What is in this article?:
- Legal issues will shape the future of American agriculture.
- Here are the most significant agricultural law and taxation developments of 2013.
Ag background and lawyers
9. The importance of hiring a lawyer with a background in agricultural legal issues. This case is somewhat unique to be part of our “Top Ten” list. Normally to make the list, the development is a case, regulation or ruling with significant implications for producers, landowners or agribusinesses because of the rule of law or impact of the regulation at issue. This case however, is important because of its importance in pointing out how critical it can be to hire lawyers trained in agricultural legal issues.
In this case, 6,682 acres of ranchland in Southwest Kansas were sold at auction in 27 separate tracts via an out-of-state auction company. The sale brochure delivered to the plaintiff (a New York investment firm) said that the defendant sellers would convey certain mineral rights along with the real estate. The plaintiff relied on the representations in the brochure and paid $8.9 million for the land and mineral rights advertised in the brochure, and the purchase agreement was executed the same day. Indeed, the sale brochure contained a grid listing the percentage of mineral rights that the “Don Renick Family” owned and promised to convey for each of the 27 tracts included in the sale. The purchase agreement contained an integration clause stating that final bids were subject to the sellers' acceptance or rejection, and that the sellers warranted that they were selling 100 percent of their ownership in the mineral rights being sold. The real estate was sold "as is" and the transaction closed. Two years later, the plaintiff discovered it had not acquired the mineral rights that the plaintiff thought that it had acquired. The seller suddenly became interested in those rights when oil deposits were discovered beneath the surface of the ranchland. However, the mineral rights were actually owned by a separate branch of the seller’s family that had transferred them to an LLC which then leased them to a local lease acquisition company in return for bonus lease payments and future royalty payments. The buyer’s attorneys, a big city firm, did not conduct a mineral title search when, under state (Kansas) law a separate mineral title search is necessary to properly determine ownership of minerals.
The plaintiff sued for breach of warranty based on the deed as well as breach of seisin (a warranty that the grantor owns the estate that the deed says it is conveying to the grantee), breach of the purchase agreement, breach of the auction sale agreement, fraud, reformation of the purchase agreement and specific performance. The defendant moved to dismiss the claim based on breach of the auction sale agreement, and the court granted the motion because the purchase agreement's integration clause was clear and unambiguous and barred a separate contract action based on any earlier oral or written assurances that were not incorporated into the purchase agreement. In addition, neither any alleged oral agreement or the auction brochure were incorporated into the purchase agreement. The auction brochure stated that the purchase agreement controlled the terms of the sale. The court held, however, that the plaintiff could pursue a contract remedy for breach of the purchase agreement. On the fraud claim, the court determined that the sellers held themselves out as owning mineral rights that they promised to convey. The plaintiff had claimed that the family of sellers represented the actual part of the family that held the mineral rights, but they actually did not. Instead, it was the non-contracting members of the family that held the mineral rights. The court denied the defendant’s motion to dismiss the plaintiff’s claim of fraud in inducement. The court also denied the defendant's motion for judgment on the pleadings with respect to reformation and specific performance of the purchase agreement. The case was scheduled to proceed to trial in Wichita, Kansas.
In any event, it is very unlikely that this case would have ever occurred had the buyer’s attorneys conducted a mineral title search before the sale proceeded to closing. The status of mineral rights ownership (or gas and oil drilling rights) is not commonly apparent on deeds and other documents in the recent transaction history. For example, a deed will likely make no mention of oil and gas rights that were conveyed by a previous owner. Instead, the ownership chain to the oil and gas rights would run in a separate deed chain specifically referencing those rights and would not be part of the land deed documents. Similarly, if oil rights remained with the surface rights to the property, those rights would not commonly be referenced on the land deed. That is why it is critical to conduct a separate mineral title search. Clearly, the potential value of oil, gas, and mineral rights make the difficulty of mineral title searches worthwhile. 613 Agro Holdings, LLC v. Renick, No. 12-2425-JAR-KMH, 2013 U.S. Dist. LEXIS 35917 (D. Kan. Mar. 15, 2013).