cite as energy & min. l. inst. chapter 4 what kinds of punitive … · what kinds of punitive...

Chapter 4

What Kinds of Punitive Damages May Be Awarded

for Willful Trespass to Minerals?

Jeff A. Woods1

Wyatt, Tarrant & Combs, LLPLexington, Kentucky

Helena Racin SmithNapier & Associates, P.S.C.

London, Kentucky

Synopsis

§ 4.01. Introduction and Summary .......................................................102§ 4.02. Scope of Damages for Willful Trespass to Minerals in Primary Mineral-Producing States .................................... 104

[1] — Alaska .................................................................................104[a] — Alaska Follows Typical Damage Measures for Innocent and Willful Trespass to Minerals .....104[b] — Alaska Recognizes a Distinction Between Willful Trespass Damages and Traditional Punitive Damages, But Has Refused to Award Both.........................................................105

[2] — Arkansas .............................................................................107[a] — Arkansas Follows Typical Damage Measures for Innocent and Willful Trespass .........................107[b] — Arkansas Recognizes Willful Trespass Damages as Punitive in Nature ..............................108

[3] — California ...........................................................................109[a] — California Also Follows the Traditional Damage Measures for Innocent and Willful Trespass to Minerals...........................109[b] — California Recognizes that an Assessment of Willful Trespass Damages Serves as Punitive Damages ..............................................111

1 The authors wish to acknowledge the assistance of University of Kentucky law students Kerry L. O’Neill, Justin W. Ross, Julie M. McGill and Amelia B. McCormick for their many contributions to the extensive research and writing involved in the preparation of this chapter during their tenures as summer associates at Wyatt, Tarrant & Combs, LLP.

CITE AS29 Energy & Min. L. Inst. 4 (2008)

ENERGY & MINERAL LAW INSTITUTESYNOPSIS

[4] — Colorado .............................................................................112[a] — When a Willful Trespass Occurs in Colorado, the Trespasser Is Not Entitled to Set Off the Mining Costs ....................................................112[b] — Colorado Allows Punitive Damages for “Willful and Wanton” Trespass Claims ...........112

[5] — Illinois .................................................................................114[a] — Illinois Distinguishes Between a Good Faith Trespasser and Bad Faith Trespasser Through the Damages Imposed ............................................114[b] — Traditional Punitive Damages in Addition to Willful Trespass Damages for Full Value of Mineral Are Disallowed in Illinois ...................115

[6] — Indiana ................................................................................117[a] — Indiana Applies the Traditional Standard of Awarding Compensatory Damages for Innocent Trespass and Full Value of the Mineral for Willful Trespass .......................117[b] — Indiana May Allow Punitive Damages in Addition to Willful Trespass Damages .............119

[7] — Kentucky ............................................................................120[a] — Kentucky Also Follows the Traditional Damage Measures for Innocent and Willful Trespass to Minerals...............................................120[b] — A Willful Trespasser in Kentucky Is Penalized by Virtue of Having to Pay the Full Value of Minerals Taken ..................................................122[c] — No Kentucky Cases Approve Awards of Both Willful Trespass Damages and Traditional Punitive Damages .........................122

[8] — Maryland ............................................................................124[a] — Maryland Follows the Traditional Measures of Damage for Innocent and Willful Trespass to Minerals...........................124[b] — Traditional Punitive Damages Remain Available for Willful Trespass in Maryland ..........124

[9] — Ohio ....................................................................................126[a] — Ohio Also Follows the Standard Measures for Innocent and Willful Trespass to Minerals .....126[b] — Ohio Expressly Recognizes Willful Trespass Damages as a Punishment and a Fixed Rule for Exemplary (Punitive) Damages .......................127

100

PUNITIVE DAMAGES FOR WILLFUL TRESPASS SYNOPSIS

[10] — Oklahoma ........................................................................ 128[a] — Oklahoma Also Follows the Traditional Damage Measures for Innocent and Willful Trespass to Minerals...............................................128 [b] — Oklahoma Considers the Penalizing Damages Imposed for Willful Trespass Analogous to Exemplary Damages. ......................130

[11] — Pennsylvania .....................................................................130 [a] — For Willful Trespass in Pennsylvania, a Property Owner Is Entitled to the Value of the Coal in Place, Detention Money, and Compensation for Taking Without Consent ...................................130[b] — In Pennsylvania Willful Trespass Cases Combined with Blatant Fraud and Breach of Fiduciary Duty, Damages Are the Full Value of the Minerals Produced, Not Punitive Damages ............................................133

[12] — Tennessee ..........................................................................134[a] — For Innocent Trespass in Tennessee, Damages Awarded to Owners Are the Coal’s Value In Situ; Willful Trespass Requires a Disgorgement of Profits .......................134 [b] — Tennessee Courts Have Not Addressed Punitive Damages in Willful Trespass Cases ........136

[13] — Texas .................................................................................138[a] — Texas Follows the Traditional Damage Measures for Good Faith and Bad Faith Trespass to Minerals .......................138[b] — Texas Finds a Distinction Between Willful Trespass Damages for the Full Enhanced Value of Mineral and Punitive Damages, and Allows Recovery for Both ..................................................139

[14] — Virginia .............................................................................142[a] — Virginia Uses the Traditional Standards, Awarding Compensatory Damages for Innocent Trespass and Full Value of the Minerals for Willful Trespass ......................142[b] — Virginia Courts Have Not Addressed Whether Punitive Damages May Be Awarded in Addition to Enhanced Value Willful Trespass Damages ...........................143

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ENERGY & MINERAL LAW INSTITUTE

[15] — West Virginia ....................................................................146 [a] — West Virginia Also Follows the Traditional Damage Measures for Innocent and Willful Trespass to Minerals .....146[b] — Availability of Traditional Punitive Damages in Addition to Willful Trespass Damages in West Virginia Remains Unclear ...................................147

[16] — Wyoming ..........................................................................153 [a] — Wyoming Has Accepted the Traditional Damage Measures for Innocent and Willful Trespass to Minerals .....................................153[b] — Wyoming Has Not Addressed the Recoverability of Both Willful Trespass Damages and Punitive Damages ......................................155

§ 4.03. Do Willful Trespass Damages Violate Constitutional Limits of Due Process? ................................... 156

[1] — Modern U.S. Supreme Court Rulings on Punitive Damages .........................................................156

[a] — BMW of North America, Inc. v. Gore ....................156 [b] — State Farm v. Campbell..........................................158[c] — Phillip Morris USA v. Williams ..............................159

[2] — Application of Modern Supreme Court Jurisprudence to the Traditional Measure of Damages for Willful Trespass ......................................160

§ 4.04. Conclusion ....................................................................................161

§ 4.01. Introduction and Summary.There is a good argument that in jurisdictions which allow “gross value”

damages for willful trespass to minerals, traditional punitive damages would be duplicative and should not be allowed. In such jurisdictions, the willful trespass damages are already harsh and penalizing, and an award of traditional punitive damages in addition would be redundant. A small handful of jurisdictions have so held. This chapter surveys the scope of willful trespass damage awards in most of the primary mineral-producing states, both generally and then focusing on whether claimants may “double dip” by recovering both the gross sale value of the minerals and punitive damages.

When measuring damages for mineral trespass, courts closely examine the trespasser’s intent. Courts inquire into whether a trespasser has acted

§ 4.01

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PUNITIVE DAMAGES FOR WILLFUL TRESPASS

“willfully” or “innocently” in his trespass; willful trespass is found when done recklessly, or with actual knowledge of another’s rights, and innocent trespass is determined when done in good faith, inadvertently, unintentionally, or with the honest belief of the right to do so. In cases of willful trespass, courts typically award the owner the full sale value of the minerals without any allowance for deduction for the expenses incurred in extracting the minerals or for any value added by processing the mineral. This if often referred to as a “harsh” or penalizing rule of damages. On the other hand, in cases of innocent trespass, courts typically award only the value of the mineral in situ, measured either by the sales value of the mineral less mining expenses and other value-added costs, or by the reasonable royalty value. This is often referred to as the “mild” rule of damages.

As the harsh rule penalizes the willful trespasser by not allowing deduction of his expenditures, it takes on a punitive nature. That is, it not only forces the trespasser to disgorge profits – which is accomplished by the innocent trespass measure of sales less expenses – but forces the trespasser to pay over the full sales value after having already paid all the costs of getting the mineral to a sale. To the extent that the willful trespass measure is punitive in nature, an additional award of punitive damages on top of the penalizing “compensatory” damages would seem redundant in most cases. The harsh rule not only forces the willful trespasser to essentially pay his mining and production expenses twice, but also represents a windfall to the typical owner who could not have expected to receive more than a royalty value, or if he were in a position to produce the mineral himself, not more than a net profit. Most jurisdictions explicitly recognize the punitive nature of the harsh measure of damages, as addressed in the state-by-state survey below, but at least one jurisdiction (Texas) has refused to treat the harsh rule as punitive.

Issues to consider in response to a willful trespass claim that seeks damages for the full sale value of the mineral and/or punitive damages include (1) when and how to challenge a claim for both full mineral value and traditional punitive damages; and (2) whether and when to challenge a claim for full sales value of the mineral as exceeding the constitutional due process limitations for punitive damage awards. Imposing punitive

§ 4.01

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damages in addition to the traditional damage measure for willful trespass is arguably duplicative, and therefore assertions that punitive damages should be denied as a matter of law may be affirmative defenses to be raised at the time of the Answer or in motions to dismiss for failure to state a claim. In some jurisdictions, such issues may not be raised until the time of the jury instruction conference. The timing of a constitutional due process defense to the willful trespass measure may also vary from jurisdiction to jurisdiction, and the procedure for same is beyond to scope of this chapter.

§ 4.02. Scope of Damages for Willful Trespass to Minerals in Primary Mineral-Producing

States.[1] — Alaska.

[a] — Alaska Follows Typical Damage Measures for Innocent and Willful Trespass to Minerals.

In a case arising out of tin mining claims, Alaska’s Supreme Court confirmed that it follows the traditional rule.2 The court summarized the distinction between innocent and willful trespass, and the respective damages for each, as follows:

When a trespasser removes minerals from the land of another, there are two generally accepted rules of damages: a ‘mild’ rule for good faith trespassers and a ‘harsh’ rule for willful trespassers. [citations omitted] The mild rule provides that a good faith trespasser must pay the owner damages based on either a royalty rate or on the market value of the minerals less the cost of extraction. Thus the nonwillful trespasser may receive credit for the mining expenses involved in the conversion.3

The harsh rule for intentional trespassers operates as a form of punitive damages, with the goal of deterrence. The owner may recover the market

§ 4.02

2 Alaska Placer Co. v. Lee, 553 P.2d 54, 57 (Alaska 1976). 3 Id. at 57.

104


value of the converted minerals without offset or deduction for the trespasser’s mining costs [citations omitted].4 As noted from the quotation above, Alaska expressly recognizes that the so-called “harsh” rule for willful trespass constitutes a form of punitive damages.

[b] — Alaska Recognizes a Distinction Between Willful Trespass Damages and Traditional Punitive Damages, But Has Refused to Award Both.

Alaska is one of the few jurisdictions to actually address whether a victim of willful trespass may recover both the full value of the mineral, including its punitive aspects, together with traditional punitive damages. In Alyeska Pipeline Service Co. v. Anderson, the Supreme Court of Alaska addressed a willful trespass claim for Alyeska’s taking of slate from Anderson’s mining claim during the construction of the Trans-Alaska pipeline.5 The trial court, following the rules set out in Alaska Placer, instructed the jury regarding damages for both willful and innocent trespass.6 However, the trial court refused to instruct the jury on Anderson’s claim for traditional punitive damages.7

On appeal, Alyeska contended that the trial court’s instruction for willful trespass, being inherently punitive in nature, was inconsistent with its grant of a directed verdict to Alyeska on Anderson’s claim for punitive damages. The Supreme Court of Alaska acknowledged that the “harsh” rule of damages for willful trespass “operates as a form of punitive damages, with the goal of deterrence,”8 but nevertheless found the two elements of damage distinct.9

§ 4.02

4 Id. 5 Alyeska Pipeline Service Co. v. Anderson, 629 P.2d 512, 516 (Alaska 1981). 6 Id. at 526. 7 Id. 8 Id. 9 Id. at 527.

