Summary
describing Drivetrain's bundle of sticks argument as "misconceived," "analytical[ly] flaw[ed]," and "unconvincing," and noting that "Drivetrain relie[d] on a litany of cases in support of its bundle of sticks argument, but none is on point"
Summary of this case from In re Murray Energy Holdings Co.Opinion
Case No. 19-56885 (Jointly Administered)
2022-03-31
IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors.
Todd Goren, Benjamin Butterfield, Jennifer Marines, Lorenzo Marinuzzi, Erica Richards, Allison B. Selick, Morrison & Foerster LLP, New York, NY, Melissa S. Giberson, Thomas Loeb, Vorys, Sater, Seymour and Pease LLP, Columbus, OH, Tiffany Strelow Cobb, Columbus, OH, Brenda K. Bowers, Columbus, OH, for Creditor Committee. Roma N. Desai, Bernstein Shur Sawyer & Nelson PA, Portland, ME, for Special Counsel. Benjamin A. Sales, Office of the United States Trustee, Cincinnati, OH, Monica V. Kindt, John W. Peck Federal Building, Cincinnati, OH, Jeremy Shane Flannery, Office of the United States Trustee, Columbus, OH, U.S. Trustee.
Todd Goren, Benjamin Butterfield, Jennifer Marines, Lorenzo Marinuzzi, Erica Richards, Allison B. Selick, Morrison & Foerster LLP, New York, NY, Melissa S. Giberson, Thomas Loeb, Vorys, Sater, Seymour and Pease LLP, Columbus, OH, Tiffany Strelow Cobb, Columbus, OH, Brenda K. Bowers, Columbus, OH, for Creditor Committee.
Roma N. Desai, Bernstein Shur Sawyer & Nelson PA, Portland, ME, for Special Counsel.
Benjamin A. Sales, Office of the United States Trustee, Cincinnati, OH, Monica V. Kindt, John W. Peck Federal Building, Cincinnati, OH, Jeremy Shane Flannery, Office of the United States Trustee, Columbus, OH, U.S. Trustee.
MEMORANDUM OPINION AND ORDER
John E. Hoffman, Jr., United States Bankruptcy Judge
I. Introduction
This matter arises out of the Chapter 11 cases of Murray Energy Holdings Co. and its affiliated debtors and debtors in possession ("Debtors"). The dispute is over the status of mechanic's lien claims secured by real property that the Debtors sold as part of their Chapter 11 plan ("Plan") (Doc. 2082, Ex. 1). Drivetrain, LLC, in its capacity as the plan administrator appointed by the Plan, contends that the lenders under the Debtors’ prepetition superpriority credit agreement ("Credit Agreement") hold first-in-time liens on the real property as the result of mortgages certain Debtors granted in connection with the Credit Agreement. Based on these liens and the valuation of the property securing them, Drivetrain argues that the claims of certain mechanic's lienholders should be reclassified as unsecured claims. The mechanic's lien claimants counter that their claims are secured, asserting first-in-time status based on their liens on the surface estates of the real property. The parties agree that the mortgages pre-dated the filing of the mechanic's liens. But the Debtors that granted the mortgages held only title to the subsurface estates and the right to use the surface for mining purposes and did not hold title to the surface estates. Title to the surface estates was held either by a non-debtor or another Debtor that did not grant a mortgage to the lenders. The parties do not agree as to the import of this lack of surface estate ownership.
The issue, then, is whether an entity that has title to the subsurface estate and the right to use the surface for mining purposes may mortgage the surface estate. Drivetrain relies on the bundle of sticks concept from property law, leading to the parties’ characterization of the dispute as the "bundle of sticks" issue. Relying on this concept, Drivetrain argues that ownership of the subsurface estate together with the concomitant right to use the surface estate for mining purposes affords sufficient "sticks" to give rise to the right to mortgage the surface estate. The holders of the mechanic's liens take the contrary view, and they have the better argument. An entity that owns the subsurface estate along with the right to use the surface for mining purposes has no right to mortgage the surface estate.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). The allowance or disallowance of claims against the estate is a core proceeding. 28 U.S.C. § 157(b)(2)(B). Because the dispute "stems from the bankruptcy itself," the Court also has the constitutional authority to enter a final order. Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). See also Waldman v. Stone , 698 F.3d 910, 920 (6th Cir. 2012) ("[D]isallowance [of] claims [is] part and parcel of the claims-allowance process in bankruptcy. Under Stern , therefore, the bankruptcy court was authorized to enter final judgment as to these claims." (citation omitted)).
