U.S. District Court Upholds Coal Owner's Right To Purchase Surface
By: John E. Rhine, Rhine Ernest LLP
The U.S. District Court for the Southern District of Illinois has upheld a provision in a coal deed granting the coal owner the right to purchase the surface for mining purposes. In reaching the decision in Arclar Company v. Gates, U.S. Dist. Court, So. Dist., 97-4335-JLF (1998), Judge James L. Foreman cited fundamental Illinois mineral law as well as precedent from other mineral producing states.
In Arclar, the coal owner purchased the coal in 1905. The deed also granted a right of way for conveying coal and a right to purchase "such portion of the surface of the premises hereinabove described as may be necessary for the erection of tipple, buildings, powerhouses, railroad tracks, switches and other improvements necessary for the mining and removing said coal at the price of One Hundred Dollars per acre." The Arclar Company operates a coal mine in Saline County, Illinois, and sought to place an overland conveyor belt on about three acres of Gates' property and construct a high voltage power line and water line on it as well. Arclar brought an action against Gates, requesting specific performance of the option to buy the surface, an injunction preventing Gates from interfering with Arclar's use of the conveyer easement and damages for such interference. Gates moved to dismiss on numerous grounds, including the Rule Against Perpetuities, the Rule Against Restraints on Alienation and Illinois' 75-year statute of limitation (735-ILCS 5/13-114), which bars offering documents against someone's title if those documents are over 75 years old.
The U.S. District Court noted that the Illinois Supreme Court had upheld a virtually identical deed provision against a challenge based on the Rule Against Perpetuities in Threlkeld v. Inglett, 124 N.E. 368 (1919), which had been subsequently approved in decisions by the Illinois Supreme Court itself, Jilek v. Chicago, Wilmington & Franklin Coal Co., 47 N.E.2d 96 (1943); the Illinois Appellate Court in In re Payment of Taxes, 537 N.E.2d 358 (5th Dist. 1989); the United States Court of Appeals for the Seventh Circuit, Chicago, Wilmington & Franklin Coal Co. v. Minier, 127 F.2d 1006 (1942) and Chicago, Wilmington & Franklin Coal Co. v. Herr, 127 F.2d 1010 (1942); and by courts from other states, such as Quarto Mining Co. v. Litman, 327 N.E.2d 676 (Ohio 1975).
The district court, citing the Threlkeld and Quarto cases, also found that while a bare option to purchase exercisable outside the period of the Rule Against Perpetuities is void as an unreasonable restraint on alienation, this rule does not apply to options to purchase part of an overlying surface estate granted for the purpose of facilitating mining. The court also held that the 75-year statute did not apply under fundamental mineral law. The surface estate, subject to the easement and option, is a separate estate from the mineral estate, which includes certain implied and, in this case, express, surface rights. Arclar was not claiming against Gates' title but rather enforcing its own. Furthermore, the 75-year statute is a statute of limitations — it could not apply until Arclar had a chance to enforce its rights and that did not happen until Arclar needed the surface for mining purposes.
The court's decision in Arclar v. Gates comes as no surprise to mineral lawyers as it applies the most fundamental of all mineral law — the law of separate estates. In virtually every mineral producing state in the United Sates and in other common law jurisdictions, minerals may be held separately from the surface. Ownership may be divided vertically, as well as horizontally, so that the owner of a mineral strata is no different vis-a-vis the surface owner of Blackacre than is the owner of an adjacent surface tract. An adjacent surface tract may be served by an easement across Blackacre by implication where there is no other ingress or egress because it is presumed that the right to get to the property was intended by the parties even if it was not set out in an express easement. Similarly, when minerals are severed and nothing is said about access, the right to get to those minerals by using surface is implied. But such rights can also be express, as it was in the deed before the court in Arclar v. Gates. (The creation of express rights is generally encouraged by the courts as it prevents disputes over just what was intended by the parties by their silence. In the Illinois Basin, disputes over surface use by mineral developers, especially oil and gas producers, are very common.) Whether express or implied, the mineral owner's rights to the surface for mining purposes are part of the mineral estate — part of his bundle of sticks. The surface owner's bundle is missing these sticks, though this is sometimes forgotten as the farmer looks out over "his" fields for year after year.
