United States: Subsurface Rights And Turn Of The (20th) Century Tax Rolls – The Case Of Herder Spring Hunting Club v. Keller

In Herder Spring Hunting Club v. Keller (---A.3d---, 2014 WL 1873877 (Pa.Super.)), the Superior Court of Pennsylvania granted summary judgment to Herder Spring Hunting Club (Herder) in a quiet title action against the heirs of Harry and Anna Keller (the Kellers) and awarded to Herder subsurface rights in a parcel of ground located in Centre County, Pennsylvania, despite the fact that the chain of title contained an express reservation in the Kellers of subsurface and mineral rights in the property. How the court came to that result illustrates the sometime arcane nature of real estate law.

History

In 1894, the Kellers acquired the "Eleanor Siddons Warrant," a tract of land in Centre County, PA containing 460 acres (the Property), at a tax sale. The property was "unseated," meaning it was unoccupied and unimproved (as opposed to "seated" land, which contained permanent improvements.) On June 20, 1899, the Kellers conveyed the surface rights to the property, but in the deed reserved for themselves and their heirs and assigns all subsurface rights in the property.

The surface rights in the property were transferred a number of times until, in 1935, the property was offered for sale by the County Treasurer at a tax sale. Since no bidder offered the upset price, the treasurer conveyed the property to the Centre County Commissioners. The property was still unseated. In 1941, the Centre County Commissioners sold the property to Max Herr, who died intestate in 1944.

In 1959, Herder acquired the property from Herr's widow. A title search was done at the time, and the Kellers' reservation of subsurface rights was discovered. The deed to Herder contained a statement that "this conveyance is subject to all exceptions and reservations as are contained in the chain of title."

It was recently determined that the property contains shale rich in natural gas. This discovery prompted Herder to file a quiet title action, seeking title to the subsurface rights. In 2010, the trial court in the quiet title action granted to the Kellers' heirs summary judgment, ruling that the reservation of rights was recorded and Herder was aware of the reservation. Herder appealed.

The Appeal

The Superior Court started by noting that a grant of summary judgment will only be reversed "where it is established that the court committed an error of law or abused its discretion." The Superior Court then went on to analyze the history of the property to determine if the trial court correctly applied the law. Surprisingly, the Superior Court's ultimate ruling depended on the interpretation of an old law – §1 of Act of 1806, March 28, P.L. 644, later retitled 72 P.S. §5020-409 (the Act) – which is no longer in effect.

The Act, in relevant part, provided that parties that acquired unseated land were obligated to give to the commissioners or the board for assessment and revision of taxes a statement describing the property so acquired, as well as information relating to the transfer. The purpose of this requirement was to allow for the proper levy of a tax assessment on the unseated property (in contrast, seated land contained permanent improvements that would arguably provide to the commissioners or assessor notice of what party was responsible for taxes). Unfortunately for the Kellers' heirs, it was determined that the Kellers never gave the commissioners notice that the subsurface rights had been severed from the surface rights in 1899, as required by the Act. This would prove fatal to their claim to the subsurface rights in the property.

Although the Act itself did not expressly address situations where subsurface rights were severed from surface rights, the Superior Court reviewed a number of cases that involved both the "horizontal" severance of property (i.e., dividing the property into separate lots) and the "vertical" severance of property (i.e., separation of surface rights from subsurface rights), and reviewed what happened when parties failed to comply with the Act and the properties were subsequently sold at tax sales. The Superior Court found that in those cases, the failure to comply with the Act meant that the tax assessment was levied "against the property as a whole," and the tax sale was thus a sale of the entire estate. In situations where the commissioners were not notified of a severance, the tax laws would treat the properties at issue as set forth in their original "warrants" (i.e., the original grants, before severance), and tax them as a whole. For example, in Hutchison v. Kline, 49 A. 312 (Pa. 1901), the Pennsylvania Supreme Court ruled that both surface and subsurface rights to a parcel of land should be awarded to a tax purchaser, even though the estates had been severed, because the commissioners were not notified of the severance. The Supreme Court stated "the property had been taxed as a whole, therefore the property was sold as a whole."

And what of the fact that the public record showed that the surface and subsurface estates had been severed, and that Herder had actual knowledge of the severance? The fact of public recording was of no relevance to the commissioners and assessors – in Hutchison, the Supreme Court stated that "the record of the deed creating a separate estate in the minerals would not be notice to the assessor or the commissioners, as they were not bound to search or examine the records." As for Herder, even though its deed specifically referenced "exceptions and reservations as are contained in the chain of title," the Superior Court ruled that "there were no active exceptions or reservations in the chain of title, the horizontal severance having been extinguished" by the 1935 tax sale.

Since the Kellers never informed the commissioners of their reservation of subsurface rights in 1899, the property continued to be taxed as a whole, the treasurer acquired the property a whole, and the treasurer conveyed the property to the commissioners as a whole. The Superior Court thus vacated the award of summary judgment in favor of the Kellers' heirs, and remanded the case back to the trial court to enter summary judgment in favor of Herder.

The recent boom in natural gas exploration in Pennsylvania has given rise to complex questions regarding subsurface rights. Sometimes we are required to look deep into the past to answer these questions.

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