PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2273
CLIFTON G. VALENTINE,
Plaintiff – Appellant,
v.
SUGAR ROCK, INC.; GERALD D. HALL; TERESA D. HALL,
Defendants – Appellees.
Appeal from the United States District Court for the Northern
District of West Virginia, at Clarksburg. Irene M. Keeley,
District Judge. (1:10-cv-00193-IMK)
Argued: December 10, 2013 Decided: March 12, 2014
Before KING, GREGORY, and FLOYD, Circuit Judges.
Published Order of Certification to the Supreme Court of Appeals
of West Virginia. Judge King prepared the Order, in which Judge
Gregory and Judge Floyd joined.
ARGUED: James Scott Huggins, THEISEN BROCK, LPA, Marietta, Ohio,
for Appellant. W. Henry Lawrence, IV, STEPTOE & JOHNSON PLLC,
Bridgeport, West Virginia, for Appellees. ON BRIEF: Daniel
Patrick Corcoran, THEISEN BROCK, LPA, Marietta, Ohio, for
Appellant. Amy Marie Smith, William J. O'Brien, STEPTOE &
JOHNSON PLLC, Bridgeport, West Virginia, for Appellees.
ORDER OF CERTIFICATION TO THE
SUPREME COURT OF APPEALS OF WEST VIRGINIA
KING, Circuit Judge:
Availing ourselves of the privilege afforded by the State
of West Virginia through the Uniform Certification of Questions
of Law Act, West Virginia Code sections 51-1A-1 through 51-1A-
13, we hereby request that the Supreme Court of Appeals of West
Virginia exercise its discretion to answer the following
certified question of law:
Whether the proponent of his own working interest in a
mineral lease may prove his entitlement thereto and
enforce his rights thereunder by demonstrating his
inclusion within a mining partnership or partnership
in mining, without resort to proof that the lease
interest has been conveyed to him by deed or will or
otherwise in strict conformance with the Statute of
Frauds.
We perceive that the answer to the foregoing question of West
Virginia law may be determinative of the cause now pending
before us. Moreover, it appears that the decisions of the
Supreme Court of Appeals of West Virginia provide no controlling
precedent dispositive of the question. To fully illustrate the
nature of the controversy out of which the question arises, we
next recite the relevant facts.
2
I.
A.
Clifton G. Valentine filed this diversity action on
November 8, 2010, in the Northern District of West Virginia,
alleging that he is the owner of certain fractional working
interests in four Ritchie County mining partnerships: Cuthright
Oil & Gas Co. (stated working interest of 3/32), Iams Gas Co.
(2/32), Iams Oil Co. (5/32), and Keith Gas Co. (1/32). Three
wells produce oil and gas on Cuthright’s leasehold, with single
wells in production for each of the other three partnerships on
their respective, discrete leaseholds.
Named as defendants in Valentine’s lawsuit are Sugar Rock,
Inc., which is the operator of the wells, and two of its
officers, Gerald D. Hall and Teresa D. Hall (collectively,
“Sugar Rock”). Valentine demands an accounting and seeks
compensatory and punitive damages, together with reimbursement
of his attorney fees and litigation costs. On January 13, 2011,
Sugar Rock answered the complaint and filed a counterclaim “in
excess of $14,191.00,” representing the cumulative operating
expenses attributable to Valentine’s asserted working interests
in the six wells. See J.A. 27. 1
1
Citations herein to “J.A. ___” refer to the contents of
the Joint Appendix filed by the parties to the appeal underlying
this Order of Certification.
3
Valentine maintains that he purchased the working interests
from Frank “F.A.” Deem, the original owner of the leaseholds, in
the late 1950s. For about forty years, Valentine received his
proportionate share of the net proceeds generated by the well
operations. Those payments stopped in 1999, however, when Frank
Deem’s son and successor in interest, William “W.A.” Deem, sold
the majority interest in the partnerships to Sugar Rock. After
Sugar Rock became the operator and managing partner of the
partnerships, the wells began to operate at a net annual loss,
in amounts reflected on the tax documents (IRS Schedule K-1 to
Form 1065) that each partnership has continued to deliver
annually to Valentine. Sugar Rock billed Valentine for his
share of the deficiencies, but he refused to remit payment. In
2001, Sugar Rock filed suit in state court against Valentine to
recover the costs incurred to that point; the action was
dismissed in 2004 for failure to prosecute.
