WILLIAM FLORMAN; FRANK BOYCE MOODIE, III, KATHLEEN MOODIE; BERRIAN MINERALS, INC.; AND LARRY GLASS v. MEBCO LIMITED PARTNERSHIP, A KENTUCKY LIMITED PARTNERSHIP; CUMBERLAND RIVER RESOURCES, LLC; JIM SMITH CONTRACTING, LLC; LAWRENCE L. PEDLEY; JOHN C. PEDLEY; DAVID PEDLEY; H. GREGORY MADDUX; PHILLIP MADDUX; HAZEL MADDUX; MARTHA LEE WRIGHT; AND T.L. MADDUX, JR. and MEBCO LIMITED PARTNERSHIP v. WILLIAM FLORMAN; FRANK BOYCE MOODIE, III; KATHLEEN MOODIE; BERRIAN MINERALS, INC; LARRY GLASS; LAWRENCE L. PEDLEY; JOHN C. PEDLEY; DAVID PEDLEY; H. GREGORY MADDUX; PHILLIP MADDUX; HAZEL MADDUX; MARTHA LEE
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RENDERED:
JUNE 16, 2006; 2:00 P.M.
ORDERED PUBLISHED BY KENTUCKY SUPREME COURT: DECEMBER 13, 2006
(2006-SC-000494-D)
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001908-MR
WILLIAM FLORMAN; FRANK BOYCE MOODIE, III,
KATHLEEN MOODIE; BERRIAN MINERALS, INC.;
AND LARRY GLASS
v.
APPEAL FROM LIVINGSTON CIRCUIT COURT
HONORABLE BILL CUNNINGHAM, JUDGE
ACTION NO. 02-CI-00099
MEBCO LIMITED PARTNERSHIP, A KENTUCKY
LIMITED PARTNERSHIP; CUMBERLAND RIVER
RESOURCES, LLC; JIM SMITH CONTRACTING,
LLC; LAWRENCE L. PEDLEY; JOHN C. PEDLEY;
DAVID PEDLEY; H. GREGORY MADDUX; PHILLIP
MADDUX; HAZEL MADDUX; MARTHA LEE WRIGHT;
AND T.L. MADDUX, JR.
AND
APPELLEES
NO. 2004-CA-002072-MR
MEBCO LIMITED PARTNERSHIP
v.
APPELLANTS
APPELLANT
APPEAL FROM LIVINGSTON CIRCUIT COURT
HONORABLE BILL CUNNINGHAM, JUDGE
ACTION NO. 02-CI-00099
WILLIAM FLORMAN; FRANK BOYCE MOODIE, III;
KATHLEEN MOODIE; BERRIAN MINERALS, INC;
LARRY GLASS; LAWRENCE L. PEDLEY; JOHN C.
PEDLEY; DAVID PEDLEY; H. GREGORY MADDUX;
PHILLIP MADDUX; HAZEL MADDUX; MARTHA LEE
WRIGHT; AND T.L. MADDUX, JR.
APPELLEES
AND
NO. 2004-CA-002074-MR
LAWRENCE C. PEDLEY; JOHN C. PEDLEY;
AND DAVID PEDLEY
v.
APPELLANTS
APPEAL FROM LIVINGSTON CIRCUIT COURT
HONORABLE BILL CUNNINGHAM, JUDGE
ACTION NO. 02-CI-00099
WILLIAM FLORMAN; FRANK BOYCE MOODIE, III;
KATHLEEN MOODIE; BERRIAN MINERALS, INC.;
LARRY GLASS; MEBCO LIMITED PARTNERSHIP, A
KENTUCKY LIMITED PARTNERSHIP; H. GREGORY MADDUX;
PHILLIP MADDUX; HAZEL MADDUX; MARTHA LEE
WRIGHT; T.L. MADDUX, JR.; CUMBERLAND RIVER
RESOURCES, LLC; AND JIM SMITH CONTRACTING, LLC
APPELLEES
OPINION
AFFIRMING IN PART, REVERSING IN PART
AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI AND JOHNSON, JUDGES; HUDDLESTON, SENIOR JUDGE.1
JOHNSON, JUDGE:
William Florman, Frank Boyce Moodie, III,
(a/k/a Boyce Moodie), Kathleen Moodie, Berrian Minerals, Inc.,
and Larry Glass (collectively the “Moodie defendants”); MEBCO
Limited Partnership, a Kentucky Limited Partnership (MEBCO); and
Lawrence L. Pedley, John C. Pedley, David Pedley (collectively
1
Senior Judge Joseph R. Huddleston sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and Kentucky Revised Statutes (KRS) 21.580.
-2-
the “Pedley heirs”) have appealed2 separately from the orders
entered by the Livingston Circuit Court on September 3, 2004,
which adopted the recommendations of Special Commissioner Marvin
Wilson submitted on August 5, 2004.
The Moodie defendants have
appealed that portion of the circuit court’s order which awarded
the clay on the land to MEBCO, the surface owner, and seek a
determination that the ancillary language in the Shelby/Watkins
deeds prohibits surface mining of the minerals and substances
such as limestone and clay.
MEBCO has appealed that portion of
the circuit court’s order which awarded the limestone on the
land to the Moodie defendants as the mineral rights owner,
arguing that Kentucky law provides that limestone is not a
mineral.
The Pedley heirs have appealed that portion of the
circuit court’s order which upheld the trust formerly set up in
another civil action into which their portion of the royalties
is placed.
Having concluded under Kentucky law that limestone
and clay are not minerals and thus were retained by the surface
owners, we affirm in part and reverse in part.
While the
circuit court failed to make a determination as to whether the
Moodie defendants were granted the right to surface mine the
land, we also hold that they were not conveyed such rights.
2
MEBCO filed one notice of appeal; however, the notice of appeal was given
two docket numbers, i.e., 2004-CA-02072-MR and 2004-CA-02073-MR. The Pedley
heirs filed one notice of appeal; however, the notice of appeal was given two
docket numbers, i.e., 2004-CA-02074-MR and 2004-CA-02075-MR. In order to
correct the appellate record, cases numbered 2004-CA-0273-MR and 2004-CA2075-MR were ordered dismissed on March 1, 2005.
