Saturday, June 20, 2020
In the mid-1950s, my Father was having the first of several ponds dug on farm property in northeastern Indiana that he and my Mother had purchased a few years earlier. During the excavation Mastodon bones (fossils) were unearthed in the muck and grey/blue clay, including a nearly full set of teeth and jaw bones. Mastodon bones were also unearthed on nearby farms and when a local branch campus of Purdue and Indiana Universities opened in the fall of 1964 it was given the nickname “Mastodons.”
An issue that I am certain never crossed my Father’s mind, likely because my parents owned both the surface and subsurface estates of the farm, was whether the fossils were “minerals” that would belong to the owner of the mineral estate. But, the legal classification of fossils is a very important issue when the fossils are valuable.
Are fossils “minerals” that are owned by the owner of the mineral estate? It’s the topic of today’s post.
Surface Estate and Mineral Estate
A fee simple owner of real estate can maintain possession and control of the surface of the property and sell/convey the rights to the “minerals” (such as oil and gas). Upon such a conveyance, the owner of the mineral rights (known as the mineral estate owner) can economically benefit from the extraction of the minerals. Depending on the mineral deed that conveys the minerals, the deed language may include all minerals known and unknown or the definition of “minerals” may be limited to specific ones.
Definition of “Minerals”
A common granting clause in a mineral deed specifies that the grantor either conveys or reserves “the oil, gas and other minerals.” That language can raise an issue concerning what “other minerals” means. Does it include such things as gravel, clay granite, sandstone, limestone, coal, carbon dioxide, hot water and steam? The courts have struggled with this issue and have reached differing conclusions. Does the phrase mean anything that is in the soil that the surface estate owner doesn’t use for agricultural purposes? Does is matter how the substance is extracted? Does it matter if the material is located in the subsoil rather than the topsoil? Is it material if the substance can be extracted without significant damage to the surface estate?
In 1949, the Texas Supreme Court issued a significant opinion on the issue of whether the term “minerals” includes substances other than oil and gas. Heinatz v. Allen, 217 S.W.2d 994 (Tex. 1949). The court utilized the “common meaning” rule under which all substances ordinarily thought of as minerals at the time the deed was executed are deemed to be minerals conveyed by the deed regardless of whether the parties knew the substances existed. That would seem to include in the definition of minerals such substances as gold, silver, coal, iron ore, etc.. Substances such as sand, gravel, water, etc. that are ordinarily associated with ownership of the surface estate would not be included in the definition of minerals. But the test is not a perfect, all-inclusive one and other factors can be relevant – such as exceptional value; surface destruction; and commercial and/or industrial meaning. In addition, state law may have a specific definition that applies in a particular situation.
What Are Fossils?
The issue of whether dinosaur fossils are “minerals” for the purposes of a mineral reservation clause in a mineral deed was an issue in a recent Montana case. In Murray v. BEJ Minerals, LLC, No. OP 19-0304, 2020 Mont. LEXIS 1472 (Mont. Sup. Ct. May 20, 2020), the court dealt with the issue in a case with millions of dollars on the line. Under the facts of the case, the plaintiffs (a married couple), leased farm and ranch land beginning in 1983. Over a period of years, the owner of the land transferred portions of his interest in the property to his two sons and sold the balance to the plaintiffs. From 1991 to 2005, the plaintiffs and the sons operated the property as a partnership. In 2005, the sons severed the surface estate from the mineral estate and sold their remaining interests in the surface estate to the plaintiffs. A mineral deed was to be executed at closing that apportioned one-third of the mineral rights to each son and one-third to the plaintiffs. After the transactions were completed, the plaintiffs owned all of the surface estate of the 27,000-acre property and one-third of the mineral (subsurface) estate. At the time, none of the parties suspected there were valuable dinosaur fossils on the property, and none of them gave any thought to whether dinosaur fossils were part of the mineral estate as defined in the mineral deed. Likewise, none of the parties expressed any intent about who might own dinosaur fossils that might be found on the property.
Specifically, the mineral deed stated that the parties would own, as tenants in common, “all right, title and interest in and to all of the oil, gas, hydrocarbons, and minerals in, on and under, and that may be produced from the [Ranch].” The purchase agreement required the parties “to inform all of the other parties of any material event which may [affect] the mineral interests and [to] share all communications and contracts with all other Parties.”
