CHAPTER 17 TITLE HELD BY DEFUNCT ENTITIES: CHASING THE GHOSTS OF COMPANIES PAST

• Jurisdiction: United States

Advanced Mineral Title Examination
(Jan 2014)
CHAPTER 17
TITLE HELD BY DEFUNCT ENTITIES: CHASING THE GHOSTS OF COMPANIES PAST
Robert D. Hoehn
Anna C. Cavaleri ¹
Beatty & Wozniak, P.C.
Denver, Colorado

[Page 17-1]

ROBERT D. HOEHN is currently senior counsel in the law firm of Beatty & Wozniak, P.C. Prior to joining Beatty & Wozniak, Bob was a partner in the Denver office of Rothgerber Johnson & Lyons LLP. Bob has represented oil and gas companies in a variety of matters, including acquisitions and other transactional matters, title work, curative work, due diligence, and administrative matters involving the Bureau of Land Management, Mineral Management Services, and the Colorado Oil and Gas Conservation Commission. He has extensive title examination experience, and was formerly employed as a landman by an independent oil and gas lease brokerage, as well as a title examiner for a Kansas title insurance company. Bob is a member of the Rocky Mountain Mineral Law Foundation, American Association of Petroleum Landmen, and Denver Association of Petroleum Landmen, and has served as President of the Denver Association of Oil and Gas Title Lawyers. He is a member of the Douglas-Elbert County, Colorado Bar Association and served as an At-Large Council Member of the Executive Council of the Natural Resources & Energy Law Section of the Colorado Bar Association from 2008-2010. He has written articles for the DAPL's Newsletter and other trade publications and has spoken to a number of organizations including the National Association of Lease and Title Analysts, the Denver Association of Division Order Analysts, and the Denver Association of Petroleum Landmen on natural resources issues. He also authored "The Art of Preparing the Landman Abstract (A Practical Guide)" for the Rocky Mountain Mineral Law Foundation Special Institute on Title Examination in 2007. He received his undergraduate degree from Colorado State University in 1977 and obtained his J.D. in 1980 from Washburn University.

ANNA CAVALERI joined Beatty & Wozniak in October of 2012 and focuses her practice primarily in the area of oil and gas title examination. Prior to joining Beatty & Wozniak, Anna worked for a Denver law firm preparing title opinions for oil and gas operators mainly in the Greater Wattenberg/D.J. Basin and Niobrara plays in Northeastern Colorado. Anna's projects have included the preparation of multiple patent-to-present drilling and division order title opinions, including complex title opinions covering subdivided lands. In 2013, Anna and her colleague, Jessy Pink, spoke to the Denver Association of Division Order Analysts on the topic of title challenges in the D.J. Basin and also presented a legislative and regulatory update on hydraulic fracturing at the Denver Association of Petroleum Landmen's Fall Land Institute. Anna began her career as a Landman for Anadarko Petroleum Corporation, where she co-authored the American Association of Petroleum Landmen's 2010 Article of the Year on Federal Unitization. Anna holds a business degree from Regis University and graduated from the University of Denver Sturm College of Law in 2006. She lives in northwest Denver and loves yoga, spending time with her family, hiking in our gorgeous mountains, reading and traveling.

SYNOPSIS

Introduction

I. Is Your Chain of Title Haunted?

A. Ways that a Corporation Ceases to Exist

1. Dissolution

a. Voluntary Dissolution

b. Dissolution as Set Forth in Governing Documents

c. Administrative Dissolution

d. Judicial Dissolution

2. Bankruptcy

3. Corporate Purgatory

B. What is a "Defunct" Corporation?

C. What Becomes of the Defunct Corporation's Real Property Assets?

II. Finding the Ghosts

A. Determination of Corporate Status

B. Determination of Who Has the Authority to Act on Behalf of a Defunct Corporation

1. Records Maintained by the Secretary of State

2. Records Maintained by the Corporation

3. Statutory and/or Judicial Relief

III. Exorcising the Ghosts

A. Reinstatement of the Defunct Corporation

B. Initiation of Judicial Dissolution Proceedings

C. Dormant or Abandoned Mineral Laws

D. Unlocatable Mineral Owner Laws

E. Unclaimed Property Laws

F. Escheatment

G. Acquisition by Tax Deed

H. Acquisition of Title by Adverse Possession

I. Quiet Title Actions

[Page 17-2]

J. Compulsory Pooling

Conclusion

Appendix "A" - Fundamentals of Conveyances from & Dissolution of Partnerships & Limited Liability Companies

Appendix "B" - Matrix of Statutes

Appendix "C" - Helpful Links to Secretary of State Websites

INTRODUCTION

One of the most confusing and frustrating title issues encountered by oil and gas company landmen, attorneys and title examiners is that of record title to a property that they are seeking to lease or otherwise acquire, being held by a "dissolved" or "defunct" business entity. The introduction of new recovery technologies and the resulting recent expansion of oil and gas exploration into areas not previously considered for such a purpose have called even more attention to an issue that has long plagued industry professionals.

