Opinion
NO. 2019-CA-000553-MR
05-01-2020
GERALDINE LEVATINO; NANCY JANE GALLOWAY; SHERRY SANDERS GALLOWAY; AND PHOEBE HARRIS GLEESON APPELLANTS v. THE UNITED STATES OF AMERICA; ELIZABETH VAUGHN, TRUSTEE FOR THE UNKNOWN OR MISSING OWNERS; AND COUNTRYMARK REFINING AND LOGISTICS APPELLEES
BRIEFS FOR APPELLANTS: John H. Henderson Evansville, Indiana BRIEF FOR APPELLEE UNITED STATES OF AMERICA: Russell M. Coleman United States Attorney Katherine A. Bell Assistant United States Attorney Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM UNION CIRCUIT COURT
HONORABLE C. RENÉ WILLIAMS, JUDGE
ACTION NO. 04-CI-00195 OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; K. THOMPSON AND L. THOMPSON, JUDGES. THOMPSON, L., JUDGE: Geraldine Levatino, Nancy Jane Galloway, Sherry Sanders Galloway, and Phoebe Harris Gleeson ("Appellants") appeal from an order of the Union Circuit Court dismissing their claim for severed mineral interests and royalties. They argue that the circuit court failed to strictly apply the statutory process for appointing a trustee to lease a severed mineral interest owned by unknown or missing owners, and that the missing owners did not receive the protections to which they were entitled. For the reasons addressed below, we find no error and AFFIRM the order of the Union Circuit Court.
FACTS AND PROCEDURAL HISTORY
The facts are not in controversy. On September 23, 2004, Joseph Lee Nally filed a petition in Union Circuit Court seeking to obtain a mineral lease on a parcel of real property owned by the United States of America for the purpose of drilling oil wells. The petition was filed pursuant to Kentucky Revised Statutes ("KRS") 353.460 to 353.476, which allow an operator to obtain a mineral lease in circumstances where the current owner of the lease cannot be located. Nally asserted that mineral lease owners Stella Bonarski, Walter Bonarski, R.H. Cagle, L.N. Greenberg, Wirt L. Harris, and W.E. Ludlam ("the Missing Owners") could not be located, and that the statutory scheme allowed Nally to obtain the mineral rights if certain statutory elements were met. Pursuant to the petition, the Union Circuit Court appointed trustee Stephen M. Arnett to represent the Missing Owners' interests in the mineral rights, a lease was executed, and Nally commenced oil well production on July 25, 2005.
Neither Nally nor the Missing Owners are parties to this appeal.
Trustee Arnett withdrew as trustee on September 8, 2008. No trustee served from September 8, 2008, until the appointment of trustee Elizabeth Vaughn on October 14, 2014. The owner of the surface rights, the United States of America, joined the action on September 3, 2015. Finally, on May 15, 2017, a quitclaim deed including the mineral rights was executed in favor of the United States.
In September 2018, heirs or devisees of Missing Owners Stella Bonarski, Walter Bonarski, and Wirt L. Harris asserted claims to the mineral rights and sought royalties paid to and held by the trustee. These heirs or devisees are the Appellants herein. The matter proceeded in Union Circuit Court, where the Appellants argued that the statutes governing missing owners of mineral rights expressly required the appointment of a trustee for a period of seven years, during which time the trustee was required to make diligent efforts to locate the missing owners. Because the original trustee, Mr. Arnett, withdrew as trustee after three years and no successor trustee was appointed for six more years, the Appellants argued that the Missing Owners and their heirs had not received the statutory protections to which they were entitled. In contrast, the United States asserted that diligent efforts were made to locate the Missing Owners in conformity with the statutory requirements, that such efforts were not successful, and that KRS Chapter 353 does not require the trustee to make ongoing efforts to locate the Missing Owners for the entirety of the seven-year period.
After a series of motions and responsive pleadings were filed, the Union Circuit Court conducted a hearing on the matter and heard proof. By way of an order entered on March 8, 2019, the circuit court determined that "[a]fter a review of KRS Chapter 353.460 et seq., it is the opinion of the Court that the safeguards found within the statutes to protect unknown and missing owners were met." The court detailed the inquires made to locate the Missing Owners by Nally, a warning order attorney, Nally's counsel, and the trustees, including the publication of an inquiry in the Union County Advocate newspaper, and determined that these efforts were sufficient to satisfy the statutory requirements. It found that the trustee was not obligated to make multiple inquiries or searches for missing owners throughout the seven-year statutory period. The court also found that KRS Chapter 353 provides in very clear terms that no action may be brought by any unknown or missing owner after the expiration of seven years from the date of first commercial production. It dismissed Appellants' claims as to the severed mineral interests and royalties, and this appeal followed.
ARGUMENTS AND ANALYSIS
Appellants now argue that the Union Circuit Court erred in concluding they were statutorily barred from asserting claims for mineral rights to and royalties from the subject parcel. They contend that KRS Chapter 353 sets out specific duties for the trustee to search for absent or missing holders of mineral rights, that these duties exist to protect the mineral right owners and their heirs, and that these statutory requirements were not met below. Appellants maintain that the initial trustee's term of service, which lasted only slightly more than three years, was not sufficient to satisfy the statutory scheme. They also note that no successor trustee was appointed for another six years, during which no attempts were made to locate the Missing Owners. The focus of Appellants' claim of error is their contention that the forfeiture of property rights is a serious matter requiring strict compliance with the statutory scheme, that the failure of a trustee to conduct a diligent search for seven years constitutes a failure to comply with the statutory requirements, and that the Union Circuit Court erred in failing to rule.
