Ellis v. McKenzie

Opinion by Rodowsky, J. The Dormant Mineral Interests Act (DMIA or the Act), Maryland Code (1982, 2014 Repl. Vol.), §§ 15-1201 through 15-1206 of the Environment Article (En.) authorizes a circuit court, under specified circumstances, to terminate a dormant "severed mineral interest," thereby effecting a merger of that mineral interest with the estate overlying it. Respondents, Olin L. McKenzie, et al., owners of surface estates, invoked the Act in the Circuit Court for Garrett County. Petitioners, James H. Ellis, et al., owners of severed mineral interests, challenged, inter alia , the constitutionality of the Act.

The circuit court sustained the Act and terminated petitioners' mineral interests. On appeal, the Court of Special Appeals affirmed in an unreported opinion. We granted certiorari. 453 Md. 356 , 162 A.3d 837 (2017). For the reasons hereinafter set forth, we affirm.

Factual and Procedural Background Between 1884 and 1898, one Sarah Wright conveyed, cumulatively, hundreds of acres in Garrett County by seven deeds that, by variously phrased clauses, reserved the mineral interests. She died in 1900, leaving a will that divided her estate into four equal shares. The respondents are the present owners of the fee simple interests in the surface tracts who trace their titles back to the seven deeds from Sarah Wright. Petitioners are, to the extent known, the individuals and personal representatives who, prior to the termination of dormant mineral interests, owned or had claims to those mineral interests by tracing back to one of the four shares of Sarah Wright's testamentary estate.

Prior to the filing of the initial Petition for Termination in this action, none of the petitioners in this case knew of the existence of the severed mineral interests. DMIA was enacted by the Acts of 2010, Chapters 268 and 269, effective October 1, 2010. The respondents learned that the mineral interests were severed from their surface interests and employed a genealogy expert who conducted a study to identify the present heirs and descendants who inherited the mineral interests. The respondents filed a Petition for Termination of Dormant Mineral Interests on January 10, 2013.

Service of process was effected on the petitioners in personam or by publication. The circuit court entered default against forty-six of the petitioners. The remaining mineral interest owners filed answers to the petition, asserting that the DMIA is unconstitutional and that the petition failed properly to name several parties. Specifically the latter contention was that the petition incorrectly named Edward C. Boyce and his brothers, Kenneth and Leslie, as deceased parties with unknown heirs.

It was further contended that the petition failed to name the personal representatives of Emma Englar Ellis and Helen L. Patchen Hafer pursuant to Md. Code (1974, 2011 Repl. Vol.), § 1-301 of the Estates & Trusts Article. The respondents thereupon conducted discovery to identify the missing parties. During this period, George Thomsen, as personal representative of the Estate of Emma Englar Ellis, filed a notice of intent to preserve mineral interest on April 10, 2013; Doris J. Erb, as personal representative of the Estate of Helen Patchen Hafer, filed a notice of intent to preserve mineral interest on April 19, 2013; and Edward C. Boyce filed a notice of intent to preserve mineral interest on behalf of himself and his brothers on June 27, 2013.

Following discovery, the respondents filed their fourth amended petition, joining all of the owners of mineral interests. The parties commendably stipulated to the facts and limited the issues to the constitutionality of the DMIA and the validity of the Notices of Intent to Preserve Mineral Interest ("notices to preserve"). The stipulation also detailed that "[n]o Notice of Intent to Preserve Mineral Interests as allowed under § 15-1204 of the Environment Article was filed in the Land Records of Garrett County by or on behalf of any Respondent or by any person identifying any of the Severed Mineral Interests in this proceeding before the initial Petition for Termination was filed in this action on January 10, 2013." The stipulation listed each of the notices to preserve recorded after the original petition and then noted that the "[petitioners] who are parties to this Stipulation contend that the Notices of Intent are effective to preserve some or all of the Severed Mineral Interests. The [respondents] contend that the Notices of Intent are not effective to preserve any of the Severed Mineral Interests." The circuit court heard argument on September 14, 2015.

By memorandum and order entered on September 18, 2015, it concluded that (1) the DMIA is constitutional; (2) the respondents made the diligent inquiry to find unknown mineral interest owners required by the DMIA, as reflected in an affidavit; and (3) the notices to preserve are void because they were recorded after the commencement of an action to terminate mineral interests. On September 29, 2015, the circuit court entered a final order merging the terminated mineral interests of the petitioners into the surface estates of the respondents. 1 The order also voided the notice of intent to preserve mineral interest that had been filed in the Land Records of Garrett County. The petitioners noted an appeal to the Court of Special Appeals on October 15, 2015. That court affirmed on both issues.

