Unpublished Disposition, 940 F.2d 1535 (9th Cir. 1984)

No. 90-35107.

United States Court of Appeals, Ninth Circuit.

Before HUG and D.W. NELSON, Circuit Judges, and WALKER,^*  District Judge.

MEMORANDUM^** 

Conrad and Rosemary Pederson ("Pedersons") appeal the district court's grant of summary judgment in favor of Richland County. They brought suit to void a royalty reservation "held" by Richland County. The action was on remand to the district court for trial and determination of the applicability of the doctrine of laches to a quiet title action brought by the Pedersons. The Pedersons claimed superior title to the 6 1/4% royalty reservation in oil and gas being asserted by Richland County in four tracts of land owned by the Pedersons.

Prior to remand, the district court had granted summary judgment in favor of the Pedersons as to the four contested tracts. The court found the reservations in favor of Richland County to be void ab initio as beyond the jurisdiction of the court that had decreed the interest. The court found that the County was not a party to the case and the issue of the 6 1/4% royalty was not before that court. In addition, Richland County had already conveyed all that it owned by way of a quitclaim deed; there was no interest left in which the County could claim a reservation.

Richland County appealed from the order of the district court granting summary judgment and this court remanded the case for trial and determination of the applicability of the doctrine of laches to the Pedersons' action. On remand, a bench trial had been set, but upon a motion for summary judgment, the district court found that laches was applicable in this situation and that the Pedersons had not demonstrated sufficient reason for their delay (or that of their predecessors) in asserting their claim. Therefore, the district court granted summary judgment in favor of Richland County and the Pedersons have appealed. We find that while the defense of laches is available, it does not properly apply to the Pedersons' claim. Accordingly, we reverse the judgment of the district court.

Initially, the question is whether Montana law permits the doctrine of laches to be applied to bar the Pedersons from asserting the non-existence of the 6 1/4% royalty reservation in favor of Richland County that had previously been declared void ab initio. Applying Montana case law, the district court found that laches may be used to give effect to a void decree. The district court correctly construed our earlier order "as establishing, as a matter of law, that the doctrine of laches is potentially applicable in situations such as that present here." We review a district court's interpretation of state law de novo. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir. 1984) (en banc) .

Recently, the Montana Supreme Court has applied the doctrine of laches to bar the claims of parties seeking redemption from the County of interests that had been conveyed by void tax deeds. See Anderson v. Richland County, 711 P.2d 784 (Mont.1985); Richardson v. Richland County, 711 P.2d 777 (Mont.1985). Both Anderson and Richardson involved actions brought to quiet title to a royalty interest claimed in the production of oil and gas against the county, which had taken the property for delinquent taxes and obtained a tax deed. Plaintiffs in both suits were successors in interest to the original property owners who had lost the property because of taxes owed. Although the court found that the tax deeds were void due to the invalid notice given at the time of sale, the plaintiffs were barred by laches from asserting a claim to the royalty interest. See Anderson, 711 P.2d at 787-88; Richardson, 711 P.2d at 780-82. The Montana court determined the claims were barred notwithstanding the finding that failure to give proper notice was a jurisdictional defect rendering the tax deeds void. Richardson, 711 P.2d at 780.

Additionally, in Anderson, there had also been a subsequent procedure to secure a confirmation deed of conveyance to be issued by a county treasurer for lands described in the previously issued tax deed. Anderson, 711 P.2d at 785. Neither the judgment that resulted from the statutorily authorized proceeding nor the resulting confirmation deed recited Richland County's reservation of a royalty interest. Id. The court found that the proceeding was ineffective as a basis for issuing a confirmation deed and concluded that the confirmation deed was void in the same manner as the original tax deed. Id. at 788.

Apparently, the proposition these cases stand for is that while an interest may never have been properly conveyed or created--void at its inception--the assertion of its non-existence can at some point be barred by the doctrine of laches. See also Hunter v. Rosebud County, 783 P.2d 927 (Mont.1989) (court applied laches to bar plaintiffs from contesting the validity of a tax deed). This suggests that Montana public policy requires a degree of diligence to protect property interests. The concept is not offensive to our laws--within limits.

