Sutherland v. Meridian Granite Co.

2012 WY 53, 273 P.3d 1092, 2012 WL 1175000

• Court: Wyoming Supreme Court
• Decided: April 10, 2012
• Docket: S-11-0091, S-11-0092
• Status: Published

Opinions

BURKE, Justice.

[T1] John Sutherland and Minerva Selbe Sutherland entered into a mining lease granting Meridian ¹ the right to conduct mining operations on the Sutherlands' property. A dispute developed between the Suther-lands and Meridian regarding the Suther-lands' obligation to pay taxes relating to the mineral production. The dispute led to litigation. On eross-motions for summary judgment, the district court ruled that the Suth-erlands were obligated to pay the disputed taxes. It therefore granted Meridian's motion and denied the Sutherlands'. The Suth-erlands appealed the district court's ruling, and Meridian filed a cross-appeal. We affirm.

ISSUES

[12] The Sutherlands present a single issue:

Did the district court err in allowing Meridian to deduct ad valorem and severance taxes from payments to the Sutherlands when such tax payments are not required by the State?

In its cross-appeal, Meridian raises four issues:

A. Did the district court err in allowing the Sutherlands to pursue claims barred by the applicable statutes of limitation?

B. Did the district court err when it failed to dismiss the Sutherlands' claims based on the doctrine of laches?

C. Did the district court err in allowing the Sutherlands to pursue a claim for declaratory judgment when the Sutherlands simultaneously asserted a claim for breach of contract?

D. Did the district court err in denying Meridian's motion to dismiss for failure to join an indispensable party, where the party not joined was a party to the contract at issue?

FACTS

[13] In September, 1988, the Sutherlands executed a mining lease with Granite Canyon Quarry, a joint venture, with Meridian as the "managing joint venturer." The single mining lease covers two separate parcels of property, identified as "Parcel 1" and "Parcel 2." The Sutherlands own both the surface estate and the mineral estate of Parcel 1, but only the surface estate of Parcel 2.² The mining lease requires Meridian to pay a "Production Royalty" to the Sutherlands of 10¢ per ton on all minerals produced and sold from Parcel 1, and 6¢ per ton on all minerals produced and sold from Parcel 2.³

[14] With regard to the payment of taxes, the mining lease contains this provision:

Lessor [Sutherlands] shall pay when due all general and ad valorem taxes levied and assessed against the Premises and any taxes imposed upon or measured by advance royalties or Production Royalties paid to Lessor. Lessee [Meridian] shall pay when due all taxes lawfully assessed and levied against improvements and equipment placed upon the Premises by Lessee, upon production from the Premises except such portions thereof as are payable for Production Royalty paid to Lessor and upon other rights, property and operations of Lessee.

[T5] Throughout the term of the mining lease, Meridian has made royalty payments to the Sutherlands, but has withheld amounts asserted by Meridian to reflect the Suther-lands' share of ad valorem and severance taxes. The amounts withheld by Meridian have been used to pay a portion of the taxes paid by Meridian. The Sutherlands objected to Meridian's withholding as early as 1990, when mining operations were being conducted only on Parcel 1. They maintained their objections in 2008 after mining operations began on Parcel 2. After considerable correspondence between the parties, the Suther-lands acquiesced to Meridian's withholding taxes relating to mineral production on Parcel 1, but continued to object to withholding taxes relating to mineral production on Parcel 2. The Sutherlands' position, simply stated, was that they owed taxes for Parcel 1 because they owned the minerals, but they did not owe taxes for Parcel 2 because they did not own the minerals. Meridian continued to assert that the Sutherlands were liable for taxes for both Parcel 1 and Parcel 2.

[T6] On May 7, 2008, the Sutherlands filed a complaint against Meridian in state district court, claiming generally that Meridian was wrongfully withholding taxes for Parcel 2. They asserted a breach of contract claim and also sought declaratory judgment. Meridian answered, raised several affirmative defenses, and filed a motion to dismiss. Both parties filed motions for summary judgment. After a hearing, the district court denied Meridian's motion to dismiss. It denied the Sutherlands' motion for summary jadgment. It granted Meridian's motion for summary judgment, ruling against Meridian on the affirmative defenses but in favor of Meridian on the merits. Both parties filed timely appeals.

STANDARD OF REVIEW

[17] We review a district court's summary judgment rulings de novo, using the same materials and following the same standards as the district court. The facts are considered from the vantage point most favorable to the party who opposed the motion, and we give that party the benefit of all favorable inferences that may fairly be drawn from the record. Cook v. Shoshone First Bank, 2006 WY 13, ¶ 11, 126 P.3d 886, 889 (Wyo.2006); Garcia v. Lawson, 928 P.2d 1164, 1166 (Wyo.1996). Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. W.R.C.P. 56(c).