The passage of time since the creation of a separate mineral estate sometimes confuses attorneys and landowners but mineral rights are indeed important property rights which may be held separate from the surface of perpetuity. This fundamental principle is essential to the extraction industry, which is one of Illinois' oldest and most important industries. Efforts to take minerals by passage of time, in the guise of the Dormant Mineral Act, was held an unconstitutional taking of property rights without due process of law by the Illinois Supreme Court in Wilson v. Bishop, 412 N.E.2d 522 (1980). The Rule Against Perpetuities cannot apply because the mineral estate, which includes certain surface rights, vested at the time of the severance. Its corollary, the Rule Against Restraints on Alienation, does not apply simply because the surface estate, albeit a surface estate subject to these easements and other rights, is simply not involved. Similarly, the 75-year statute, or any other statute of limitations, has no application because again the surface estate is not involved — in the words of the court in Arclar: "Neither party is asserting by claim or color of title the same interest in the same property."
In the Quarto case cited by the court, the Ohio Supreme Court did add one interesting twist. In that case, the mineral owner enforced a right to purchase surface for mining purposes in 1975. The severance deed, delivered in 1905, provided for a purchase price of $100 per acre. The court said that while the mineral estate owner's right to purchase surface would be enforced, as a court of equity it required fair market value to be paid for the land taken because time had so badly devalued the stated consideration. The U.S. District Court did not address this issue in Arclar v. Gates.
Title examiners and insurers in counties with mineral development or potential (and that is most Illinois counties) often cavalierly ignore mineral severances or perhaps only search for them for 40 years. This is dangerous as there are many perpetual rights in the surface which the mineral owner may hold, including the right to cause subsidence, the right to build lease roads, pipelines, electric lines, overland conveyors and even buildings on the property, and in many instances, especially in coal producing counties, the right to take the surface itself. All of these rights have been recently upheld by various Illinois courts. Examiners and insurers are careful to note the rights of other estate owners in a real estate development with restrictive covenants or in a condominium complex. Where minerals are severed, the rights of the mineral estate holder should be noted in any examination or policy covering the surface.
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In the United States District Court for the Southern District of Illinois
|
ARCLAR COMPANY, an Illinois Corporation Plaintiff, vs. JAMES KENNETH GATES, Defendant, |
CIVIL NO. 97-4335-JLF |
MEMORANDUM AND ORDER
FOREMAN, District Judge:
Before the Court is defendant's Motion to Dismiss for Failure to State a Claim (Doc. 6). Plaintiff has filed a response (Doc. 12). This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332.
Plaintiff, Arclar Company, has sued James Gates for specific performance (count I) and for an injunction (count II) regarding certain land in Saline County. Specifically, Arclar seeks specific performance of an option to purchase a certain surface area of Gates' land that Arclar claims is necessary for its coal mining operation. Arclar also seeks an injunction because Gates is allegedly preventing Arclar from using an easement that Arclar claims to have acquired by deed. The original action was brought in Saline County. Gates removed it to this Court based on diversity and an amount in controversy in excess of $75,000.
I. Background.
Once upon a time, several members of the Choisser family, (specifically, William
Choisser, Kate Choisser, De Launt Choisser, and Willie Choisser), held title to 214 17/20
acres in Saline County. In 1905, in a document called "Warranty Deed to Coal," the
Choissers conveyed all of the coal underneath the surface of the 214 17/20 acres to
O'Gara Coal Company (Doc. 2, Exh. A). The Warranty Deed to Coal also granted
O'Gara Coal Company:
...the right to mine, dig, ventilate, drain and remove the coal therefrom,
and together with the right to use the passageways and entries under the
said premises for the purpose of hauling, mining and removing the coal
above conveyed, and all other coal not belonging to or hereafter to be
acquired by the said O'GARA COAL COMPANY, its successors and
assigns, and for a "Right-of-Way" over the same, or such portion thereof
as may be necessary for conveying said coal to market;...
(Doc. 2, Exh. A).
The parties refer to this bundle of rights as a "Conveyer Easement." Finally, the Choissers also granted O'Gara Coal Company, (and its heirs, successors, and assigns), the right at any time to purchase for $100 per acre the portion of the land's surface necessary to mine and remove the said coal. Specifically, the Choissers agreed that:
The said grantors for themselves, their heirs, executors, administrators and
assigns, as a covenant running with the land and the property conveyed,
further agree to sell to the O'GARA COAL COMPANY, its successors or
assigns, at any time hereafter, such portion of the surface of the premises
hereinabove described as may be necessary for the erection of tipple,
buildings, powerhouses, railroad tracks, switches and other improvements
necessary for the mining and removing said coal at the price of One
Hundred ($100.00) Dollars per acre, and to convey the title of said surface
to said O'GARA COAL COMPANY, its successors and assigns, by good
and sufficient Warranty Deed...
(Doc. 2, Exh. A).