The parties engaged in discovery in the district court,
after which Sugar Rock moved for summary judgment on the ground
that Valentine could produce no written instrument conveying him
ownership of the working interests in dispute. In support of
its position, Sugar Rock observed at the outset that, in
accordance with West Virginia law, the creation of the four
leaseholds transferred interests in real property. See J.A. 127
(citing Syl. Pt. 1, McCullough Oil, Inc. v. Rezek, 346 S.E.2d
4
788 (W. Va. 1986)); cf. Miller v. Schwartz, 354 N.W.2d 685, 689
(N.D. 1984) (explaining that “[t]he interest acquired by the
lessee under an ordinary oil and gas lease is known as a working
interest and is an interest in real property” (citation and
internal quotation marks omitted)).
Next, Sugar Rock advanced the uncontroversial corollary
that any subsequent assignment by the lessee of a portion of its
working interest in an oil and gas lease similarly conveys an
interest in real property. See J.A. 127 (citing 37 C.J.S.
Statute of Frauds § 77 (2011)); see also Exxon Corp. v.
Breezevale Ltd., 82 S.W.3d 429, 436 (Tex. App. 2002)
(instructing that, “[u]nder Texas law, a conveyance of a working
interest in oil and gas is a real property interest”); Fry v.
Farm Bureau Oil Co., 119 N.E.2d 749, 750 (Ill. 1954) (same,
applying Illinois law). Given that the working interests
asserted by Valentine are real property interests, Sugar Rock
maintained that their purported transfer could only be effected
by a writing contemplated by the West Virginia Statute of
Frauds:
No estate of inheritance or freehold, or for a term of
more than five years, in lands, or any other interest
or term therein of any duration under which the whole
or any part of the corpus of the estate may be taken,
destroyed, or consumed, except for domestic use, shall
be created or conveyed unless by deed or will.
5
W. Va. Code § 36-1-1. Thus, Sugar Rock reasoned, Valentine’s
want of proper documentation evidencing ownership of the working
interests in question doomed his claim. See J.A. 128 (citing
Arbaugh v. Raines, 184 S.E.2d 620, 623 (W. Va. 1971), which held
that a written agreement between the lessee and investors
conveying shares in a gas well enterprise and providing for the
distribution of proceeds was “neither a deed nor a will”
transferring to the investors any interest in the minerals in
place).
In response, Valentine disavowed the “direct ownership
interest in real estate” that might have been transferred via a
conforming writing indicating the conveyance of the subject
working interests. J.A. 307. Valentine contended instead that
he possessed “an ownership interest in a partnership” arising
under operation of law, and thus an indirect ownership interest
in the four oil and gas leases. Id. The specific portion of
each working interest to which he is entitled need not,
according to Valentine, be established in strict conformance
with the Statute of Frauds, but can be proved by parol evidence
and by the parties’ course of conduct.
A “mining partnership” of the sort Valentine posits, may be
formed “where tenants in common of mines or oil leases . . .
actually engage in working the same, and share, according to the
interest of each, the profit and loss.” Childers v. Neely, 34
6
S.E. 828, 829 (W. Va. 1899) (citation and internal quotation
marks omitted). In such instances, “the partnership relation
subsists . . . though there is no express agreement . . . to be
partners or to share profits and loss.” Id. (citation and
internal quotation marks omitted). From Childers and the
learned legal literature, the district court distilled three
essential elements of a mining partnership: (1) co-ownership of
lands or leases constituting a property interest; (2) joint
operation thereof; and (3) sharing of profits and losses. See
J.A. 777; see also Drake v. O’Brien, 130 S.E. 276, 280 (W. Va.
1925) (confirming that “[a] mining partnership exists between
the tenants in common of a mine who work it together and divide
the profits in proportion to their several interests”).
