Wicklund v. Sundheim , 383 Mont. 1 ( 2016 )

March 9 2016
DA 15-0263
Case Number: DA 15-0263
IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 62
EARLE D. WICKLUND, CLAUDE L. TEISINGER,
and EDWARD J. STEVENS as Trustees of the
Teisinger Stevens Wicklund Royalty Trust,
Plaintiffs and Appellants,
v.
G’NELL SUNDHEIM, JERRY SUNDHEIM, JIMMY SUNDHEIM,
SHARON SUNDHEIM, JUDEAN SUNDHEIM,
PATRICIA SUNDHEIM, ORION SUNDHEIM,
ELMA SUNDHEIM, ROBERT E. SUNDHEIM,
DELORES FRISON, AUDREY SUNDHEIM
ESTATE, JEFF SUNDHEIM as Personal Representative
of Audrey Sundheim Estate, NANCY MARIE PAWLOWSKI,
LAURA ANN PAWLOWSKI, SCOTT E. SUNDHEIM,
JEFFRY J. SUNDHEIM, RHONDA CAYKO and
ERIC L. SUNDHEIM, individually, and all other heirs of
Ole Sundheim and Iver Sundheim,
Defendants and Appellees.
APPEAL FROM: District Court of the Seventh Judicial District,
In and For the County of Richland, Cause No. DV 13-54
Honorable David Cybulski, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Donald L. Harris, Harris & Associates, PLLC, Billings, Montana
Michael E. Zimmerman, Attorney at Law, Sheridan, Wyoming
For Appellees:
Albert R. Batterman, Batterman Law Offices, P.C., Baker, Montana
Submitted on Briefs: December 16, 2015
Decided: March 9, 2016
Filed:
__________________________________________
Clerk
2
Justice Beth Baker delivered the Opinion of the Court.
¶1 Earle D. Wicklund, Claude L. Teisinger, and Edward J. Stevens1 (collectively
Teisingers) appeal the findings of fact, conclusions of law, and order of the Seventh
Judicial District Court, Richland County, denying their claim for a 3/5ths royalty interest
in oil, gas, and minerals located on several sections of land in Richland County and
quieting title to the royalty interest in Appellees’2 favor. We address the following issues
on appeal:
1. Whether the District Court improperly admitted testimony from an English
professor interpreting the language of the warranty deed’s royalty interest
reservation.
2. Whether the District Court erred by resolving the ambiguity in the 1953
Warranty Deed in favor of Sundheims.
3. Whether the District Court erroneously applied the doctrine of laches to deny
Teisingers’ claim to the 3/5ths royalty interest.
¶2 We reverse and remand with instructions consistent with this opinion.
PROCEDURAL AND FACTUAL BACKROUND
¶3 On March 26, 1953, Chester L. Teisinger and Jennie M. Teisinger conveyed
several sections of real property in Richland County (the Property) to Ole Sundheim and
1
Wicklund, Teisinger, and Stevens appeal as Trustees of the Teisinger Stevens Wicklund
Royalty Trust.
2
Appellees are G’Nell Sundheim, Jerry Sundheim, Jimmy Sundheim, Sharon Sundheim, Judean
Sundheim, Patricia Sundheim, Orion Sundheim, Elma Sundheim, Robert E. Sundheim, Delores
Frison, Audrey Sundheim Estate, Jeff Sundheim as Personal Representative of the Audrey
Sundheim Estate, Nancy Marie Pawlowski, Laura Ann Pawlowski, Scott E. Sundheim, Jeffry J.
Sundheim, Rhonda Cayko, and Eric L. Sundheim, individually, and all other heirs of Ole
Sundheim and Iver Sundheim. We refer to the Appellees collectively as Sundheims.
3
Iver Sundheim by a warranty deed (1953 Warranty Deed), which included the following
reservation language:
First parties reserve unto themselves three-fifths (3/5ths) of Land owners
[sic] oil, gas and mineral royalties and three-fifths (3/5ths) of any and all
delay rentals on present and existing oil and gas leases now of record
against the lands herein described; the conveyance herein is made subject to
such oil and gas leases and any and all assignments now of record.
Prior to the sale, Teisingers’ predecessors granted an oil and gas lease to R.L. Hill (Hill
Lease) on certain sections of the Property. The Hill Lease was released in 1958.
Teisingers and Sundheims dispute whether the reservation of royalties in the 1953
Warranty Deed applies to all royalty interests in the deeded property or only to delay
rentals on oil and gas leases existing at the time of conveyance. The parties did not
memorialize the terms of their purchase and sale agreement except through the 1953
Warranty Deed, and there is no evidence as to which party drafted the deed. Ole
Sundheim—the longest-living party to the 1953 Warranty Deed—died in 1998.