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The court first noted a clear distinction in burden of proof between the two damage measures – the burden being on the defendant trespasser to prove that a trespass was not willful, but the burden being on the plaintiff to establish the right to traditional punitive damages.10 The court also pointed out that recovery of traditional punitive damages requires a showing of “outrageous” conduct, while the standard for willful trespass rested on a lesser showing of lack of good faith.11 The court concluded that the elements necessary to justify an award of traditional punitive damages are “more stringent than those necessary for the imposition of the harsh form of damages in a mining trespass-conversion action.”12 Consequently, the court affirmed the trial court’s instruction and verdict for typical willful trespass damages while refusing to instruct on traditional punitive damages.13

Anderson cross-appealed the trial court’s directed verdict rejecting its traditional punitive damage claim. In what may be the most direct rebuke of a plaintiff’s effort to double dip on both willful trespass damages and traditional punitive damages, the Supreme Court of Alaska rejected that contention as follows:

We need not reach the question of whether Anderson presented sufficient evidence to reach the jury on the issue of punitive damages. In the particular factual context of this record, we are persuaded that it would have been inappropriate to have allowed the jury the option of awarding both harsh damages for Alyeska’s trespass and conversion and punitive damages. Given a general policy that punitive damages are not favored and are to be awarded with caution and within narrow limits, [citation omitted] we hold that harsh trespass-conversion damages should be the only form of damages recoverable in the case at bar.14

10 Id. 11 Id. 12 Id. at 528. 13 Id. at 531.14 Id. at 530-31.

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Because the court’s ruling was limited to the particular facts of the case before it and may have been influenced by Alaska’s general policy disfavoring punitive damages, the ultimate precedential effect of this decision is uncertain. Nevertheless, the court clearly rejected the possibility of awarding both willful trespass and traditional punitive damages. In the more recent case of Gore v. Schlumberger Ltd.,15 the Supreme Court of Alaska reaffirmed the punitive nature of willful trespass damages and again refused to allow punitive damages in addition to liquidated damages that were more than compensatory.

[2] — Arkansas.[a] — Arkansas Follows Typical Damage Measures

for Innocent and Willful Trespass.In the case of National Lead Co. v. Magnet Cove Barium Corp.,16 the

U.S. District Court for the Western District of Arkansas, applying Arkansas law, set out a particularly cogent explanation of the traditional measures of damage for innocent trespass and willful trespass to minerals. For that reason, it is quoted here in its entirety:

There are two general measures of damage for trespass to minerals which are described as the ‘mild’ and the ‘harsh’ rules. The ‘mild’ rule applies where the trespass is inadvertent, innocent or not in bad faith, and fixes the damages as the value of the minerals in situ. The so-called ‘harsh’ rule, applied when the trespass is willful, intentional, or in bad faith, allows the injured party the enhanced value of the product at the time of conversion.17

Within the framework of the mild measure, there are two different guidelines to determine the in-place value of ore: first, the royalty

15 Gore v. Schlumberger Ltd., 703 P.2d 1165 (Alaska 1985).16 National Lead Co. v. Magnet Cove Barium Corp., 231 F. Supp. 208 (Ark. 1964). 17 Id. at 217.

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value whereby the injured party is allowed as damages an amount equivalent to the value of the privilege of mining and removing the minerals; second, another application of the mild rule allows the injured party to recover the value of the minerals after extraction less a credit to the trespasser of its production costs. The effect of allowing the royalty method as damages is not to punish the nonwillful trespasser, but to compensate the injured party for being deprived of the possibility of extracting the minerals. Alternatively, allowing the injured party to recover the enhanced value of the converted minerals with a deduction in favor of the trespasser for the cost of mining them will also compensate for being deprived of the right of mining the minerals and developing them, while preventing the trespasser from profiting from his wrongdoing. When the royalty method is used in applying the in-place measure of damages, the question of allowance to the trespasser of credit for his expenses in producing the minerals is not reached.

Under the harsh rule the injured party receives an award equal to the enhanced value of the converted property with no credit to the trespasser for his production expenditure, and thus is punitive because of intentional conduct or willfulness or bad faith in addition to depriving the wrongdoer of any profit from his trespass.18

[b] — Arkansas Recognizes Willful Trespass Damages as Punitive in Nature.

In the National Lead opinion, the court expressly recognized that the harsh measure of damages for willful trespass under Arkansas law is punitive in nature.19 The court also described the measure as applicable to “conduct which is reckless, willful and intentional,” standards of conduct typically

18 Id. at 217-18. 19 Id. at 218.

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associated with punitive damage awards.20 Nonetheless, the court declined an opportunity to address whether recovery can be had for both the full value of the mineral and traditional punitive damages.

In the appeal, the plaintiff contended that in addition to its recovery for the full value of the minerals taken under the willful trespass measure, it was also entitled to traditional punitive damages.21 The defendant argued that the harsh measure of damages for willful trespass was itself a type of punitive damages and that the plaintiff could not recover both the enhanced value of the mineral as well as traditional punitive damages.22 The court declined to address the issue, concluding that on the record of the case there was not sufficient evidence that the trespass was willful or intentional, such that punitive damages were not recoverable.23

[3] — California.[a] — California also Follows the Traditional Damage

Measures for Innocent and Willful Trespass to Minerals.

Like other jurisdictions, California courts question whether a trespass was willful or in good faith, because “the rules applicable to a willful trespass and a trespass committed in good faith are different.”24 In Daly v. Smith, Ms. Daly alleged that Smith (and others), trespassed, removed, and converted gypsite from the mining claims owned by her husband.25 Smith also claimed title to the gypsite.26 Although the trial court found Smith had trespassed and converted the gypsite, the court denied any damages.27 Ms. Daly appealed.

20 Id. at 218. 21 Id. at 220. 22 Id. 23 Id. at 220-21. 24 Daly v. Smith, 220 Cal. App. 2d 592, 598 (D.C. App. 5th D. Cal. 1963). 25 Id. at 595. 26 Id. 27 Id. at 596.

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The district court of appeals concluded that at the very least, nominal damages should have been awarded as the law presumes some damages “for every trespass upon real property.”28 The court turned to the guidance provided by 33 California Jurisprudence 2d, Mines and Minerals, section 252, page 294 which states: “If the invasion of another’s mine is the result of inadvertence or honest mistake, the measure of damages is the value of the mineral extracted, less the cost of mining or milling.”29 Relying on same, the Daly court held that in order for the trial court to properly determine the innocent trespass damages, first the reasonable market value of the converted gypsite should be determined, then the direct cost of mining and milling deducted therefrom.30 The court also stated that it was acceptable to deduct transportation costs when the evidence shows that transportation to a distant site from the mine was essential.31 In addition, the damage award may also include the legal interest rate on the “net reasonable market value of the converted” minerals.32

Also, like most jurisdictions, California allows recovery of the enhanced value of the mineral in the case of willful trespass. In Lightner Mining Co. v. Lane,33 the Supreme Court of California determined that if a trespass were intentional and with knowledge of the plaintiff’s rights, the defendant would be liable for the value of the mineral after recovery and without any deduction for expenses of mining and milling. The same rule was later was applied in Union Oil Co. of California v. Reconstruction Oil Co.,34 and upheld again in Ehrhart v. Bowling.35

28 Id. at 602. 29 Id. 30 Id. at 603. 31 Id. 32 Id. 33 Lightner Mining Co. v. Lane, 120 P. 771 (Cal. 1911). 34 Union Oil Co. of California v. Reconstruction Oil Co., 66 P.2d 1215 (D.C. 4th D. Cal. 1937). 35 Ehrhart v. Bowling, 36 Cal. App. 2d 503 (D.C. App. 3d D. Cal. 1940).

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[b] — California Recognizes an Assessment of Willful Trespass Damages Serves as Punitive Damages.

In Ehrhart v. Bowling, supra, California’s District Court of Appeals for the Third District addressed a jury verdict for willful trespass to gold and its status as a punitive damage award. The jury rendered a verdict for the value of the gold extracted without deducting the cost of mining.36 The court observed that “[i]n awarding as damages the value of the gold proven to have been taken from the property without deducting the cost of mining and milling, the jury, in effect, awarded punitive damages.”37 The court recognized as a “fact” that the jury’s award was for “punitive damages.”38 While the court was not asked to consider a separate or additional award of traditional punitive damages, it appears that the California court would have considered any additional punitive damage award to be duplicative.

Both Lightner Mining and Union Oil39 also recognized that an award of the full value of the mineral taken by a willful trespasser amounts to an assessment of punitive damages, as it is more than mere compensation. The Lightner Mining court concluded the award could be justified only as exemplary damages justified by oppressive, fraudulent, or malicious conduct.40 Neither of those courts, however, was faced with an argument of duplicative punitive damages, as both were addressing the issue from the standpoint of whether willful trespass damages could be assessed by a court sitting in equity, given their punitive damage nature.

36 Id. at 505. 37 Id. at 509. 38 Id. at 510. 39 Supra at 1222. 40 Id. at 705.

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[4] — Colorado.[a] — When a Willful Trespass Occurs in Colorado,

the Trespasser Is Not Entitled to Set Off the Mining Costs.

In Johnson v. Pavich,41 Colorado’s highest court considered a trespass by removal of sand and gravel. The Johnson court discussed whether the removal was the result of a willful trespass or an innocent mistake and the proper amount of damages.42 The court held that if the defendant “deliberately trespassed on the plaintiff’s property,” he was “not entitled to set off the cost of extraction against the value of the material taken.”43

The trial court concluded that prior to the defendant Johnson purchasing the property, he had knowledge of a pending lawsuit regarding title between the plaintiff Pavich and one Heisen.44 Although the trial court found that the title company negligently excluded certain instruments in the abstract, Johnson’s attorney discovered the missing instruments and discussed them with Johnson.45 As a result, the trial court found that Johnson deliberately trespassed on the plaintiff’s property and therefore was not entitled to set off the extraction costs against the value of the material taken.46 On appeal, the Colorado Supreme Court determined there was adequate evidence in the record to sustain the trial court’s conclusions, and the judgment was affirmed.47 There was no discussion of the possibility of punitive damages in addition to the willful trespass award.

[b] — Colorado Allows Punitive Damages for “Willful and Wanton” Trespass Claims.

To impose punitive damages, Colorado generally requires conduct more egregious than gross negligence, such as a willful and wanton disregard

41 Johnson v. Pavich, 451 P.2d 440 (Colo. 1969). 42 Id. at 442. 43 Id. 44 Id. 45 Id. 46 Id. 47 Id. at 443.

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for the plaintiff’s rights.48 The Johnson decision, analyzed above, did not consider or discuss punitive damages, possibly indicating that punitive damages are redundant and not typically awarded in addition to the already penalizing willful trespass damage measure.

In a case not involving an underlying award for willful trespass to minerals, the Colorado Court of Appeals in Evans v. Colorado Ute Elec. Ass’n allowed punitive damages in the following circumstances. Defendant acquired an easement on the plaintiff’s land to construct a power line across the property.49 The easement’s terms were that “the rights of ingress and egress to the right of way shall be limited to the presently existing roads or other necessary access roads to be mutually agreed upon by the grantor and grantee.”50 Plaintiff contended that the defendant’s contractor did not confine its ingress and egress to the easement boundaries and as a result, damaged plaintiff’s land, crops, fence, and a culvert.51 Plaintiff also contended that defendant acted with “willful and wanton disregard” of his rights and feelings.52 The trial court ruled against the defendant and awarded both compensatory and exemplary damages.53

The compensatory damage award was upheld on appeal. The Colorado Court of Appeals determined that the proper damages measure was the value of the lost crops plus the cost of restoring the fence, culvert, and compacted soil.54 The court also agreed that the evidence supported an exemplary damages award because the contractor continued to trespass and illegally use plaintiff’s land, even after being advised that it was not lawfully thereon.55 Defendant’s actions constituted a “willful and wanton disregard”

48 Evans v. Colorado Ute Elec. Ass’n, 653 P.2d 63, 65 (Colo. Ct. App. 1982). 49 Id. at 64. 50 Id. 51 Id. 52 Id. 53 Id. 54 Id. at 65. 55 Id.

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of plaintiff’s rights and therefore, exemplary damages were upheld.56 There was no indication that the compensatory damages awarded were anything more than actual damages.

We found no Colorado cases awarding willful trespass damages to minerals together with punitive damages. The aforementioned punitive damages award was coupled with a traditional compensatory damage award.

[5] — Illinois.[a] — Illinois Distinguishes Between a Good Faith

Trespasser and Bad Faith Trespasser Through the Damages Imposed.

