Opinion
NO. 2012-CA-000404-MR
05-03-2013
DELMA RUTH JONES BY AND THROUGH HER NEXT FRIEND MICHAEL JONES; ROSIA B. JONES; WILLIAM DAVID JONES; J. MICHELLE JONES; EVA MARIE MILLER; JAMES C. JONES; LINDA G. JONES; JUDY ANN JONES MANIER; DANNY LEE MANIER; JERRY L. BRUMLEY; TERRY W. BRUMLEY; BRENDA BRUMLEY; GARRIE W. BRUMLEY; AND DEBRA K. BRUMLEY APPELLANTS v. DELLA MAE JONES; K. PETROLEUM, INC.; ESTON ARTHUR ELDRIDGE; FRED A. EVANS; ESTON ARTHUR ELDRIDGE, /D/B/A L.H.C., INC.; L.H.C., INC.; SHERRY ELDRIDGE; FRANK JACKSON; BRENDA JACKSON; JON STEVENS; AND ANDREA STEVENS APPELLEES
BRIEFS AND ORAL ARGUMENT FOR APPELLANTS: John T. Aubrey Manchester, Kentucky BRIEF AND ORAL ARGUMENT FOR APPELLEE K. PETROLEUM, INC.: Scott M. Webster London, Kentucky BRIEF AND ORAL ARGUMENT FOR APPELLEES JON STEVENS AND ANDREA STEVENS: Frank C. Medaris, Jr. Hazard, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM CLAY CIRCUIT COURT
HONORABLE OSCAR G. HOUSE, JUDGE
ACTION NO. 07-CI-00066
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
BEFORE: DIXON, MOORE, AND TAYLOR, JUDGES. TAYLOR, JUDGE: Delma Ruth Jones, by and through her next friend, Michael Jones, Rosia B. Jones, William David Jones, J. Michelle Jones, Eva Marie Miller, James C. Jones, Linda G. Jones, Judy Ann Jones Manier, Danny Lee Manier, Jerry L. Brumley, Terry W. Brumley, Brenda Brumley, Garrie W. Brumley, and Debra K. Brumley (collectively referred to as appellants) bring this appeal from a February 16, 2012, Summary Judgment of the Clay Circuit Court holding that they possessed no interest in the mineral estate of certain real property located in Clay County, Kentucky. We affirm in part, reverse in part, and remand.
In an effort to set forth the underlying facts in a clear manner, we will recite only those facts necessary to the disposition of this appeal. Pearl and Kate Jones were married and had ten children. They owned in fee simple twenty-three tracts of real property. Pearl passed away intestate in 1964. Subsequently, in July 1969, Kate and her ten children entered into a deed of conveyance as to the twenty-three tracts of real property (1969 Deed). This 1969 Deed is the subject of the present controversy between the parties. Under the 1969 Deed, the parties generally agree that the grantors were Kate, her ten children, and their respective spouses. They also agree that the grantors conveyed a life estate to Kate with the remainder in fee simple to Beve Jones, one of Pearl and Kate's ten children. However, the parties adamantly disagree as to the effect of the 1969 Deed on the mineral estate in the twenty-three tracts.
In actuality, one of Pearl and Kate Jones' children, Gracie J. Brumley, predeceased Pearl, and Gracie's interest was passed to her only child, Eva M. Miller. For the sake of simplicity, we simply refer to the ten children of Pearl and Kate.
Eventually, Kate passed away, and the twenty-three tracts then passed to Beve in fee simple under the terms of the 1969 Deed. Although the exact date of death is not found in the record on appeal, Beve Jones passed away and pursuant to the provisions of his Last Will and Testament, his wife, Della Mae Jones, acquired title to the twenty-three tracts. By deed dated May 17, 2001 (2001 Deed) Della Mae Jones conveyed twelve of the twenty-three tracts to Eugene Lewis and Frank Jackson, as tenants in common. Lewis was subsequently convicted of sundry federal criminal offenses, and his one-half undivided fee simple interest in the twelve tracts was forfeited by Order of the Federal District Court entered on September 7, 2006. The United States Government then conveyed the forfeited one-half undivided fee simple interest in the twelve tracts to Jon Stevens by Special Warranty Deed dated August 28, 2007 (2007 Forfeiture Deed). Concomitant thereto, in 2007, Frank Jackson also conveyed his one-half undivided fee simple interest in the twelve tracts to Jon Stevens by General Warranty Deed (2007 General Warranty Deed).
