Hess v. Hobart , 2020 COA 139 ( 2020 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
September 17, 2020
2020COA139
No. 19CA0661, Hess v. Hobart — Real Property — Mineral
Estates
A division of the court of appeals considers whether a
reservation of “a life estate in all mineral rights” in a deed and
purchase contract is ambiguous, and what rights are conferred by
the plain language.
The division concludes the phrase “a life estate in all mineral
rights” is unambiguous and confers on the life tenant all mineral
rights that may be associated with the minerals, including the
power to enter oil and gas leases without consent of the
remaindermen and to retain all income from those leases.
The division also concludes that the common law open mines
doctrine and the Uniform Principal and Income Act of 1955,
sections 15-1-451 to -467, C.R.S. 2019, do not apply in this case to
adjust the division of income payments that may be gained from the
minerals, such as income from an oil and gas lease, between the life
tenant and remaindermen.
COLORADO COURT OF APPEALS 2020COA139
Court of Appeals No. 19CA0661
Weld County District Court No. 18CV30978
Honorable Marcelo A. Kopcow, Judge
Troy Hess and Shana Hess,
Plaintiffs-Appellants,
v.
Judith Ann Hobart,
Defendant-Appellee.
ORDER AFFIRMED
Division I
Opinion by JUDGE TAUBMAN*
Johnson and Vogt*, JJ., concur
Announced September 17, 2020
Chipman Glasser, LLC, Rin Karns, Denver, Colorado; McDonough Law, LLC,
Crystal McDonough, Loveland, Colorado; D. Scott Slawson, Timnath, Colorado,
for Plaintiffs-Appellants
Peters Schulte Odil & Wallshein, LLC, Jennifer L. Peters, Nathaniel Wallshein,
Greeley, Colorado, for Defendant-Appellee
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3) and § 24-51-1105, C.R.S. 2019.
¶1 In this dispute concerning the reservation of a life estate in “all
mineral rights” in a deed and contract, plaintiffs, Troy and Shana
Hess (the Hesses), appeal the district court’s judgment dismissing
their complaint against defendant, Judith Ann Hobart.
¶2 Because we conclude that the purchase contract and the deed
unambiguously reserved a life estate in all mineral rights to Hobart,
including the power to enter into oil and gas leases without the
consent of the Hesses and to retain all the income from those
leases, we affirm the dismissal of the Hesses’ action.
I. Background
¶3 This dispute involves mineral interests in Weld County. On
February 17, 2005, the Hesses entered into a contract with Hobart
to buy and sell real estate, pursuant to which the Hesses purchased
160 acres of vacant land from Hobart. The contract contained a
provision that “[s]eller [Hobart] reserve[d] a life estate in all mineral
rights on the property including, but not limited to all oil, gas,
hydrocarbons, and any other minerals.” On February 25, 2005,
Hobart conveyed the land to the Hesses by warranty deed. The
deed contained a reservation clause, which stated, as relevant here,
“except grantor [Hobart] reserves a life estate in all mineral rights
1
on the property including but not limited to all oil, gas,
hydrocarbons and any other minerals.”
¶4 Following the sale, the Hesses alleged the following in their
amended complaint: (1) Hobart had entered into three oil and gas
leases and was negotiating a fourth; (2) in 2010, Hobart signed a
lease with Hoover & Stacy, Inc.1; (3) on September 20, 2010, the
Hesses signed a letter ratifying the Hoover & Stacy lease,2 having
been advised by Hoover & Stacy that the Hesses were not entitled to
any income from the lease; (4) in 2014, Hobart signed a lease with
Extraction Oil and Gas, LLC; (5) in 2018, Hobart signed a lease with
Bur Oak Oil and Gas, LLC; (6) the Hesses did not ratify the last two
leases, alleging they were unaware of the leases and did not
negotiate or agree to the leases’ terms; and (7) in 2018, the Hesses
became aware that Hobart was negotiating a fourth lease with Edge
Energy, LLC.
¶5 In May 2017, the Hesses had a “chance conversation with a
landman in the Weld County Clerk and Recorder’s Office,” where
1 Hoover & Stacy, Inc. is a land company that deals with oil and gas
leases.