¶4 From 1953 until 2011 there were few additional leases for drilling or production
on the Property. In 2011 and 2012, True Oil LLC, Brigham Oil & Gas, LLP, and
Whiting Oil and Gas Corporation began exploration and drilling. In August 2012,
Whiting Oil and Gas obtained a First Supplemental Drilling and Division Order Title
Opinion from Sadler Law Firm, LLP. The examining attorney noted that “the reservation
in the [1953 Warranty Deed] is arguably ambiguous,” and recommended that Whiting Oil
and Gas obtain either a stipulation from the parties and other interest owners that
4
Teisingers own a 3/5ths landowners royalty interest or a judicial determination as to the
meaning and effect of the reservation.
¶5 In December 2012, based on the Sadler attorney’s advice, Whiting Oil and Gas
notified Teisingers that they would not receive payments for the 3/5ths royalty interest
until they obtained a quiet title judgment or stipulation. Sundheims refused to stipulate to
Teisingers’ 3/5ths royalty interest, and Teisingers filed this quiet title action on May 17,
2013, to confirm their royalty interest.
¶6 The District Court denied cross-motions for summary judgment and conducted a
two-day bench trial. At the conclusion of the trial, the District Court entered findings of
fact, conclusions of law, and an order denying Teisingers’ claim for a 3/5ths royalty
interest. Teisingers appeal.
STANDARDS OF REVIEW
¶7 We review for clear error the findings of fact of a district court sitting without a
jury. Moerman v. Prairie Rose Res., Inc., 2013 MT 241, ¶ 17, 371 Mont. 338, 308 P.3d
75. Findings are clearly erroneous if they are not supported by substantial evidence, if
the court misapprehended the effect of the evidence, or if we are convinced by our review
of the record that the district court made a mistake. In re Estate of Quirin, 2015 MT 132,
¶ 10, 379 Mont. 173, 348 P.3d 658. We review a district court’s conclusions of law to
determine whether the court’s interpretation of the law is correct. Moerman, ¶ 17.
¶8 We review a district court’s ruling on the admissibility of expert testimony for
abuse of discretion. Hastie v. Alpine Orthopedics & Sports Med., 2015 MT 346, ¶ 14,
5
382 Mont. 21, 363 P.3d 435. Although a trial court’s evidentiary rulings are
discretionary, the court is “bound by the Rules of Evidence,” and we review de novo its
interpretation and construction of a statute or rule. Kluver v. PPL Mont., LLC, 2012 MT
321, ¶ 19, 368 Mont. 101, 293 P.3d 817.
¶9 Laches is a doctrine of equity that may apply when a person is negligent in
asserting a right. Cole v. State ex rel. Brown, 2002 MT 32, ¶ 24, 308 Mont. 265, 42 P.3d
760. In reviewing a district court’s exercise of its equitable power, we review all
questions of fact arising upon evidence presented in the record to determine if the court’s
findings are clearly erroneous. LeMond v. Yellowstone Dev., LLC, 2014 MT 181A, ¶ 22,
375 Mont. 402, 334 P.3d 366. We determine if the court’s interpretation of the law is
correct. LeMond, ¶ 22.
DISCUSSION
¶10 1. Whether the District Court improperly admitted testimony from an English
professor interpreting the language of the warranty deed’s royalty interest reservation.
¶11 Sundheims presented expert testimony from Dr. Nick Plunkey, an English
professor from Rocky Mountain College, who analyzed the language of the deed. The
District Court allowed Dr. Plunkey to give an expert opinion about his interpretation of
the meaning of the reservation language in the 1953 Warranty Deed. Applying principles
of grammar and sentence construction, Dr. Plunkey opined that the reservation language
was ambiguous. Dr. Plunkey admitted that no rule of grammar mandates a particular
interpretation of the reservation language. Nonetheless, Dr. Plunkey employed rules of
sentence construction to conclude that the context and construction of the royalty
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reservation support interpretation in favor of Sundheims. Dr. Plunkey opined that the
reservation should be resolved by applying the prepositional phrase “on present and
existing oil and gas leases” to modify both royalties and delay rentals.
¶12 Pre-trial, Teisingers objected to Dr. Plunkey’s testimony on the ground that his
testimony was irrelevant and could not help the court determine the meaning that the
parties intended for the reservation. At trial, Teisingers objected three more times on the
same ground. The District Court overruled all of Teisingers’ objections and adopted
Dr. Plunkey’s opinion.
¶13 On appeal, Teisingers argue that the court was required to apply statutory rules of
construction to resolve the ambiguity and thus erred in admitting and adopting
Dr. Plunkey’s opinion about how the ambiguity should be resolved. Teisingers assert
that Dr. Plunkey’s grammatical expertise was appropriate only to confirm that the
reservation was subject to two different interpretations. Teisingers argue that
Dr. Plunkey’s opinion was based on speculation with no basis in fact and on the mistaken
assumption that both royalties and delay rentals are dependent upon existing oil and gas
leases.
¶14 Sundheims contend that Dr. Plunkey was not required to have expertise in the oil
and gas industry in order for him to interpret and form an opinion regarding the language
of the deed. According to Sundheims, the District Court did not err in adopting Dr.
