Friday, November 11, 2011

West Virginia Supreme Court Clarifies Rights Of Royalty Owners

On October 11th, by Memorandum Decision, the West Virginia Supreme Court of Appeals affirmed the entry of a Summary Judgment Order by the Circuit Court of Doddridge County in Gassaway v. Dominion Exploration and Production, Inc., upholding the Circuit Court’s determination as a matter of law that a party who had been mistakenly receiving royalty payments had not established title to the oil and gas estate by adverse possession.

In Gassaway the petitioner’s parents had entered into the chain of title of the surface and a portion of the oil and gas estate underlying a 192-acre tract in Doddridge County in 1957. In 1965 the petitioner’s parents lost their interest in the property as a result of a foreclosure. The petitioner’s parents ended up with title to a smaller 10 acre parcel that was a part of the same original tract as the 192 acre parcel but they, and later the petitioner herself, continued to receive royalty payments from the respondent, or its predecessors in interest for oil and gas production underlying the entire 192 acre tract. In 2007, the respondent, as a result of completing title on the 192 acre tract prior to drilling another well on the property, determined that the petitioner had been inappropriately receiving royalty payments. The producer ceased royalty payments to petitioner and began paying royalties to the parties that respondent had determined were properly vested with title.

In the litigation that followed, the petitioner asserted a number of claims, with her claim for title based on adverse possession being central to the importance of this Memorandum Decision. The respondent argued, and the Supreme Court of Appeals agreed, that the Circuit Court correctly found that the petitioner’s claim of adverse possession failed as a matter of law. Specifically the Court’s Memorandum Decision held that collecting a royalty payment does not constitute “actual, hostile possession of oil and gas, and that royalty payments are personal property to which adverse possession does not apply.” (Gassaway v. Dominion Exploration and Production, Inc., No. 11-0535 at 4 (W.Va. 2011)).

LGCR has extensive experience defending producers in all manner of royalty payment actions in West Virginia, and Richard Gottlieb is available by phone ((304) 345 2000) or email (rgottlieb@lgcr.com) to answer questions in this area.