2 The ratification letter is not in the record on appeal.
2
they learned they might possess rights to income and bonuses as
remaindermen of Hobart’s life estate in the minerals.
¶6 As a result, in October 2018, the Hesses brought multiple
claims against Hobart: (1) declaratory judgment to clarify their
property ownership rights; (2) declaratory judgment to clarify their
rights in the Bur Oak lease; (3) breach of fiduciary duty in violation
of the Uniform Principal and Income Act of 1955 (UPIA), sections
15-1-451 to -467, C.R.S. 2019; (4) conversion; (5) civil theft; (6)
fraud; (7) negligence; (8) breach of contract; (9) breach of fiduciary
duty (constructive trust); and (10) accounting.
¶7 The district court granted Hobart’s motion to dismiss the
Hesses’ amended complaint under C.R.C.P. 12(b)(5). In a thorough,
well-reasoned opinion, the district court found the deed
unambiguously conveyed a life estate in the mineral interests to
Hobart:
Defendant [Hobart] reserved “all mineral
rights”. . . . This is expansive language that
conveys neither limitation nor surrender of
rights in the mineral interest.
....
[T]he provisions contain no ambiguity. Again,
[Hobart] reserved “all mineral rights,” which
3
includes the right to explore, drill, and enter
leases to develop the Property’s minerals.
There is no question of whether . . . oil and gas
are minerals, whether development is a
mineral right, or whether “all” means less than
all. Although the reservation’s brevity may
have come at the expense of some litigation, it
was clear, nonetheless.
The district court further held, based on the language of the deed,
that Hobart was not required to seek the Hesses’ consent prior to
entering into any oil and gas leases and could dispose of the
mineral interests as she saw fit.
II. Interpretation of the Phrase “All Mineral Rights”
¶8 On appeal, the Hesses contend the district court erred in
dismissing the complaint because it ignored their rights under
various principles of oil and gas law. They argue, for example, that
the UPIA and the open mines doctrine give them a cause of action
against Hobart for “wasting” the life estate’s corpus without
permission, absent an explicit agreement to the contrary.3
3“Waste is injury to the reversionary interest in land caused by the
wrongful act of one lawfully in possession.” In re Estate of Downing,
461 S.W.3d 231, 240 (Tex. App. 2015); see also Fed. Deposit Ins.
Corp. v. Mars, 821 P.2d 826, 831 (Colo. App. 1991).
4
¶9 Hobart responds that the phrase “a life estate in all mineral
rights” is unambiguous that the UPIA does not apply because it
addresses only situations arising in the trusts and estates context,
not the deed or contract between the parties here; and that the
open mines doctrine does not override the parties’ agreements in
the deed and the contract for purchase and sale.4
¶ 10 As explained below, we conclude that the phrase “a life estate
in all mineral rights” unambiguously conveys a life estate in exactly
that to Hobart, and that the broad language does not contemplate
any surrender of those rights to the Hesses, or any sharing of
income with the Hesses that Hobart receives from minerals during
her life.
A. Standard of Review
¶ 11 We review de novo a trial court’s ruling on a C.R.C.P. 12(b)(5)
motion to dismiss for failure to state a claim. Bewley v. Semler,
2018 CO 79, ¶ 14, 432 P.3d 582, 586. In doing so, we accept all
factual allegations in the complaint as true, viewing them in a light
4Because it was not raised by the parties, we need not address
whether the purchase contract terms merged into the warranty
deed. See Feit v. Donahue, 826 P.2d 407, 412 (Colo. App. 1992).
5
most favorable to the plaintiff. Id. Similarly, we accept as true
factual allegations set forth in documents attached to or referenced
by the complaint. Prospect Dev. Co., Inc. v. Holland & Knight, LLP,
2018 COA 107, ¶ 11, 433 P.3d 146, 149. To survive a motion to
dismiss for failure to state a claim, a plaintiff must state a claim for
relief that is plausible (not speculative) on its face. See, e.g., Gandy
v. Williams, 2019 COA 118, ¶ 22, 461 P.3d 575, 582-83; see also
Warne v. Hall, 2016 CO 50, ¶ 24, 373 P.3d 588, 595.
B. Applicable Law
¶ 12 We review de novo the interpretation of both a deed, Owens v.
