn Order
entered by the Circuit Court of Ritchie County manifest
irreconcilable outcomes though both courts have sought to apply
(Continued)
                                           14
                                            II.

      In   light   of    the    foregoing,         we   identify      the   controlling

question of West Virginia law to be this:                    Whether the proponent

of his own working interest in a mineral lease may prove his

entitlement     thereto        and    enforce        his    rights     thereunder   by

demonstrating      his       inclusion      within      a   mining    partnership    or

partnership in mining, without resort to proof that the lease

interest has been conveyed to him by deed or will or otherwise

in    strict   conformance           with    the     Statute     of     Frauds.      We

acknowledge that the Supreme Court of Appeals of West Virginia

may reformulate the question.               All of the parties in this matter

are   represented       by    counsel,       whose      names   and    addresses    are

provided hereunder.

the same precepts of West Virginia law to the identical Ritchie
County properties. As our distinguished colleague Judge Widener
reminded us in Denny v. Seaboard Lacquer, Inc., 487 F.2d 485,
489 (4th Cir. 1973), the principles of federalism first
identified by the Supreme Court of the United States in Erie
Railroad Co. v. Tompkins, 304 U.S. 64 (1938), impose upon us the
duty   to  decide   diversity  actions   through   the  faithful
application of state law, as we discern it to the best of our
ability.   The parties before us on appeal, as well as the
additional, non-diverse plaintiffs involved in the Ritchie
County litigation, are each entitled to have the controlling
question of West Virginia law properly decided. In view of the
importance of the question and the significant likelihood that
it will recur as oil and gas exploration and development
continues on the upswing in West Virginia, we are of the opinion
that the state’s Supreme Court of Appeals ought to be afforded
the opportunity to resolve it.

                                            15
For the Plaintiff-Appellant:          For the Defendants-Appellees:

James Scott Hughes                    W. Henry Lawrence, IV
Daniel Patrick Corcoran               William James O’Brien
THEISEN BROCK, LPA                    STEPTOE & JOHNSON, PLLC
424 2nd Street                        400 White Oaks Boulevard
Marietta, OH 45750                    Bridgeport, WV 26330

                               III.

     Accordingly, pursuant to the privilege made available under

West Virginia law as described above, we hereby ORDER:     (1) that

the question set forth herein be certified to the Supreme Court

of Appeals of West Virginia for answer; (2) that the Clerk of

this Court transmit to the Supreme Court of Appeals of West

Virginia, under the official seal of this Court, a copy of this

Order of Certification; and (3) that the Clerk of this Court

forward in addition the original or copies of the record before

this Court, in all or in part, as requested by the Supreme Court

of Appeals of West Virginia, any and all such requests being

effective upon notification by ordinary means from the Clerk of

the Supreme Court of Appeals of West Virginia.

                                                  QUESTION CERTIFIED

                                16