Butler v. Charles Powers Estate

• Decision Date: 24 April 2013
• Citation: 65 A.3d 885
• Parties: John E. BUTLER and Mary Josephine Butler, Appellants v. CHARLES POWERS ESTATE, By Charles A. WARREN, Administrator of the Estate of Charles Powers, and Charles Powers, individually, his Heirs (William Pritchard and Craig L. Pritchard) and Assigns Generally, Executors, Administrators, Legatees, Grantees, and All Other Persons Claiming By or Through the Said Parties and All Other Persons Interested in Said Property, Appellees.
• Court: Pennsylvania Supreme Court

65 A.3d 885

John E. BUTLER and Mary Josephine Butler, Appellants

v.CHARLES POWERS ESTATE, By Charles A. WARREN, Administrator of the Estate of Charles Powers, and Charles Powers, individually, his Heirs (William Pritchard and Craig L. Pritchard) and Assigns Generally, Executors, Administrators, Legatees, Grantees, and All Other Persons Claiming By or Through the Said Parties and All Other Persons Interested in Said Property, Appellees.

Supreme Court of Pennsylvania.

Argued Oct. 16, 2012.

Decided April 24, 2013.

Gregory James Krock, Buchanan Ingersoll & Rooney, P.C., Pittsburgh, Thomas Francis Meagher III, Montrose, for Appellant.

George A. Bibikos, David R. Fine, K & L Gates, L.L.P., Harrisburg, for Chief Oil & Gas LLC and Southwestern Energy Production Company, Appellant Amicus Curiae.

Karen Colleen Daly, Michael Lee Kichline, William T. McEnroe, Dechert, LLP, Philadelphia, Argia Joanna DiMarco, Philadelphia, for Marcellus Shale Coalition, Appellant Amicus Curiae.

Nathaniel Isaac Holland, Russell Lane Schetroma, Steptoe & Johnson, PLLC, Meadville, for American Association of Professional Landmen, Appellant Amicus Curiae.

Kevin Jon Moody, for Pennsylvania Independent Oil & Gas Association and The American Petroleum Institute, Appellant Amicus Curiae.

Laurence M. Kelly, Montrose, for Appellee.

Before: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION

Justice BAER.

We granted allowance of appeal to consider whether a deed executed in 1881, which reserved to the grantor the subsurface and removal rights of “one-half [of] the minerals and Petroleum Oils” contained beneath the subject property, includes within the reservation any natural gas contained within the shale formation beneath the subject land known as the Marcellus Shale Formation.¹ The trial court in this matter, relying on the 1882 decision of this Court in Dunham & Shortt v. Kirkpatrick, 101 Pa. 36 (Pa.1882), and its progeny held that because the deed reservation did not specifically reference natural gas, any natural gas found within the Marcellus Shale beneath the subject land was not intended by the executing parties to the deed to be encompassed within the reservation. The Superior Court reversed that decision and remanded the case with instructions to the trial court to hold an evidentiary hearing complete with expert, scientific testimony to examine whether: (1) the gas contained within the Marcellus Shale is “conventional natural gas”; (2) Marcellus shale is a “mineral”; and (3) the entity that owns the rights to the shale found beneath the property also owns the rights to the gas contained within that shale. See Butler v. Charles Powers Estate, 29 A.3d 35, 43 (Pa.Super.2011). For the reasons that follow, we respectfully hold that the Superior Court erred in ordering the remand for an evidentiary hearing and reinstate the order of the trial court.

I.

Appellants in this matter, John and Mary Josephine Butler, own 244 acres of land in Susquehanna County. Appellants' predecessors in title obtained the land in fee simple by deed in 1881 from Charles Powers. The deed contained the following reservation:

[O]ne-half the minerals and Petroleum Oils to said Charles Powers his heirs and assigns forever together with all and singular the buildings, water courses, ways, waters, water courses, rights, liberties, privileges, hereditaments, and appurtenances, whatsoever there unto belonging or in any wise appertaining and the reversions and remainders rents issues and profits thereof; And also all the estate right, title interest property claimed and demand whatsoever there unto belonging or in any wise appertaining in law equity or otherwise however of in to or out of the same.

Id. at 37.

On July 20, 2009, Appellants filed a complaint to quiet title in the Susquehanna County Court of Common Pleas, alleging ownership of the property in fee simple and ownership, through adverse possession, of all (as opposed to one-half) of the minerals and petroleum oils contained beneath the property. The Estate of Charles Powers and his heirs and assigns were originally named as defendants. After some initial difficulty in locating representatives of the estate, on September 21, 2009, William and Craig Pritchard (Appellees) surfaced as rightful heirs to the Powers' Estate. Eventually, Appellees filed a motion for declaratory judgment, seeking a holding from the trial court that the deed reservation included one-half of all natural gas located within any Marcellus shale found beneath the property. Appellants filed a preliminary objection in the form of a demurrer, arguing that pursuant to long-standing precedent of this Court, a deed reservation does not contemplate or include natural gas unless expressly stated therein. Accord Highland v. Commonwealth, 400 Pa. 261, 161 A.2d 390 (1960); Dunham, supra.