-3-
Having further concluded that the Pedley heirs failed to
preserve any of the issues raised in their appeal, we dismiss
their claims without addressing them on the merits.
HISTORY OF THE LAND
This case involves the ownership of “all the
minerals on and under” 200 acres of land in Livingston County,
Kentucky on the Cumberland River (the land).
The land is a
portion of a much larger tract of land owned by MEBCO,3 whose
principals are Firmon Cook, III, and his wife, Betty Cook
(collectively the “Cooks”).
The Cooks acquired the land on
April 25, 1991, and they later conveyed it to their company,
MEBCO.
At the time the Cooks obtained title to the land, they
received an interest in the surface only, not the minerals.
The
minerals had been previously severed from the surface estate in
1873, by two deeds.4
On July 15, 1873, C.C. Shelby conveyed to
Geo. W. Norton, Wm. F. Norton, John S. Long, F. Berrian Moody
and J.C. Waller (the grantees) “all the minerals” in a portion
3
The land is a portion of the MEBCO property along the Cumberland River to
the south, forming a backward “L” shape.
4
Boyce Moodie testified at trial that his grandfather, Francis Berrien
Moodie, a resident of Louisville, had come to Livingston County in 1870 for
the purpose of acquiring limestone and that he eventually acquired sole
ownership of the minerals on and under the land. Furthermore, because of the
presence of high calcium carbonate limestone in Kentucky and across the Ohio
River in Indiana, in 1870 the Louisville Cement Company built the largest
cement plant in the world. Before the end of that century, the Louisville
Cement Company and its competitors in Louisville and in Clark County
immediately across the Ohio River, together “produced approximately 90% of
the nation’s cement.”
-4-
of the land consisting of 185 acres (the Shelby Deed).
Also on
July 15, 1873, James Watkins conveyed to the grantees “all the
minerals” in a portion of the land containing 12.41 acres (the
Watkins Deed).5
Those mineral rights were subsequently acquired
by Salem Fluorspar Corporation (Salem Fluorspar) in 1942, which
is now defunct.6
The defendants claiming rights through Salem
Fluorspar include the Moodie defendants7 and the Pedley heirs.
In addition to a conveyance of the minerals, the
Shelby/Watkins deeds contain certain surface-related rights that
may be utilized by the mineral owner in the removal of such
minerals.
The ancillary rights set out in the Watkins deed are
as follows:
Together with sufficient surface land on the
bank of the river for ware rooms for storing
away the minerals and mining material with
right of way over said land to and from the
mines with as much timber and surface land
as may be necessary for buildings and
cribbing of shafts for developing such
minerals as may be sought for on and under
said land [descriptions of the land
omitted]. But it is clearly understood that
the surface land on the bank of the river
for ware rooms is not to exceed one acre to
be in a square, and the right of way over
said land not to exceed forty feet in width
5
These deeds will be referred to collectively as “the Shelby/Watkins deeds.”
6
After the mineral rights were severed, no mineral development took place on,
in, or under this land for the next 130 years. No limestone quarry was
erected or operated during the following century and three decades. Instead,
the land was used for agricultural purposes by the surface owner.
7
Frank Boyce Moodie, III and his wife Kathleen Moodie, assigned rights to
Berrian Minerals, Inc., and then to William Florman. Larry Glass then
acquired part of Florman’s rights.
-5-
and to run direct from the mines to the
nearest line of said survey [and] thence
with said line to the ware house.
The ancillary rights in the Shelby deed are the same as the
ancillary rights in the Watkins deed, except there was added to
the last sentence quoted above “[and] not to interfere with the
hill selected [sic] by me for a building site.”8
LEASES ON THE LAND
Jim Smith Contracting Company, LLC, and its whollyowned company, Cumberland River Resources, LLC, (collectively
CRR)9 have been developing a limestone quarry on three adjacent
properties in Livingston County.10
In 1998 Rex Smith, a general
partner of CRR, became interested in the possibility of
acquiring a mineral lease on the land for the acquisition of the
limestone, clay, and other substances.11
Smith understood that
the ownership of the limestone and clay located on the land was
contested between MEBCO and the Moodie defendants; and
therefore, in order to ensure that the limestone, clay, and
8
In each of the deeds, I.T. Handlin, who had retained a vendor’s lien in
prior deeds, was also a party and he “release[d] his lien for purchase money
on the minerals & rights of way & surface for ware rooms herein conveyed.”
9
Smith assigned all of the interest in both the Moodie Lease and the
Cook/MEBCO Lease to its own wholly-owned company, CRR. CRR is a successor to
the LLC.
10
These properties include the S&P Ventures property and the Rudolph
property, and border the land on the west and the north while the Cumberland
River borders on the south. Since the land in question is wholly within
property owned by MEBCO, the owners of the other properties are not parties
to this case.
11
The total amount of property owned by MEBCO was 1,200 acres.
-6-
aggregates were under lease regardless of who was determined to
own the substances, CRR12 obtained leases from both sides.
On
November 16, 1999, Smith, through his companies, entered into a
mineral lease with Boyce Moodie (the Moodie lease),13 and
thereafter on December 21, 1999, he entered into a separate
lease with the Cooks on the MEBCO property (Cook/MEBCO lease).14
At trial the parties stipulated, without objection, as to the
validity of CRR’s leases with MEBCO and the Moodie defendants.
PROCEDURAL HISTORY
It is undisputed that MEBCO owns the surface of the
land set out in the Shelby/Watkins deeds.
However, following
the execution of the above-referenced leases, MEBCO filed the
present action on May 30, 2002, as a Petition to Quiet Title and
12
During Smith’s testimony, all leases, assignments, and related documents
were introduced into evidence. CRR has acquired a quarry permit.