Illinois distinguished between willful and innocent trespass in Lambach v. Town of Mason,57 which addressed the status of trespassers who drilled and converted oil. Relying on the U.S. Supreme Court opinion Guffey v. Smith,58 which considered the damages owed for an oil well drilled in good faith, the Lambach court focused on the defendant’s intent and concluded there was sufficient evidence to sustain a finding of good faith.59 The court held that the good faith trespasser was entitled “to credit for the reasonable cost and expenses of drilling, completing, equipping and operating the well and producing the oil which has been recovered therefrom, less the reasonable value of any of the equipment salvaged.”60

The Illinois court’s decision was based heavily upon the U.S. Supreme Court decision of Guffey v. Smith,61 an appeal from the Eastern District of Illinois. Guffey sued Solley and others for removing oil and gas from land to which both parties had obtained leases. The court found that a majority

56 Id. 57 Lambach v. Town of Mason, 53 N.E.2d 601 (Ill. 1944). 58 Guffey v. Smith, 237 U.S. 101 (1915). 59 Lambach, at 607. 60 Id. at 608. 61 Guffey v. Smith, 237 U.S. 101 (1915).

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of the oil extraction took place after the date upon which Solley and his associates became aware of Guffey’s claim.62 With respect to oil extracted prior to that event, however, defendants’ extraction costs should have been deducted from the award of damages.63 But after the defendants were aware of the Guffey’s adverse and rightful claims and were willfully taking the oil, plaintiffs were entitled to recover the full pipeline value for all oil taken with no deductions for expenses.64

[b] — Traditional Punitive Damages in Addition to Willful Trespass Damages for Full Value of Minerals Are Disallowed in Illinois.

The Illinois Supreme Court has recognized that the penalizing nature of willful trespass damages essentially constitutes an award of punitive damages. In Dethloff v. Zeigler Coal Co.,65 the court applied the penalizing rule of damages to a willful trespasser who trespassed, mined, and converted the defendant’s coal. The Dethloff Court considered that an award for the gross value of the coal taken amounted to a punitive damages award, and rejected the plaintiffs argument that traditional punitive damages in addition were warranted.66 The Dethloff Court observed that the “harsh” award of the full value of the coal was “by its very nature punitive” and that the defendant should not have to pay “what would be in effect ‘punitive damages upon punitive damages,’” or essentially a double recovery.67

In Dethloff, the defendant Zeigler obtained a mining lease from the Dethloffs’ predecessors, which had a term of 25 years “and for so long” . . .

62 Id. at 111. 63 Id. at 118 64 Id. at 119. 65 Dethloff v. Zeigler Coal Co., 412 N.E.2d 526, 535 (Ill. 1980). 66 Id. at 536. 67 Id.

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as “necessary to mine and remove all the coal in and under” the land.68 Upon the expiration of the 25 years, no coal was being removed from the leased land.69 The Dethloffs attempted to negotiate a new lease with Ziegler, but were unsuccessful.70 Although no new lease was executed, Zeigler began mining and delivered royalty payments to the Dethloffs.71 The Dethloffs did not cash these payments, and demanded that the mining operations cease.72 Zeigler continued to mine until all the coal was extracted.73

The Dethloffs sued for trespass.74 The trial court determined Ziegler to be a willful trespasser as a matter of law,75 and was upheld by the Illinois Supreme Court.76 Turning to the applicable measure of damages, the court stated:

Broadly speaking, most jurisdictions hold that one who in good faith trespasses and converts the coal for his own use may set off certain operating expenses against the value of the coal converted, whereas a willful trespasser may not and thus becomes liable for the coal at its market value. The refusal to allow these setoffs for labor and operational expenses has been held to be punitive in nature.77

In response to Ziegler’s argument that this measure of damages for willful trespass was archaic and failed to reflect economic reality, the court observed: “The rationale of refusing to allow a willful trespasser to deduct costs of production when damages are being assessed is, of course,

68 Id. at 530. 69 Id. at 529. 70 Id. 71 Id. at 529-530. 72 Id. 73 Id. 74 Id. at 528-529. 75 Id. at 533. 76 Id. at 534. 77 Id. at 534, citing Annot., 7 A.L.R. 908 (1920); Annot., 21 A.L.R.2d 380 (1952); American Law of Mining sec. 21.10 (1979) and cases cited therein).

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to discourage misconduct of that character. Courts have considered that the discouragement of these trespasses calls for what amounts to awards of punitive damages.”78

The Dethloff court relied upon the Ohio decision in Athens & Pomeroy Coal & Land Co. v. Tracy, discussed infra at [9][b], which recognized the willful trespass measure of damages as simply a fixed rule for exemplary damages established as a matter of public policy. While the Illinois Supreme Court was not faced with a challenge to a duplicative award for full value of the mineral plus traditional punitive damages, the court very explicitly characterized the willful damage measure as “punitive” and “a fixed rule for exemplary damages,” and affirmed the trial court’s refusal to award traditional punitive damages in addition as “punitive damages upon punitive damages.”79 Based upon these characterizations, the Illinois courts would presumably reject a duplicative willful trespass and punitive damage verdict as a matter of law if one were entered.

[6] — Indiana.[a] — Indiana Applies the Traditional Standard

of Awarding Compensatory Damages for Innocent Trespass and Full Value of the Mineral for Willful Trespass.

Indiana courts apply the traditional standard of awarding compensatory damages for innocent trespass and full value of the mineral for willful trespass. The Indiana Supreme Court has recognized it is “well settled that the measure of damages in cases of this kind, if the trespass or conversion is willful and intentional, is the value of the mineral at the time and place of the conversion, with nothing deducted for labor expended in mining and marketing it.”80 Conversely, “[i]f the taking is not willful, but is the result

78 Id. at 535. 79 Dethloff, supra, at 535-536. 80 Cypress Creek Coal Co. v. Boonville Mining Co., 142 N.E. 645, 651 (Ind. 1924).

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of a mistake, then the taker is entitled to have deducted from its value the cost of production.”81

In Cypress Creek Coal Co. v. Boonville Mining Co., a dispute arose as the result of two conflicting leases, both granting mineral rights under the same tract of land.82 Boonville Mining obtained the first lease, which stipulated that the lessee must begin operating within six months from the date of its execution.83 Although the lessee did not begin producing coal within six months, within that time necessary equipment was purchased and a number of necessary tasks were performed in order to begin production.84 Because no coal was produced within the first six months of the lease, the lessors treated the lease as terminated and ultimately leased the property to Cypress Creek, which opened a mine and produced coal.85

Boonville sued Cypress Creek for trespass. The trial court concluded that Boonville had made a good faith beginning to put the mine in working condition within the six-month period, as required by the lease, and that its efforts were sufficient to sustain the diligence requirements for commencement of operations.86 Because the second lease was made subject to all prior leases, Cypress Creek was held liable for mining coal to which it had no rights.87 The trial court awarded damages based on the coal’s value as it was removed from the mine, less the removal and production expenses.88

81 Id. citing Everson v. Seller, 4 N.E. 954 (Ind. 1885); Sunnyside Coal Co. v. Reitz, 39 N.E. 541, 43 N.E. 46 (Ind. Ct. App. 1895); and American Sand, etc., Co. v. Spencer, 103 N.E. 426 (Ind. Ct. App. 1913). 82 Cypress Creek Coal Co., 142 N.E. at 646. 83 Id. at 647. 84 Id. 85 Id. at 648. 86 Id. at 647, 650, 651. 87 Id. at 648. 88 Id.

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Cypress Creek’s primary argument was that the damages awarded to Boonville were excessive.89 The Illinois Supreme Court summarily rejected that argument, restating the traditional damage measures for willful and innocent trespass:

It is well settled that the measure of damages in cases of this kind, if the trespass or conversion is willful or intentional, is the value of the mineral at the time and place of conversion, with nothing deducted for labor expended in mining and marketing it. If the taking is not willful, but is the result of a mistake, then the taker is entitled to have deducted from its value the cost of production.90

[b] — Indiana May Allow Punitive Damages in Addition to Willful Trespass Damages.

An 1895 decision leaves some question as to whether willful trespass damages are considered punitive damages in Indiana.91 In Sunnyside, the trial court had given the traditional instruction for willful trespass: the value of the coal converted, without deduction of the mining and production costs of severing the coal.92 On appeal, the defendant complained about the trial court’s instructions. The appellate court explained:

The appellant further insists that the rule adopted by the court in its instructions permits the assessment of punitive damages. Punitive damages only commence where full compensation ends. Such damages lie exclusively in the discretion of the jury. The owner of personal property is entitled to recover it, or its value when converted. If an intentional trespasser is compelled to lose the labor which he has bestowed upon property converted, it results from the enforcement of a principle of law, and not from the varying discretion given to the jury in assessing the damages. We think the appellant cannot justly complain of the instructions bearing on the measure of damages.93

89 Id. at 651. 90 Id. 91 Sunnyside Coal, etc., Co. v. Reitz, 39 N.E. 541 (Ind. Ct. App. 1895). 92 Id. at 543. 93 Id.

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The authors are uncertain whether the court was saying that the willful damage assessment was not punitive, that such an assessment could have been made by the jury but was not and the defendant should have been pleased; or whether the court was agreeing that the willful trespass measure is necessarily punitive in nature, and that the defendant cannot be heard to complain that it has been forced to suffer the cost of its labor expended in severing and producing the mineral because that is the rule of law under which they were operating. Consequently, the status of Indiana as a potential “double-dip” state may remain in doubt until the Indiana courts have an opportunity to address the issue more directly.

[7] — Kentucky.[a] — Kentucky Also Follows the Traditional Damage


In North Jellico Coal Co. v. Helton,94 the Kentucky Court of Appeals outlined the differentiation in damages between an innocent and willful trespass in mineral cases. The innocent trespasser must compensate the victim for the value of the mineral as it lay underground, being “the usual, reasonable royalty paid for the right of mining.”95 The willful trespasser, on the other hand, is responsible to the victim for the full value of the converted mineral without credit for the cost of production.96 In the years that followed, Kentucky’s highest court decided many cases that solidified the law in the same manner.97 The Sixth Circuit Court of Appeals has also held that Kentucky law recognizes the same two measures of damage.98

94 North Jellico Coal Co. v. Helton, 219 S.W. 185, 186 (Ky. 1920). 95 Id. at 186. 96 Id. 97 See Morris v. Thomas Forman Co., 266 S.W. 873, 874 (Ky. 1924); Jim Thompson Coal Co. v. Dentzell, 287 S.W. 548, 549 (Ky. 1926); Griffith v. Clark Mfg. Co., 279 S.W. 971 (Ky. 1926); Johns Run Coal Co. v. Little Fork Coal Co., 3 S.W.2d 623, 624 (Ky. 1928); Leslie v. Elliot & Day Coal Co., 22 S.W.2d 104, 105 (Ky. 1929); Swiss Oil Corp. v. Hupp, 69 S.W.2d 1037 (1934). 98 Fordson Coal Co. v. Kentucky River Coal Corp., 69 F.2d 131, 132 (6th Cir. 1934)(applying Kentucky law); Delta Drilling Co. v. Arnett, 186 F.2d 481, 486 (6th Cir. 1950)(applying Kentucky law).

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In Hughett v. Caldwell County,99 Kentucky’s highest court decided that because compensation (and restoration of the injured party to as near as possible to his former position) was the chief aim in an innocent trespass circumstance, it should clarify the computation of damages imposed for same in Kentucky.100 The court held that if the property owner cannot extract the mineral himself in any practical or feasible way, or if he is merely holding the property for development in the unforeseeable future, the damage is the value of the mineral as it lay in the ground, typically measured by the customary and usual royalty at the time of mining.101 In this case, the plaintiffs were actively engaged in mining nearby, and were in a position to mine it themselves; consequently, the damages to plaintiffs were defined as the reasonable market value of the mineral less the reasonable cost incurred in mining (the realization plaintiffs could have enjoyed if it had not been taken).102 The Kentucky Court summarized the differing elements of innocent and willful trespass to minerals as follows:

A willful trespasser is one who knowingly and willfully encroaches or enters upon the land of another and takes his mineral without color or claim of right, or one who dishonestly or in bad faith mines minerals of another and converts them to his own use, while an innocent trespasser is one who does so under color of right or in good faith by mistake.103

Another Kentucky decision has more cryptically and succinctly described the difference between a willful and an innocent trespasser as “the one knows he is wrong and the other believes he is right.”104

99 Hughett v. Caldwell County, 230 S.W.2d 92, 96 (Ky. 1950). 100 Id. at 96. 101 Id. 102 Id. at 97. 103 Id. at 94. 104 Swiss Oil Corp. v. Hupp, 69 S.W.2d 1037, 1039 (Ky. 1934).