The district court, by its Memorandum Opinion and Order
(the “Opinion”), determined that Valentine’s assertion of an
interest in the Sugar Rock mining partnerships failed at the
threshold, in that he had not satisfied the first essential
element. See Valentine v. Sugar Rock, Inc., No. 1:10-cv-00193,
2012 WL 4320850 (N.D. W. Va. Sept. 18, 2012). In Childers,
there was no dispute that the prospective partners each owned a
properly documented share of the subject property prior to joint
development of the minerals in place. By contrast, Valentine
was unable to produce a writing in conformance with the Statute
of Frauds. The district court concluded, therefore, that
7
Valentine could not properly evidence receipt of the disputed
working interests, which in turn precluded him from
demonstrating the requisite ownership interest in any of the
subject leases. See Opinion 13, 20-21. The court consequently
granted Sugar Rock’s motion and entered summary judgment on its
behalf. Valentine timely appealed by notice filed on October
12, 2012. We possess jurisdiction over Valentine’s appeal
pursuant to 12 U.S.C. § 1291.
B.
1.
During the pendency of this appeal, on April 8, 2013,
Valentine filed a contested motion to supplement the record with
pleadings and additional materials filed in a putative class
action in state court against the defendants herein by nine
other purported owners of working interests in the four mining
partnerships. See Washburn v. Sugar Rock, Inc., No. 11-C-61
(Cir. Ct. Ritchie Cnty.). Valentine’s motion was deferred
pending oral argument.
In the meantime, by its memorandum Order of July 19, 2013
(the “Washburn Order”), the state circuit court denied the
defendants’ motions for judgment on the pleadings and for
summary judgment, and it granted the plaintiffs’ motion for
partial summary judgment. In so ruling, the court declared that
the plaintiffs were partners in the mining partnerships and
8
owned the claimed working interests, notwithstanding that such
assertions could not be corroborated by deed or will. Valentine
submitted the Washburn Order in accordance with the rule
permitting us to be notified of “pertinent and significant
authorities [that] come to a party’s attention” while the appeal
is yet pending. See Fed. R. App. P. 28(j). Inasmuch as the
state court materials previously offered for our consideration
will likely be useful in understanding the Washburn Order, we
are satisfied to grant Valentine’s motion to supplement the
record. 2
In considering the motions before it, the circuit court
acknowledged that Childers requires each partner in a mining
2
The district court’s summary judgment order in favor of
Sugar Rock, entered in September 2012, concomitantly denied
Valentine’s motion to voluntarily dismiss his complaint without
prejudice, see Fed. R. Civ. P. 41(a)(2), so that he could join
the putative class action in Ritchie County. Valentine contends
on appeal that the court should have granted his dismissal
motion or, failing that, stayed further action — including
consideration of Sugar Rock’s motion for summary judgment — to
await developments in the state court proceedings. We reject
Valentine’s assertions of error in this regard, and, with
respect to the dismissal issue, adopt the analysis set forth by
the district court in its unpublished Opinion. Our disposition
of the above-described aspect of Valentine’s appeal removes any
alternative basis to disturb the judgment below and leaves for
resolution solely the question that we certify today, thereby
ensuring that we do not ask the Supreme Court of Appeals of West
Virginia for an advisory opinion. See State ex rel. Advance
Stores Co., Inc. v. Recht, 740 S.E.2d 59, 64 (W. Va. 2013)
(reinforcing Court’s determination that it “will not answer a
certified question if, in doing so, [it] would have to render a
non-controlling, advisory answer”).
9
partnership to possess an ownership interest in the land or
lease being exploited, but also observed the opinion’s silence
as to whether such an interest may arise and be evidenced
through some writing other than a deed or will, or, indeed,
through no writing at all. See Washburn Order 5 (recognizing
that Childers “does not say that the mines, leases, or lands of
a mining partnership must be titled in the name of each of the
individual mining partners”). The circuit court instead
regarded the Supreme Court’s post-Childers opinion in Lantz v.