DISCUSSION

[T8]l A mineral lease is a contract, and is interpreted under general principles of contract interpretation. Wyoming Bd. of Land Comm'rs v. Antelope Coal Co., 2008 WY 60, ¶ 8, 185 P.3d 666, 668 (Wyo.2008). Our purpose in interpreting any contract is to ascertain the true intent of the parties. State v. Pennszoil Co., 752 P.2d 975, 978 (Wyo.1988). If the language of a contract is plain and unequivocal, that language is controlling. Dewey v. Dewey, 2001 WY 107, ¶ 20, 33 P.3d 1143, 1148 (Wyo.2001). The plain meaning of the contract is the meaning which the language would convey to reasonable persons at the time and place of its use. Dickson v. Thomas (In re Estate of Thomas), 2009 WY 10, ¶ 7, 199 P.3d 1090, 1094 (Wyo.2009). 'We interpret the language of an unambiguous agreement as a matter of law, and rely on extrinsic evidence only if the contract is ambiguous. Union Pacific Resources Co. v. Texaco, 882 P.2d 212, 219-20 (Wyo.1994).

[19] The parties do not dispute any material facts, leaving only the question of which party is entitled to judgment as a matter of law. The key to answering this question is the language of the mining lease governing the payment of taxes, excerpted here:

Lessor [Sutherlands] shall pay when due all general and ad valorem taxes levied and assessed against the Premises and any taxes imposed upon or measured by advance royalties or Production Royalties paid to Lessor.

[T10] The Sutherlands focus on the lease's requirement that they must pay "all general and ad valorem taxes levied and assessed against the Premises." They assert that the mining lease defines the term "Premises" to refer to the surface and mineral estates of Parcel 1, but only to the surface estate of Parcel 2. Severance and ad valorem taxes on Parcel 2 are therefore not levied against the "Premises," and on this basis, the Sutherlands contend that they are not required to pay these taxes.

[111] We agree with the Suther-lands that the taxes at issue are not levied or assessed against "the Premises." Indeed, in Wyoming, mineral severance and ad valorem taxes are imposed on the mineral product after severance, not upon the lands or "Premises" at all. See Oregon Basin Oil & Gas Co. v. The Ohio Oil Co., 70 Wyo. 263, 280, 248 P.2d 198, 205 (Wyo.1952). However, the Sutherlands overlook the fact that the mining lease requires them to pay taxes ley-ied against the Premises "and any taxes imposed upon or measured by advance royalties or Production Royalties paid to Lessor." (Emphasis added.) The Sutherlands are obligated to pay not only taxes levied against the Premises, but also taxes imposed upon or measured by royalties.

[112] The taxes at issue in this case are "imposed upon or measured by advance royalties or Production Royalties paid to Lessor." Meridian asserts that royalty payments are, and must be, included in the calculation of severance and ad valorem taxes. In support of that assertion, Meridian offered undisputed evidence on summary judgment that the Wyoming Department of Revenue's Form 8301, the "Annual Gross Products Report for Miscellaneous Minerals," requires the taxpayer to report all royalties. Of particular significance to this case, Form 8301 specifically requires the taxpayer to include the value of the private royalties as part of the taxable value of the minerals. Because the taxable value of the minerals includes the value of the private royalties, it follows that the severance and ad valorem taxes at issue are "measured by" the royalties Meridian pays to the Sutherlands. Accordingly, the unambiguous language of the mining lease obligates the Sutherlands to pay the taxes attributable to those royalties.

[413] The Sutherlands argue against this conclusion, emphasizing that the State of Wyoming imposes severance and ad valorem taxes only on the owner of the minerals. They rely on the established Wyoming rule that, "with regard to taxes assessed on the gross products of a mine or well, both the lessee and lessor are responsible for payment in proportion to their ownership shares." Ashland Oil Co. v. Jaeger, 650 P.2d 265, 268 (Wyo0.1982), citing Miller v. Buck Creek Oil Co., 38 Wyo. 505, 269 P. 48 (1928), and Oregon Basin Oil & Gas Co. v. Ohio Oil Co., 70 Wyo. 263, 248 P.2d 198 (1952). As the Sutherlands do not own any share of the mineral estate of Parcel 2, they assert that they are not liable for any share of the taxes.