III. Background
A. The Plan
This dispute matters because of the Plan's different treatment of secured and unsecured claims. While the Plan is a joint plan of reorganization, it "constitutes a separate plan for each Debtor," Plan at 6, and "the classification of Claims and Interests set forth in the Plan [applies] separately to each of the Debtors." Disclosure Statement for the Debtors’ First Am. Joint Plan Pursuant to Chapter 11 of the Bankruptcy Code ("Disclosure Statement") (Doc. 1344-1) at 15. Secured claims under the Plan were classified as "Class 2 Other Secured Claims." Plan at 29, 30. Class 2 claimants, unless they agreed to less favorable treatment, were to receive, on the effective date of the Plan, payment of their allowed secured claims in full in cash or such other treatment as would render their claims unimpaired. Id . at 30.
When citing documents in the record, the Court will cite the PDF page number.
More than a dozen mechanic's lienholders objected to confirmation of the Plan. They argued that their liens were being released, and then possibly reinstated, which they said could allow the attachment of intervening liens. The mechanic's lienholders also argued that the Plan's injunction eliminated their in personam rights against the Debtors. The Debtors resolved these objections with most of the objectors by including a provision in the order confirming the Plan ("Confirmation Order") (Doc. 2135) stating:
Notwithstanding anything to the contrary in this Confirmation Order, the Plan, or the Stalking Horse APA, until a Disputed Other Secured Claim is Allowed or disallowed by Final Order or an agreement of the claimant with the Debtors (prior to the Effective Date) or the Stalking Horse Bidder (after the Effective Date), the lien or liens on property securing such Disputed Other Secured Claim shall remain on such property in the same priority that such lien or liens held prior to entry of the Confirmation Order. Notwithstanding the foregoing, the holder of a Disputed Other Secured Claim may not seek, and shall not have any rights, to enforce such lien or liens unless and until the corresponding Disputed Other Secured Claim is Allowed in an amount greater than zero. To the extent that an Other Secured Claim is Allowed and the Debtors (with the consent of the Stalking Horse Bidder) or the Plan Administrator, as applicable, elect for the holder of such Allowed Other Secured Claim to receive the treatment set forth in section III.B.2(b)(ii) of the Plan, (a) the lien or liens on property securing such Allowed Other Secured Claim shall remain on such property in the same priority that such lien or liens held prior to entry of the Confirmation Order, as established by order of the Bankruptcy Court (including an agreed order by and among the Debtors (with the consent of the Stalking Horse Bidder) or the Plan Administrator, as applicable, and the holder of such Allowed Other Secured Claim), and, to the extent the property subject to such liens constitutes an Acquired Asset, such liens shall constitute Permitted Encumbrances under the Stalking Horse APA and (b) notwithstanding anything to the contrary in this Confirmation Order or the Plan, any in personam rights that such Allowed Other Secured Claim may entitle such holder to have against any applicable Debtors shall be preserved and not released, discharged, or extinguished, and the holder of any such Claim shall not be enjoined from exercising any such rights against any applicable Debtors or the Wind-Down Trust. If a Disputed Other Secured Claim is either disallowed, Allowed in an amount of zero, or reclassified as a General Unsecured Claim by a Final Order or an agreement of the claimant with the Debtors (with the consent of the Stalking Horse Bidder), the lien or liens on property securing such claim shall be deemed released and extinguished. Nothing herein shall prejudice any party's rights with respect to the Debtors’ First Omnibus Objection to Certain Mechanic's Lien Claims [Docket No. 1749] or any of the responses, replies, objections, or oppositions filed or other litigation related thereto.
Confirmation Order at 55–56.
Following negotiations with the mechanic's lienholders, four parties maintained their objections, including one—GMS Mine Repair & Maintenance, Inc.—that is involved in this dispute. The Court overruled the objections, finding, based on the paragraph quoted above, that the Plan left the claims of the mechanic's lienholders unimpaired. Conf. Hr'g Tr. Aug. 31, 2020 (Doc. 2331) at 19–23.
If the claims of the holders of the mechanic's liens are unsecured, they will be reclassified as Class 9 general unsecured claims and will receive at best a minimal recovery. See Suppl. Disclosure Statement for Debtors’ Second Am. Plan (Doc. 1934-2) at 12 (estimating the recovery on general unsecured claims to be 0%–1%). But if the claims are secured, they will be treated as Class 2 Other Secured Claims and will be satisfied in full. Plan at 30.
