M.C. & E.K. Lees, Inc. v. Capenos

• Decision Date: 02 July 2015
• Docket Number: 976 C.D. 2014,Nos. 809 C.D. 2014,s. 809 C.D. 2014
• Citation: 119 A.3d 1092
• Parties: M.C. AND E.K. LEES, INC., a Pennsylvania Corporation v. W.R. CAPENOS, a/k/a Warren Capenos, an individual, and Tax Claim Bureau of The County of Butler, a governmental entity. Appeal of: W.R. Capenos, a/k/a Warren Capenos.
• Court: Pennsylvania Commonwealth Court

119 A.3d 1092

M.C. AND E.K. LEES, INC., a Pennsylvania Corporation

v. W.R. CAPENOS, a/k/a Warren Capenos, an individual, and Tax Claim Bureau of The County of Butler, a governmental entity.Appeal of: W.R. Capenos, a/k/a Warren Capenos.

Nos. 809 C.D. 2014

976 C.D. 2014

Commonwealth Court of Pennsylvania.

Argued April 13, 2015.

Decided July 2, 2015.

Alex J. Baumler, Cranberry Township, for appellant Tax Claim Bureau of The County of Butler.

Lawrence P. Lutz, Butler, for appellant W.R. Capenos.

Ronald W. Coyer and Amy E. Molloy, Slippery Rock, for appellee M.C. and E.K. Lees, Inc.

BEFORE: BERNARD L. McGINLEY, Judge, and PATRICIA A. McCULLOUGH, Judge, and ROCHELLE S. FRIEDMAN, Senior Judge.

Opinion

OPINION BY Judge BERNARD L. McGINLEY.

In these consolidated actions¹ Butler County Tax Claim Bureau (Tax Claim Bureau) and judicial tax sale purchaser, Warren Capenos (Capenos) (collectively “Appellants”), appeal directly from the Findings of Fact, Conclusions of Law and Verdict entered by the Court of Common Pleas of Butler County (trial court) in favor of M.C. and E.K. Lees, Inc. (Appellee).

Appellee has filed a Motion to Quash Appellants' appeals on the grounds that they failed to file post-trial motions pursuant to Pennsylvania Rule of Civil Procedure No. 227.1(c). In the alternative, Appellee argues that the Tax Claim Bureau's appeal from the entry of judgment pursuant to Rule 903(a) of the Pennsylvania Rules of Appellate Procedure was untimely.

Factual Background

The property at issue consists of 122 acres in Butler County and the fee is divided (Property). In 1941, the title to the oil and gas rights beneath the Property was severed from the surface and mineral rights by Deed wherein Earl H. Morris and Kelsie Morris, husband and wife, conveyed what is now known as Parcel No. 220–3F96–33–0000, to A.L. Starcher and C.B. Starcher, husband and wife, “reserving to the grantor, the said Earl H. Morris, his heirs, and assigns, all the oil and gas underlying the within described property, together with the right to use such portions of said land as may be required to operate for oil and gas.” Deed at 1; Reproduced Record (R.R.) at 101a. In 1948, Earl H. Morris conveyed what is now known as Parcel No. 220–3F96–34–0000, to Porter McCandless, “Excepting and Reserving therefrom, to the said Earl H. Morris, his heirs and assigns all the oil and gas underlying the above described property.” Deed at 1; R.R. at 35a.

Upon the death of Earl H. Morris, Kelsie Morris devised her oil and gas interests to her stepson, William L. Morris (Morris).

In the meantime, in 1968, the surface rights in the Property came to belong to the “Lees” family.²

The oil and gas interests were separately assessed by the Butler County Tax Assessment Office. Morris received tax bills for his oil and gas interests. However, he never paid taxes on his oil and gas interests pursuant to the provisions of the Real Estate Tax Sale Law (RETSL).³

The September 8, 1997, Tax Upset Sale did not result in a sale.

One year later, on September 2, 1998, the Tax Claim Bureau filed a Petition for a Judicial Sale free and clear of all liens. Morris was personally served at his residence by the Sheriff with a Rule to Show Cause why the oil and gas interests beneath the Property should not be sold. Morris did not attend or raise any objection at the hearing on the Rule.

A Judicial Tax Sale was held on December 23, 1998. Appellant Capenos purchased the oil and gas rights beneath the Property. By Deed dated December 23, 1998, the Tax Claim Bureau conveyed to Capenos the severed oil and gas interests beneath Parcel No. 220–3F96–33–0000 and Parcel No. 220–3F96–34–0000. Capenos then executed an Oil and Gas Lease with Shell/SWEPI, LP for the oil and gas rights beneath the Property (“Lease”). The Lease was recorded.

On January 1, 1999, Morris received and signed redemption notices regarding the December 23, 1998, Judicial Sale.

The two Deeds transferring title to the oil and gas interests beneath the Property to Appellant Capenos were recorded on December 23, 1998, and May 17, 1999.

Morris took no further action for thirteen years, until June 5, 2012, when he was approached by Earl K. Lees (Lees), the majority shareholder of Appellee. Morris executed a Quit Claim Deed purporting to convey his oil and gas interests to Appellee for $1.

