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[U] Grow v. Ohio Kentucky Oil Corporation

Superior Court of Pennsylvania

February 26, 2014

GEORGE C. GROW AND CHRISTINA SHREWSBURY Appellant
v.
OHIO KENTUCKY OIL CORPORATION Appellee

NON-PRECEDENTIAL DECISION

Appeal from the Order of December 22, 2011 In the Court of Common Pleas of McKean County Civil Division at No.: No. 1143 C.D. 2009

BEFORE: DONOHUE, J., SHOGAN, J., and WECHT, J.

MEMORANDUM

WECHT, J.

George C. Grow and Christina Shrewsbury (hereinafter "Lessors") challenge the trial court's December 22, 2011 order denying Lessors' post-trial motions. We find that the trial court lacked jurisdiction over the underlying litigation due to the parties' collective failure to join an indispensable party. Consequently, we vacate the trial court's order and remand for further proceedings.

At issue in this case is the distribution of proceeds from the extraction of oil from property as to whose oil several parties lay fractional claims. For purposes of trial, the parties entered into the following stipulations, which provide sufficient factual background to support the analysis to follow:

1. [Lessors] are George C. Grow . . . and Christina Shrewsbury . . . .
2. Defendant is Ohio Kentucky Oil Corporation [hereinafter, "Lessee")] . . . .
3. [Lessors] are brother and sister and are the surviving heirs of George C. Grow, Jr.
4. George C. Grow, Jr.[, ] died seized of the oil, gas and mineral rights in, on and under lands in Otto Township, McKean County, Pennsylvania . . . .
5. The said oil, gas and mineral rights of George C. Grow, Jr.[, ] were formerly owned by his grandfather, George N. Grow . . . .
6. The aforesaid deed contains the following exception and reservation [hereinafter, the "Bingham Royalty"]:
EXCEPTING AND RESERVING, nevertheless, out of this grant, the following named parts or shares of all coal, iron-ore, petroleum, rock or carbon oil, or other minerals which shall or may be discovered, excavated, mined, pumped or raised upon or from the land herein described, to wit: one equal one-sixteenth part or share of the total product of any and all well and wells whereof the average daily production is ten barrels or less than ten barrels per day; one equal one-twelfth part or share of the total product of any and all well and wells whereof the daily production is more than ten barrels but less than twenty barrels per day; and one equal one-eighth part or share of the total product of any and all well and wells whereof the average daily production is twenty barrels or more than twenty barrels per day; to be delivered to the parties of the first part, their successors or assigns, as the same is excavated mined, produced or pumped in the crude state, in tanks or reservoirs to be provided by the said parties of the first part, or to such accessible Pipe Line Company as may be approved by the said parties of the first part, their agent or attorney, successors or assigns, as to such Pipe Line Company, and as the manner of such delivery. The delivery as aforesaid shall be made monthly, at the close of each calendar month, or within five days thereafter, so long as petroleum, coal oil or other valuable mineral substance shall continue to be excavated, mined, pumped or raised from the tracts of land above described. This conveyance is made and accepted subject to the foregoing reservation, and it is further understood and agreed that the said party of the second part, for himself, his heirs, executors, administrators and assigns shall and will keep or cause to be kept, in proper books for that purpose, an accurate and just account of all the petroleum and other valuable minerals produced in, upon or from the above described tracts of land, (which said books and accounts shall at all reasonable times be open to the inspection and examination of the said party of the first part, their agent or attorney, successors or assigns); and also that he will close and settle the said accounts monthly, at the end of each and every calendar month, and that he will deliver to the said parties of the first part, their agent or attorney, successors or assigns, the oil and minerals which upon such settlement shall be found due to them at the time and times, and in the manner herein before provided . . . .