B. The Omnibus Objection, the Responses and the Reply
Before confirmation of their Plan, the Debtors filed their First Omnibus Objection to Certain Mechanic's Lien Claims. See Doc. 1749. In this omnibus objection, the Debtors argued that certain mechanic's lien claims that were filed as secured claims should be reclassified as unsecured. Id . at 5–7. The holders of the mechanic's liens responded to the Debtors’ Omnibus Objection, and the Debtors filed an omnibus reply (Doc. 2068) in which they explained that the omnibus objection applied to two categories of claims: (1) claims that rely on liens that were filed under the wrong West Virginia mechanic's lien statutes or had defective notices, thus making the liens invalid and the corresponding claims unsecured; and (2) claims that must be reclassified as unsecured claims because they are junior in priority to claims arising under the Credit Agreement, for which there is insufficient collateral value to satisfy the claims in full. Reply in Supp. of Debtor's First Omnibus Obj. to Certain Mechanic's Lien Claims (Doc. 2068) at 1–2.
While the first category is the subject of a separate opinion, this opinion addresses the second category of claims. After confirmation of the Plan, Drivetrain filed seven motions for summary judgment on claims in the second category. There followed a series of responses to the Summary Judgment Motions by the mechanic's lienholders and replies to those responses by Drivetrain. These filings raised the common issue of whether an entity that owns the subsurface estate along with the right to use the surface for mining purposes has the right to mortgage the surface estate. The Court heard oral argument on this issue in December 2021. Drivetrain concedes that each Debtor that granted a mortgage under the Credit Agreement did not hold title to the surface estate of the applicable real property. See OWV Reply at 9; Laurel Reply at 9, 12, 15; Frontier Reply at 12; Pillar Reply at 19; Anderson Reply at 11; Miller Reply at 13. Drivetrain, however, argues that a party that holds title to the subsurface estate, along with the right to use the surface for mining purposes, may mortgage the surface estate. For their part, the holders of the mechanic's liens contend that the rights that the Debtors had to use the surface estate did not give them the right to mortgage the surface estate.
See Motions for Summ. J. Sustaining the First Omnibus Obj. to Certain Other Mechanics Lien Claims of Anderson Excavating, LLC (Doc. 2528); Frontier-Kemper Constructors, Inc. (Doc. 2530); GMS Mine Repair & Maintenance (Doc. 2531); Laurel Aggregates of Delaware, LLC (Doc. 2532); Miller Contracting Services, Inc. (Doc. 2533); Ohio-West Virginia Excavating Co. (Doc. 2534) and Pillar Innovations, LLC (Doc. 2536).
These responses to the Summary Judgment Motions were filed by the mechanic's lienholders: Doc. 2575 (Ohio-West Virginia Excavating Co.) ("OWV Response"); Doc. 2580 (Anderson Excavating, LLC); Doc. 2583 (Miller Contracting Services, Inc.); Doc. 2584 (Frontier-Kemper Constructors, Inc.); Doc. 2585 (Pillar Innovations, LLC); Doc. 2590 (Laurel Aggregates of Delaware, LLC); and Doc. 2595 (GMS Mine Repair & Maintenance, Inc.). Drivetrain then filed these replies: Doc. 2628 (Ohio-West Virginia Excavating Co.) ("OWV Reply"); Doc. 2630 (Laurel Aggregates of Delaware, LLC) ("Laurel Reply"); Doc. 2632 (Frontier-Kemper Constructors, Inc.) ("Frontier Reply"); Doc. 2633 (GMS Mine Repair & Maintenance, Inc.) ("GMS Reply"); Doc. 2634 (Pillar Innovations, LLC) ("Pillar Reply"); Doc. 2636 (Anderson Excavating, LLC) ("Anderson Reply") and Doc. 2637 (Miller Contracting Services, Inc.) ("Miller Reply"). Some of the mechanic's lien holders—Ohio-West Virginia Excavating Co. (Doc. 2522), Pillar Innovations, LLC (Doc. 2537), Frontier-Kemper Constructors, Inc. (Doc. 2541), and Laurel Aggregates of Delaware, LLC (Doc. 2542)—also filed their own motions for summary judgment.
IV. Legal Analysis
A. Summary Judgment Standard
Under Federal Rule of Civil Procedure 56, made applicable in this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "On a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts." Ricci v. DeStefano , 557 U.S. 557, 586, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009) (internal quotation marks omitted). "A dispute is ‘genuine’ only if based on evidence upon which a reasonable [finder of fact] could return a [judgment] in favor of the non-moving party." Gallagher v. C.H. Robinson Worldwide, Inc ., 567 F.3d 263, 270 (6th Cir. 2009). And a "factual dispute concerns a ‘material’ fact only if its resolution might affect the outcome of the suit under the governing substantive law." Id . This opinion addresses a disputed legal issue. If after ruling on this legal issue there remain genuine issues of material fact as to other aspects of a particular Claimant's mechanic's liens, the Court will address them in future proceedings.
