Harrison-Wyatt, LLC v. Ratliff

PRESENT: Hassell, C.J., Lacy, Keenan, Koontz, Lemons, and Agee,
JJ., and Stephenson, S.J.

HARRISON-WYATT, LLC
                                            OPINION BY
v.   Record No. 030634   SENIOR JUSTICE ROSCOE B. STEPHENSON, JR.
                                          March 5, 2004
DONALD RATLIFF, ET AL.


             FROM THE CIRCUIT COURT OF BUCHANAN COUNTY
                      Keary R. Williams, Judge

      This appeal presents a significant question of first

impression in Virginia, to-wit:   Where a surface owner of a

tract of land, or his predecessor-in-title, has conveyed all the

coal in and under his land, has title to the coal bed methane

(CBM) passed to the coal owner along with the coal?

                                  I

      Harrison-Wyatt, LLC (the Coal Owner), is the successor

grantee under three coal severance deeds from the 19th century.

Donald Ratliff and others (the Plaintiffs) own the surface land

and all minerals upon and within it, except the coal.    The

Plaintiffs filed a declaratory judgment action, pursuant to Code

§ 8.01-184, seeking, inter alia, a determination that they own

the CBM produced from the coal seams.   The Coal Owner denied

that the Plaintiffs own the CBM and alleged, to the contrary,

that it, as the owner of the coal estate, owns the CBM.
     Following a bench trial, the trial court ruled in favor of

the Plaintiffs, holding that the grant of the coal did not

include the CBM.   The Coal Owner appeals.

                                II

                                 A

     The land involved in this case is located in Buchanan

County, Virginia, and is designated as Mineral Tracts 18, 19,

and 56.   The severance deeds for Tracts 18 and 19 were recorded

on August 2, 1887, and convey "all the coal in, upon, and

underlying" the tracts.   The severance deed for Tract 56,

executed on October 13, 1887, contains similar language.

                                 B

     Scientific evidence revealed how coal and CBM are formed.

Coal is formed over millions of years from decaying plant

material that settles on the bottom of swamps.   By a

microbiological process, this plant material is first converted

into peat.   Over time, the peat sinks deeper into the earth and,

ultimately, as a result of a chemical reaction that increases

its carbon content, is transformed into coal.    This process of

transforming peat into coal is known as "coalification."

     CBM, sometimes referred to as "marsh gas," is produced

during coalification.   Coal is porous, and the CBM is held to

the porous surface of the coal by weak forces known as van der

Waals forces.   When the pressure on the coal is reduced, the


                                 2
forces that hold the CBM to the coal are reduced, and the CBM is

released from the surface of the coal.   Such a release may occur

through natural geological shifts or when coal is fractured

during the mining process.

       There are three methods for fracturing coal in order to

capture CBM as an economic resource.   One method is by drilling

wells from the surface into the coal seam.   A second method is

by the use of horizontal degasification wells from inside the

coal mine.   The third way is by employing what are called "gob"

wells relating to long-wall mining.

                                  C

       CBM, like any form of methane, is an extremely explosive

gas.   At the time the severance deeds were executed in the

present case and for about a century thereafter, CBM was known

as the "miner's curse."   Indeed, during these years, a great

many mine explosions occurred, killing or maiming thousands of

miners.

       Also during this time, coal owners were required to

ventilate the CBM from mines as a safety measure.   This

ventilation was accomplished by using very large fans and wells

to discharge the CBM into the atmosphere.

       During the 1970's, however, it became apparent that CBM

could be a valuable energy source.    Consequently, in 1990, the

General Assembly enacted The Virginia Gas and Oil Act, Code


                                  3
§ 45.1-361.1 et seq. (the 1990 Gas Act), whereby CBM could be

captured for commercial use rather than merely discharged into

the atmosphere.1      The General Assembly, however, left for future

judicial determination the question of CBM's ownership, except

when there was "an agreement among all claimants," and mandated

that the royalties from the production of CBM be held in escrow.2

                                     D

        The Coal Owner sought to establish the meaning of the

severance deeds with the following 19th-century descriptions of

coal.       The American Cyclopaedia described coal, in part, as

        a term now commonly used to denote all kinds of
        mineral fuel . . . . [A]t the present time, when wood
        and charcoal are fast giving place to the mineral
        varieties of fuel, the term coal is applied to that
        class of this fuel in general use. . . . Under the
        term coal we may therefore embrace all classes of
        mineral fuel that will ignite and burn with flame or
        incandescent heat. . . . The combinations of carbon,
        hydrogen, oxygen, and nitrogen with earthy impurities,
        to which the term mineral fuel may be properly
        applied, are infinite, ranging through all the grades
        of coal, from the hard, dense anthracite to the
        asphaltic varieties, and from the solidified petroleum
        to the gaseous naphtha.




