Marcellus Shale gas boom sparks land disputes

A dispute over the ownership of mineral rights could determine who would profit from drilling operations similar to this well in Loyalsock State Forest.
A dispute over the ownership of mineral rights could determine who would profit from drilling operations similar to this well in Loyalsock State Forest. (CLEM MURRAY / Staff Photographer)
Posted: September 01, 2014

The Marcellus Shale natural gas discovery has triggered an associated boom in Pennsylvania land disputes, as formerly valueless mineral rights are now potentially worth millions.

The heirs of a Centre County landowner asked the Pennsylvania Supreme Court this month to resolve a case that stripped them of their 19th-century mineral rights, now claimed by a hunting club that bought the land in 1959.

The convoluted legal question affects the natural resources beneath huge expanses of timberland in the heart of the Marcellus Shale, which now accounts for nearly a quarter of the nation's natural gas production.

"Although this case concerns a dispute over the ownership of oil and natural gas under roughly 433 acres of property, the questions presented potentially affect the mineral ownership rights of hundreds of thousands of acres of property located in this commonwealth," Ronald L. Hicks, a Pittsburgh lawyer who represents the aggrieved heirs, wrote in an Aug. 8 Supreme Court filing.

The legal issue at stake, known as "title-washing," may affect many properties that were acquired in the last century through tax sales. It is rooted in the court's interpretation of an 1804 law allowing counties that claimed undeveloped land for unpaid taxes to also retake title to the mineral rights, sometimes unbeknownst to the subsurface owner, who was not tax delinquent.

The issue has added a new wrinkle to a battle between environmentalists and the Department of Conservation and Natural Resources (DCNR) over whether to grant surface access to a drilling company in a sensitive part of Loyalsock State Forest.

The Thomas E. Proctor Heirs Trust of Boston claims it is the rightful owner of the mineral rights beneath the state forest, and not two natural gas companies. Mark Szybist, a staff attorney with PennFuture, says the state may be negotiating surface access with the wrong party and should not allow construction to go forth until the title-wash issue is settled.

A DCNR spokeswoman dismissed the significance of the dispute, which the Proctor heirs communicated in a 2012 letter. No litigation has been filed.

"This kind of letter is not surprising, given that many spurious and vague claims have been made regarding ownership of gas rights since the Marcellus Shale play gained attention," said Christina Novak, a DCNR spokeswoman.

Disputes over title-washed deeds are acting as a brake on Marcellus Shale development. The heirs to the industrialists who retained mineral rights beneath northern Pennsylvania timberland say drillers are reluctant to extract gas they may not own, a violation known as mineral trespass.

Indeed, the case now before the Supreme Court originated in 2008, when a drilling company contacted the Herder Spring Hunt Club, said David C. Mason, a Philipsburg lawyer who represents the Centre County club.

The company expressed interest in leasing the club's mineral rights if the club could clear up the title, which showed that the 19th-century owners of the land, Harry and Anna Keller, had retained the mineral rights when they sold the land in 1899. (The concept of severing the subsurface property, known as a "split estate," is common in areas with natural resources.)

The surface property formerly owned by the Kellers was resold several times before the Centre County commissioners acquired title during the Depression for back taxes. The county sold the property in 1941. The hunt club bought it in 1959.

The hunt club claimed it owned the mineral rights by virtue of the tax sale, which it said reunited the surface and subsurface properties.

Though the Kellers had recorded the mineral rights with the county in 1899, the hunt club claimed the Kellers had not reported the mineral estate to the tax assessor, as was required under an 1804 law. The club argued that the tax sale extinguished the Kellers' mineral rights.

Supporters of title wash say the law at that time applied only to undeveloped or "unseated" lands, which were treated differently from occupied land.

Centre County Common Pleas Court ruled against the hunt club, and awarded the rights to the Keller heirs. But a three-judge Superior Court panel in May overturned the ruling and upheld the title wash.

"This resolution may be seen as being unduly harsh," said the Superior Court opinion, written by Judge Paula Ott.

"However, at the time for the relevant transactions - the seizure of the property for failure to pay tax and the subsequent treasurer's sale - this was the appropriate answer. We do not believe it proper to reach back more than three score years to apply a modern sensibility and thereby undo that which was legally done."

Many of the properties potentially affected by the ruling have common roots in the late 1800s, when wealthy industrialists from Philadelphia, Boston, and New York bought land in northern Pennsylvania for timber.

The landowners were in the leather business, and they built tanneries that used the bark of hemlock trees to tan cattle and buffalo hides that were shipped in by train from Western slaughterhouses.

In 1893, the big leather-producing families consolidated their lands to form the U.S. Leather Co., which controlled the American leather market. But they retained the mineral rights for their families, said Lester L. Greevy Jr., a Lycoming County lawyer who cowrote an article this year about title wash in the Pennsylvania Bar Association Quarterly.

Greevy says he thinks title wash had the beneficial goal of reclaiming idle rights from out-of-state speculators who gambled by not declaring their property to the tax assessor. "You can't sit on your rights for 60 to 80 years and expect to get them back," he said.

But the descendants of the leather-trust families say it was wrong to confiscate their mineral rights because the surface property's owners had failed to pay their taxes. They say there was no tax owed on the minerals themselves.

"As a family, we're outraged that you can simply take somebody's property without due process," said Christopher N. Berl, a descendant of Edward Hoyt, who was an officer in the U.S. Leather Co. The Hoyt heirs banded together in 2010 to form Hoyt Royalty L.L.C., which estimates it owns 55,000 acres of Appalachian shale rights. It is also a party in the Herder Spring case.

"We find the very concept of title wash to be offensive," said James K. Dominick, another Hoyt descendant. "We've gotten to the point that this issue can only be decided at the highest level of the courts."


amaykuth@phillynews.com

215-854-2947 @Maykuth

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