B. Drivetrain's Arguments
Drivetrain relies heavily on property law's bundle of sticks concept. The concept is a familiar one for any first-year law student studying that subject. It is shorthand for the notion that property is best described as a collection of legal rights vis-a vis others—a bundle of sticks—rather than the mere right to a thing, such as a tract of land or a piece of equipment. See United States v. Craft , 535 U.S. 274, 278, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002) (noting that the phrase refers to a "common idiom describ[ing] property as a ‘bundle of sticks’—a collection of individual rights which, in certain combinations, constitute property"). Drivetrain argues that the owner of a subsurface estate with rights to use the surface for mining purposes has enough "sticks" relating to the surface to give rise to the right to mortgage the surface estate.
To support its position, Drivetrain identifies the rights applicable to each Debtor in relation to the surface estate. Drivetrain points to (1) each Debtor's right to use the surface as necessary to conduct its mining, (2) the waivers each Debtor received from the surface owners of any obligation to support the surface above the coal and of liability for any surface damage caused by mining activities, and (3) each Debtor's right to stop the surface owner from any conduct that interfered with its right to mine. See OWV Reply at 8; Laurel Reply at 12; Frontier Reply at 11; Pillar Reply at 17–18; GMS Reply at 16; Anderson Reply at 10; Miller Reply at 11.
Drivetrain also contends that each applicable Debtor had more than a severed mineral estate. In support of this contention, Drivetrain points to the "Coal Severance Deeds" as representing additional sticks in the bundle, because they provided the Debtors’ predecessors with the right "to use the surface, entries, shafts, pits and other appliances for mining, upon, in, through or under the lands herein described, as are herein granted for the mining and removal of the coal hereby conveyed." OWV Reply at 3; Frontier Reply at 4. The Coal Severance Deeds also gave the grantee the right "to use and occupy, from time to time, so much and such part of the surface of said lands ... as shall be necessary to use in and about the proper mining of said coal underlying said lands and adjoining lands, which shall include surface sufficient for shaft or shafts." OWV Reply at 3; Frontier Reply at 5.
The following excerpt from the OWV Reply summarizes Drivetrain's bundle of sticks argument:
[Debtor] had the right to use the surface as necessary to conduct its mining. [Debtor] owned the physical coal reserves, surface rights of access to the coal for mining and transportation, waivers of the obligation to support the surface above the coal, and waivers of liability for any surface damage due to mining activities. It is further undisputed that [Debtor] had the right to stop the surface owner from any conduct that interfered with its right to mine. ... These rights alone are sufficient to subject [Debtor's] interest in the surface estate to [the] ... [m]ortgage [granted by the Debtor]." ... [Debtor's] rights in the surface estate, however, went beyond use, income and exclusion. [Debtor] also possessed the right to alienate (or encumber) its rights to the surface. ... It is true, as OWV notes, that [Debtor] does not own title to the surface—a right that is often in the bundle of property rights. However, there is no basis to assert (as OWV does) that this one stick—title—is so essential to the category of "surface estate" that it overrides or excludes any other sticks in the surface estate held by others—in fact, the case law says the opposite. [B]ecause sufficient sticks in the bundle of property rights belong to [Debtor] to constitute ownership in the land at issue, [Debtor] can encumber the land, and as a result, the [mortgage granted by the Debtor] attaches to the surface estate for the land described therein.
OWV Reply at 8–10 (citations omitted); see also Laurel Reply at 12; Frontier Reply at 11; GMS Reply at 16; Pillar Reply at 17–18; Anderson Reply at 10; Miller Reply at 11.