Plunkey’s interpretation because it was “reasonable” and because it “was the only expert
interpretation of the contract language offered at trial.”
7
¶15 Rules 702, 704, and 705 of the Montana Rules of Evidence govern the
admissibility of expert testimony. M. R. Evid. 702 provides: “If scientific, technical, or
other specialized knowledge will assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience,
training, or education may testify thereto in the form of an opinion or otherwise.” M. R.
Evid. 704 allows a qualified expert to testify as to an ultimate issue of fact. Under M. R.
Evid. 705, however, expert opinion that states a legal conclusion or applies the law to the
facts is inadmissible. Cartwright v. Scheels All Sports, Inc., 2013 MT 158, ¶ 43, 370
Mont. 369, 310 P.3d 1080 (citing Perdue v. Gagnon Farms, Inc., 2003 MT 47, ¶ 28, 314
Mont. 303, 65 P.3d 570). Legal conclusions offered by an expert witness invade the
province of the fact-finder, whose duty it is to apply the law as given to the facts in the
case. Perdue, ¶ 28.
¶16 When interpreting the language of a deed, we apply rules of contract
interpretation. Whary v. Plum Creek L.P., 2014 MT 71, ¶ 10, 374 Mont. 266, 320 P.3d
973. Construction and interpretation of a contract present questions of law for the court
to decide. Whary, ¶ 10 (citing Mattson v. Mont. Power Co., 2009 MT 286, ¶ 18, 352
Mont. 212, 215 P.3d 675). When a contract is ambiguous, the court may consider
extrinsic evidence of the parties’ intent. Mary J. Baker Revocable Trust v. Cenex Harvest
States, Coops., Inc., 2007 MT 159, ¶ 55, 338 Mont. 41, 164 P.3d 851. In the absence of
relevant extrinsic evidence, any ambiguity in a written contract is resolved by the court as
8
a matter of law. 11 Richard A. Lord, Williston on Contracts § 30:7, 124-27 (4th ed.
2012).
¶17 While Dr. Plunkey couched his opinion in terms of the parties’ intent, he
attempted to divine that intent by interpreting the deed’s terms based on technical
principles of sentence construction. Dr. Plunkey’s testimony involved construing and
interpreting the meaning of the royalty reservation’s language. Such interpretation is a
legal conclusion for the court. Whary, ¶ 10. The District Court seemed to have
acknowledged as much by adopting Dr. Plunkey’s analysis as a conclusion of law. Under
M. R. Evid. 705, Dr. Plunkey’s testimony was inadmissible. The District Court erred by
allowing his opinion on the meaning of the deed’s language.
¶18 2. Whether the District Court erred by resolving the ambiguity in the 1953
Warranty Deed in favor of Sundheims.
¶19 Section 70-1-513, MCA, provides that “[g]rants are to be interpreted in like
manner with contracts in general, except so far as is otherwise provided in this part.”
Section 28-3-301, MCA, provides that “[a] contract must be so interpreted as to give
effect to the mutual intention of the parties as it existed at the time of contracting, so far
as the same is ascertainable and lawful.” “When a contract is reduced to writing, the
intention of the parties is to be ascertained from the writing alone if possible . . . .”
Section 28-3-303, MCA. The language of a contract governs its interpretation if the
language is clear and unambiguous. Section 28-3-401, MCA.
¶20 The District Court concluded that the royalty reservation in the 1953 Warranty
Deed was ambiguous. An ambiguity exists when the language of the contract is
9
reasonably subject to two different interpretations. Ophus v. Fitz, 2000 MT 251, ¶ 23,
301 Mont. 447, 11 P.3d 1192. “An ambiguity’s existence must be determined on an
objective basis.” Richards v. JTL Group, Inc., 2009 MT 173, ¶ 26, 350 Mont. 516, 212
P.3d 264 (citation omitted). What the “parties reserve[d] unto themselves” in the 1953
Warranty Deed reasonably could be interpreted in two different ways:
1. three-fifths (3/5ths) of landowners’ oil, gas and mineral royalties; and
2. three-fifths (3/5ths) of any and all delay rentals on present and existing
oil and gas leases now of record against the lands herein described.
or
1. three-fifths (3/5ths) of landowners’ oil, gas and mineral royalties on
present and existing oil and gas leases now of record against the lands
herein described; and
2. three-fifths (3/5ths) of any and all delay rentals on present and existing
oil and gas leases now of record against the lands herein described.
Objectively, and without demarcating punctuation, the “existing leases” language could
apply either to just the delay rental reservation or to both the delay rental and the 3/5ths
royalty reservation. We agree with the District Court that the deed is ambigious.
¶21 Once it is determined that an ambiguity in a contract exists, the ambiguity is
resolved by applying rules of construction, Morning Star Enters. v. R.H. Grover, Inc.,
247 Mont. 105, 111, 805 P.2d 553, 557 (1991), and by considering extrinsic evidence of
the parties’ intent, Ophus, ¶ 29.
