Judge Linda S. Marks, Case 2021-01217911 2022-11-07 Tentative Ruling

Judge: Linda S. Marks, Case: 2021-01217911, Date: 2022-11-07 Tentative Ruling

Motion for Judgment on the Pleadings filed by NP Jefferson, LLC and North Palisade Partners, LLC on 7/18/22

Defendants, North Palisade Partners, LLC and NP Jefferson, LLC (“Defendants”), move for judgment on the pleadings against Plaintiff REDU Holdings, LLC (“Plaintiff” or “REDU”) as to the second and third causes of action set forth in Plaintiff’s First Amended Complaint (FAC).

Legal Standard

The Court may grant a motion for judgment on the pleadings filed by a defendant on the grounds the Court has no jurisdiction of the subject of the cause of action alleged in the complaint or the complaint does not state facts sufficient to constitute a cause of action against the moving defendant. (Code Civ. Proc., § 438(c)(1)(B).) The grounds for such a motion must appear on the face of the challenged pleading or from any matter of which the Court is required to take judicial notice. (Id., § 438(d).)

A motion for judgment on the pleadings has the same purpose and effect as a general demurrer, i.e., the trial court is asked to determine whether the complaint raises an issue that can be resolved as a matter of law. (Smiley v. Citibank (1995) 11 Cal.4th 138, 146; Westly v. Board of Admin. (2003) 105 Cal.App.4th 1095, 1114.) Like a demurrer, a motion for judgment on the pleadings admits, for purposes of the motion, the truth of all material facts that have been pleaded. (Consolidated Fire Protection Dist. v. Howard Jarvis Taxpayers’ Ass’n (1998) 63 Cal.App.4th 211, 219.)

Requests for Judicial Notice

Defendants seek judicial notice of:

1) Deed between the Stern Realty Company and the General Petroleum Corporation dated May 24, 1920 and recorded on May 27, 1920;

2) Unit Agreement for the Richfield East Dome Unit, Richfield Oil and Gas Field, Orange County, California, dated October 15, 1969, recorded on December 30, 1969 as Instrument No. 18862;

3) Notices of Intention to Drill New Well submitted to the California Department of Natural Resources, Division of Oil and Gas in 1953;

4) Memorandum of Lease between the Stern Realty Company (as lessor) and the State Exploration Company (as lessee), recorded on November 19, 1952; and

5) Idle Well report generated by the California Department of Conservation, Geologic Energy Management Division for the well referred to as REDU Z3.

REDU seeks judicial notice of:

1) Notice of Submission of Fully Executed REDU Asset Purchase Agreement, filed in the bankruptcy case of HVI Cat Canyon, Inc., Case No. 9:19-bk-11573-MB, in the U.S. Bankruptcy Court for the Northern District of California, Northern Division, on September 23, 2020;

2) Order Authorizing (A) The Trustee’s Sale to REDU Holdings, LLC of Assets Free And Clear of All Liens, Claims, Encumbrances, and Interests, (B) The Assumption and Assignment of certain Executory Contracts and Unexpired Leases, Related Cure Amounts, and (C) Granting Related Relief, filed in the bankruptcy case of HVI Cat Canyon, Inc., Case No. 9:19-bk-11573-MB, in the U.S. Bankruptcy Court for the Central District of California, Santa Barbara Division, on October 15, 2020;

3) Quitclaim Deed, recorded in the official records of Orange County as document number 2020000613367, on October 28, 2020; and

4) Trustee’s Notice of Motion and Motion for Orders, filed in the bankruptcy case of HVI Cat Canyon, Inc., Case No. 9:19-bk-11573-MB, in the U.S. Bankruptcy Court for the Northern District of California, Northern Division, on August 28, 2020.

The Requests for Judicial Notice are GRANTED. (Evid. Code, § 452, (b), (d), (g).)

Merits

“Declaratory relief operates prospectively to declare future rights, rather than to redress past wrongs. . . . Where, . . . , a party has a fully matured cause of action for money, the party must seek the remedy of damages, and not pursue a declaratory relief claim.” (Canova v. Trustees of Imperial Irr. Dist. Employee Pension Plan (2007) 150 Cal.App.4th 1487, 1497.) “To qualify for declaratory relief under section 1060, plaintiffs [are] required to show their action . . . present[s] two essential elements: ‘(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party.’. . . ‘The ‘actual controversy’ language in . . . section 1060 encompasses a probable future controversy relating to the legal rights and duties of the parties.’ . . . It does not embrace controversies that are ‘conjectural, anticipated to occur in the future, or an attempt to obtain an advisory opinion from the court.’ ” (Lee v. Silveira (2016) 6 Cal.App.5th 527, 546.)

a. Relevant Allegations of the FAC:

REDU alleges it acquired assets of an oil well known as the Richfield Dome East Unit located in Anaheim/Placentia, California in October 2020. (FAC, ¶ 1.) REDU also holds a Working Interest in the Unit Agreement for the oil well, which includes easements and rights of way on, in or under certain areas for oil site purposes. (FAC, ¶ 2.)

On November 16, 2020, REDU gave notice of intent to perform redevelopment activities in connection with two facilities it operates within property located at 1477 Jefferson Street, Anaheim, California (the “Jefferson Property”). (FAC, ¶¶ 3, 5.) The Jefferson Property is owned by NP Jefferson and managed by Defendant North Palisade. (FAC, ¶ 7.) The proposed redevelopment would involve building a tertiary recovery polymer Flood Plant designed to extract significantly more crude oil from the oil field. (FAC, ¶ 5.)