7. George C. Grow, Jr.[, ] died on March 27, 2003. An exemplified copy of his estate proceedings were recorded in McKean County on November 19, 2003 . . . .
8. George C. Grow, Jr.[, ] was survived by his wife, Ruth A. Grow, and his children, [Lessors].
9. George C. Grow, Jr.[, ] left his estate in part to his wife, Ruth A. Grow, and in part in trust for her benefit, and upon her death, to be distributed to [Lessors]. Ruth A. Grow died on July 15, 2007. By deed dated February 12, 2010, . . . the said oil, gas and mineral rights of George C. Grow, Jr.[, ] were transferred to [Lessors]. . . .
10. . . . [O]n August 19, 2005, the Estate of George C. Grow, Jr.[, ] entered into an Oil and Gas Lease [the "Lease"] with [Lessee] covering the property described in the aforesaid deeds and did in Article IV(a) thereof reserve for itself a 1/8th royalty on all oil sold. . . .
11. [Lessee] subsequently drilled ten (10) wells on the property capable of producing oil.
12. [Lessors] and [Messer Oil Corp. (hereinafter "Messer"), holder of the Bingham Royalty, ] are the lawful owners of the royalties payable out of production of oil from the property.
13. [Lessors] learned that ARG[, the purchaser of the oil, ] is paying a 1/12th royalty to [Messer] on all oil production rather than the 1/16th, 1/12th, or 1/8th royalty determined by the average number of barrels produced per well as called for by the language of the Bingham [R]oyalty.
14. On or about December 5, 2008, [Lessors] were asked to sign Division Orders by [ARG]. The division orders proposed to divide [Lessors'] 1/8th royalty as follows: [Messer] (2/3rds of 1/8th or 0.08333334), [Lessors, 1/6 of 1/8 or 0.0208333, each]. [Lessors] refused to sign the division orders and gave as their reason for refusing to do so that they were entitled to the full 1/8th royalty. . . .
15. From November 24, 2008 to present, ARG has purchased all oil produced by [Lessee] from the property. . . .
16. As of July 13, 2011, ARG has paid $364, 035.36 for all oil purchased by it.
17. On August 14, 2009, [Lessors] filed the above[-]captioned lawsuit against [Lessee] for the 1/8th royalty they had not been paid pursuant to Article IV(a) of the [Lease] . . . .
18. On or about November 10, 2009, [Lessee] filed its Answer and New Matter [to Lessors' amended complaint] and did therein respond, among other defenses, that it had reduced the royalty payable to [Lessors] pursuant to Article XVIII of the Oil and Gas Lease. Article XVIII states[, in relevant part]:
In case the Lessor owns a less interest in the above[-]described premises than the entire and undivided fee simple therein, then the royalties and rentals herein provided for shall be paid to the Lessor only in the proportion which such interest bears to the whole and undivided fee. . . .
19. On or about December 14, 2009, [Lessors] filed their Answer to [Lessee's] New Matter and did in part respond that Article XVIII did not apply and that they were guaranteed a 1/8thminimum royalty pursuant to Title 58, Section 33 of the Pennsylvania Statutes.
20. All conditions precedent to [Lessors'] right to file this action, as set forth in Article XX of the [L]ease . . ., have been fulfilled.

Stipulation, 2/22/2012, [1] at 1-4 (unpaginated).

By way of introducing the case, it is sufficient to note that Lessors and Lessee disputed at trial who should bear the cost of satisfying Messer's one-twelfth share of oil proceeds under the Bingham Royalty. Lessee took the position that the entirety of the Bingham Royalty should be satisfied by Lessors from their one-eighth share of the wells' production. Lessors took the position that the burden of satisfying the Bingham Royalty fell entirely to Lessee, or, in the alternative, that, under Article XVIII of the Lease ("the Proportional Reduction Clause"), Lessors were obligated only to furnish one eighth of the Messer's reserved one-twelfth share of oil production, with Lessee responsible for paying the remaining seven eighths of Messer's one-twelfth share.