¶22 The District Court found that extrinsic evidence relating to the parties’ actions
after 1953 was “of minimal relevance and not illustrative of the original intent of
[Teisingers’ predecessors or Sundheims’ predecessors].” Relying on an oil and gas
treatise, The Law of Oil and Gas Leases, 2nd Ed., Vol. 1, Ch. 6, Sec. 6.11, the court
10
concluded that “‘the language of the deed is the language of the grantor’” and that the
royalty reservation in the 1953 Warranty Deed should be “‘construed in the light most
favorable to the grantee.’” Because Sundheims’ predecessors were grantees under the
1953 Warranty Deed, the court resolved the ambiguity in favor of Sundheims.
¶23 Teisingers argue that the District Court erred in relying on the oil and gas treatise.
Because the District Court concluded that the parties’ actions after 1953 did not serve as
sufficient extrinsic evidence to clarify the parties’ original intent, Teisingers argue that
the court “had no evidentiary basis upon which to resolve the ambiguous royalty
reservation in favor of the Sundheims.” Therefore, they contend, the court should have
resolved the ambiguity in favor of Teisingers in accordance with the rule of construction
set forth in § 70-1-516, MCA.
¶24 Sundheims argue that we should not consider Teisingers’ argument for application
of § 70-1-516, MCA, because Teisingers never presented argument regarding rules of
construction at trial. In any case, Sundheims assert that Teisingers misinterpret
§ 70-1-516, MCA. Sundheims claim that the § 70-1-516, MCA, “does not require that
ambiguity in a reservation be presumptively interpreted in a grantor’s favor,” but
“requires only that a grantor receive that to which she is entitled in a reservation.”
Sundheims argue that because the statute does not reference ambiguities, “[t]he Court
should not insert into [the] statute that which does not exist.” Sundheims further argue
that because deeds are interpreted in the same manner as other contracts, the court was
required to resolve the ambiguity “most strongly against the party who caused the
11
ambiguity to exist . . . the promisor is presumed to be that party.” Based on § 28-3-206,
MCA, Sundheims assert that the language of the 1953 Warranty Deed is “attributable” to
Teisingers’ predecessors, who “should not be rewarded for making an ambiguous
promise.”
¶25 Section 28-3-206, MCA, sets forth a general rule of construction for resolving
uncertainties in contract language: “In cases of uncertainty . . . the language of a contract
should be interpreted most strongly against the party who caused the uncertainty to exist.
The promisor is presumed to be that party.” Under § 70-1-513, MCA, deeds are
interpreted in the same manner as contracts “except so far as is otherwise provided in this
part.” (Emphasis added.) Section 70-1-516, MCA, provides a specific rule of
construction for reservations in grants of real property: “[A] reservation in any grant and
every grant by a public officer or body, as such, to a private party is to be interpreted in
favor of the grantor.”
¶26 We consider the applicability of § 70-1-516, MCA, notwithstanding Sundheims’
argument. Generally, we do not address an issue raised for the first time on appeal or a
party’s change in legal theory. State v. Montgomery, 2010 MT 193, ¶ 11, 357 Mont. 348,
239 P.3d 929 (citations omitted). However, “we have permitted parties to bolster their
preserved issues with additional legal authority or to make further arguments within the
scope of the legal theory articulated to the trial court.” Montgomery, ¶ 12. See, e.g.,
Becker v. Rosebud Operating Servs., 2008 MT 285, ¶ 18, 345 Mont. 368, 191 P.3d 435;
Whitehorn v. Whitehorn Farms, Inc., 2008 MT 361, ¶ 23, 346 Mont. 394, 195 P.3d 836.
12
In the District Court, Teisingers argued that the court should resolve the deed’s ambiguity
in their favor. While Teisingers did not cite § 70-1-516, MCA, the statute is additional
authority that supports their legal theory. Teisingers’ argument that the court applied
inapposite authority is appropriate for consideration on appeal.
¶27 We agree with Teisingers that § 70-1-516, MCA, applies in this case. Teisingers’
predecessors—as grantors—granted the Property to Sundheims’ predecessors—as
grantees—subject to a reservation. The District Court determined that the language of
the reservation was ambiguous. When the court rejected the extrinsic evidence and
looked to rules of construction instead, it overlooked a governing statutory rule of
construction.
¶28 Sundheims’ contention that § 28-3-206, MCA, should be applied is unpersuasive.
