Agreement reached in trust fund lawsuit

Lansing – The state of Michigan and owners of mineral rights the
state had claimed through tax foreclosure have reached an agreement
that seems to offer some protection to the Michigan Natural
Resources Trust Fund.

Lease fees and production royalties from oil and gas beneath
state-owned lands go into the trust fund. The MNRTF, reinvesting in
natural resources, supports resource development and land
acquisition.

Many state-owned lands were acquired through foreclosure for
nonpayment of taxes, and the agency assumed that mineral rights
came with them, even if they had been previously “severed,” or
separated from the surface rights through previous
transactions.

Court action challenged that assumption.

In 1999, Assistant Attorney General Kevin Smith told Michigan
Outdoor News in a conference call including the DNR’s Tom Wellman,
that the Legislature passed a bill allowing counties to perform tax
foreclosures instead of leaving it to the state.

How, the Antrim County treasurer subsequently asked, could a
county be certain it had adequately notified the severed mineral
rights owner, if indeed those rights should be part of the
foreclosure action?

That question became known as the Comben Case.

A circuit court found that severed rights were not subject to
taxation under the state property tax code, and thus were not
subject to foreclosure. The finding made its way to the Michigan
Supreme Court, which declined to address the issues raised by the
state on appeal.

While the Comben Case was being appealed, holders of severed
rights that had been claimed by the state launched a class-action
lawsuit seeking return of their mineral rights, revenue the state
had received from the minerals, and other damages.

Attorneys identified and invited affected people to join in the
suit. Most properties are in northern and northwestern Lower
Michigan, and in central Lower Michigan. Many of the properties,
Smith said, were parts of failed recreational developments of the
mid-1970s.

That became the Black Stone Case, which sought to examine past
foreclosures and severed mineral rights. It initially sought more
than $100 million.

Concern quickly mounted among state officials. Of the 6 million
acres of mineral rights owned by the state, more than 5 million
were acquired through tax foreclosure. Lease fees and royalties had
become a cornerstone of land and recreation programs.

But as the parties delved into the complex records, they found a
much smaller total – more like 3,000 acres – were severed rights
acquired through foreclosure after 1975.

Three years of litigation, plus one year of mediation, produced
a settlement this summer.

The agreement recognizes the class members’ claims from 1976
forward, and waives claims prior to that. That’s when a court
decreed that notice of tax foreclosure only through newspaper
publication was no longer sufficient.

Smith said that even after the 1976 decision, though, “the state
did not do a particularly good job” of notifying severed rights
owners.

The agreement returns ownership of severed mineral rights seized
through tax foreclosure; provides similar replacement rights where
the state had claimed and subsequently resold severed rights; and
provides $7 million to class-action members, payable over four
years. The first General Fund payment of $2 million has already
been made. MNRTF will pay $250,000 of the $7 million, the amount
improperly collected and placed in it.

A few people opted out of the lawsuit, and others might still be
identified. But the state’s willingness to contest claims, plus the
smaller-than-expected settlement amount, will likely discourage
similar suits.

“It doesn’t seem likely that someone will try to start another
one of these,” Wellman said.

Smith said that while the suit itself is settled, there remains
a mountain of quitclaim, lease agreement, and other paperwork.

When that’s all done, Wellman said, “we will all breathe a sigh
of relief.”

Is danger passed?

“We think so,” he said.

“I would like to think so,” Smith echoed.

The Legislature also has acted, with 2006 legislation specifying
that mineral rights properly documented under the state’s Dormant
Minerals Act are not subject to foreclosure.

The DNR’s Black Stone Minerals Mediation Team, on which Wellman
served, received the praise of DNR Director Rebecca Humphries late
last year.

“This team’s dedication and persistence ensures continued
investment in natural resources and recreation so that current and
former generations can enjoy our outdoor heritage and legacy,”
Humphries told the state Natural Resources Commission.