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Commonwealth v. Thomas E. Proctor Heirs Trust

United States District Court, M.D. Pennsylvania

December 18, 2019

COMMONWEALTH OF PENNSYLVANIA, PENNSYLVANIA GAME COMMISSION, Plaintiff
v.
THOMAS E. PROCTOR HEIRS TRUST and MARGARET PROCTOR TRUST, Defendants

          MEMORANDUM

          Christopher C. Conner, Chief Judge.

         Millions of acres of Pennsylvania land are situated above the Marcellus Shale, an underground sedimentary rock formation spanning multiple states and containing massive reserves of natural gas. Experts conservatively value that gas in the hundreds of billions of dollars. Relatively new methods of drilling-most notably hydraulic fracturing or “fracking”-have unlocked the potential to tap these subsurface gas reserves. To no one's surprise, the ability to reach this lucrative natural resource has engendered heated ownership disputes like the one before this court.

         Plaintiff, Commonwealth of Pennsylvania, Pennsylvania Game Commission (“Game Commission”), claims that it owns both the surface and subsurface rights for numerous tracts of land in Sullivan and Bradford Counties in northeastern Pennsylvania. Defendants, Thomas E. Proctor Heirs Trust and Margaret O.F. Proctor Trust (collectively, “Proctor Trusts”) disagree, contending that they hold superior title to the subsurface estates underlying these tracts. A lengthy and complex legal battle has ensued, culminating in cross-motions for partial summary judgment regarding a bellwether tract of land in Bradford County. (Docs. 94, 123). Chief Magistrate Judge Susan E. Schwab issued an extensive report, (Doc. 155), recommending that the cross-motions for summary judgment be denied. Both parties have filed objections to Judge Schwab's report.

         I. Factual Background and Procedural History[1]

         We need not repeat the comprehensive factual and procedural background Judge Schwab supplied, (see Doc. 155 at 1-10, 19-24), familiarity with which is presumed. The following is a consolidated version of undisputed facts most pertinent to the parties' objections and pending Rule 56 disputes. These factual details primarily relate to the Josiah Haines warrant-the bellwether tract that is the focus of cross-motions for partial summary judgment.

         In 1893, Schrader Mining & Manufacturing Company conveyed the Josiah Haines warrant-located in LeRoy Township, Bradford County-to Thomas E. Proctor (“Proctor”) and Jonathan A. Hill (“Hill”). (Doc. 95 ¶ 5). The following year, Proctor and Hill and their wives deeded the property to Union Tanning Company (“Union Tanning”), “reserving” the subsurface rights to minerals, oil, gas, coal, and petroleum (hereinafter “mineral rights” or “subsurface estate”).[2] (Id. ¶¶ 8-9). This conveyance effectively severed the surface and subsurface estates of the Josiah Haines warrant, vesting those rights in separate owners. In 1903, Union Tanning conveyed its surface ownership interest in the Josiah Haines warrant to Central Pennsylvania Lumber Company (“CPLC”), excepting the rights to certain tree bark and conveying the property “subject to” all prior exceptions and reservations. (Id. ¶¶ 13-15). In June 1908, Calvin H. McCauley, Jr. (“McCauley”), purchased the Josiah Haines warrant at the Bradford County treasurer's sale (hereinafter “tax sale” or “treasurer's sale”) when the property was sold to recover unpaid taxes for 1907. (Id. ¶¶ 23, 25). Exactly what interest-whether only surface rights or both the surface and subsurface estates-this 1908 tax sale conveyed is the gravamen of the instant dispute.

         In December 1910, McCauley and his wife-in consideration of a recited payment of $1.00-quitclaimed all interest in numerous properties, including the Josiah Haines warrant, to CPLC. (Id. ¶ 31). Finally, in 1920, CPLC conveyed its interest in the warrant to the Game Commission, “subject to” the prior 1894 Proctor and Hill mineral rights exception and any exceptions or reservations in the 1903 deed from Union Tanning to CPLC. (Id. ¶¶ 37-38).

         Since 1980, Proctor's heirs, who comprise the Proctor Trusts, have been leasing the Josiah Haines warrant for oil and gas development. (Id. ¶¶ 46-47). The Proctor Trusts and the Game Commission now seek to quiet title to the subsurface estate of the warrant, asking the court to enter judgment as a matter of law as to ownership thereof.

