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In 2010, the Maryland General Assembly passed the “Dormant Mineral Interests Act” allowing a surface estate owner of real property subject to an unused mineral interest to terminate that interest. Recently, two different surface owners of real property with unused mineral interest followed the proper process to terminate those interests. In both cases, the mineral interest owners claimed the law was unconstitutional by taking their property without just compensation. In both cases, Maryland courts upheld the Dormant Mineral Interests Act (Act) as constitutional and not an unconstitutional taking of private property.
Dormant Mineral Interest Act
The Act allows a surface owner of real property with a mineral interest separated from the surface and currently being unused, to petition the court to terminate that interest. To be considered unused, the mineral interest must have been unused for 20 or more years. To be in “use,” the mineral interest must have:
active mineral exploration or exploitation;
payment of taxes on a separate assessment of the mineral interest;
recording of an instrument which provides notice the mineral interest is to continue; or
recording of a judgment referencing the mineral interest.
The law is to clear up of property title issues which exist when mineral and surface estates are split, mineral interest owners maybe unknown or have no idea the interest is owned, and allow for the full development of real property in the state.
With the Act, a mineral interest owner can still record notice that the mineral interest should continue after a surface owner has started a legal action to terminate the mineral interest. If the mineral interest has been unused for 39 years or less, a mineral owner can file a late notice after the start of the legal action to terminate. If the mineral interest has been unused for more than 40 years, filing a late notice is not allowed under the Act.
Facts of the Two Cases
The facts of both cases are very similar; surface owners owned real property in Garrett County subject to a mineral interest. In Harvey, the Sines owned the surface and a one-half interest in the minerals under the surface. The Sines researched title of the mineral interest back to determine that the Harveys potentially owned the other one-half mineral interest from a deed dated 1912. According to the record, the Harveys’ one-half mineral interest had been unused for more than 40 years.
In Ellis, seven landowners in Garrett County brought an action to terminate the mineral interests of roughly 76 heirs who had inherited mineral interests from one original owner in the late 1800s. The mineral interests had no activity (mining or oil and gas wells) or any filing made to preserve these interests in more than 40 years. The circuit court terminated the dominant mineral interest in both cases, and the mineral interest owners in both cases appealed, claiming the termination was an uncompensated taking of private property and the Dormant Mineral Act operated retrospective.
Court of Special Appeals Decision
The Maryland Declaration of Rights forbids laws from operating retrospectively, and the Maryland Constitution prohibits the government from taking property without compensating landowners. In looking at the retrospectively issue, laws cannot operate to have a retrospective (looking back) and impact a vested right, such as a property right. Maryland courts look to see if there was fair notice, reasonable reliance, and settled expectations to determine if a law violates retrospectively.
The law must also give a reasonable amount of time to meet new requirements to provide fair notice. In a previous decision, the Court of Appeals found a law requiring ground rent owners to register the interest with the state, giving two years between the enactment and registration deadline, did provide fair notice. With the Act, a year and a half grace period was allowed before the Act went into effect. The court found that this met the requirements for fair notice and gave mineral interest owners a reasonable period to file a notice to preserve their interest.
The court did not find that the Act impacted reasonable reliance and settled expectations. In the ground rent decision, if the ground rent owner failed to register with the state, then the interest terminated and transferred to the tenant. That law impacted reasonable reliance and settled expectations because owners relied on that rent, retained the right to re-enter the property, and no opportunity was provided to remedy the situation if the owner did not register. The Act, on the other hand, did not impact reasonable reliance and settled expectations because in many cases the mineral interest owners were unaware of the ownership interest and had done nothing with their own interest since the original transfer.
Looking at the takings issue, the Act also did not impair vested rights or unconstitutional takings of property. Vested rights in Maryland include those considered a property right under state law. The court agreed that a severed mineral interest was a property right under state law.
The court did also not consider the Act to be unconstitutional takings of property. Takings, in this situation, is when the government actually or effectively acquires private property either by removing the owner, destroying the property, or impairing its use. In this case, the mineral interest owners argued the law removed them from mineral ownership and gave the ownership to another.
The court had ruled in a prior decision that extinguishing a ground rent owner’s property right when the owner failed to collect rent in 20 years was not unconstitutional takings. In that decision, the court viewed the ground rent law as operating similar to adverse possession, when a landowner fails to exercise ownership over the property for a period, and someone else puts the property to use. The Act also acted similarly to adverse possession.
In both cases, the landowners had ample opportunity to file a notice to preserve their unused mineral interest. To the court, the Act was not unconstitutional takings of property. This decision also tracked with other states who had found similar dormant mineral interests statutes to be constitutional.
Why Care?
Maryland potentially has a large number of mineral interest owners who fall under the Act. The view of the Court of Special Appeals in Maryland is that the Act does not violate the state constitution. Mineral interest owners need to file a notice to preserve those interests.
These cases also highlight the point that many mineral interest owners may not even know they own any mineral interest. In both cases, the mineral interest owners were only made aware of their ownership interest once the surface owners moved to terminate the interest. With that said, many mineral interest owners may also have no idea they need to file notices to preserve their ownership interests.
References
Ellis v. McKenzie, No. 1723, 2017 WL 562475 (Md. Ct. Spec. App. Feb. 10, 2017).
Harvey v. Sines, 137 A.3d 1045 (Md. Ct. Spec. App. 2016).