Leathers v. Leathers
| Decision Date | 02 May 2017 |
| Docket Number | No. 15-3280,No. 15-3264,15-3264 |
| Parties | Michael R. LEATHERS, Plaintiff-Appellee, v. Ronald LEATHERS, Defendant-Appellant, and Internal Revenue Service; James Holden, Trustee for The Dirt Cheap Mine Trust, Defendants-Appellees, and Chesapeake Operating, Inc.; OXY USA Inc.; Anadarko Petroleum Company, L.P.; Pioneer Natural Resources U.S.A., Inc.; Merit Energy Company, Defendants. Joe Alfred Izen, Jr., Attorney-Appellee. Michael R. Leathers, Plaintiff-Appellee, v. Ronald Leathers; Ronda R. Olson; Rustin R. Leathers; Internal Revenue Service, Defendants-Appellees, James Holden, Trustee for The, a/k/a Dirt Cheap Mine Trust, Defendant-Appellant, and Chesapeake Operating, Inc.; OXY USA Inc.; Anadarko Petroleum Company, L.P.; Pioneer Natural Resources U.S.A., Inc., Defendants. Joe Alfred Izen, Jr., Movant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Gary D. Fielder, Arvada, Colorado, for Ronald Leathers.
Joe Alfred Izen, Jr., Bellaire, Texas, for James Holden, Trustee for the Dirt Cheap Mine Trust, and Joe Alfred Izen, Jr.
Randolph L. Hutter, Attorney, Tax Division (Caroline D. Ciraolo, Principal Deputy Assistant Attorney General, Francesca Ugolini, Attorney, Tax Division, and Barry R. Grissom, United States Attorney, appeared with him on the briefs), United States Department of Justice, Washington, D.C., for the Internal Revenue Service/United States.
Aaron L. Kite, Rebein Bangerter Rebein PA, Dodge City, Kansas, for Michael R. Leathers.
Derek S. Casey (Grant D. Klise with him on the brief), Triplett, Woolf & Garretson, LLC, Wichita, Kansas, for Ronda R. Olson and Rustin R. Leathers.
Before BACHARACH, PHILLIPS, and McHUGH, Circuit Judges.
This case involves a dispute over the ownership of mineral rights appurtenant to several tracts of land located in Haskell County, Kansas, as well as the royalties due on those mineral rights. Michael Leathers and his brother Ronald Leathers each inherited half of these mineral rights from their mother.1 But an error in a quit claim deed subsequently executed between the brothers left it unclear whether Ronald's one-half interest in the mineral estate had been conveyed to Michael.
In January 2007, Michael filed a lawsuit seeking to quiet title to the disputed one-half interest and related royalties. As defendants, Michael named Ronald; Ronald's ex-wife, Theresa Leathers; James Holden, as Trustee for an entity called the Dirt Cheap Mine Trust; various energy companies, as producers of natural gas from the mineral rights; and the United States, on behalf of the Internal Revenue Service ("IRS"), as a holder of tax liens on any property owned by Ronald.
In a series of orders spanning several years, the district court (1) reformed the quit claim deed to reflect that Ronald had reserved his one-half interest in the mineral estate; (2) awarded half of Ronald's one-half interest (i.e., a one-quarter interest) to Theresa, pursuant to Ronald and Theresa's divorce decree; and (3) held that Ronald owed approximately $1.5 million to the IRS and that the IRS's tax liens had first priority to any present and future royalties due to Ronald from his remaining one-quarter mineral interest.
Ronald filed a timely appeal (Case No. 15-3264), and Holden and Joe Alfred Izen, Jr., the attorney for the Dirt Cheap Mine Trust, filed a separate appeal (Case No. 15-3280). The appeals were briefed and argued separately, and they largely raise independent issues. Nonetheless, because both appeals arise from a common, complicated factual and procedural background, we consolidate them for disposition and consider both appeals in this Opinion. For the reasons set forth below, we affirm the district court's judgment on all grounds.
Michael Leathers and Ronald Leathers are brothers, and Louise Leathers was their mother. Louise owned 2.5 sections of land in Haskell County, Kansas (the "Property"). In 1973, Michael, Ronald, and Louise signed a partnership agreement forming a general partnership called the Leathers Land Company. Louise transferred the surface estate of the Property to the partnership, but she reserved ownership of the appurtenant mineral estate. When Louise died in 1991, ownership of the mineral estate passed to Michael and Ronald in equal shares. Michael and Ronald also each became 50 percent owners of the Leathers Land Company.