13
On November 16, 1999, the Moodie defendants entered into an option lease
and lease agreement with Jim Smith Contracting as lessee, granting Smith the
right to prospect the premises with the option to lease for “marketable
limestone, sandstone, and other construction aggregates” on the
Shelby/Watkins tracts. On January 9, 2001, the Moodie defendants assigned
their interest in the lease to their company, Berrian Minerals, Inc. Then,
on November 13, 2001, Berrian assigned its rights to receive income from the
Smith lease to a third party, Florman. Moodie testified that under an
assignment, Florman was granted the option to buy Moodie’s rights.
Consequently, Florman now claims all or part of the Moodie/Berrian rights
purportedly derived from Salem Fluorspar. Florman then assigned a portion of
his interest to Glass.
14
On December 21, 1999, the Cooks entered into an Option to Lease and Lease
Agreement with Jim Smith Contracting granting Smith the right to prospect and
explore the entire “L” shaped tract (including but not limited to that
portion of the land as set out in the Shelby/Watkins deeds) and the option to
lease the premises of “marketable limestone, sandstone and other construction
aggregates” on the premises. The Cooks conveyed their property to MEBCO at
approximately the same time. Firmon Cook testified that Smith and CRR had
the right to quarry the property.
-7-
for Declaration of Rights regarding ownership of certain
substances on the Shelby/Watkins tracts.
In Count I of its
petition, as amended, MEBCO sought to quiet its title to the
limestone, clay, sand, and gravel in and underlying the two
parcels of land in the Shelby/Watkins deeds.15
MEBCO claimed
that although it did not own the minerals on the land, it did
own the limestone and clay as part of the surface estate.
In
Count II of its petition, MEBCO sought a declaration of rights
of the mineral owners to surface mine the land of the
Shelby/Watkins deeds in the recovery of minerals.
On July 25, 2002, in response to MEBCO’s petition, the
Moodie defendants filed their defenses and their own
counterclaims and cross-claims, asserting that, as a consequence
of the Shelby/Watkins deeds conveying their predecessor in title
“all the minerals on and under” the property, they are the
owners of the clay and limestone on the land in the
Shelby/Watkins deeds.
The Moodie defendants acknowledged that
they had entered into a mineral lease with CRR.16
On August 6, 2002, the Pedley heirs filed their
15
It was stipulated at the trial that MEBCO is the owner of sand and gravel
in and under the premises contained in the Shelby/Watkins deeds.
16
Thereafter, CRR moved to amend its pleadings to assert its cross-claims
against the other defendants, including the claim that it had acquired
certain valid mineral leasehold interests from the Moodie defendants under
the November 16, 1999, lease agreement. On November 6, 2002, the motion was
granted and the cross-claims of CRR were filed.
-8-
answer and counterclaim to MEBCO’s petition, wherein they
claimed that they had inherited some stock in Salem Fluorspar
from Gracean M. Pedley.
The Pedley heirs also expressly
acknowledged that in 1998, “Moodie, d/b/a Berrian Minerals
purchased an interest in the properties which had formerly been
owned by [ ] Salem Fluorspar [ ], including the [land]”.
The
Pedley heirs never filed a reply or answer to the cross-claims
of the Moodie defendants or CRR in this action, and they never
raised any issue in their own pleadings about the validity or
amount of the Moodie defendants’ interest in the minerals on the
land.
Despite the circuit court’s scheduling order, the Pedley
heirs never filed a trial brief setting forth the “disputed
facts and legal issues” of its case.
On February 24, 2003, MEBCO filed its motion for
partial summary judgment arguing that the Shelby/Watkins deeds
which conveyed “all the minerals on and under” the land did not
convey the limestone and clay on the land.
After extensive
briefing on this matter by both MEBCO and the Moodie defendants,
the circuit court, by orders dated December 15, 2003, and
December 19, 2003, denied MEBCO’s motion for summary judgment,
and appointed Special Commissioner Wilson to try the case and to
make recommended findings to resolve the factual issues
regarding the questions of whether limestone and/or clay on the
land were part of minerals owned by the Moodie defendants.
-9-
Hearings were held on May 17, 2004, through May
20, 2004, by Special Commissioner Wilson.
The main issue in the
case was whether the Shelby/Watkins deeds conveyed to the
predecessors of the Moodie defendants the limestone and clay on
such property, along with the rights to remove those substances,
when the grantors conveyed to the grantees “all the minerals on
and under” the property.
Thus, the circuit court was required
to determine whether or not the term “mineral” as used in the
Shelby/Watkins deeds in 1873 included the substances of
“limestone” and “clay”.
At trial, MEBCO, as surface owner,
claimed it had full legal title to the limestone and clay,
because such material belonged to the surface estate not the
mineral estate; and MEBCO requested that the circuit court
declare that the severance of the “minerals” through the
Shelby/Watkins deeds did not include the right to remove the
limestone or the clay.
The Moodie defendants argued that the
limestone and clay had such a peculiar value that both should be
considered “minerals,” and thus were not a part of the surface
rights.
Upon request, the parties stipulated that the Pedley
heirs owned five shares each, or a total of 15 shares, of Salem
Fluorspar out of a total of 4,000 shares.
Except for this
stipulation, no other evidence of any kind was introduced
regarding the issue of whether the Pedley heirs have any
-10-
interests in the minerals.
Further, the Pedley heirs made no
opening statement, nor did they offer any witnesses to testify
on their behalf.
CRR contended that regardless of whom the
circuit court declared to be the owner of the limestone, clay,
and related aggregates, such materials are subject to its
leasehold interests under either, or both, the Cook/MEBCO Lease
or the Moodie Lease.
At the start of the trial, the attorney
for the Pedley heirs, along with counsel for all other parties,
expressly stipulated to the validity of the Cook/MEBCO and
Moodie lease agreements with CRR.
Subsequently, the parties filed their proposed
recommendations, including findings of fact and conclusions of
law, to be considered by Special Commissioner Wilson.
On August
12, 2004, Special Commissioner Wilson submitted his
recommendations to the circuit court.
Both MEBCO and the Moodie
defendants filed exceptions to the recommendations on August 23,
2004.
