Reese v. Reese-Young

Filed 02/12/2020 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2020 ND 35
Cheryl D. Reese, Plaintiff and Appellant
v.
Tia D. Reese-Young, Defendant and Appellee
No. 20190202
Appeal from the District Court of Mountrail County, North Central Judicial
District, the Honorable Douglas L. Mattson, Judge.
REVERSED AND REMANDED.
Opinion of the Court by VandeWalle, Justice, in which Justices McEvers and
Tufte joined. Justice Crothers filed an opinion concurring specially, in which
Chief Justice Jensen joined.
Scott M. Knudsvig (argued) and Matthew H. Olson (on brief), Minot, ND, for
plaintiff and appellant.
Joshua A. Swanson, Fargo, ND, for defendant and appellee.
Reese v. Reese-Young
No. 20190202
VandeWalle, Justice.
[¶1] Cheryl Reese appealed from an amended judgment entered after the
district court granted summary judgment deciding ownership of certain
mineral interests and the right to receive the mineral royalties and bonus
payments. Cheryl Reese argues the district court erred when it concluded the
open mines exception to the doctrine of waste does not apply and, as a holder
of a life estate in the property, she is not entitled to the royalties and bonus
payments resulting from the production of oil and gas from the property. We
reverse and remand.
I
[¶2] The minerals at issue in this case underlie the property located in
Mountrail County described as:
TOWNSHIP 153 N.; RANGE 89 W.
Section 20: S1/2N1/2; SE1/4
Section 29: E1/2NE1/4; S1/2; SW1/4NW1/4
Section 30: SE1/4; E1/2SW1/4; Lot 4
Section 31: Lots 1, 2, 3 and E1/2NW1/4; NE1/4
[¶3] In 2005, Dennis Reese and Tia Reese-Young, who both owned an interest
in the minerals at the time, entered into an oil and gas lease for the property.
After several conveyances, Dennis and Cheryl Reese owned a 12.5% interest in
the minerals as joint tenants, and Tia Reese-Young owned a 12.5% interest in
the minerals as a tenant in common with Dennis and Cheryl Reese. In July
2008, Dennis and Cheryl Reese conveyed their 12.5% interest to Tia Reese-
Young by quit claim deed and reserved a life estate interest in the minerals.
Dennis Reese died in September 2008.
[¶4] In 2017, Cheryl Reese sued Tia Reese-Young to quiet title and for
declaratory judgment determining that Cheryl Reese is the sole remaining life
tenant in the property and that she is entitled to all of the proceeds to be
derived from the minerals during her lifetime. Tia Reese-Young answered and
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counterclaimed to quiet title and for declaratory judgment determining Cheryl
Young is not entitled to any of the income derived from oil and gas production
from the property.
[¶5] Both parties moved for summary judgment. Tia Reese-Young argued
the deed creating the life estate in Cheryl Reese did not explicitly reserve to
Cheryl Reese an interest in the royalties, the deed was unambiguous, there
were no disputed issues of material fact, and Tia Reese-Young is entitled to all
of the income derived from the oil and gas production as a matter of law.
Cheryl Reese argued the unambiguous language of the deed established she
reserved a life estate in the minerals and she is entitled to receive the royalty
payments under the open mines doctrine because an oil and gas lease had been
executed and oil and gas were being produced before the life estate was created.
[¶6] After a hearing, the district court granted Tia Reese-Young’s motion for
summary judgment and denied Cheryl Reese’s motion. The court concluded
the open mines doctrine did not apply because it is not the law in North Dakota,
the language of the deed controls, and there is no clear and explicit reservation
of the royalties to Cheryl Reese during her life. The court concluded, as a
matter of law, that Cheryl Reese was required to hold the corpus, or proceeds
from the oil and gas royalties, in trust for Tia Reese-Young’s benefit and that
Cheryl Reese was only entitled to the income generated from the corpus during
her life. Judgment was entered.
[¶7] Cheryl Reese moved to amend the judgment and for relief from the
judgment under N.D.R.Civ.P. 59(j) and 60(b)(1) and (6). She argued the
judgment failed to acknowledge her life estate in the property and should be
amended to correct the oversight. The district court granted the motion, and
an amended judgment was entered.
II
[¶8] Cheryl Reese argues the district court erred by granting summary
judgment in favor of Tia Reese-Young.