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[b] — A Willful Trespasser in Kentucky Is Penalized by Virtue of Having to Pay the Full Value of Minerals Taken.

In Hughett, Kentucky’s highest court repeated a premise articulated in Swiss Oil Corp. v. Hupp, supra, that a willful trespasser is “penalized” by the damages imposed, while an innocent trespasser only must make the owner whole. The Hughett court stated: “[w]e have consistently recognized that the obligation of a wrongful or willful trespasser is compensation in full for the mineral when mined without allowance for the expense, which is the imposition of a penalty.105 The Sixth Circuit Court of Appeals, construing Kentucky law, later recognized this same concept, concluding “Kentucky treats the award of an intentional trespasser’s gross profit as a penalty, but treats the award of an innocent trespasser’s net profit simply as compensation.106 This recognition of the penalizing, or punitive nature, of the willful trespass damages measure is consistent with Kentucky’s apparent use of the full value of the mineral standard as a formula for awarding punitive damages in such cases.

[c] — No Kentucky Cases Approve Awards of Both Willful Trespass Damages and Traditional Punitive Damages.

In Kentucky, without evidence of intentional misconduct or reckless disregard of the plaintiff’s rights, the issue of punitive damages may not be submitted to the jury.107 Likewise, any award for punitive damages for trespass must be supported by a showing of fraud, malice, or oppression.108

105 Hughett, 230 S.W.2d at 97 (emphasis added). 106 C.H. Hammonds v. Ingram Indus., Inc., 716 F.2d 365, 371 (6th Cir. 1983)(emphasis added). 107 United Services Auto Ass’n v. Bult, 183 S.W.3d 181, 186 (Ky. Ct. App. 2003); see also Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993). 108 See Holliday v. Campbell, 873 S.W.2d 839, 841-42 (Ky. Ct. App. 1994).

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In Holliday v. Campbell, the trial court ruled that Holliday had trespassed and wrongfully removed timber from Campbell’s land.109 The plaintiff proved that defendants knew they were cutting down plaintiff’s trees, failed to use good logging practices, topped the trees so as to damage nearby seedlings, increased the soil erosion on the land, and offered plaintiff only $1,000 for timber they had cut and sold for $10,000.110 Holliday also cut and removed additional logs after plaintiff had warned them they were trespassing.111 The jury awarded Campbell both the reasonable market value of the standing timber and an additional sum representing punitive damages.112 Holliday appealed, arguing that the issue of punitive damages should not have been submitted to the jury absent “proof of oppression, fraud or malice.”113

The court of appeals affirmed, finding sufficient evidence to submit the punitive damages issue to the jury.114 Nonetheless, the compensatory award was simply that – compensation for the standing value of the timber removed, as opposed to the sale value. Consequently, there was no duplication of punitive or penalizing damages.

We are aware of no Kentucky cases that approve awards of both willful trespass damages of full value of the mineral plus traditional punitive damages. Because punitive damages are, by their very nature, awarded to penalize the wrongdoer, it logically follows that they are redundant in the case of a willful trespass when the trespasser is being penalized by a required payment for the full value of the product, after having already paid for the cost of producing it. Any verdict for punitive damages above and beyond the gross profits would constitute double recovery, but no Kentucky cases provide this explicit analysis.

109 Id. at 840. 110 Id. at 841-842. 111 Id. at 842. 112 Id. at 840 113 Id. 114 Id.

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[8] — Maryland.[a] — Maryland Follows the Traditional Measures of Damage for Innocent and Willful Trespass to Minerals.

The measure of damage for trespass to minerals in Maryland is similar to most jurisdictions. However, in Maryland the measures are a product of both common law and legislation. In the case Superior Const. Co. v. Elmo,115 which apparently did not involve a taking of minerals, the Court of Appeals of Maryland nevertheless addressed the damage measure for mineral trespass in conjunction with its analysis of a punitive damage award made by the trial court sitting in equity. The court summarized the respective measures thus:

The liability of an innocent taker of minerals from the land of another ordinarily is measured by the value of the thing taken ‘in place’; that is to say, in the ground. The willful pilferer must pay the value of the mineral when ready for market, or even the amount of the proceeds received by the wrong-doer, without recompense for the cost of labor and expenses.116

Maryland has legislation providing for the measure of damages for mineral trespass, which currently provides as follows:

§ 11-202. Damages for Wrongful Mineral Removal.

(a) In the absence of fraud, negligence or willful trespass, the measure of damages for the wrongful working and abstracting of another’s minerals is the value to the person from whose property they were taken at the time of the taking of the minerals in their native state, before severance.

115 Superior Const. Co. v. Elmo, 104 A.2d 581, 582 (Md. 1954). 116 Id. at 582.

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(b) If the minerals were abstracted furtively or in bad faith the measure of damages is the value of the minerals ready for market without allowance for labor and expenses.117

[b] — Traditional Punitive Damages Remain Available for Willful Trespass in Maryland.

Maryland, unlike most jurisdictions, has indicated, albeit in dicta, that the victim of a willful trespass could conceivably recover both willful trespass damages and traditional punitive damages. In Mt. Savage Georges Creek Coal Co. v. Monahan, the Court of Appeals of Maryland considered an appeal from a judgment awarding damages for trespass to coal.118 After making reference to both the prior common law allowing recovery of the value of the coal mined without deduction of expense of severing same, as well as Maryland’s statutory provision which was similar, the court noted that the trespassing defendant “might in addition to that be liable for exemplary damages, as the statute should not be construed to prohibit such damages if the circumstances justified them.”119 The Maryland court also referenced an earlier Maryland case which held that, if proven that the defendant knew the lands mined were not its own, plaintiffs would be entitled to recover the value of the coal without deducting the cost of severance together with exemplary damages.120

Nearly 40 years after the Mt. Savage decision, the Court of Appeals of Maryland reiterated this same concept in Superior Const., supra. After setting out the recovery for willful trespass, as noted in subsection [a] above, the court stated: “These enhanced damages are generally held to be compensatory, not punitive. In addition, where the trespass is willful, punitive

117 Md. Code Ann., Cts. & Jud. Proc. § 11-202. 118 Mt. Savage Georges Creek Coal Co. v. Monahan, 104 A. 480 (Md. 1918). 119 Id. at 483. 120 Id. at 482, citing Barton Coal Co. v. Cox, 39 Md. 1, 17 Am. Rep. 525 (Md. 1873).

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damages may be recovered also.”121 The court’s remarks were made in the context of a case that did not involve a mineral taking, but demonstrate that, at least as of 50 years ago, the Maryland Court of Appeals was still inclined to approve awards for both willful trespass and punitive damages, if justified by the circumstances of the case. We have found no cases where this has actually occurred.

[9] — Ohio.[a] — Ohio also Follows the Standard Measures for

Innocent and Willful Trespass to Minerals. In Ohio’s mineral trespass cases, “[t]he underlying principle is to award

the owner of . . . coal . . . taken innocently, but under a mistaken idea of right, full compensation for his property so taken.”122 Ohio allows an owner to recover the coal’s value in situ, being the full value to the owner.123

In Brady, the property owner sued, alleging that Reiser, who operated an adjacent mine, trespassed onto plaintiff’s land and removed coal, despite Reiser’s knowledge that it owned no coal in the vein.124 Plaintiff alleged that Reiser “willfully, wrongfully, unlawfully, and knowingly” removed the coal.125 In reviewing the jury instructions regarding measures of damages, the Ohio Supreme Court summarized the contrasting rules for damages in trespass cases:

[T]he measure of damages for coal taken without right, but innocently or by mistake, and under the belief that it was the property of the taker, is the value of the coal in place… .126

. . .

121 104 A.2d at 582. 122 See Brady v. Stafford, 152 N.E. 188 (Ohio 1926). 123 Id. at 192. 124 Id. at 190. 125 Id. at 191. 126 Id. at 192.

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As to the measure of damages for coal taken willfully, intentionally, wrongfully, and knowingly, and without right, the measure of damages is the market value of the coal mined, at the time of the removal, without any deduction whatsoever.127

The court explained that the measure of damages for coal taken willfully was justifiably more harsh because the wrongdoer could not be allowed any compensation from his wrongful act.128

[b] — Ohio Expressly Recognizes Willful Trespass Damages as a Punishment and a Fixed Rule for Exemplary (Punitive) Damages.

Ohio courts have expressly characterized the willful trespass measure of the full value of the mineral as punitive in nature. The measure is prescribed to punish the wrongdoer, and to serve as a deterrent.129

In Athens& Pomeroy Coal & Land Co. v. Tracy, the plaintiff Tracy alleged that defendant Athens knowingly and willfully mined and removed portions of Tracy’s coal.130 Athens admitted to mining the coal, but denied the removal was willful.131 Tracy brought a two-part cause of action, first requesting damages in conversion for the coal taken (also known as trover) and also seeking damages for the trespass itself, claiming that it damaged his property and left the remaining coal unminable.132 The trial court found for Tracy and allowed recovery for the coal taken, but denied damages arising from the trespass itself.

On appeal, the measure of damages was challenged.133 The trial court instructed the jury that if the conversion was willful, the measure of

127 Id. 128 Id. 129 Athens & Pomeroy Coal & Land Co. v. Tracy, 153 N.E. 240, 244 (Ohio Ct. App. 1925). 130 Id. at 241. 131 Id. 132 Id. 133 Id. at 244.

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damages was the value at the tipple of the coal taken.134 Athens argued that the measure of recovery should have been the coal’s value as it lay on the floor of the mine immediately after it was severed.135 The court of appeals found Ohio law to be settled that when the conversion is innocent, the true owner may only recover the “value of the coal in situ” and if the conversion is willful, the recovery is for “the value on the tipple of the coal taken.”136 The court explained that the harsh measure in the event of willful conversion “is nothing more or less than the application of a fixed rule for exemplary damages imposed as a matter of public policy.”137 Otherwise, observed the court, “there would be no inducement for the evil-minded conversioner to refrain from the trespass.”138 Citing to an old Ohio authority, the court added: “The fact that the trespasser is to lose the labor and expense he had put upon property he has wrongfully taken results as a punishment to him for what he has done.”139

As a result of the Tracy court’s analysis, Ohio falls clearly into the group of states that appear to disallow both willful trespass damages for the full value of the mineral and traditional punitive damages. Ohio considers the willful trespass damages themselves to be punitive or exemplary, awarded to punish and deter the wrongdoer. While we find no Ohio authority directly refusing a “double-dip” of punitive damages, it is a state that would apparently refuse to affirm such an award.

[10] — Oklahoma. [a] — Oklahoma also Follows the Traditional

Damage Measures for Innocent and Willful Trespass to Minerals.

In Oklahoma, as in most states, a willful trespass to minerals entitles the property owner to recover the enhanced value of the mineral taken from the

134 Id. 135 Id. 136 Id. 137 Id. (emphasis added). 138 Id. 139 Id. (emphasis added).

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premises, without any deduction for expenses incurred in producing it.140 On the other hand, an innocent trespasser who acts inadvertently or under a claim of right, with a bona fide belief of title, is liable only for the value of the mineral less the production expenses.141

In Zelma Oil Co. v. Nemo Oil Co., the plaintiff brought an action seeking a declaration that certain oil and gas leases assigned to Nemo Oil Company were void.142 The trial court found Nemo liable for the profits derived from the oil and gas removed but allowed deductions for the company’s production expenses to arrive at the net profit amount.143 The plaintiff appealed, contending that it was entitled to recover the oil’s highest market price and that the trial court erroneously allowed the defendant credit for the work performed and materials supplied.144 The plaintiff argued that Nemo had actual and constructive notice of the fraudulent nature of the assigned leases and should therefore be treated as a willful trespasser.

The Oklahoma Supreme Court refused to treat Nemo as a willful trespasser, finding that Nemo was operating under leases it believed to be valid.145 The court also found that even if Nemo had continued to operate the wells after notice of the plaintiff’s claims, it was justified in doing so because a party producing oil or gas may cause irreparable harm to the property by shutting down a well after receiving notice of their defect in title; therefore, it was in the plaintiff’s best interest for Nemo to continue to operate the wells after receiving notice of the trespass.146 The court concluded that it would have been inequitable to penalize Nemo for doing that which was necessary to preserve the property of the plaintiff and that it should be treated as an innocent trespasser.147

140 Zelma Oil Co. v. Nemo Oil Co., 203 P. 203, 205 (Okla. 1921). 141 Id. 142 Id. at 204. 143 Id. 144 Id. 145 Id. at 206. 146 Id. 147 Id.