It concluded that the instant case is indistinguishable from Harvey v. Sines , 228 Md. App. 283 , 137 A.3d 1045 (2016), in which the Court of Special Appeals had held that the DMIA is constitutional because the Act does not retrospectively abrogate a property right. The Court of Special Appeals also determined that the notices to preserve did not preserve the interests because they were filed after the action commenced despite minor errors in the petition. The mineral interest owners petitioned for a Writ of Certiorari on March 27, 2017, and the respondents answered on April 10, 2017. This Court granted the writ on June 21, 2017.

Additional facts will be stated in the discussion of the issues. Questions Presented "1. Does the DMIA violate Article 24 of the Maryland Declaration of Rights and Article III, § 40 of the Maryland Constitution by retrospectively taking a vested property interest from a mineral owner and transferring it to a surface owner without compensation? "2.

Is a notice of intent to preserve a severed mineral interest effective if recorded by the personal representative of a deceased owner's estate while an action to terminate the interest is pending against the decedent's descendants but not against the personal representative?" The Act DMIA creates a right in a surface owner of realty that is subject to a severed mineral interest to maintain an action to terminate that severed mineral interest as long as the mineral interest is dormant. No such action was permitted during a one-year grace period following the effective date of the Act. En. § 15-1203(a)(1). A mineral interest is dormant if, for twenty or more years preceding an action to terminate, it has not been used and it is not the subject of a notice recorded during that minimum twenty-year period.

En. § 15-1203(a)(2). 2 Owners of mineral interests can prevent a court from concluding that their interests are dormant by acting in such a way that is "using" the interest. These actions are active mineral operations, payment of certain taxes relating to the mineral interest, "[r]ecordation of an instrument that creates, reserves, or otherwise evidences ... the mineral interest," or recordation of a judgment that specifically references the interest. § 15-1203(c). 3 The owner of a mineral interest who wishes to preserve it "may record, at any time, a notice of intent to preserve the mineral interest," or part thereof. § 15-1204(a)(1). Certain information identifying the mineral interest is required. § 15-1204(c). In addressing both the petition to terminate mineral interests and the notice of intent to preserve such interests, the Act recognizes that there most likely will be difficulties in identifying the owners of a severed, dormant, mineral interest.

Section 15-1201(g)(1) defines " 'Unknown or missing owner' " as "any person vested with a severed mineral interest whose present identity or location cannot be determined: "(i) From the records of the county where the severed mineral interest is located; or "(ii) By diligent inquiry in the vicinity of the owner's last known place of residence." The defined term includes heirs, successors, or assignees. § 15-1201(g)(2). Thus, § 15-1203(b)(2) provides that an action to terminate "may be maintained, whether or not the owner of the severed mineral interest is an unknown or missing owner." Such an action "must be in the nature of and require the same notice as is required in an action to quiet title as set forth in § 14-108 of the Real Property Article." En. § 15-1203(b)(1). The Act also recognizes that the owners of certain severed dormant mineral rights might, as here, not have filed a notice of intent to preserve because the owners were unaware that they owned such rights until they received notice of the filing of an action to terminate those rights. En. § 15-1205(b) & (c) address these circumstances with a compromise.

Section 15-1205(b) provides: "In an action to terminate a mineral interest in accordance with § 15-1203 of this subtitle, the court shall permit the owner of the mineral interest to record a late notice of intent to preserve the mineral interest as a condition of dismissal of the action, if the owner of the mineral interest pays the litigation expenses incurred by the surface owner of the real property that is subject to the mineral interest." Section 15-1205(c), however, imposes the following limitation: "This section does not apply in an action in which a mineral interest has been unused in accordance with § 15-1203 of this subtitle for a period of 40 years or more preceding the commencement of the action." We turn now to the arguments of the petitioning mineral rights owners. Discussion I Petitioners rest their first argument on two provisions of the Maryland Constitution. Article 24 of the Declaration of Rights provides: "That no man ought to be ... disseized of his freehold, liberties or privileges ... or, in any manner, destroyed, or deprived of his life, liberty or property, but by the judgment of his peers, or by the Law of the land." "[T]he phrase 'law of the land' ... expresses the same concept as 'due process of law' in the Fourteenth Amendment" to the Constitution of the United States. City of Frostburg v. Jenkins , 215 Md. 9 , 15, 136 A.2d 852 , 854-55 (1957).

