Contos v. Herbst

• Decision Date: 13 March 1979
• Docket Number: No. 47346.,47346.
• Citation: 278 NW 2d 732
• Parties: Allison CONTOS, et al., Appellants, v. Robert L. HERBST, Individually, and as Commissioner of the Minnesota Department of Natural Resources, et al., Respondents, Andrew Korda, Individually, and as Auditor for St. Louis County, Respondent, Minnesota Chippewa Tribe, Respondent.
• Court: Minnesota Supreme Court

278 N.W.2d 732 (1979)

Allison CONTOS, et al., Appellants, v. Robert L. HERBST, Individually, and as Commissioner of the Minnesota Department of Natural Resources, et al., Respondents Andrew Korda, Individually, and as Auditor for St. Louis County, Respondent Minnesota Chippewa Tribe, Respondent.

No. 47346.

Supreme Court of Minnesota.

January 26, 1979.

Rehearing Denied March 13, 1979.

Hanft, Fride, O'Brien & Harries and Tyrone P. Bujold and Paul J. Lokken, Duluth, for appellants.

Warren Spannaus, Atty. Gen., C. Paul Faraci, Deputy Atty. Gen., Philip Olfelt, Asst. Atty. Gen., Stephen G. Thorne, Sp. Asst. Atty. Gen., Keith Brownell, County Atty., Leo McDonnell, Asst. County Atty., Duluth, Kent Tupper, Walker, for respondents.

Heard, considered, and decided by the court en banc.

KELLY, Justice.

In 1969 the legislature enacted Minn.St. 93.52, which required every owner of a fee simple interest in minerals which interest is owned separately from the fee title to the surface of the property hereinafter referred to as severed mineral interests to file for record a verified statement describing that interest with the register of deeds or the register of titles in the county where the interest is located. Minn.St. 93.52, subd. 2. The purpose of this requirement, as stated by the legislature, was:

"* * * To identify and clarify the obscure and divided condition of severed mineral interests in this state. Because the ownership condition of many severed mineral interests is becoming more obscure and further fractionalized with the passage of time, the development of mineral interests in this state is often impaired. Therefore, it is in the public interest and serves a public purpose to identify and clarify these interests." Minn.St. 9352, subd. 1.

Notice of the registration requirement was provided by publication of the legislation in legal newspapers within each county of the state and in two publications related to mining activities having nationwide circulation. Minn.St.1971, § 93.58.

In 1973 the legislature enacted additional legislation concerning severed mineral interests which is the basis for this action. L.1973, c. 650, art. XX hereafter referred to as mineral registration act. First, the legislature provided that anyone who failed to file the verified statement within the statutory period would forfeit that interest to the state. The only remedy for persons claiming an ownership interest at the time of forfeiture was the recovery of the fair market value of the mineral interest at the time of the forfeiture or at the time of trial, whichever is lesser. Minn.St. 93.55. The legislature found the additional legislation necessary "to provide adequate identification of severed mineral interests and to prevent the continued escape from taxation of obscure and fractionalized severed mineral interests." Minn.St. 272.039.

Secondly, the legislature subjected severed mineral interests not otherwise taxed to a tax of $.25 per acre per year or $2.00 per interest per year, whichever is greater. Minn.St. 272.04, subd. 1; 273.13, subd. 2a. In describing the basis for implementing the tax the legislature enacted the following:

"The legislature finds, for the reasons stated below, that a class of real property has been created which, although not exempt from taxation, is not assessed for tax purposes and does not therefore, contribute anything toward the cost of supporting the governments which protect and preserve the continued existence of the property. These reasons are as follows: (1) In the case of Washburn v. Gregory, 1914, 125 Minn. 491, 147 N.W. 706, the Minnesota Supreme Court determined that where mineral interests are owned separately from the surface interests in real estate, the mineral interest is a separate interest in land, separately taxable, and does not forfeit if the overlying surface interest forfeits for nonpayment of taxes due on the surface interest; (2) Since this 1914 decision, mineral interests owned separately from the surface have been valued and assessed for tax purposes, as a practical matter, only if the value of the minerals has been determined through drilling and drill core analysis, and (3) The absence of any taxation of mineral interests owned separately from the surface, except where drilling analysis is available, has encouraged the separation of ownership of surface and mineral estates and resulted in the creation of hundreds of thousands of acres of untaxed mineral estate lands which thus are immune from tax forfeiture. The legislature also finds that the province of Ontario in Canada, which has land ownership patterns and mineral characteristics similar to that of Minnesota, has imposed a tax of $.50 an acre on minerals owned separately from the surface since 1968, and $.10 an acre before that. The legislature further finds that the identification of separately owned mineral interests by taxing authorities requires title searches which are extremely burdensome and, where no public tract index is available, prohibitively expensive. This result is caused in part by the decision in Wichelman v. Messner, 1957, 250 Minn. 88, 83 N.W.2d 800, where the so called `40 year law\' was held inapplicable to mineral interests owned separately from surface interests. On the basis of the above findings, and for the purpose of requiring mineral interests owned separately from surface interests to contribute to the cost of government at a time when other interests in real property are heavily burdened with real property taxes, the legislature concludes that the taxation of severed mineral interests as provided in section 273.13, subdivision 2a is necessary and in the public interest, and provides fair taxation of a class of real property which has escaped taxation for many years * * *." Minn.St. 272.039.

Plaintiffs, owners of severed mineral interests situated primarily in northern Minnesota, brought this action seeking a declaration that the registration, forfeiture and tax provisions of the mineral registration act are unconstitutional and an injunction prohibiting their enforcement. The district court, siting without a jury, entered findings of fact which agreed with the legislative findings quoted previously. In addition the district court incorporated in its findings a description of the history and magnitude of the severed interest phenomenon contained in an amicus brief prepared by attorney W. K. Montague for the case of Kangas-Jacobsen Dairy, Inc. v. Lloyd-Smith, 241 Minn. 317, 62 N.W.2d 915 (1954):

"They severed mineral interests are of wide extent: the entire length of the Mesabi Range from Gunflint Lake * * down to Grand Rapids, to a width of probably twenty miles from the iron formation, is blanketed with mineral reservations, on each side of the east end of the Mesabi Range through Lake and Cook counties down to Lake Superior, a distance of fifty to sixty miles, nearly every forty has a mineral reservation. Large areas in Carlton and Crow Wing Counties are similarly covered. While we are not familiar with details of mineral reservations in other Northern Minnesota counties, we understand they are not uncommon. Every city and village on the Mesabi Range from Aurora through Eveleth, Virginia, Chisholm, Hibbing, down to Coleraine, is located on lands subject to mineral reservations. Every home, store, factory and farm in that area is subject thereto."

The district court's findings of fact concerning the taxation of severed mineral interests also incorporated a description contained in the amicus brief of attorney Montague:

"In a substantial number of cases the reservations severed mineral interests were created as a result of the tax laws, and do not represent arm\'s length negotiations between parties. They represent deliberate attempts to arrange a transaction under which the grantor could retain for generations his speculative interest in the minerals without carrying charges, and, if merchantable ore should ever be discovered, could re-acquire the surface without cost."

The district court specifically found that 140,000 to 145,000 acres of the 721,640 acres of severed mineral interests owned by plaintiff United States Steel were created through a series of transactions between United States Steel and its subsidiaries whose purpose was to avoid ad valorem property taxes on property valuable primarily for its mineral potential. The district court further found that plaintiffs paid ad valorem property taxes on approximately 3,212 of their 1,262,664 acres of severed mineral interests.¹ Reference to additional findings of fact follows where appropriate.

Based on its findings of fact the district court concluded that the registration, taxation, and forfeiture provisions were constitutional but that the procedures attending the forfeiture provisions were unconstitutional. By virtue of the latter conclusion the district court further concluded that defendants be enjoined from claiming or asserting an ownership in plaintiffs' mineral interests by reason of the forfeiture procedures. Judgment was entered accordingly. Plaintiffs appeal from that part of the judgment upholding the registration, taxation and forfeiture provisions; defendants appeal from that part of the judgment invalidating the procedures attending forfeiture and granting injunctive relief. We affirm the judgment of the district court in all respects.

The issues presented are the following: (1) Whether the classification of severed mineral interests for purposes of taxation violates the uniformity clause of the Minnesota Constitution; (2) whether the uniformity clause of the Minnesota Constitution requires that taxation of property be related in some way to its value; (3) whether the forfeiture provisions violate the due process clauses of the state and Federal constitutions; (4) whether the procedures attending the forfeiture provisions comport with the due process clauses of the state and Federal constitutions; and...