         II. Legal Standards

         A. Review of a Magistrate Judge's Report and Recommendation

         When a party objects to a magistrate judge's report and recommendation, the district court must review de novo the challenged portions of the report. 28 U.S.C. § 636(b)(1)(C); Brown v. Astrue, 649 F.3d 193, 195 (3d Cir. 2011); Local Rule of Court 72.3. Uncontested portions of the report are reviewed for “clear error on the face of the record.” Clouser v. Johnson, 40 F.Supp.3d 425, 430 (M.D. Pa. 2014) (quoting Cruz v. Chater, 990 F.Supp. 375, 375-78 (M.D. Pa. 1998) (quoting Fed.R.Civ.P. 72(b) advisory committee's note to 1983 amendment)).

         B. Summary Judgment

         Through summary adjudication, the court may dispose of those claims that do not present a “genuine dispute as to any material fact” and for which a jury trial would be an empty and unnecessary formality. Fed.R.Civ.P. 56(a). The burden of proof tasks the non-moving party to come forward with “affirmative evidence, beyond the allegations of the pleadings, ” in support of its right to relief. Pappas v. City of Lebanon, 331 F.Supp.2d 311, 315 (M.D. Pa. 2004); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The court is to view the evidence “in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor.” Thomas v. Cumberland County, 749 F.3d 217, 222 (3d Cir. 2014). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-moving party on the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89 (1986). Only if this threshold is met may the cause of action proceed. See Pappas, 331 F.Supp.2d at 315.

         Courts are permitted to resolve cross-motions for summary judgment concurrently. See Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008); see also Johnson v. Fed. Express Corp., 996 F.Supp.2d 302, 312 (M.D. Pa. 2014); 10A Charles Alan Wright et al., Federal Practice and Procedure § 2720 (3d ed. 2015). When doing so, the court is bound to view the evidence in a light most favorable to the non-moving party with respect to each motion. Fed.R.Civ.P. 56; Lawrence, 527 F.3d at 310 (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)).

         III. Discussion

         The parties' numerous objections to Judge Schwab's report[3] can be distilled into several fundamental disagreements: first, whether Judge Schwab was correct in determining that there is a genuine dispute of material fact as to the character- seated or unseated-of the land constituting the Josiah Haines warrant when assessed in 1907 and sold at the 1908 tax sale; second, whether there is a material factual dispute regarding an agency relationship between the 1908 tax-sale purchaser (McCauley) and CPLC; third, whether language in the 1920 deed prevented the Game Commission from obtaining title to the subsurface estate; and fourth, whether federal due process concerns affect the validity of the 1908 tax sale.[4]We address these intricate disputes seriatim.

         A. Character of the Land

         The Game Commission's claim to the subsurface estate underlying the Josiah Haines warrant relies entirely on the premise that the 1908 tax sale “washed” the title and rejoined the previously severed surface and subsurface estates, thereby giving good title to the entire warrant to McCauley, the tax-sale purchaser. According to the Game Commission, Herder Spring's endorsement of the title-wash phenomenon squarely answers the ownership claims in this case. The Game Commission contends that because the warrant was unseated and assessed as such, and because there is no evidence that Proctor and Hill reported their subsurface interest for separate assessment to the Bradford County commissioner, the warrant was properly assessed as a whole in 1907 and sold as a whole at the 1908 treasurer's sale.

         The Proctor Trusts counter that there is ample evidence that the Josiah Haines warrant was actually seated in character when it was assessed for 1907 taxes. Thus, it was improperly sold as unseated at the 1908 treasurer's sale. According to the Proctor Trusts, the 1908 treasurer's sale was void because of this error, and the sale did not divest Proctor and Hill of their subsurface rights. Judge Schwab found that there is a genuine dispute of material fact regarding the character of the land when classified as unseated by the county assessor in 1907, precluding summary judgment.