C. Application of the Bundle of Sticks Concept
Drivetrain's bundle of sticks argument is misconceived. The Debtors that granted the mortgages under the Credit Agreement owned a severed mineral estate, so the only "sticks" they could grant the lenders under the Credit Agreement are the sticks held by the owner of a severed mineral estate. And there are five sticks in that bundle: the "right to develop (with ingress and egress), right to receive bonus payments, right to receive delay rentals, right to receive royalty payments, and right to lease (known as the executive right)." Eisenbarth v. Reusser , 18 N.E.3d 477, 488–89 (Ohio Ct. App. 2014), aff'd , 150 Ohio St.3d 342, 81 N.E.3d 1222 (2016) ; Altman v. Blake , 712 S.W.2d 117, 118 (Tex. 1986) ("There are five essential attributes of a severed mineral estate: (1) the right to develop (the right of ingress and egress), (2) the right to lease (the executive right), (3) the right to receive bonus payments, (4) the right to receive delay rentals, [and] (5) the right to receive royalty payments. R. Hemmingway, Law of Oil and Gas §§ 2.1–2.5 (1971)."); Glenda K. Harnad, Anne E. Melley & Jack K. Levin, Rights in Mineral Estate , 53A Am. Jur. 2d Mines and Minerals § 159 (2021) (same); Nancy Saint-Paul, Rights of Owners of Separate Interests in Oil and Gas , 1A Summers Oil and Gas § 8:4 (3d ed. 2021) (same); Laura H. Burney, Oil, Gas, and Mineral Titles: Resolving Perennial Problems in the Shale Era , 62 U. Kan. L. Rev. 97, 123 (2013) (same); Frederick K. Hoops, Frederick H. Hoops III & Daniel S. Hoops, Mineral Rights and Royalties , 2 Family Estate Planning Guide § 23:15 (4th ed. 2020) (same).
The right to mortgage the surface estate is not one of the five rights in the bundle of sticks granted to the owner of a severed mineral estate. The right in the surface estate that the owner of a severed mineral estate holds is the right to develop the surface, including the right of ingress and egress. But Drivetrain is trying to bootstrap the right to develop the property (including the rights of ingress and egress) into a broader entitlement—to mortgage the surface—that is not one of the bundle of rights held by the owner of a severed mineral estate.
Also, Drivetrain's argument that each Debtor that granted a mortgage had more than a severed mineral estate is unconvincing. The Coal Severance Deeds merely grant the right to develop and produce the coal, including the right of ingress and egress across the overlying surface estate, nothing more. See Chartiers Block Coal Co. v. Mellon , 152 Pa. 286, 25 A. 597, 599 (1893) ("The grantee of the coal owns the coal, but nothing else, save the right of access to it, and the right to take it away. Practically considered, the grant of the coal is the grant of a right to remove it.").
What's more, accepting Drivetrain's position would lead to absurd results. As one of the mechanic's lienholders, Ohio-West Virginia Excavating Co., put it:
The Plan Administrator's theory of Ohio real property rights is essentially that the owner of the mineral estate, and the coal estate in particular, can possess, control, and even encumber the surface estate. If true, this would be troubling news to surface owners and mortgage lenders alike. Under the Plan Administrator's theory, the owners of the surface estate, living day-to-day in their house on the property, could find that the lender to the owner of the separate coal estate was attempting to foreclose on the owners’ house and the entire surface interest, much to the surprise of both the owners and their mortgage lender on the house (and probably their title insurance company).
This is not the law. If it were so, no bank would ever lend any money to a prospective homebuyer if the owner of the coal beneath the home (or its lender) could dispossess the bank's borrower and place its collateral at risk.
OWV Response at 8.
Drivetrain describes this position as "hyperbole and curious hypotheticals," OWV Reply at 11, but the mechanics lienholders’ characterization of the Drivetrain's theory of property rights is spot on. If Drivetrain were correct and the subsurface estate owner could mortgage the surface estate, then couldn't the subsurface estate owner also claim the right to sell the surface estate? This would be a reductio ad absurdum argument, and thus it cannot be correct that the subsurface owner has the right to mortgage the surface estate. See Logan v. WMC Mortg. Corp. (In re Gray) , 410 B.R. 270, 279 (Bankr. S.D. Ohio 2009) ("Reductio ad absurdum is ‘Latin [for] "reduction to the absurd" ’ and is shorthand "[i]n logic [for] disproof of an argument by showing that it leads to a ridiculous conclusion.") (quoting Black's Law Dictionary 1305 (8th ed. 2004)).
The surface estates to which each mechanic's lien attaches are owned either by a Debtor that did not grant a mortgage on the surface estate or by a third-party non-debtor. If the surface parcel is owned by a non-debtor, Drivetrain concedes that the bundle of sticks concept does not apply. Doc. 2850 (Joint Stipulation Regarding the "Bundle of Sticks" Argument) at 3–7. But this concession only highlights the analytical flaw in Drivetrain's argument. No matter what entity holds title to the surface estate—an affiliated Debtor or an unrelated third-party—the Debtor that granted a mortgage under the Credit Agreement owned no more than a severed mineral estate. And the only "sticks" it could grant its lenders are those held by the owner of that estate. Just as a Debtor holding a severed mineral estate cannot convey a mortgage on a surface estate owned by an unrelated third party, so too when the surface estate is held by an affiliated Debtor.
