Relating to Real Estate
If You Don’t Use Your Mineral Interests, You Lose Them
In Ellis v. McKenzie, 457 Md. 323 (2018), the Court of Appeals held that the Dormant Mineral Interests Act (DMIA) has the effect of extinguishing “unused” mineral interests, and that DMIA is constitutional. DMIA was enacted in 2010 and is codified at §15-1201 et seq. of the Environmental Article of the Maryland Code. DMIA grants surface owners of real property the right to terminate dormant mineral interests, that is, those that are unused for 20 years. Under DMIA, an interest is used if there are active subsurface mineral operations, taxes are paid on the mineral interests, a notice of the interest is recorded in the land records, or a judgment is recorded that makes reference to the mineral interests.
In the subject case, Sarah Wright owned hundreds of acres of land in Garrett County. Before she died in 1900, she conveyed the property but reserved the mineral interests. Her will left her estate, including the mineral interests, to four people. Their descendants are the defendants before the trial court. The underlying plaintiffs are the descendants of the owners of the surface of the property. Before the plaintiffs instituted their action to extinguish the mineral interests in the defendants on January 10, 2013, none of the defendants knew of their existence. Under the DMIA standard, all of the mineral interests had been unused for more than 20 years when the action was filed.
The Circuit Court for Garrett County, after a hearing, issued an order on September 18, 2015, holding that DMIA is constitutional, and that the plaintiffs had made diligent efforts to find all of the holders of the mineral interests. The circuit court also held that notices issued by some of the defendants to preserve certain of the unused interests were void because they were filed after the case began. Consequently, the circuit court entered an order terminating the mineral interests and merging those rights into the interests of the surface owners.
The plaintiffs appealed to the Court of Special Appeals, which affirmed in an unreported opinion. SeeEllis v. McKenzie, 1723, Sept. Term, 2015, 2017 WL 562475 (Md. Ct. Spec. App. Feb. 10, 2017), which we discussed in the May 2017 issue of Relating to Real Estate. The defendants then filed a writ of certiorari, which the Court of Appeals granted.
The Court considered the defendants’ constitutional challenge to DMIA under Article 24 of the Maryland Declaration of Rights. The Court distinguished Muskin v. State Dep’t of Assessments & Taxation, 422 Md. 544 (2011), in which the Ground Rent Registry Statute was held unconstitutional to the extent that it provided that the failure to register a reversionary interest in a ground lease before a set date extinguished that interest. The Court stated that in Muskin the Ground Rent Registry Statute would have cut off the income streams that the holders of the reversionary interests enjoyed and reasonably expected to receive in the future. On the other hand, DMIA distinguished between users and non-users of the mineral interests, and noted that there are four separate ways for the holder of a mineral interest to be deemed a user. In the case at hand, the defendants did not do anything to be considered users, including paying taxes or filing a simple notice, and they had no reasonable expectation of benefiting from the mineral interests.
It did not help the defendants’ case that the United States Supreme Court had held that the Indiana version of dormant mineral legislation was constitutional under the United States Constitution. Texaco, Inc. v. Short, 454 U.S. 516 (1982).
The Court of Appeals also found that there was no “taking” under DMIA because the holders of the mineral interests had abandoned their rights. The Court likened this to an adverse possession case where a third party succeeds to the interest of a property owner who has not paid attention to property for more than 20 years.
Finally, the Court held that the notices of interest filed by certain of the petitioners who were not named in the initial version of the lawsuit did not extend their rights. The Court concurred with the circuit court that the respondents had been diligent in attempting to locate all of the descendants of Sarah Wright. The few descendants that were missed could not file notices after the commencement of the case, even though they filed before they were actually named in the litigation when the complaint was amended subsequently. Therefore, the Court affirmed the decision of the Court of Special Appeals.
For questions, please contact Ed Levin (410) 576-1900.