Senate Bill No. 621
(By Senators McCabe, Ross, Sharpe, Fanning and Helmick)
____________
[Introduced February 18, 2002; referred to the Committee
on the Judiciary.]
____________

A BILL to amend chapter twenty-two-c of the code of West Virginia, one thousand nine hundred thirty-one, as amended, by adding thereto a new article, designated article thirteen, relating to establishing the joint mineral owners trust and mineral conservation act.

Be it enacted by the Legislature of West Virginia:
That chapter twenty-two-c of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new article, designated article thirteen, to read as follows:

ARTICLE 13. West Virginia Joint Mineral Owners Trust and Mineral Conservation Act.

22C-13-1. Short title.
This article may be cited as the "West Virginia Joint Mineral Owners Trust and Mineral Conservation Act."

22C-13-2. Purpose.
(a) The Legislature finds that the ownership of many tracts of minerals in West Virginia are divided into fractional interests among several owners who are commonly known as joint-owners or cotenants; that such fractional mineral interests are frequently small and the issues of leasing and producing minerals of this complexity, as to provide little incentive and even discourage, the owners of small fractional mineral interests from participating with the other joint owners in the leasing of their mineral interests for purposes of exploration, evaluation, development and/or production; that joint mineral owners may have disagreements about the terms of a proposed mineral lease; that the failure to develop minerals in a timely and efficient manner can result in the diminution of their value due to the isolation of coal and other solid mineral reserves by adjacent mining and also due to the migration of oil and gas to wells on adjoining mineral tracts; that these circumstances can deprive both the state and joint mineral owners of the benefits of these mineral resources; that the alternative remedy of petitioning the circuit courts to partition a mineral tract among the joint owners is frequently impractical due to uncertainties about the actual value and distribution of minerals in a given tract; and that it is reasonable and necessary for the welfare of the state to establish a judicial procedure by which all joint owners may seek a just, fair and equitable remedy in the enjoyment and conservation of their mineral resources.
(b) The purposes of this article are to create a judicial procedure by which the joint owners of a given tract of minerals may seek a remedy for the circumstances described in subsection (a) of this section by petitioning the circuit court to review a proposed mineral lease and/or appoint a court supervised trustee to negotiate, execute, deliver and/or administer a mineral lease; to promote and protect the value of mineral reserves in the state; to protect the value of the joint owners' interests; and to maximize the conservation and recovery of minerals through the orderly and efficient development of mineral reserves for the mutual benefit of all joint owners and the state in a just, fair and equitable manner.

22C-13-3. Definitions.

As used in this article:

(a) "Joint owner" or "cotenant" means a person or entity that is a joint tenant, a tenant in common, or a tenant by the entirety whether the title is derived by purchase, gift, legacy, descent, operation of law or from any other source.
(b) "Mineral" or "minerals" means coal, oil, gas, coal-bed methane, all other solid fluid and gaseous hydrocarbons, manganese, iron ore, any other metal or metallurgical ore, clay, flagstone, gravel, limestone, dolomite, sand, sandstone, shale, stone, chert, flint, peat, salt and any other minerals either alone or in any combination thereof.
(c) "Mineral owners" or "owners" means one or more persons or entities vested with a partial, undivided estate or other freehold interest in any mineral estate, but does not include a person or entity with a leasehold or any lesser estate.
(d) "Lease" means any instrument which vests, conveys or creates in one or more lessees a leasehold estate for the purposes of exploration, evaluation, development, production and/or removal of one or more minerals and any reasonable and necessary activities related thereto, including, but not limited to, an amendment, assignment, confirmation or restatement of an existing lease.
(e) "Administer" or "administration" means the power of a trustee appointed pursuant to this article, but only to the extent authorized by the court, to do all acts reasonable and necessary for the benefit and on behalf of the joint owners, under the provisions of any mineral lease executed pursuant to this article including, but not limited to, review and monitoring of mineral production plans, operations and reclamation, auditing mineral production and royalty payments, and bringing a civil action on any
claim or cause of action arising under the lease.

22C-13-4. Venue.
Proceedings under this article must be brought in the circuit court of the county in which the mineral tract or tracts sought to be affected or the major portion thereof, are located.

§ 22C-13-5. Persons who may initiate proceedings; creation of trust; appointment of trustee; other relief; appointment of guardian ad litem; rights of surface owners preserved.