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[b] — Oklahoma Considers the Penalizing Damages Imposed for Willful Trespass Analogous to Exemplary Damages.

Oklahoma courts also apparently consider the penalizing damages imposed for willful trespass as punitive or exemplary in nature. As noted above, in Zelma Oil the Oklahoma Supreme Court recognized that for willful trespass, the trespasser is liable for the enhanced value of the mineral product when and where it is converted, without any deduction for expenses incurred in producing it.148 In analyzing whether that standard should apply, the court expressly acknowledged that the damage measure for such a willful trespass “would be analogous to permitting the recovery of exemplary damages.”149 Under the circumstances presented by the case, with the trespassing operator taking the responsible course by continuing to operate and produce the oil and gas and thereby protect the interest of all parties, the court concluded that the damages awarded “should be compensatory only.”150 By so explaining its decision, the court clearly recognized the compensatory nature of the measure for innocent trespass and the exemplary or punitive nature of the measure for willful trespass.

[11] — Pennsylvania. [a] — For Willful Trespass in Pennsylvania, a

Property Owner Is Entitled to the Value of the Coal in Place, Detention Money, and Compensation for Taking Without Consent.

Pennsylvania distinguishes between the damages imposed for innocent and willful trespass, but has fashioned its own distinct remedies for the differing levels of culpability. A previous statutory right to treble damages has

148 Id. at 205. 149 Id. at 206. 150 Id.

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been repealed; the most recent statement of Pennsylvania law on the subject now appears to be Smith v. Benjamin Coal Co.151 In Smith, an owner of coal rights sued Benjamin to enjoin strip mining and to recover damages for coal removed.152 After ownership was resolved in Smith’s favor, a damages hearing occurred.153 Smith argued that when coal was mined without the owner’s consent, a damages award based on royalty value was extremely unfair and that instead, she should be entitled to the profits earned.154 The court found merit in her arguments.155

To explain its conclusion, the Smith court first considered Stark v. Pennsylvania Coal Co., in which it was held that the royalty rate was the applicable measure of damages when the defendant’s conduct was an innocent mistake.156 The Smith facts were quite different than those in Stark, however. The Smith record established that Benjamin mined the coal knowing there were two claims of ownership, over Smith’s repeated protests, and without searching the title or making proper surveys.157 The court concluded that Benjamin ran the risk of paying “just compensation” to Smith.158 To determine the “just compensation” amount, the court considered:

1. The value of the coal in place, as measured by the prevailing royalty rate, if that is the best available measure;

2. Detention money; and

3. An amount, reasonable in all circumstances, to compensate the plaintiff for defendant’s taking without consent some of the incidents of ownership of the coal (including the right to

151 Smith v. Benjamin Coal Co., 420 A.2d 754 (Pa. Super. Ct. 1980). 152 Id. at 756. 153 Id. 154 Id. 155 Id. at 757. 156 Id., citing 88 A. 770 (Pa. 1913). 157 Id. at 758. 158 Id.

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determine when to develop or to sell the coal, with whom to deal, and at what rate and under what specific terms).159

Unlike most jurisdictions, under Pennsylvania law the coal’s value after mining less the mining expense is to be used as a measure only if there is no evidence demonstrating the value of the coal in place.160

In Francis v. Darlington Brick and Mining Co., defendant mined coal on a tract of land adjoining the Nixon farm.161 Plaintiffs, being the owners of mining rights to the Nixon farm, brought a suit alleging defendant knowingly and wrongfully extended its operations into plaintiffs’ coal.162 The defendant was also charged with removing supports under some of the coal, rendering it unminable.163 The main issue at trial was whether damages were to be based on the coal’s value in place, or in the alternative, its value at the mouth of the pit, minus mining and removal costs.164

On appeal, the Pennsylvania Superior Court noted as a well-settled rule that the coal’s value at the mouth of the mine, less production costs, was never to be used to measure damages if there were evidence of its value in place.165 In this case, the evidence demonstrated the mining rights had no market value and the coal in place, subject to the royalty, also had no market value.166 Consequently, the court held that this was a peculiar case in which the plaintiff’s loss could not be remedied by awarding the market value of the mining rights, and could only be compensated by awarding the coal’s value at the mouth of the mine, less transportation costs.167 In essence, the

159 Id. 160 Francis v. Darlington Brick and Mining Co., 99 Pa. Super. 526, 1930 W.L. 3658 at *2 (Pa. 1930); see also Copenhaver v. Markle-Bullers Coal Co., 7 Pa. D.&C. 3d 344 (Pa. Com. Pl.), 1978 WL 525 (1978). 161 Id. at *1. 162 Id. 163 Id. 164 Id. at *2. 165 Id. 166 Id. 167 Id.

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plaintiffs were entitled to recover their forecasted profits if they had mined and sold the coal themselves.168

[b] — In Pennsylvania Willful Trespass Cases Combined with Blatant Fraud and Breach of Fiduciary Duty, Damages Are the Full Value of the Minerals Produced, Not Punitive Damages.

In Gribben v. Carpenter, willful trespass to minerals was accompanied by the aggravating circumstance of blatant fraud.169 The Pennsylvania Supreme Court held that the trespassers were “not entitled to compensation or credit for labor or for any expenditures for fixtures or equipment, either in the acquisition or maintenance of plaintiff’s well.”170 This is essentially the traditional damages for willful trespass. Consequently, in a willful trespass case combined with blatant fraud and breach of fiduciary duty, the court allowed not “punitive” damages in the traditional sense, but simply allowed recovery of the full value of the minerals produced.

In Gribben, the plaintiff inherited rights to a tract of land that included a producing well.171 Because plaintiff inherited the land as a minor, her uncle, who inherited a similar tract of land, became her guardian and managed the land.172 Thereafter, the guardian launched a scheme to defraud the plaintiff of the land’s profits.173 The court entered a decree finding for the plaintiff, cancelling the fraudulent leases, and ordering an accounting for all the gas taken and sold.174 Upon a rehearing, the chancellor found that the plaintiff should have had enough knowledge of the facts to inquire about the schemes within two years after reaching majority and barred her

168 Id. 169 Gribben v. Carpenter, 185 A. 712, 714 (Pa. 1936). 170 Id. at 716. 171 Id. at 713. 172 Id. 173 Id. at 714. 174 Id.

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from recovery by sustaining a laches defense. The case was dismissed, and plaintiff appealed.175

On appeal, the Pennsylvania Supreme Court overruled the laches decision,176 and addressed the measure of damages.177 Prior to its dismissal for laches, the trial court found that the defendant “willfully and fraudulently commingled and confused” the amount of gas the plaintiff’s well produced with gas produced on another tract.178 Based on this finding, the supreme court held that the proper measure of damages was the full value of the gas produced.179 The defendant was not permitted to credit expenditures in acquiring or maintaining the plaintiff’s well.180 The court did not characterize the award as punitive damages, but granted recovery for the full value of the minerals produced.181 In an earlier case, however, the Supreme Court of Pennsylvania did recognize damages awarded for willful trespass as punitive, to be assessed for punishment of a willful wrong-doer.182

[12] — Tennessee.[a] — For Innocent Trespass in Tennessee,

Damages Awarded to Owners Are the Coal’s Value In Situ; Willful Trespass Requires a Disgorgement of Profits.

In a Tennessee title dispute that resulted in mining despite a prohibitive injunction pending resolution of the dispute, the court awarded the owner not just the value of coal in situ (reasonable royalty value), being the standard

175 Id. 176 Id. at 715. 177 Id. at 716. 178 Id. 179 Id. 180 Id. 181 Id. 182 The Blair Iron and Coal Co. v. Lloyd, 3 W.N.C. 103, 1874 WL 13039 (Pa. 1874).

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measure of damages for innocent trespass in Tennessee, but required a disgorgement of the profits realized from the mining.183

In Staub v. Sewanee Coal, plaintiffs sued Sewanee for mining coal from their property both prior to and during litigation.184 On appeal, the primary issue was whether the chancellor correctly determined the damages as the “value of the coal at the tipple, less the cost of mining.”185 Both parties contested that measure.186 The plaintiff argued that the “harsh” rule for measuring damages should have been applied and the defendant sought the application of the “mild” rule, which bases damages on the “value of coal in situ.”187

The court held that because the defendant conducted its mining operations in disregard of the plaintiffs’ injunction, holding the defendant liable for only the royalty value of the coal, or its value in situ, would allow the defendant to profit from unlawful operations.188 The court also refused to apply the harsh measure of damages, as there was a serious dispute over the rightful owner of the land. The court concluded disgorgement of all profits was a sufficient and proper penalty.189

In a more recent, although unreported decision,190 the Court of Appeals of Tennessee continued to recognize the “mild” rule for measurement of damages for innocent trespass (although the court did not specify the measurement under the mild rule) and the “harsh” rule (being the value of the mineral after severance) for application to willful trespass.191 The court relied on its decision in Potter v. Tucker,192 but distinguished the facts of

183 Staub v. Sewanee Coal, Coke & Land Co., 205 S.W. 320, 322 (Tenn. 1918). 184 Id. at 321. 185 Id. at 322. 186 Id. 187 Id. 188 Id. 189 Id. 190 Carmack v. Earp, 2005 WL 1021549 (Tenn. Ct. App. 2005). 191 Id. at *6. 192 Potter v. Tucker, 688 S.W.2d 833 (Tenn. Ct. App. 1985).

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the two cases, concluding that the “mild” rule was properly applied by the trial court on the Carmack claim for trespass and taking of soil and gravel, while the “harsh” rule was appropriate for the Potter case. The Potter case involved a trespass and taking of timber, but the court said that the rules of mineral trespass applied.193 The court refused to overturn the jury’s finding of willful trespass, based upon lack of effort by the defendant to locate a boundary line combined with the extent of the trespass (cutting 75 acres of timber on the plaintiff’s land) which the court characterized as a “rather reckless abandon.”194

[b] — Tennessee Courts Have Not Addressed Punitive Damages in Willful Trespass Cases.

In an 1887 decision, Dougherty v. Chesnutt,195 the Supreme Court of Tennessee addressed the proper application of the “mild” rule for value in situ versus the “harsh” rule for the value of the mineral after severance, without compensation for mining and preparation costs incurred. The plaintiff obtained a lease to quarry marble, the property description being limited to “his farm known as Rose Hill.”196 Defendants later bought the farm and began to quarry the marble at issue, contending the lease was void under the statute of frauds for lack of a sufficient description.197 After denying the statute of frauds defense, the court addressed the proper measure of damages.198

Defendants argued that they should be held liable only for the marble’s value in situ, before being removed, and plaintiff argued to uphold the chancellor’s award of the value of the marble after it was quarried, cut, dressed and removed from the property.199 The court began its analysis

193 Id. at 836. 194 Id. at 837. 195 Dougherty v. Chesnutt, 5 S.W. 444, 447-8 (Tenn. 1887). 196 Id. at 444. 197 Id. at 445. 198 Id. at 446. 199 Id.

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by stating that the damages rule in an equitable proceeding is that of “just compensation.”200 The court addressed the two measures typically used in mineral trespass cases. The mild rule, applied when the trespass is mistaken or inadvertent, charges a trespasser with the mineral’s value in situ and is usually based on the usual and customary royalty in the area. The harsh rule is applied when the trespass is malicious, or done with full knowledge of the title of another and with willful disregard of the true owner’s rights; it charges the defendant with the value of the mineral after severance, without compensation for mining and market preparation.201

The Dougherty court did not agree that either the mild rule or harsh rule were appropriate under the circumstances of the case.202 Applying the mild rule allows defendants to virtually annul the lease and take the operating profits, while surrendering nothing but the royalty stipulated by the lease.203 But applying the harsh rule would punish the defendants when they acted in an honest, but mistaken, belief that plaintiff had no right to the marble.204 The court held that the appropriate measure of damages to accomplish just compensation was the value of the marble “as quarried, cut, and dressed, ready for market,” but with credit given to defendant for the “reasonable cost of quarrying, cutting, and dressing.”205 The court held that such a rule prevents defendants from profiting by their trespass, but simultaneously allows the plaintiff to benefit from his lease. The court was not ready to say the defendants had acted in willful disregard, but concluded they were operating under an honest, though erroneous opinion. As a consequence, the court had no basis to apply the harsh rule.206

200 Id. 201 Id. 202 Id. 203 Id. 204 Id. 205 Id.206 Id.

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In its analysis, the Dougherty court characterized both the mild and harsh rules as “rules of compensation.”207 This would imply that Tennessee does not view the harsh rule awarding full value of the mineral as punitive. On the other hand, the Staub court characterized the defendant as “sufficiently punished” for violating the injunction by the “deprivation of all profits from its operations.”208 If deprivations of profits are a punishment, then certainly deprivation of the entire sales price, being the traditional measure for willful trespass, would be a very harsh punishment. But there is no real indication from the Tennessee decisions that its courts would refuse to entertain a punitive damage award in a mineral trespass case, given the right circumstances.