But we must consider whether the doctrine of laches properly applies to the facts of the Pedersons' claim, thereby barring their challenge to the 6 1/4% royalty reservation in favor of Richland County. The district court granted Richland County's motion for summary judgment based on its finding that the Pedersons had knowledge of the County's royalty interest at least as early as July 1979 when a division order was signed by Rosemary Pederson, relating to one of the tracts in question, thereby giving them notice of the interest claimed by the County. We review the district court's grant of summary judgment de novo. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

Under Montana law, laches is principally a question of the inequity of permitting a claim to be enforced. Matter of Estate of Wallace, 606 P.2d 136, 139-40 (Mont.1980). As there is no absolute rule regarding what constitutes laches in Montana, each case must be determined according to its own particular circumstances. Id. at 140.

In 1933 and 1934, Edward and Olga Erickson purchased four tracts of land from Richland County, which the County had earlier acquired from a prior owner for failure to pay property taxes. At the time of those tax sales, Montana had no law permitting a reservation of mineral royalty from the sale of tax property, thus there was no reservation of royalties in these tax deeds.

In 1941, Montana adopted a law permitting counties to reserve a 6 1/4% royalty interest in properties sold at a tax sale. In December, 1940, the Pedersons purchased a fifth tract of land from the County. The deed from the County was dated January 17, 1941 and did contain a reservation of a 6 1/4% royalty interest for the County.

The Ericksons' daughter, Rosemary Pederson, and her husband, Conrad Pederson, thereafter acquired, by gift and devise, the Ericksons' interest in the property. In 1949, the Pedersons brought a quiet title action under a Montana law permitting the quieting of titles and confirmation of deeds to properties purchased at tax sales. The decree issued by the court apparently mistakenly provided that a 6 1/4% royalty interest was reserved in the County as to all five tracts instead of just the one tract for which the deed had made the 6 1/4% royalty reservation. As the district court previously held, the County was not a party to these proceedings and thus the grant of the royalty interest to the County in the decree was void ab initio. We affirmed the district court's decision on this issue.

In 1978, oil was discovered in the vicinity and in 1978 and 1979 three division orders, which allocated the royalties from oil production, were signed by the Pedersons. Only one of these division orders related to the contested tracts, the other two were only applicable to the uncontested tract. The one division order involved 12 ownerships and it did not distinguish from which ownership the County's royalty was being allocated. It is not possible from that document to determine the source of the County's royalty, or to determine whether that royalty was coming from the Pedersons' tracts or from one of the other owners named therein. As to the Pedersons, even that division order only pertains to a portion of one of the contested tracts, the balance to the uncontested tract.

In March of 1982, the County began collecting royalties based upon the 6 1/4% reservation. In March 1983, the Pedersons received another division order pertaining solely to their tracts of land. This order indisputably revealed the County's royalty interest to the Pedersons. In the summer of 1983, the Pedersons traveled from Washington to Montana to search the county records and discovered the County's lack of a royalty interest. On February 6, 1984, the Pedersons filed this action seeking a declaration that the County's asserted royalty interest in oil and gas produced on the Pedersons' property was invalid, null and void.

The Pedersons initiated this proceeding in February 1984, less than two years after the County began collecting royalty payments. Certainly, the Pedersons acted promptly after they undisputedly learned of the County's interest in March 1983. The County offered the district court no evidence of reliance damages it would suffer if laches were not applied, save, of course, the loss of royalties. There was no evidence that the County improved the property or developed the resource.

This is not a situation as in the Anderson and Richardson cases where absent persons who had abandoned their property returned and were attempting to collect back royalties that would amount to $500,000 or so.¹  Rather, this case was basically an adjudication of future royalties. Here, we have successive owners who were in possession of the land at all times; the land had never been abandoned. It was simply a question of whether the possessors and owners of the land had been divested of a royalty interest during their time of possession. Any divestment would have had to have been by the decree in the quiet title action, and that divestment we have previously held as void ab initio.

The equities strongly favor the landowners in continuous possession as opposed to the County, which is relying upon a void grant of a royalty, where there was no serious detrimental reliance by the County. In Anderson and Richardson, the reliance by the County on the validity of the royalty interest was serious, in that they had collected over the years a large sum of royalties that would have had to have been repaid. Here, that is not present. Until such time as the royalties were being paid and the Pedersons became aware of the mistake, there is no reason to have undertaken the examination that ultimately revealed that mistake. We conclude that the equities strongly favor the Pedersons. The application of laches under these circumstances would, if generally applied, have the effect of requiring landowners to act in an economically inefficient manner, i.e., devoting substantial efforts to monitoring apparently sound property interests.

Accordingly, the judgment of the district court is reversed.

REVERSED.