Maryland Constitution, Article III, § 40, additionally relied on, provides that "[t]he General Assembly shall enact no Law authorizing private property to be taken for public use, without just compensation ... being first paid or tendered to the party entitled to such compensation." This provision has been equated with the Takings Clause of the Fifth Amendment and the Due Process Clause of the Fourteenth Amendment. Erb v. Maryland Dep't of Environment , 110 Md. App. 246 , 262, 676 A.2d 1017 , 1025 n.2 (1996). These two provisions "have been shown, through a long line of Maryland cases, to prohibit the retrospective reach of statutes that would result in the taking of vested property rights." Muskin v. State Dep't of Assessments & Taxation , 422 Md. 544 , 556, 30 A.3d 962 , 968 (2011) (emphasis added) (citing Dua v. Comcast Cable of Maryland, Inc. , 370 Md. 604 , 805 A.2d 1061 (2002) ). But, "because of the numerous opinions by this Court dealing with the constitutionality of retroactive civil statutes ... in applying Article 24 of the Declaration of Rights and Article III, § 40, of the Constitution..., there is little reason to rely on non-binding out-of-state authority." Dua , 370 Md. 604 , 623, 805 A.2d 1061 , 1072 (emphasis added).

In Texaco, Inc. v. Short , 454 U.S. 516 , 102 S.Ct. 781 , 70 L.Ed.2d 738 (1982), the Supreme Court sustained, against a due process challenge, an Indiana Dormant Mineral Interests Act that automatically terminated the dormant interest for failure to register after a grace period. Petitioners' position here, in reliance on Dua and Muskin , is that the Maryland Constitution is more protective than the federal constitution against legislation that retrospectively abrogates vested rights. Dua and its companion case, Harvey v. Kaiser Found. Health Plan of the Mid-Atlantic States, Inc. , each found statutes that retroactively extinguished restitutionary rights to be unconstitutional.

Dua , 370 Md. at 618 , 805 A.2d at 1069 . Dua arose after this Court held in United Cable v. Burch , 354 Md. 658 , 732 A.2d 887 (1999), that the late charges imposed by a cable television provider violated the interest rate set, absent statutory authorization, by the Maryland Constitution. Dua , 370 Md. at 611 -13 , 805 A.2d at 1066 . The General Assembly then enacted a statute establishing a rate which applied not only prospectively but also purportedly validated the excess interest previously collected unlawfully, thereby extinguishing consumers' claims for refunds.

Id. at 613 , 805 A.2d at 1066 . In the Harvey case, health maintenance organizations (HMOs) had collected subrogation claims without authorization. Id. at 615-16 , 805 A.2d at 1068 . Subsequent legislation prospectively authorized subrogation and purported to make lawful the past collections, thereby extinguishing subscribers' claims for refunds.

Id. at 615 , 805 A.2d at 1068 . After a thorough, historical review of the decisions of this Court, we, speaking through Judge Eldridge, held both enactments to be unconstitutional in part. We reasoned: "In light of this Court's opinions, it is clear that retrospective statutes abrogating vested property rights (including contractual rights) violate the Maryland Constitution. To reiterate, the central issue, in cases like the present ones, is whether vested rights are violated and not whether the retroactive statutes are 'rational.' The Court's opinions indicate that the particular provisions of the Constitution which are violated by such acts are Article 24 of the Declaration of Rights and Article III, § 40, of the Constitution.

Furthermore, these constitutional provisions literally cover the matter. A statute having the effect of abrogating a vested property right, and not providing for compensation, does 'authoriz[e] private property, to be taken ..., without just compensation' ( Article III, § 40 ). Concomitantly, such a statute results in a person or entity being 'deprived of his ... property' contrary to 'the law of the land' ( Article 24 )." Id. at 629-30 , 805 A.2d at 1076 (footnote omitted). The principles of Dua were applied to a statute terminating an interest in realty in Muskin , 422 Md. 544 , 30 A.3d 962 .

The petitioner in Muskin challenged the constitutionality of ch. 290 of the Acts of 2007 which enacted a system of ground rent lease registration, now codified as Maryland Code (1974, 2010 Repl. Vol., 2016 Cum. Supp.), §§ 8-701 through 8-711 of the Real Property Article (RP). 4 Muskin , 422 Md. at 549 , 30 A.3d at 965 . Upon failure to register by the end of a grace period ending September 30, 2010, RP § 8-707(a) (1974, 2010 Repl.

Vol.), "the reversionary interest of the ground lease holder under the ground lease is extinguished and ground rent is no longer payable to the ground lease holder." RP § 8-708(a) (1974, 2010 Repl. Vol.). Upon extinguishment "the Department [of Assessments and Taxation] shall issue to the leasehold tenant a ground lease extinguishment certificate." RP § 8-708(b) (1974, 2010 Repl. Vol.).

