Thursday, December 29, 2016

Mineral Rights May Be Lost In Seven (7) Years


Mineral Rights May Be Lost In Seven (7) Years

By: Hugh Wood

Mineral rights in Georgia are lost if the minerals are not worked (mined) and/or specific taxes on the minerals are not paid within seven (7) years.  This loss does not apply to written mineral leases or licensed mining companies.

I was recently asked to opine concerning any other a minerals reservation in a deed was of such concern so as to generate a specific title exception.

The conveyance in question concerned 300 acres of land for development in north Georgia.  The title is completely clear; however, there is a well defined reservation of the minerals and minerals rights for mining.  No mining had been conducted on the property since, at least 1919, and the question arose whether the mineral and mining reservation constituted an objection to clear and marketable title.

            The specific reservation of mining rights in the deed reads:

All reservation of minerals, mining rights, mineral privileges and rights associated with dams in the Etowah River, including those contained in warranty deeds from [redacted] Trustees for Standard Pyrites Company to [redacted] all being recorded in Cherokee County, Georgia records.

Quick Summary: 

            Since no mining has occurred for more than seven (7) years prior to the conveyance of the property and since no specific ad valorem taxes have been paid to keep the mineral interest alive as a separate fee interest, the mineral interest has been lost (actually lapsed).  The mineral fee has merged (by lapse or adverse possession/prescription) into the surface fee.  OCGA § 44‑5‑168(a).  Because the right to dam the Etowah River is “incidental,” to mining (which has now been lost), the right to dam (and build earthworks) has also been lost.  OCGA § 44-9-73.  

            That is all the explanation needed for the CliffsNotes® summary.

            The extended backstory is as follows:

Owners, who seek development in the future, are concerned about whether their 300 acre acquisition in Cherokee County, Georgia is clear, given that the conveyancing deeds (1919) contain a very specific and very well defined reservation of all minerals for mining.  Additionally, the mineral conveyance contains a reservation to the mining owner to build “dams upon the Etowah River,” which includes by law the building of earthworks, and other structures incidental to mining.

The title question then became: For current and present surface development, does the severance of the mineral rights and mineral title pose a title exception?   Stated another way, does the owners of the surface fee expose his or her commercial developer to risk of mining (or interference) by the owner of the mineral rights fee?

PROPERTY LOCATION:

While I don't think that the owners know the background of their property, they walked into one of the more colorful conveyances of minerals in the history of Georgia. 


It appears that the property the owners acquired is a sub‑portion of the old “Standard Mine,” and/or the “Rich Mine” in Cherokee County, Georgia.  Both mines were active pyrite mines in the early part of the 20th Century.   A statement about the property, no doubt unknown to the owners, reads as follows:

[T]he Standard Pyrites Company owns 170 forty acre lots, a total of about 6800 acres of land, lying on the Third District First Section Forsythe County; and in the Third District Second Section Cherokee County.  About 4600 acres of this area is held in fee simple and 2200 acres of the mineral rights are in another company.  The mine is a lot 462 Third District Second Section Cherokee County, 7.3 miles by road southeast of Ball Green, a station of the Louisville & Nashville Railroad.  This property is the site of the Old Franklin or Crighton Goldmine, which was operated for about 75 years.  The goldmining operations have been described in two previous bulletins of the survey.  The last goldmining was done by the Crighton Goldmining Company and the Franklin Gold, Pyrites and Pyrite Company, under the management of Barry Searle.  These companies were reorganized form in the standard Pyrites Company, which has worked the Pyrites.  [1]

The owner’s deed contains Land Lots in ranges that overlap the old Standard Mine. 

The Standard Mine initially mined gold (in the mid to late 1800s) and then later pyrites.  Land lots overlapping and near the current conveyance appear in documents associated with the Standard Mine.  Id.

            After the gold worked out of the area in question, mining commenced (with significant intensity) in pyrites.  [2]  The current land can be mined for pyrite.  One might wonder why pyrites would be mined at all.   In the era at and before World War I pyrites were mined and worked for the purpose of obtaining sulphur and sulphuric acid (H2S04).  Sulphuric acid, at that time, was a main ingredient in agriculture fertilizer.  The largest amount of sulfuric acid – mined in this are in the early 1900s -- was used to make phosphoric acid.  That, in turn, was used to make the phosphate fertilizer.  Thus, the demand for pyrite mining, particularly after World War I was used, in part, to serve the agriculture needs of the United States.

            With regard to clearing the title to the surface, the issue concerns whether this very real mineral presents a problem to conveyance of the surface fee.   It probably does not.   The current Georgia statute in question concerning the loss of the mineral or mineral interest in land is OCGA § 44-5-168.  It provides that if the minerals have not been mined or “worked” within seven (7) years prior to conveyance and no specific ad valorem taxes have been paid (specifically set aside by the tax commissioner­ for the severed mineral interest) the mineral interest is lost (lapsed).   It is deemed to have merged with the surface fee and the surface fee now owns the entire fee, being both the surface fee and mineral fee.