        1
       The 1990 Gas Act defines CBM as "occluded natural gas
produced from coalbeds and rock strata associated therewith."
Code § 45.1-361.1.
        2
       In this declaratory judgment action, Plaintiffs sought
distribution to them of all escrowed amounts held by the
Virginia Gas and Oil Board pursuant to Code § 45.1-361.22.



                                     4
IV THE AMERICAN CYCLOPAEDIA:    A POPULAR DICTIONARY OF GENERAL

KNOWLEDGE 726 (Ripley and Dana eds., 1873).    In addition, the

same reference stated the following:

     All kinds of coal vary considerably both in mechanical
     structure and chemical composition . . . . The
     gradations of carbon, hydrogen, and oxygen compounds,
     from the almost pure fixed carbon in anthracite,
     through the more volatile bituminous varieties of
     coal, to the free carbon and hydrogen of naphtha, are
     infinite; and no formula can truly express the
     relative proportions which limit these compounds to
     the various classes of coals, or as mineral fuel.

Id. at 728.    The Encyclopaedia Britannica described coal, in

part, as follows:

           Coal is an amorphous substance of variable
     composition, and therefore cannot be as strictly
     defined as a crystallized or definite mineral can.
     . . .

             Coal is perfectly amorphous . . . .

          . . . Gases, consisting principally of light
     carburetted hydrogen or marsh gas, are often present
     in considerable quantity in coal, in a dissolved or
     occluded state, and the evolution of these upon
     exposure to the air, especially when a sudden
     diminution of atmospheric pressure takes place,
     constitutes one of the most formidable dangers that
     the coal miner has to encounter.

VI ENCYCLOPAEDIA BRITANNICA 45 (9th ed. 1877).

                                  III

     After examining the plain language of the severance deeds,

the trial court concluded that the term "coal" was not

ambiguous.    The court noted that, "[w]hile encyclopedia

definitions of the time cited by the coal owners make it clear



                                   5
that it was common knowledge that CBM was contained within the

coal, . . . CBM was not considered a chemical constituent of the

coal itself."    The court found significant the lack of chemical

bond between coal and CBM and ruled that CBM "is simply a by-

product" of coal and a severable estate.    The court stated,

therefore, that "[t]he grant of coal rights does not include

rights to CBM absent an express grant of coalbed methane,

natural gases, or minerals in general."    Consequently, the court

held that "the surface owners retain the CBM."

                                  IV

        Although the issue before us is one of first impression in

Virginia, other state courts and the Supreme Court of the United

States have ruled on it.    A review of these cases reveals a

split of authority.

                                   A

        In 1983, the Supreme Court of Pennsylvania decided United

States Steel Corp. v. Hoge, 468 A.2d 1380 (Pa. 1983).     In that

case, the fee owners, in a 1920 deed, had conveyed to United

States Steel Corporation "[a]ll the coal" and specifically

reserved the right "to drill and operate through said coal for

oil and gas without being held liable for any damages."    Id. at

1382.    Relying upon the characteristics and origins of gas and

its history of development, the court held that "such gas as is

present in coal must necessarily belong to the owner of the


                                   6
coal, so long as it remains within his property and subject to

his exclusive dominion and control."   Id. at 1383.   The court

further held that the surface owner "has title to the property

surrounding the coal, and owns such of the coalbed gas as

migrates into the surrounding property."    Id.

     The Supreme Court of Alabama considered the issue in NCNB

Texas Nat. Bank, N.A. v. West, 631 So.2d 212 (Ala. 1993).      In

that case, the original owner, in virtually identical 1953 and

1954 deeds, had conveyed "all the coal," but had reserved "all

of the oil, gas, petroleum and sulphur" and the exclusive right

to drill for and produce them.   Id. at 219-20.   All of the

parties agreed that coal and CBM were separate, severable

interests in real property.   Id. at 221.   The court found,

however, that the reservation of "all . . . gas" could not

impair the coal owner's incidental right to ventilate CBM for

mine safety.   Recognizing the migratory nature of CBM, the court

held that the coal owner had the right to recover the CBM found

within the coal seam and that the owner of the gas estate had

the right to the possession of the CBM that escapes into the

surrounding strata.   Id. at 228-29.

     The Supreme Court of Montana also considered the issue in

Carbon County v. Union Reserve Coal Co., 898 P.2d 680 (Mont.

1995).   In that case, the deed in question had conveyed "all

coal and coal rights," but had made no mention with respect to


                                 7
CBM, natural gas, or minerals.      Id. at 682.    The court concluded

that "coal seam methane gas is not a constituent part of coal

and, thus, it may be severed from the coal estate."       Id. at 687.

The court then held that the deed had not conveyed the CBM to

the coal owner.   Id. at 688.      After noting that Montana is an

"ownership-in-place state," the court ruled that the owners of

the gas estate had the right to drill for and produce CBM within

the coal seam.    Id. at 688-89.    The court further held, however,

that the coal owner had a "mutual, simultaneous right to extract

and to capture such gas for safety purposes, incident to its

actual coal mining operations."      Id. at 689.    The court then

left "to the agreement of the parties or to some future case the

issue of whether, and if so, to what extent, the gas estate

owner . . . is entitled to be compensated by the coal owner for

gas extracted and captured incident to the coal owner's mining

operations."   Id.