Its effect is "to conclusively vest a fee simple title in the leasehold tenant." RP § 8-708(c) (1974, 2010 Repl. Vol.). In Muskin , we sustained the registration provisions of the Ground Rent Registry Statute. 422 Md. at 553 -54 , 30 A.3d at 967 . To determine whether the ground rent extinguishment provisions were constitutional, we evaluated "whether the statute purports to apply retrospectively ... or takes property without just compensation." Id. at 557 , 30 A.3d at 969 (footnote omitted).

Pursuant to the dictates of Dua , 370 Md. at 623 , 805 A.2d at 1072 , we performed that evaluation "guided by the stare decisis principles of relevant Maryland case law interpreting the Maryland Constitution, rather than relying on non-binding federal authorities interpreting reputedly analogous federal constitutional provisions." Muskin , 422 Md. at 556 , 30 A.3d at 969 . Retrospectivity Muskin addressed the elements of a retrospective statute: "[W]e said in John Deere Const. & Forestry Co. v. Reliable Tractor, Inc. , 406 Md. 139 , 147, 957 A.2d 595 , 599 (2008), 'this Court has only provided limited analysis of what constitutes a retrospective application of a statute.' In John Deere , we explained that necessarily there is no bright line rule for determining what constitutes retrospective application, but opined nonetheless that retrospective statutes are those that 'would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed.' 406 Md. at 147 , 957 A.2d at 599 (citing Landgraf v. USI Film Prods. , 511 U.S. 244 , 269, 114 S.Ct. 1483 , 1499, 128 L.Ed.2d 229 , 254 (1994) ). In John Deere , we adopted the Supreme Court's Landgraf factors analysis for retrospectivity that evaluates 'fair notice, reasonable reliance, and settled expectations' to determine 'the nature and extent of the change in law and the degree of connection between the operation of the new rule and a relevant past event.' Landgraf , 511 U.S. at 270 , 114 S.Ct. at 1499 , 128 L.Ed.2d at 255 ." 422 Md. at 557 -58 , 30 A.3d at 969 -70 . The extinguishment provision of ch. 290, the Ground Rent Registry Statute, defeated the "reasonable reliance" and "settled expectations" of ground rent owners, because, inter alia , they "rely reasonably on the future income from ground rents or the ability to sell the fee simple interest on the open market or in the future, if necessary." Id. at 558 , 30 A.3d at 970 .

"The unique form of property represented by a ground rent is a fungible asset, freely bought and sold, and passed down through generations." Id. Further, "[o]nce the extinguishment provision is triggered, Chapter 290 does not provide for additional remedies, such as an appeal or opportunity for a hearing." Id. at 559 , 30 A.3d at 970 . It seemed to be "a rather extreme regulatory overreaching to remedy anecdotal problems." Id. In the case before us, the petitioners/dormant mineral rights owners do not contend that DMIA did not afford fair notice.

With respect to "reasonable reliance" and "settled expectations," there are differences between the ground rent statute and DMIA. The fatal flaw in the former was that it cut off, for failure to register, the income stream that the ground rent holders enjoyed and reasonably expected to enjoy. By definition a dormant mineral interest is not, and has not been for twenty years, producing any income, inasmuch as it has been "unused" for at least that period preceding the filing of a petition to terminate. DMIA recognizes the value of the alienability of severed mineral rights by defining as "use" a transfer of such rights that is demonstrated by a land record within the twenty years preceding a petition to terminate.

En. § 15-1203(c)(iii). Nor does DMIA automatically terminate the dormant interest upon failure to register it by the expiration of a post-effective date grace period, as did the ground rent statute. Indeed, failure to register by the expiration of the grace period has no adverse effect on the owner of the mineral right. That owner may file a notice of intent to use so long as the surface owner has not petitioned to terminate.

Then, unlike the notice of extinguishment of a ground rent that was issued automatically by the Department of Assessments and Taxation, the owner of a severed, allegedly dormant mineral interest has the opportunity to defend against the petition to terminate on any of four grounds, use, payment of taxes, recorded instrument, and reference in a judgment, En. § 15-1203(c)(1)(i)-(iv), which, if found to exist as to any part of the mineral interest at any time in the preceding twenty years, defeats termination as to the whole of the mineral interest. Even if the petition to terminate is found by the court prima facie to lie, the owner of a severed mineral interest that has been unused for up to, but not including, forty years before the commencement of an action to terminate may compel dismissal of the action by filing a late notice of intent to use and by reimbursing the surface owner for that party's "litigation expenses" in bringing the action. En. § 15-1205(b) & (c). There are additional reasons why petitioners had no reasonable reliance or settled expectation that their mineral interests would never be the subject of legislation that could lead to termination of those interests.

The fact is that they