Appellants filed this action in the Clay Circuit Court on February 16, 2007. Appellants constitute Kate and Pearl's surviving children, their spouses, and heirs of the deceased children. In the complaint, appellants claimed that the 1969 Deed reserved and excepted the mineral estate to the grantors, which constituted the ten children, and as surviving grantors or their respective heirs, appellants now hold the mineral estate, including coal, in the twenty-three tracts per the 1969 Deed.
By Summary Judgment entered February 16, 2012, the circuit court concluded that the 1969 Deed did not reserve any interest in the mineral estate to the grantors. Rather, the court concluded that the mineral estate passed with the surface estate to Beve Jones (and subsequently to Della Mae Jones on his death) per the terms of the 1969 Deed. Additionally, the circuit court observed that a one-half undivided interest in twelve of the twenty-three tracts conveyed under the 1969 Deed was forfeited by Order of the Federal District Court. The circuit court determined that appellants did not file a petition claiming an interest in the forfeited real property in Federal District Court; thus, any interest in the mineral estate appellants may have possessed was extinguished by forfeiture. Consequently, the circuit court rendered summary judgment in favor of appellees and dismissed appellants' complaint in its entirety. This appeal follows.
Summary judgment is proper where there exists no material issue of fact and movant is entitled to judgment as a matter of law. Kentucky Rules of Civil Procedure (CR) 56; Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky. 1991). In this appeal, the material facts are undisputed, and resolution is dependent upon two legal issues: (1) whether the 1969 Deed reserved or excepted any interest in the mineral estate to the grantors; and if so, (2) what effect the federal criminal forfeiture had on such interest in the mineral estate. We review these legal issues de novo and address each issue seriatim.
1969 Deed
To begin, it is well-settled that the interpretation and construction of an ambiguous term in a deed presents an issue of law for the court. Camenisch v. City of Stanford, 140 S.W.3d 1 (Ky. App. 2003). In interpreting a deed, the court is to be primarily guided by the intent of the parties and must give effect to such intent. Hoskins Heirs v. Boggs, 242 S.W.3d 320 (Ky. 2007).
The 1969 Deed provided, in relevant part:
Kate Jones, widow of Pearl Jones for and during her natural life, with remainder to Beve Jones, a son of Pearl Jones and Kate Jones, of Hima, Clay County, Kentucky, parties in the second part, WITNESSETH: That the said parties of the first part for and in consideration of $42,000.00, $5,000.00 each paid to Wm. Jones, Emma Webb, Casey Jones, Cleo Bennett, Claudia Brumley, John R. Jones, Eugene Jones, Chloie Crawford and $2,000.00 paid to Marie Miller, a granddaughter, and the further consideration that the grantee, Beve Jones keep, take care of and furnish to Kate Jones the necessities of life and give her a decent burial according to her station in life, and the further consideration that the above named grantors are to receive ten percent (10%) of the net proceeds derived from all minerals except coal removed from the property hereby conveyed, if and when the same is produced and sold from the premises[.] . . . (Emphasis added.)
. . . .
Kate Jones, the widow of Pearl Jones, who is the same person as P.G. Jones joins in this deed of conveyance to convey the remainder interest in the property hereinbefore described to the grantee, Beve Jones and excepts and reserves to herself a life estate therein; and Beve Jones and his wife, Della Mae Jones, join in this deed of conveyance to convey a life estate in the property hereinbefore described to the grantee, Kate Jones and
excepts and reserves the remainder interest therein to himself, the purpose of this deed being to vest a life estate in Kate Jones to all of said property and to vest in Beve Jones the remainder interest in all of said property, subject to the 10% mineral interest of each grantor to all minerals except coal, which is excepted. (Emphasis added.)
In the 1969 Deed, we are primarily concerned with two provisions. These provisions specifically reference an interest in the mineral estate being reserved by grantors. The first provision states in "further consideration that the above named grantors are to receive ten percent (10%) of the net proceeds derived from all minerals except coal removed from the property hereby conveyed . . . ." And, the second provision reads "subject to the 10% mineral interest of each grantor to all minerals except coal, which is excepted." We view, as did the circuit court, these two provisions as ambiguous. Noting their inherent ambiguity, the circuit court held the 1969 Deed must be interpreted in favor of grantees and that no interest in the mineral estate was reserved by grantors. We believe such interpretation to be in error, in part, for the reasons that follow.
