Willits v. Peabody Coal Co. Llc

• Citation: 332 S.W.3d 260
• Decision Date: 28 December 2010
• Docket Number: No. ED 94777.,ED 94777.
• Parties: Patricia WILLITS, et al., Appellants,v.PEABODY COAL COMPANY, LLC, et al., Respondents.
• Court: Court of Appeal of Missouri (US)

332 S.W.3d 260

Patricia WILLITS, et al., Appellants,

v.PEABODY COAL COMPANY, LLC, et al., Respondents.

No. ED 94777.

Missouri Court of Appeals, Eastern District, Division Three.

Dec. 28, 2010.Motion for Rehearing and/or Transfer to

Supreme Court Denied March 1, 2011.

Application for Transfer Denied

March 29, 2011.

Gerard Carmody, St. Louis, MO, George A. Barton, Kansas City, MO, for appellant.John S. Sandberg, Thomas B. Weaver, St. Louis, MO, Mason L. Miller, Lexington, KY, for respondent.CLIFFORD H. AHRENS, Judge.

Patricia Willits, William G. Parrott, Jr., and Donald Petrie, Trustee of the PPW Royalty Trust, collectively “Plaintiffs” appeal from the judgment of the trial court denying their motion for partial summary judgment and granting the motions for summary judgment of the Peabody Defendants and the Armstrong Defendants.¹ Finding no error, we affirm.

In 1946, W.G. Parrott, father of William G. Parrott, Jr. and Patricia Willits, conveyed certain lands and mineral rights located within a 6,000–plus acre tract in Ohio County, Kentucky, to the Beaver Dam Coal Company (“Beaver Dam Coal”). Beaver Dam Coal promptly leased the coal mining rights on those lands back to W.G. Parrott, who then assigned the coal leases (“Beaver Dam Lease”) to the Rough River Coal Company (“Rough River”), a company incorporated by W.G. Parrott. Rough River agreed to pay W.G. Parrott and his wife an overriding royalty of five percent of the average gross realization from coal mined and sold by Rough River, its successors and assigns, from any land in the First and Third Boundary, as described in the contract. In 1947, Rough River assigned the coal leases to the Alston Coal Company (“Alston Coal”), another corporation controlled by W.G. Parrott. W.G. Parrott and his wife entered into new royalty agreements with Alston Coal in 1954 (“1954 Royalty Agreements”) that changed the royalty obligation to two percent of gross realization on coal produced by strip-mining, and one percent on coal mined by underground mining methods, and added a fourth boundary area. The Parrotts also released Alston Coal from its obligations under the previous royalty agreement. The 1954 Royalty Agreements granted royalty rights to the Parrotts on any coal mined by Alston Coal, its successors and assigns from lands within the First, Third, and Fourth Boundaries. At the time of the execution of the 1954 Royalty Agreements, Alston Coal did not have a fee simple interest in any of the land within the boundaries set forth in the 1954 Royalty Agreements.

Peabody Coal (“Peabody”) acquired Alston Coal in 1956, and assumed its obligations and liabilities. The Parrotts assigned their overriding royalty interests to their children in 1959. From 1956 to 2005, the Beaver Dam Lease was assigned to several Peabody entities. In 2005, the Beaver Dam Lease was assigned to Central States Coal Reserves of Kentucky, LLC (“Central States”). At all times during the period from 1946 until 2005, the lands subject to the Beaver Dam Lease were held in fee simple by Beaver Dam Coal, the lessor. However, in 2002, Peabody Holding Company, LLC, a Peabody subsidiary, acquired Beaver Dam Coal. On January 18, 2007, Beaver Dam Coal, the lessor, and Central States Coal Reserves of Kentucky, the lessee of the Beaver Dam Lease, terminated those leases by agreement.

