Moeller v. Ferrari Energy, LLC

• Decision Date: 23 July 2020
• Docket Number: Court of Appeals No. 18CA1844
• Citation: 471 P.3d 1258
• Parties: Dana MOELLER and Darrell Moeller, Plaintiffs-Appellants and Cross-Appellees, v. FERRARI ENERGY, LLC, a Colorado limited liability company, Defendant-Appellee and Cross-Appellant, and Susie Velasquez, as Public Trustee of Weld County, Defendant.
• Court: Colorado Court of Appeals

471 P.3d 1258

Dana MOELLER and Darrell Moeller, Plaintiffs-Appellants and Cross-Appellees,

v. FERRARI ENERGY, LLC, a Colorado limited liability company, Defendant-Appellee and Cross-Appellant,andSusie Velasquez, as Public Trustee of Weld County, Defendant.

Court of Appeals No. 18CA1844

Colorado Court of Appeals, Division V.

Announced July 23, 2020

Witwer, Oldenburg, Barry & Groom, LLP, Kent A. Naughton, Greeley, Colorado, for Plaintiffs-Appellants and Cross-Appellees

Moye White LLP, Charles Greenhouse, Eric B. Liebman, Abigail L. Brown, Denver, Colorado, for Defendant-Appellee and Cross-Appellant Ferrari Energy, LLC

Bruce Barker, County Attorney, Greeley, Colorado, for Defendant-Appellee Susie Velasquez, in her official capacity as Public Trustee of Weld County

Opinion by JUDGE HARRIS

¶ 1 Plaintiffs, Dana and Darrell Moeller, and defendant, Ferrari Energy, LLC,¹ both assert that they are the owners of minerals located on property in Weld County, Colorado. The dispute arises from the relevant deed's language reserving a "1/2 interest" in the minerals to the grantors. That language would not ordinarily present an interpretive challenge, but a predecessor grantor had already reserved a one-half interest in the minerals, so the grantors who conveyed the property to the Moellers' predecessors-in-interest owned only a one-half interest to begin with.

¶ 2 The district court concluded that the warranty deed unambiguously reserved to the grantors, who are Ferrari's predecessors-in-interest, a one-half interest in the minerals. And because the grantors only owned a one-half interest, there was no remaining interest to convey, and the Moellers ultimately received no interest in the minerals. Accordingly, the district court quieted title in the mineral interest in Ferrari.

¶ 3 On appeal, the Moellers contend that the district court misconstrued the warranty deed and therefore erred in entering judgment for Ferrari.

¶ 4 We conclude that the warranty deed is ambiguous. In our view, the language reserving to the grantors a one-half interest in the mineral estate is susceptible of two reasonable interpretations: (1) the grantors reserved a total one-half interest in the minerals and conveyed the other half to the Moellers' predecessors-in-interest; or (2) the grantors reserved a one-half interest in the minerals for themselves, in addition to the prior grantor's one-half interest, and thereby conveyed no interest in the minerals to the Moellers. These two interpretations remain equally plausible even after taking into account the limited extrinsic evidence of the parties' intent. We therefore resolve the ambiguity by applying the longstanding rule of construction that ambiguities in a deed are construed in favor of the grantee. See Clevenger v. Cont'l Oil Co. , 149 Colo. 417, 421, 369 P.2d 550, 552 (1962). Accordingly, we conclude that the warranty deed reserved a total of a one-half interest and granted a one-half interest to the Moellers.

¶ 5 We therefore reverse the district court's decree in quiet title and remand for entry of judgment in favor of the Moellers. In light of our disposition, we need not address the parties' other claims of error.

I. Background

A. The Relevant Conveyances and Leases

¶ 6 In 1954, Russell and Velma Burns conveyed to Ruth Todd the real property now owned by the Moellers, but expressly reserved "one-half of all oil, gas and minerals on and under said land" (the Burns reservation). Six years later, Todd conveyed the property to Glenn and Sally Wilson, subject only to the Burns reservation.

¶ 7 Then, in 1964 the Wilsons, who now owned the one-half mineral interest not reserved by the Burnses, sold the property to Pete and Mary Katzdorn. The warranty deed (1964 Deed) conveyed fee simple title to the real property "excepting and reserving to the Grantors herein an undivided 1/2 interest in and to all the oil, gas and minerals in, upon and under said land."

¶ 8 The property was eventually conveyed to the Moellers, but the operative reservation remained the one in the 1964 Deed.

¶ 9 In 2002, the Moellers entered into a mineral lease agreement with PDC Energy, Inc., and soon began receiving royalties. But in 2016, PDC learned that the Wilsons might own the mineral interest, so it entered into a duplicative mineral lease agreement with the Wilsons. The Wilsons later conveyed any interest they had in the minerals to Ferrari and assigned to Ferrari the right to collect any royalty payments owed to them by PDC.