CRR also filed exceptions seeking an interpretation of
certain lease provisions in its mineral leases and also tendered
its proposed order adopting and modifying Special Commissioner
Wilson’s recommendations,17 which the circuit court entered on
September 3, 2004, as the judgment in this case.
The Pedley heirs did not tender their own
17
MEBCO filed a response to CRR’s exceptions and proposed order.
-11-
pre-trial findings of fact or conclusions of law to suggest any
questions of fact or law which they believed were at issue.
However, on June 7, 2004, the Pedley heirs expressly adopted as
their own the Moodie defendants’ proposed recommendations,
including a memorandum opinion, findings of fact, conclusions of
law, and judgment, which specifically stated that the Moodie
defendants now “own an undivided 90.9% of such minerals, and the
remainder thereof 9.1% is held in trust by Raymond McGee, the
Trustee appointed on March 7, 2001 by [the circuit court] for
the unknown or missing owners.”
However, the Pedley heirs
subsequently attempted to introduce new issues into this case,
in an objection filed on June 14, 2004.
The Moodie defendants
moved to strike the Pedley heirs’ objection, and the circuit
court ruled in favor of the Moodie defendants, pursuant to the
recommendation of Special Commissioner Wilson.
The Pedley heirs
never took exception to that recommendation, and on September 3,
2004, said recommendation became a part of the circuit court’s
final order and judgment of this case.
The circuit court held that the limestone was a
“mineral” under the phrase “all the minerals on or under” the
land as used in the Shelby/Watkins deeds, and that the “clay and
limestone on the subject property possess unusually, unique and
extraordinary qualities over and above ‘ordinary’ clay and
limestone deposits, thereby imparting to them ‘special value’.”
-12-
The circuit court stated that this conclusion was based upon
expert testimony of several witnesses that the clay in this case
could be used to make Portland cement and various ceramic
products, and the limestone could be used to make Portland
cement, roof shingles, agricultural lime, and various other
products.
However, in adopting Special Commissioner Wilson’s
recommendations, the circuit court further determined the clay
could not be removed without destroying the surface and ruled
the clay should remain a part of the surface estate.
In summary, the circuit court held that (1)
the limestone was a mineral and a part of the mineral estate and
thus belonged to the Moodie defendants; (2) the clay, while
being a mineral, was still part of the surface estate because it
could not be removed without destroying the surface and thus
belonged to MEBCO; and (3) all limestone, clay, and other
aggregates, regardless of ownership, were subject to the lease
rights of CRR.
These appeals followed.
There are three appeals in this case.
The Moodie
defendants present two issues in their appeal, (1) whether the
limestone and clay on the land are owned by the surface owner or
the mineral owner, and (2) whether the Shelby/Watkins deeds
allow the mineral owner the right to surface mine the land in
order to recover minerals.
These same issues are also argued by
-13-
MEBCO18 in its appeal.
The issues in the Pedley heirs’ appeal do
not overlap with these issues from a legal standpoint, and thus
will be dealt with separately.
DOES KENTUCKY LAW CLASSIFY LIMESTONE AND CLAY AS MINERALS?
Both MEBCO and the Moodie defendants raise before this
Court the issue of whether, under Kentucky law, limestone and/or
clay are minerals.
The analysis as to whether either substance
is a mineral is the same.19
As stated previously, the circuit
court, by adopting Special Commissioner Wilson’s report, held
that both limestone and clay were minerals because in this case
they each have unique qualities and special value.
However, the
circuit court reasoned that because the clay could not be
removed without destroying the surface, it remained a part of
the surface estate.
We hold that the circuit court failed to
follow the current law of our Commonwealth and erred as a matter
of law when classifying limestone and clay as minerals.
The interpretation of a deed is a matter of law, and
thus our review of this case is de novo.20
This rule applies
18
In addition, MEBCO raised two other issues including, (1) whether the term
“aggregates” in the Cook/MEBCO lease includes clay, and (2) whether payments
under the Moodie lease triggers the “most favored nation” clause of the
Cook/MEBCO lease. These issues have been dismissed upon MEBCO’s own motion
and by order of this Court entered on May 9, 2006, and will not be discussed
further in this appeal.
19
See Elkhorn City Land Co. v. Elkhorn City, 459 S.W.2d 762, 765 (Ky.App.
1970).
20
Morganfield National Bank v. Damien Elder & Sons, 836 S.W.2d 893, 895 (Ky.
1992).
-14-
equally to a deed involving mineral rights.21
In interpreting a
deed, we look to the intentions of the parties, “gathered from
the four corners of the instrument” [citations omitted],22 using
its words’ common meaning and understanding.23
We will not
substitute what was intended “for what was said” [citations
omitted].24
Further, a deed shall be construed based upon its
provisions as a whole.25
Since we agree with the circuit court’s
conclusion in this case that the terms of the Shelby/Watkins
deeds granting the mineral rights were not ambiguous, we do not
have to construe the terms of the deeds strongly against the
preparers, whether that be the grantor or the grantees.26
The Moodie defendants argue that the limestone and
clay were part of the mineral estate which was severed based
upon the broadness of the language in the Shelby/Watkins deeds
21
Yunker’s Co-Exr’s v. Mason, 284 S.W.2d 98, 99 (Ky. 1955).
22
Phelps v. Sledd, 479 S.W.2d 894, 896 (Ky. 1972).
23
Franklin Fluorspar Co. v. Hosick, 239 Ky. 454, 39 S.W.2d 665, 666 (1931)
(stating that “‘words employed in a deed should be given their fair and
reasonable meaing, receiving the interpretation accorded them by the common
usage of mankind, having in view the circumstances of their use and the
context.’ . . . The rule is also well settled that the deed will be
construed most strongly against the grantor and in favor of the grantee if it
admits of two constructions” [citations omitted]).
24
Phelps, 479 S.W.2d at 896.
25
Brown v. Harlow, 305 Ky. 285, 286, 203 S.W.2d 60, 61 (1947).