[13] — Texas.[a] — Texas Follows the Traditional Damage

Measures for Good Faith and Bad Faith Trespass to Minerals.

In Texas, when the removal of minerals is done in good faith, the plaintiff may recover the minerals’ value in situ – that is, the value of the minerals in the ground.209 These damages are sometimes referred to as “net profit damages.”210 This measure is the minerals’ fair market value, less the defendant’s cost of bringing them to the surface and to market.211 In contrast, when minerals are removed in bad faith, the plaintiff is entitled to recover damages for what is referred to as the minerals’ “enhanced value,” which is its full value without deduction for the cost of recovery or value added in processing.212

207 Id. at 446. 208 Staub, 205 S.W. at 322. 209 582 S.W.2d 159, 161 (Tex. Ct. App. 1979). 210 See Maxvill-Glasco Drilling Co. v. Royal Oil & Gas Corp., 800 S.W.2d 384, 386 (Tex. Ct. App. 1990). 211 Id. 212 Karell v. West, 616 S.W.2d 692, 697 (Tex. Ct. App. 1981).

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[b] — Texas Finds a Distinction Between Willful Trespass Damages for the Full Enhanced Value of Minerals and Punitive Damages, and Allows Recovery for Both.

In Dahlstrom Corp. v. Martin, Dahlstrom attempted to negotiate a lease with the plaintiff Martin for the right to remove soil and fill dirt from Martin’s land.213 Although a lease was never executed, the parties agreed to a price.214 Dahlstrom’s agents began excavating and removing dirt from Martin’s land in the belief the land had been properly leased.215 Martin sued Dahlstrom for wrongful conversion of the dirt and was awarded the sum of one dollar per cubic yard of dirt removed, being the assessed market value of same.216

The Texas Court of Civil Appeals observed that one who willfully or in bad faith trespasses and removes minerals from the land of another is liable to the owner for the full value of the minerals at the time they were converted to the trespasser’s use.217 Such a trespasser is held “liable for the enhanced value of the product when and where it is finally converted, without deduction for expenses or for any value added by his labor.”218 But a trespasser who mistakenly encroaches on another’s property under a bona fide belief of title is usually liable for the minerals removed, based on the value in place before being disturbed.219 The court concluded there was sufficient evidence to support a finding that Dahlstrom understood it was invading the rights of Martin, and consequently was in the position of a willful trespasser and liable for the full value of the dirt removed.220 However, the trial court also

213 Dahlstrom Corp. v. Martin, 582 S.W.2d 159 at 161 (Tex. Ct. App. 1979).214 Id. at 162. 215 Id. 216 Id. at 163-4. 217 Id. at 161. 218 Id. 219 Id. 220 Id. at 162.

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apparently awarded exemplary damages,221 as the appellate court determined that the “trial court erred in awarding exemplary damages” because there was no evidence of fraud, malice, oppression or evil intent.222 Although the Dahlstrom court reversed the award of exemplary damages,223 it did so for lack of sufficient evidence, and said nothing recognizing the willful damage award as punitive in nature or suggesting that exemplary damages were not possible in addition to willful trespass damages.

On the exemplary damage issue, the court found some significance that the underlying claim was not in trespass, but was for conversion, and relied upon a prior decision involving conversion of soybeans for the authority to recover both actual and exemplary damages.224 The court’s analysis either failed to take into account the fact that the underlying award for the full market value of the dirt as excavated and loaded in trucks was more than the actual damage to the landowner, or implicitly considered it to be actual. The court’s remarks in Dahlstrom remain dicta, however, as the court reversed the exemplary damage award for insufficient evidence.

More direct on the issue of this chapter is the opinion in Karell v. West,225 which also involved a claim of wrongful removal of dirt, but in this case the claims were asserted in trespass. The plaintiffs prevailed on their ownership claim, and on appeal the dispute ultimately turned to damage issues. The Texas Court of Appeals determined that because the jury found the defendants sold the dirt and sand “in conscious and reckless disregard of the rights and interests” of the plaintiffs, the trial court was justified in

221 The opinion does not indicate the amount of exemplary damages awarded or the basis for the award. 222 Id. at 164. 223 Id. at 165. 224 The decision relied upon Ogle v. Craig, 464 S.W.2d 95 (Tex. 1971), which did not on its face involve anything other than an award of truly actual damages for soybeans converted plus exemplary damages, so in the authors’ view would not be authority for awarding exemplary damages in addition to an enhanced value recovery such as enhanced damages for willful trespass. 225 Karell v. West, 616 S.W.2d 692 (Tex. Ct. App. 1981).

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measuring damages based on the value per cubic yard of the soil removed, representing the full and enhanced value of that dirt.226 The defendants asserted that the “full value” damages constituted an award of exemplary damages and that it should not have been allowed since it conflicted with the jury’s finding that exemplary damages were not warranted.227 In response, the court discussed the difference between enhanced recoveries and exemplary damages with the following:

Enhanced recoveries and exemplary damages should not be equated. Enhanced recoveries are the result of a measurement used in determining actual damages when a trespasser’s actions are not in good faith. Enhanced recoveries do not afford the tortfeasor a return of the expenses incurred in enhancing the product.

Exemplary damages, on the other hand, are meant to punish the tortfeasor only after actual damages have been awarded.228

The Karrell opinion leaves no doubt about where Texas stands on awarding both willful trespass damages and punitive damages for the same trespass injury. It dealt with a trespass claim, used the damage measure for willful trespass to minerals,229 and expressly characterized the full market value recovery as “enhanced” yet “actual damages.”

Based upon the Dahlstrom and Karell decisions, it is apparent that Texas courts distinguish between enhanced damages for willful trespass and exemplary or punitive damages. The Texas courts appear reluctant to treat the full value or “enhanced” recovery damages as anything other than compensatory, despite the fact that plaintiffs who recover them achieve much more than mere compensation. As a result, under current Texas decisions,

226 Id. at 698. The appellate court, however, reduced the per cubic yard amount awarded to a lower rate pleaded in the Complaint. 227 Id. 228 Id. 229 There may be variance among some jurisdictions as to whether soil constitutes a mineral, but the Karrell court applied the willful mineral trespass measure. Id. at 697.

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awards for both willful trespass to minerals plus punitive damages are available.

[14] — Virginia.[a] — Virginia Uses the Traditional Standards,

Awarding Compensatory Damages for Innocent Trespass and Full Value of the Minerals for Willful Trespass.

In usual cases, Virginia follows the traditional dichotomy between damage measures for innocent and willful trespass. In French v. Strange Mining Co., the Supreme Court of Appeals of Virginia addressed a claim of trespass by the mining of manganese ore. With regard to damages, the court held:

The complainants are not entitled . . . to recover the purchase price of the ore as a finished product. This would be the measure of damages if the defendants had been willful trespassers, but they cannot be so regarded. The measure of damage in this case is the value of the ore in place, or what may be termed its royalty value.230

In Douthat v. Chesapeake and Ohio Railway Co., the Virginia Supreme Court concluded that where the defendant was an innocent trespasser and the stone taken had no royalty and no market value, the proper damage measure should be not the royalty value, but the diminution in the property’s overall market value, as no other value measure was available.231 The jury was instructed that if the defendant proceeded in good faith and was not a willful trespasser, it could not be liable for more than the difference in the land’s before and after value.232 The supreme court cited Pittsburgh Gas Co. v. Pentress Gas Co.233 for the general rule that damages for an inadvertent

230 French v. Strange Mining Co., 114 S.E. 121, 126 (Va. 1922). 231 Douthat v. Chesapeake and Ohio Ry. Co., 30 S.E.2d 578, 581 (Va. 1944). 232 Id. 233 Pittsburgh Gas Co. v. Pentress Gas Co., 100 S.E. 296 (W. Va. 1919).

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trespass are the value of the minerals as they lay undisturbed in the mine, or if that value cannot be ascertained, the value of the mineral removed at the mouth of the pit, less mining and transportation costs.234 But the stone taken in this case had no royalty value and no market value, and there was no proof regarding the stone’s value at the quarry less production. Thus, the supreme court concluded that the trial court properly refused plaintiff’s tendered instruction on those measures and approved the instruction given for the difference in before and after values of the acreage affected.235

[b] — Virginia Courts Have Not Addressed Whether Punitive Damages May Be Awarded in Addition to Enhanced Value Willful Trespass Damages.

In Hamilton Development Co. v. Broad Rock Club, Inc., the plaintiff and defendant owned adjacent parcels of real estate.236 After having a surveyor straighten the property line by knowingly using .176 acres of plaintiff’s land, the defendant encroached on the acreage, cleared the trees and also removed soil.237 The plaintiff sued seeking compensatory and punitive damages.238 The evidence at trial showed the value of the dirt and soil removed to be between $26,430 and $29,300.239 The jury awarded the plaintiff $20,000 in compensatory damages and $200,00 in punitives. The defendant appealed.240 The Supreme Court of Virginia granted an appeal but only for consideration of punitive damage issues.241 There was no indication of the basis or formula for the “compensatory” damage award.

234 Douthat, supra at 580. 235 Id. at 581. 236 Hamilton Dev. Co. v. Broad Rock Club, Inc., 445 S.E.2d 140, 141 (Va. 1994). 237 Id. 238 Id. 239 Id. 240 Id. 241 Id. at 142.

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On appeal, the defendant argued that the evidence was insufficient to support the punitive damages award.242 The court held that punitive damages could be recovered only when there was evidence of “misconduct or actual malice, or such recklessness or negligence as to evince a conscious disregard of the rights of others.”243 In the court’s opinion, there was sufficient evidence that defendant’s conduct demonstrated a conscious disregard of the plaintiff’s property rights.244 Although the punitive damage award was 10 times the size of the compensatory award, the court noted that there was “no rigid standard for measuring punitive damages,” the size of the award being within the jury’s discretion.245 According to the Hamilton Development court, the amount of a jury verdict may be declared excessive only when “the size of the award shocks the conscience of the court and creates the impression the jury was biased” or prejudiced.246 The Virginia Supreme Court found that defendant’s conduct warranted such a judgment and therefore it was affirmed.247 Since there was no discussion of the basis or formula for the compensatory damage award, it is not possible to determine from the Hamilton Development decision whether the court was allowing punitive damages on top of a penalizing or punitive type award for the value of the soil removed.

In two federal decisions based on Virginia law, it is implied that the Virginia measure of damages for willful trespass is more than compensatory in nature, i.e., that it included punitive elements. In Mullins v. Clinchfield Coal Corp.,248 the owner of minerals sued the surface owner for coal displaced

242 Id. at 143. 243 Id., citing Giant of Virginia, Inc. v. Pigg, 152 S.E.2d 271, 277 (Va. 1967). 244 Id. 245 Id. at 144. Note that this decision preceded the trio of U.S. Supreme Court cases finding constitutional due process limitations based upon the ratio of compensatory and punitive damages. See, infra at IV.04 [1]. 246 Id. at 144. 247 Id. 248 Mullins v. Clinchfield Coal Corp., 227 F.2d 881 (4th Cir. 1955).

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in excavating a site for a tipple. While the Fourth Circuit Court of Appeals took issue as to whether the action constituted a trespass, it concluded that the mineral owner was entitled to compensation on the same basis as if it were an innocent trespass.249 As to the measure of damages, the court held:

It is established law in Virginia and elsewhere that where the removal or displacement of the coal is done innocently and in good faith, compensatory damages only can be recovered, and that such damages should be based on the value of the coal in place, in other words, its royalty value [citations omitted].

It is only where the trespass is willful that a higher measure of damages may be allowed. [citations omitted].250

Relying on the Mullins decision, the district court in Payne v. Consolidation Coal Co. another coal trespass case, commented as follows on the relative measures of damage for innocent and willful trespass:

Where a trespasser encroaches on the land of another, mining and removing minerals innocently and in good faith, only compensatory damages may be recovered. The basis for the damages is the value of the coal in place, its royalty value. Where a trespass is willful a higher measure of damages may be allowed; then, the trespasser shall pay the full value of the ore at the time he sells or uses it.251

Both of these courts referred to the damages applicable to innocent trespass as “compensatory” in nature and those recoverable for willful trespass as “a higher measure.” While neither court specifically called that higher measure “punitive,” if it is higher than compensatory, we submit that it must be punitive or exemplary in nature. But we find no Virginia decisions

249 Id. at 884. 250 Id. at 885. 251 607 F. Supp. 378, 381-82 (W.D. Va. 1985)(citing Mullins v. Clinchfield Coal Corp., 227 F.2d 881 (4th Cir. 1955)).

