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"An Important Victory for Minnesota's Rails-To-Trails," Minnesota Real Estate Journal, October 2004

The DNR vs. Hess Decision

October 8, 2004

The Minnesota Supreme Court recently ruled in favor of the DNR, in an important deed interpretation case that confirmed the State's ownership of a disputed portion of the Paul Bunyan trail. Many view the decision in Department of Natural Resources v. Hess as an important victory for preserving the integrity of Minnesota's rails-to-trails systems. The Hess case involved a dispute between the DNR and several private landowners regarding the ownership of a 2-mile portion of the trail, which is part of an abandoned railroad corridor that the DNR obtained in 1991 at a cost of over $1.5 million. The dispute between the DNR and the private landowners arose out of conflicting interpretations of the handwritten 1898 deed that created the disputed portion of the railroad corridor and caused the Supreme Court to reexamine its long-established approach to interpreting railroad right of way deeds.

The Supreme Court's analysis in Hess focused on the precise legal nature of the interest created by the original 1898 deed from a private landowner to a railroad company. In dispute was whether that deed created merely an easement for railroad purposes or a fee interest with the possibility of forfeiture by the railroad if it ceased using the land for railway purposes. While this somewhat arcane legal distinction would have made little difference back in 1898, the distinction became quite significant when Minnesota adopted the Marketable Title Act ("MTA") in 1943. The MTA was enacted by the Legislature to prevent outdated use restrictions from unduly fettering the marketability of property. Under the MTA, a restriction on use of land, such as a requirement that land be used for railroad purposes, that is not created or reasserted within the previous 40 years ceases to be enforceable.

The landowners in Hess took the position that the nature of the original interest in the disputed land was an easement, and that this easement had been abandoned by the railroad when it removed its tracks during the late 1980's. As a result of this abandonment, the landowners claimed that the disputed strip of land reverted back to their private ownership. On the other side, the DNR asserted that the 1898 deed created a fee interest with a use restriction that was no longer enforceable.

The DNR prevailed at the trial court, only to have the Court of Appeals reverse the trial court, relying on several Minnesota Supreme Court decisions from the early 1900's - Norton and Zahner - where the Court had found that deeds to railroads that had used the phrase "right of way" served to create easements and not fee interests. The term "right of way" has been a source of much litigation over the years due to the imprecise nature of that term. "Right of way" can refer to a right of passage over land or to the strip of land itself and is a term of art in the utility industry rather than a legal category of property rights. The Norton and Zahner cases were representative of a common anti-railroad bias exhibited by a number of courts during the late 1800's and early 1900's. This bias resulted from the strong public disapproval of the massive grants of public lands to private railroads during the mid-1860's, when over one hundred million acres of public lands were acquired by railroad companies across the country. For example, in connection with the construction of the Transcontinental Railroad, the United States granted the participating railroads 20 square miles of land for each mile of rail line constructed. The public resentment of these grants was so great that many courts went to great lengths to tightly interpret railroad deeds against the railroads, often ruling that deeds to railroads that used the term "right of way" were presumed to only create easements.

The Minnesota Supreme Court reversed the Court of Appeal's ruling and held that the DNR had good fee title to the disputed strip of land, free and clear of any residual use restrictions arising from the 1898 deed. Much to the chagrin of the one dissenting justice, the Court departed from its past presumptions that deeds for "rights of way" created easements, as previously established in the old Norton and Zahner cases. Instead, the Court examined the original deed to determine the intent of the parties to the 1898 deed. The Court justified this departure from the Norton and Zahner approach to deed interpretation, in part, on the basis that both of those prior cases predated the passage of the MTA, which the Court characterized was a watershed change in how Minnesota viewed property rights. The Court's analysis focused on a detailed examination of both the technical and contextual attributes of the handwritten 1898 deed. Based on this examination, the Court concluded that the parties to the 1898 deed had intended to create a fee interest in the disputed strip and not an easement. Furthermore, the Court found that any use restrictions established in the 1898 deed had been extinguished under the MTA's 40-year rule. Finally, the Court observed that their departure from the old Norton and Zahner decisions conformed with current public policy interests that included not disturbing settled property expectations, protecting the public's interest in the trail system and not rewarding private parties with an unjustified windfall.

Undoubtedly, supporters of the rails-to-trails program are relieved by the Court's decisions in Hess. Had the Supreme Court ruled in the other direction, it could have opened up a Pandora's Box of potential adverse title claims against portions of Minnesota's public trail system.

This article was published in the October 2004 issue of the Minnesota Real Estate Journal, Vol. 20, No. 10.

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