26
See Croley v. Round Mountain Coal Co., 374 S.W.2d 852, 854 (Ky. 1964). See
also Gladys City Oil, Gas & Mfg. Co. v. Right of Way Oil Co., 137 S.W. 171,
178 (Tx.Civ.App. 1911) (noting that where a deed is prepared by the grantee,
the rule is reversed and any ambiguity is construed most strongly against the
grantee).
-15-
conveying “all the minerals on and under.”
Further, they argue
that the common ordinary meaning of the term “mineral,” both in
1873 and today, includes the terms limestone and clay and,
regardless, the circuit court found by expert testimony that the
limestone and clay under and on the land has “unusual, unique
and extraordinary qualities . . . thereby imparting to them
‘special value.’”
Thus, the Moodie defendants argue that the
limestone and clay also meet the legal definition of minerals
because they are sought “for the purpose of profit.”27
However,
we agree with MEBCO’s argument that pursuant to the current law
in Kentucky the clay and the limestone are not minerals.
In briefing this issue, both sides have cited various
cases from several jurisdictions.
However, the two cases in
Kentucky that deal with whether limestone is a mineral are
sufficient authority for our decision.
We begin with Rudd v.
Hayden,28 which involved 125 acres of land located on the banks
on the Cumberland River in Livingston County.
The issue in Rudd
was whether limestone was embraced in a 1900 deed that included
the following language:
“All minerals, coal, clays, spars, oilgases
and every other kind and character of
mineral cement, oil, gases, [ ] not included
in the above general description, in on and
under the after described land, together
27
Kalberer v. Grassham, 282 Ky. 430, 138 S.W.2d 940, 942 (1940).
28
265 Ky. 495, 97 S.W.2d 35 (1936).
-16-
with the exclusive right to mine same and a
right of way across said premises and
ingress and egress over said land, for the
purpose of operating any mine or mines and
privilege of using water in their operation
and in fact the full mining right and
privilege in and to the following described
land . . . [emphasis added].”29
The Rudd Court determined, in construing the deeds,
that the terms of the deeds in question plainly set forth the
intent of the parties.30
Further, the Rudd Court found that
“[t]he authorities agree that the word ‘minerals,’ as used in a
deed, does not ordinarily include limestone” [citations
omitted].31
Rudd quotes the Virginia case of Beury v. Shelton,32
as follows:
“It is a well-known fact, and known of
course to the parties to the deed here
involved, that the section where this deed
was to operate was a limestone country,
where the land is everywhere underlain with
limestone, and where it crops out on
practically every tract of land that is not
bottom land, and where it makes its
appearance in manner varying from huge
cliffs, as in the case here, to small
outcroppings on various parts of the land.
It is on the land everywhere, either
breaking through it, or lying under it at
29
Rudd, 97 S.W.2d at 36.
30
Id (stating that the question “of intention [is] to be decided upon the
language of the grant or reservation,” unless such language “is so ambiguous
as to leave the mind in doubt as to its proper construction, in which event
extrinsic evidence may be resorted to as an aid in determining the true
meaning of the instrument”).
31
Id.
32
144 S.E. 629, 632 (Va. 1928).
-17-
different depths. In this country it is a
part of the soil, and a conveyance that
reserves the limestone with the right to
remove it would reserve practically
everything and grant nothing” [emphasis
added].33
Even though the Court in Rudd, found that the
limestone in question was “regarded as excellent Portland cement
material[,]” the Court concluded that “the use of the term
‘minerals,’ without more, would not show an intention to include
limestone within the grant of the deed, stating limestone is not
within ‘the ordinary and popular sense of the word’” [citation
omitted].34
The Rudd Court later noted that the term mineral
cement was intended to cover limestone capable of use in the
manufacture of cement,35 otherwise the inclusion of limestone in
this group would not have occurred.
Approximately 30 years later, the Court in Little v.
Carter,36 accepted the position set out in Rudd by stating “that
under the plain language of Rudd . . . the use of the term
‘minerals,’ without more, would not show an intention to include
limestone within the reservation under consideration.”37
Little
involved a reservation of a specified interest in the “oil and
33
Rudd, 97 S.W.2d at 36.
34
Id. at 36-7.
35
Id. at 37.
36
408 S.W.2d 207 (Ky. 1966).
37
Id. at 209.
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gas, . . . fire clay, and . . . other minerals on the land
conveyed.”38
The limestone surface owner leased the limestone
for a royalty of $.05 per ton.
The limestone lessee began
quarrying the limestone and the mineral owner brought suit
against the surface owner for his share of the royalties.39
Little does not discuss the quality of the limestone or how the
limestone was being utilized; however, in holding that limestone
was not included in the mineral reservation, the Little Court
quotes at length from Rudd, which quoted Beury.
While there are
no reported Kentucky cases where the Court had an occasion to
consider whether a conveyance (as opposed to a reservation) of
minerals does or does not include limestone, cases from other
jurisdictions indicate that the decision would be the same.40
The Moodie defendants cite Kalberer, where our Supreme
Court discussed the meaning of the term “minerals” as used in
deeds.
The Moodie defendants argue that although the holding of
Kalberer specifically applied to sandstone, a surface mineral,
the decision expressly states that the term “minerals” also
includes clay, as well as every substance which can be obtained
38
Little, 408 S.W.2d at 208.
39
Id.
40
See Wulf v. Shultz, 508 P.2d 896, 900 (Kan. 1973) (noting that a grant
which included “other mineral substances” was held not to include limestone.
The Court reasoned that such grant “should not be construed to include a
substance which requires destruction of the surface estate for its removal”).
-19-
from the earth “for the purpose of profit.”41
Kalberer is distinguishable from this case.