Tergeson, 2015 COA 164, ¶ 17, 363 P.3d 826, 830, and the
interpretation of a contract, Klun v. Klun, 2019 CO 46, ¶ 18, 442
P.3d 88, 92 (citing Ad Two, Inc. v. City & Cty. of Denver ex rel.
Manager of Aviation, 9 P.3d 373, 376 (Colo. 2000)).
¶ 13 There are several considerations when interpreting a contract:
(1) a court’s primary goal is to determine and give effect to the
parties’ intent; (2) if possible, that intent is to be determined from
the language of the contract itself; (3) if the language of the contract
is unambiguous, it will be deemed to express the intent of the
parties; and (4) the contract’s plain meaning will be enforced as
6
written. See Klun, ¶ 18, 442 P.3d at 92. Extrinsic evidence may be
used to review the surrounding circumstances and to determine
whether an ambiguity exists in a contract, just as with a deed. See
Ad Two, 9 P.3d at 381.
¶ 14 Like contracts, deeds are generally construed in accordance
with the general rules of construction of written instruments.
Owens, ¶ 15, 363 P.3d at 830. Thus, if a deed is unambiguous, its
terms must be enforced as written. Id.
¶ 15 In determining whether an ambiguity exists in the first
instance, we examine the instrument’s language, giving the words
employed their plain and generally accepted meanings. Meyerstein
v. City of Aspen, 282 P.3d 456, 468 (Colo. App. 2011).
¶ 16 A life estate can be created by valid deed, contract, or lease.
Moss v. Moss, 175 P.3d 971, 974 (Okla. Civ. App. 2007); see also
§ 38-30-101, C.R.S. 2019 (allowing any person entitled to hold real
estate to be authorized to convey it “by deed”); Kendall v. Wiles, 483
P.2d 388, 389 (Colo. App. 1971) (not published pursuant to C.A.R.
35(f)) (“A life estate may be created by a present conveyance to the
grantee, reserving to the grantor a life estate. The reservation
should appear in the deed as an exclusion . . . .”) (emphasis added).
7
No particular words are necessary to create a life estate because
courts look to the intentions of the parties to the deed. See 31
C.J.S. Estates § 38, Westlaw (database updated June 2020); see
also Keith v. Kinney, 140 P.3d 141, 146 (Colo. App. 2005) (“Our
paramount purpose in construing any deed is to ascertain the
parties’ intent.”).
¶ 17 In conveyances of real property, it is common for a property
owner to sever and separately convey the minerals from the surface,
creating separate and distinct estates. See Notch Mountain, 898
P.2d at 556. A life estate is an acceptable means to convey a
mineral interest. See Keller Cattle Co. v. Allison, 55 P.3d 257, 262
(Colo. App. 2002) (“The duration of a mineral interest is like that of
common law estates, namely, in fee simple, in fee simple
determinable, for life, or for a fixed term of years.”).
C. Analysis
¶ 18 We conclude that the plain language in the deed and contract
unambiguously reserved a life estate in “all mineral rights” to
Hobart, meaning that Hobart has the right to produce the minerals
without consent of the Hesses and to retain all income from them.
8
¶ 19 The plain language of the deed and contract is unambiguous.
As noted by the district court, “there is no question” as to “whether
‘all’ means less than all.” “All” is an unambiguous term. See City of
Grand Junction v. Ute Water Conservancy Dist., 900 P.2d 81, 91
(Colo. 1995); see also Hudgeons v. Tenneco Oil Co., 796 P.2d 21, 23
(Colo. App. 1990) (“‘All’ is an unambiguous term and means the
whole of, the whole number or sum of, or every member or
individual component of, and is synonymous with ‘every’ and
‘each.’”). Therefore, whatever mineral rights pertained to Hobart’s
reservation of a life estate, all of them are available to Hobart.
¶ 20 Unfortunately for the Hesses, “all” rights include “the right to
enter the land to explore, drill, produce, and otherwise carry on
mining activities,” as stated in Keller Cattle Co., 55 P.3d at 262.