         Our analysis of this classification dispute is informed by Pennsylvania's historical treatment of land as seated and unseated. Prior to 1947, Pennsylvania's real property taxing practices varied depending on whether land was noticeably occupied or developed (“seated”) or wild and undeveloped (“unseated”). Herder Spring, 143 A.3d at 363-64. This distinction directly impacted the parcel owner's potential tax liability. Owners of seated land could be held personally liable for the taxes assessed on their plot. Id. at 364. Because unseated land was deemed to be in its natural condition and owners often resided in another county or state, taxes for unseated lands were “imposed on the land itself”; owners were not held personally responsible. Id.; Northumberland County v. Phila. & Reading Coal & Iron Co., 131 F.2d 562, 565-66 (3d Cir. 1942). The county in which the unseated land was located, consequently, could sell that land at a treasurer's sale to recover any unpaid taxes- “the logical method of collection.” See Northumberland County, 131 F.2d at 565-66.

         County land assessors were responsible for “travers[ing] the county” to determine whether land was seated or unseated and for reporting such distinctions to the county commissioner for taxation purposes. Herder Spring, 143 A.3d at 364; see also McCall v. Lorimer, 4 Watts 351, 353 (Pa. 1835). It was the duty of the assessor to designate the land as seated if the assessor found “such permanent improvements as indicate a personal responsibility for the taxes, ” and, if no such improvements were evident, to designate the land as “unseated.” Hutchinson v. Kline, 49 A. 312, 313 (Pa. 1901) (per curiam); Dolph v. Everhart, 19 A. 431, 432-33 (Pa. 1890). Hence, the distinction between seated and unseated land was in the “eye of the assessor.” Hutchinson, 49 A. at 313; Stoetzel v. Jackson, 105 Pa. 562, 567 (1884).

         To prompt a “seated” designation, the appearance of the land itself must have indicated a visible “substantial occupancy.” See Rosenburger v. Schull, 7 Watts 390, 394 (Pa. 1838). Substantial occupancy was evidenced by regular and continuous use of the land. Watson v. Davidson, 87 Pa. 270, 270 (1878); see George v. Messinger, 73 Pa. 418, 422-23 (1873). Importantly, neither actual residence nor developments made to increase the value of the land were prerequisites to seating a tract. Watson, 87 Pa. at 271, 274. Land could be seated if the property was used for resource-extraction endeavors like lumbering or mining, so long as the landowner or agent “carrie[d] on the business for so long a time and in such a manner continuously, from year to year, as to show an actual and permanent occupancy of the tract.” Id. at 274; see Herder Spring, 143 A.3d at 363 (citing Robert Grey Bushong, Pennsylvania Land Law, Vol. 1 § 469(II) at 500-01 (1938)).

         1. Game Commission's Objection

         The Game Commission objects to Judge Schwab's determination that a genuine dispute of material fact exists as to the character of the land for the 1907 assessment. The Game Commission contends that evidence offered by the Proctor Trusts is insufficient as a matter of law to find the Josiah Haines warrant seated in 1907, and that Judge Schwab erred by holding otherwise. We disagree.

         As Judge Schwab noted, the Proctor Trusts have proffered competent evidence that significant bark-peeling and lumbering activities occurred on the Josiah Haines warrant in 1905, 1906, and 1907. In 1905, tanbark[5] was harvested from 60 acres of the warrant, yielding 300, 900 net tons of bark and 189, 500 feet of hemlock lumber. (Doc. 95 ¶ 18). The following year, tanbark was harvested from 201 acres, producing 1, 000, 000 net tons of bark. (Id. ¶ 19). Finally, in 1907, tanbark was harvested from 149.5 acres, yielding 104, 300 net tons of bark. (Id. ¶ 20).

         What both parties fail to observe is that, when these annual bark-peeling figures are added together, they equal 410.5 acres-the exact acreage of the Josiah Haines warrant. (See, e.g., Doc. 97-1 at 43; Doc. 98-1 at 70, 71, 92, 101). In other words, by 1907, CPLC had stripped the entire Josiah Haines warrant-section by section-of all its hemlock bark. This conclusion is buttressed by CPLC's plat “No. 15, ” which divides the warrant into three distinct sections and indicates that a different portion was “peeled as of” 1905, 1906, and 1907, resulting in the whole warrant being peeled by 1907. (See Doc. 104-7 at 2). It is likewise corroborated by the December 9, 1920 affidavit of A.R. Spicer, “First Vice President” and “General Land & Timber Superintendent” of CPLC, who averred that “all of the Hemlock bark has been removed from” the “410.5” acres comprising the Josiah Haines warrant. (Doc. 98-1 at 100-01).