REDU alleges the proposed changes are within the scope of the easement granted and do not materially increase the burden on the servient estate. (FAC, ¶ 6.) However, North Palisade has taken the position that REDU’s proposal is prohibited by the Unit Agreement. (FAC, ¶ 7.) Defendant North Palisade has also threatened to interfere with REDU’s easement rights by proposing construction of a distribution warehouse and parking facility within the Jefferson Property. (FAC, ¶ 8.)

b. Second Cause of Action for Declaratory Relief:

Defendants argue the second cause of action fails because: (1) REDU fails to allege a legal basis for constructing a facility on the Jefferson Property for the benefit of adjacent parcels and burdening NP Jefferson without consent; and (2) REDU has not alleged that NP Jefferson is bound by the subject Unit Agreement. In support of their first argument, Defendants cite to Wall v. Shell Oil Co. (1962) 209 Cal.App.2d 504, which holds: “where a person purchases the oil and mineral rights in a specific tract of land, the surface area of such lands may be subjected only to such burdens as are reasonably necessary to the full enjoyment of the mineral estate in such particular specific parcels and the surface area may not be burdened by installations or surface fixtures designed to serve oil producing facilities located without the parcels[.]” (Id., at p. 513.) Defendants contend that REDU’s own allegations show the proposed flood plant is designed to increase oil production from other parcels in the Richfield East Dome Unit, not just the Jefferson Property, in violation of the rule set forth in Wall.

REDU argues that Defendants assume that the Flood Plant would be used to increase oil production from other parcels in the Richfield East Dome Unit but this is a factual assertion the FAC never makes. REDU contends, at a minimum, there are factual questions that cannot be resolved on the pleadings.

Under its second cause of action, REDU seeks a declaration of the rights and obligations of the parties under the unit agreement in connection with REDU’s planned redevelopment activities. (FAC, ¶ 29.) REDU alleges Defendants are not permitted to interfere with REDU’s plans for redevelopment activities. (FAC, ¶ 27.) REDU alleges that the Flood Plant would extract significantly more crude oil from the oil field and the proposed changes are necessary and desirable pursuant to Article 4.2 of the Unit Agreement. (FAC, ¶ 5.) Article 4.2 of the Unit Agreement provides that Working Interest Owners shall “determine a program of Unit Operations . . . as Working

Interest Owners may deem feasible, necessary, or desirable to increase efficiently the ultimate economic recovery of Unitized Substances from the Unitized Formation.” (FAC, ¶ 4.) “Unitized Formation” is defined in the Unit Agreement as “the subsurface portion of the Unit Area lying between the top of Chapman sands and the base of the Lower Kraemer sands[.]” (FAC, Ex. A at p. 2.)

The assertion that the Flood Plant would be used to increase oil production from other parcels without the Jefferson Property or would violate the rule set forth in Wall does not appear on the face of the FAC or the matters of which judicial notice has been taken. Though REDU relies on the Unit Agreement to argue that the Flood Plant is necessary and desirable, and the Unit Agreement discusses increasing the economic recovery from the Unitized Formation, these facts by themselves do not demonstrate that the Flood Plant would serve oil producing facilities located without the Jefferson Property. And nothing else in the FAC or the judicially noticed documents suggest as such.

As to Defendants’ second argument, they contend REDU has failed to allege that NP Jefferson agreed to be bound by the Unit Agreement and REDU cannot allege that the Unit Agreement conveys rights to use the surface of the Jefferson Property for oil production on other parcels without NP Jefferson’s consent.

This argument is also based on the rule set forth in Wall which states that the surface area may not be burdened by any installations designed to serve oil producing facilities located without the parcel. As already discussed, the FAC does not show on its face that the proposed Flood Plant would serve oil producing facilities located without the Jefferson Property. Further, the authority cited by Defendants acknowledges that the holder of oil and mineral rights may subject the surface area of the land to such burdens that are “reasonably necessary to the full enjoyment of the mineral estate.” (Wall, 209 Cal.App.2d at p. 513.) Thus, even assuming NP Jefferson is not bound by the Unit Agreement, REDU would still have certain rights to burden the surface area as reasonably necessary for its full enjoyment of the oil and mineral estate in which it holds an interest.

Tentative Ruling: The Motion as to the second cause of action is DENIED.

c. Third Cause of Action for Declaratory Relief:

Under its third cause of action, REDU seeks a declaration of the rights and obligations of the parties under the Unit Agreement in connection with REDU’s planned activities to redevelop the Jefferson Property, contending that Defendants are not permitted to interfere with REDU’s ability to redrill the wells located on the Jefferson Property. (FAC, ¶¶ 33, 36.)

Defendants argue the third cause of action fails because REDU has never sought to redrill wells on the property and NP Jefferson has never sought to prevent REDU from doing so, such that REDU has failed to allege an actual and present controversy.

Considering the allegations as a whole, REDU’s third cause of action does not appear based on some conjectural or speculative controversy, but an actual controversy between the parties that is ripe for adjudication. REDU has given notice that it intends to redevelop the facilities on the Jefferson Property and that it has the rights and intends to redrill the wells located on the Jefferson Property. REDU also alleges that Defendants are not permitted to interfere with REDU’s easement rights, including the ability to redrill the wells, with any proposed construction within the Jefferson Property that may interfere with the normal use and purpose of the easements. As REDU points out, the fact that it does not necessarily have finalized redrilling plans in place does not prevent the dispute from being an actual controversy.

Tentative Ruling: The Motion as to the third cause of action is DENIED.

Defendants to give notice.