The Hesses argue that Hobart’s right to carry on mining activities is
modified by her reservation of a life estate. However, while a life
estate indeed limits her rights to her lifetime, during that lifetime
she possesses “all mineral rights.” See Moeller, ¶ 16, ___ P.3d at ___
(“A conveyance of real property, which is generally defined and
designated in the deed’s granting clause, passes all title to the land
and the underlying mineral deposits, except those interests explicitly
9
held back.” (citing O’Brien v. Vill. Land Co., 794 P.2d 246, 249-51
(Colo. 1990))) (emphasis added).
¶ 21 In light of our conclusion that the language here is
unambiguous, we need not engage in further examination of the
surrounding circumstances. See Lazy Dog, 965 P.2d at 1236.
¶ 22 The Hesses contend that, notwithstanding the unambiguous
language in the deed and contract, because an explicit agreement
as to division of income from the produced minerals was never
made, the open mines doctrine and Colorado’s UPIA “fill in” the
gaps in the deed. However, based on our holding that the plain
language is unambiguous, we necessarily reject the Hesses’
arguments concerning the open mines doctrine, the UPIA, the
general practice of dividing rights between a life tenant and
remaindermen, and that an agreement was never made. We
disagree with the Hesses for four reasons.
¶ 23 First, the common law open mines doctrine dictates that
“when a [mineral] lease is in existence at the time the life estate is
created, the life tenant and the remainderman take the property in
the condition that existed at the time of the creation of the estate”
(i.e., “[t]he life tenant is entitled to the royalties from the lands
10
during his or her life time”). Angela L. Franklin & David B. Hatch,
Dotting Your I’s and Crossing Your T’s: Ensuring Proper Payment and
Execution, 3 Rocky Mountain Min. L. Inst. 3, 3-22 (2018); see also
Welborn v. Tidewater Associated Oil Co., 217 F.2d 509, 511-12
(10th Cir. 1954); Reese v. Reese-Young, 938 N.W.2d 405, 411-12
(N.D. 2020) (adopting the open mines doctrine by statute and
discussing its existence in other jurisdictions). The Hesses
maintain that the converse of the open mines doctrine applies here
— that because no leases existed when Hobart reserved her life
estate, she was not entitled to any income from mineral leases
entered after the life estate was created.
¶ 24 However, the open mines doctrine applies only when a lease is
created before the creation of the life estate, a factual situation that
indisputably does not exist here.
¶ 25 Second, the Hesses argue that the UPIA applies because the
UPIA contemplates divisions of income payments between life
tenants and remaindermen regarding mineral production. We
disagree. Rather, we agree with the district court that the UPIA
applies only in the context of wills, trusts, and estates. We note in
this regard that the UPIA is in title 15, which deals with those
11
subjects, not in title 38, which addresses principles of real property
law. Significantly, the Hesses have not cited any authority to the
contrary.
¶ 26 Third, we are not persuaded by the Hesses’ contention that the
general rule of dividing rights and income between a life tenant and
remaindermen applies here.
¶ 27 While contracting parties commonly divide rights between the
life tenant and the remaindermen, that was not done here. As one
commentator has noted, “[b]y far the simplest solution to this
problem is to obtain a stipulation from the holders of the present
and future estates setting forth with clarity the manner in which
these payments are to be divided.” 1B Stephen A. Hess, Colorado
Practice Series: Methods of Practice § 11:2, Westlaw (7th ed.
database updated June 2020); see also Hobson v. Cimarex Energy
Co., 453 P.3d 482, 485 (Okla. 2019) (Kauger, J., specially
concurring) (acknowledging “that grantors can avoid this problem
by ensuring the document creating the life estate restricts the part
of the remainderman. . . . The person conveying the life estate has
great discretion in any conditions [he or she] wish[es] to
attach . . .”). Because the parties here did not agree to a division of
12
mineral rights, the general practice is irrelevant. Instead, we
enforce the contract according to its plain language.
¶ 28 Finally, the Hesses contend that each oil and gas lease made
subsequent to the deed, except for the one they ratified, was made
without their permission, and because there was no agreement to
that effect, the Hesses are entitled to obtain damages for waste.
Again, we disagree.
¶ 29 When a life estate is created, it is incumbent upon the life
tenant to avoid wasting the estate’s corpus to the detriment of the
remaindermen. See, e.g., Fed. Deposit Ins. Corp. v. Mars, 821 P.2d
826, 831 (Colo. App. 1991). Waste originally “referred to any
unauthorized destruction or severance of improvements, trees,
minerals, or other corporeal hereditaments on or from the land.” Id.