Tumlin, 81 S.E. 820 (W. Va. 1914), as more helpful to its
analysis.
In Lantz, one of two participants in an alleged mining
partnership brought a bill in equity to dissolve the entity and
settle accounts. The defendant demurred on the grounds that
there was no written partnership agreement and that only the
plaintiff’s name appeared on the property deed. The Supreme
Court of Appeals affirmed, in pertinent part, the circuit
court’s entry of judgment in favor of the plaintiff, concluding
that the evidence left “no room for doubt” that the purported
partnership had in fact existed. Lantz, 81 S.E. at 820. The
evidence to which the Court referred consisted of interactions
and correspondence between the parties, buttressed by the use of
the partnership name on financial records and on contracts
undertaken. See id. at 820-21. The Court rejected the
10
defendant’s invocation of the Statute of Frauds in defense,
instructing that “where persons engage in a joint enterprise for
profit, by associating themselves together as partners or
otherwise, a relationship of trust and confidence is thereby
established, and that as between them in the conduct of the
joint or partnership business the statute of frauds has no
application.” Id. at 821 (citations omitted).
Persuaded by Lantz, the Circuit Court of Ritchie County in
Washburn denied Sugar Rock’s motion for judgment on the
pleadings. The circuit court perceived that the result in Lantz
was consistent with West Virginia authorities permitting
partnership real estate to be treated as personalty for purposes
of implementing equitable remedies such as dissolution and
settlement. See Washburn Order 8 (citing, inter alia, Brown v.
Gray, 70 S.E. 276, 277 (W. Va. 1911)). Further, according to
the court, the plaintiffs were entitled to partial summary
judgment regarding their claims to the working interests in
dispute. The court ruled that — in the absence of any evidence
to the contrary — ownership had been sufficiently demonstrated
by the plaintiffs’ affidavits, appended with documents of record
establishing each partnership, detailing the various interests
therein, and subsequently assigning those interests. See id. at
10-12. The affidavits additionally incorporated the Schedule K-
11
1s that Sugar Rock had, from 1999 through 2011, delivered each
year to the plaintiffs. See id. at 12.
2.
The district court in the case at bar was likewise
presented with the opportunity to consider the import and
applicability of Lantz. The court concluded that Lantz
supported the proposition made apparent in Childers that a
mining partnership may arise through words and by conduct. See
Opinion 21 (recognizing that “there is, manifestly, no dispute
that a written partnership agreement is not required for
individuals to form a common law mining partnership” (citation
omitted)). According to the court, however, Lantz cannot be
interpreted as permitting, in derogation of the Statute of
Frauds, the conveyance of the property interest necessary to
form a mining partnership: “What is required, however, is an
interest in property, an interest which [Valentine] does not
purport to have.” Id.
True enough, Valentine abandoned all pretense that he had
been directly conveyed by deed or will any property interest in
the leases; he maintained that his working interest instead
derived indirectly from his proportional participation in the
partnership, which owns the leases. Though the district court
indicated that the absence of a preexisting property interest
documented by deed or will forecloses, ab initio, the creation
12
of a “mining partnership,” it did not consider the possibility
that its chicken-or-the-egg conundrum might be avoided if West
Virginia law were construed to recognize a “partnership in
mining,” that is, the formation of an ordinary partnership that
happens to have as its primary purpose the exploitation of
minerals. Such an approach could help to explain the result in
Lantz, where a partnership was deemed to exist notwithstanding
that one of the partner’s names was nowhere to be found on the
subject lease.
We discern, however, another rationale potentially
supporting the Lantz decision. In that dispute, the real estate
owner of record sued to hold his partner — whose alleged
interest in the same real estate was undocumented — liable for
the indebtedness of the partnership. In order to prevail, then,
the plaintiff was constrained to stipulate to the defendant’s
property interest. A stipulation, as the Supreme Court of
Appeals has explained, “is a judicial admission. As such, it is
binding in every sense, preventing the party who makes it from
introducing evidence to dispute it, and relieving the opponent
from the necessity of producing evidence to establish the
admitted fact.” Lawyer Disciplinary Bd. v. Morgan, 717 S.E.2d
898, 906 (W. Va. 2011) (citation and internal quotation marks
omitted).