(a) If the title to one or more mineral tracts is owned by two or more joint owners, then proceedings for the creation of a trust, the appointment of a trustee and the relief authorized under this article, may be instituted upon petition to the circuit court by any person or persons who are: (1) Vested with at least a partial, undivided one-half fee simple interest in the minerals sought to be developed; or (2) vested with a leasehold estate in at least a partial, undivided one-half interest in the minerals sought to be developed by one or more lessors who are persons defined in subdivision (1)of this subsection.
(b) The circuit court of the county in which the mineral tract or tracts, or the major portion thereof, are located has the power to: (1) Declare a trust in the mineral interests and fix and thereafter, modify the duration thereof; (2) to appoint a trustee who shall act in a fiduciary capacity on behalf of all joint owners vested with mineral interests; (3) appoint a guardian ad litem to represent the interests of any minors, incompetents or incarcerated persons who have no guardian; (4) administer a valid lease for those mineral interests on behalf of all the joint owners upon the terms and conditions approved by the circuit court pursuant to this article; and (5) upon the motion of the trustee, or as directed by the court, to empower the trustee to retain engineers, geologists or other professionals to assist the trustee in the discharge of his or her duties pursuant to this article.
(c) This article affects only mineral owners, as defined in section three-c of this article and does not affect the rights of surface owners, except to the extent that they may also be owners of the underlying minerals. The surface rights of any owners of a surface estate shall not be affected, diminished or impaired by any provision or any relief granted, pursuant to this article: Provided, That this subsection shall not affect or impair any relief which may be granted pursuant to article twelve-a, chapter fifty-five of this code regarding an abandoning, unknown or missing mineral owner.

§ 22C-13-6. Procedure; required parties; qualifications, compensation and costs of the trustee and guardian ad litem; fiduciary duties of trustee; successor trustees; other remedies.

(a) The plaintiff or plaintiffs in a proceeding under this article shall join as the defendant or defendants all other persons having a legal interest in the minerals proposed to be leased, including all joint owners and all persons in being, who have a present, contingent or future interest in the minerals of which the plaintiffs have actual or constructive notice.
(b) If in any action under this article, there may be joint owners who are abandoning, unknown or missing owners, as defined in section two, article twelve-a, chapter fifty-five of this code, then these persons shall be made defendants to an action under this article and provided notice thereof, in the same manner, with the same effect and subject to the same relief as provided in article twelve-a, chapter fifty-five of this code. An action filed under this article may be joined with an action under article twelve-a, chapter fifty-five of this code.
(c) A verified petition shall be filed specifically setting forth the following:
(1) That the plaintiff or plaintiffs desire to negotiate, execute, deliver and/or administer a mineral lease granting one or more lessees the right to explore, develop, produce and/or remove minerals from the subject mineral tracts and any other reasonable and necessary activities related thereof.
(2) The legal description of the mineral tract or tracts and the property interest of the plaintiff or plaintiffs therein.
(3) The apparent interest of the defendant or defendants in the mineral tract or tracts.
(4) The mineral lease proposed by the plaintiffs, if any, which shall be attached as an exhibit to the petition.
(5) That the plaintiff or plaintiffs desire to lease their minerals for purposes of removal and production and request that the court:
(A) Review a lease proposed by plaintiffs to determine whether it is fair and equitable to all joint owners pursuant to the provisions of this section and thereafter, appoint a trustee to execute, deliver and/or administer the lease; and/or
(B) Appoint a trustee for the purposes of soliciting and negotiating with potential lessees, that upon completion of the negotiations, that the trustee file with the court and serve upon the parties a report of his or her activities, factual findings and recommendations and a proposed lease, that the court conduct a hearing upon the report and proposed lease to determine whether it is fair and equitable to all the joint owners pursuant to the provisions of this section and, upon such finding, authorize the trustee to execute, deliver and/or administer the lease.
(d) Any person appointed as a trustee or guardian ad litem pursuant to this article shall be an active member in good standing of the West Virginia state bar and be experienced in the transactional and commercial practices of mineral leasing and production. The court shall determine a reasonable fee to be paid to the trustee and any guardian ad litem, and may approve reimbursement of their reasonable and necessary costs which fees and costs shall be paid by the plaintiff or plaintiffs pursuant to section eight of this article.
(e) A trustee appointed pursuant to this article shall have a fiduciary duty to the joint owners. The trustee's duty of loyalty and duty of impartiality to the joint owners shall be the same as that set forth in the Uniform Prudent Investor Act, sections five and six, article six-c, chapter forty-four of this code. The standard of care applicable to the trustee's administration of a lease shall be the prudent investor rule as set forth in the Uniform Prudent Investor Act, section two, article six-c, chapter forty-four of this code.
(f) In the event of the death or resignation of the trustee, or the refusal or inability of the trustee to faithfully discharge his or her duties pursuant to this article, the court, upon its own motion or upon the motion of any party, shall appoint a successor trustee.
(g) The court shall take evidence and hear testimony as to the allegations and requested relief set forth in the petition and any responsive pleadings. The court shall consider the quality, quantity, geological conditions of, and the prevailing market for, the subject minerals, and any other factors considered relevant by the court, in determining whether the financial and nonfinancial terms and conditions of the proposed lease are: (1) Fair and reasonable for all the joint owners; (2) commensurate with similar transactions for the same minerals under similar circumstances; and (3) provide all the joint owners with at least fair market value for their minerals.
(h) If, upon taking evidence and hearing testimony, the court finds that the requirements of subsection (f) of this section have been satisfied, then the court shall enter an order approving the proposed mineral lease and authorizing the trustee to execute, deliver and/or administer the lease. If the court determines that the requirements of subsection (f) of this section have been not been satisfied, then the court may, upon the motion of any party, the trustee, or its own motion, instruct the trustee to continue negotiations with potential lessees based on the findings of the court or dismiss the action.
(i) In any actions under this article, any party or the trustee may, as additional relief, request that the court determine and remove any cloud on the title to minerals or other real property related thereto, or any part thereof, or any estate, rights or interests therein, to determine questions of title, and confirm the title to the minerals or the right to mine and remove minerals from any of the lands, pursuant to section two, article two, chapter fifty-one of this code.

