Quiet Title Action on a Reserved Oil and Gas Interest

The Court of Appeals of the State of New Mexico in T.H. McElvain Oil & Gas Ltd. P’ship v. Benson-Montin-Greer Drilling Corp., No. 32,666, 2014 N.M. App. LEXIS 100 (N.M. Ct. App. October 16, 2014) addressed the legality of a quiet title action in 1948, which quieted title to an entire property, including the oil and gas interests, where the oil and gas interests had been previously reserved in a 1928 warranty deed.

The dispute arose over a 160-acre property in San Juan County, New Mexico.  Id., at ¶5.  In 1927, Mabel G. Wilson, Eva C. Wilson and Judson Wilson (the “Wilsons”) as joint tenants, acquired the property by general warranty deed.  Id.  The deed listed the Wilsons “of San Diego, California” as purchasers of the property.  Id.  In 1928, the Wilsons conveyed the property to David Miller, reserving all of the oil and gas estate (the “Wilson Interest”).  Id.  No further conveyance or lease of the Wilson Interest was made until 2002.  Id., at ¶13.  Meanwhile, in 1931, David Miller had quitclaimed his interest in the property to his brother, Thomas Miller.  Id., at ¶6.  In October 1948, Thomas Miller (“Miller”) filed a quiet title action in the district court for San Juan County alleging that he was the fee simple owner of the property.  Id., at ¶9.  In his complaint, he named the Wilsons as defendants and stated that the Wilsons and their heirs were unable to be located and were not found after a sheriff search in San Juan County.  Id.  Miller then served the Wilsons and their heirs (hereinafter, the “Wilsons”) with notice of his quiet title action by publication in a New Mexico newspaper.  Id., at ¶10.  Consequently, when the Wilsons failed to respond to the notice, the court entered judgment quieting title to the property in favor of Thomas Miller and concluding that he was the owner of the property in fee simple.  Id.

Nevertheless, in 2002, after a landman informed the Wilsons that they were the “current owners of the oil and gas” under the property, the Wilsons entered into a mineral lease agreement with T.H. McElvain Oil & Gas Limited Partnership (“McElvain”).  Id., at ¶13.  Both the Wilsons and McElvain filed a lawsuit asserting a claim to the mineral interests in the property and seeking a decree quieting title in favor of the Wilsons and McElvain as to all of the mineral interests in the property.  Id., at ¶14.

The lawsuit filed by Wilson and McElvain argued that the service by publication in the 1948 quiet title action failed to satisfy the Wilsons’ right to due process.  Id., at ¶16.  The Court, in reviewing the background of the 1948 quiet title action, attempted to determine if Miller “[undertook] a diligent and good faith effort to ascertain the location of the Wilsons and to personally serve them with process in the 1948 quiet title action.”  Id., at ¶22; 23-24.  The Court concluded that notice by publication was not an acceptable means of notice.  Id. (citing Campbell v. Doherty, 1949-NMSC-030, 53 N.M. 280).  The Court relying upon the United States Supreme Court’s decision in Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950), explained that notice by publication comported with due process only when the parties were unknown or missing.  Id.  In this case, the Court determined that Miller had notice that the Wilsons never resided in San Juan County, New Mexico, because the 1927 deed identified them as being located in San Diego, California.  Id., at ¶23.  If Miller had performed a title examination, then Miller would have learned that the Wilsons lived in San Diego, California because all information concerning their residence in San Diego was included in the chain of title.  Id., at ¶25.  Consequently, the Court concluded that Miller knew or should have known that the Wilsons lived in San Diego, and therefore, the attempted constructive service by publication violated due process and reversed the 1948 quiet title action.  Id., at ¶32.

Accordingly, service by publication should only be used in quiet title actions when the previous owners cannot be found after a reasonable and diligent search.  Thus, an operator should conduct an investigation of the appropriate property records for any reservations of an oil and gas interest, because even a quiet title action extinguishing a reservation may be subject to attack many years later.  Therefore, it is best practice to obtain protection leases or stipulation of interests when confronted with severed oil and gas interests that may be subject to a quiet title action or other type of attack by the owners of the severed mineral interest.