[¶9] Our standard of review for summary judgments is well-established:
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Summary judgment is a procedural device for the prompt
resolution of a controversy on the merits without a trial if there
are no genuine issues of material fact or inferences that can
reasonably be drawn from undisputed facts, or if the only issues to
be resolved are questions of law. A party moving for summary
judgment has the burden of showing there are no genuine issues
of material fact and the moving party is entitled to judgment as a
matter of law. In determining whether summary judgment was
appropriately granted, we must view the evidence in the light most
favorable to the party opposing the motion, and that party will be
given the benefit of all favorable inferences which can reasonably
be drawn from the record. On appeal, this Court decides whether
the information available to the district court precluded the
existence of a genuine issue of material fact and entitled the
moving party to judgment as a matter of law. Whether the district
court properly granted summary judgment is a question of law
which we review de novo on the entire record.
Fettig v. Estate of Fettig, 2019 ND 261, ¶ 8, 934 N.W.2d 547 (quoting Gerrity
Bakken, LLC v. Oasis Petroleum N. Am., LLC, 2018 ND 180, ¶ 8, 915 N.W.2d
677).
[¶10] The district court granted summary judgment in favor of Tia Reese-
Young and ordered Cheryl Reese, as a life tenant, is not entitled to the royalties
and bonus payments from the production of oil, gas, and other minerals from
the property. The court explained the open mines doctrine is a common law
doctrine, Cheryl Reese could not cite any North Dakota case law that adopted
and applied the open mines doctrine, there is no statutory law indicating a
policy or intent to follow the doctrine, and therefore the open mines doctrine is
not law in North Dakota and does not apply. The court concluded the language
of the deed controlled the outcome and the deed did not clearly and explicitly
reserve the royalties and bonuses in Cheryl Reese during her life. The court
concluded Cheryl Reese has a duty as a life tenant to preserve the property’s
value for Tia Reese-Young’s benefit, the life tenant commits waste when it
removes an asset from the property which decreases the property’s value,
Cheryl Reese would be decreasing the property’s value by profiting from the oil
and gas royalties, and any royalties or bonuses derived from the production of
oil and gas is part of the corpus of the estate and Cheryl Reese must retain
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those proceeds in trust for Tia Reese-Young. The court concluded Cheryl Reese
is only entitled to the interest income generated from the proceeds of the oil
and gas royalties.
[¶11] Cheryl Reese argues the district court erred when it concluded that the
open mines exception to the doctrine of waste does not apply and that she is
not entitled to the revenue from the production of oil and gas on the property.
The open mines doctrine is a common law doctrine that states a life tenant is
permitted to operate mines or wells which were open when the life estate was
created and is entitled to all proceeds resulting from the operation, even if the
use diminishes the market value of the remainderman’s interest. See
Restatement (First) of Property § 144 (1936). Cheryl Reese admits this Court
has not yet recognized the open mines exception to the doctrine of waste, but
she contends this Court has not had an opportunity to address it and there is
authority in other states and secondary sources recognizing the open mines
exception applies in this type of case.
[¶12] Under N.D.C.C. § 47-02-33, “The owner of a life estate may use the land
in the same manner as the owner of a fee simple, except that the owner of a
life estate must do no act to the injury of the inheritance.” This Court has said,
“It is well-settled, a life estate holder ‘is entitled to both the possession and the
use of the property . . . including the right to rents, issues, and profits generated
by the parcel during the tenant’s life.’” Schroeder v. Buchholz, 2001 ND 36, ¶
21, 622 N.W.2d 202 (quoting 51 Am. Jur.2d Life Tenants and Remaindermen §
32 (2000)).
[¶13] However, if the life tenant’s actions or use of the property result in a
diminishment of the remainder interest, then the life tenant has committed
waste. See Ruggles v. Sabe, 2003 ND 159, ¶ 6, 670 N.W.2d 356. Under the
common law doctrine of waste, this Court has said, “Waste may be defined as
an unreasonable or improper use, abuse, mismanagement, or omission of duty
touching real estate by one rightfully in possession, which results in a
substantial injury.” Meyer v. Hansen, 373 N.W.2d 392, 395 (N.D. 1985); see
also Vogel v. Marathon Oil Co., 2016 ND 104, ¶ 31, 879 N.W.2d 471.