In 1996, Michael invoked a mutual buy-out provision of the partnership agreement in order to purchase Ronald's 50 percent share of the Leathers Land Company's assets. This move led to a dispute between the brothers which ended in a state-court judgment ordering Ronald to convey his 50 percent interest in the surface estate of the Property to Michael. On May 11, 1998, Ronald signed a quit claim deed (the "Quit Claim Deed" or the "Deed") which transferred all of Ronald's interest in the Property to Michael. Critical here, the Deed did not expressly reserve Ronald's 50 percent interest in the Property's mineral estate. The Deed was recorded in Haskell County.
In June 2000, Ronald's wife, Theresa Leathers, filed for divorce in Kansas state court. In connection with the divorce, Theresa filed a Notice of Lis Pendens with the Register of Deeds in Haskell County, specifically referencing the Property.2
While the divorce was pending, Michael began hearing from several energy companies about issues with the title to the mineral rights in the Property. In September 2000, a representative from Chesapeake Energy Company ("Chesapeake") told Michael that the Deed had not reserved to Ronald any mineral rights appurtenant to the Property. The representative tried to contact Ronald as well, but Ronald did not respond.
In October 2001, Anadarko Petroleum Corporation ("Anadarko") contacted Michael about future royalty payments on production from a new well. A division order included in the correspondence stated that Ronald held "no interest" in the mineral rights appurtenant to the Property, that Michael owned 50 percent of the rights, and that another entity owned the other 50 percent. Anadarko asked Michael to make any necessary corrections to the division order before signing and returning it. Michael edited the division order to show that he and Ronald each owned 50 percent of the mineral rights, and he sent it to Anadarko along with a letter explaining that this reflected the accurate ownership of the mineral estate and also noting his belief that Theresa would receive half of Ronald's share in their pending divorce. Michael also sent a copy of the letter to Theresa's attorney.
In subsequent communications, Anadarko told Michael (1) that he would need to transfer 50 percent of the mineral rights to Ronald in order to fix the problem created by the Deed, (2) that Anadarko had sent a letter to Ronald informing him of the Deed's effect, and (3) that payment of one-half of future royalties would be held in a suspense account until the issue was resolved.
In January 2002, Michael began receiving, and depositing in his bank account, royalty payments from the new Anadarko well. That same month, Ronald stopped receiving royalty payments from Chesapeake. Ronald called Chesapeake and was informed of the title problem.
In May 2002, Michael testified in Ronald and Theresa's divorce case regarding the ownership, and value, of the mineral interests in the Property. Despite the unresolved title problem, Michael testified that Ronald owned half of the mineral rights. On July 5, 2002, the divorce court entered a divorce decree which awarded Theresa a 25 percent interest in the mineral rights in the Property (i.e., half of Ronald's 50 percent interest). The divorce court did not reform the Deed to reflect a reservation of mineral rights to Ronald.
Confusion over ownership of the mineral estate and entitlement to royalty payments persisted for several more years. Theresa advised Ronald in 2003, and again in 2004, that she was not receiving royalty checks from Chesapeake, due to Chesapeake's concern about the title problem. In April 2004, Michael received his first royalty payment for production from another new Anadarko well, which he deposited in his bank account. In early November 2005, Ronald sent Michael a letter in which Ronald claimed he recently had discovered the problem with the Deed and believed Michael had been receiving royalty payments that should have been paid to him. Michael responded about a week later, noting that Ronald was informed of the Deed problem in October 2001 and that Theresa's attorney was informed later that year. Michael offered to help investigate any problems with Ronald's royalty payments if Ronald provided more information, and he agreed to execute a new quit claim deed conveying to Ronald and Theresa in equal shares the one-half mineral interest Ronald had inherited. Ronald did not respond to this offer.
In December 2006, Michael determined that Ronald and Theresa were not receiving royalty payments on production from several wells and came to believe he had received payments belonging to one or both of them.
Ronald did not file tax returns during the years 1997 through 2005, but the IRS determined that he owed, and so assessed against him, federal income tax for those years. The IRS then filed several Notices of Federal Tax Liens in Haskell County, Kansas, thereby effectively encumbering the Property. In April 2005, and again in September 2006, the IRS filed a tax lien for tax years 1997 through 2002. In November 2007, the IRS completed and mailed to Ronald a tax assessment for the years 2003 through 2005. In February 2008, the IRS filed a tax lien for Ronald's tax liabilities from those years. All told, the IRS concluded that Ronald owed more than $900,000 in income tax, not including interest or penalties.
After receiving notice of the first tax liens, Ronald enlisted the services of James Holden to help Ronald protect his assets. Holden...
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