Jack Nelson Jones Professional Association
October 17-23, 2016
Union Pacific R.R. Co. v. SEECO, Inc., 2016 Ark. App. 466 (October 5, 2016)
This appeal comes from the Faulkner County Circuit Court, Honorable Troy B. Braswell, Jr. presiding. This case concerns the severance of mineral rights from surface property rights.
SEECO, Inc. (SEECO) filed a complaint seeking to interplead royalties from the production of natural gas on certain real property in Faulkner County, Arkansas, and for the circuit court to determine the rightful owner of the mineral rights and the royalty proceeds. Both the Tyus family and Union Pacific Railroad Company (UPRR) filed answers asserting respective ownership of the mineral rights. The entire property was initially transferred by a recorded document in 1857, from the United States Secretary of the Interior to the State of Arkansas for the benefit of the Little Rock & Fort Smith Railroad, UPRR’s predecessor in interest.
The first recorded deed that mentioned the Tyus family was a warranty deed purporting to convey the property in its entirety from R.B. and C.E. Tyus to J.L. and Girtha Tyus in 1941. The Tyus family’s subsequent purported chain of title from 1941 to the present was uninterrupted. There was no executed, filed deed transferring ownership from UPRR to the Tyus family. Thus, there were no executed, filed deeds between 1857 and 1941.Prior to 1936, the property in its entirety was assessed to UPRR by the Faulkner County Real Estate Assessor. In 1936, the county-assessment records showed a line marking through the name “Union Pacific” as owner and the name “R.B. Tyus” handwritten onto the assessment record for the property. From 1936 through 2014, a period of seventy-eight years, the assessment records from Faulkner County indicated that UPRR was the owner of the mineral interest for four separate and indiscriminate years – 1958, 1968, 1990, and 1998.
UPRR argued that in 1938, there was a lost deed between UPRR and the Tyus family. UPRR contended that this 1938 lost deed transferred ownership of the surface rights to the Tyus family but specifically reserved the mineral rights to UPRR, and therefore, it remained the owner of the severed mineral interests. UPRR employee Matthew G. Kozisek explained that in his research he had found a blank, unsigned, and unrecorded deed transferring the surface rights of the property to R.B. and C.E. Tyus and reserving the mineral rights to UPRR in January 1938. The only other pertinent evidence proffered by UPRR concerning title to the property was that UPRR offered two redemption deeds that were conveyed in 2004 to UPRR as a direct result of its payment of delinquent ad valorem taxes for 2000– 2002 for the mineral rights to the property.
SEECO argued that the Tyus family had been in uninterrupted and continuous possession of the property for over seventy years and that there was no evidence of a mineral severance in favor of UPRR or its predecessor. Additionally, SEECO contended that although redemption deeds had been issued, the deeds were only evidence of a tax payment and did not vest title. The circuit court ruled in favor of SEECO and the Tyus family, finding that the Tyus family owned the property’s surface and mineral rights. UPRR appealed.
On appeal, UPRR contended that a severance of the mineral rights occurred either through the preparation of the 1938 lost deed and its accompanying application, through four random mineral assessments in the Faulkner County Assessor’s Office, or through two redemption deeds that had been conveyed in 2004, or through a combination thereof.
Despite UPRR’s argument to the contrary, the Court noted that UPRR had the burden to prove the contents of the lost deed that it claimed severed the mineral rights by clear, satisfactory, and convincing proof. However, UPRR failed to provide parol evidence that would show that the deed was duly executed as required by law and show substantially all its contents by clear, convincing, and satisfactory evidence. Although Kozisek’s affidavit indicated that he found a blank, unrecorded, and unsigned deed, the Court pointed out that UPRR was unable to provide evidence that the deed had actually been executed as required by law or that the contents included a reservation of the mineral rights as suggested in the draft Kozisek found.
Furthermore, the separate and sporadic mineral assessments did not show that UPRR had severed the mineral rights in this case. Prior to a 2011 amendment, the Court explained that Arkansas law required that when mineral rights were owned separately from the surface, “it shall be the duty of the county assessor when advised of the fact, either by personal notice or by recording of the deeds . . . to assess the mineral rights in lands separate of the general property therein.” The Court, assuming that a mineral assessment by the county assessor was evidence of a severance, reasoned that the separate, sporadic assessments here could not serve as sufficient evidence of severance because the first assessment did not take place until 1958, which was after the Tyus family had adversely possessed the property. The 1958 assessment occurred seventeen years after the 1941 deed had been recorded, twenty years after the 1938 purported lost deed, and twenty-two years after the Tyus family was listed as the owner of the property on the 1936 tax records. Additionally, UPRR failed to offer any affidavits exhibiting the personal knowledge of a mineral severance from the land or other evidence such as mineral deeds, mineral leases, or surface deeds to corroborate the existence of a mineral severance. UPRR further failed to introduce any evidence to explain why or how the county assessor was put on notice to separately assess the mineral rights only in 1958, 1968, 1990, and 1998.
Likewise, the two redemption deeds conveyed in 2004 did not sever the mineral rights. The Court explained that when one has no right, title, or interest in the land, he or she does not acquire title from a redemption deed, but merely confers a benefit to the owner by extinguishing the state’s tax lien. A redemption deed from the state, the Court added, does not purport to convey title, but is a mere payment of taxes. Accordingly, the Court affirmed the decision of the circuit court. Affirmed.