4
[¶14] Section 47-04-22, N.D.C.C., provides a vested remainderman with a
remedy against a life tenant who commits waste, stating:
A person having an estate in fee, in remainder, or reversion may
maintain an action for an injury done to the inheritance,
notwithstanding an intervening estate for life or years and
although after its commission the person’s estate is transferred
and the person has no interest in the property at the
commencement of the action.
See also Ruggles, 2003 ND 159, ¶ 3, 670 N.W.2d 356. The remainderman has
a legal remedy against the life estate holder for any decrease in value of the
remainderman’s interest sustained as a result of the life estate holder’s acts
injuring the inheritance. Ruggles, at ¶ 3.
[¶15] In Ruggles, 2003 ND 159, ¶ 6, 670 N.W.2d 356, this Court held the
remainderman had a cause of action under N.D.C.C. § 47-04-22 based on her
allegation that the removal of an airplane hangar from the property resulted
in a decrease in the value of her interest. We said the life tenant has a duty not
to destroy or remove structures which are located on and add value to the land.
Id. at ¶ 5. We held the remainderman was entitled to damages for waste if
removal of the hangar resulted in a diminishment of the remainder interest.
Id. at ¶ 6.
[¶16] Generally, the life tenant’s removal of minerals and acceptance of the
royalties or other proceeds from the sale of the minerals consumes the corpus
of the estate and decreases the value of the remaindermen’s interest. See 1
Nancy Saint-Paul, Summers Oil and Gas § 2:22 (2019) (stating the taking of
minerals is an assault on the land which amounts to a lasting injury and
deprives the remainderman of a privilege to which he is entitled to as a future
tenant of the land). The taking of minerals by a person holding a life estate in
the minerals diminishes the market value of the remainderman’s interest and
constitutes waste, unless the terms of the instrument creating the life estate
expressly give the life estate holder the privilege of taking the minerals. See 1
id.
5
[¶17] In Ruggles, 2003 ND 159, ¶ 5, 670 N.W.2d 356, this Court cited
Restatement (First) of Real Property § 138 (1936) for guidance in determining
whether the life tenant’s actions constituted waste. The Restatement provides:
Subject to exceptions stated in . . . [§] 144 (open mines or customary
cutting of timber) . . . , the owner of an estate for life in possession
or in reversion has a duty not to act upon the land in which his
estate for life exists so that his conduct causes the market value of
the interests limited after his estate for life to be diminished.
Restatement (First) of Real Property § 138 (1936). The exception contained in
section 144 states:
When, prior to the creation of an estate for life, the land in which
such estate is created has been used by extracting and selling coal,
oil, iron, sand, clay or other like deposits found therein, . . . then
the owner of such estate for life is privileged to continue the use so
begun, although such continuance causes the market value of the
interest limited after the estate for life to be diminished.
Restatement (First) of Real Property §144 (1936).
[¶18] The open mines doctrine is a common law doctrine that creates an
exception to the rule that the life estate owner has a duty not to act in a manner
that causes the market value of the remainderman’s interest to diminish. The
open mines doctrine states when real property in which a life estate is created
has been used by extracting and selling oil, gas, and other minerals prior to
the creation of the life estate and a lease is in effect at the creation of the life
estate, then the owner of the life estate interest may continue the use even
though continuing the use diminishes the market value of the remainderman’s
interest. See Restatement (First) of Property §144 (1936); see also 1 Saint-
Paul, supra § 2:22 (stating the tenant is entitled to take oil and gas when there
are open wells at the inception of the tenant’s estate or if a lease had been made
prior to the inception of the life estate because the taking of oil or gas is part
of the ordinary product of the land under those circumstances and the taking
is not waste); 93 C.J.S. Waste § 22 (2019) (stating “Where mines or quarries
are open on the premises at the commencement of the tenancy, it is not usually
waste to work them in the usual way even to exhaustion.”); 2 Tiffany Real Prop.
6
§ 633 (3d ed. 2018) (stating wells opened before the commencement of the
tenancy in question, may be worked by the tenant, because it is considered that
the previous owner, by opening the wells, made the minerals a part of the
regular profits of the land); 2 Patrick H. Martin & Bruce M. Kramer, Williams
& Meyers Oil and Gas Law, § 513, at 649 (stating a life tenant may be entitled
to continue to operate an opened mine and retain the proceeds of the operation
if the mine was opened before creation of the life estate). “The basis of the open
mine doctrine appears to be that a life tenant given the beneficial enjoyment
of land is entitled to enjoy the land in the same manner as it was enjoyed before
the creation of the life estate[,]” and the creator of the life estate can prevent
application of the doctrine by including a provision in the instrument creating
the life estate that expressly excludes application of the doctrine. 2 Martin,
supra § 513, at 649-50.