From a reading of the 1969 Deed as a whole, it is readily apparent that the parties intended that an interest in the mineral estate be reserved in the grantors. This intent is plain upon the face of the 1969 Deed. The ambiguity arises in relation to the above referenced two provisions and then solely as to the type and quantity of mineral estate retained by the grantors. To resolve this ambiguity, we undertake an examination of both provisions in the 1969 Deed.
The first provision is located in the granting clause of the 1969 Deed and recites that grantors were to receive as additional consideration for the conveyance 10 percent of net proceeds from all minerals, except coal, removed from the real property. A plain reading of the grantors clause language clearly reflects that whatever interest in the coal estate held by the grantors was not excepted from this conveyance and passed with the surface estate to the grantees. As to all the other minerals, the terms of this provision operate to reserve a total of 10 percent of net proceeds from minerals after having been removed from the real property. It is pivotal that a 10 percent interest in the net proceeds of removed minerals rather than a 10 percent interest in the mineral estate itself was reserved. Where mere profits or net proceeds from the production of minerals are reserved under the terms of a written instrument, this type of reservation has been recognized as a perpetual nonparticipating royalty interest in the mineral estate. Ky. Bank & Trust Co. v. Ashland Oil & Transp. Co., 310 S.W.2d 287 (Ky. 1958); Gallin v. Combs, 341 S.W.2d 778 (Ky. 1960); see also 3A Summers Oil and Gas §§ 32:4, 36:2 (3d ed. 2012).
A perpetual nonparticipating royalty interest in a mineral estate is a nonpossessory interest and is particularly classified as an incorporeal hereditament in real property. Ky. Bank & Trust Co., 310 S.W.2d 287; Gallin, 341 S.W.2d 778; 38 Am. Jur. 2d Oil and Gas § 196 (2013). As an incorporeal hereditament, it passes with the land and is an interest carved out of the mineral estate. Ky. Bank & Trust Co., 310 S.W.2d 287. The perpetual nonparticipating royalty entitles the owner to receive a proportionate share of royalties payable to the mineral estate but does not entitle the owner to initiate production of such minerals. Ky. Bank & Trust Co., 310 S.W.2d 287; Gallin, 341 S.W.2d 778; 38 Am. Jur. 2d Gas and Oil § 196 (2013). This interest has been more eruditely explained as being:
[C]reated by grant or reservation prior to lease is commonly referred to as a perpetual nonparticipating royalty. The owner of such an interest is not privileged to enter on the land and produce oil and gas and thus has no authority in the execution of leases covering the mineral estate. The mineral fee owner has the sole privilege of drilling for and producing the oil and gas and, therefore, the sole legal power to execute a lease to a third person. The nonparticipating royalty owner is entitled to his stipulated portion of the production expense free. Where instruments of conveyance have used the words 'royalty' or 'profits' in describing the interest intended to be granted or reserved, the courts generally have held a royalty interest was created, but where the grant or reservation is expressed merely in terms of an interest in the oil, gas, or other minerals it is ordinarily held that a mineral fee interest is created. Summers, The Law of Oil and Gas, Vol. 3A, § 599.Gallin, 341 S.W.2d at 781.
As to the second provision at issue in the 1969 Deed, it seemingly utilizes language reserving to each grantor a 10 percent interest in the entire mineral estate, with the exception of the coal, which clearly conflicts with the language in the granting clause. However, we note that the ten children and their spouses, as well as Kate Jones, joined as grantors in the 1969 Deed. Each grantor could not mathematically reserve a 10 percent interest in the mineral estate, as such would total over 100 percent. Thus, the language of this provision is inconsistent with the language in the granting clause of the 1969 Deed. If we were to interpret the second provision as argued by appellants as granting each child and each respective spouse a single 10 percent interest in the mineral estate, it is then inconsistent with the first provision granting a total of a 10 percent nonparticipating royalty interest in the mineral estate, except coal, to all grantors. And, most importantly, the second provision obviously follows the first provision in placement in the 1969 Deed. It is entirely reasonable that the parties did not intend to define the mineral estate in the second provision but merely intended to make an abbreviated or shortened reference to the grantors' royalty interest in the mineral estate clearly set out in the granting clause. Any ambiguity in the second provision arises from the drafter's brevity in drafting and to that effect, must be viewed in "grantee's" favor.