By mesne conveyances, Arclar acquired the interests that O'Gara Coal Company had acquired by the Warranty Deed. In other words, Arclar has acquired: 1) the coal; 2) the Conveyer Easement; and 3) the right to purchase the surface necessary to mine the coal.
Arclar claims that it is necessary to construct a conveyor over and across the Conveyor Easement to convey the coal to market. Although Arclar has the Conveyor Easement, it also claims that it needs 3.442 acres of the surface to construct a high voltage power line and water line to service the conveyor. Gates owns 33 acres, including the 3.442 acres allegedly needed by Arclar. Gates acquired these 3.442 acres with notice of O'Gara's right to buy the surface. Specifically, the deed stated that Gates' 3.442 acres was:
Subject to the rights of O'Gara Coal Company, its successors and assigns,
relating to purchase of the surface and ownership of a right to explore for
coal attached as Exhibit A and subject to all rights which are appurtenant
to ownership of coal, expressed and implied.
(Doc. 2, p.3).
As noted, Arclar seeks specific performance of the option to buy and an injunction preventing Gates from interfering with Arclar's use of the Conveyor Easement. Gates has filed a motion to dismiss based on various grounds discussed below.
II. Standard of Review.
A motion to dismiss tests the sufficiency of the complaint, not the merits of the suit. Triad Assoc, Inc. v. Chicago Housing Authority, 892 F.2d 583, 486 (7th Cir. 1989), cert. denied, 498 U.S. 845 (1990). A plaintiff is required only to provide a short and plain statement of the claim "that will give the defendant fair notice of the claim and the grounds upon which it rests." Leatherman v. Tarrant County Narcotics Intelligence Unit, 113 S.Ct. 1160 (1993) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957) (footnote omitted)). The court must accept pleaded conclusions as true. Early v. Bankers Life & Casualty Co., 959 F.2d 75, 79 (7th Cir. 1992). The sole issue when reviewing a motion to dismiss is whether relief is possible under any set of facts that could be established consistent with the allegations in the complaint. Bartholet v. Reishaur A.G., 953 F.2d 1073, 1078 (7th Cir. 1992) (citing Conley, 355 U.S. at 45-46 (1957)).
III. Motion to Dismiss
Mr. Gates' Motion to Dismiss is based on six (6) grounds which are addressed below.
1) Arclar's Claims are Not Barred by Illinois' 75-year Statute of Limitations.
Gates argues that Arclar's claims are barred by Illinois' 75-year statute of limitation, 735 ILCS 5/13-114. This statute provides that:
§ 13-114 Seventy-five year limitation. No deed, will, estate,... relating to or affecting the title to real estate in the State of Illinois, which happened, was administered, or was executed, dated, delivered, recorded or entered into more than 75 years prior to July 1, 1872, or such subsequent date as the same is offered, presented, urged, claimed, asserted, or appears against any person hereafter becoming interested in the title to any real estate, or to any agent or attorney thereof, shall adversely to the party or parties hereafter coming into possession of such real estate under claim or color of title or persons claiming under him, her or them, constitute notice, either actual or constructive of any right, title, interest or claim in and to such real estate, or any part thereof, or be, or be considered to be evidence or admissible in evidence or be held or urged to make any title unmarketable in part or in whole, or be required or allowed to be alleged or proved as a basis for any action, or any statutory proceeding affecting directly or indirectly the title to such real estate.
735 ILCS 5/13-114.
Gates argues that this statute bars any use or enforcement of a deed older than 75 years. Thus, according to Gates, Arclar's claimed easement and right to buy a portion of the surface to use that easement are barred because they originate from a deed dated 1905.
Gates' argument must fail for several reasons. First, the statute is inapplicable. The purpose of the statute is to prevent clouds on title from lingering for more than 75 years. It applies to competing chains of title, adverse interests, and the like where the title to the land is at issue or could be affected. Specifically, the statute decrees that "No deed ...offered... against any person...becoming interested in the title...shall adversely to the party hereafter coming into possession of such real estate under claim or color of title...constitute notice, either actual or constructive, of any right, title, interest...in...or be considered to be evidence or admissible in evidence..." 735 ILCS 5/13-114. By its own terms, the statute applies when one of the parties asserting an interest in the land does so by "claim or color of title." Id.
Claim or "color of title" means:
The appearance, [or] semblance...of title. Also termed "apparent title." Any fact, extraneous to the act or mere will of the claimant, which has the appearance, on its face of supporting his claim of a present title to land, but which, for some defect, in reality falls short of establishing it.