[¶19] The district court concluded the open mines doctrine does not apply in
this case because there was no North Dakota case law applying the doctrine,
no statutory law indicating that it was the legislature’s intent to follow the
doctrine, and therefore the doctrine is not law in North Dakota. Tia Reese-
Young also argues the doctrine is not law in North Dakota and cannot be
considered because it is a common law doctrine, the legislature addressed the
duties and relationship between life tenants and remaindermen, and therefore
the statutory law controls.
[¶20] The law in North Dakota is expressed by various sources, including state
statutes and “[t]he decisions of the tribunals enforcing those rules, which,
though not enacted, form what is known as customary or common law.”
N.D.C.C. § 1-01-03. This Court has explained, “The common law is therefore
adopted by statute as the basic law applicable to civil rights and remedies not
defined by the statute. Where there is no express constitutional or statutory
declaration upon the subject the common law is applied.” Tarpo v. Bowman
Pub. Sch. Dist. No. 1, 232 N.W.2d 67, 70 (N.D. 1975) (citations and quotations
omitted). However, “there is no common law in any case in which the law is
declared by the code.” N.D.C.C. § 1-01-06. “[S]tatutory enactments take
precedence over and govern conflicting common law doctrines.” Finstad v.
Ransom-Sargent Water Users, Inc., 2014 ND 146, ¶ 12, 849 N.W.2d 165
7
(quoting Bornsen v. Pragotrade, LLC, 2011 ND 183, ¶ 14, 804 N.W.2d 55).
When a statute is designed to cover the entire field to which it relates, the
common law does not apply. Finstad, at ¶ 12. But the common law remains
relevant if there is no conflict between the statutory and common law. See id.
[¶21] The common law is incorporated as part of the law of this state and the
common law is not derived only from the decisions of North Dakota courts. See
In re Estate of Conley, 2008 ND 148, ¶¶ 25-26, 753 N.W.2d 384. This Court
has explained, “The common law, which is based on reason and public policy,
can best be determined by studying the decisions of our federal and state courts
and the writings of past and present students of our country’s law over all the
years of American judicial history.” Id. at ¶ 26 (quoting Lembke v. Unke, 171
N.W.2d 837, 842 (N.D. 1969)).
[¶22] Although there is no North Dakota case law specifically applying the
open mines doctrine, other courts have applied the doctrine and their decisions
provide guidance. See, e.g., Kimbark Expl. Co. v. Von Lintel, 391 P.2d 55 (Kan.
1964) (holding proceeds from oil and gas lease belong to life tenant when
development of oil and gas lease occurred under a lease made by landowner
before life estate came into being); Nutter v. Stockton, 626 P.2d 861, 863 (Okla.
1981) (holding the open mines doctrine permits a life tenant to receive the
profits from a mining operation when the mineral lease was granted prior to
the creation of the life estate); Clyde v. Hamilton, 414 S.W.2d 434, 439 (Tex.
1967) (holding the royalties and bonuses from mines open when the life estate
began belong to the life tenant and not the remainderman); Koen v. Bartlett,
23 S.E. 664, 666 (W. Va. 1895) (holding life tenant has the right to the full
enjoyment and use of the land and all its profits during his estate, including
mines of oil or gas open when the life estate began). See generally Annotation,
Rights of life tenant and remaindermen inter se as to oil and gas, 43 A.L.R. 811
(1926); C. Woerner, Annotation, Rights of tenant for life or for years and
remaindermen inter se in royalties or rents under oil, gas, coal, or other mineral
lease, 18 A.L.R. 2d 98 (2011). The comments to North Dakota Mineral Title
Standards § 7-03.1 address the open mines doctrine and state, “Jurisdictions
which have adjudicated the issue have uniformly held that a life tenant is
entitled to the benefit of an open mine without liability or accountability to the
8
remainderman in fee simple, unless the instrument creating the life estate
otherwise specifically limits the life tenant’s right in this regard.”
