An overview of unseated tax sale law in Pennsylvania and the Herder Spring Hunting Club v. Keller decision. Prepared for and presented at the Pennsylvania Bar Institute 8th Annual Oil and Gas Law Colloquium in Canonsburg, Pennsylvania on July 27, 2016.

1. Lisa C. McManus, VP & General Counsel
Pennsylvania General Energy Company, LLC
J.C. Wilkinson III, Wilkinson Law LLP

2. • Power to tax is statutory & requires act of Assembly
• Tax statutes are strictly construed
• IOGA v. Bd. of Assessment of Fayette Co. ended taxation
of oil & gas
 No statutory authority to tax oil and gas
 Prospective application only per Oz Gas
 Trial court authority that tax sales prior to IOGA
were valid (Zubek)
So, taxation and sale of oil and gas interests post IOGA
was simple, but what to do about title washing?

3. • Seated land
 Residential structures
 Personal property upon it that could be levied
 Producing regular profit through cultivation, lumbering, or
mining
• Unseated land
 “Wild” land
 Any land that was not seated
• Assessor’s call
 I know it when I see it
Distinction repealed with passage of RETSL in 1947,
so tax sales post-RETSL aren’t at issue

4.  Surveyors required to report to commissioners all lands
surveyed in county with acreage and surnames on original
warrant
 Commissioners to keep book listing data
 No “duty” for owner to pay taxes
 Sale of unseated land conveyed all title to property, regardless
of name assessed or sold under (caveat of association!!)
The land itself, and not the owner of it, is debtor for the public
charge; and it is therefore immaterial, at the moment of sale,
what may be the state of the ownership, or how many
derivative interests may have been carved out of it. With
these the public has no concern. They are sold with the land,
just as a remainder would be sold with the particular estate.

5.  Unseated land owners must register within one year of
conveyance
 Penalty is 4x taxes
 No duty placed on commissioners or other county official to
search land records

6. • Previously, nearly impossible to sustain a tax title if attacked
• Established rebuttable presumption that all was correctly done
• Purchaser needed to show:
 land was unseated
 tax was charged by commissioners, regularly or irregularly
 tax was unpaid
 land was sold and not redeemed within two years
• Provided specific instructions regarding process of selling
unseated land to collect unpaid taxes
• Finality after two years with no redemption
• If no tax sale purchaser, commissioners were required to buy

7. Unseated: Taxing and advertising land solely in name of warrant
rather than owner was sufficient because “[t]he assessors and
commissioners cannot know of all the transfers of title which take
place.” Conveyed all interests, regardless of owners.
v.
Seated: Notice of the pending tax sale had to be provided to owner
given that seated property was taxed in owner’s name, subjecting the
owner to personal liability for taxes. Only owner’s interest was
conveyed.

8. At unseated tax sale, any prior unassessed OGMs pass with surface,
unless OGMs are specifically excluded in the tax deed, even though
prior severance of such interests may have occurred.
Hutchinson v. Kline, 199 Pa. 564 (1901).
Reunification of Estates:
Intentionally not pay taxes
Allow property to be sold at tax sale
Have property purchased by "straw man“
Wait two years for redemption period expiration
Record Treasurer’s Deed and obtain ownership of surface & OGMs

9. • PA’s early land law developed from policies instituted by William
Penn’s sons in an attempt to encourage organized settlement and
payment for land.
• Speculators obtained warrants and failed to pay taxes or develop
land
• Taxing authorities did not necessarily know who owned
unimproved property to assess and collect taxes
• Uncertainty of finality of sale led to failure to sell the properties
for taxes

10. Although “title washing” was frequently utilized …
•Rockwell v. Warren Co. (Pa. 1910)
 If no oil or gas is proved to exist, nothing exists to tax
•New York State Natural Gas Corp. v. Swan-Finch Gas Dev. Corp. (3d
Cir. 1960)
 No proof of gas = no assessment
•Day v. Johnson (Warren C.P. 1983)
 Severed OG estate never produced, so could not be taxed or
sold for delinquency
•Herder Spring Hunting Club v. Keller (Centre C.P. 2010)
 Same
•Meske v. Davidge (Sullivan C.P. 2013)
 Title washing violates Fourteenth Amendment

11. • Superior Court Decision
 Three-judge panel
 § 1 of Act of 1806 requires reporting of change in interest so
that tax could be properly assessed – no report of severance
means surface and subsurface continue assessment as whole
 Presumption that officials discharged duties correctly absent
challenge within two years. Lack of assessment assumes lack
of reporting.
 Court rejected claim that four-fold penalty was only remedy
on the basis that the penalty was to be imposed only where no
tax sale had taken place
 Due process arguments v. stability of title based on long-
standing practice/statutory law & circumstances at the time

12. • Appeal was inevitable - January 27, 2015 Allocatur Granted
• Oral argument Oct. 7, 2015. Issues on appeal:
 Should tax sale 36 years after recording of severance deed extinguish
OGM owners' interests where tax proceedings only referenced
surface owner and no prior production upon which to base an
assessment existed?
 Were OGM owners’ due process rights violated?
 Did Superior Court overlook controlling authority providing that a
grantee is bound by prior exceptions and reservations cited in its
deed?
 Did Superior Court exceed scope of appellate authority by making
factual finding that OGM owners failed to provide notice of severance
when no evidence existed either way?