Black's Law Dictionary 241 (5th ed. 1979) (citations omitted); see also Anoweurth v. Burlington, 1 F.Cas. 1036, 1037 (Circuit Court, D. Illinois, No Date Given) ("The court defined the ‘claim and color of title made in good faith' under this law, to be such a title as in law would pass the estate prima facie, if a better title be not shown").
This is not a case involving "claim or color of title." Neither Arclar or Mr. Gates is seeking to assert, by claim or color of the title, the same interest in the same property. Mr. Gates simply took title to his acreage subject to the Conveyor Easement and the option to purchase the surface necessary to mine the coal. By the same token, Arclar holds title to the coal, the Conveyor Easement and the option to purchase, and is simply seeking to exercise that option. Neither party is asserting by claim or color of title the same interest in the same property. Accordingly, by its own terms, the 75-year statute of limitation is inapplicable.
Secondly, even if the statute did not apply to the facts at bar, the statute also provides an exception. This exception states that:
The provisions of this Section shall not apply to or operate
against...any person who during the entire period herein permitted
for reassertion of title, or prior thereto, has not had the right to sue
for and protect his or her claim, interest or title.
735 ILCS 5/13-114.
O'Gara Coal Company acquired the coal, the easement, and the option to purchase in 1905. Arclar acquired these interests by mesne conveyances. Although the Complaint does not specify when Arclar acquired these interests, Arclar's Complaint does not allege that it is necessary to use the Conveyor Easement and surface to convey the coal to market. Arguably, Arclar has not needed the easement or surface until recently and therefore, has not had the right to sue for the entire limitation period.
When reviewing a motion to dismiss, the sole issue is whether relief is possible under any set of facts that could be established consistent with the allegations in the complaint. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992) (citing Conley, 355 U.S. at 45-46 (1957)). Accordingly, even if the 75-year limitation did apply to this case, it appears from the Complaint that Arclar has not had the right to sue for the requisite period time period. For these reasons, Arclar's claims are not barred by Illinois' 75-year statute of limitation.
2) Arclar's Claims are Not Barred by the Rule Against Perpetuities.
Gates argues that Arclar's claims are barred by the Rule Against Perpetuities. Illinois courts have noted that an option to purchase real estate is subject to the Rule Against Perpetuities. See e.g., Warren v. Albrecht, 571 N.E.2d 1179, 1180 (Ill.App. 5th Dist. 1991). The Illinois Supreme Court, however, has noted that the right to purchase surface rights is not subject to the rule against perpetuities when the owner of the right requires the surface in order to remove minerals already owned. Threlkeld v. Inglett, 124 N.E. 368 (Ill.1919).
In Threlkeld, an option within a deed provided that the surface should be conveyed at the rate of $150 per acre if necessary for the purpose of the mining rights conveyed. The Illinois Supreme Court specifically rejected the Rule Against Perpetuities contention by stating that:
The conveyance was to be of the coal, oil, and gas under the land, with the right to mine and remove the same, and when anything is granted, all the means to attain it and all the fruits and effects of it are granted also, and pass, together with the grant of the thing itself, without any words to that effect. * * * Where a grant is made for a valuable consideration it is presumed that the grantor intended to convey and the grantee expected to receive the full benefit of it, and therefore the grantor not only conveyed the thing specifically described, but all other things, so far as it was within his power to pass them, which were necessary to the enjoyment of the thing granted. The deed, when made, would not only pass the coal, oil, and gas, with the right to mine and remove the same, but also the right to enter upon and use so much of the surface of the land as might be necessary to the enjoyment of the property and rights conveyed, and the agreement was merely that the land taken for such use should be paid for, when located, at the rate of $150 an acre. It was not within the rule against perpetuities.
Threlkeld, 124 N.E. at 371.
Threlkeld was decided in 1919. It has been cited with approval by the Illinois Supreme Court in Jilek v. Chicago, Wilmington, & Franklin Coal Co., 47 N.E.2d 96, 98 (Ill. 1943); by the Illinois Appellate Court in In re Payment of Taxes, 537 N.E.2d 358 (5th Dist. 1989); by the United States Court of Appeals for the Seventh Circuit in Chicago, Wilmington & Franklin Coal Co. v. Minier, 127 F.2d 1006, 1009 (7th Cir. 1942); and Chicago, Wilmington & Franklin Coal Co. v. Herr, 127 F.2d 1010, 1012 (7th Cir. 1942); and even by courts in other states; see e.g., Quarto Mining Co. v. Litman, 327 N.E.2d 676, 681 (Ohio 1975). Accordingly, Arclar's claims are not barred by the rule Against Perpetuities.