B. Procedural History

¶ 10 The Moellers then filed this action, seeking to quiet title in the mineral interest. Ferrari asserted its own claim to the minerals and also sought royalty payments going back to 2002, from both the Moellers and PDC, under a theory of unjust enrichment.

¶ 11 The district court addressed ownership of the minerals on a motion for summary judgment. The court analyzed the conveyance in two parts — first determining the scope of the reservation, then determining the scope of the grant. In determining the scope of the reservation in the 1964 Deed, the court declined to consider extrinsic evidence of the Burns reservation. The court concluded that the language "excepting and reserving to the Grantors ... an undivided 1/2 interest" unambiguously reserved to the Wilsons their own one-half interest in the mineral estate, and thus extrinsic evidence was inadmissible to interpret the phrase. Nonetheless, the court then admitted the same extrinsic evidence to determine the interest granted to the Katzdorns. The court reasoned that because the Burnses had previously retained a one-half interest in the mineral estate, the Wilsons' reservation of their own one-half interest meant they conveyed no portion of the mineral estate to the Katzdorns. The court thus quieted title in the minerals, as a matter of law, in Ferrari, the Wilsons' successor-in-interest.

II. The District Court's Decree in Quiet Title

¶ 12 The Moellers appeal the district court's denial of PDC's motion for summary judgment and the resulting decree in quiet title.² Specifically, the Moellers contend that the court erred in concluding that the 1964 Deed unambiguously reserved a one-half mineral interest to the Wilsons, conveying no portion of the mineral estate to the Katzdorns.

A. Standard of Review and Principles of Interpretation

¶ 13 We review de novo the interpretation of a deed, as well as the district court's determination whether the deed is ambiguous. Owens v. Tergeson , 2015 COA 164, ¶ 17, 363 P.3d 826.

¶ 14 Deeds are usually construed in accordance with the general rules of construction of written instruments. Id. at ¶ 15. In accordance with those rules, if a deed is unambiguous, its terms must be enforced as written. Id. But if an ambiguity exists in the deed's reservation of mineral rights, the construction "must favor the grantee." Id. ; see also Notch Mountain Corp. v. Elliott , 898 P.2d 550, 557 (Colo. 1995) ("[A]ny ambiguities in a reservation are construed against the grantor."); Clevenger , 149 Colo. at 421, 369 P.2d at 552.

¶ 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 meaning. Meyerstein v. City of Aspen , 282 P.3d 456, 468 (Colo. App. 2011). When the instrument is a deed, however, we interpret the language "in light of all the circumstances " surrounding the conveyance. Lazy Dog Ranch v. Telluray Ranch Corp. , 965 P.2d 1229, 1235-36 (Colo. 1998) (quoting Restatement (Third) of Prop.: Servitudes § 4.1 cmt. c. (Am. Law Inst. 1994)). In other words, extrinsic evidence may be used to determine, as a threshold matter, whether the deed is ambiguous. Id. at 1236. If in light of extrinsic evidence the deed is unambiguous, the extrinsic evidence should then be disregarded as the court interprets the plain meaning of the deed. Id. If, however, extrinsic evidence reveals the deed is ambiguous, then the court may continue to use extrinsic evidence in discerning the parties' intent. Id. When an ambiguity persists despite the consideration of extrinsic evidence, the ambiguity is resolved in favor of the grantee. Bell Petroleum Co. v. Cross V. Cattle Co. , 492 P.2d 80, 81 (Colo. App. 1971) (not published pursuant to C.A.R. 35(f) ).

B. Analysis

¶ 16 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 held back. O'Brien v. Vill. Land Co. , 794 P.2d 246, 249-51 (Colo. 1990).

¶ 17 The 1964 Deed conveyed the real property, together with its appurtenances, "excepting and reserving to the Grantors herein an undivided 1/2 interest in and to all the oil, gas and minerals in, upon and under said land," but without any reference to the Burns reservation. The question is whether the 1964 Deed reserved a total of a one-half interest in the minerals and thereby conveyed the other one-half interest to the Katzdorns (in which case the Wilsons retained no mineral interest), or whether it reserved to the Wilsons a one-half interest along with the Burns reservation (in which case the Moellers received no mineral interest).

¶ 18 The district court acknowledged that the extrinsic evidence of prior conveyances created an ambiguity, but it declined to consider that evidence in construing the reservation clause, having already determined that the language was unambiguous as to what the Wilsons retained. We decline to adopt that approach. Because "circumstances surrounding the grant may be relevant to interpreting the language of the grant," we may consider the extrinsic evidence of the Burns reservation in determining whether the 1964 Deed is ambiguous in the first instance. Lazy Dog , 965 P.2d at 1236-37.

¶ 19 Terms in a deed are ambiguous when they are susceptible of more than one reasonable interpretation. Owens , ¶ 16 ; see also Bledsoe v. Hill , 747 P.2d 10, 12 (Colo. App. 1987) (...