The Pennsylvania Superior Court, [enhanced version available to lexis.com subscribers], has reversed the Court of Common Pleas of Centre County and upheld the controversial “title wash” tax sale principle first applied by the Pennsylvania Supreme Court in Hutchinson v. Kline, 49 A. 312 (Pa. 1901), [enhanced version available to lexis.com subscribers]. Herder Spring Hunting Club v. Keller marks the first time in more than one hundred years that the validity of historical title washes in Pennsylvania has been extensively reviewed and upheld by an appellate court.
Although the holding is unequivocal, it is interesting to note that the opinion does not directly address several issues that may be relevant to the legal viability of Pennsylvania title washes.
On August 14, 2008, Herder Spring Hunting Club (“Herder”) filed an action in the Court of Common Pleas of Centre County to quiet title against Harry and Anna Keller (“the Kellers”) on 460 acres. Herder claimed that the property was assessed as unseated in a 1935 tax sale to Max Herr, a predecessor in title to Herder, and that the sale effectively rejoined the subsurface and surface rights, extinguishing an 1899 reservation of subsurface rights by Harry and Anna Keller. Herder, relying upon Hutchinson v. Kline, argued that the Kellers’ predecessor failed to notify the county assessors of their reservation of subsurface rights, as required by the Act of March 28, 1806, thereby extinguishing their claim to the subsurface rights after the 1935 tax sale of the surface. The Court of Common Pleas found that the Kellers' 1899 reservation of subsurface rights was properly recorded, that Herder was aware of the prior reservation, and that the Keller heirs were entitled to the subsurface rights in fee.
The Superior Court reversed, relying upon the provisions within the Act of 1806 and the Act of 1815 and the principles in Hutchinson v. Kline. The Act of 1806 required the holder of unseated lands to notify the county commissioners or the board of assessment and revision of taxes of changes made to unseated lands that would affect the tax assessment. Failure to do so resulted in an assessment “four times the amount of the tax to which such tract or tracts of land would have been otherwise liable.” The fact that the act requiring notification of county authorities of “changes” in unseated lands expressly provided a remedy for non-compliance that was not forfeiture of ownership was not addressed by the Superior Court’s decision.
For most of the 19th century, taxes were personal obligations. Land could only be sold if the goods and chattels of the taxpayer were not of sufficient value to satisfy the taxpayer’s tax obligation. By definition, unseated lands were void of goods and chattel, therefore, the Act of 1815, which allowed the sale of unseated lands to satisfy tax obligations, was driven by the unique, unimproved nature of unseated lands. Because unseated lands were assessed in the name of the property and not in the name of the property owner, notice of an impending tax sale of unseated lands was often not provided to the current owner of the unseated land. Instead, notice requirements could be met by notifying any person who had title to the property, including the original holders of the warrant. Pursuant to Hutchinson v. Kline, tax sales of surface estates passed title to a severed mineral estate when the property was designated and assessed as “unseated” (unimproved) for tax purposes, and the oil and gas estate owner failed to give notice to the tax commissioners to create a separate mineral assessment.
The Court found that the Kellers had failed to notify the county commissioners or the board of assessment of the reservation of subsurface rights and that the properly recorded 1899 severance deed did not provide notice to the county commissioners or the board of assessment because neither had an affirmative duty to check the records for changes to unseated lands. Since the assessment of the unseated land was not modified to exclude the subsurface estate, the assessment of the land was for the whole of the property, and not merely the surface. Therefore, all that was valued and assessed, both surface and subsurface rights, was sold at tax sale. The Superior Court held that the 1935 tax sale merged the surface and the subsurface estates, and that Herder had fee title to the property.
The Court noted that the Act of 1815 allowed for the sale of lands designated as “unseated” for unpaid taxes. The Court did not address, however, whether the Act of 1815 allowed for the sale of interests in property that had not been registered with the tax assessor in the first place, and therefore could not have been assessed as either seated or unseated, or whether the quadruple assessment fine for failure to notify the tax assessors of changes to unseated lands was intended to be the sole remedy for non-compliance of the Act of 1806.
It is important to note that this case also does not directly address nor resolve the apparent conflict between the notice provisions within the Act of 1815 and constitutional due process guarantees. The Court did note that “[W]e are aware that our resolution of this matter is at odds with modern legal concepts. This resolution may be seen as being unduly harsh. However, at the time of the relevant transactions . . . this was the appropriate answer. We do not believe it proper to reach back, more than three score years, to apply a modern sensibility and thereby undo that which was legally done.” Presumably, the modern legal concepts to which the Court refers include Section One of the Fourteenth Amendment to the United States Constitution, adopted on July 9, 1868, and Article 1 of the Pennsylvania Constitution, adopted on January 1, 1874.
The Bar must now wonder whether the obvious constitutional issues that arise under the Act of 1815 “notice” provisions and the issue arising from the express, non-forfeiture remedy provided in the Act of 1806 were considered and resolved by the Superior Court or, perhaps, were not fully raised for consideration by the Court. In all events, this decision highlights the importance of carefully reviewing tax sales of land tracts after oil and gas rights have been severed and leaves several critical points of law open for the Pennsylvania Supreme Court to consider in the event of an appeal or, possibly, for further consideration by the Superior Court when such matters are properly raised for its review. The decision is available here.
Authored by: Nathaniel I. Holland, MemberJessica C. Tully, Associate
About Nathaniel I. HollandNate Holland assists clients with business transactions and litigation involving the oil and gas industry. In particular, Mr. Holland helps clients develop solutions for novel challenges or new applications of oil and gas law.
About Jessica C. TullyJessica C. Tully focuses her practice in the area of energy law, with a particular focus on upstream development issues related to the exploration and production of oil and natural gas.
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