The difference is substantial: Under Lessee's account, Lessors' total share would amount to one twenty-fourth (or four ninety-sixths) of the wells' collective production; Under Lessors' alternate account, their share would be at least eleven ninety-sixths of total production. The difference in the proceeds for Lessors between the two scenarios would amount to seven ninety-sixths of production, or approximately 7.3%, which would amount to over $26, 500, based upon the proceeds collected upon the wells' production as of July 13, 2011, nearly twice again the approximately $15, 000 undisputedly owed to Lessors (representing one twenty-fourth, or approximately 4.2% of total production).[2]

A bench trial was held on August 29, 2011, after which the trial court invited the parties to submit briefs in support of their respective positions. On October 6, 2011, the trial court issued a memorandum opinion and order. The order provided, in material part, as follows:

(1) [Lessors] hold and possess the oil, gas and minerals under premises described in a deed from Harry G. Clay et al. to George C. Grow dated June 22, 1894 and recorded on May 21, 1912 . . ., subject to a perpetual nonparticipating royalty interest[, i.e., the Bingham Royalty, ] reserved by the Grantors in said deed and to their successors in title. [Lessors'] ownership and possession is limited by the terms of said reservation so that [Lessors] may convey or lease all or a portion of the entire oil, gas and mineral estate but always subject to the [Bingham Reservation]. [Lessors] shall not diminish the [Bingham Royalty].
(2) The possessor of the [Bingham Royalty, i.e., Messer, ] not being a party to this action, this Court has no jurisdiction to alter the terms of [the Bingham Royalty] as set forth in said deed from Clay to Grow of June 22, 1894. [Messer] is entitled to a royalty of one-sixteenth (1/16) of any oil production on the premises in months in which the production is ten or [fewer] barrels [per well per] day; a royalty of one-twelfth (1/12) when production is over ten and less than twenty barrels [per well] per day; and a royalty of one-eight (1/8) when production is twenty barrels or more [per well] per day. [Lessors] shall ensure that said royalties are paid to [Messer] each month in which production occurs and may provide for direct payment from [Lessee] to said possessor in fulfillment of its obligation.
(4) [Lessee] shall distribute immediately the current royalty payments and the reserved royalty payments in accordance with the terms of this Order; except that the parties hereto and [Messer] may enter in an agreement for a non-fluctuating, determined fraction to avoid the latent complications of the fluctuating fraction and to accomplish the intent of this Order, and may do so without further Order of this Court.

Order, 10/6/2011, at 1-2.

Although the order was less than clear on this point, the accompanying memorandum appeared to adopt Lessors' argument that they were entitled to their royalty reduced proportionally by the Bingham Royalty:

[I]f, at the end of each month the production has averaged ten or [fewer] barrels [per well per] day, [Lessors] shall receive one[ ] (1/8) of fifteen[ ] sixteenths (15/16) of the oil produced; if production is [more than] ten and [fewer] than twenty barrels [per well] per day, [Lessors] shall receive one[ ] eighth (1/8) of eleven[ ]twelfths (11/12) of the oil produced; and if production is over twenty barrels [per well] per day, [Lessors] shall receive one[ ]eighth (1/8) of seven[ ]eighths (7/8) of the oil produced.

Memorandum Opinion, 10/6/2011, at 6.

Thereafter, the parties filed post-trial motions. The details of the parties' arguments in those motions are less important than the trial court's ruling upon them, which categorically modified its October 6, 2011 order. In its supplemental order, the trial court provided as follows:

[T]his Court finds it necessary to supplement [the October 6, 2011 order] as follows in order to ensure clarity as to the manner in which said Order shall be carried out:
[Lessee] shall pay to [Lessors] the one-eighth royalty as provided for in the Lease between the parties or their predecessors in title of August 19, 2005[, ] and under the terms and provisions and at the times and in the amounts as set forth therein. [Lessors] shall pay out of the said one-eighth royalty payments as they are received, the [Bingham Royalty] as had been excepted and reserved by their predecessors in title . . . . The [Bingham Royalty] shall be [paid] in the fractions as set forth in said deed (or as otherwise agreed to by [Lessors, Lessee, and Messer]) and said fractions shall be applied to the total production from the relevant lease and shall not be limited to a fraction only of the one-eighth royalty.