         It is true that the Proctor Trusts have provided little in the way of describing how the land may have appeared to an assessor following CPLC's bark-peeling activities. Nonetheless, scholars have indicated that hemlock peeling could have substantial effects on the character of the land. As explained by Hugh O. Canham, emeritus professor of forest and resource economics at the S.U.N.Y. College of Environmental Science and Forestry, the common method of harvesting tanbark was to cut down the hemlock trees, strip their bark, and leave the wood-which was less desirable than pine-to “rot in the forest.” Canham, Hemlock and Hide: The Tanbark Industry in Old New York, supra note 5. This process resulted in “clearcut” hemlock forests and “denuded hillsides, with rotting hemlock trees stripped of their bark[.]” Id. “Each acre of these woods produced only twelve cords of bark, meaning that the average tannery consumed more than one hundred acres each year. Immense waste resulted, as the strippers took only the bark, leaving the bared logs to rot in the woods.” Robert Kuhn McGregor, Changing Technologies and Forest Consumption in the Upper Delaware Valley, 1790-1880, 32 J. Forest Hist. 69, 77 (1988). Indeed, tanneries' extensive hemlock-bark consumption “devastated large portions of the region's forests.” Id. Additionally, due to the dusk-to-dawn nature of peeling work, bark peelers would “set up camps in the forest” during the peeling season, harvesting tanbark and sending it off to tanneries via horse-drawn wagons or sleds. Canham, Hemlock and Hide: The Tanbark Industry in Old New York, supra note 5.[6]

         We have little doubt that a reasonable juror could find that when the Josiah Haines warrant was assessed for taxes in 1907, the appearance of the land to the eye of the assessor would have implicated a “seated” designation. There is significant evidence regarding “actual and permanent occupancy of the tract, with the use thereof, ” such that the assessor's classification of the tract as unseated could reasonably be questioned. See Watson, 87 Pa. at 270, 274. The Game Commission's argument that the facts in this case differ from those in Messinger and Watson is unavailing. Under Pennsylvania law, what matters is not the type of improvement or business being carried on, but “the permanent occupancy and possession with the means afforded thereon for the collection of taxes.” Id. at 274. We cannot say that timber removal coupled with sustained and comprehensive bark-peeling activities on the Josiah Haines warrant would be insufficient to seat the land. Judge Schwab's determination on this account is not erroneous.

         2. Permissibility of the Classification Challenge

         Whether the Proctor Trusts can assert this argument to attack the 1908 treasurer's deed over a century after the assessment and tax sale is a different matter. After exhaustive review of relevant state and federal cases, as well as the legislative history of the applicable statute, we conclude that the Proctor Trusts' challenge is foreclosed by law.

         Our starting point is the critical statute at issue, the Act of June 3, 1885 (“Act of 1885” or “the Act”), which provides:

All sales of seated or unseated lands within this commonwealth which shall hereafter be made for arrearages of taxes due thereon, shall be held, deemed and taken to be valid and effective irrespective of the fact whether such lands were seated or unseated at the time of the assessment of such taxes. Provided, That nothing in this act contained shall validate or authorize the sale of any land which was in fact seated at the time of the assessment of the taxes thereon, in any case where there was sufficient personal property on the premises to pay all the taxes assessed thereon, liable under the laws of this commonwealth to have been seized therefor.

72 Pa. Stat. and Cons. Stat. Ann. § 5933. The first sentence of the Act generally puts an end to attacking the validity of tax sales based on “the fact” of whether the land was really seated or unseated at the time of its assessment. Its phrasing is clear and unambiguous. However, the second sentence-the exception to the general rule-has injected needless confusion into state and federal jurisprudence.

         In Northumberland County v. Philadelphia and Reading Coal & Iron Co., 131 F.2d 562 (3d Cir. 1942), the court of appeals examined this exception in the context of a corporate-reorganization bankruptcy appeal; the case did not involve validity of a tax-sale title. The debtor coal company claimed that, because land which it had owned but had failed to pay taxes on for years 1937 and 1938 had been assessed as unseated, it was not liable for those taxes and was not obligated to pay them as an administrative expense. Northumberland County, 131 F.2d at 563-64. The county rejoined that, although placed on the unseated list, the land was “in fact seated” and the county had evidence to prove it; thus, the coal company was obligated to pay the county approximately $174, 000 in overdue taxes. Id. at 564. The court described the question ...


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