Court Opinion

ID: 4566525
Source: CourtListenerOpinion
Date Created: 2020-09-17 21:02:47.424192+00
Date Added: 2024-06-11T12:49:40.997308
License: Public Domain

The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.

                                                                 SUMMARY
                                                         September 17, 2020

                               2020COA139

No. 19CA0661, Hess v. Hobart — Real Property — Mineral
Estates

     A division of the court of appeals considers whether a

reservation of “a life estate in all mineral rights” in a deed and

purchase contract is ambiguous, and what rights are conferred by

the plain language.

     The division concludes the phrase “a life estate in all mineral

rights” is unambiguous and confers on the life tenant all mineral

rights that may be associated with the minerals, including the

power to enter oil and gas leases without consent of the

remaindermen and to retain all income from those leases.

     The division also concludes that the common law open mines

doctrine and the Uniform Principal and Income Act of 1955,

sections 15-1-451 to -467, C.R.S. 2019, do not apply in this case to
adjust the division of income payments that may be gained from the

minerals, such as income from an oil and gas lease, between the life

tenant and remaindermen.
COLORADO COURT OF APPEALS                                         2020COA139

Court of Appeals No. 19CA0661
Weld County District Court No. 18CV30978
Honorable Marcelo A. Kopcow, Judge

Troy Hess and Shana Hess,

Plaintiffs-Appellants,

v.

Judith Ann Hobart,

Defendant-Appellee.

                              ORDER AFFIRMED

                                   Division I
                         Opinion by JUDGE TAUBMAN*
                         Johnson and Vogt*, JJ., concur

                         Announced September 17, 2020

Chipman Glasser, LLC, Rin Karns, Denver, Colorado; McDonough Law, LLC,
Crystal McDonough, Loveland, Colorado; D. Scott Slawson, Timnath, Colorado,
for Plaintiffs-Appellants

Peters Schulte Odil & Wallshein, LLC, Jennifer L. Peters, Nathaniel Wallshein,
Greeley, Colorado, for Defendant-Appellee

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3) and § 24-51-1105, C.R.S. 2019.
¶1    In this dispute concerning the reservation of a life estate in “all

 mineral rights” in a deed and contract, plaintiffs, Troy and Shana

 Hess (the Hesses), appeal the district court’s judgment dismissing

 their complaint against defendant, Judith Ann Hobart.

¶2    Because we conclude that the purchase contract and the deed

 unambiguously reserved a life estate in all mineral rights to Hobart,

 including the power to enter into oil and gas leases without the

 consent of the Hesses and to retain all the income from those

 leases, we affirm the dismissal of the Hesses’ action.

                            I.    Background

¶3    This dispute involves mineral interests in Weld County. On

 February 17, 2005, the Hesses entered into a contract with Hobart

 to buy and sell real estate, pursuant to which the Hesses purchased

 160 acres of vacant land from Hobart. The contract contained a

 provision that “[s]eller [Hobart] reserve[d] a life estate in all mineral

 rights on the property including, but not limited to all oil, gas,

 hydrocarbons, and any other minerals.” On February 25, 2005,

 Hobart conveyed the land to the Hesses by warranty deed. The

 deed contained a reservation clause, which stated, as relevant here,

 “except grantor [Hobart] reserves a life estate in all mineral rights

                                     1
 on the property including but not limited to all oil, gas,

 hydrocarbons and any other minerals.”

¶4       Following the sale, the Hesses alleged the following in their

 amended complaint: (1) Hobart had entered into three oil and gas

 leases and was negotiating a fourth; (2) in 2010, Hobart signed a

 lease with Hoover & Stacy, Inc.1; (3) on September 20, 2010, the

 Hesses signed a letter ratifying the Hoover & Stacy lease,2 having

 been advised by Hoover & Stacy that the Hesses were not entitled to

 any income from the lease; (4) in 2014, Hobart signed a lease with

 Extraction Oil and Gas, LLC; (5) in 2018, Hobart signed a lease with

 Bur Oak Oil and Gas, LLC; (6) the Hesses did not ratify the last two

 leases, alleging they were unaware of the leases and did not

 negotiate or agree to the leases’ terms; and (7) in 2018, the Hesses

 became aware that Hobart was negotiating a fourth lease with Edge

 Energy, LLC.