Supplemental Order, 1/9/2012, at 1.

Lessors appealed this Supplemental Order. The trial court directed Lessors to file a concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). Lessors timely complied on March 6, 2012. On March 29, 2012, the trial court issued its Rule 1925(a) opinion, wherein it principally echoed the rationales articulated at length in its prior two memoranda and orders of October 6, 2011, and January 9, 2012.

Before this Court, Lessors raise the following issues:
1. Whether the trial court erred in holding that [the Bingham Royalty] should be paid by the Lessors from the 1/8th royalty they receive under [the Lease].
2. Whether the trial court erred in holding that the [Lease] is valid in light of the court's holding that [Lessors] are responsible for paying [the Bingham Royalty] from the 1/8th royalty they receive under the [L]ease.

Brief for Lessors at 2.

Before we can consider the merits of these issues, we must determine whether the trial court had subject matter jurisdiction over this litigation. Subject matter jurisdiction is in question because Messer was not made a party to this litigation, despite the fact that multiple aspects of the dispute presented to the court for resolution had the potential to diminish the value of, or materially modify the legal status of, Messer's Bingham Royalty.

Because neither party, nor the trial court, raised or substantively addressed this issue, [3] we are denied the benefit of argument. However, we may not overlook a potential jurisdictional defect the likes of which appears in this case. In this connection, our Supreme Court has held as follows:

Jurisdiction over the subject matter is conferred solely by the Constitution and laws of the Commonwealth. The test for whether a court has subject matter jurisdiction inquires into the competency of the court to determine controversies of the general class to which the case presented for consideration belongs. Thus, as a pure question of law, the standard of review in determining whether a court has subject matter jurisdiction is de novo and the scope of review is plenary. Whether a court has subject matter jurisdiction over an action is a fundamental issue of law which may be raised at any time in the course of the proceedings, including by a reviewing court sua sponte.

Mazur v. Trinity Area Sch. Dist., 961 A.2d 96, 101 (Pa. 2008) (quoting In re Administrative Order No. 1-MD-2003, Appeal of Troutman, 936 A.2d 1, 5 (Pa. 2007)).

Among the bases upon which jurisdiction may be threatened is the absence of an indispensable party. Our Supreme Court has held as follows:

[I]f all necessary and indispensable parties are not parties to an action in equity, the court is powerless to grant relief. See Tigue v. Basalyga, 304 A.2d 119, 120 (Pa. 1973); Reifsnyder v. Pittsburgh Outdoor Advertising Co., 152 A.2d 894 (Pa. 1959). Moreover, even though the trial court's jurisdiction is not challenged in that court or on appeal, the absence of an indispensable party goes absolutely to the court's jurisdiction and the issue should be raised sua sponte. Tigue, 304 A.2d at 120. Huston v. Campanini, 346 A.2d 258, 259 (Pa. 1975) (citations modified; internal quotations omitted).
A party is indispensable when he has such an interest that a final decree cannot be made without affecting it, or leaving the controversy in such a condition that the final determination may be wholly inconsistent with equity and good conscience . . . . The rule as to indispensable parties is neither technical nor one of convenience; it goes absolutely to the jurisdiction, and without their presence the court can grant no relief.

DeCoatsworth v. Jones, 607 A.2d 1094, 1097 (Pa.Super. 1992) (quoting Harley v. Langkamp & Elder, 90 A. 402, 403-04 (Pa. 1904)).

We find that the absence of Messer from the instant litigation deprived the trial court of jurisdiction. Not only did Messer hold the Bingham Royalty, the satisfaction of which is at issue, but Messer also undisputedly negotiated with Lessee to establish a manner of fulfillment of the Bingham Royalty that diverges from the plain language of that royalty in both apportionment and method of delivery.

