Northland Royalty Corp. v. Engel Et , 377 Mont. 11 ( 2014 )

November 12 2014
DA 14-0044
IN THE SUPREME COURT OF THE STATE OF MONTANA
2014 MT 295
NORTHLAND ROYALTY CORP.,
a North Dakota Corporation,
Plaintiff and Appellant,
v.
DOUGLAS F. ENGEL, Individually; NIKKI ENGEL,
Individually; FRANK A. STEINBECK, Individually;
JOHN F. STEINBECK, Individually; DIRK RONALD
BAXTER, Individually; COLLEEN RAE BAXTER,
Individually; ROBERT G. CANDEE, Individually;
JASON SCOTT HUKILL, Individually; TRACY RUDE,
Individually, LILLIAN DASINGER, Trustee of the
LILLIAN DASINGER FAMILY TRUST;
DOE INDIVIDUALS 1 though 50, Inclusive; and
DOE CORPORATIONS 1-through 50, Inclusive,
Defendants and Appellees.
APPEAL FROM: District Court of the Seventh Judicial District,
In and For the County of Richland, Cause No. DV 07-37
Honorable Katherine M. Bidegaray, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Mark D. Parker; Parker, Heitz & Cosgrove, PLLC; Billings, Montana
Michael P. Manning, Michael A. Monson; Holland & Hart, LLP; Billings,
Montana
For Appellees:
H. Malcolm Pippin; Pippin Law Firm, P.C.; Williston, North Dakota
Submitted on Briefs: August 27, 2014
Decided: November 12, 2014
Filed:
Clerk
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Justice Beth Baker delivered the Opinion of the Court.
¶1 This is the second appeal by Northland Royalty Corporation in its action to quiet
title in mineral rights it purchased from the personal representative of two estates. When
Northland appealed before, we remanded the case to the Seventh Judicial District Court
to consider the applicability of § 72-3-618, MCA. Northland Royalty Corp. v. Engel,
No. DA 11-0467, Order (Mont. Apr. 10, 2012). Northland subsequently moved for
summary judgment on the basis of that statute and now appeals the District Court’s denial
of its motion. The issue we address is whether the District Court erred in denying
summary judgment. We reverse.
PROCEDURAL AND FACTUAL BACKGROUND
¶2 This case concerns mineral rights that have passed through three wills and were
purchased by Northland. The minerals are located in North Dakota and in Richland
County, Montana, but only the Montana minerals are before us on appeal.
¶3 In the first will, Charlotte C. Nohle, who died in 1957, left the mineral rights to her
sister, Victoria F. Davis. In the second will, Davis, who died in 1976, left the mineral
rights to her daughter, Helen Jaumotte, and also designated Helen as her estate’s personal
representative. In the third will, Helen, who died in 1991, left the “use and enjoyment of
the income from the mineral interests” to her husband Jay Jaumotte. Helen further
directed that “[u]pon [Jay’s] death, those mineral interests and the use and enjoyment
thereof revert to the issue of Charlotte C. Nohle, in keeping with her Will, specifically to
Floyd A. Engel, Mrs. Ella Steinbeck, Mrs. Dorothy Freeman, and Mrs. Cecil Baxter, and
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each of their issue by representation.” Finally, in her will, Helen designated Jay as her
estate’s personal representative. Defendants and Appellees [Devisees] are “the issue of
Charlotte C. Nohle” referenced in Helen’s will.
¶4 Soon after Helen died in 1991, Jay initiated informal probate proceedings on
Helen’s will in Yavapai County, Arizona, and received letters appointing him personal
representative of Helen’s estate. In April 1992, Jay received letters appointing him as the
successor personal representative of Davis’s estate. In May 1992, Jay swore in a closing
statement that Helen’s estate had been fully administered, but Jay’s attorney did not file
that statement with Yavapai County until 1999. A closing statement for the Davis estate
was not filed until 2009.
¶5 Richard Keller, president and sole shareholder of Northland Royalty Corporation
and a landman by profession, became interested in the minerals. Through examining
documents relating to the minerals and the Davis estate appointment letters, Keller knew
that Jay was the personal representative of Davis’s estate. In 1997, when Keller
contacted Jay about purchasing the rights to the minerals, Jay represented that he also
was the personal representative of Helen’s estate.