The concept has evolved into a legal means by which any
concurrent nonpossessory holder of an interest in land may prevent
or restrain harm to land by the party in possession, such as in a life
tenant and remainderman relationship, as here. See id.
¶ 30 Thus, as a rule, the life tenant must not waste the mineral
interests to prevent the remaindermen from also enjoying the
13
mineral interests when they come into possession. Id.; see also In
re Estate of Downing, 461 S.W.3d 231, 240 (Tex. App. 2015).
¶ 31 However, especially in the oil and gas context, life tenants and
remaindermen often agree to alter the rule. For example, “[a] life
tenant and the remainderman may lease the land by a joint lease[,]
and they may agree as to the division of the rents and royalties.”
Welborn, 217 F.2d at 510 (footnote omitted). “In the absence of
such an agreement, the life tenant is not entitled to any part of the
royalties, but is entitled only to the income from such royalties.” Id.
Here, however, there was no agreement that “all mineral rights”
would mean something less than all.
III. C.R.C.P. 12(b)(5) Motion
¶ 32 All ten causes of actions brought by the Hesses rest entirely on
their contention that no explicit agreement was made as to division
of income from the mineral production reserved in Hobart’s life
estate. However, as we have concluded, the deed and contract
unambiguously give Hobart unfettered rights concerning the
minerals during her life tenancy. Therefore, the district court
properly dismissed the Hesses’ claims.
14
¶ 33 For the Hesses’ first and second claims of declaratory
judgment regarding their ownership in the mineral interests, they
do not have any rights that may be exercised until the life estate
ends and they come into possession, because “all mineral rights”
belong to Hobart for the duration of her life.5
¶ 34 Next, Hobart cannot be acting illegally if she has full rights to
produce the minerals during her lifetime. Therefore, she could not
be in breach of any fiduciary duty under the UPIA (even if it
applied); and she cannot be liable for conversion, theft, fraud,
negligence, breach of contract, breach of fiduciary duty requiring a
constructive trust, or an accounting.
¶ 35 As a matter of law, there are no plausible claims here, and the
district court therefore did not err by dismissing the Hesses’ claims
under C.R.C.P. 12(b)(5).
5 Other courts in Colorado have held that when the court rules
against the plaintiff in a declaratory judgment action, the court
should enter a declaratory judgment rather than sustain a motion
to dismiss. See, e.g., Karsh v. City & Cty. of Denver, 176 Colo. 406,
409-10, 490 P.2d 936, 938 (1971); Martinez v. Colo. Dep’t of Human
Servs., 97 P.3d 152, 156 (Colo. App. 2003). However, we need not
decide whether the district court should have done so here, as the
result of entering a declaratory judgment would have been the same
as dismissal of the Hobarts’ claim.
15
IV. Appellate Attorney Fees and Costs
¶ 36 As a final matter, Hobart requests appellate attorney fees,
primarily because the contract signed by the parties contains a
provision awarding costs and attorney fees to the prevailing party.
Section 18(c) of the contract states, “[i]n the event of any arbitration
or litigation relating to the contract, the arbitrator or court shall
award to the prevailing party all reasonable costs and expenses,
including attorney fees.” The Hesses do not dispute the contract’s
provision, stating only that the applicability of this provision
depends on the outcome of this appeal.
¶ 37 Hobart further urges us to grant an award of attorney fees and
costs under section 13-17-201, C.R.S. 2019, for a successful
defense against a tort action, and under section 13-17-102, C.R.S.
2019, for the Hesses’ claim having lacked substantial justification.
¶ 38 We need not determine whether Hobart is entitled to attorney
fees and costs under either statute because Hobart is entitled to
reasonable appellate attorney fees and costs by virtue of the parties’
contract.
16
V. Conclusion
¶ 39 The district court’s judgment of dismissal under C.R.C.P.
12(b)(5) is affirmed, and the case is remanded to the district court
to determine the amount of Hobart’s reasonable appellate attorney
fees on appeal.
JUDGE JOHNSON and JUDGE VOGT concur.
17