Acknowledging that its decision is “at odds with modern legal concepts” and may be viewed as “unduly harsh,” the Pennsylvania Superior Court nevertheless found that it was bound to strip the oil and gas rights to a Centre County property from the heirs of the land’s former owners who had reserved the subsurface rights when they sold the land in 1899 but failed to inform the county commissioners of the horizontal severance under an “arcane” and now-outdated tax assessment law from the early 1800s.

Herder Spring Hunting Club v. Keller is the latest example of how the natural gas boom in Pennsylvania has required contemporary courts to examine century-old land deeds through the lens of archaic law.

In a May 9 decision, a three-judge panel of the court unanimously reversed a Centre County trial judge’s ruling awarding the land’s subsurface rights to the heirs of Harry and Anna Keller, who originally acquired the land in 1894.

Judge Paula Francisco Ott, writing for the court, said that, while the Kellers had reserved, by deed, the subsurface rights to the land when they transferred the surface rights to new buyers in 1899, their failure to report the severance to the county commissioners under Section 1 of the Act of March 28, 1806, meant the reservation of rights was extinguished when the property was acquired by the county commissioners at a 1935 tax sale.

In 1941, the county sold the property to Max Herr, whose widow sold it to plaintiff Herder Spring Hunting Club in 1960, according to Ott.

The dispute between Herder and the Keller heirs over the subsurface rights only arose recently when it was discovered that the property sits on a significant amount of natural gas-containing shale, Ott said.

Section 1 of the Act of March 28, 1806, required anyone who acquired unseated land to provide a statement describing that land to either the county commissioners or the board for the assessment and revision of taxes in order to ensure an accurate tax assessment, Ott said.

The act, which was later retitled as 72 P.S. Section 5020-409, was repealed as it relates to fourth-class counties like Centre County in 2010, but Ott said the court was constrained to decide this case based on the law that was in play when the county acquired the land and Herder purchased the land.

Therefore, Ott said, the Kellers’ failure to notify the commissioners of the severance following their 1899 transfer of the surface rights means Herder is now the rightful owner of both the surface and subsurface rights.

“This resolution may be seen as being unduly harsh,” Ott conceded in the opinion. “However, at the time of 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.”

Ott was joined by Judge Christine L. Donohue and Senior Judge William H. Platt.

In Herder, according to Ott, the Kellers acquired a 460-acre tract of “unseated” land in Centre County in 1894.

Prior to 1961, Ott explained, Pennsylvania tax assessment law made a distinction between “unseated” land—which was unoccupied and unimproved—and “seated” land to which there had been man-made improvements.

In 1899, the Kellers transferred the property’s surface rights to Isaac Beck, Isaiah Beck and James Fisher by deed but reserved the subsurface rights for themselves and their heirs, Ott said.

However, the Kellers did not notify the county commissioners of the severance as required by the act, Ott said.

Therefore, according to Ott, when the county acquired the property at the 1935 tax sale, it acquired both the surface rights and the subsurface rights, which were eventually purchased by Herder.

In reaching the court’s conclusion, Ott cited two state Supreme Court decisions, each of which are more than 100 years old.

In Williston v. Colkett, from 1848, the state Supreme Court ruled that a property owner lost his entire 600-acre property at a treasurer’s sale because he knew the property had been improperly assessed and taxed at 200 acres and failed to notify county commissioners, according to Ott.

“Even though Williston involves vertically severed lands, the result emphasizes the requirement that it is the owner’s responsibility to provide an accurate report to the commissioners, and the failure to do so can have dire consequences,” Ott said.

In its 1901 ruling in Hutchinson v. Kline, the Supreme Court ruled that a tax purchaser had acquired both the surface and subsurface rights to a piece of land because the commissioners had never been informed of the previous severance of those rights and had been taxing the property as a whole, Ott said.

The Hutchinson court said it was not incumbent upon the county’s tax assessor or commissioners to examine property records to determine whether there had been a severance of surface and subsurface rights, according to Ott.

Ott said Pennsylvania case law has established that “the person who severed rights to unseated land was under an affirmative duty imposed by statute to inform the county commissioners or appropriate tax board of that severance, thereby allowing both portions of the property to be independently valued.”

Ott said that, because the Kellers never informed the county commissioners that they horizontally severed the subsurface rights from the surface rights to the Centre County property, the county continued to tax the property as a whole.

“Therefore, the treasurer obtained the property as a whole and transferred it to the commissioners as a whole,” Ott said, adding that, under the Act of 1815, the Kellers had two years from the date Herr purchased the property to make the severance known and failed to do so.

Ott further noted that, while the trial court had credited the defendants’ averments that the severance records were either not kept by the recorder of deeds or were lost or destroyed, there is no proof of this.

Counsel for Herder, David C. Mason of Philipsburg, Pa., said he wasn’t surprised by the Superior Court’s ruling.

“That’s been the law of the commonwealth for 200 years,” Mason said.

Counsel for the Keller heirs, Brian K. Marshall of Miller, Kistler & Campbell in State College, Pa., did not return a call requesting comment.

Herder is not the first case in which a recent dispute over oil and gas rights dredged up a 19th-century land deed requiring an interpretation of 19th century law.

Perhaps the most high-profile example of this is last year’s Supreme Court ruling in Butler v. Charles Powers Estate, arguably one of the most important Pennsylvania oil and gas decisions to come down since the Marcellus Shale play first began in earnest in 2007.

In Butler, the justices ruled that the Dunham rule, named after the 1882 Supreme Court case Dunham and Shortt v. Kirkpatrick, requires courts interpreting deed reservations that do not specifically mention shale or natural gas and where there exists no parol evidence to suggest the parties intended to include shale or natural gas to rely only on the layperson’s understanding of what a mineral is: a substance of a metallic nature.

Therefore, the court found, oil and gas are not minerals under Pennsylvania law and an 1881 deed reserving half of “‘the minerals and petroleum oils’” contained on a piece of land did not reserve the oil and gas rights to the land.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI. 

(Copies of the 18-page opinion in Herder Spring Hunting Club v. Keller, PICS No. 14-0733, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •