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Tearlach Resources Limited. v. Western States International, Inc.

California Court of Appeals, Fifth District

September 10, 2013

TEARLACH RESOURCES LIMITED et al., Cross-complainants and Appellants,
v.
WESTERN STATES INTERNATIONAL, INC., et al., Cross-defendants and Respondents WEATHERFORD ARTIFICIAL LIFT SYSTEMS, INC., Plaintiff,
v.
GAS AND OIL TECHNOLOGIES, INC., et al., Defendants

Order Date 09/17/2013, reposted 9/13/13 to conform caption to filed opn. and docket; no change to opn. text

APPEAL from a judgment of the Superior Court of Kern County, Super. Ct. Nos. S-1500-CV-264931, S-1500-CV-266707 David R. Lampe, Judge.

Law Offices of Richard D. Farkas and Richard D. Farkas for Cross-complainants and Appellants.

Law Offices of Huskinson, Brown & Gorman, A. Alexander Gorman and David W. T. Brown for Cross-defendants and Respondents.

ORDER MODIFYING OPINION

It is ordered that the opinion filed herein on September 10, 2013, be modified as follows:

On page 20 of the opinion under the disposition: the amended judgment date should be “March 2, 2011.”

This modification changes the judgment.

OPINION

HILL, P. J.

This is an appeal by the assignee of an oil and gas lease on federal land from the dismissal of its action against the assignor and others. The dismissal was entered after the trial court vacated the amended judgment in the assignee’s favor on the ground the trial court lacked subject matter jurisdiction, because federal courts have exclusive jurisdiction to adjudicate rights in the lease. We conclude the matter presented only issues concerning the contractual relationship between the parties and tort claims; the interests of the United States were not implicated in the litigation and the jurisdiction of the federal courts was not exclusive. Accordingly, we reverse.

FACTUAL AND PROCEDURAL SUMMARY

This case arises out of an assignment of an interest in certain mineral leases. Western States International, Inc. (Western States) and Gas and Oil Technologies, Inc. ((Gas & Oil), now known as United Pacific Energy Corporation (UPEC)) entered into an agreement to sell and assign a 60 percent interest in certain oil and gas leases to Tearlach Resources (California) Limited (Tearlach California), a wholly owned subsidiary of Tearlach Resources Limited (Tearlach), a Canadian corporation. Some of the leases were for oil and gas rights on land owned by the United States government, leased pursuant to the MLA (or the Act).[1] Subsequently, Weatherford Artificial Lift Systems, Inc. sued Gas and Oil, Western States, and Tearlach California, alleging Gas and Oil leased two pumping units from Weatherford for use at its wells, but defaulted in payment; it alleged Western States and Tearlach held some interest in the leasehold of the wells. Weatherford sought judgment for the amount owed and foreclosure of an oil and gas lien.

Gas and Oil and Western States cross-complained against Tearlach California, then initiated their own separate action against Tearlach, Tearlach California, and two of Tearlach’s corporate officers, Malcolm Fraser and Charles Ross. The Western States parties’[2] first amended cross-complaint and first amended complaint made similar allegations: They entered into a written letter agreement with Tearlach in which Tearlach agreed to purchase a 60 percent interest in the oil property known as the North Kern Front. Because Tearlach was not a United States corporation, the assignment could not legally be made to it, so Fraser and Ross formed Tearlach California to hold the assigned interest in the leases. The Western States parties were induced by the fraudulent representations of Fraser and Ross to make the assignment. The Western States parties alleged the leases included a combination of privately owned leases and leases owned by the United States government and managed by the Bureau of Land Management (BLM).

In the Western States parties’ action, Tearlach, Tearlach California, Fraser, and Ross filed a cross-complaint against Western States, UPEC, and their officers and principal shareholders, Ingrid Aliet-Gass, David Smuskevietch, and Glenn Morinaka. The Tearlach cross-complaint alleged cross-defendants fraudulently induced cross-complainants to enter into the letter agreement to purchase a 60 percent interest in the oil property. It alleged causes of action for breach of contract, breach of the covenant of good faith and fair dealing, fraud, negligence and negligent misrepresentation, declaratory relief, an accounting, constructive trust, and conversion.

The Western States parties’ action and the Weatherford action were consolidated. Tearlach filed a motion to domesticate a foreign judgment, asking that the court enter judgment in its favor and against the Western States parties based upon an $18 million judgment Tearlach had obtained against the Western States parties in Canada. According to Tearlach, the Canadian judgment was based on the same transaction and allegations of fraud presented in the consolidated cases. The motion was denied. The Tearlach parties[3] also filed a motion for summary judgment, again seeking entry of judgment based on the Canadian judgment. That motion also was denied.

A week before the trial date, the attorney for the Western States parties filed an ex parte application to be relieved as counsel. The application was granted. The Western States parties did not appear for trial. The trial court took evidence and, on February 1, 2011, entered judgment in favor of the Tearlach parties and against the Western States parties and Aliet-Gass on both the Western States parties’ cross-complaint and the Tearlach parties’ cross-complaint; it awarded the Tearlach parties damages in excess of $18 million. On March 2, 2011, the trial court entered an amended judgment adding a declaration that Western States transferred to Tearlach California, effective on or before December 13, 2006, a 60 percent working interest in the oil and gas property known as the Kern Front Field, including the Witmer A, B West, and Sentinel A lease, and the Mitchell lease.

Nine months later, on December 16, 2011, the Western States parties and Aliet-Gass moved to vacate the amended judgment and dismiss the Tearlach parties’ cross-complaint, asserting the judgment entered by the trial court was void. They argued the trial court lacked subject matter jurisdiction to adjudicate the claims made in that pleading because the federal courts have exclusive jurisdiction of claims involving ownership of interests in federal mineral leases. The trial court granted the motion to vacate the amended judgment. It denied the Tearlach parties’ motion for reconsideration and dismissed their cross-complaint ...


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