This fact was not lost on the trial court, which appeared to accept as fact that the modification to the Bingham Royalty's express method of fulfillment was devised bilaterally by Lessee and Messer without the knowledge or participation of Lessors. This, despite the fact that among the topics of that negotiation was Lessors' presumed obligation to satisfy in full, from its own one-eighth royalty, Messer's newly negotiated, fixed one-twelfth royalty in monetary form rather than a fraction of the actual oil produced by Lessee. See Notes of Testimony, 8/29/2011 ("N.T."), at 44 (testimony of Florencio Mata, expiration manager for Lessee, to the effect that Messer and Lessee agreed to the distribution breakdown challenged by Lessors), 49 (Mata further testifying that Messer "told" Mata to interpret the Bingham Royalty that way).

Moreover, the trial court appeared simply to accept Mata's testimony that any other distribution plan would render it economically infeasible to drill the wells, and to deem that a sufficient basis for the court to reform the Bingham Royalty contrary to its express terms. The Bingham Royalty undisputedly called for delivery of one twelfth of actual production, i.e., oil, not moneys generated by the sale of same. Nonetheless, the court found as follows:

[I]t is no longer feasible for the oil produced to be placed in separate tanks so that barrel output can be measured. Modern production methods are not compatible with this type of apportionment. Therefore, [Messer] has agreed to accept a flat one-twelfth (1/12) royalty against all oil produced in lieu of the graduated formula in the 1894 deed, and it has agreed that the oil, itself, need not be shunted into a separate holding tank.

Memorandum Opinion, 10/6/2011, at 2.[4] The trial court so observed even as it acknowledged that Messer was not a party to this litigation, and that the new royalty structure, which deviated from the express terms of the Bingham Royalty, was agreed to without Lessors' participation or knowledge. Id. at 2 n.1.

The trial court also held in no uncertain terms that the Bingham Royalty is a "perpetual nonparticipating royalty." Id. at 4. As such, the trial court explained, the royalty's holder, here Messer, may "only collect the royalty interest that the owner reserved, " which, in this case, was a delivery of actual oil, rather than cash payments in lieu of same. Id. Said delivery was to be rendered in varying fractions, dictated by production levels as provided by the express graduated formula, not the arbitrary one-twelfth formula negotiated by Lessee and Messer. Id. at 4. In apparent response to the legal problem this negotiation might have created, and indeed nascent questions regarding the validity of the arbitrary formula Lessee and Messer negotiated to supplant the express terms of the Bingham Royalty, the trial court simply observed that "the legitimacy and validity of the agreement [between Lessee and Messer] is not before this Court." Id. at 5. The court nonetheless concluded that, "[w]hether [Messer] has agreed to receive a one-eighth (1/8), one-twelfth (1/12), one-sixteenth (1/16), or any other fractional interest, the Bingham Royalty is valid and entitles Messer Oil Corporation to collect a royalty interest from the total oil and gas production." Id. Evidently, in the trial court's view, Lessee could have negotiated an arrangement pursuant to which Lessors were obligated to pay a one-eighth royalty to Messer – i.e., the entire sum of their own royalty – even if production were to amount to fewer than ten barrels per well per day, notwithstanding that under the Bingham Royalty as drafted, Messer would be entitled to only one sixteenth of the oil (itself) in that scenario.[5]The trial court so found even as it held that, "[t]he possessor of the [Bingham Royalty] not being a party to this action, [the trial court] has no jurisdiction to alter the terms of said reservation as set forth" in the 1894 deed.[6] Order, 10/6/2011, at 1 ¶2.

Although the substantive questions presented regarding the respective obligations of Lessor and Lessee vis-à-vis Messer, as holder of the Bingham Royalty, are intriguing, we must set them aside.[7] While at first it might seem that Messer has little or no interest in the outcome of this litigation, being presumptively entitled to one twelfth of the production at issue regardless of whether Lessors or Lessee were responsible for satisfying that royalty in whole or in part, there are several ways in which Messer had a legal and quantifiable financial interest in the outcome of this litigation.