D. Drivetrain's Cited Authority Does Not Support Its Position.
Drivetrain relies on a litany of cases in support of its bundle of sticks argument, but none is on point. First, Drivetrain relies on two decisions of the United States Supreme Court: Dolan v. City of Tigard , 512 U.S. 374, 384, 114 S.Ct. 2309, 129 L.Ed.2d 304 (1994) and Loretto v. Teleprompter Manhattan CATV Corp ., 458 U.S. 419, 435, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982). In Dolan the Court states that "[t]he right to exclude others" is "one of the most essential sticks in the bundle of rights that are commonly characterized as property." OWV Reply at 7. And Drivetrain cites Loretto for the proposition that "use [is] one of the property rights in a physical thing." OWV Reply at 8. But these cases do not apply. The Debtors would have the right to exclude others from the surface only to support their mining operations, and neither that right to exclude, nor the right to use the surface for mining purposes, equates to the right to mortgage the surface.
Second, Drivetrain points to several cases to support the idea that the applicable Debtor's "right to stop the surface owner from any conduct that interfered with its right to mine" gives that Debtor the right to mortgage the surface. Id . For this proposition Drivetrain relies on Belden & Blake Corp. v. Department of Conservation & Natural Resources, 600 Pa. 559, 969 A.2d 528, 532–33 (2009) ; American Energy Corp. v. Datkuliak , 174 Ohio App.3d 398, 882 N.E.2d 463 (2007) ; Consolidated Land Co. v. Capstone Holding Co ., No. 02-BA-22, 2002 WL 34714571 (Ohio Ct. App. Dec. 31, 2002) ; Trivette v. Consolidation Coal Co ., 296 Ky. 529, 177 S.W.2d 868 (1944) ; Preston County Coke Co. v. Elkins Coal & Coke Co. , 82 W.Va. 590, 96 S.E. 973 (1918) ; and Chartiers Block Coal Co. , 25 A. at 598. Id. at 8; Pillar Reply at 18; Anderson Reply at 10. But these cases do not establish that the subsurface owner's right to prevent the surface owner from interfering with its mining gives the subsurface owner the right to mortgage the surface estate.
Datkuliak upheld the trial court's finding that a coal severance deed affording the owners of the coal estate the right to mine all the coal in a seam required the owner of the surface estate to cap and plug a gas well that interfered with the mining of coal. Datkuliak , 882 N.E.2d at 463. Consolidated Land Co . ruled that a surface owner could be enjoined from constructing a landfill that would have interfered with the coal owner's mining of coal. Consol. Land Co ., 2002 WL 34714571, at *11. Preston County Coke Co . held that damage to a spring on the surface of land provided no basis for restraining a mining operation where the deed granting the mining rights absolved the owner of the mining rights from liability for damage to springs located on the surface. Preston Cty. Coke Co ., 96 S.E. at 976. Trivette affirmed orders enjoining surface owners from interfering with the construction of an electric transmission line by the owner of the mineral estate. Trivette , 177 S.W.2d at 870. Chartiers held that the grantor of the coal estate retained title to the oil and gas beneath the coal, and therefore the owner of the coal was not entitled to an injunction restraining the surface owner from drilling through the coal to reach the gas and oil beneath it. Chartiers , 25 A. at 599. And Belden & Blake held that the owner of the surface did not have the right to unilaterally impose extra conditions on the subsurface owner's drilling of wells. Belden & Blake , 969 A.2d at 532–33. None of these cases hold that a subsurface estate owner's right to stop the surface estate owner from interfering with its right to mine gave the subsurface owner the right to mortgage the surface estate.
Third, Drivetrain cites a trio of cases for the proposition that "the highest courts in Ohio, West Virginia and Pennsylvania have all affirmed the enforceability of a mineral rights owner's superior property rights relative to the surface owner." See OWV Reply at 9 (citing Columbia Gas Transmission, LLC v. Ohio Valley Coal Co ., 164 Ohio St.3d 113, 172 N.E.3d 107 (2020), Tex. E. Transmission, LP v. W. Va. Dep't of Envtl. Prot ., 240 W.Va. 131, 807 S.E.2d 802 (2017), and Pa. Servs. Corp. v. Tex. E. Transmission, LP , 98 A.3d 624 (Pa. Super. Ct. 2014) ). But again, these cases do not apply, as none of them address whether the holder of a severed mineral estate may mortgage a surface estate owned by a third party.