13
Given the plaintiff’s admission in Lantz, consistent with
the entirety of the supporting evidence, it can hardly be said
that relieving the defendant therein of his partnership
obligations for want of a conforming writing would have served
the purpose of the Statute of Frauds, which is “to prevent the
fraudulent enforcement of unmade contracts, not the legitimate
enforcement of contracts that were in fact made.” Hoover v.
Moran, 662 S.E.2d 711, 719 (W. Va. 2008) (citations and internal
quotation marks omitted); see also Timberlake v. Heflin, 379
S.E.2d 149, 153 (W. Va. 1989) (instructing that “a pleading in a
civil case may satisfy the requirement of a memorandum”
evidencing a contract for the sale or lease of land).
In the matter before us, however, we face perhaps a more
typical situation, in that the plaintiff urges a declaration of
his ownership interest in realty not evidenced by deed or will,
such declaration being vigorously opposed by the owner of
record. The particular facts underlying the case at bar
persuade us that we may appropriately certify the question we
now confront. 3
3
Even if the difference in procedural posture that
potentially distinguishes this matter from Lantz is deemed to be
of no legal significance, our resort to the certification
process is nonetheless reasonable and appropriate. In that
instance, the district court’s Opinion and the Washburn Order
entered by the Circuit Court of Ritchie County manifest
irreconcilable outcomes though both courts have sought to apply
(Continued)
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II.
In light of the foregoing, we identify the controlling
question of West Virginia law to be this: Whether the proponent
of his own working interest in a mineral lease may prove his
entitlement thereto and enforce his rights thereunder by
demonstrating his inclusion within a mining partnership or
partnership in mining, without resort to proof that the lease
interest has been conveyed to him by deed or will or otherwise
in strict conformance with the Statute of Frauds. We
acknowledge that the Supreme Court of Appeals of West Virginia
may reformulate the question. All of the parties in this matter
are represented by counsel, whose names and addresses are
provided hereunder.
the same precepts of West Virginia law to the identical Ritchie
County properties. As our distinguished colleague Judge Widener
reminded us in Denny v. Seaboard Lacquer, Inc., 487 F.2d 485,
489 (4th Cir. 1973), the principles of federalism first
identified by the Supreme Court of the United States in Erie
Railroad Co. v. Tompkins, 304 U.S. 64 (1938), impose upon us the
duty to decide diversity actions through the faithful
application of state law, as we discern it to the best of our
ability. The parties before us on appeal, as well as the
additional, non-diverse plaintiffs involved in the Ritchie
County litigation, are each entitled to have the controlling
question of West Virginia law properly decided. In view of the
importance of the question and the significant likelihood that
it will recur as oil and gas exploration and development
continues on the upswing in West Virginia, we are of the opinion
that the state’s Supreme Court of Appeals ought to be afforded
the opportunity to resolve it.
15
For the Plaintiff-Appellant: For the Defendants-Appellees:
James Scott Hughes W. Henry Lawrence, IV
Daniel Patrick Corcoran William James O’Brien
THEISEN BROCK, LPA STEPTOE & JOHNSON, PLLC
424 2nd Street 400 White Oaks Boulevard
Marietta, OH 45750 Bridgeport, WV 26330
III.
Accordingly, pursuant to the privilege made available under
West Virginia law as described above, we hereby ORDER: (1) that
the question set forth herein be certified to the Supreme Court
of Appeals of West Virginia for answer; (2) that the Clerk of
this Court transmit to the Supreme Court of Appeals of West
Virginia, under the official seal of this Court, a copy of this
Order of Certification; and (3) that the Clerk of this Court
forward in addition the original or copies of the record before
this Court, in all or in part, as requested by the Supreme Court
of Appeals of West Virginia, any and all such requests being
effective upon notification by ordinary means from the Clerk of
the Supreme Court of Appeals of West Virginia.
QUESTION CERTIFIED
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