¶5       In May 2017, the Hesses had a “chance conversation with a

 landman in the Weld County Clerk and Recorder’s Office,” where

 1 Hoover & Stacy, Inc. is a land company that deals with oil and gas
 leases.

 2   The ratification letter is not in the record on appeal.

                                       2
 they learned they might possess rights to income and bonuses as

 remaindermen of Hobart’s life estate in the minerals.

¶6    As a result, in October 2018, the Hesses brought multiple

 claims against Hobart: (1) declaratory judgment to clarify their

 property ownership rights; (2) declaratory judgment to clarify their

 rights in the Bur Oak lease; (3) breach of fiduciary duty in violation

 of the Uniform Principal and Income Act of 1955 (UPIA), sections

 15-1-451 to -467, C.R.S. 2019; (4) conversion; (5) civil theft; (6)

 fraud; (7) negligence; (8) breach of contract; (9) breach of fiduciary

 duty (constructive trust); and (10) accounting.

¶7    The district court granted Hobart’s motion to dismiss the

 Hesses’ amended complaint under C.R.C.P. 12(b)(5). In a thorough,

 well-reasoned opinion, the district court found the deed

 unambiguously conveyed a life estate in the mineral interests to

 Hobart:

            Defendant [Hobart] reserved “all mineral
            rights”. . . . This is expansive language that
            conveys neither limitation nor surrender of
            rights in the mineral interest.

            ....

            [T]he provisions contain no ambiguity. Again,
            [Hobart] reserved “all mineral rights,” which

                                    3
              includes the right to explore, drill, and enter
              leases to develop the Property’s minerals.
              There is no question of whether . . . oil and gas
              are minerals, whether development is a
              mineral right, or whether “all” means less than
              all. Although the reservation’s brevity may
              have come at the expense of some litigation, it
              was clear, nonetheless.

 The district court further held, based on the language of the deed,

 that Hobart was not required to seek the Hesses’ consent prior to

 entering into any oil and gas leases and could dispose of the

 mineral interests as she saw fit.

        II.     Interpretation of the Phrase “All Mineral Rights”

¶8    On appeal, the Hesses contend the district court erred in

 dismissing the complaint because it ignored their rights under

 various principles of oil and gas law. They argue, for example, that

 the UPIA and the open mines doctrine give them a cause of action

 against Hobart for “wasting” the life estate’s corpus without

 permission, absent an explicit agreement to the contrary.3

 3“Waste is injury to the reversionary interest in land caused by the
 wrongful act of one lawfully in possession.” In re Estate of Downing,
 461 S.W.3d 231, 240 (Tex. App. 2015); see also Fed. Deposit Ins.
 Corp. v. Mars, 821 P.2d 826, 831 (Colo. App. 1991).

                                      4
¶9      Hobart responds that the phrase “a life estate in all mineral

  rights” is unambiguous that the UPIA does not apply because it

  addresses only situations arising in the trusts and estates context,

  not the deed or contract between the parties here; and that the

  open mines doctrine does not override the parties’ agreements in

  the deed and the contract for purchase and sale.4

¶ 10    As explained below, we conclude that the phrase “a life estate

  in all mineral rights” unambiguously conveys a life estate in exactly

  that to Hobart, and that the broad language does not contemplate

  any surrender of those rights to the Hesses, or any sharing of

  income with the Hesses that Hobart receives from minerals during

  her life.

                         A.   Standard of Review

¶ 11    We review de novo a trial court’s ruling on a C.R.C.P. 12(b)(5)

  motion to dismiss for failure to state a claim. Bewley v. Semler,

  2018 CO 79, ¶ 14, 432 P.3d 582, 586. In doing so, we accept all

  factual allegations in the complaint as true, viewing them in a light

  4Because it was not raised by the parties, we need not address
  whether the purchase contract terms merged into the warranty
  deed. See Feit v. Donahue, 826 P.2d 407, 412 (Colo. App. 1992).

                                     5
  most favorable to the plaintiff. Id. Similarly, we accept as true

  factual allegations set forth in documents attached to or referenced

  by the complaint. Prospect Dev. Co., Inc. v. Holland & Knight, LLP,

  2018 COA 107, ¶ 11, 433 P.3d 146, 149. To survive a motion to

  dismiss for failure to state a claim, a plaintiff must state a claim for

  relief that is plausible (not speculative) on its face. See, e.g., Gandy

  v. Williams, 2019 COA 118, ¶ 22, 461 P.3d 575, 582-83; see also

  Warne v. Hall, 2016 CO 50, ¶ 24, 373 P.3d 588, 595.