Columbia Gas involved a dispute between a coal company that had rights to the subsurface coal and the owner of a natural-gas pipeline that was constructed on the surface. Columbia Gas , 172 N.E.3d at 113–14. The coal company's mining activity damaged the pipeline through subsidence, but the coal company had received its severed interest in the coal from deeds that waived the company's liability for damage to the surface caused by subsidence resulting from mining. Id . The pipeline owner argued that the waivers had been invalidated by a regulation that the Ohio Department of Natural Resources had promulgated requiring mining companies to pay for surface damage caused by subsidence. Id . The Ohio Supreme Court rejected this argument, holding that the Ohio Department of Natural Resources lacked authority under Ohio statutory law to enact a regulation that requires a mining operator to pay damages despite the existence of waivers of liability. Id .
Similarly, in Texas Eastern , the Supreme Court of Appeals of West Virginia held that a West Virginia statute did not "abrogate West Virginia common law with respect to subjacent support waivers contained within coal severance deeds." Texas Eastern , 807 S.E.2d at 817. In Pennsylvania Services Corp. the Pennsylvania Supreme Court affirmed partial summary judgment against a pipeline owner and in favor of a coal operator as to the support estate underlying the pipeline owner's gas transmission pipelines. Pa. Servs. Corp ., 98 A.3d at 629. The court explained that Pennsylvania law "recognizes three discrete estates in land: the surface estate, the mineral estate, and the right to subjacent (surface) support," and that "[w]hile ‘[i]t is well established under Pennsylvania law that it is the owner of the surface land who has the proprietary right to support of the surface[,] ... [i]t is equally well settled that this right may be waived either expressly or by implication." Id . The court found that the "Coal Severance Deeds" conveying the right to mine all coal underlying the surface "expressly waived all liability for damages, including damages to the surface, caused by the removal of said coal" and that "[t]hrough this language, the Coal Severance Deeds expressly waived the right of support of the surface estate." Id . at 630. The Columbia Gas , Texas Eastern and Pennsylvania Services Corp . cases address aspects of a mineral owner's rights in relation to the owner of the surface estate. But none support Drivetrain's contention that the holder of a mineral estate that holds rights to use the surface estate may also mortgage the surface.
Fourth, Drivetrain relies on Mitchell Aero, Inc. v. City of Milwaukee , 42 Wis.2d 656, 168 N.W.2d 183 (1969) and Air Flite & Serv-A-Plane v. Tittabawassee Township , 134 Mich.App. 73, 350 N.W.2d 837 (1984) for the proposition that "one needs more than the title stick to constitute ownership." See OWV Reply at 9. That may be true, but these cases do not address whether an entity with title to a subsurface mineral estate and the right to use the surface estate for mining purposes may also mortgage the surface estate. Instead, these decisions deal with the ownership issue for tax purposes.
In Mitchell Aero , the issue was whether an airport tenant that built hangars at its own expense on land owned by the county had sufficient ownership of the hangars to be taxed. Mitchell Aero , 168 N.W.2d at 183, 42 Wis.2d 656. The tenant argued that it was exempt from taxation because the county had legal title to the hangars, but the Supreme Court of Wisconsin held that "beneficial ownership is the proper meaning of ‘owned’ in tax exemption statutes" and that the tenant was the beneficial owner of the hangars. Id. at 185.
In Air Flite , the issue before the court was which entity owned an airplane hangar that a private company built and operated under a lease with the lessor-airport. Air Flite , 350 N.W.2d at 838. The taxing authority—a township—relied on the bundle of sticks concept to argue that the lease agreement gave most of the rights of ownership to the private company and that, as a result, the hangar was personal property subject to taxation. Id . at 839. The court of appeals affirmed the Tax Tribunal's holding that the hangar was real property owned by the airport, not the private company, and that the hangar therefore was not taxable property. Id . at 839–40. The court disagreed with the township's argument that the "Tax Tribunal relied too heavily on the lease provision that title to the hangar vested in the lessor." Id . And it held that "[e]ven under the ‘bundle of sticks’ theory ... the lessor was given the bulk of the rights of ownership." Id . at 840. The Air Flite court pointed to the fact that the "[l]essee agreed to provide ‘the necessary management for the operation of the facilities at all times in a manner and quality acceptable to lessor," Id . The court also noted that: (1) the lessee could engage in secondary commercial support services "subject to the approval of the lessor;" (2) "[i]mprovements could not be made without the written consent of the lessor;" (3) "[i]nsurance coverage was required in such amount as may be approved by the lessor;" and (4) the "lessor was given the right to adjust the rent every three years and to terminate the lease if agreement on the new rent could not be reached." Id . Because the mechanic's lien dispute does not involve the question of ownership for tax purposes, neither Mitchell Aero nor Air Flite are on point. And neither case supports Drivetrain's bundle of sticks argument.