Considering these two provisions of the 1969 Deed, we view the first provision, the granting clause, as better comporting with the intent of the parties as derived from the whole of the deed. In so doing, we interpret the first provision as effectively reserving the royalty interest in the mineral estate, except coal, and the second provision as merely referencing such royalty interest in a truncated manner. This interpretation not only fulfills the parties' intent but also resolves seemingly conflicting provisions in the 1969 Deed. For these reasons, we believe the 1969 Deed reserved to all grantors a total 10 percent nonparticipating royalty interest in the mineral estate of the twenty-three tracts of real property conveyed thereunder and further transferred any coal estate held by the grantors to the grantees. Having so concluded, we must next address the effect of the federal criminal forfeiture.
FEDERAL CRIMINAL FORFEITURE
As previously recited, twelve of the twenty-three tracts conveyed in the 1969 Deed were subsequently conveyed to Eugene Lewis and Frank Jackson, as tenants in common. Because Lewis was convicted upon sundry federal criminal offenses, his one-half undivided fee simple interest in the twelve tracts was forfeited by Order of the Federal District Court in a criminal forfeiture proceeding. Appellants did not file a petition asserting any interest in the forfeited real property. Eventually, the United States Government conveyed the forfeited one-half undivided fee simple interest in the twelve tracts to Jon Stevens by the 2007 Forfeiture Deed. Neither the Federal District Court's Order of forfeiture nor the 2007 Forfeiture Deed noted or reserved any interest in the mineral estate from the forfeited one-half undivided fee simple interest in the twelve tracts of real property.
In its summary judgment, the circuit court concluded that appellants' failure to file a petition setting forth their interest in the mineral estate in the forfeited one-half undivided fee simple interest in the twelve tracts extinguished such mineral interest. For the following reasons, we agree.
The record indicates that Lewis's one-half undivided fee simple interest in the twelve tracts was forfeited pursuant to the criminal forfeiture proceedings outlined in 21 U.S.C. § 853. Thereunder, after an order of forfeiture is entered by the federal district court, any third party asserting a legal interest in property subject to the forfeiture may file a petition setting forth his interest in the property within thirty days of the forfeiture order. 21 U.S.C. § 853 (n). Upon filing the petition, the district court holds a hearing to determine if the petitioner possesses a legal interest in the forfeited property and then amends the order of forfeiture accordingly. 21 U.S.C. § 853 (n). It has been held the failure of a third party to file a petition asserting his interest within thirty days operates to "extinguish" such interest. U.S. v. Marion, 562 F.3d 1330, 1339 (11th Cir. 2009).
In this case, it is uncontroverted that appellants did not file a petition asserting their interest in the mineral estate of the forfeited real property. Consequently, by operation of federal law, appellants' interest in the mineral estate as to the forfeited one-half undivided interest in the twelve tracts was extinguished. See Marion, 562 F.3d 1330.
In sum, we are of the opinion that the 1969 Deed reserved to grantors a total 10 percent nonparticipating royalty interest in the mineral estate of the twenty-three tracts of real property conveyed thereunder, except coal, which was transferred under the 1969 Deed. Due to the federal criminal forfeiture proceeding, this 10 percent nonparticipating royalty interest was extinguished as to the forfeited one-half undivided interest in twelve of the twenty-three tracts; however, the 10 percent nonparticipating royalty interest is still reserved in the other one-half undivided interest in these twelve tracts that was transferred by Della Mae Jones to Frank Jackson who subsequently transferred his interest to Jon Stevens. And, the 10 percent nonparticipating royalty interest in the mineral estate remains in effect as reserved by the 1969 Deed in the remaining eleven of the original twenty-three tracts of real property that were not subsequently transferred.
Accordingly, we affirm the circuit court's summary judgment as to the extinguishment of the 10 percent nonparticipating royalty interest in the mineral estate, except coal, as to the forfeited one-half undivided interest in twelve of the twenty-three tracts. Additionally, we affirm that the existing coal estate was transferred to Beve Jones by the grantors with the surface estate in the 1969 Deed. Upon all other issues regarding the royalty interest in the mineral estate, we reverse the circuit court's summary judgment and remand for proceedings consistent with this Opinion.
For the foregoing reasons, the Summary Judgment of the Clay Circuit Court is affirmed in part, reversed in part, and this case is remanded for proceedings consistent with this Opinion.
ALL CONCUR. BRIEFS AND ORAL ARGUMENT
FOR APPELLANTS:
John T. Aubrey
Manchester, Kentucky
BRIEF AND ORAL ARGUMENT
FOR APPELLEE K. PETROLEUM,
INC.:
Scott M. Webster
London, Kentucky
BRIEF AND ORAL ARGUMENT
FOR APPELLEES JON STEVENS
AND ANDREA STEVENS:
Frank C. Medaris, Jr.
Hazard, Kentucky