The Supreme Court of Pennsylvania in Butler v. Charles Powers Estate1 unanimously reversed the ruling of the Superior Court which held that an evidentiary hearing “complete with expert, scientific testimony” is necessary to determine whether Marcellus Shale is considered a ‘mineral’ under Pennsylvania law. In reversing the Superior Court on April 24, 2013, the Court reiterated the continued applicability of the “Dunham Rule,” which provides that a reservation of “minerals” does not presumptively include “natural gas.”
Note: Dechert LLP represented the Marcellus Shale Coalition (“MSC”) as amicus curiae in Butler v. Charles Powers Estate. The MSC is a Pennsylvania nonprofit association who works with exploration and production, midstream, and supply chain partners in the Appalachian Basin and across the country to address issues regarding the production of clean, job-creating, American natural gas from the Marcellus and Utica Shale plays.
Plaintiffs-Appellants John and Mary Josephine Butler brought suit to quiet title on 244 acres of land in Susquehanna County. The Butlers’ predecessors had acquired the land in fee simple from Charles Powers in 1881. The deed expressly reserved “one-half the minerals and Petroleum Oils to said Charles Powers his heirs and assigns forever together with all . . . rights, liberties, privileges, privileges, hereditaments, and appurtenances . . .” The heirs to the Charles Powers Estate, William and Craig Pritchard, filed a motion for declaratory judgment seeking a holding from the trial court that their deed reservation of “one-half the minerals and Petroleum Oils” included one-half of all natural gas located within the Marcellus Shale beneath the property. In response to the Pritchard’s motion, the Butlers demurred, arguing that pursuant to the Court’s longstanding Dunham Rule, a reservation of minerals does not include natural gas unless expressly stated. The trial court agreed with the Butlers, sustained their preliminary objection, and dismissed the request for declaratory relief.
The Dunham Rule owes its name to the 1882 Supreme Court of Pennsylvania case Dunham & Shortt v. Kirkpatrick.2 In Dunham, the Supreme Court, relying in part on earlier Pennsylvania jurisprudence defining a mineral to be of “metallic nature,” concluded that when interpreting a deed reservation, the term “mineral” should not encompass oil. As a result of the ruling in Dunham, for a deed reservation to include oil in Pennsylvania, it must specifically be included within the clause. This bright-line rule has been consistently reaffirmed by Pennsylvania courts for more than a century, despite being a minority rule best described as “idiosyncratic.”3
The Supreme Court in Butler, relying on the Dunham Rule, reversed the Superior Court and reinstated the trial court’s order dismissing the request for declaratory judgment. The Court concluded that while the underpinnings of the Dunham Rule were somewhat conclusory, “neither the Superior Court nor [the Pritchards] have provided any justification for overruling or limiting the Dunham Rule and its longstanding progeny that have formed the bedrock for innumerable private, real property transactions for nearly two centuries.” The Supreme Court affirmed the Dunham Rule as a “rule of property” not to be lightly disturbed.
As a result of the Supreme Court’s ruling in Butler, there can be no dispute as to the continued vitality of the Dunham Rule in Pennsylvania, and reservations must be drafted with the Dunham Rule in mind.