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Pennsylvania Supreme Court Reaffirms Property Rights

April 26, 2013
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The Pennsylvania Supreme Court reaffirmed the state's 131-year history of mineral rights law on Wednesday, unanimously ruling in favor of a Susquehanna County couple that had filed suit over the rights to the Marcellus Shale gas under their property.

Central to the case Butler v. Charles Powers Estate (No. 27-MAP-2012) was a deed written in 1881 by Charles Powers, who transferred 50% of the oil and minerals rights on 244 acres in Apolacon Township to his heirs. John and Mary Butler, who currently own the land, filed a lawsuit in 2010, arguing that since Powers didn't include "natural gas" in the deed, his heirs have no right to the gas.

Ultimately, the six-judge panel decided that their 1882 landmark decision in the case Dunham & Shortt v. Kirkpatrick should be their guide. The "Dunham Rule" maintains that the conveyance of mineral rights does not include either petroleum oils or natural gas unless those commodities are specifically mentioned. In other words, the legal definition of "minerals" does not include oil and gas, and further, the legal definition of petroleum oils does not include natural gas, unless it also is specifically mentioned.

"In our view, neither the Superior Court nor appellees have provided any justification for overruling or limiting the Dunham Rule and its long standing progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries," Justice Max Baer said in a 24-page opinion. "The Dunham Rule is clear...that the common, layperson understanding of what is and is not a mineral is the only acceptable construction of a private deed."

The Butlers' attorney, Gregory Krock of Buchanan Ingersoll & Rooney PC, told NGI's Shale Daily the ruling was a significant victory for the oil and gas industry.

"The Dunham Rule still is valid and in effect today, and the rule applies to all natural gas contained in any geologic formation," Krock said Thursday. "There's really no reason to treat Marcellus Shale gas differently than natural gas that's in any other geologic formation."

Chief Justice Ronald Castille and Justices Thomas Saylor, J. Michael Eakin, Debra McCloskey Todd and Seamus McCaffery also sided with the appellants.

In January 2010, a Court of Common Pleas judge in Susquehanna County agreed with the Butlers' assertion that they owned the natural gas rights, citing the Dunham ruling. But in September 2011 the state Superior Court disagreed and remanded the case back to Common Pleas Court (see Shale Daily, Sept 19, 2011).

The Superior Court had argued that the appellants in the case should be given the chance to prove that the Marcellus Shale is a "mineral" and the treatment of shale gas should be the same as coal and coalbed gas, rather than the treatment afforded conventional oil and natural gas reservoirs. If this were proven, it would mean any Pennsylvania deed conveying "mineral" rights would include the shale and its gas, just as conveyance of the coal mineral includes the coalbed gas. The Butlers subsequently filed a petition to appeal to the state's Supreme Court to overturn the ruling.

Baer conceded that in 1881, Pennsylvania law was based on "two overarching principles" from cases that predated the Dunham decision. Specifically, those cases were Gibson v. Tyson in 1836, which stipulated that "anything of a non-metallic nature would not be considered a mineral for private deed purposes," and the 1837 decision in Schuylkill Navigation Co. v. Moore, which held that "when interpreting private deeds and contracts, the 'question is to be determined not by principles of science, but by common experience directed to the discovery of intention.'

"Accordingly, to the extent the Superior Court ordered an evidentiary hearing with expert testimony concerning Marcellus Shale natural gas, and the scientific nature thereof, such an order violated the Dunham jurisprudence," Baer said. "Simply put, natural gas is presumptively not a mineral for purposes of private deeds."

Krock agreed, adding that "to a certain extent, this portion of the case dealing with the term 'mineral' and whether that includes Marcellus Shale gas, is over, unless the estate wants to petition the U.S. Supreme Court to hear the case." Krock said he doubted such an appeal would be made.

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