We conclude that
First, Kalberer was
a sandstone case that was decided between the rulings in the
limestone cases of Rudd and Little.42
Second, Little rejected
the stance of Kalberer when it ruled that limestone was not a
mineral.43
Further, Kentucky cases have held since the ruling in
Kalberer that clay is not a mineral.44
While Little sets out a quote from the Texas case of
Heinatz v. Allen,45 regarding special value, the initial wording
in Heinatz was dicta at the time it was written, stating that if
limestone, sand, or gravel is “rare and exceptional” or has
“special value”, it may be considered as a mineral, otherwise
such substances are not considered minerals “within the ordinary
and natural meaning of the word.”46
However, the later Texas
case of Atwood v. Rodman,47 rejected this dicta in Heinatz and
held that limestone was not a mineral or such a material as was
41
Kalberer, 138 S.W.2d at 942.
42
See Id. at 941.
43
Little, 408 S.W.2d at 209.
44
Cumberland Mineral Co. v. United States, 513 F.2d 1399, 1401 (Ct.Cl. 1975);
Elkhorn City, 459 S.W.2d at 765.
45
217 S.W.2d 994 (Tx. 1949).
46
Heinatz, 217 S.W.2d at 997.
47
355 S.W.2d 206 (Tx.Civ.App. 1962).
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contemplated by the term “other minerals” used in the
instruments.48
The Texas Court in Atwood stated as follows:
To hold that usage controls would make for
hopeless confusion, because if limestone is
. . . highly useful and valuable in building
and construction, then there would be an
inevitable conflict between those who claim
that it is a mineral and want to use it for
cement, and those who claim that it is rock
used for construction. . . . For these
reasons we do not think usage, which here is
used to mean subsequent development to the
dates of the instruments, can or does change
the intent of the grantors and grantees.49
The quote from Heinatz in Little was made with no discussion,
and therefore serves as no more than dicta therein.
Since Texas
itself has disavowed the dicta in Heinatz, we do not find it to
be persuasive in the case before us.
In Cumberland,50 the Court addressed whether clay or
sandstone were within a reservation of “the mineral, oil, and
gas in, upon and under” certain lands in Pulaski, Whitley, and
Laurel Counties in Kentucky.51
The Court in Cumberland stated
that “[n]either clay nor sandstone is a mineral . . . from the
scientific standpoint.”52
While following Kentucky law, the
Cumberland Court sought to distinguish Kalberer, rather than
48
Atwood, 355 S.W.3d at 214-16.
49
Id. at 215.
50
513 F.2d at 1399.
51
Cumberland, 513 F.2d at 1400.
52
Id. at 1401.
See also Acker v. Guinn, 464 S.W.2d 348, 351 (Tx. 1971).
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follow it,53 and found that the reservation did not include clay
because, otherwise “practically everything would be reserved and
nothing granted” [citations omitted].54
In Elkhorn City, the
Court also found that clay was not a mineral when it held that
sandy clay loam and sandy shale were not included in the
reservation of minerals.55
After reviewing the cases in Kentucky and
other jurisdictions, we hold that limestone and clay regardless
of their value are not minerals.
Thus, we reverse the circuit
court on the issue that limestone is a mineral belonging to the
mineral owner and affirm the circuit court’s order to the extent
that it held that the clay on the land belongs to the surface
owner, but we are affirming for a different reason because we
also hold that clay is not a mineral.
SURFACE MINING ISSUE
The circuit court did not specifically determine
whether the Moodie defendants were allowed to surface mine on
the land, even though the issue was raised by both MEBCO and the
Moodie defendants in their pleadings.
MEBCO’s position is that
the ancillary rights in the Shelby/Watkins deeds clearly
indicate that the mineral extraction process must take place
53
Cumberland, 513 F.2d at 1403.
54
Id.
55
Elkhorn City, 459 S.W.2d at 765.
-22-
underground, as such rights were limited to the following
surface uses: (1) one acre, on the river, in the form of a
square, for ware rooms for storing the minerals and mining
materials; (2) right of way over such lands not to exceed 40
feet in width, the location of which is specified to run
directly from the mines to the nearest line of the survey,
thence with said line to the warehouse; and (3) such timber and
surface as may be needed for buildings and cribbings56 of shafts
for developing such minerals.
In addition, the Shelby deed
provides that the right of way is not to interfere with the hill
selected by Shelby for a building site.
The Moodie defendants argue, to the contrary, that
surface mining should be allowed on the lands conveyed in the
Shelby/Watkins deeds because there is no word in either deed
which prohibits surface mining.
The Moodie defendants further
argue that not allowing surface mining is “totally at odds” with
the grant of timber and surface land which was “for developing
such minerals as may be sought for on and under said land,” and
that “it is simply unrealistic to believe that the parties
necessarily intended that the minerals on the surface would only
be removed by a process of underground mining.”
56
Cribbing is defined as “[a] framework support, as of timber lining a
shaft.” Webster’s II College Dictionary (2001).
-23-
In support of this argument, the Moodie defendants
cite Rudd, where the Court held that the term “mine” was not
restricted to underground mining, “but may include ‘open cut,’
‘strip,’ or ‘hydraulic’ methods of mining.”57
In addition, the
Court noted that because the deed conveyed the minerals “on” the
property, as well as the minerals “in” and “under the property,”
the method of mining could not have been limited to underground
mining.58
The Moodie defendants also rely upon Kalberer, where
the Court held that the deed provision that “‘the party of the
second part agrees not to interfere with the farming interest of
the parties of the first [part] in said land,’”59 did not prevent
the grantee from quarrying the sandstone which was held to be a
mineral.60
MEBCO argues that there is no case law supporting
language similar to that in the Shelby/Watkins deeds to include
an implied right to quarry or to surface mine.
57
Rudd, 97 S.W.2d at 37.
58
Id.
59
The case law
Kalberer, 138 S.W.2d at 941.
60
Id. at 944. The Moodie defendants also argue that Kentucky law holds that
the surface estate is subservient to the mineral estate. The Moodie
defendants cite KRS 381.430, which states that when the mineral interest has
been severed from the surface estate, the possession of the surface estate
“shall be deemed to be for the benefit of the person, his heirs and assigns,
to whom the mineral, interests or rights have passed.” MEBCO argues that the
Moodie defendants’ argument regarding dominant versus subservient estates has
no application to this issue, but rather the statutory reference cited by the
Moodie defendants applies to adverse possession and has nothing to do with
dominant or subservient estates. We agree.