¶6 Before purchasing the mineral rights, Keller sought additional documents relating
to Helen’s estate and the minerals. Keller did not know that Helen’s estate was probated
in Yavapai County. As a result, in attempting to examine Helen’s estate documents,
Keller contacted Richland County, Montana, and Maricopa County, Arizona (where Jay
was residing). Keller failed to find Helen’s estate documents in either of those two
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counties. Also, in the spring of 1997, Keller checked the title on the North Dakota
minerals. In August 1997, three of the Devisees recorded ratifications of an oil and gas
lease on some of the North Dakota minerals. Keller admitted in court that these
ratifications would have suggested to him that the minerals were held in a life estate, but
testified that he did not see the ratifications because they were not of record when he
examined the title earlier that year. When Northland purchased the minerals in August
1998, Northland acquired “100% of the remaining interests as acquired by Victoria F.
Davis from the Estate of Charlotte C. Nohle” for $15,010. Jay deeded the minerals
“individually, as Personal Representative of the estate of Helen Jaumotte and as sole
Successor Personal Representative of the Will and Estate of Victoria F. Davis.” Jay died
in 2001.
¶7 After purchasing the mineral rights, Northland negotiated a deal to lease the rights
to a third party, but the deal collapsed in 2005 due to problems with Northland’s title. In
2007, Northland brought a quiet title action naming Devisees as defendants. Devisees
counterclaimed and, in 2011, the Seventh Judicial District Court quieted title in their
favor. Northland appealed to this Court, and we remanded to the District Court to
consider the applicability of § 72-3-618, MCA. Northland moved for summary
judgment, arguing that the statute offered Northland protection against Devisees’ claims
to the minerals. The District Court denied summary judgment on this issue because it
concluded that Northland failed to act in good faith as required by the statute. Northland
appeals that portion of the District Court’s order.
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STANDARD OF REVIEW
¶8 We review de novo a district court’s ruling on a motion for summary judgment.
Bailey v. St. Farm Mut. Auto. Ins. Co., 2013 MT 119, ¶ 18, 370 Mont. 73, 300 P.3d 1149.
Summary judgment is appropriate when there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. M. R. Civ. P. 56(e); Smith v.
Burlington N. & Santa Fe Ry. Co., 2008 MT 225, ¶ 10, 344 Mont. 278, 187 P.3d 639.
The interpretation of a statute is a question of law, which we review for correctness. City
of Missoula v. Iosefo, 2014 MT 209, ¶ 8, 376 Mont. 161, 330 P.3d 1180 (2014).
DISCUSSION
¶9 In 1974, Montana adopted a version of the Uniform Probate Code [UPC]. Section
72-1-101, MCA. Under the UPC, an estate’s administrator is called a personal
representative. Section 72-1-103(45), MCA. If a personal representative improperly
exercises his or her power in administering an estate, the personal representative is liable
to the estate’s beneficiaries. Section 72-3-616(1), MCA. Thus, under that provision of
the UPC, if a personal representative improperly disposes of estate property, beneficiaries
have a remedy directly against the personal representative. By contrast, under § 72-3-
618, MCA, the rights of the third-party purchaser may be protected:
A person who in good faith and without notice either assists a personal
representative or deals with a personal representative for value is protected
as if the personal representative properly exercised the personal
representative’s power. The fact that a person knowingly deals with a
personal representative does not alone require the person to inquire into the
existence of a power or the propriety of its exercise. Except for restrictions
on powers of supervised personal representatives that are endorsed on
letters as provided in 72-3-404(3), a provision in any will or order of court
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purporting to limit the power of a personal representative is not effective
except as to persons with actual knowledge of the provision.
Section 72-3-618(1), MCA. By providing protection to persons dealing with personal
representatives, the UPC seeks to “avoid the need of obtaining doubt-ending court orders
in routine probate administrations” that would cut against the UPC’s “flexible system of
administration.” Uniform Probate Code Practice Manual 319 (Richard V. Wellman ed.,
2d ed. 1977).