KRS 353.464(1) states,
If the title to any severed mineral interest is vested in an unknown or missing owner and it appears that the development of the minerals will be advantageous to the owner, the Circuit Court of the county in which the minerals or the major portion thereof lies shall have the power to declare a trust therein, appoint a trustee for the unknown or missing owners and authorize the trustee to sell, execute and deliver a valid lease thereon on terms and conditions customary in the area for the minerals covered thereby and similarly situated. The lease shall continue in full force and effect after the termination of the trust unless the lease has previously expired by its own terms.The petitioner serves the named respondents, KRS 353.466(3), and "shall establish to the satisfaction of the court that a diligent effort has been made to identify and locate the present owners of said interests." KRS 353.466(2). The court then appoints a trustee, declares a trust, and authorizes the trustee to execute a valid mineral lease covering the severed mineral interests. KRS 353.466(4); KRS 353.468(1). Thereafter, the trustee receives the proceeds and continues efforts to locate the unknown or missing owners. KRS 353.468(5). The unknown or missing owners may petition the circuit court within seven years after the date of the first commercial production of the severed mineral interests to establish their ownership interest and receive all future proceeds under the lease. KRS 353.468(6). Finally, if the unknown or missing owners are not located within seven years, the trustee conveys the mineral interest to the surface owner, pays the proceeds to the surface owner, and terminates the trust. KRS 353.470.
We must first note that Appellants have not complied with Kentucky Rules of Civil Procedure (CR) 76.12(4)(c)(v), which requires an appellant to state at the beginning of the written argument if the issue was preserved and, if so, in what manner. We are not required to consider portions of the appellants' brief not in conformity with CR 76.12, and may summarily affirm the trial court on the issues contained therein. Skaggs v. Assad, By and Through Assad, 712 S.W.2d 947 (Ky. 1986); Pierson v. Coffey, 706 S.W.2d 409 (Ky. App. 1985). "In Elwell v. Stone, 799 S.W.2d 46, 48 (Ky. App. 1990), we established the principle that, where an appellant fails to comply with CR 76.12(4)(c)(iv), a reviewing court need only undertake an overall review of the record for manifest injustice. We believe that principle applies as well to the failure to comply with CR 76.12(4)(c)(v)." J.M. v. Commonwealth, Cabinet for Health and Family Services, 325 S.W.3d 901, 902 n.2 (Ky. App. 2010). As in J.M. v. Commonwealth, we have chosen the less severe alternative of reviewing the proceeding below for manifest injustice rather than summarily affirming the decision of the circuit court. "Manifest injustice is found if the error seriously affected the fairness, integrity, or public reputation of the proceeding." Kingrey v. Commonwealth, 396 S.W.3d 824, 831 (Ky. 2013) (citation and internal quotation marks omitted).
Having closely examined the record and the law, we find no manifest injustice in the Union Circuit Court's application of KRS Chapter 353. Petitioner Nally served the named respondents, and Trustee Arnett was properly appointed. KRS 353.466(3); KRS 353.466(4). The circuit court declared a trust, and authorized Trustee Arnett to execute a valid mineral lease covering the severed mineral interests. KRS 353.468(1). Thereafter, a diligent search was undertaken to locate the Missing Owners. KRS 353.466(2). Nally's verified petition identified the last record owners of the severed mineral interest and noted his efforts to locate them. Nally published an advertisement in the Union County Advocate newspaper on September 29, 2004, and Warning Order Attorney Brucie Moore filed a report stating that she could not locate the missing persons. Further, Trustee Arnett filed an answer and report on February 8, 2005, indicating that he made a good-faith effort to locate the Missing Owners without success.
Neither KRS Chapter 353 nor the supportive case law addresses a fact pattern where there is a gap of several years between the service of the first and second trustees. Because Trustee Arnett, the warning order attorney, and others made diligent efforts to locate the Missing Owners, and as the combined service of trustees Arnett and Vaughn cumulatively exceeded seven years, we do not conclude that the gap in the service of trustees Arnett and Vaughn adversely affected the rights of the Missing Owners or Appellants. --------
We conclude that these efforts "establish to the satisfaction of the court that a diligent effort has been made to identify and locate the present owners of said interests." KRS 353.466(2). Further, we find nothing in the record or the law requiring the trustee to maintain ongoing efforts to locate the Missing Owners for the entirety of the seven-year statutory period. The statutory language merely requires a "diligent" search, the occurrence of which the record amply demonstrates. Id. The record does not support a finding of manifest injustice. Kingrey, supra.
In addition to the foregoing, Appellants are statutorily barred from asserting a claim to recover past and future proceeds "[a]fter the expiration of seven (7) years from the date of first commercial production of the severed mineral[s][.]" KRS 353.476. The first commercial production of the severed minerals commenced under the lease in July 2005. The statutory period for filing a claim, therefore, closed in July 2012. Appellants asserted their claim in September 2018, or some thirteen years after the first commercial production. The Union Circuit Court properly determined that Appellants' claim is time-barred, and we find no error.
CONCLUSION
We find no manifest injustice in the Union Circuit Court's application of KRS Chapter 353. The statutory elements were satisfied, and the circuit court properly determined that a diligent search was conducted to locate the Missing Owners. Further, Appellants' claim for past and future proceeds is time-barred, as it was not filed within the seven-year period commencing on the date of the first commercial production under the lease. For the foregoing reasons, we find no error and AFFIRM the order of the Union Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANTS: John H. Henderson
Evansville, Indiana BRIEF FOR APPELLEE UNITED
STATES OF AMERICA: Russell M. Coleman
United States Attorney Katherine A. Bell
Assistant United States Attorney
Louisville, Kentucky