First and foremost, the trial court, even after indicating that it was powerless to change the arrangement Lessee and Messer reached to modify the express terms of the Bingham Royalty, nonetheless constructively rendered that agreement nugatory relative to its terms when it reinstated the graduated royalty structure specified in the text of the 1894 deed, and specifically the Bingham Royalty. To wit, in its October 6, 2011 Order, the court specified as follows:

The possessor of the [Bingham Royalty] not being a party to this action, this [c]ourt has no jurisdiction to alter the terms of said [royalty] as set forth in said deed [of 1894]. Said possessor is entitled to a royalty of one-sixteenth (1/16) of any oil production on the premises in months in which the production is ten or [fewer] barrels [per] day; a royalty of one-twelfth (1/12) when production is [greater than] ten and [fewer than] twenty barrels per day; and a royalty of one-eighth (1/8) when production is twenty barrels or more per day. [Lessors] shall ensure that said royalties are paid to said possessor each month in which production occurs . . . .

Order, 10/6/2011, at 1-2 ¶2 (emphasis added). In its supplemental order, while it modified the obligations of Lessors and Lessee relative to the Bingham Royalty, the trial court nonetheless reaffirmed this graduated apportionment:

[Lessors] shall pay out of the said one-eighth royalty payments as they are received, the nonparticipating royalty interest as had been excepted and reserved by their predecessors in title . . . . The nonparticipating royalty interest shall be in the fractions as set forth in said deed (or as otherwise agreed to by [Lessors, Lessee, and Messer]) and said fractions shall be applied to the total production from the relevant lease and shall not be limited to a fraction only of the one-eighth royalty.

Supplemental Order, 1/9/2012, at 1 (emphasis added). Notably, the trial court effectively acknowledged the problem associated with Messer's absence from the litigation when it specified that the Bingham Royalty's graduated schedule could be modified by agreement of Lessors, Lessee, and Messer. Id.; see also Order, 10/6/2011, at 2 ¶4 ("[T]he parties hereto and the possessor of the nonparticipating royalty interest may enter into an agreement for a non-fluctuating, determined fraction to avoid the latent complications of the fluctuating fraction and to accomplish the intent of this Order . . . .").

Based upon the language of these orders, whatever else the trial court claimed to do or not to do with respect to the Lessee-Messer-negotiated arrangement, it flatly rejected the fixed one-twelfth royalty to which Lessee and Messer agreed. Thus, in the wake of the trial court's supplemental order, Messer no longer was guaranteed the one-twelfth share of the proceeds from drilling activities that it had negotiated with Lessee to receive. Even independently of the validity of the trial court's determination as to who was responsible for tendering Messer's royalty, this aspect of the trial court's ruling manifestly reduced the value of Messer's royalty, facially denying Messer the benefit of its alleged bargain with Lessee without providing Messer the opportunity to preserve (to the extent it chose to) the status quo.

The testimony of Mata, Lessee's expiration manager, makes clear the problem. According to Mata, despite high hopes at the commencement of drilling, the ten wells at issue never produced ten or more barrels per day: "[A]s it turned out [the wells] made less than ten barrels a day." N.T. at 47. Consequently, according to the plain language of the Bingham Royalty as reaffirmed by the trial court in its Order and its Supplemental Order, Lessors, as the parties solely responsible for satisfying the terms of the royalty, were obligated to furnish Messer not with the one-twelfth share it had negotiated with Lessee, but the one-sixteenth share specified by the Royalty in the event that production failed to exceed ten barrels per well per day. Thus, Messer would receive from Lessors 25% less in proceeds (in whatever form) than it had negotiated with Lessee. This not only presented the risk of an adverse impact upon Messer's interests arising from the trial court's ruling, it presented the fact of one.