-24-
cited by the Moodie defendants in support of this claim is
referring to broad form deeds, which do not apply in this
action.61
In the case of Commerce Union Bank v. Kinkade,62 our
Supreme Court held that the language of three non-broad form
deeds, i.e., “right to such surface space as may be necessary in
mining operations,”63 was not sufficient to show a grant to strip
mine the property.64
The Supreme Court held that “[t]he language
of the conveyances . . . is such that it must be readily
realized that there was no grant of rights necessary for
removing the coal by the open-pit or strip method . . . .”65
The
Supreme Court went on to state as follows:
[T]here must be a definite enlargement of
specified mining rights in the instrument
creating those rights before an owner may
conduct mining operations contrary to the
61
In non-broad form deeds, the rights of the surface owners are not
necessarily subordinate to the mineral owner. Broad form deeds were deeds
used in the past 30 years that were held by our courts to grant the right to
strip mine without compensation to the surface owner. Later, these broad
form deeds were, for a limited period of time, held to include the right to
strip mine upon payment to the surface owner. Finally, our Supreme Court
ruled that the broad form deeds were unconditionally not to include the right
to strip mine without the consent of the surface owner. See Ward v. Harding,
860 S.W.2d 280, 287 (Ky. 1993) (stating that “[a]s this Court’s decision in
Buchanan v. Watson [290 S.W.2d 40 (Ky. 1956)] presumed a right to surface
mine merely by virtue of the ownership of mineral rights, by this decision we
hold that no such presumption shall hereafter exist”).
62
540 S.W.2d 861 (Ky. 1976).
63
Id. at 862.
64
Id. at 864.
65
Id.
-25-
rights usually implied in a mineral grant
[emphasis added].66
Then in 1997, this Court spoke directly to strip
mining methods.
In Karst-Robbins Coal Co., Inc. v. Arch of
Kentucky, Inc.,67 this Court held the following:
Hence, the owner of a mineral estate
thereafter [the Ward decision] could not use
strip mining methods to extract minerals
without the surface owner’s consent, unless
there was clear and convincing evidence that
regardless of when the original severance
deed was executed, the parties thereto
intended to permit recovery of the minerals
by such strip mining methods.68
Based on this current law, MEBCO argues that there was
no clear and convincing evidence presented that the parties to
the Shelby/Watkins deeds intended to permit recovery of minerals
by surface or strip mining methods, as is stated in pages nine
and ten of Special Commissioner Wilson’s report.
MEBCO goes on
to argue that because the Shelby/Watkins deeds do not expressly
grant the right to surface or strip mine the minerals, any right
to such use of the premises would have to be implied.
In the absence of an authorization
contained in the grant or reservation, the
66
Commerce Bank, 540 S.W.2d at 863. See also Peabody Coal Co. v. Erwin, 453
F.2d 398, 399 (6th Cir. 1971) (noting that the non-broad form deed included
all the rights proper and necessary for the mining of coal and the court held
that such language “does not indicate the intention of the parties that the
mineral owner bought the right to destroy the surface”).
67
964 S.W.2d 419 (Ky.App. 1997).
68
Id. at 424.
-26-
mineral owner may not destroy the surface of
the land by strip mining.
In some circumstances, the deed grants
the mineral owner the right to surface mine.
. . .
[S]uch a right is not to be lightly
or casually implied [footnotes omitted].69
This is the current law of Kentucky which is in line with common
law.70
Therefore, we agree that without extrinsic evidence
indicating such approval, the Moodie defendants do not have the
right to surface mine for minerals.
ISSUES RAISED BY THE PEDLEY HEIRS
The Pedley heirs argue that the circuit court erred in
“impress[ing]” a trust on their interest income from Salem
Fluorspar.
This argument is based on the 2001 case filed by
Berrian Minerals in which the Pedley heirs claimed they were not
properly served, but the circuit court entered a decree imposing
a trust and named a trustee for the unknown or missing
shareholders of Salem Fluorspar.
They further argue that Salem
Fluorspar was never administratively dissolved, but rather
expired by the terms of its charter in 1967 and that Boyce
Moodie, as a director and officer of the company, breached his
69
58 CJS Mines and Minerals § 182 (Supp. 2005).
70
See 58 CJS Mines and Minerals § 167 (Supp. 2005).
-27-
fiduciary duty to the Pedley heirs in failing to settle the
affairs of the corporation.71
Prior to trial, discovery was taken in this case.
In
Boyce Moodie’s deposition, he testified regarding his January
12, 2001, lawsuit72 which he had filed pursuant to KRS 353.460,
and the petition and court decree of the 2001 case were
furnished to the parties.
Contrary to the unsupported
statements that the Pedley heirs were not served with summons or
process, the records clearly show that they were constructively
served pursuant to the statutes and Kentucky Rules of Civil
Procedure.
In any event, no pleadings were ever filed with
respect to said question on behalf of the Pedley heirs, and no
evidence disputing or contesting the validity of the decree was
ever presented by the Pedley heirs at trial.
While the Pedley heirs acknowledge that the question
as to the amount of stock that the Moodie defendants own is not
71
The Pedley heirs argue that KRS 271.580 controlled the dissolution of Salem
Fluorspar, and that the mineral estate should have been sold and the proceeds
distributed to the shareholders in 1967.
72
On January 22, 2001, the case of Berrian Minerals, Inc. v. Grace M. Brown,
Case No. 01-CI-00007, was filed in the Livingston Circuit Court, in which the
Moodie defendants sought the declaration of a trust concerning the heirs so
that a mineral lease could be developed. The last order in that case, dated
May 6, 2001, appointed Raymond McGee as trustee for the minority 9% interest
for unknown and missing owners of mineral rights. This trusteeship included
the Pedley heirs and the Maddox heirs. At the trial in this case, Boyce
Moodie testified that Salem Fluorspar’s interest had descended to its
shareholders and that Moodie obtained 90.9% of the outstanding shares;
therefore, Moodie filed an action in the Livingston Circuit Court concerning
the other 9.1% of the shares to get authority to enter into a lease, shown by
the petition and decree in that lawsuit.