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either excluding the possibility of punitive damages on top of willful trespass damages or approving such “double-dip” damages.

[15] — West Virginia.[a] — West Virginia Also Follows the Traditional

Damage Measures for Innocent and Willful Trespass to Minerals.

West Virginia courts apply the compensatory/penalizing damages rule fairly consistently. Condry v. Pope252 held that where there was no bad faith on the part of trespassers, the measure of damages was the value of the minerals after severance minus the reasonable cost of production. The trespassers were granted credit for their expenditures, having to disgorge their profits only. In contrast, the court in Petrelli v. West Virginia-Pittsburgh Coal Co.253 concluded that, where the trespassers had knowledge of their encroachment on plaintiff’s property, they committed the trespass willfully, and the resulting measure of damages was the value of the minerals without deduction for expenses.

Bryan v. Big Two Mile Gas Co.254 is a more recent case demonstrating the application of both measures. In Bryan, the defendant Big Two Mile Gas Co. (BTM) held an oil and gas lease from the plaintiff. The primary term of the lease was a year, which was automatically extended thereafter as long as oil or gas was produced.255 BTM ceased gas production twice after the primary term of the lease expired. Liability issues focused on whether the cessations were temporary excused lapses, or cessations sufficient to trigger termination. The owner Bryan was not aware of the first cessation, but the second time BTM discontinued production, Bryan told BTM she considered the lease terminated. Later, she engaged an attorney to write BTM a letter

252 Condry v. Pope, 166 S.E.2d 167, 171 (W. Va. 1969). 253 Petrelli v. West Virginia-Pittsburgh Coal Co., 104 S.E. 103, 105 (W. Va. 1920). 254 Bryan v. Big Two Mile Gas Co., 577 S.E.2d 258 (W. Va. 2001). 255 Id. at 263.

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declaring the lease terminated. Nevertheless, BTM resumed and continued production without permission.256

The jury found for the owner Bryan and the trial court held that she was entitled to damages based on the reasonable royalty value for all gas produced after BTM’s first cessation of production. Bryan appealed, asserting that she was entitled to the value of the gas and oil removed without any deduction for production costs.257

The Supreme Court of Appeals of West Virginia overturned the damage measure in part, noting that after the second production interruption, Bryan repeatedly told BTM it did not have the right to the property and refused the accept BTM’s royalty checks.258 The court concluded the circumstances dictated a finding of willful trespass as a matter of law. For this transgression the mineral owner was entitled to recover damages in the amount of the “full value of the gas taken from the well without any deduction for costs of production.”259 Notwithstanding, the record did not support a finding of willful trespass for the first cessation of production, so for the period after the first cessation and until the second cessation, Bryan was entitled to recover only the value of the gas taken less cost of production.260

[b] — Availability of Traditional Punitive Damages in Addition to Willful Trespass Damages in West Virginia Remains Unclear.

More that 80 years ago, the Supreme Court of Appeals of West Virginia stated that the harsh measure of damages for willful trespass to minerals was not punitive in nature.261 But the statement was not material to the court’s decision, and we find no West Virginia decisions explicitly authorizing

256 Id. 257 Id. at 264. 258 Id. at 268. 259 Id. at 269. 260 Id. 261 Pan Coal Co. v. Garland Pocahontas Coal Co., 125 S.E. 226, 227 (W. Va. 1924).

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traditional punitive damages in addition to willful trespass damages. However, one recent decision, Bryan, infra, implies that a willful trespass award constitutes an award of punitive damages and declines to address the possibility of punitive damages for that reason.

In Pan Coal v. Garland Pocahontas Coal, Pan Coal and Garland held mineral leases on adjoining properties. Garland mined and removed coal from several sections of Pan Coal’s lease and Pan Coal sued to recover for the coal removed and also for injury to its unmined coal. The trial court ruled in favor of Pan Coal and awarded damages on both of its claims. Garland appealed.

Garland claimed at trial that it was authorized to mine coal from one section of Pan Coal’s lease based on a parol agreement made with its agent.262 Because Garland claimed a bona fide right to mine coal under that agreement, the question of whether the trespass was willful or wanton should have been submitted to the jury.263 But the trial court had refused Garland’s offered instruction allowing in essence a net profit recovery – the value of the coal at the mouth of the mine less the cost of mining and removal.264 The supreme court concluded it was erroneous to have refused such an instruction, the refusal having been based on the trial court’s mistaken ruling that the trespass was willful as a matter of law.265 The court determined that Garland would be liable for the coal’s value at the pit mouth with no credit for mining and hauling expenses only if the jury found the trespass to be willful.266

Turning to the claim of sterilized coal, the court stated as follows:

It will be noted that the same measure of damages [in the trial court’s instruction] is applied to the coal not mined, but rendered unminable,

262 Id. at 229. 263 Id. at 230. 264 Id. 265 Id. 266 Id.

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as is applied to that mined. This cannot be the law, even where the trespass is willful. This is not a case for exemplary or punitive damages, but one for compensation only. The theory upon which the plaintiff recovers for willful, but not malicious, trespass, as for the mining of coal, where he seeks to recover the value of the coal at the pit mouth, is that the title to the coal remained in the plaintiff up to that time; that the conversion takes place when it is loaded on the lines of the common carrier, and plaintiff is entitled to the value as of the time of the conversion. The trespasser, when he seeks to reduce the amount of the recovery by the amount expended in mining the coal, and bringing it to the pit mouth, does so, not on the theory that it became defendant’s coal when it was severed from the vein, but on the ground that he has in good faith, in an honest belief that he had the right, expended labor and money on plaintiff’s property, before it was converted, and therefore is entitled to the amount of his expenditures. But where coal is left unmined and made unminable, there is no conversion. As to that, plaintiff can recover only for the value in place; that is, in the coal vein. Of course, if the trespass were malicious, a different rule would prevail as respects punitive damages, but not for compensatory damages.267

In its official syllabus, the court stated as follows regarding this same point:

In an action for the recovery of the value of coal mined by a trespasser, the damages therefore are compensatory only, whether the trespass be innocent or willful. The disallowance of labor and expense, in cases of willful trespass, is not based on the ground of allowing plaintiff exemplary or punitive damages, but on the principle that one who willfully commits a wrong is not entitled to profit thereby. . . .268

267 Id. at 233-34. 268 Id. at 226.

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The purpose of these statements seems unclear, as they do not appear to have any direct bearing on the issue before the court. It is possible Pan Coal argued for application of the willful trespass damages rule to the sterilized coal as a way to achieve punitive damages for Garland’s conduct, but that is rather speculative. Regardless of the purpose, the court expressly characterized the damage measure for either innocent or willful trespass as “compensatory only” and stated that the disallowance of deduction for labor and expense in the case of willful trespass “is not based on the ground of allowing plaintiff exemplary or punitive damages, but on the principle that one who willfully commits a wrong is not entitled to profit thereby . . . .”269 While the rationale appears weak – the measure for innocent trespass also deprives the trespasser of its profit – the court clearly characterizes the willful trespass measure as not punitive in nature. Nevertheless, the court does not appear to contemplate allowing punitive damages on top of a willful trespass measure. The court made no reference to punitive damages on the willful trespass claim, but on the sterilization claim stated that the proper measure was the value of the coal in place (purely compensatory in nature), plus punitive damages if shown to be malicious in nature.270

Contrasting the statements made by the Pan Coal opinion in 1924 is a more recent holding from the same court. In Bryan v. Big Two Mile Gas Co., supra, after reversing the trial court and imposing willful trespass damages (being the full value of the gas produced), the court held in this 2001 decision:

Mrs. Bryan also assigns as error the trial court’s rulings with respect to her request for special damages, unjust enrichment damages, treble damages, waste damages, punitive damages, attorney fees, and prejudgment interest. The damages methodology that we have required upon remand in large measure addresses many of the

269 Id. 270 Id. at 234.

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arguments and principles that underlie these requests, and we decline to disturb the trial court’s rulings thereon.271

The “damages methodology” referenced to would be the full value of the minerals awarded for willful trespass. This holding appears to recognize the punitive nature of willful trespass damages, but is certainly less than explicit in recognizing that concept as the basis of refusing to consider the request for punitive damages.

Finally, consideration should be given to Bullman v. D&R Lumber Co.272 when evaluating the likely outcome of this issue in West Virginia. In this timber trespass case, the jury awarded the plaintiff Bullman $5,000 in compensatory damages273 and $25,000 in punitive damages. The defendant argued that by bringing the action under a treble damage statute, W. Va. Code, 61-3-48a (1983), Bullman chose a remedy which was itself punitive and the punitive damage award was “tantamount to double recovery.”274 The court initially indicated the point had some merit.275 The Supreme Court of Appeals of West Virginia ultimately rejected the defendant’s argument, however, and affirmed the award. The reasons are highly material to the topic under review.

The court focused on the legislative intent behind the treble damage statute, and concluded the Legislature did not intend to preclude recovery of punitive damages. First, the court pointed out, the statue was not intended to punish the wrongdoer, but merely to compensate the victim. This was evident by virtue of the fact that no mens rea, willful conduct, or evil intent is required to trigger the treble damage statute. Moreover, reasoned the court, the Legislature must have foreseen that the trivial damages produced by many

271 Bryan, supra, at 270. 272 Bullman v. D&R Lumber Co., 464 S.E.2d 771, 773 (W. Va. 1995). 273 The compensatory award was composed of (a) $3100 representing three times stumpage value of the trees taken, (b) $1400 for repairs to the land, and (c) $500 for property loss. 274 Id. 275 Id. at 775.

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“before and after” damage assessments would not adequately compensate victims for their cost and trouble of bringing suit without some enhanced compensation measure.276 The court cited two additional points in support of its ruling. First, it was noted that part of the compensatory award was not the trebled value of the timber taken, but was for repair to damaged land and loss of property value. The punitive damages could have been justified by those unenhanced compensatory awards alone. Also, the court concluded, the statute itself expressly provides that the treble damages “shall be in addition to and notwithstanding any other penalties by law provided.”277 The court expressed the need to adhere to the legislative edict as well as the legislative intent and affirmed the awards.278

While one might argue, based on the mere result in Bullman, that if both treble and punitive damages are available in a wrongful cutting of timber case, then the gross value willful trespass measure and punitive damages should both be available in a willful trespass of minerals case. That, we submit, would be an erroneous application of the court’s ruling. Instead, it would appear that the court was inclined to approve the multiple awards only because they were not overlapping and duplicative, i.e. because the statutory treble damage award was merely compensatory and not dependent upon evil or willful conduct, and because the statute expressly said that its remedy was in addition to all other legal remedies. In the case of willful trespass damages measured by full sales value of the mineral, virtually all courts recognize same as having a penalizing or punitive aspect. If the West Virginia Court were to agree, under its reasoning in Bullman one could predict it would reject the duplicity produced by a willful trespass award and a punitive damage award. But as noted above, in the 1924 Pan Coal decision, the court stated that willful trespass damages were merely compensatory. If that reasoning holds up in West Virginia, then one can assume an argument that willful

276 Id. at 776. 277 Id. at 777. 278 This decision was rendered before any of the U.S. Supreme Court decisions discussed infra at § 4.03, and no constitutional due process issue was addressed.

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trespass damages and punitive damages are duplicative will also fail, much as the defendant’s argument of duplicity in Bullman failed.

[16] — Wyoming. [a] — Wyoming Has Accepted the Traditional Damage


Although authorities on the issue are sparse in Wyoming, like the majority of jurisdictions, Wyoming has accepted and applied the compensatory and penalizing rules respectively for measuring damages for mineral trespass. In Martel v. Hall Oil Co.,279 the Supreme Court of Wyoming recognized the traditional damage measures for innocent and willful trespass, although neither were applicable under the peculiar facts of the case. Similarly, in United States v. State of Wyoming,280 the U.S. Supreme Court noted that those traditional damage measures were not in dispute.