We pause to note the arguably intractable position the trial court faced. It appeared to have a justiciable controversy before it concerning the respective obligations of Lessors and Lessee to satisfy the Bingham Royalty, especially inasmuch as it took for granted the fixed one-twelfth royalty to which both parties appeared to acquiesce, at least for purposes of this litigation. However, Messer's unavoidable exposure to a diminution of its interests in the course of this litigation was laid bare in the numerous internally contradictory aspects of the trial court's various observations and rulings: As noted, the trial court repeatedly commented that the validity and terms of the agreement between Lessee and Messer were beyond the court's reach, but, in sometimes seeming to take that validity for granted, the court in effect blessed that arrangement. Moreover, the court affirmatively appeared to reform the Bingham Royalty to allow for the distribution of moneys in satisfaction of that royalty, despite the fact that the terms of the royalty expressly and unequivocally called for that royalty to be distributed in the form of oil, not money. Neither party invited the trial court to do so, and the court cited no authority to support such an action.

This highlights a second, related reason that Messer was an indispensable party. Inasmuch as the Bingham Royalty plainly was at the center of the controversy, and provided for delivery to Messer of oil rather than royalties arising thereunder, the risk was present throughout this litigation that the court would determine that Lessees or Lessor were obligated to satisfy their respective obligations, if any, with oil rather than money. Whether it was feasible to do so or not, there can be little question that this circumstance raised questions regarding the relative value of the Bingham Royalty to Messer, and thus presented the prospect of an adverse impact on Messer's interests in the property.[8] Moreover, if the court ordered the parties to satisfy the Bingham Royalty strictly according to its terms, there was a substantial risk that the drilling project would become insufficiently profitable to Lessee to sustain continued operations; if Lessee ceased production, Messer would receive no benefit at all from the Bingham Royalty. See N.T. at 40-41 (testifying that providing Messer's share in the form of oil "was just too difficult. It was too expensive to put in tank batteries to each of the wells. Put meters in them, even if you could have, we would be unable to get the oil out of that mountain and to the bottom of that hill"). Finally, the same feasibility issue was presented in connection with the prospect that Lessee would have to satisfy the entire Bingham Royalty or a seven-eighths portion thereof in money rather than oil. Mata testified that, if Lessee itself had to pay Messer's royalty separately from its payment to Lessors of their one-eighth royalty, oil production under the Lease would not have been feasible. Id. at 50.

These observations are not exclusive of other potential ways in which the trial court's consideration affected, or foreseeably might have affected, Messer's interests, either due to reductions in the proceeds and/or value of the Bingham Royalty. For example, the trial court determined with little explanation that the Bingham Royalty was a perpetually non-participating royalty interest rather than a mineral estate. See Memorandum Opinion, 1/9/2012, at 2-3; see Rule 1925 Opinion at 6 ("[B]ecause the 'Bingham Royalty' is a mere interest in royalty, and not minerals, the estate in fee remains intact."). While we do not intend to suggest that the trial court erred in this regard, we note that this classification might affect Messer's present or future interests in other regards, such that it should have had the opportunity to participate in the adversarial proceeding during which the classification of the Bingham Royalty were debated and decided.

In any event, we need not dwell on this aspect of the case. It is sufficient to note that, essentially from the commencement of this litigation, and certainly at some later point before trial, the parties and the trial court should have recognized that Messer's interests, in addition to those of Lessors and Lessee, were to be adjudicated without Messer's participation, just as Lessee and Messer endeavored to reform Lessors' exposure under the Bingham Royalty without Lessors' involvement. Messer plainly was entitled to notice of the litigation and the opportunity to be heard. Consequently, Messer's absence deprived the trial court of subject matter jurisdiction to decide the claims presented by Lessors and Lessee. For the foregoing reasons, we must vacate the trial court's order and remand for further proceedings consistent with this memorandum. Order vacated. Case remanded.

Judgment Entered.


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