Section 70-1-516, MCA, plainly provides otherwise. Section 70-1-513, MCA. This
section has been part of the Montana Code since 1895. Section 1473, Civ. C. 1895. See
Henningsen v. Stromberg, 124 Mont. 185, 192, 221 P.2d 438, 442 (1950) (quoting
§ 6852, RCM (1935)) (“A grant is to be interpreted in favor of the grantee, except that a
reservation in any grant, and every grant by a public officer or body, as such, to a private
party, is to be interpreted in favor of the grantor.”); McReynolds v. McReynolds, 147
Mont. 476, 479, 414 P.2d 531, 533 (1966) (citing § 67-1518, RCM (1947)) (“Unless the
grant is by a public officer or contains a reservation it is to be interpreted in favor of the
grantee.”). We have recognized consistently that the rule of construction for reservations
in a grant is governed by this statute, whether the grantor is a public entity or a private
13
individual. Missoula v. Mix, 123 Mont. 365, 372, 214 P.2d 212, 215 (1950) (concluding
that “[b]y statutory rule the language of a reservation in a grant is to be interpreted in
favor of the grantor, which is a different rule from that which existed at common law and
under many other state statutes”); Van Hook v. Jennings, 1999 MT 198, ¶ 12, 295 Mont.
409, 983 P.2d 995 (“Ambiguities in a reservation of rights in any grant of property are to
be interpreted in favor of the grantor.”); Ferriter v. Bartmess, 281 Mont. 100, 103, 931
P.2d 709, 711 (1997) (“While a grant of property is to be interpreted in favor of the
grantee, any reservation is to be interpreted in favor of the grantor.”); Macpherson v.
Smoyer, 191 Mont. 53, 60, 622 P.2d 188, 192 (1980) (“Section 70-1-516, MCA, provides
that a reservation out of the grant of properties is to be interpreted in favor of the
grantor.”). Therefore, the District Court should have interpreted the language of the
reservation in favor of Teisingers pursuant to § 70-1-516, MCA.
¶29 We conclude further that the District Court erred by disregarding extrinsic
evidence in construing the 1953 Warranty Deed. Such evidence is appropriate in
ascertaining the parties’ intent when a contract is ambiguous. Section 28-3-301, MCA.
As described in the Restatement (Second) of Contracts § 202(5) (1981), “[w]herever
reasonable, the manifestations of intention of the parties to a promise or agreement are
interpreted as consistent with each other and with any relevant course of performance,
course of dealing, or usage of trade.” Our case law is consistent with this principle.
Ophus, ¶ 29 (citations omitted) (“The practical interpretation of a contract, which the
14
parties placed upon by it their course of conduct, is entitled to great, if not controlling
influence in ascertaining what they understood by its terms.”).
¶30 Following the release of the Hill Lease in 1958, the next recorded oil and gas
activity on the Property occurred when Bertha Sundheim granted an oil and gas lease on
July 30, 1973. Ole and Alvina L. Sundheim granted a similar lease on the same date.
Both leases were extended to Clinton Oil Company in 1975.
¶31 In 1975, Teisingers’ predecessors signed and recorded a Stipulation and
Disclaimer stating that they “disclaim any interest in minerals in the [Property], other
than the landowner’s royalty reserved in [the] conveyance.” Shortly before the
Stipulation and Disclaimer was recorded, Teisingers’ predecessors, Sundheims’
predecessors, and other interest owners signed a Communitization Agreement. The
Agreement provided that the signing parties were those who owned “royalty, overriding
royalty, working interest, or operating rights under the oil and gas leases and lands
subject to this agreement.” The purpose of the Agreement was for the parties “to
communitize and pool their respective mineral interests in [certain portions of the
Property] for the purpose of developing and producing communitized substances . . . .”
The Agreement was recorded on July 9, 1975, in Richland County. There is no evidence
of production occurring under the 1973-1975 leases.
¶32 In 1976, Bertha Sundheim leased oil and gas interests on a different portion of the
Property. In 1981, a producing well named the Four-Mile Creek 1-17 Well was
developed on that portion. During the first two months of production, Sundheims’
15
predecessors received all royalty payments from the well. Thereafter, Murphy Oil
Corporation addressed Oil Division Orders regarding the Four-Mile Creek 1-17 Well to
three of Teisingers’ predecessors—Kendall Teisinger, Arlene E. Stevens, and Dorcas L.
Wicklund. Teisingers’ predecessors executed the Orders and returned them to Murphy
Oil Corporation.
¶33 The Oil Division Orders credited each of the three Teisinger predecessors with
1/5th of 8/8ths of the royalty proceeds for a total of 3/5ths of 8/8ths of the royalty
proceeds. Murphy Oil Corporation issued royalty payments to Teisingers’ predecessors
based on that fractional interest. Teisingers produced evidence at trial that Arlene E.
Stevens received a total of $21,980.57 in seventeen separate royalty interest payments
based on a 3/5ths interest from August 1982 until February 1985. Shortly thereafter,
production stopped on the Four-Mile Creek 1-17 Well. Sundheims’ predecessors
received royalty payments based on a 2/5ths interest during the same time period.
Sundheims’ predecessors did not object to their fraction of the royalty interest after
Murphy Oil changed the payment allocation.
¶34 Following abandonment of the Four-Mile Creek 1-17 Well, no oil or natural gas
operator explored, by drilling, any lands on the Property until 2011 when preliminary
drilling work began on several wells, giving rise to the instant litigation.