In 2006, the plaintiffs gave permission to a trio of fossil hunters to search (and later dig) for fossils on the property. The hunters ultimately uncovered dinosaur fossils of great value including a nearly intact Tyrannosaurus rex skeleton and two separate dinosaurs that died locked in battle. The fossils turned out to be extremely rare and quite valuable, with the “Dueling Dinosaurs” valued at between $7 million and $9 million. In 2014, the plaintiffs sold the Tyrannosaurus rex skeleton to a Dutch museum for several million dollars. A Triceratops foot was sold for $20,000 and a Triceratops skull was offered for sale for over $200,000. The proceeds of sale were placed in an escrow account pending the outcome of a lawsuit that the sons filed. The sons (the defendants in the present action) sued claiming that the fossils were “minerals” and that they were entitled to a portion of any sale proceeds. The plaintiffs brought a declaratory judgment action in state court claiming that the fossils were theirs as owners of the surface estate. The defendants removed the action to federal court and asserted a counterclaim on the basis that the fossils should be included in the mineral estate. The trial court granted summary judgment for the plaintiffs on the basis that, under Montana law, fossils are not included in the ordinary and natural meaning of “mineral” and are thus not part of the mineral estate. Murray v. Billings Garfield Land Co., 187 F. Supp. 3d 1203 (D. Mont. 2016).
On appeal, the appellate court reversed. Murray v. BEJ Minerals, LLC, 908 F.3d 437 (9th Cir. 2018). The appellate court determined that the term “fossil” fit within the dictionary definition of “mineral.” Specifically, the appellate court noted that Black’s Law Dictionary defined “mineral” in terms of the “use” of a substance, but that defining “mineral” in that fashion did not exclude fossils. The appellate court also noted that an earlier version of Black’s Law Dictionary defined “mineral” as including “all fossil bodies or matters dug out of mines or quarries, whence anything may be dug, such as beds of stone which may be quarried.” Thus, the appellate court disagreed with the trial court that the deed did not encompass dinosaur fossils. Turning to state court interpretations of the term “mineral”, the appellate court noted that the Montana Supreme Court had held certain substances other than oil and gas can be minerals if they are rare and exceptional. Thus, the appellate court determined that to be a mineral under Montana law, the substance would have to meet the scientific definition of a “mineral” and be rare and exceptional. The appellate court held that those standards had been met. The plaintiffs sought a rehearing by the full Ninth Circuit and their request was granted. Murray v. BEJ Minerals, LLC, 920 F.3d 583 (9th Cir. 2019). The appellate court then determined that the issue was one of first impression under Montana law and certified the question of whether dinosaur fossils constitute “minerals” for the purpose of a mineral reservation under Montana law to the Montana Supreme Court. Murray v. BEJ Minerals, 924 F.3d 1070 (9th Cir. 2019).
The Montana Supreme Court answered the certified question in the negative – dinosaur fossils are not “minerals” for the purpose of the mineral reservation at issue because they were not included in the expression, “oil, gas and hydrocarbons,” and could not be implied in the deed’s general grant of all other minerals. “Fossils” and “minerals” were mutually exclusive terms as the parties used those terms in the mineral deed. Murray v. BEJ Minerals, LLC, No. OP 19-0304, 2020 Mont. LEXIS 1472 (Mont. Sup. Ct. May 20, 2020).
In making its determination, the Montana Supreme Court reasoned that whether a substance or material is a “mineral” is based on whether it is rare and valuable for its mineral properties, whether the conveying instrument expressed an intent to use the scientific definition of the term, and the relation of the substance or material to the land’s surface and the method and effect of its removal. The Court also noted that deeds are like contracts and should be interpreted in accordance with their plain and ordinary meaning to give effect to the parties’ mutual intent at the time of execution.
The Court noted that the term “minerals” is defined in various areas of Montana statutory law (including tax provisions) and none include “fossils,” and that the only statutory provision mentioning fossils and minerals in the same statute referred to them separately. The Court also noted that the U.S. Department of Interior (for purposes of federal law) had made an administrative decision in 1915 that dinosaur fossils are not “minerals.” As such, the terms were mutually exclusive as used in the mineral deed between the parties, and the plaintiffs maintained ownership of any interests that the two sons had not specifically reserved in the mineral deed. The deed simply did not contemplate including “fossils” under the mineral reservation clause. Instead, the Court concluded that “minerals” under Montana law are a resource that is mined as a raw material for further processing, refinement and eventual economic exploitation. Fossils are not mined, they are excavated, and they are not rare and valuable due to their mineral properties. Therefore, unless specifically mentioned in the mineral deed, language identifying “minerals” would not “ordinarily and naturally” include fossils.
Based on the Montana Supreme Court’s answer to the certified question, the U.S. Court of Appeals for the Ninth Circuit affirmed the federal district court’s order granting summary judgment to the plaintiffs and declaring them the sole owners of the dinosaur fossils. Murray v. BEJ Minerals, LLC, No. 16-35506, 2020 U.S. App. LEXIS 19064 (9th Cir. Jun. 17, 2020).
While it’s not possible to anticipate what might be found on or under a tract of land, drafters of mineral deeds must carefully consider the potential impact of drafting language. This issue can be of primary importance, as the Montana case illustrates. Also, while it didn’t apply to the Montana case, the Montana Governor signed H.B. 229 into law on April 16, 2019. That legislation specifies that dinosaur fossils are not minerals and that fossils belong to the holder of the surface estate.
If only that Mastodon unearthed in the 1950s had been a Tyrannosaurus rex….