            The statute reads:

OCGA § 44-5-168. Presumptive adverse possession for certain classes of property

(a) Whenever mineral rights are conveyed or whenever real property is conveyed in fee simple but the mineral rights to such property are reserved by the grantor, the owner of the real property in fee simple or his heirs or assigns may gain title to such mineral rights by adverse possession if the owner of the mineral rights or his heirs or assigns have neither worked nor attempted to work the mineral rights nor paid any taxes due on them for a period of seven years since the date of the conveyance and for seven years immediately preceding the filing of the petition provided for in subsection (b) of this Code section.
(b) In order to obtain absolute title to mineral rights in the circumstances described in subsection (a) of this Code section:
(1) The owner of the real property in fee simple or his heirs or assigns may file in the superior court for the county where the land is located a petition requesting relief in the nature of declaratory judgment. The petition:
(A) Shall contain all essential, required paragraphs, including jurisdiction;
(B) Shall contain the name and last known address of the grantor of the property reserving the mineral rights and the names and last known addresses of his heirs or assigns or any other person known by the plaintiff to have an interest in the mineral rights;
(C) Shall show:
(i) That the plaintiff or his predecessors in title were granted and obtained a deed for the property in question;
(ii) That the conveyance reserved mineral rights or that the plaintiff or his predecessors in title conveyed the mineral rights and reserved or retained the fee simple title to the real property; and
(iii) That, for a period of seven years preceding the filing of the petition after the conveyance, the owner of the mineral rights or his heirs or assigns have neither worked nor attempted to work the mineral rights nor paid taxes on them; and
(D) Shall include any and all prayers regarding the land that the plaintiff may desire. Specifically, the petition may pray that the court find that the plaintiff has obtained title to the mineral rights through adverse possession and that the plaintiff be granted title to mineral rights;
(2) Upon a finding in the plaintiff's favor, the court shall issue a judgment and decree declaring that the mineral rights involved have been lost and that the plaintiff has gained absolute title to such mineral rights; and
(3) Service shall be perfected in the same manner as service on defendants in an in rem proceeding, including service by publication.
(c) Nothing in this Code section shall restrict the court from granting further plenary relief, whether legal or equitable; and the failure of the petition in the plaintiff's favor shall not affect the right of the plaintiff to any other relief, legal or equitable, to which he may be entitled.
(d) Any person named in the petition or any person having an interest in the mineral rights shall have the right to intervene in a case brought under this Code section.
(e) In order to maintain the status quo pending the adjudication of the questions or to preserve equitable rights, the court may grant injunctions and other interlocutory extraordinary relief.
(f) Nothing in this Code section shall apply to a lease for a specific number of years nor to an owner of mineral rights who has leased the mineral rights in writing to a licensed mining operator as defined in Part 3 of Article 2 of Chapter 4 of Title 12.

Since the owners state there was no segregated mineral ad valorem tax and a search of the tax records confirms same, we can eliminate the possibility of the mineral fee survival based on the payment of mineral ad valorem taxes.   And, since pyrite has not been mined on the property since, at least 1926, we can determine that the mineral fee cannot have survived by mining or “working,” the minerals.

Thus, pursuant to OCGA § 44‑5‑168(a), it is somewhat conclusive that the titles have merged. [3]  This type of loss or taking has been upheld as constitutional.  [4]   This taking also happens automatically.  The surface owner does not need to do anything for the mineral fee to merge into the surface fee.   [5]   It would appear that (absent additional facts) the surface fee can be commercially developed without worrying whether the owner would face some future economic threat from the “owner” of the mineral fee.  

The owner posed a more nuanced title question.  Does the reservation to build dams on the Etowah River pose a separate or additional exception to title?   The prior deeds contain the right to build a dam on the Etowah River.  [6]  That is, does the reservation of the right to create a dam or earthworks on the Etowah River in any way change the analysis of the merger of the mineral fee into the surface fee?  It would seem to be “no” for a different reason. 

In Georgia law as far back as 1868, the General Assembly determined that the right to mine shall carry with it the incidental right to dam nearby waterways for use in the mine or cut ditches and canals or tunnels necessary for mining.  It is clear though that the creation of dams or earthworks is "incidental" to actual mining.  The statute in question is OCGA § 44‑9‑73.  It concerns: Privileges incidental to mining:  canals; tunnels, flumes and dams. 

