MINERAL OWNERSHIP UNDER RAILROADS, STREETS AND ALLEYWAYS

• Jurisdiction: United States

Oil & Gas Mineral Title Examination (Sep 2019)
CHAPTER 9A
MINERAL OWNERSHIP UNDER RAILROADS, STREETS AND ALLEYWAYS
Amy M. Mowry
Mowry Law
Denver, CO
Amy Mowry
Patrick Kent

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AMY MOWRY is an attorney with a solo practice focusing on natural resources, energy and real property law. She is licensed in Colorado, Wyoming, North Dakota, Montana and Utah. Amy has prepared all types of oil and gas title opinions in all of her licensed jurisdictions, beginning in Colorado in 2006. Her current practice focuses on the preparation of oil and gas title opinions for both large and small oil and gas operators and investors, and she also provides a wide range of oil and gas and real property services to her clients, including the preparation of mineral and real estate purchase and sale transaction agreements, surface use agreements, pipeline and transmission line right-of-way agreements, land leases and opinions on mineral concerns for commercial real estate purchasers, among other transactional services. In her free time Amy likes to help out on the family cattle ranch in Wyoming, and she travels and explores new countries as much as she can.

AMY MOWRY is an attorney with a solo practice focusing on natural resources, energy and real property law. She is licensed in Colorado, Wyoming, North Dakota, Montana and Utah. Amy has prepared all types of oil and gas title opinions in all of her licensed jurisdictions, beginning in Colorado in 2006. Her current practice focuses on the preparation of oil and gas title opinions for both large and small oil and gas operators and investors, and she also provides a wide range of oil and gas and real property services to her clients, including the preparation of mineral and real estate purchase and sale transaction agreements, surface use agreements, pipeline and transmission line right-of-way agreements, land leases and opinions on mineral concerns for commercial real estate purchasers, among other transactional services. In her free time Amy likes to help out on the family cattle ranch in Wyoming, and she travels and explores new countries as much as she can.

Understanding mineral ownership under railroads, streets and alleys is a daunting challenge, not to be undertaken with the apparent freewheeling attitude of many of those involved in railroad and townsite construction in the late 19^th and early 20^th centuries. As westward expansion in the United States increased during the 19^th Century, the need for faster and more efficient modes of transportation became paramount. In response, Congress embraced a policy of subsidizing railroad construction through generous public land grants. The railroad land grant scheme began to take shape with the passage of the Pacific Railroad Act of 1862¹ and continued through a succession of related acts spanning over a decade and crossing most of the west.² In the wake of the furious development of railroads after 1865 - when ground first broke on construction of the First Transcontinental Railroad - a long line of cases has mulled questions of mineral ownership to arrive at the answers available today when determining mineral ownership under railroad patents, rights-of-way and deeds. Mineral ownership under streets and alleyways poses no less of a challenging to calling mineral title in areas of surface development. Each of these topics will be explored in this paper.³

The Pacific Railroad Acts

Under the Pacific Railroad Act of 1862 (the "1862 Act"), railroad companies were given construction loans and a right-of-way of 200-feet on each side of the railway center line, together with the railroad's choice of 20 odd-numbered sections (ten sections on each side of the right-of-way) for every mile of railroad built. An 1864 amendment allowed a railroad company to select alternate sections within 20 miles on each side of the center line. Once informed of route locations, the Secretary of the Interior was to withdraw from entry all lands for fifteen miles from each side of the centerline under the 1862 Act, and 25 miles under the 1864 amendment.⁴

These railroad acts, or "Pacific Acts" generally established three types of land. First, "rights-of-way" were single swaths through certain sections, covering the constructed track and a buffer between the track and the adjacent lands on each side of the track. When located on the ground, right-of-way grants, commonly referred to as "Charter rights-of-way,"⁵ under the Pacific Acts traversed both even and odd sections of public survey lands. The odd sections were the grant lands in the railroad patents, title to which was held by the courts to not merge with the rights-of-way granted.⁶ Second, "primary" or "place" lands⁷ were the lands granted in the railroad patents, or those alternative sections available for selection under the applicable granting act. To secure these lands, a railroad company had to file maps of definite location, subject to approval by the Secretary of the Interior. Once approved by the Secretary, the primary or place lands vested in the railroad company, not as of the patent date but as of the date of passage of the granting act. The third type of lands created under the Pacific Acts were "indemnity" lands. These lands could be selected in lieu of parcels that had been previously disposed of, or that were reserved for other purposes. Title to indemnity lands did not vest in the railroad until the lands were selected and approved by the Secretary of the Interior.⁸