There were also properties held as tenants in common. W.G. Parrott and Pauline Parrott conveyed one-half interests in two tracts of land, the Bernheim property and the Green River property, to both Rough River and to the Beaver Dam Coal Company as tenants in common as to both properties. Rough River conveyed its one-half tenancy in common interests in the Bernheim and Green River properties to Alston Coal in 1947. Alston Coal owned these one-half tenancy in common interests at the time that it executed the 1954 Royalty Agreements, which encompassed those properties. By 2005, the Peabody Defendants had also acquired Alston Coal's tenancies in common. On September 13, 2007, Beaver Dam Coal and Central States Coal Reserves, which had acquired the Alston tenancies in common, sold them to Cyprus Creek Land Resources (“Cyprus Creek”) one of the many Peabody companies, thereby joining the co-tenancies. On March 31, 2008, Cyprus Creek, sold the fee simple to Western Diamond, one of the Armstrong Defendants. Since April 2008, neither the Peabody Defendants nor the Armstrong Defendants have paid royalties to the Plaintiffs on coal mined and sold by the Armstrong Defendants.

On May 28, 2008, the Plaintiffs filed a petition against the Peabody Defendants and the Armstrong Defendants that asserted breach of contract claims based on the 1954 Royalty Agreements for failure to pay royalties, and also seeking a declaratory judgment regarding future royalty payments. The Peabody Defendants and the Armstrong Defendants separately filed motions for summary judgment, and Plaintiffs filed a motion for partial summary judgment. After a hearing on these motions, the trial court granted summary judgment in favor of the Peabody Defendants and the Armstrong Defendants, and denied Plaintiffs' motion for partial summary judgment. Plaintiffs now appeal from this judgment.

Appellate court review of a summary judgment is essentially de novo. Moore Automotive Group, Inc. v. Goffstein, 301 S.W.3d 49, 52 (Mo. banc 2009). Summary judgment is proper only where the movant has demonstrated that “ ‘there is no genuine dispute as to the facts' ” and that “ ‘the facts as admitted show a legal right to judgment for the movant.’ ” Id. (quoting ITT Commercial Finance Corporation v. Mid–America Marine Supply Corporation, 854 S.W.2d 371, 380 (Mo. banc 1993)). It is the movant's burden to establish both a legal right to judgment and the absence of any genuine issue of material fact necessary to support the claimed right to judgment. Id.

The parties do not dispute the facts, but rather the legal effect of the facts.² We will consider Plaintiffs' first and second points relied on together. In their first point relied on, Plaintiffs contend that the trial court erred in granting summary judgment in favor of Defendants because their royalty rights are not limited to coal mined under the Beaver Dam Lease, in that the 1954 Royalty Agreements provide that their royalty rights extend to all coal mined from any of the lands in the boundaries by Alston Coal, its successors, and assigns. In their second point relied on, Plaintiffs assert that the trial court erred in granting summary judgment in favor of Peabody Defendants and the Armstrong Defendants because their royalty rights “are not limited to the land or coal mining rights in the boundaries which Alston Coal Company owned or leased on November 17, 1954, in that:” the 1954 Royalty Agreements state expressly that their royalty rights extend “to all coal mined from any of the lands in the boundaries by Alston Coal Company, its successors and assigns” and there is no law of property that prevents the Plaintiffs from enforcing the 1954 Royalty Agreements in accordance with the express terms of those agreements.³

As the trial court observed, quoting from a memorandum filed by Plaintiffs, “ ‘the central argument in this case hinges upon whether the 1954 royalty agreements between Alston Coal Co. and William and Pauline Parrott are a product of and dependent upon the Beaver Dam lease and the properties then held by Beaver Dam and Rough River as tenants in common.’ ” As to the nature of the royalty interests, we agree with the trial court's determination that the royalty interest based on the Beaver Dam Leases is an overriding royalty interest. An overriding royalty interest is created out of the working interest in a mineral lease. See Olson v. Continental Resources, Inc., 109 P.3d 351, 354 (Okla.Civ.App.2004). “It is an interest in the lease out of which it is carved, and cannot be a property interest of greater dignity than the lease itself.” Id. Accordingly, the overriding royalty interest cannot survive termination of the lease, absent fraud, breach of a fiduciary relationship, or an agreement otherwise. Id. See also Ritter v. Bill Barrett Corporation, 351 Mont. 278, 210 P.3d 688, 690–91 (2008) (“if a party wishes an overriding royalty to survive the expiration of the lease or sublease, he must include an express provision stating such.”)....