In Martel, the plaintiffs owned the oil and gas rights, but had not developed same. The defendant, whose lease had been terminated, had entered the premises and drilled. The drilling was unsuccessful, as no oil or gas was found and hence none was removed. Plaintiffs claimed their oil and gas rights had a market value prior to the defendant’s drilling, but that the market value was ruined by the defendant’s drilling which proved them worthless.281 The court directed a verdict for the defendant and the plaintiff appealed.282

Although the Wyoming Supreme Court concluded that the ordinary rules for mineral trespass did not apply, because here nothing was taken other than what the court deemed to be a speculative claim of market value, the court did recognize the traditional measures of damage for trespass to minerals, stating:

279 Martel v. Hall Oil Co., 253 P. 862 (Wyo. 1927). 280 United States v. State of Wyoming, 331 U.S. 440, 448 (1947). 281 Martel at 865. 282 Id. at 862.

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Now in the ordinary case of trespass, where oil or other minerals are removed from land, the trespasser, if in good faith, is permitted to deduct his expenses from the value of the mineral taken from the land. Even in the case of willful trespass, he will merely lose what he has produced, without reimbursement for the expenses which he has incurred.283

The court rejected the plaintiffs claims of damage to the market value of their oil and gas rights as too speculative, noting the anomalous fact that their claim in substance was that defendants drilling had revealed the truth of the value of their rights and deprived plaintiffs of the opportunity to market those rights for more than their true worth and thereby receive something for nothing.284 Although the plaintiffs did have the right to lease their land and could have leased it more profitably before the defendant drilled it unsuccessfully, the court was not inclined to protect such a right.285 As a result, plaintiffs were entitled to nothing more than nominal damages for the interference with their exclusive right to drill.286 According to the general rule, because plaintiffs were not entitled to actual damages, they were not entitled to recover punitive damages.287

In U.S. v. Wyoming, supra, the U.S. Supreme Court, sitting as a court of original jurisdiction, resolved a dispute between the United States and Wyoming as to ownership of certain lands and ruled on the damage claim of the U.S. for oil drilling and production that had occurred under a lease made by the State of Wyoming. The Supreme Court recognized the applicability of the traditional rules pertaining to innocent and willful trespass as follows:

An agreed premise is found in the rule that one who ‘willfully’ or ‘in bad faith’ trespasses on the land of another and removes minerals

283 Id. at 864. 284 Id. at 866. 285 Id. 286 Id. at 867. 287 Id., citing Sutherland on Damages (4th Ed.) § 406.

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is liable to the owner for their full value computed as of the time the trespasser converted them to his own use, by sale or otherwise, but that an ‘innocent’ trespasser, who has acted ‘in good faith,’ may deduct from such value the expenses of extraction.”288

The Court concluded that the U.S. had proven ownership, but that the master appointed to hear the matter had erroneously rejected proof of willfulness or bad faith of the State and its lessee, so remanded for the taking of evidence and further consideration of that issue as it would affect the damages to be awarded.289

[b] — Wyoming Has Not Addressed the Recoverability of Both Willful Trespass Damages and Punitive Damages.

The authors were unable to locate any Wyoming decisions that addressed the recoverability of both willful trespass damages and punitive damages. Inferences may be drawn either direction from the cases referenced above.

In Martel, supra, Wyoming’s Supreme Court held that “[e]ven in the case of willful trespass, [the trespasser] will merely lose what he produced, without reimbursement for the expenses he incurred.”290 This characterization may imply that Wyoming does not consider willful trespass damages to be punitive in nature, although more likely it is nothing more that another way of stating the damage formula for punitive damages. The court rejected the plaintiffs’ argument for punitive damages, stating that “[i]nasmuch as the plaintiffs are not entitled to any actual damages, they are not, according to the general rule, entitled to any punitive damages.”291 One might infer that the court would have entertained punitive damages if actual damages had been awarded. But because the potential measure of actual damages would more

288 U.S. v. Wyoming, supra, at 458. 289 Id. at 459-60. 290 Id. at 864. 291 Id. at 867.

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likely have been the difference in the before and after values of the plaintiffs’ property rights, and not mineral trespass damages since no minerals were taken, even the inference is of no relevance to the issue here.

In U.S. v. Wyoming, there was no discussion whatsoever of punitive damages even though the U.S. was contending entitlement to willful trespass damages. The case was remanded for consideration of the good faith or bad faith of Wyoming, so as to allow a proper determination of whether the U.S. was entitled to recover the full value of the oil extracted as sought in the pleadings, but again there was no reference to the possibility of punitive damages in addition. One could infer that such punitive damages were not available in addition to the willful trespass damages, but such an inference may be conjecture.

§ 4.03. Do Willful Trespass Damages Violate Constitutional Limits of Due Process?

[1] — Modern U.S. Supreme Court Rulings on Punitive Damages.

[a] — BMW of North America, Inc. v. Gore.292 In BMW v. Gore, defendant Gore bought a new car from BMW. Later

he found out that the car had been damaged and repainted prior to his purchase.293 Gore sued BMW for failure to disclose, which he claimed constituted fraud under Alabama law, seeking compensatory and punitive damages.294 BMW’s explanation at trial was that their nationwide policy was not to disclose damage to new cars when the cost of repair did not exceed three percent of the cars retail value.295

A jury awarded $4,000 in compensatory damages and $4 million in punitive damages, based on a finding that BMW’s “nondisclosure policy

292 BMW of North America, Inc. v. Gore, 517 U.S. 559, 563 (1996). 293 Id. at 564. 294 Id. 295 Id. at 563.

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constituted ‘gross, oppressive or malicious fraud.’”296 The evidence presented at trial suggested that 984 cars had been refinished and sold by BMW as new, which reduced each car’s value by $4,000.297 The jury multiplied $4,000 by the approximate number of cars sold under these conditions (1,000) and arrived at a punitive damage award of $4 million.298 BMW appealed, claiming the punitive damage award was grossly excessive.299 Alabama’s Supreme Court reduced it to $2 million.300 BMW argued that the magnitude of the award violated the Due Process Clause and was granted certiorari by the Supreme Court of the United States.301

The U.S. Supreme Court discussed the nature of and standards imposed on punitive damage awards. The Court suggested three guideposts be used to determine whether a defendant had adequate notice of the economic penalties it may be subjected to, including: [1] the “degree of reprehensibility” of defendant’s harm; [2] the “disparity between the harm or potential harm” and the punitive damage award, and [3] the difference between the punitive damage award and “civil penalties authorized in comparable cases.”302 With regard to the second factor, the Court rejected the idea that a rigid mathematical formula comparing actual damages to punitive damages could be relied upon to check the constitutionality of an exemplary damage award.303 This is because there are circumstances in which high and low ratios may be justified. The punitive damage award against BMW, as modified by Alabama’s Supreme Court, was 500 times the amount of actual damage plaintiff incurred. Because the defendant’s conduct was not “particularly egregious,” nothing about the case justified awarding such a high ratio of

296 Id. at 565. 297 Id. at 564. 298 Id. 299 Id. at 565. 300 Id. at 567. 301 Id. at 568. 302 Id. at 575. 303 Id. at 582.

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punitive damages.304 This Court held that a single digit ratio is about the limit for punitive damages which satisfy due process and a 4-1 ratio may be the limit in most cases.305

[b] — State Farm v. Campbell.306 In State Farm v. Campbell, the U.S. Supreme Court again addressed the

measure of punishment, by means of punitive damages, a state may impose upon a defendant in a civil case. The Court explained that compensatory damages are intended to redress the concrete loss the plaintiff has suffered and punitive damages are aimed at deterrence and retribution.307 The Court repeated the premise that there are procedural and substantive due process limitations on grossly excessive or arbitrary punishments.308

Citing to the three guideposts articulated in BMW v. Gore, supra, the Court determined that the case was neither close nor difficult and that it was error to reinstate the jury’s $145 million punitive damages award.309 It should be presumed that a plaintiff has been made whole for his injuries by compensatory damages, so the Court held that punitive damages should be awarded only if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence.310

Although the Court refused again to impose a bright-line ratio which a punitive damages award may not exceed, the Court did conclude that few awards exceeding a single digit ratio between punitive and compensatory damages will satisfy due process, and an award of more than four times the amount of compensatory damages might be close to the line of constitutional

304 Id. 305 Id. at 581. 306 State Farm v. Campbell, 538 U.S. 408 (2003). 307 Id. at 416. 308 Id. 309 Id. at 418. 310 Id. at 418.

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impropriety.311 When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.312 In sum, the State Farm Court stressed that courts must ensure the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.313

[c] — Phillip Morris USA v. Williams. Phillip Morris v. Williams314is the U.S. Supreme Court’s most recent

pronouncement on the acceptable scope of a punitive damages award. In this case, the Court was asked whether the constitutional due process clause permits a jury to base a punitive damages award, in part, on its desire to punish the defendant for harming persons who are not before the court.315 The Court concluded that such an award would amount to a taking of the defendant’s property without the requisite due process of law.316

The Oregon Supreme Court had approved plaintiff’s recovery of $79.5 million dollars in punitive damages on top of a $821,000 compensatory damages award.317 Phillip Morris argued that the punitive damages award was grossly excessive.318 The Supreme Court granted certiorari to determine Phillip Morris’ claim that Oregon had unconstitutionally permitted it to be punished for harming non-party victims, and decided to vacate the Oregon judgment and remand the case for further proceedings.319

The Court discussed the BMW v. Gore factors, but primarily focused on a pronouncement that the constitution’s due process clause forbids a

311 Id. 312 Id. at 426. 313 Id. 314 Phillip Morris USA v. Williams, 127 S. Ct. 1057 (2007).315 Id. at 1060. 316 Id. 317 Id. at 1061. 318 Id. at 1062. 319 Id.

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state from using a punitive damages award to punish a defendant for injury inflicted on non-parties, or those whom they directly represent, i.e., strangers to the litigation.320 The case was remanded to Oregon because, “although the states have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases.”321

Probably the most significant aspect of the Phillip Morris decision to the issue addressed here is that it demonstrates, four years after State Farm, that a majority of the Court remains sensitive to due process constraints on punitive damages awards. This is of some significance, as the BMW and State Farm decisions were made with Justices Rehnquist and O’Conner still on the Court and in the slim majority of those decisions, but the Phillip Morris decision follows their departure and finds Chief Justice Roberts and Justice Alito in its majority opinion. Consequently, for the present the constitutional restraints on punitive damages appear to remain stable.

[2] — Application of Modern Supreme Court Jurisprudence to the Traditional Measure of Damages for Willful Trespass.

There is no question that constitutional due process places both procedural and substantive limits on a state’s power to award punitive damages. Not only is there an argument that imposing punitive damages on top of the already harsh and penalizing willful trespass damages authorized in most states violates due process, but traditional willful trespass damages awards themselves may violate substantive due process under the Supreme Court’s recent decisions discussed above.

Using a coal example, assuming a $50 per ton sale price, a six percent royalty (producing a $3 per ton royalty payment), and mining costs and overhead of $40 per ton, the producer would enjoy a net profit of $7 per

320 Id. at 1063. 321 Id. at 1065.

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ton. Compensatory damages under the measurements in most jurisdictions would be either the $3 per ton royalty or the $7 per ton profit. However, the willful trespass measure imposed in most jurisdictions would result in an award of $50 per ton. Compared to the compensatory measures of $3 per ton and $10 per ton, this would result in a ratio of 7-1 or 17-1 between willful trespass, or penalizing damages, and actual compensatory damages. The former ratio would strain the limits established in recent authorities, and the latter would substantially exceed those limits. Thus, the harsh and penalizing damage measure preventing the producer from deducting mining costs and overhead may by itself fall outside constitutional due process limits in many states. Traditional punitive damages imposed on top of the willful trespass damages would make such awards even more suspect under constitutional standards.

We have seen no efforts to challenge the constitutional validity of any of the willful trespass measures in any of the jurisdictions examined, but given the standards now imposed by the Supreme Court, would expect to begin to see same.

§ 4.04. Conclusion.Punitive damages are definitely available for willful trespass claims,

despite what they may be called in a given jurisdiction. Because awarding the full sales value of the mineral as damages is punitive itself, virtually all jurisdictions authorize awards of damages that are penalizing, punitive, and exemplary in nature for willful trespass to minerals. What is much less certain is which jurisdictions would allow traditional punitive damages in addition to those willful trespass awards. Certainly several have suggested or even insisted not (including Alaska, Arkansas, California, Illinois, Kentucky, Ohio, Oklahoma, and Pennsylvania), while others have suggested they might (including Indiana and Maryland), and one (Texas) has actually done so. Even more uncertain is whether willful trespass awards alone, or traditional punitive damage awards in addition to willful trespass awards, can be successfully challenged under relatively new due process standards emanating from the Supreme Court. Answers to these questions must remain open for future discourse.

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