¶35 The District Court found this evidence of little value, concluding that Sundheims
did not have actual notice of the Stipulation and Disclaimer and that the Teisinger family
was not listed in the Communitization Agreement as the owner of any specific, particular
16
interest. In regard to the 1980s royalty payments, the court found that there was no
evidence showing that Sundheims’ predecessors were notified or aware of payments
being received by Teisingers’ predecessors, and concluded that Teisingers’ assertions
concerning what Sundheims’ predecessors “knew or should have known from the
contents of a Division Order is pure speculation.”
¶36 We conclude that the District Court clearly erred in its findings regarding extrinsic
evidence of the parties’ intent. In signing the Communitization Agreement, Sundheims’
predecessors voluntarily acknowledged Teisingers’ mineral interest in the Property nearly
two decades after the Hill Lease terminated in 1958. The Communitization Agreement is
relevant to rebut Sundheims’ argument that their predecessors believed that Teisingers’
royalty interest expired with the Hill Lease in 1958. Subsequent to that Agreement,
Teisigners’ predecessors received royalty payments based on a 3/5ths fractional interest
and Sundheims’ predecessors received royalty payments based on a 2/5ths fractional
interest for approximately two-and-a-half years. Sundheims’ predecessors, including Ole
Sundheim—an original party to the 1953 Warranty Deed—never objected to the
fractional royalty payments.
¶37 “Where an agreement involves repeated occasions for performance by either party
with knowledge of the nature of the performance and opportunity for objection to it by
the other, any course of performance accepted or acquiesced in without objection is given
great weight in the interpretation of the agreement.” Restatement (Second) of Contracts
§ 202(4). The parties’ conduct supports Teisingers’ contention that the 3/5ths
17
landowner’s royalty reserved in the 1953 Warranty Deed did not expire with termination
of the Hill Lease. Following the 1982-1985 royalty payments, there was no other
significant mineral development on the Property until the activity that spawned this
action.
¶38 In summary, the evidence regarding the parties’ Communitization Agreement,
their divided receipt of the Four-Mile Creek 1-17 Well royalty payments, and the Murphy
Oil Division Orders, when construed under the principle set forth in § 70-1-516, MCA,
supports construing the reservation language in favor of Teisingers. We conclude that the
District Court erred in resolving the ambiguity in favor of Sundheims.
¶39 3. Whether the District Court erroneously applied the doctrine of laches to deny
Teisingers’ claim to the 3/5ths royalty interest.
¶40 Laches is an equitable remedy and applies only if the court finds “lack of diligence
by the party against whom the defense is asserted and prejudice to the party asserting the
defense.” Anderson v. Stokes, 2007 MT 166, ¶ 19, 338 Mont. 118, 163 P.3d 1273
(emphasis in original) (citing In re Marriage of Deist, 2003 MT 263, ¶ 17, 317 Mont.
427, 77 P.3d 525; Gue v. Olds, 245 Mont. 117, 120, 799 P.2d 543, 545 (1990)). “Laches
is not simply a matter of elapsed time; it is also the question of the inequity of permitting
a claim to be enforced.” Anderson, ¶ 19. Laches is an affirmative defense. M. R. Civ. P.
8(c)(1). Therefore, the party asserting the defense bears the burden of proof. Dollar Plus
Stores, Inc. v. R-Mont. Assocs., L.P., 2009 MT 164, ¶ 32, 350 Mont. 476, 209 P.3d 216.
¶41 The District Court primarily relied on Hunter v. Rosebud County, 240 Mont. 194,
783 P.2d 927 (1989), to support its conclusion that Teisingers’ claim is barred by the
18
doctrine of laches. In Hunter, we identified eight specific factors that may be considered
in determining laches. Hunter, 240 Mont. at 199-201, 783 P.2d at 930-31. The District
Court relied on three of the Hunter factors to reach its conclusion: 1) the length of time
that the present owners have used and occupied the land; 2) the length of time during
which the plaintiffs and their predecessors abandoned the property and have not claimed
any right; and 3) whether the property interest claimed has become extremely valuable.
The court found in favor of Sundheims on each factor and determined the following: that
Sundheims have used and occupied the land for 62 years; that Teisingers did not claim
any interest in the property for 22 years and then “failed to resolve questions of title to
royalties for an additional 40 years thereafter” by failing to timely probate the estate of
C.L. and Jennie Teisinger; and that the Property is “now subject to significant oil
production netting thousands of dollars in royalty payments each year.” The District
Court concluded that Teisingers’ alleged delay in bringing this action “so prejudiced
[Sundheims’] preparation of their case as to be inequitable” because Sundheims lost any
opportunity to document their ancestors’ position regarding the meaning of the royalty
reservation or otherwise prepare to defend their ownership.
¶42 Teisingers argue that Hunter is distinguishable because in this case the District
Court analyzed only three of the eight factors. Even then, Teisingers contend that the
court erred by concluding that Teisingers had failed to claim or enforce their royalty
interest for over 60 years. Teisingers point out that there was no justiciable issue giving
rise to a quiet title action until late 2012 when Sundheims challenged Teisingers’ royalty
19
interest. Moreover, Teisingers argue that the record demonstrates that each time there
was oil and gas activity on the Property they consistently asserted their royalty interest.
