Maryland’s Dormant Mineral Interest Law Not Unconstitutional

 

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This is not a substitute for legal advice. 

In 2010, the Maryland General Assembly passed the “Dormant Mineral Interests Act” that allows a surface estate owner of real property subject to an unused mineral interest to terminate the unused mineral interest. Recently, two different surface owners of real property with unused mineral interest followed the proper process to terminate the unused mineral 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 have 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 the mineral interest separated from the surface and currently being unused to petition the court to terminate the mineral 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;
  • record an instrument that provides notice that mineral interest is to continue; or
  • recording a judgment that references the mineral interest.

The law is to clean of property title issues that can exist when mineral and surface estates are split 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, the Act does not allow for filing a late notice.

Facts of Cases

 

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Source U.S. Archives and Records Admin

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 potential 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 recording made to preserve in more than 40 years. The circuit court terminated the dominant mineral interest in both cases and both cases, the mineral interest owners 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 paying compensation to landowners. In looking at retrospectively, laws cannot operate to have a retrospective (looking back) and impact a vested 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 needs to give you 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 that gave two years between 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 the interest.

The court did not see that the Act impacted reasonable reliance and settled expectations. In the ground rent decision, if the ground rent owner failed to register with

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the State, then the interest terminated and transferred to the tenant. That law impacted reasonable reliances and settled expectations because owners relied on that rent and retained the right to re-enter the property and provided no opportunity to remedy the situation if the owner did not register. The Act, on the other hand, did not impact reasonable reliances and settled expectations because in many cases the mineral interest owners were unaware of the ownership interest and had done nothing with interest since the original transfer.

 

Looking at the takings issue, the Act did not also did not impair vested rights or an 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 an 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 utility. In this case, the mineral interest owners are arguing that 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 an 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 put file a notice to preserve their unused mineral interest. To the court, the Act was not an 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 has now found on two occasions that the Act does not violate the state constitution. Mineral interest owners will need to look at filing a notice to preserve those mineral interests.

Theses cases also highlight that many mineral interest owners may not know they are mineral interest owners. In both cases, the mineral interest owners were only made aware of the ownership interest once the surface owners moved to terminate the interest. With that said, many mineral interest owners may have no idea that they need to be filing notices to preserve 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).

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