On July 24, 2012, Appellee filed a Complaint against Capenos and the Tax Claim Bureau (Appellants) seeking to “quiet title,” set aside the Deeds from the Tax Claim Bureau to Appellant Capenos, a declaration that Appellee was the true owner of the oil and gas interests beneath the Property, a declaration that the Lease was invalid, as well as causes of action in trespass, conversion and nuisance. Appellee also sought a declaration that the ad valorem tax on Morris's oil and gas interests was unconstitutional under Independent Oil and Gas Association of Pennsylvania v. Board of Assessment Appeals, 572 Pa. 240, 814 A.2d 180 (2002). Complaint; R.R. at 3a–28a.

Appellants filed an Answer and New Matter to the Complaint. Appellants also filed a Motion for Summary Judgment based on the statute of limitations which was denied by the trial court. The parties conducted discovery and depositions.

A two-day non-jury trial was held on March 26 and 27, 2014.

At trial, Appellee attempted to demonstrate that its predecessor-in-interest, Morris, was never divested of his interests based upon the improperly conducted Upset Tax Sale on September 8, 1997, which violated Morris's due process rights. Appellee argued that when Morris conveyed his oil and gas interests to Appellee by Deed dated June 5, 2012, and recorded June 7, 2012, Appellee became the rightful owner of the oil and gas interests beneath the Property.

Appellee presented the testimony of Morris who testified that he received the tax bills but made the decision, for financial reasons, not to pay the bills. Notes of Testimony, March 26, 2014, (N.T. 3/26/14), 42; R.R. at 954a. Morris knew that if he failed to pay the tax bills that his oil and gas interests would be sold at a tax sale. N.T. 3/26/14 at 43; R.R. at 955a. Morris did not recall receiving notice of the Upset Tax Sale. Morris admitted that he was personally served by the Sheriff with Notice of the Judicial Sale. Morris knew afterwards that a Sheriff's sale had taken place. N.T. 3/26/14 at 51; R.R. at 963a. He received the Redemption Notice and took no action until 2012 when he was contacted by Lees on behalf of Appellee. Id. Lees asked Morris to enter into an agreement whereby Morris would relinquish any rights he had in the oil and gas beneath the Property in exchange for thirty-percent of the proceeds of the gas lease that Lees recently entered into with Shell Western E & P Inc. also known as “SWEPI.”

Lees testified that Appellee was an S corporation; fifty-one percent of which was owned by Lees, and the other forty-nine percent was owned by his daughter. N.T. 3/26/14 at 60; R.R. at 972a. Lees testified that Appellee owned the surface and mineral rights of the Property on which it operated a nine-hole golf course. In 2011, Lees became concerned about “unconventional horizontal drilling” and the impacts it could have on the surface rights of the Property. Lees contacted Capenos, the judicial sale purchaser, who informed Lees that he intended to lease the gas rights. Lees “got mad” after he talked to Capenos and contacted Butler County Commissioner, William McCarrier. N.T. 3/26/14 at 71. Lees learned from McCarrier that something was “wrong” with the sheriff's sale and that was when Lees contacted Morris. Appellee and Morris executed a Quit Claim Deed on June 5, 2012, whereby Morris purported to transfer his oil and gas rights under the Property to Appellee. Quit Claim Deed, June 5, 2012, at 1, R.R. at 1337a.

The Tax Claim Bureau's position was that it complied with all statutory notice requirements for the September 8, 1997, Upset Tax Sale and title to the oil and gas rights rightfully vested in Appellant Capenos.

The Tax Claim Bureau produced copies of the publications in the Butler County Legal Journal and the publication notice in a Butler County newspaper of general circulation. However, no other records related to notice could be produced as evidence that proper mailing was sent to Morris or that both parcels of the Property were properly posted.⁴

The Director of the Tax Claim Bureau, Edward Rupert (Rupert), explained that some records pertaining to the Upset Tax Sale were discarded by a Bureau employee in August of 2003, who was reorganizing and purging Rupert's files while Rupert was on vacation. N.T. 3/26/14 at 105–106; R.R. at 1017a–1018a.

Rupert believed that copies of some, but not all, missing documents were available in the files kept by the Butler County Prothonotary. Two documents that were not available in the Prothonotary's files were: (1) the actual signed green restricted delivery return receipt card (because there were simply too many of these to file with the Prothonotary) or the entire mailing piece if it came back unclaimed; and (2) the Affidavit of Posting (which does not get filed).

Counsel for Capenos requested a recess to review and make copies of documents in the Prothonotary's files. Counsel for all parties reviewed and selected records for copying. The docket entries for the 1997 Upset Tax Sale and the actual publication from the Butler Eagle were copied and marked as Exhibit A. Exhibit B contained the same information for the 1998 Judicial Sale.

When the trial resumed on March 27, 2014, Appellee objected to the admission of Exhibits A and B on the grounds that admission of this evidence would be prejudicial because it was not identified in discovery. The trial court sustained Appellee's objection and Capenos was foreclosed from introducing into evidence the documents to support the Bureau's position that the statutory notice requirements were met. However, the trial court took judicial notice of two Orders signed by Judge O'Brien dated September 25,...