                           B.    Applicable Law

¶ 12   We review de novo the interpretation of both a deed, Owens v.

  Tergeson, 2015 COA 164, ¶ 17, 363 P.3d 826, 830, and the

  interpretation of a contract, Klun v. Klun, 2019 CO 46, ¶ 18, 442
P.3d 88, 92 (citing Ad Two, Inc. v. City & Cty. of Denver ex rel.

  Manager of Aviation, 9 P.3d 373, 376 (Colo. 2000)).

¶ 13   There are several considerations when interpreting a contract:

  (1) a court’s primary goal is to determine and give effect to the

  parties’ intent; (2) if possible, that intent is to be determined from

  the language of the contract itself; (3) if the language of the contract

  is unambiguous, it will be deemed to express the intent of the

  parties; and (4) the contract’s plain meaning will be enforced as

                                     6
  written. See Klun, ¶ 18, 442 P.3d at 92. Extrinsic evidence may be

  used to review the surrounding circumstances and to determine

  whether an ambiguity exists in a contract, just as with a deed. See

  Ad Two, 9 P.3d at 381.

¶ 14   Like contracts, deeds are generally construed in accordance

  with the general rules of construction of written instruments.

  Owens, ¶ 15, 363 P.3d at 830. Thus, if a deed is unambiguous, its

  terms must be enforced as written. Id.

¶ 15   In determining whether an ambiguity exists in the first

  instance, we examine the instrument’s language, giving the words

  employed their plain and generally accepted meanings. Meyerstein

  v. City of Aspen, 282 P.3d 456, 468 (Colo. App. 2011).

¶ 16   A life estate can be created by valid deed, contract, or lease.

  Moss v. Moss, 175 P.3d 971, 974 (Okla. Civ. App. 2007); see also

  § 38-30-101, C.R.S. 2019 (allowing any person entitled to hold real

  estate to be authorized to convey it “by deed”); Kendall v. Wiles, 483
P.2d 388, 389 (Colo. App. 1971) (not published pursuant to C.A.R.

  35(f)) (“A life estate may be created by a present conveyance to the

  grantee, reserving to the grantor a life estate. The reservation

  should appear in the deed as an exclusion . . . .”) (emphasis added).

                                    7
  No particular words are necessary to create a life estate because

  courts look to the intentions of the parties to the deed. See 31

  C.J.S. Estates § 38, Westlaw (database updated June 2020); see

  also Keith v. Kinney, 140 P.3d 141, 146 (Colo. App. 2005) (“Our

  paramount purpose in construing any deed is to ascertain the

  parties’ intent.”).

¶ 17   In conveyances of real property, it is common for a property

  owner to sever and separately convey the minerals from the surface,

  creating separate and distinct estates. See Notch Mountain, 898
P.2d at 556. A life estate is an acceptable means to convey a

  mineral interest. See Keller Cattle Co. v. Allison, 55 P.3d 257, 262

  (Colo. App. 2002) (“The duration of a mineral interest is like that of

  common law estates, namely, in fee simple, in fee simple

  determinable, for life, or for a fixed term of years.”).

                               C.    Analysis

¶ 18   We conclude that the plain language in the deed and contract

  unambiguously reserved a life estate in “all mineral rights” to

  Hobart, meaning that Hobart has the right to produce the minerals

  without consent of the Hesses and to retain all income from them.

                                      8
¶ 19   The plain language of the deed and contract is unambiguous.

  As noted by the district court, “there is no question” as to “whether

  ‘all’ means less than all.” “All” is an unambiguous term. See City of

  Grand Junction v. Ute Water Conservancy Dist., 900 P.2d 81, 91

  (Colo. 1995); see also Hudgeons v. Tenneco Oil Co., 796 P.2d 21, 23

  (Colo. App. 1990) (“‘All’ is an unambiguous term and means the

  whole of, the whole number or sum of, or every member or

  individual component of, and is synonymous with ‘every’ and

  ‘each.’”). Therefore, whatever mineral rights pertained to Hobart’s

  reservation of a life estate, all of them are available to Hobart.

¶ 20   Unfortunately for the Hesses, “all” rights include “the right to

  enter the land to explore, drill, produce, and otherwise carry on

  mining activities,” as stated in Keller Cattle Co., 55 P.3d at 262.