Entity life may cease for a number of reasons, including the expiration of the period of existence or formal dissolution, as well as involuntary dissolution for failure to file annual reports or pay applicable taxes.² In some cases, nothing may have happened to the corporation other than it simply ceased to do business.³ Unfortunately, there is not much in the way of guidance on how to address the acquisition of title or the rights to develop mineral interests that are owned of record by a defunct entity. The most germane resources we found were papers presented by Rodney D. Knutson at the 24th Annual Rocky Mountain Mineral Law Foundation Institute in 1978⁴ and Robert E. Beck at an Eastern Mineral Law Foundation Institute in 1981.⁵ Even though both Mr. Knutson's and Mr. Beck's papers were presented over thirty years ago, their work provided a good basis for this paper.

The primary purpose of this paper is to identify and address the title issues that result from the death of a business entity and offer some practical guidance as to how to deal with an entity that has, in essence, disappeared without properly conveying its assets and otherwise winding up its business. We have focused primarily on corporations that existed and became defunct in the middle of the 20th century because most of the title issues that we have encountered have involved corporations, as opposed to other business entities, due in part to the preeminence of the corporate entity from the 1950s through the 1980s.⁶ While partnerships and limited liability

[Page 17-3]

companies can face similar issues, our experience is that title problems arising when the life of such entities ends do not occur as frequently as with defunct corporations. Therefore, this paper will not specifically address curative measures for title left in defunct partnerships and limited liability companies; however, the parameters for partnership and limited liability company dissolution and conveyance of title to real property are similar to those set for corporations.⁷ Consequently, the information set forth herein may prove to be useful in cases where the defunct entity was a partnership or limited liability company.

Since the corporate entity is primarily a creature of statute, the questions raised here necessitate the study of the corporate laws of the various states.⁸ Our subsequent analysis is based upon relevant statutes and case law from several of the oil and gas producing states within the Rocky Mountain region, including Colorado, New Mexico, Utah, Wyoming, Montana and North Dakota, as well as the relevant statutes and case law from other Western oil and gas producing states, including Kansas, Nebraska, Oklahoma and Texas. Delaware's statutes and case law were also reviewed due to the large number of companies incorporated in Delaware.⁹

There are three basic steps in the analysis of what an oil and gas company landman, attorney or title examiner should do when encountering a corporate apparition holding record title to a mineral interest. The first step is to verify the status of the corporation.¹⁰ Second, one must determine who has the authority to convey title to the defunct entity's mineral interest.¹¹ The final step is to consider the various strategies for acquiring the defunct corporation's mineral interest, or the right to develop the same, and any related business risk associated with those strategies.

I. IS YOUR CHAIN OF TITLE HAUNTED?

Before we can begin our analysis, it is necessary to understand how a corporation ceases to exist, define what a "defunct" corporation is and examine what becomes of a defunct corporation's real property assets.

A. Ways that a Corporation Ceases to Exist.

As noted above, there are a number of ways that a corporation can cease to exist. Following is a brief overview of the more prevalent ways by which a corporate entity might meet its demise.

1. Dissolution.

A common end to the corporate entity occurs upon its dissolution. Dissolution may be the result of either corporate action or, in the case of early corporations, upon

[Page 17-4]

the expiration of its period of duration as set forth in the entity's governing documents. A corporation may also be administratively dissolved or dissolved by order of a court. Each of these methods of dissolution is briefly discussed below.

a. Voluntary Dissolution.

Voluntary dissolution of a corporation is provided for in every state when authorized by majority vote as specified in the appropriate statute.¹² Typically, since there is active participation by the directors and shareholders in a voluntary dissolution, the corporation is properly wound up. It is rare that a voluntarily dissolved corporation will fail to properly dispose of its assets.

b. Dissolution as Set Forth in Governing Documents.

...