-28-
ripe for review and that they cannot prove that they own more
than 15 shares in the corporation, they argue that the circuit
court erred in finding that the Moodie defendants owned 90.9% of
the minerals under the Shelby/Watkins deeds and that the other
9.1% should be held in trust for the beneficial owners.
They
further argue that because the Moodie defendants do not wholly
own the mineral rights they had no right to enter into the lease
with CRR and, thus, the Pedley heirs are not bound by the decree
establishing the trust.
The Pedley heirs have asked this Court
to reverse the circuit court’s ruling and to send this case back
for a determination as to what stock the Pedley heirs and other
shareholders of Salem Fluorspar, Inc. are entitled.
However, we must conclude that the Pedley heirs have
failed to comply with the Kentucky Rules of Civil Procedure in
preserving these issues on appeal.
First, in violation of CR
76.03(8), they did not set forth any of these issues in their
pre-hearing statement, and thus, have not substantially complied
with the rule.73
The only issue stated in their pre-hearing
statement was that “[t]he circuit court was in error when it
held that [the Pedley heirs] were bound by a judgment in a prior
action to which they were not parties.”
The Pedley heirs raise several issues which are
different from the vague presentation in their pre-hearing
73
See Capital Holding Corp. v. Bailey, 873 S.W.2d 187, 197 (Ky. 1994).
-29-
statement, including that Boyce Moodie had breached his
fiduciary duty to the Pedley heirs.
In conflict with CR 13.01,74
this issue was not pled as a cross-claim or other claim, nor was
it tried before Special Commissioner Wilson at the trial of this
matter on May 17, 2004.
Two other issues omitted from the
Pedley heirs’ pre-hearing statement were actually stipulated to
by all parties at trial, including the amount of stock owned by
the Pedley heirs and the validity of the lease between the
Moodie defendants and CRR.75
Not only were both of these issues
stipulated to by the Pedley heirs, they did nothing to preserve
the issues at trial.
The Pedley heirs also violated CR 76.12(4)(c)(iv) and
CR 76.12(4)(c)(v) which state as follows:
(iv)
A “STATEMENT OF THE CASE” consisting
of a chronological summary of the
facts and procedural events necessary
to an understanding of the issues
presented by appeal, with ample
references to the specific pages of
the record, or tape and digital
counter number in the case of
untranscribed tape-recordings,
74
CR 13.01 states in relevant part that “[a] pleading shall state as a
counterclaim any claim which at the time of serving the pleading the pleader
has against any opposing party, if it arises out of the transaction or
occurrence that is the subject matter of the opposing party’s claim . . . .”
75
The Pedley heirs argue to this Court that they stipulated to the existence,
not the validity, of the lease between the Moodie defendants and CRR.
However, from our review of the trial record, it appears that the validity of
this lease was never contested after the stipulation was entered and, at oral
arguments before this Court, the Pedley heirs’ attorney stated that such was
not contested.
-30-
supporting each of the statements
narrated in the summary.
(v)
An “ARGUMENT” conforming to the
Statement of Points and Authorities,
with ample supportive references to
the record and citations of authority
pertinent to each issue of law and
which shall contain at the beginning
of the argument a statement with
reference to the record showing
whether the issue was properly
preserved for review and, if so, in
what manner.
There is no citing reference to the evidence in the record or to
where the issues were preserved in the circuit court for our
review.76
Further, CR 8.0177 requires that claims to be litigated
be plainly stated.
“The scope of review is limited to the
theory or theories upon which the case was tried.”78
“The Court
of Appeals is one of review and is not to be approached as a
second opportunity to be heard as a trial court.
An issue not
timely raised before the circuit court cannot be considered as a
new argument before this Court.”79
76
Based on all the foregoing,
See Elwell v. Stone, 799 S.W.2d 46, 47-8 (Ky. 1990).
77
CR 8.01(1) states that “[a] pleading which sets forth a claim for relief,
whether an original claim, counterclaim, cross-claim, or third-party claim,
shall contain (a) a short and plain statement of the claim showing that the
pleader is entitled to relief and (b) a demand for judgment for the relief to
which he deems himself entitled. Relief in the alternative or of several
different types may be demanded.”
78
Weissinger v. Mannini, 311 S.W.2d 199, 201 (Ky. 1958).
79
Lawrence v. Risen, 598 S.W.2d 474, 476 (Ky.App. 1980).
-31-
we hold that the Pedley heirs failed to adequately preserve any
of the issues in their appeal to this Court and, thus, we will
not address the merits of the issues raised.
For the foregoing reasons, the orders of the
Livingston Circuit Court are affirmed in part and reversed in
part, and this matter is remanded for further proceedings
consistent with this Opinion.
ALL CONCUR.
BRIEFS FOR APPELLANTS/
APPELLEES FLORMAN AND MOODIE
DEFENDANTS:
Richard H. Peek, Jr.
Smithland, Kentucky
Bobby H. Richardson
Glasgow, Kentucky
BRIEFS FOR APPELLEE MEBCO:
Vance W. Cook
Princeton, Kentucky
George E. Stigger
St. Mary, Georgia
ORAL ARGUMENT FOR APPELLEE
MEBCO:
ORAL ARGUMENT FOR APPELLANTS/
APPELLEES FLORMAN AND MOODIE
DEFENDANTS:
George E. Stigger
St. Mary, Georgia
Ben J. Talbott, Jr.
Louisville, Kentucky
BRIEFS AND ORAL ARGUMENT FOR
APPELLEES CRR AND JIM SMITH
CONTRACTING:
BRIEFS AND ORAL ARGUMENT FOR
APPELLANTS PEDLEY HEIRS:
Kerry D. Smith
Paducah, Kentucky
Willard B. Paxton
Princeton, Kentucky
-32-
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