  The Hesses argue that Hobart’s right to carry on mining activities is

  modified by her reservation of a life estate. However, while a life

  estate indeed limits her rights to her lifetime, during that lifetime

  she possesses “all mineral rights.” See Moeller, ¶ 16, ___ P.3d at ___

  (“A conveyance of real property, which is generally defined and

  designated in the deed’s granting clause, passes all title to the land

  and the underlying mineral deposits, except those interests explicitly

                                      9
  held back.” (citing O’Brien v. Vill. Land Co., 794 P.2d 246, 249-51

  (Colo. 1990))) (emphasis added).

¶ 21   In light of our conclusion that the language here is

  unambiguous, we need not engage in further examination of the

  surrounding circumstances. See Lazy Dog, 965 P.2d at 1236.

¶ 22   The Hesses contend that, notwithstanding the unambiguous

  language in the deed and contract, because an explicit agreement

  as to division of income from the produced minerals was never

  made, the open mines doctrine and Colorado’s UPIA “fill in” the

  gaps in the deed. However, based on our holding that the plain

  language is unambiguous, we necessarily reject the Hesses’

  arguments concerning the open mines doctrine, the UPIA, the

  general practice of dividing rights between a life tenant and

  remaindermen, and that an agreement was never made. We

  disagree with the Hesses for four reasons.

¶ 23   First, the common law open mines doctrine dictates that

  “when a [mineral] lease is in existence at the time the life estate is

  created, the life tenant and the remainderman take the property in

  the condition that existed at the time of the creation of the estate”

  (i.e., “[t]he life tenant is entitled to the royalties from the lands

                                      10
  during his or her life time”). Angela L. Franklin & David B. Hatch,

  Dotting Your I’s and Crossing Your T’s: Ensuring Proper Payment and

  Execution, 3 Rocky Mountain Min. L. Inst. 3, 3-22 (2018); see also

  Welborn v. Tidewater Associated Oil Co., 217 F.2d 509, 511-12

  (10th Cir. 1954); Reese v. Reese-Young, 938 N.W.2d 405, 411-12

  (N.D. 2020) (adopting the open mines doctrine by statute and

  discussing its existence in other jurisdictions). The Hesses

  maintain that the converse of the open mines doctrine applies here

  — that because no leases existed when Hobart reserved her life

  estate, she was not entitled to any income from mineral leases

  entered after the life estate was created.

¶ 24   However, the open mines doctrine applies only when a lease is

  created before the creation of the life estate, a factual situation that

  indisputably does not exist here.

¶ 25   Second, the Hesses argue that the UPIA applies because the

  UPIA contemplates divisions of income payments between life

  tenants and remaindermen regarding mineral production. We

  disagree. Rather, we agree with the district court that the UPIA

  applies only in the context of wills, trusts, and estates. We note in

  this regard that the UPIA is in title 15, which deals with those

                                      11
  subjects, not in title 38, which addresses principles of real property

  law. Significantly, the Hesses have not cited any authority to the

  contrary.

¶ 26   Third, we are not persuaded by the Hesses’ contention that the

  general rule of dividing rights and income between a life tenant and

  remaindermen applies here.

¶ 27   While contracting parties commonly divide rights between the

  life tenant and the remaindermen, that was not done here. As one

  commentator has noted, “[b]y far the simplest solution to this

  problem is to obtain a stipulation from the holders of the present

  and future estates setting forth with clarity the manner in which

  these payments are to be divided.” 1B Stephen A. Hess, Colorado

  Practice Series: Methods of Practice § 11:2, Westlaw (7th ed.

  database updated June 2020); see also Hobson v. Cimarex Energy

  Co., 453 P.3d 482, 485 (Okla. 2019) (Kauger, J., specially

  concurring) (acknowledging “that grantors can avoid this problem

  by ensuring the document creating the life estate restricts the part

  of the remainderman. . . . The person conveying the life estate has

  great discretion in any conditions [he or she] wish[es] to

  attach . . .”). Because the parties here did not agree to a division of

                                    12
  mineral rights, the general practice is irrelevant. Instead, we

  enforce the contract according to its plain language.

¶ 28   Finally, the Hesses contend that each oil and gas lease made

  subsequent to the deed, except for the one they ratified, was made

  without their permission, and because there was no agreement to

  that effect, the Hesses are entitled to obtain damages for waste.

  Again, we disagree.

¶ 29   When a life estate is created, it is incumbent upon the life

  tenant to avoid wasting the estate’s corpus to the detriment of the

  remaindermen. See, e.g., Fed. Deposit Ins. Corp. v. Mars, 821 P.2d
826, 831 (Colo. App. 1991). Waste originally “referred to any

  unauthorized destruction or severance of improvements, trees,

  minerals, or other corporeal hereditaments on or from the land.” Id.