Teisingers emphasize that since 1953 there were only three instances where significant
oil and gas activity occurred on the property: between 1973 and 1975, between 1981 and
1985, and from 2011 to the present. Teisingers point out that they signed both the
Stipulation and Disclaimer and Communitization Agreement in 1975, that they were paid
3/5ths royalty interest without any objection from Sundheims from 1982-1985, and that
they filed this quiet title action in early 2013 when they first learned that Sundheims
objected to Teisingers’ royalty interest ownership.
¶43 We conclude that the District Court erred in applying the doctrine of laches to bar
Teisingers’ claim. The court’s finding that Teisingers failed to timely assert their royalty
interest ownership claim is not supported by substantial evidence. The evidence
demonstrates that Teisingers asserted their royalty interest each time there was or was
about to be oil or gas development on the Property. Sundheims did not object to
Teisingers’ royalty interest until late 2012 when they received the letter from Whiting Oil
and Gas. Shortly thereafter, Teisingers filed this quiet title action.
¶44 Furthermore, Sundheims have not established that any delay caused them
prejudice. In Anderson, we upheld a district court’s rejection of the defendant’s laches
defense because the defendant focused solely on the question whether the plaintiffs
unreasonably delayed asserting their claims and ignored the question whether he had
been prejudiced by the alleged delay. Anderson, ¶¶ 20-21. Like in Anderson, both the
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District Court and Sundheims focused primarily on the length of time between the 1953
Warranty Deed and this action. Sundheims’ only claim of prejudice was that, due to the
alleged delay, they had no notice of Teisingers’ royalty interest and therefore did not
document their ancestors’ position regarding the meaning of the royalty reservation.
Sundheims’ claim is unpersuasive. As discussed already, the record shows that based on
Teisingers’ conduct, Sundheims’ ancestors were aware or should have been aware of
Teisingers’ claimed royalty interest prior to this action and did not object to it. Ole
Sundheim lived until 1998—well after Teisingers had asserted their interest at least two
times—and never objected to Teisingers’ conduct. Therefore, the fact that Sundheims
failed to document their ancestors’ position was not due to any alleged delay by
Teisingers. Without evidence to support the required showing of prejudice to Sundheims,
it was inequitable for the court to apply the doctrine of laches to bar Teisingers’ claim.
CONCLUSION
¶45 We reverse the District Court’s order granting judgment to Sundheims and remand
for entry of judgment quieting title to the 3/5ths royalty interest reserved in the 1953
Warranty Deed in favor of Teisingers.
/S/ BETH BAKER
We concur:
/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ JIM RICE
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Justice Laurie McKinnon, dissenting.
¶46 I dissent from the Court’s decision for a number of reasons. First, the Court
applies a statute, § 70-1-516, MCA, which was never raised by the parties at trial or
considered by the District Court. The Court departs from our well-recognized rule that
we will not consider an issue raised for the first time on appeal, reasoning that the
Teisingers argued “the court should resolve the deed’s ambiguity in their favor” and that
the “statute is additional authority that supports their legal theory.” Opinion, ¶ 26. This
begs the question of when an argument or issue that supports a party’s position would
ever be considered unpreserved for appellate review. In cherry picking what arguments
we deem to be raised—based perhaps upon the outcome we would like to reach—we fail
to provide appropriate guidance to litigants regarding what issues may be raised on
appeal and inevitably invite a multitude of unpreserved claims. Here, in particular, the
decisive factor in the Court’s analysis is the presumption contained in § 70-1-516,
MCA—an issue never raised or considered by the District Court.
¶47 Second, the rule that we will not consider issues raised for the first time on appeal
exists for good reason. Primarily, it assures that through the adversarial process, all
arguments and contingencies are raised and considered before this Court establishes a
new rule of law or binding precedent. Simply put, it ensures accuracy of the decision
making process, as well as its integrity. Here, we have held that § 70-1-516, MCA, is a
legislative directive to interpret language of a reservation in a grant in favor of the
grantor. Although we state the statute “plainly” requires such an interpretation, it is my
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opinion that we have failed to observe a distinction made by the statute between a public
grant and one that is between private parties.
¶48 “A grant is to be interpreted in favor of the grantee, except that a reservation in
any grant and every grant by a public officer or body, as such, to a private party is to be
interpreted in favor of the grantor.” Section 70-1-516, MCA (emphasis added). The
Court has seized upon the language of the statute’s exception to apply a presumption
contrary to the general rule requiring interpretation in favor of the grantee. However,
“[a]ccording to the general rule a public grant is to be interpreted in favor of the grantor,
whereas one between private parties is to be interpreted in favor of the grantee.” U.S. v.