[¶23] The open mines doctrine is a common law doctrine, which is adopted as
the law in this state unless it conflicts with any statutory law. Tia Reese-
Young argues the legislature addressed the duties and relationship between
life tenants and remaindermen in N.D.C.C. §§ 47-02-33 and 47-04-22 and
therefore the common law cannot be considered. Neither of these statutes
specifically address how the proceeds from the sale of minerals or other
payments under a mineral lease should be allocated between life tenants and
remaindermen. Cf. N.D.C.C. § 59-04.2-19 (a provision of the Uniform Principal
and Income Act governing how a trustee allocates royalties or other payments
received from an interest in minerals). Tia Reese-Young does not argue any
other statutes conflict with the open mines doctrine. The open mines doctrine
is part of the law in North Dakota, and the district court erred in determining
it did not apply because it is not the law in this state.
[¶24] The quit claim deed dated July 22, 2008, creating the life estate at issue
in this case, states:
WHEREAS, Grantor[s, Dennis Reese and Cheryl Reese,]
desire[] to transfer said minerals to the Grantee, Tia D. Reese-
Young, while reserving a life estate interest to said minerals to the
grantors for the term of their lives, then upon the death of both
grantors to Tia D. Reese-Young.
NOW THEREFORE, for and in consideration of the sum of
One Dollar; and other good and valuable consideration, grantors
do hereby QUIT CLAIM to grantee, Tia D. Reese-Young, an
undivided 12.5% interest – mineral interest only, in and to the
following real property lying and being in the County of Mountrail,
State of North Dakota, subject to the reservation in grantors of a
life estate interest for the term of their lives . . . .
The plain language of the deed reserves a life estate interest in the minerals
but does not include any additional language allocating the royalties, bonuses,
or other payments from the minerals during the term of the life estate.
However, evidence established Dennis Reese and Tia Reese-Young entered
9
into an oil and gas lease for the property in January 2005 and oil and gas was
being produced by November 2007, which was prior to the creation of the life
estate. Evidence established there was an oil and gas lease for the property
and a well was producing under the terms of the lease at the time of the
creation of the life estate. The deed did not contain any language excluding
application of the open mines doctrine, and therefore the open mines doctrine
applies.
[¶25] Here, in particular, where the deed creating the life estate only reserved
the minerals in the property and did not reserve the surface, it is clear to us
that the open mines doctrine applies. A life estate in mineral interests alone
is nearly worthless except for mining or oil and gas production purposes and,
without application of the open mines doctrine, the result would be that the
entity holding the life estate would have the responsibility of being the trustee
for the remainder interest with little or no benefit therefrom. We conclude, as
a matter of law, Cheryl Reese is entitled to the proceeds from the oil and gas
production, including the royalties and bonus payments, and she is not
required to hold the proceeds in trust for Tia Reese-Young. The district court
erred in granting summary judgment in favor of Tia Reese-Young.
III
[¶26] We reverse the judgment and remand for entry of judgment in favor of
Cheryl Reese consistent with this opinion.
[¶27] Gerald W. VandeWalle
Lisa Fair McEvers
Jerod E. Tufte
Crothers, Justice, specially concurring.
[¶28] I concur in the result reached by the majority because I agree the open
mines doctrine is the common law, and that law is applicable to this case. I
10
write separately to make clear that my concurrence is limited to application of
the doctrine to the present facts; namely that the mineral interest owner leased
the property, and production commenced under the lease, prior to creation of
the remainder interest.
[¶29] All cases are decided by this Court based on the facts presented on
appeal. See Desautel v. North Dakota Workmen’s Compensation Bureau, 28
N.W.2d 378, 383 (N.D. 1947) (“Obviously, the effect and scope of the decision
in any given case as precedent is measured by the terms of the decision itself.
Where a rule of law is announced in a decision predicated on facts stated in the
decision, such facts and they alone constitute a factual basis for the rule of law
announced by the decision.”). Nevertheless, I write separately to caution
against over-reading our holding here because I am less than certain the open
mines doctrine would apply if any material fact in this case was different. I
also reserve judgment on other questions such as whether the doctrine would
apply if the conveyance to the remainderman included both a surface and
mineral estate, or if the life tenant executed leases to similar or different
minerals or substances after the remainderman’s title vested.
[¶30] Daniel J. Crothers
Jon J. Jensen, C.J.
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