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John E. Butler and Mary Josephine Butler v. Charles Powers Estate

April 24, 2013

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



Appeal from the Order of the Superior Court entered 09-07-2011 at No. 1795 MDA 2010 which Reversed and Remanded the Order of the Susquehanna County Court of Common Pleas, Civil Division, entered 01-27-2010 at No. 2009-1141.

The opinion of the court was delivered by: Mr. Justice Baer

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

ARGUED: October 16, 2012

OPINION

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.*fn1 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. 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, 161 A.2d 390 (Pa. 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, 468 A.2d 1380 (Pa. 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, silver, iron, copper, lead, [etc.] . . . ." Id. Reluctantly, the Court determined that chrome would be considered by "the bulk of mankind" as a mineral because it was commonly thought to be of a metallic nature, akin to gold or silver, as demonstrated by parol evidence introduced before the trial court. Id. at 42. Thus, the Court held the reservation specifying minerals included chrome based upon a common usage understanding, as opposed to any scientific basis.

A year later, this Court reaffirmed the holding of Gibson that contracts such as those presented in deed reservation cases should be examined from a non-scientific viewpoint. Schuylkill Nav. Co. v. Moore, 2 Whart. 477 (Pa. 1837). The Moore case, which considered how a contract concerning hydraulic machinery should be examined, first noted that "the best construction is that which is made by viewing the subject of the contract, as the mass of mankind would view it; for it may be safely assumed that such was the aspect in which the parties themselves viewed it." Id. at 491. It then concluded that the interpretation of the contract should be governed by common or lay understanding, and not scientific principles. Id. at 493.

With the notion that the common-man comprehension of terms included in contracts should be used, this Court in Dunham examined an 1870 deed, which reserved to the grantor "all the timber suitable for sawing; also all minerals," to determine whether the reservation included oil within the term "all minerals." Dunham, 101 Pa. at 37. The Court first noted the reluctance of the Gibson Court to find chrome a mineral absent parol evidence; thus, it queried whether oil, which unquestionably was regarded "by science and law" as a mineral solely because of its inorganic character, should likewise be considered a mineral to laypersons. Id. at 44. To answer this question, this Court considered whether the deed should be viewed through the lenses of "scientists; or as business men, using the language governed by the ideas of every-day life?" Id.

The Court followed the lead of Gibson and Moore and held that a common understanding of the word "minerals" should be used. The Court resolved that, should the scientific construction of the term mineral, i.e., anything inorganic, be used, the term would be as "extensive as the grant, hence work[ing] its own destruction." Id. Accordingly, using the common understanding of mankind, the court determined that oil is not a mineral pursuant to the framework laid by the Gibson Court that ...


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