Oil and Gas Cases

Utah Supreme Court Invalidates Tax Title as to Severed Minerals on Due Process Grounds

Can Utah’s four-year statute of limitations for challenging a tax sale prevent a property owner who never received notice of the sale from contesting it?  In prior years, the answer may have been “yes.”  In Jordan v. Jensen, 2017 UT 1, 2017 WL 104642, however, the Utah Supreme Court held that the answer is an unequivocal “no.”

In Jordan, the owners of the surface and mineral estates conveyed the surface and reserved the minerals in a deed recorded in early 1995, prior to levy and assessment of the property taxes by Uintah County.  The new surface owner failed to fully pay the property taxes levied by the County for 1995, and as a result, the County sold the property at a tax sale in 2000, without notifying the mineral interest owners.  Id. ¶¶ 4-6.  Years later, an oil and gas company seeking to develop the mineral estate obtained a title opinion that indicated that there was a question whether the severed minerals passed at the tax sale because the tax deed did not contain any language reserving the mineral interest.  The mineral interest owners unsuccessfully tried to obtain a quitclaim deed from the surface owners and eventually sued to quiet title to the minerals.  Id. ¶¶ 9-10.

The surface owners argued, among other things, that the County’s general property tax assessment included the nonproducing mineral estate and that the failure to give notice to the mineral owners did not void the tax deed as to the mineral interest because Utah has a four-year statute of limitations that bars challenges to a tax deed.  See id. ¶¶ 13-14.  (Under Utah law, the authority to tax minerals has been delegated exclusively to the Utah State Tax Commission.  The surface owners argued that his delegation was limited to producing minerals and that the counties had the authority to tax the nonproducing minerals).  The district court rejected the surface owners’ arguments and entered summary judgment in favor of the mineral owners.  The surface owners appealed.  Id. ¶ 11.

In its decision in Jordan, the Utah Supreme Court did not address the issue of whether a county has the authority to assess the nonproducing mineral interest, instead limiting its holding to the due process issue.  Id. ¶ 12.

Specifically, the court analyzed whether the four-year statute of limitations provided by Utah Code Ann. § 78B-2-206 prevented a challenge to the tax title even though the mineral owners never received notice of the County’s tax sale as required by the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution.  Jordan, 2017 UT 1, ¶ 16.  In Hansen v. Morris, 283 P.2d 884 (Utah 1955), the Utah Supreme Court rejected a challenge to a tax sale based on the predecessor to section 206.  The court in Hansen stated that “a failure to provide notice or a due process violation does not prevent section 206 from applying to ‘validate tax titles.’”  Jordan, 2017 UT 1, ¶ 22 (quoting Hansen, 283 P.2d at 885).

In overturning Hansen, the Jordan court noted that subsequent U.S. Supreme Court cases have taken a different approach, finding that a statute of limitations “will not apply when it is triggered by constitutionally defective state action.”  Id. ¶ 23 (citing Schroeder v. City of N.Y., 371 U.S. 208 (1962); Mennonite Bd. of Missions v. Adams, 462 U.S. 791 (1983); Tulsa Prof’l Collection Servs., Inc. v. Pope, 485 U.S. 478 (1988)).  Applying these cases, the Jordan court held that section 206 requires state action—the conducting of a tax sale—before it takes effect, and that section 206 will not prevent a party from challenging a tax sale if constitutionally adequate notice is not provided to that party.  Id. ¶ 34.  The court also noted that constructive notice by recording a tax title is insufficient where the mineral owners’ names and addresses are “reasonably ascertainable and known to the county,” as was the case here.  Id. ¶ 38; see id. ¶ 37.  Rather, notice to such owners must be mailed to their last known address of record or otherwise given in a manner that ensures its delivery.  Id. ¶ 37.

The court concluded that because the mineral owners did not receive constitutionally adequate notice, the County did not have jurisdiction over the mineral interest, thus voiding the tax title to the extent it purported to convey the mineral interest.  Id. ¶ 42.  In doing so, the court overruled Hansen “[t]o the extent [it] states that section 206 can apply where a state or county fails to provide constitutionally adequate notice to an interested party of a tax sale….”  Id. ¶ 40.

(Re-printed from Andrew J. LeMieux, Utah Oil & Gas, Rocky Mountain Mineral Law Foundation Mineral Law Newsletter, Volume XXXIV, Number 1, 2017)