Fifth, Drivetrain relies on United States v. Ben-Hur , 20 F.3d 313, 317 (7th Cir. 1994) for the proposition that it is "well-established ... that ownership should not be equated with possession of legal title." OWV Reply at 10. But the facts of Ben-Hur are notably different from this case. Ben-Hur was a criminal forfeiture case in which the defendant argued that he did not own the real property to be forfeited when he committed his offense and that the property therefore was not subject to forfeiture. Ben-Hur , 20 F.3d at 316–17. At the time of the offense, the defendant was the vendor of a veterinary hospital under a land contract for the property, and it was in that context that the Seventh Circuit affirmed the district court's finding that the land contract was "anything but standard" and that "[i]t is equally well established ... that ownership should not be equated with possession of legal title." Id. at 317 (citation omitted). The Seventh Circuit held that the defendant was the owner of the property on the date of the offense because he had "substantially more than bare legal title." Id . at 319. Under the agreements between the defendant-vendor and the vendee, the vendee could not prepay the balance owed under the land contract or transfer any interest in the property without the defendant's consent, and the defendant "acted as if he retained ownership of the property," using it as collateral for loans from three banks. Id . at 318. Thus, Ben-Hur is off point and offers no support for Drivetrain's bundle of sticks argument.
Sixth, Drivetrain cites two cases— Quarto Mining Co. v. Litman , 42 Ohio St.2d 73, 326 N.E.2d 676 (1975) and Skivolocki v. East Ohio Gas Co. , 38 Ohio St.2d 244, 313 N.E.2d 374 (1974) —for the proposition that the owner of a severed mineral estate has "the uninterrupted right to use the surface as necessary to conduct its mining as a matter of law." Pillar Reply at 22. But once again these cases do not help Drivetrain. In Quarto Mining , the Ohio Supreme Court held that "a severed mineral estate is considered to include those rights to use of the surface as are reasonably necessary for the proper working of the mine and the obtaining of the minerals." Quarto Mining , 326 N.E.2d at 684. And Skivolocki held that "the right to strip mine is not incident to ownership of a mineral estate." Skivolocki , 313 N.E.2d at 378. These cases show that the owner of a severed mineral estate has rights to use the surface estate when such use is needed to mine. Neither case, however, supports Drivetrain's assertion that an entity with title to the subsurface estate and the right to use the surface estate for mining purposes may mortgage the surface estate.
Seventh, Drivetrain cites EQT Production Co. v. Crowder , 241 W.Va. 738, 828 S.E.2d 800 (2019), for the proposition that "[e]xcluding the severed, coal owner's property interest in the surface from the Mortgages because the coal owner does not have ‘title’ to the surface would exempt a significant interest in realty that is commonly understood to be necessary to conduct mining." Pillar Reply at 19–20. But the Supreme Court of Appeals of West Virginia held only that "a mineral owner or lessee has an implied right to use the surface of a tract in any way reasonable and necessary to the development of minerals underlying the tract" and that "a mineral owner or lessee does not have the right to use the surface to benefit mining or drilling operations on other lands, in the absence of an express agreement with the surface owner permitting those operations." EQT Prod. , 828 S.E.2d at 810.
Finally, Drivetrain relies on a provision of the Ohio Revised Code stating that a "mortgage ... of any interest in real property ... shall be signed by the ... mortgagor ... in the case of a ... mortgage[.]" Ohio Rev. Code Ann. § 5301.01 (West 2021). From this signature requirement, Drivetrain extrapolates that " any interest in real property can be mortgaged, sold or conveyed" and thus contends that the Debtors "possessed the right to alienate (or encumber) its rights to the surface." OWV Reply at 9. But Ohio Revised Code § 5301.01 does not afford a Debtor more rights than it has in the surface estate, and an entity may only mortgage the interest it owns. Again, the applicable Debtor's rights in the surface estate are the right to develop the surface, including the rights of ingress and egress. The Debtor did not have the right to mortgage the entire surface estate any more than it had the right to sell it.
V. Conclusion
For all these reasons, the Court holds that an entity that owns the subsurface estate with the right to use the surface for mining purposes has no right to mortgage the surface estate. Thus, Drivetrain's Summary Judgment Motions are DENIED to the extent that they seek to reclassify claims as unsecured based on the bundle of sticks argument.
IT IS SO ORDERED .