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The lands under a right-of-way are known as the "servient estate." In Great Northern Ry. v. U.S.⁹ and United States v. Union Pacific Railroad Co.,¹⁰ the United States Supreme Court established that railroad rights-of-way acquired under the Pacific Acts were limited fee estates, and in any subsequent patent of those lands the servient estate minerals would not pass to the patentee.¹¹

The United States' ownership of minerals under Charter rights-of-way has been upheld even for state lands. State of Wyoming v. Udall¹² considered ownership of a section crossed by an 1862 right-of-way and subsequently patented to the State of Wyoming as school lands. The United States Supreme Court confirmed the minerals (other than coal or iron) under the right-of-way in that section were retained by the United States, along with the right to lease such minerals,¹³ despite the state's ownership of the minerals in the other lands in that section.¹⁴

Where a Charter right-of-way is continuously used for railroad purposes, the underlying minerals are leasable under the Act of May 21, 1930¹⁵ (1930 Act). The 1930 Act allows the right-of-way owner either to lease its oil and gas or to enter into a compensatory royalty agreement with adjoining landowners.¹⁶ Where a Charter right-of-way is abandoned for railroad purposes, ownership of the underlying minerals would revert to the United States¹⁷ and the oil and gas in the abandoned tract should be leasable under the Mineral Leasing Act of 1920.¹⁸ And, even though the United States owns minerals under Charter rights-of-way, the minerals in the other portions of the peripheral sections (through which the right-of-way runs) patented separately from the railroad grant will be owned according to the language in those patents. If no oil and gas mineral reservation is made in a patent covering peripheral lands, the minerals (except, again, for those minerals under the right-of-way) will be owned by the patentee. Minerals in the alternate section lands patented to the railroad are owned by the railroad. In abandonment situations, the reversion of an abandoned right-of-way excludes any part embraced in a public highway legally established within one year after the date of a decree or forfeiture issued pursuant to applicable authority.¹⁹ The act also allows the transfer of a portion of the right-of-way by the railroad company so long as fifty feet on either side of the right-of-way centerline is retained and managed by the railroad.²⁰ The purpose of these provisions is to "ensure that railroad rights-of-way would continue to be used for public transportation purposes, primarily for highway transportation."²¹ Such transfers remain subject to the mineral reservation in the United States.²²

Under the Pacific Acts, homesteaded or otherwise entered lands and mineral lands (except as to coal or iron) were expressly excepted from grants of railroad place lands.²³ The mineral exception language in those granting patents has posed a considerable interpretive challenge over the years. A typical patent might contain language "excepting and excluding 'All Mineral Lands' [not including coal and iron land] should any such be found to exist in the tracts described in the foregoing." On the surface, that language seems to exclude oil and gas in any patented lands, but a deeper look proves otherwise. In Burke v. Southern Pac. R.R. Co.,²⁴ the United States Supreme Court held lands patented as place lands between the years 1866 and 1904 were officially understood to be "non-mineral" at the time of the patent. In other words, any lands known to be of "mineral character" as of the date of the patent were not granted; only lands that were "non-mineral" would be patentable at the time such patents were issued.²⁵

The exception language in the Pacific Acts patents stems from an interesting coalescence of circumstances. Valid placer mining claims already existed on some of the lands patented to the

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railroad companies under the Pacific Acts, claims pre-dating even the railroad companies' patent applications.²⁶ Instead of investigating the character of the lands to determine whether they were in fact "non-mineral," the Interior Department simply issued a patent and inserted language "excluding and excepting all mineral lands should any such be found in the tracts," or some variation.²⁷ As a consequence, the mineral land exception in the patent was void, and the patent itself was conclusive upon a collateral...