PA Supreme Court - Title Washing - Herder Spring Hunting Club v. Harry and Anna Keller

Rather than further hijacking Ron Hale's thread elsewhere, I decided t'would be a better idea to give this topic it's own well-deserved thread.

A year or two ago I had cast aside any interest in title washing, believing the topic legally dead, or at least moot.  IOW, back then I thought it represented no possible threat to my mineral ownership here in PA.

It would seem the PA Superior Court had a different view, with their ruling having subsequently been appealed to the PA Supreme Court.  As best I'm able to determine, Herder Spring Hunting Club v. Harry and Anna Keller remains in the hands of our Supreme Court and no ruling has yet been handed down.

Rather than slough through title washing again, I'll just post this link:

Title washing reference

I cannot believe the Supreme Court will do other than overrule the Superior Court.  But at the same time, I'd not have guessed in advance the Superior Court would have ruled as it did.

If by chance the PA Supreme Court upholds the Superior Court ruling, there could be a legal earthquake here in Pennsylvania shale country regarding mineral ownership.  I think drilling could be set back if that happens, and so could payment of my royalties should any uncertainty or doubt be created as to my ownership of my minerals.  Royalties placed into escrow cannot be spent.

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Permalink Reply by Frank Walker on March 31, 2015 at 3:03am

Note to the reader:

The italicized portion, below, is new.

I had an additional thought on this matter this morning and I want to title it and add it here:

Royalty Owner Federal Tax Jeopardy

Royalty owners are best served, from a Federal tax standpoint, when their royalties are paid by the gas company and received by them in an ongoing way, as their natural gas is conveyed to market and sold.  Royalty owners are harmed and penalized when their royalties, for any reason (including reasons which are reasonable and valid), are accumulated over time and later paid out to them by the gas company in a lump sum.

The reasons for this are as follows:

First, Federal tax law no longer provides, as once it did, for income averaging.  When you receive a huge lump of payment income all at once, your tax rate jumps.

Second, older royalty owners on Medicare who receive a lump of income will see their health insurance costs adjusted upward in a significant way.

Third, royalty owners accessing health insurance via the ACA (aka, Obamacare) could find themselves with a lower subsidy, or none at all, when income for a given year exceeds ACA thresholds.  And indeed generally, for persons subject to the ACA, penalties are greater in the "out" years than they are at present.  So lumped, delayed royalty income is not a good thing.

No gas company can reasonably be expected to pay out royalty payments, difficult if not impossible for them to claw back, when there is uncertainty regarding the rightful recipients of those payments; the kind of uncertainty created, for example, by thisHerder Spring litigation.  The natural and understandable tendency of gas companies, in such circumstances, would be to withhold our payments until there is final resolution of whatever issue it might be causing the uncertainty.  Adding to this tendency is the unfairness that in most instances there is no requirement for the gas company to pay us interest on retained royalties.  

The point of this post:

When royalties are withheld, then later paid to us in a lump sum, we are not necessarily winners made whole by that action.  There remain the matters of increased taxes and costs, and lost interest.  Those aspects are not ones we easily can overcome.

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