Eldredge, 33 F. Supp. 337 (D. Mont. 1940); citing § 6852, RCM (1935). Deeds that
convey mineral interests are subject to general rules governing contract interpretation,
including the rule that “the deed will be construed against the grantor rather than against
the grantee, because the grantor selects his or her own words.” 53 Am. Jur. 2d Mines and
Minerals § 185 (2016); see also § 28-3-206, MCA. However, “[b]y statute or rule of
public policy, grants of property, including mineral interests, by the state may be required
to be construed in favor of the state as grantor.” 53 Am. Jur. 2d Mines and Minerals
§ 185 (2016); see also Schwarz v. State, 703 S.W.2d 187, 29 Tex. Sup. J. 145 (Tex. 1986)
(distinguishing between a conveyance between private parties and one where the State of
Texas is the grantor; the latter providing an example of the exception to the rule that the
reservation is to be construed in favor of the grantee). Thus, far from being plain, the
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Court embarks on territory heretofore never precisely addressed in our precedent and
which has not been raised or considered by the trial court.
¶49 The Court relies upon Missoula v. Mix for the rule that the “language of a
reservation in a grant is to be interpreted in favor of the grantor, which is a different rule
from that which existed at common law and under many other state statutes.” Opinion,
¶ 28 (emphasis added). This language recognizes a distinction and was applied in the
context of the grantor, in fact, being a public body—the City of Missoula. A political
body was also the grantor in Mineral Cnty. v. Hyde, 111 Mont. 535, 111 P.2d 284 (1941),
which was relied upon by the Court in Missoula v. Mix. We simply have never addressed
the interpretation of the exception found in § 70-1-516, MCA, as it relates to a
reservation between private parties. Accordingly, I would not reach the conclusion the
Court has respecting § 70-1-516, MCA, given that it was neither raised nor argued at
trial.
¶50 Regardless of whether a statutory presumption was appropriately applied, it is my
opinion that the District Court, given the ambiguity of the reservation, correctly weighed
and considered the extrinsic evidence in finding that the reservation was limited to
then-existing oil and gas leases. The Teisingers claim entitlement to royalties based
upon: (1) their heirs’ interpretation of two documents recorded in 1975; and (2) the
payment pursuant to a title opinion of royalties to the heirs between 1976 and 1985.
¶51 The first document recorded in 1975 is entitled “Stipulation and Disclaimer” and
was authored by the Teisinger themselves. The document claimed that the Teisingers had
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a continuing royalty interest. There was no evidence, either through testimony or service
of the document, that the Sundheims were aware of the document. The District Court
properly afforded the “Stipulation and Disclaimer” little weight because of its inherently
self-serving nature. The second document was a “Communitization Agreement,” which
allowed development of the minerals on the property. The District Court found that that
agreement reflects typical oil industry practice to obtain signatures from every person
who conceivably has an interest in the minerals when development occurs. The
document reflects that the Sundheims held an interest in the minerals; however, it does
not identify any specific mineral or royalty interest owned by the Teisingers. The District
Court similarly attributed little weight to this document.
¶52 Finally, royalty payments made to the Teisingers between 1976 and 1985 were
based upon a title report subsequently determined to be in error by two title attorneys and
the District Court. There was no evidence, as noted by the District Court, that the royalty
payments were proper or that the Sundheims were aware of them. Our analysis
circuitously adopts the title report, regardless of whether it was correct, without any basis
in law.
¶53 Grants of real property should generally be interpreted in the same manner as
contracts. Section 70-1-513, MCA. “A contract must be so interpreted as to give effect
to the mutual intention of the parties as it existed at the time of contracting . . . .” Section
28-3-301, MCA (emphasis added). The Teisingers failed to present any evidence of the
parties’ intentions at the time the 1953 Warranty Deed was executed. Their claim rests
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solely on self-serving actions and upon the payment of royalties, which there is no
evidence the Sundheims were aware of.
¶54 Finally, and importantly, the District Court recognized that the unusual size of the
reservation—a 3/5ths interest—counseled against finding that it continued beyond 1958.
Moreover, the size of the royalty payment was identical to the portion of delay rentals
and both were contained within a single sentence of the 1953 Warranty Deed. The
context and practice of the oil industry and the construction of the royalty reservation
supports the conclusion that the royalty payment was to terminate in 1958 upon
termination of the lease related to the delay rentals.
¶55 In my opinion, the District Court’s factual findings were supported by substantial
evidence and the court did not misapprehend the effect of the evidence. The Court has
failed to indicate how the District Court’s findings were clearly erroneous and not
supported by substantial evidence. While we may disagree with the weight to be given to
the testimony of witnesses and evidence, these matters are left to the district court’s
discretion. In re Marriage of Kovarik, 287 Mont. 350, 954 P.2d 1147 (1998). Finally,
our decision rests squarely on the “principle set forth in § 70-1-516, MCA,” Opinion,
¶ 38, which, in my view, is inappropriate to address. To the extent that we have
supplanted our judgment for that of the District Court, ignored that the District Court
relied on substantial evidence, and entertained an argument raised for the first time on
appeal, I dissent.
/S/ LAURIE McKINNON
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