It reads in its entirety as follows:

OCGA § 44-9-73. Privileges incidental to mining; canals; tunnels; flumes; dams

(a) The owner of any mine shall have the right to enter upon any land between the mine and the water power upon which the mine is dependent and to cut thereon such ditch, canal, or tunnel or to construct such flume or other aqueduct and to build such dam as may be necessary to control the water power; provided, however, that the mine owner shall first have the damages assessed arising to the owner of the intervening land or to the owner of the land on which the dam is to be erected and shall pay such damages to the owner of the land so intervening or on which such dam is to be erected.
 (b) After giving the owner of the land to be entered upon at least five days' notice of his intention to make such application, the owner of the mine shall present to the judge of the probate court of the county his written application for the right and privilege of cutting such ditch, canal, or tunnel or constructing such flume or aqueduct or erecting such dam.

Thus the reservation to erect dams on the property does not change the analysis that the mineral fee merged into the surface fee that caused the election of dams, canals, flumes is incidental to mining.  When the mineral fee was lost the former owner of the minerals also lost the right to dam the Etowah River. 

While this author believes that the loss of the mineral fee by the former owner is so clear as not require the further complication of obtaining a Judge’s Order confirming same.  However, if the grantee or owner needs a further level of confidence in the title and/or the commercial title insurance company will not insure ever this opinion, then and in that event the statute provides a solution.  That method is that the Superior Court in which the property is located may issue "a judgment and decree declaring that the mineral rights involved have been lost and the plaintiff is deemed absolute title to such mineral rights" OCGA § 44‑5‑168(d).  [7]

The action for the judgment concerning the mineral rights is fundamentally petitioned for as a declaratory judgment on the title.  The petition declares jurisdiction; all of the former owners that can be found and title (relevant title) are served (good luck with that when your base title is 1919) a Lis Pendens is filed against the property.  A hearing is eventually held by the Superior Court concerning whether the mineral fee has merged with the surface fee.  If the Court finds the fees have merges it issues a Court Order to that effect and the Order is recorded in the case and upon the land records of the County.  The cross-reference of that Order into the title chain forever eliminates the risk of hostile activity by the mineral owner.  

CONCLUSION:

The development of 300 Acres in Cherokee County, Georgia seems to be free from any risk of the mineral fee.  The mineral fee conveyance has been lost by the former mineral owner by its failure to mine or pay taxes on the mineral interest for seven (7) years prior to the conveyance.  Additionally, all rights to build earthworks and dams on the property have been lost, because they are deemed to be only “incidental,” to the working of mines.   The property seems to be free and clear of the severed mineral fee.

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084
hwood@woodandmeredith.com
www.hughwood.blogspot.com
Phone: 404-633-4100
Fax: 404-633-0068



 ENDNOTES:

[1]

Shearer, H.K. and Hull, J.P.D. The Pyrites Deposits of Georgia, Index Printing Company, State Printers, Atlanta, Georgia (1918) at 164.

[2]

The gold worked out and is presently not economical to mine.

[3]

See also, Hinkle, Daniel F., 2Ga. Real Estate Law & Procedure § 12:68 (7th Ed.) (2016).

[4]

This type of a statutory taking has been held constitutional.  Many years ago multiple cases arose over whether this type of loss of mineral rights was a “taking” without due process.  In a case arising out of the 20‑year lapse statute in Indiana, Ind. Code 32‑5‑11‑1 through 8 reached the United States Supreme Court.   In that case, Texaco, Inc. v. Short, 454 U.S. 516, 102 S.Ct. 781, 70 L.Ed.2d 738 (1982), the United States Supreme Court upheld the constitutionality of (fundamentally) all mineral loss statutes across the United States.  While Georgia refers to its mineral rights statute as “adverse possession” or prescription, much of the remainder of the country refers to these acts as the "dormant mineral" acts.  They are constitutional.

[5] 

The owner of the surface fee does not need to take any act or do anything for the mineral fee to merge into the surface fee.  "[The] surface owner who conveyed mineral rights did not have to assert any acts of dominion over the surface estate in order to make claim under the statute, but only allege that he had to deed the property an issue, the mineral rights had been severed from the fee simple estate, and make the requirement of non‑use and non‑pay of taxes had been satisfied."  Headnote.  Mixon v. One Newco, Inc., 863 F.2d. 846 (1989).  “[N]otwithstanding these references to “adverse possession,” our analysis of OCGA § 44-5-168 and Georgia cases construing it convinces us that the statute actually is a “lapse” statute rather than a traditional “adverse possession” law.”  Mixon, supra at 848.  Thus, in our current analysis the owner of the Cherokee fee need only assert that he held the surface fee for more than 7 years.  (And that may be extended by tacking to a prior owner).

[6]

No doubt the drafters in 1919 were unaware of the problems this would present in the modern age of getting approval to build a dam from the US Army Corps of Engineers, EPA and the Georgia Dept. of Natural Resources.

[7]

Note:  If the minerals are owned by a “licensed mining company,” in Georgia there are special exceptions to loss of mineral rights which go beyond the scope of this note.  Also, a recorded mining lease changes this analysis and stops the loss of minerals as described in this note. 

End


2 comments:

Chuck Anziulewicz said...

Very interesting.

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