¶10 To determine whether Northland dealt with a personal representative “in good
faith and without notice” under § 72-3-618(1), MCA, Devisees suggest using the standard
for good faith we adopted in Luloff v. Blackburn, 274 Mont. 64, 69, 906 P.2d 189, 191
(1995). There, we examined Montana’s race-notice statute, § 70-21-304, MCA, and
equated “good faith” under that statute with the standard for a bona-fide purchaser: “one
who . . . purchases in the honest belief that his vendor has a right to sell, without notice,
actual or constructive[,] of any adverse rights, claims, interest, or equities of others in and
to the property sold.” Luloff, 274 Mont. at 69 (quoting Foster v. Winstanley, 39 Mont.
314, 316, 102 P. 574, 579 (1909)).
¶11 We decline to define “good faith and without notice” as used in § 72-3-618, MCA,
to require a purchaser’s “honest belief . . . without [actual or constructive] notice”
regarding other parties’ interests in the property. Foster, 39 Mont. at 316, 102 P. at 579.
Such a rule does not fit in the context of dealings with a personal representative. Estate
devisees take devised property “subject to” the estate’s administration, § 72-3-101(2),
MCA, and a personal representative has the power to sell estate property if necessary for
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the estate’s administration. Sections 72-3-606(1), -613(6), MCA. By the plain language
of these statutes, a personal representative has the power to sell property within the estate,
even if that property is specifically devised in the will. Green v. Gustafson, 482 N.W.2d
842, 846 n.3 (N.D. 1992) (interpreting the UPC to permit a personal representative to sell
estate property regardless of whether the property was devised in a will); contra In re
Estate of Olson, 744 N.W.2d 555, 561 (S.D. 2008) (holding that, outside certain
exceptions, a specific devise restricts a personal representative’s power of sale under the
UPC).1 Thus, although the District Court found that the North Dakota ratifications
provided Northland notice that other parties had interests in the minerals, the ratifications
did not provide notice of a restriction on the “power of [the] personal representative” as
required by § 72-3-618(1), MCA, and are therefore irrelevant.
¶12 Further, § 72-3-618(1), MCA, “explicitly excuse[s] [purchasers] from examining
the terms of the will, court records relating to the appointment, or other sources that
might be relevant to the question of whether the sale is proper as between the fiduciary
and those entitled to the inheritance.” Uniform Probate Code Practice Manual 407.
Because § 72-3-618(1), MCA, relieves a purchaser from having to inquire into the
specific language of a will, the District Court erred by concluding that Keller failed to act
in good faith by failing to locate Helen’s will.
1
The dissent in Olson pointed out that, because the UPC makes a personal representative’s
power of sale statutory, testators must “draft their wills to explicitly limit, restrict, or eliminate
this power of sale if that is their intent.” Olson, 744 N.W.2d at 577 (Zinter, J., dissenting). In a
subsequent appeal in the same underlying case, the South Dakota Supreme Court held that the
third-party purchaser of the estate’s property acted in good faith under South Dakota’s equivalent
to § 72-3-618, MCA, despite purchasing specifically devised property from the personal
representative. Muhlbauer v. Estate of Olson, 801 N.W.2d 446, 449 (2011).
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¶13 What the statute’s good faith and notice requirements do encompass is whether a
purchaser in good faith believes that the “vendor has a right to sell” by virtue of being an
estate’s personal representative. Foster, 39 Mont. at 316, 102 P. at 579. “In the ordinary
case . . . a [purchaser] would only need to see that the letters were issued and in effect
when a personal representative gave a deed to purchaser.” 3 Patton & Palomar on Land
Titles § 521 (3d ed. 2003). While Keller may not have obtained such independent
verification here, there is no dispute that, at the time that the transaction occurred,
Helen’s estate was open, Jay was the estate’s personal representative, there were no
restrictions placed in Jay’s letters of appointment, and Keller had no actual knowledge of
any restrictions on Jay’s authority. We thus hold that § 72-3-618, MCA, protects
Northland’s purchase.
CONCLUSION
¶14 We reverse the District Court’s order denying summary judgment and remand for
entry of judgment in Northland’s favor.
/S/ BETH BAKER
We concur:
/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ MICHAEL E WHEAT
/S/ JAMES JEREMIAH SHEA
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