3) Arclar's claims are Not Barred by Illinois' 40-year Statute of Limitation, 735 ILCS 5/13-118.
Gates argues that Arclar's claims are barred by Illinois' 40-year statute of limitations, 735 ILCS 5/13-118. This statute provides that:
§ 13-118. Forty year limitation on claims to real estate. No action based upon any claim arising or existing more than 40 years before the commencement of such action shall be maintained in any court to recover any real estate in this State...against the holder of the record title to such real estate when such holder of the record title and his or her grantor immediate or remote are shown by the record to have held chain of title to such real estate for at least 40 years before the action is commenced,...
735 ILCS 5/13-118.
According to Gates, this statute bars any claim to real estate older than 40 years against any owner, who along with his predecessor in title, has held title for at least 40 years. Another section of the statute, however, Chapter 735 ILCS 5/13-120, expressly excludes mineral rights and interests appurtenant to mineral rights and interest appurtenant to mineral rights. Specifically, it provides that:
§ 13-120. Limitations on sections. Sections13-118 through 13-121 of this Act shall not be applied:
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4. To bar or extingish any separate mineral estate or any rights, immunities and interest appurtenant or relating thereto; . . . 735 ILCS 5/13-120(4).
Accordingly, Arclar's claims are not barred by Illinois' 40-year statute of limitation.
4) Arclar's Claims are Not Barred by the Failure to Plead Privity of Contract with O'Gara Coal Company.
Gates also argues that Arclar's claims are barred by Arclar's failure to plead privity of contract with O'Gara Coal Company. Thus, according to Gates, Arclar has failed to establish that it has an interest in the subject property.
This argument is contrary to the plain allegation of the Complaint. The Complaint clearly states that Arclar acquired the interests obtained by O'Gara Coal Company. (Doc. 2, p.3, 6); see also (Doc. 2, p.7, 5). Accordingly, Arclar's claims are not barred by the failure to plead privity of contract with O'Gara Coal Company.
5) Arclar's Claims are Not Barred by Laches.
Gates argues that Arclar's claims are barred by laches. Laches has been defined as "such neglect or omission to assert a right as, taken in conjunction with lapse of time of more or less duration, and other circumstances causing prejudice to the adverse party." Holt v. Duncan, 180 N.W.2d 36, 38 (Ill. App. 4th Dist. 1962) (citing Holland v. Richards, 123 N.E.2d 731, 735 (Ill. 1955)). Such neglect or omission will operate as a bar in a court of equity. Holt, 180 N.E.2d at 38.
The defense of laches can be raised by a motion to dismiss if: (1) an unreasonable delay appears on the face of the pleading; (2) no sufficient excuse for delay appears or is pleaded; and (3) the motion specifically points out the defect. Holt, 180 N.E.2d at 38. No unreasonable delay appears on the face of the pleadings and Gates has not set forth any facts or legal authority to suggest that laches applies. Accordingly, Gates has not shown that Arclar's claims are barred by laches.
6) Arclar's Claims are Not Barred by the Rule Against Restraints on Alienation.
Gates argues that Arclar's claimed option to purchase violates the rule against restraints on alienation. It is true that a bare option to purchase or sell real estate exercisable outside the period of the rule against perpetuities is generally held to be void as an unreasonable restraint upon alienation. Quarto Mining Co. v. Litman, 327 N.E.2d 676, 679 (Ohio 1975) (citations omitted); see also Drayson v. Wolff, 661 N.E.2d 486, 492 (Ill. App. 1 Dist. 1996). Certain options, however, do not fall within this rule. For example, courts have held that an option to purchase land is valid as part of a long-term lease of that land. Quarto Mining Co., 327 N.E. at 679 (citations omitted). Similarly, options to purchase part of an overlying surface estate have been held not to violate the rule against restraint on alienation provided that they were granted for the purpose of mining the mineral estate. Quarto Mining Co., 327 N.E.2d at 681-84 (citing Buck v. Walker, 132 N.W. 205 (Minn. 1911); and Threlkeld v. Inglett, 124 N.E. 368 (Ill. 1919)). Here, the option to purchase is clearly limited to the portion of the surface necessary for mining the coal, (specifically, that "portion of the surface...necessary for the erection of tipple, buildings, powerhouses, railroad tracks, switches and other improvements necessary for the mining and removing said coal"). Accordingly, Arclar's option to purchase is not void as a restraint on alienation.
IV. Conclusion
For the foregoing reasons, defendant's Motion to Dismiss (Doc. 6) is DENIED.
IT IS SO ORDERED.
DATED: 8/20/98
/s/ James L. Foreman
DISTRICT JUDGE