     In Newman v. RAG Wyoming Land Co., 53 P.3d 540, 542 (Wyo.

2002), the Supreme Court of Wyoming considered a deed that had

conveyed "all coal and minerals commingled with coal," but had

reserved to the landowners "all oil, gas and other minerals."

From the unambiguous language of the deed and the facts and

circumstances surrounding its execution, the court held that the

CBM was not conveyed to the coal owner but, instead, was

reserved to the landowners.     Id. at 549-50.     The court explained


                                     8
that "[c]oalbed methane, being a gas, remained the landowners'

property."    Id. at 550.

     Finally, we consider Energy Dev. Corp. v. Moss, ___ S.E.2d

___ (WV 2003), a case decided by the Supreme Court of Appeals of

West Virginia involving two virtually identical standard oil and

gas leases of "all of the oil and gas and all of the

constituents of either in and under the land."   Id. at ___.     The

leases made no mention of coal bed methane.   The issue before

the court was whether the leases conveyed the right to develop

CBM, absent any specific language to that effect.   Id. at ___.

The court held that the lessor did not intend to convey to the

lessee the right to drill into the lessor's coal seam for CBM.

Id. at ___.

                                 B

     In Amoco Prod. Co. v. Southern Ute Indian Tribe, 526 U.S.

865 (1999), the Supreme Court of the United States considered

land patents that had been issued to western settlers, pursuant

to the Coal Land Acts of 1909 and 1910, 30 U.S.C. §§ 81, 83-85

(the Federal Acts), conveying the land and everything in it,

except "all coal," which had been reserved to the Federal

Government.   These patented lands included reservation lands

previously ceded by the Southern Ute Indian Tribe (the Tribe) to

the United States.   In 1938, the United States restored to the

Tribe, in trust, title to the ceded reservation lands still


                                 9
owned by the Federal Government, including the reserved coal

lands.   These lands contain large quantities of CBM within the

coal formations.     The Tribe brought an action, claiming the

right to the CBM.    Id. at 870-71.

       The Supreme Court rejected the Tribe's claim, holding that

the term "coal," as used in the Federal Acts, does not encompass

CBM.   Id. at 880.    The Court explained, inter alia, that it was

“persuaded that the common conception of coal at the time

Congress passed the 1909 and 1910 Acts was the solid rock

substance that was the country's primary energy resource.”

Id. at 874.   The Court further stated that coal would not have

encompassed CBM "both because it is a gas rather than a solid

mineral and because it was understood as a distinct substance

that escaped from coal as the coal was mined, rather than as a

part of the coal itself."    Id. at 874-75.

                                   V

       In the present case, the trial court relied, in part, upon

the Amoco opinion and the various definitions of "coal" set

forth therein.   The Coal Owner contends that, in doing so, the

trial court erred because it considered evidence outside the

record on the meaning of the term "coal."      The Coal Owner

further contends that the trial court should have limited its

consideration to the evidence it offered, as set forth in Part

II, D, of this opinion.     We do not agree.   Courts routinely


                                  10
resort to various reference materials for the definitions of

terms contained in documents.   In doing so, they are not limited

to definitions, if any, that may be offered into evidence by a

litigant.   Although Amoco is not controlling in the present

case, the trial court did not err in relying upon the

definitions cited therein.

                                 VI

     Even though Amoco is not controlling in the present case,

we find it to be very persuasive, as did the trial court.    We do

not believe the term "coal," as it was used in the late 19th

century, is ambiguous.    As commonly understood at the time, the

term "coal" meant a solid rock substance used as fuel, and

nothing in the record indicates that CBM is a part of coal

itself.   On the other hand, although CBM has a weak physical

attraction to coal and escapes from coal when coal is mined, it

is a gas that exists freely in the coal seam and is a distinct

mineral estate.   Accord Newman and Carbon County, supra.

Moreover, the parties could not have contemplated at the time

the severance deeds were executed that CBM would become a very

valuable energy source.   We hold, therefore, that title to the

CBM did not pass to the Coal Owner, and the trial court did not

err in holding that the CBM is owned by the Plaintiffs and that

the Plaintiffs are entitled to distribution of the royalties

held in escrow.


                                 11
                                VII

     We have considered all of the Coal Owner's assignments of

error and find no error.   Accordingly, the judgment of the trial

court will be affirmed.3

                                                         Affirmed.




     3
       The trial court also made the following finding: "The
surface owners' rights to the CBM only extend to that which has
separated from the coal. The surface owner does not have the
right to frac[ture] the coal in order to retrieve the CBM."
This finding was not in response to an issue brought by either
party at trial or on appeal, and, therefore, we express no
opinion regarding this finding.

                                12