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McKenzie County v. United States

United States District Court, D. North Dakota

August 6, 2019

McKenzie County, North Dakota, Plaintiff,
v.
United States of America, Defendant.

          ORDER DENYING UNITED STATES' MOTION TO DISMISS AND GRANTING PLAINTIFF'S MOTION TO AMEND THE COMPLAINT

          Daniel L. Hovland, Chief Judge United States District Court

         Before the Court is the “United States' Motion to Dismiss” filed on December 20, 2016. See Doc. No. 18. Plaintiff McKenzie County, North Dakota (“McKenzie County” or “County”), filed a response in opposition to the motion on January 31, 2017. See Doc. No. 24. The United States then filed a reply brief on February 27, 2017. See Doc. No. 29. McKenzie County filed a surreply on March 17, 2017, and the United States filed a response to the surreply on March 31, 2017. See Doc. Nos. 32 and 33. For the reasons set forth below, the Defendant United States' motion to dismiss for lack of jurisdiction is denied.

         I. PROCEDURAL & FACTUAL BACKGROUND

         McKenzie County, North Dakota, filed a complaint against the United States on January 11, 2016. See Doc. No. 1. In its complaint, McKenzie County seeks to quiet title to the 6 ¼ percent royalty interest in the mineral estate granted to the County in condemnation judgments entered by this Court in the 1930's and 1940's. McKenzie County filed an amended complaint on April 12, 2016. See Doc. No. 7. On December 20, 2016, the United States filed this motion to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction because McKenzie County's complaint is untimely pursuant to the Quiet Title Act, 28 U.S.C. § 2409a (“Quiet Title Act”). The United States contends McKenzie County's complaint is untimely because the County knew or should have known of the United States' claim to the 6 ¼ percent royalty interest in the mineral estate of “public domain” lands described in the condemnation judgment more than twelve (12) years before McKenzie County initiated this action. Much of the present controversy stems from legal proceedings spanning more than seventy-five (75) years and relating to mineral interests in land in McKenzie County. To provide context for the current manifestation of a long-standing squabble, a discussion of the legal history of lands in McKenzie County is necessary.

         A. Early Condemnation Actions

         In the late 1800's through the 1920's, settlers acquired federal lands for agricultural purposes under the Homestead Acts or through purchasing land granted to railroad companies. These homestead patents granted to settlers title to 640 acres, but reserved to the United States the mineral interest in those lands. By the 1930's, extensive drought, along with plowing of sub-marginal farm land, caused the loss of the lands' protective cover. The lands quickly lost fertility and the soil blew, causing “dustbowl” conditions and significant crop failure. As a result, many farms in McKenzie County failed and farmers were unable to pay their property taxes. Consequently, McKenzie County acquired title to significant acreage throughout the County through foreclosures. See McKenzie County v. Hodel, 467 N.W.2d 701, 702 (N.D. 1991). Through these tax foreclosures, McKenzie County acquired both the surface estate and the mineral estate for foreclosed land, except McKenzie County acquired only the surface estate for those lands in which the United States had reserved the mineral interest in the original patent. McKenzie County formalized its ownership of the foreclosed land by quit claim or Sheriff's deed, whether it was both the surface and mineral estates or the surface estate alone.

         Due to the economic conditions in the United States, Congress directed the United States Department of Agriculture (“USDA”) to acquire failed farmland for conservation and public use purposes. Lands were the subject of the condemnation actions through tax forfeiture proceedings and McKenzie County deeded the forfeited property to the United States with a reservation of a 6¼ royalty interest in oil and gas production. See Doc. No. 20, ¶ 3. In an effort to avoid the claim to a right of redemption under state law by a party who originally forfeited the property and to ensure clear title to the lands, the United States initiated condemnation actions in this Court. Id. The condemnation actions are identified as follows:

1. United States v. 10, 683.00 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1000 (D.N.D. June 30, 1937);
2. United States v. 12, 344.54 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1001 (D.N.D. Feb. 6, 1938);
3. United States v. 17, 463.13 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1002 (D.N.D. Oct. 5, 1938);
4. United States v. 11, 994.84 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1006 (D.N.D. Feb. 25, 1938);
5. United States v. 9, 914.53 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1007 (D.N.D. Oct. 11, 1939); and,
6. United States v. 11, 626.49 Acres of Land, More or Less, in McKenzie County, State of North Dakota, At Law No. 1028 (D.N.D. June 15, 1938).

Id.

         Following an agreement by the parties, a judgment was entered in each condemnation action. See Doc. No. 20-1. Each of the judgments identified the lands to be condemned and used language similar to the language found in judgment No. 1000:

All the above tracts or parcels of land, with the exception of Tracts 872 and 873, are subject to a 6 ¼% percent royalty reservation in favor of McKenzie County, North Dakota, in the minerals which exist or may be developed therein by said McKenzie County. And subject, also, to and excepting all existing public roads, public utilities, easements and rights of way, is therefore taken for said public use.

See Doc. No. 20-1, p. 6. However, when the United States did not grant a 6 ¼ percent royalty in favor of McKenzie County for tracts, the judgments specifically excluded those tracts from the grant.

         The United States Department of Interior (“DOI”), through the Bureau of Land Management (“BLM”), is tasked with the responsibility to monitor and manage the royalty payments owed to landowners and monitored the royalty interest reservation to McKenzie County following the judgments entered in the condemnation cases. See Doc. No. 20 at ¶ 4. The United States admits that upon entry of the condemnation judgments, BLM annotated its records to recognize the 6¼ percent royalty interest in favor of McKenzie County for those lands that the previous owner held both the surface and mineral estates and were foreclosed by the County prior to the condemnation proceedings. See id. These minerals received from McKenzie County through tax foreclosure are referred to as “acquired minerals.” However, BLM did not annotate its records to reflect the 6 ¼ percent mineral interest reserved in favor of McKenzie County for those lands in which the United States had reserved the mineral interest in the original patent. Id. at ¶ 6. These mineral interests are referred to as “public domain minerals.” Id. at ¶ 7. The parties agree lands subject to the condemnation judgments included both lands with acquired minerals and with public domain minerals.

         After entry of the condemnation judgments, McKenzie County received payments from operators as a result of the 6 ¼ percent mineral interest reservation annotation in BLM's records. These payments ended in 1985 when BLM directed operators to pay the 6 ¼ percent interest to the United States. The BLM's decision to stop payments to McKenzie County was based wholly on the ...


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