  The concept has evolved into a legal means by which any

  concurrent nonpossessory holder of an interest in land may prevent

  or restrain harm to land by the party in possession, such as in a life

  tenant and remainderman relationship, as here. See id.

¶ 30   Thus, as a rule, the life tenant must not waste the mineral

  interests to prevent the remaindermen from also enjoying the

                                    13
  mineral interests when they come into possession. Id.; see also In

  re Estate of Downing, 461 S.W.3d 231, 240 (Tex. App. 2015).

¶ 31   However, especially in the oil and gas context, life tenants and

  remaindermen often agree to alter the rule. For example, “[a] life

  tenant and the remainderman may lease the land by a joint lease[,]

  and they may agree as to the division of the rents and royalties.”

  Welborn, 217 F.2d at 510 (footnote omitted). “In the absence of

  such an agreement, the life tenant is not entitled to any part of the

  royalties, but is entitled only to the income from such royalties.” Id.

  Here, however, there was no agreement that “all mineral rights”

  would mean something less than all.

                      III.   C.R.C.P. 12(b)(5) Motion

¶ 32   All ten causes of actions brought by the Hesses rest entirely on

  their contention that no explicit agreement was made as to division

  of income from the mineral production reserved in Hobart’s life

  estate. However, as we have concluded, the deed and contract

  unambiguously give Hobart unfettered rights concerning the

  minerals during her life tenancy. Therefore, the district court

  properly dismissed the Hesses’ claims.

                                     14
¶ 33   For the Hesses’ first and second claims of declaratory

  judgment regarding their ownership in the mineral interests, they

  do not have any rights that may be exercised until the life estate

  ends and they come into possession, because “all mineral rights”

  belong to Hobart for the duration of her life.5

¶ 34   Next, Hobart cannot be acting illegally if she has full rights to

  produce the minerals during her lifetime. Therefore, she could not

  be in breach of any fiduciary duty under the UPIA (even if it

  applied); and she cannot be liable for conversion, theft, fraud,

  negligence, breach of contract, breach of fiduciary duty requiring a

  constructive trust, or an accounting.

¶ 35   As a matter of law, there are no plausible claims here, and the

  district court therefore did not err by dismissing the Hesses’ claims

  under C.R.C.P. 12(b)(5).

  5 Other courts in Colorado have held that when the court rules
  against the plaintiff in a declaratory judgment action, the court
  should enter a declaratory judgment rather than sustain a motion
  to dismiss. See, e.g., Karsh v. City & Cty. of Denver, 176 Colo. 406,
  409-10, 490 P.2d 936, 938 (1971); Martinez v. Colo. Dep’t of Human
  Servs., 97 P.3d 152, 156 (Colo. App. 2003). However, we need not
  decide whether the district court should have done so here, as the
  result of entering a declaratory judgment would have been the same
  as dismissal of the Hobarts’ claim.

                                    15
                 IV.   Appellate Attorney Fees and Costs

¶ 36   As a final matter, Hobart requests appellate attorney fees,

  primarily because the contract signed by the parties contains a

  provision awarding costs and attorney fees to the prevailing party.

  Section 18(c) of the contract states, “[i]n the event of any arbitration

  or litigation relating to the contract, the arbitrator or court shall

  award to the prevailing party all reasonable costs and expenses,

  including attorney fees.” The Hesses do not dispute the contract’s

  provision, stating only that the applicability of this provision

  depends on the outcome of this appeal.

¶ 37   Hobart further urges us to grant an award of attorney fees and

  costs under section 13-17-201, C.R.S. 2019, for a successful

  defense against a tort action, and under section 13-17-102, C.R.S.

  2019, for the Hesses’ claim having lacked substantial justification.

¶ 38   We need not determine whether Hobart is entitled to attorney

  fees and costs under either statute because Hobart is entitled to

  reasonable appellate attorney fees and costs by virtue of the parties’

  contract.

                                     16
                            V.    Conclusion

¶ 39   The district court’s judgment of dismissal under C.R.C.P.

  12(b)(5) is affirmed, and the case is remanded to the district court

  to determine the amount of Hobart’s reasonable appellate attorney

  fees on appeal.

       JUDGE JOHNSON and JUDGE VOGT concur.

                                    17