§ 22C-13-7. Payment; binding effect of lease; subsequent proceedings; court supervision of trustee; continuation or termination of trust; enforcement of lease terms and conditions, actions arising under lease.

Subsequent to the execution and delivery of a mineral lease pursuant to this article:
(a) All moneys due the joint owners under the lease shall be paid by the lessee or lessees directly to the joint owners.
(b) The lease shall be binding upon all joint owners and other persons named as parties to an action pursuant to this article, all persons not in being, and all other persons with a present, contingent or future interest in the minerals not duly recorded in the office of the county clerk of the county or counties where the mineral tracts are situated, and of which interests the plaintiffs did not have actual notice at the time of filing their petition.
(c) The lease shall be binding upon the lessee or lessees, their agents, representatives, contractors, successors, and assigns, in the same manner as if the all joint owners had personally executed and delivered the lease.
(d) Any joint owner or, with leave of the court, the trustee, may file a civil action to enforce any terms and conditions of a lease or any claim or cause of action arising thereunder.
(e) The court may, upon motion of any party, the trustee, or its own motion, retain continuing jurisdiction to conduct the subsequent proceedings, or to supervise the trustee and review his or her administration of the lease, as the court may determine in its discretion.
(f) The court may continue or terminate the trust and the duties of the trustee and any lease so executed shall continue in full force and effect and be binding upon all the joint owners after the termination of the trust unless the lease has previously expired by its own terms.

22C-13-8. Costs.
All court costs incidental to the proceedings authorized under this article, and the fees and costs incurred by the trustee and any guardian ad litem, shall be paid by the plaintiff or plaintiffs on a pro rata basis based on each plaintiffs' ownership interest in the leased minerals: Provided, That in this section, or any subsequent civil action, the plaintiffs may seek contribution and reimbursement of such fees and costs from the defendants, on a pro rata basis based on each party's ownership interest in the leased minerals, but only to the extent that the defendants actually receive royalty income or other consideration under the mineral lease.

22C-13-9. Construction.
This article is remedial in nature and shall be liberally construed to effectuate its purposes and that any lease executed and delivered pursuant to this article conveys good and marketable title to the lessee of the mineral leasehold.

NOTE: The purpose of this bill is to establish the joint mineral owners trust and mineral conservation act setting forth the procedures to create a trust, where there are two or more joint owners of a mineral tract or tracts, that will establish a mineral lease that represents the interests of the joint owners so that a court appointed trustee can solicit and negotiate with potential lessees on behalf of the joint owners.

This article is new; therefore, strike-throughs and underscoring have been omitted.