Jones et al v. Panhandle Royalty Company et al

Filing 16

ORDER denying 6 Motion to Dismiss filed by Defendants Panhandle Oil and Gas, Inc. and Farmers Royalty Company. Signed by Judge Brian S. Miller on 7/11/2011. (kdr)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF ARKANSAS
LITTLE ROCK DIVISION
SARA LYNN KIDD JONES a/k/a
SARA KIDD JONES and PALMER JONES
v.

PLAINTIFFS

CASE NO. 4:10CV01992-BSM

PANHANDLE ROYALTY COMPANY n/k/a
PANHANDLE OIL AND GAS, INC.;
FARMERS UNION COOPERATIVE ROYALTY
COMPANY n/k/a FARMERS ROYALTY COMPANY;
PATHFINDER EXPLORATION, LLC; and
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP

DEFENDANTS

ORDER
Defendants Panhandle Oil and Gas, Inc. (“Panhandle”) and Farmers Royalty
Company (“Farmers”) move to dismiss the petition to quiet title for failure to state a claim
upon which relief may be granted. [Doc. No. 6]. Petitioners Sara Kidd Jones and Palmer
Jones object. [Doc. No. 8]. For the reasons set forth below, the motion to dismiss is denied.
I. ALLEGATIONS
This quiet title action concerns mineral rights located on approximately 35 acres of
land in Van Buren County, Arkansas. Luther and Lizzie Huie owned the property in fee
when they granted a mortgage to J.D. Simpkins in November 1928. In July 1930, the Huies
conveyed 7/8ths of their mineral estate to O.F. Macon, who almost immediately transferred
that interest to Sun Oil Company. In April 1936, Simpkins brought a foreclosure suit against
the Huies and took title to the surface and mineral estates by commissioner’s deed which he
recorded in July 1936. Sun Oil Company was not named as a party defendant in Simpkins’s

foreclosure action. The Joneses trace their title to Simpkins, while Panhandle and Farmers
trace theirs to Sun Oil Company.
II. LEGAL STANDARD
“Dismissal is proper where the plaintiff’s complaint fails to state a claim upon which
relief can be granted.” Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir.
2008) (citing Fed. R. Civ. P. 12(b)(6)). Accepting as true all of the factual allegations
contained in the complaint, the complaint must be reviewed to determine whether its
allegations show that the pleader is entitled to relief. Id.

III. DISCUSSION
The question presented is whether Simpkins’s failure to join Sun Oil Company as a
party to the 1936 foreclosure proceeding rendered his subsequent transfer of the property
void. Answering in the affirmative, Panhandle and Farmers cite Hatchett v. Terry, a case that
held a foreclosure decree was not binding on subsequent purchasers who were not joined
in the foreclosure action. 190 S.W.3d 302, 307 (Ark. Ct. App. 2004). Answering in the
negative, the Joneses cite Skelly Oil Co. v. Johnson and the rule of stale demand. 194
S.W.2d 425 (Ark. 1946). As set forth below, the holdings of Hatchett and Skelly Oil are not
in conflict and together provide an adequate legal basis for the Joneses’ petition.
A.

Subsequent Purchasers are Necessary Parties to Foreclosure Proceedings
The relevant facts of Hatchett are as follows. In 1982, Dorothy Dixon Hatchett sold

a large tract of land to Earl and Mary Collister, who planned to subdivide and resell

2

individual plots. 190 S.W.3d at 304. Contemporaneous to that transfer, Hatchett received
a mortgage on the property. Id. Between 1982 and 1986, several individuals and couples
(hereinafter “the appellees”) purchased land from the Collisters under escrow contracts. Id.
Hatchett released the original mortgage in 1987. Id. The Collisters promptly executed
another mortgage to Hatchett, and in 1990, they executed yet another. Id. The 1987 and 1990
mortgages did not declare themselves to be replacements for, or extensions of, the 1982
mortgage. Id. In 1994, Hatchett brought a foreclosure action following the Collisters’ default
on the notes secured by the 1987 and 1990 mortgages and obtained a foreclosure decree in
1995. Id. The appellees, all of whom paid their contracts and received their deeds prior to
1994, were not joined as parties to Hatchett’s foreclosure suit. Id.
The trial court quieted title in the appellees holding that the Collisters could only
mortgage that which they actually owned. Id. at 306. On appeal, the Arkansas Court of
Appeals affirmed and noted that the appellees’ equitable right of redemption was not
terminated by the foreclosure decree because Hatchett failed to join them as defendants. Id.
at 307.
B.

The Rule of Stale Demand
The relevant facts of Skelly Oil are as follows. In 1918, Calvin Mower sold land to

Frank Doss, who financed the transaction by executing a series of eleven promissory notes
to Mower. Skelly Oil, 194 S.W.2d at 427. The deed reserved in Mower a “vendor’s lien” as
security for the notes. Doss then conveyed his mineral rights to four different individuals,

3

whom the court called “junior title claimants.” Id. at 429.
Following Doss’s default, Mower brought a foreclosure action and obtained a
commissioner’s deed which he recorded in May 1924. Id. at 427-28. None of the junior title
claimants were joined in the foreclosure action; the only defendant was Doss. Id. at 429. The
Arkansas Supreme Court held that the junior title claimants were improperly omitted from
the foreclosure action and that they had the equitable right to redeem their respective mineral
interests “within a reasonable time.” Id.
To determine what length of time was reasonable, the court applied the equitable rule
of stale demand. It explained that a stale demand is “one that is first asserted after an
unexplained delay of such great length . . . as to create a presumption . . . that it has been
abandoned.” Id. at 430 (omissions in original). After noting that the statute of limitations
governing Mower’s vendor’s lien would run five years after the eleventh note came due, the
court held that the junior title claimants’ rights of redemption existed until November 2,
1934, after which date the rule of stale demand extinguished those rights. Id. at 430.
C.

Application of Hatchett and Skelly Oil
Because neither Macon nor Sun Oil were joined in the 1936 foreclosure action, their

right to redeem survived the ensuing foreclosure decree. See Hatchett, 190 S.W.3d at 307.
This right, however, inured only for a reasonable time, which could be no later than the
expiration of the statute of limitations governing the 1928 mortgage. See Skelly Oil, 194
S.W.2d at 431. In 1928, when the Huies granted Simpkins a mortgage, the statute of

4

limitations on a mortgage securing debt was ten years, although the note it secured carried
a five-year statute of limitations. Paul Jones, Jr., The Arkansas Law of Title to Real Property
388 (1935). See also New England Mortg. Sec. Co. v. Reding, 47 S.W. 132 (Ark. 1898).
Because the documents appended to the Joneses’ petition are illegible and the maturity of
note secured by the mortgage is unascertainable, this is an issue of fact better reserved for
summary judgment. Given the likelihood, however, that Sun Oil’s right of redemption is
barred by the rule of stale demand, the record is sufficient to overcome a motion to dismiss.
IV. CONCLUSION
For these reasons, the motion to dismiss [Doc. No. 6] is denied.
IT IS SO ORDERED this 11th day of July 2011.

________________________________
UNITED STATES DISTRICT JUDGE

5