13. Herder Springs Appeal
• July 19, 2016 Judgment Affirmed in favor of Herder Spring –
• 5 MAP 2015
• http://www.pacourts.us/assets/opinions/Supreme/out/j-8-2016mo%20-%
• Amicus Parties
• DCNR
• Range Resources
• SWN Production
• Seneca Resources Corporation
• Proctor Trust (Margaret and Thomas)
• Thorne Heritage Resources
• Hoyt Royalty, LLC

14. Herder Springs – The Long Awaited Opinion
Basic Structure of Opinion
I. Factual and Procedural History (Opinion Pages 2 to 8)
II. Historical Review of Taxation of Unseated Land
Pennsylvania (Opinion 9-21)
A. Seated vs Unseated Land
B. Act of 1815
C. Title Washing
D. Reporting Duties of Owners vs. County
Commissioners under the Act of 1806
III. Superior Court Decision (Opinion 22-23)
IV. Analysis (Opinion 24-36)
A. Extent and Legal Consequences of 1935 Tax
Sale
B. Due Process
C. Estoppel by Deed
V. Conclusion (Opinion 37)

15. Supreme Court Opinion
• Historical Review of Taxation of Unseated Land in Pennsylvania
(Opinion 9-21)
• Extensive Review
• Reliance on Practice Guides from the 1930’s to supplement case
law from the 1840’s
• Court cites to:
 William W. Hall, A Manual on Title Searches and Passing Titles
in Pennsylvania, § 148 at 90-91 (1934).
 Robert Grey Bushong, Pennsylvania Land Law, Vol 1, § 469(H)
at 500-501 (1938).

16. Facts
 Kellers reserved subsurface estate in unseated land in 1899
 No evidence that subsurface was separately assessed
 Assessed surface tract was sold at treasurer’s sale to the county
for delinquent taxes in 1935
 Herder Spring Hunting Club’s predecessor purchased the property
from the county in 1941
 Keller heirs and Club both claimed rights to OGMs

17. Key Holdings
Issue 1: Whether the 1935 tax sale to the County Commissioner resulted in
the sale of only the surface estate or the entire Warrant.
Holding:
a. Kellers did not have affirmative duty to report their ownership
under Act of 1806, but their failure to do so resulted in continued
assessment and taxation of property as whole
b. Use of name of current surface owner for sale did not limit sale to
surface
c. Four-fold statutory penalty applied to failure to report, not failure
to pay taxes

18. Key Holdings
Issue 2: Whether the 1935 tax sale should not be deemed to encompass the
reserved mineral rights because those rights did not have taxable value
in 1935
Holding:
a. Potential assessable value of minerals is irrelevant to whether
1935 assessment addressed Warrant as a whole or merely surface
estate – theory would produce chaos
b. Kellers should have disputed this within 2-year redemption
period
c. Section 4 of the Act of 1815 prohibits challenge after redemption
period

19. Key Holdings
Issue 3: Whether “titlewashing” does not apply to duly recorded prior
estates or interests because the tax sale under Section 5 of the Act of 1804
only conveys the interest “of the real owner or owners.”
Holding:
a. Distinguished case law providing easements and ROWs are not
divested because here, surface and subsurface properties were
assessed as a whole and existence of a severance is not open and
notorious
b. Timing of severance v. assessment is irrelevant where tax is
unpaid

20. Key Holdings
Issue 4: Whether documents in the record demonstrate the 1935 tax sale
was imposed on the Warrant as a whole.
Holding:
• Unseated land assessed according to original warrant, absent
direction from owners; tax sale conveys the property covered by
the assessment
• Documents provide no indication that assessment and taxation
occurred on anything other than entire Warrant

21. Key Holdings
Issue 5: Whether the Kellers and their heirs were deprived of due process
because of the lack of actual notice prior to the tax sale.
Holding:
a. Assumes application of U.S.S.C. precedent and notes, “what is
‘reasonably possible or practicable’ and what would constitute an
‘extraordinary effort’ requires consideration of the constraints of
the era”
b. 1865 Pa.S.C. case held notice by publication was proper notice in
most cases involving unseated land
c. Ample provision in the law for notification to owner
d. Ownership of unseated land was often contested, tax officers were
not required to decide between contestants
e. Often deed is not recorded, name is not registered, owner is not
known, no one is in actual possession, and no apparent owner or
reputed owner is in neighborhood of the property
f. With 2-year redemption period, all owner had to do was look after
his interest within a two-year period

22. Key Holdings
Issue 6: Whether Herder Spring should be estopped from asserting
claim to OGMs based on 1959 Deed’s “subject to” exceptions &
reservations clause.
Holding:
a. No specific mention of the Keller exception and reservation
b. No reservation “contained in the title” because the 1935 tax
sale extinguished prior Keller reservation of subsurface
estate

23. Concurring Opinion
Justice Todd:
•Agreed with the majority but for its position on due process claim
that notice by publication of the tax sale was inadequate.
•The claim was waived for purposes of this appeal because it was
untimely raised.

24. • Elk Tanning tax sale – reserved OGMs lost
• Three-judge panel of superior court upheld Judge Dudley Anderson’s
opinion on summary judgment that held:
 Oz case applied prospectively, so the assessment was valid under the
law then in effect
 Collateral attack on valuation/authority to tax cannot be made 100
years after sale
 Relied on Herder Spring to reject “no duty to report” argument
 Rejected claim that flooding in area may have led to loss of proof of
reporting of severance
 Rejected due process claim on basis that a state’s fiscal interest in
collecting property taxes is manifest, and slight inconvenience in
reporting severance is outweighed by state’s interest in collecting
taxes

25. Questions?