[T 14] The Sutherlands also point to Wyo. Stat. Ann. § 89-14-703(c)@i) (LexisNexis 2007), which provides that "the lessor is liable for ... taxes on the product removed only to the extent of the lessor's retained interest under the lease, whether royalty or otherwise, and the lessee or his assignee is liable for all other property taxes due on production under the lease." (Emphasis added.) As the Sutherlands do not own the mineral estate of Parcel 2, they have no "retained interest" in the minerals, and so claim that they are not liable for the taxes.⁴

[T15) The consistent flaw in the Suther-lands' arguments is that they disregard the language of the mineral lease. The Suther-lands are correct about the general rule that lessors and lessees pay taxes in proportion to their ownership interests. But that rule is general only, and does not apply in all cases. As we said in Ashland, 650 P.2d at 268, "the rule will be applied unless the parties to the lease specifically provide as part of their agreement that some other arrangement for payment of taxes on the gross product has been agreed upon." (Emphasis added.) Similarly, in Miller, 38 Wyo. at 509, 269 P. at 45, we said that, "It would seem no more than just that, in the absence of contract, the tax ought ultimately to be borne by the parties in proportion to their respective interests in the production that is the basis of the tax." (Emphasis added.)

[116] There is no absence of contract in the case before us. The mining lease provides that the Sutherlands must pay "any taxes imposed upon or measured by advance royalties or Production Royalties paid to Lessor." When the Sutherlands and Meridian specifically agreed to some other arrangement for the payment of taxes, they rendered the general rule inapplicable.

[117] As to the Sutherlands' statutory argument, they may be correct that the government would hold only Meridian, not the Sutherlands, liable for the severance and ad valorem taxes. But as between themselves, the Sutherlands and Meridian agreed to allocate the tax burdens differently. That agreement may not be binding on the government when it collects the taxes, but it is valid and enforceable between the Suther-lands and Meridian when they pay the taxes. As the district court reasoned, "Ultimately, the Court need not decide whether the Suth-erlands would owe the taxes under [Wyo. Stat. Ann.] § 39-14-7083(c), because the plain language of the lease imposes tax liability upon the Sutherlands."

[118] Finally, we consider the Suther-lands' assertion that their tax obligation on Parcel 2, where they own only the surface estate, should be different from their tax burden on Parcel 1, where they own both surface and minerals Again, the Suther-lands' argument ignores the language of the mining lease, which requires Meridian to pay the Sutherlands only 6¢ per ton on all minerals produced and sold from Parcel 2, but 10¢ per ton on all minerals produced and sold from Parcel 1. Because the Sutherlands receive less royalty on minerals produced from Parcel 2, they also pay less in taxes. More significantly, the royalty provision of the mining lease demonstrates that Meridian and the Sutherlands could, and did, draft provisions treating the parcels differently when they intended to treat them differently. In contrast, the mining lease's provision for taxes makes no distinction between Parcel 1 and Parcel 2. This helps to confirm the conclusion that the plain language of the mining lease reflects the parties' intent that the Suther-lands would pay their share of taxes on both Parcel 1 and Parcel 2.

[119] The district court did not err when it denied the Sutherlands' motion for summary judgment and granted summary judgment in favor of Meridian. As Meridian recognizes in its cross-appeal brief, our affirmation of the district court's judgment makes it unnecessary to address the issues raised by Meridian in its cross-appeal.

[120] Affirmed.

BURKE, J., delivers the opinion of the Court; HILL, J., files a dissenting opinion, in which GOLDEN, J., joins.

1 . The mining lease was signed by the president of Meridian Aggregates Company, while the defendant named in this case is Meridian Granite Company. The record does not indicate the relationship between the two companies, and the parties appear to make no distinction. In this opinion, we will refer to the Appellee generally as "Meridian."

2 . The mineral lease indicates that the BLM owned the mineral estate of Parcel 2 as of the date of the lease, but Meridian was "attempting to acquire" those minerals. The record reflects that Meridian has conducted mining operations on Parcel 2, but does not establish how Meridian acquired the rights to do so, or whether the mineral estate is now owned by Meridian or the BLM. As these details prove unnecessary to our decision, we, like the parties, will overlook them.

3 . The mineral lease also provides for "Advance Royalty" payments, but these are only prepayments of the "Production Royalty," and Meridian may "recoup and recover all such Advance Royalty payments [by reducing the] Production Royalty which may become payable" to the Suther-lands.

4 . The Sutherlands further contend that, because they do not own the mineral estate of Parcel 2, the payments they receive from Meridian are not royalties at all, but only payments for surface damage. We agree that their interest in Parcel 2 is not a typical lessor's royalty, which is "created upon the granting of a leasehold in the mineral estate by means of a reservation to the owner." 3 Rocky Mountain Mineral Law Foundation, American Law of Mining § 85.02[2][al (2d ed. 2011). However, the term royalty is defined more broadly to include "[clompensation for the use of property, usually copyrighted material or natural resources, expressed as a percentage of receipts from using the property or as an account per unit produced." Black's Law Dictionary 1330 (6th ed. 1990). The Sutherlands are compensated for use of the surface of Parcel 2 by payment of 6¢ per ton produced, and these payments may be referred to as royalties. But as the district court observed, "the exact nature of the Sutherlands' ownership interest ... [is] of little importance given the clear language of ... the lease."