The trial court agreed with Appellants, sustained the demurrer, and denied Appellees' request for declaratory relief. The court noted that Pennsylvania law has long recognized a rebuttable presumption that “if, in connection with a conveyance of land, there is a reservation or an exception of ‘minerals' without any specific mention of natural gas or oil, ... the word ‘minerals' was not intended by the parties to include natural gas or oil.” Highland, 161 A.2d at 398 (citing Dunham, 101 Pa. at 44). This precept, commonly known as the Dunham Rule, may be rebutted by a challenger through clear and convincing evidence that the intent of the parties, at the time of the conveyance, was to include natural gas and/or oil. Id. at 400. The trial court finally stated that the notion that natural gas and oil are not, for purposes of private deed transfers, considered minerals is “entrenched” within Pennsylvania law. See C.C. Marvel, Annotation, Oil and gas as “minerals” within deed, lease, or license, 37 A.L.R.2d 1440, at *3.

Appellees appealed to the Superior Court, a panel of which reversed in a published opinion. Butler, 29 A.3d at 43. The panel also remanded the case to the trial court for an evidentiary hearing replete with expert testimony “on whether Marcellus shale constitutes a type of mineral such that the gas in it falls within the deed reservation.” Id. While the court extensively recounted Dunham,Highland, and related cases, it determined that those “decisions do not end the analysis” because of a 1983 decision of this Court, United States Steel Corporation. v. Hoge, 503 Pa. 140, 468 A.2d 1380 (1983) (Hoge II ). Briefly, the Hoge II Court considered which party controlled access to “coalbed gas,” a dangerous by-product of coal mining contained within coal seams, pursuant to reservations contained within various private deeds. Those reservations gave U.S. Steel the exclusive rights to mine and remove coal within a specific coal seam, while keeping with the property owners all oil and natural gas rights below the coal seam. In considering which party possessed the right to the coalbed gas, the Hoge II Court noted, “as a general rule, subterranean gas is owned by whoever has title to the property in which the gas is resting.” Id. at 1383. Without discussing the Dunham Rule, the Hoge II Court concluded, “such gas as is present in coal must necessarily belong to the owner of the coal.” Id. Thus, U.S. Steel, as the owner of the coal, possessed the rights to the coalbed gas contained within the coal seam. Id.

The Superior Court in this case found that because of the Hoge II decision, the trial court erred in sustaining Appellants' demurrer based upon Dunham and Highland without first conducting an evidentiary hearing to determine whether: Marcellus shale natural gas constitutes that which is contemplated by the Dunham Rule; Marcellus shale itself is a mineral; and Marcellus shale is similar to coal so that the Hoge II holding should apply to this case, resulting in Appellees owning one-half of the natural gas rights because of the situs of the gas in shale. Id. In effect, the remand order directed the trial court to consider whether the Hoge II Court's logic vis-a-vis coalbed gas and coal scientifically and legally applied to natural gas contained within the Marcellus Shale. Appellants petitioned this Court for allowance of appeal, which we granted to consider the following issue:

In interpreting a deed reservation for “minerals,” whether the Superior Court erred in remanding the case for the introduction of scientific and historic evidence about the Marcellus [S]hale and the natural gas contained therein, despite the fact that the Supreme Court of Pennsylvania has held (1) a rebuttable presumption exists that parties intend the term “minerals” to include only metallic substances, and (2) only the parties' intent can rebut the presumption to include non-metallic substances.

Butler v. Powers Estate, 41 A.3d 854 (Pa.2012) ( per curiam ).

II.

(A) The Dunham Rule and its Progeny

Before delving into the parties' arguments, we find it prudent to recount the history of the Dunham Rule to facilitate a full understanding of the issues before us. While Dunham was decided in 1882, the doctrine for which that case has become well-known has its genesis in the 1836 decision of Gibson v. Tyson, 5 Watts 34 (Pa.1836). In Gibson, a deed reserved to the grantor of land “all minerals or magnesia of any kind” contained beneath the property. Id. at 36. The Court was tasked with determining whether chrome (also known as chromate of iron) should be encompassed within the “all minerals” portion of the reservation. The Court noted that “the first, and indeed the only matter then is, to ascertain, if possible, what the parties intended and gave their assent to by making the agreement in question.” Id. at 41. In determining the parties' intent, the court continued, to people “entirely destitute of scientific knowledge in regard to such things ... [to] the bulk of mankind, ... [n]othing is thought by [minerals] to be such unless it be of a metallic nature, such as gold,...