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Vaquero Energy, Inc., v. County of Kern

California Court of Appeals, Fifth District

November 19, 2019

VAQUERO ENERGY, INC., et al., Plaintiffs and Appellants,
v.
COUNTY OF KERN et al., Defendants and Respondents.

          APPEAL from a judgment of the Superior Court of Kern County No. BCV-15-101645. Eric Bradshaw, Judge.

          Horvitz & Levy, Lisa Perrochet, Robert H. Wright; Hanna and Morton, Edward S. Renwick; and John B. Linford for Petitioners and Appellants.

          Margo A. Raison, County Counsel, Andrew C. Thompson, Deputy County Counsel; Holland & Knight, Charles L. Coleman III, Jennifer L. Hernandez and Daniel R. Golub, for Defendants and Respondents.

          OPINION

          FRANSON, ACTING P. J.

         In November 2015, the Board of Supervisors (Board) of the County of Kern[1] approved a new zoning ordinance requiring permits for new oil and gas exploration, drilling and production. The ordinance imposed a wide range of environmental and other standards on permit applicants. It also adopted two procedural pathways for obtaining permits when the proposed activity would be conducted on split-estate land (i.e., land where the surface rights and the mineral rights are held by different owners) zoned for agriculture. An expedited seven-day pathway is available to permit applicants who obtain the surface owner's written consent to the site plan submitted with the application. In contrast, a more expensive 120-day pathway must be used when the applicant has not obtained the surface owner's signature. One rationale for the Board's adoption of the two pathways was to promote cooperation between the owners of surface rights and the owners of mineral rights.

         Plaintiffs Vaquero Energy, Inc. and Hunter Edison Oil Development Limited Partnership (collectively, Vaquero) filed a lawsuit contending the new provisions violated their constitutional rights to equal protection and due process. The trial court rejected the constitutional claims and Vaquero appealed.

         Vaquero's due process claim asserts the County inappropriately delegated its permitting authority to private interests-specifically, the owners of surface rights-who can arbitrarily withhold their signatures unless their demands are met. Vaquero contends the two-pathway system gives the owners of surface rights effective control over how mineral right owners use and enjoy their property rights. Vaquero's due process claim requires the interpretation and application of a line of United States Supreme Court cases. (See Seattle Title Trust Co. v. Roberge (1928) 278 U.S. 116');">278 U.S. 116 (Roberge); Cusack Co. v. City of Chicago (1917) 242 U.S. 526 (Cusack); and Eubank v. Richmond (1912) 226 U.S. 137');">226 U.S. 137 (Eubank).) Despite their age, the meaning of these decisions is far from settled. One commentator stated that “both courts and commentators have struggled to make sense of the doctrine emerging from the Eubank-Cusack-Roberge line of cases.” (Stahl, Neighborhood Empowerment and the Future of the City (2013) 161 U.Pa. L.Rev. 939, 960 (Stahl).) More recently, another commentator described the decisions as a “jurisprudential muddle.” (Davidson, Localist Administrative Law (2017) 126 Yale L.J. 564, 609, fn. 209.) Based on our interpretation of these cases, we conclude the new ordinance does not violate Vaquero's right to due process because the owner of the surface rights does not have final control over how an owner of mineral rights uses those rights. The final authority over permits is retained by the County.

         Vaquero's equal protection claim asserts the two procedural pathways specified in the new zoning ordinance impose disparate treatment on similarly situated permit applicants. Vaquero contends the disparate treatment of permit applicants based on whether they obtained the surface owner's written consent does not further a legitimate governmental purpose. We disagree. Applying the deferential rational basis test, we conclude the board of supervisors rationally could have decided the availability of an expedited seven-day pathway would promote cooperation between owners of mineral rights and owners of surface rights and reduce conflicts, which is a legitimate public purpose.

         We therefore affirm the judgment.

         FACTS

         Prior Regulations

         Title 19 of County's Ordinance Code addresses zoning. In November 2015, County's board of supervisors adopted Ordinance No. G-8605 (Ordinance), which amended Chapter 19.98 to County's Ordinance Code and modified other zoning provisions. Chapter 19.98 contains procedures and standards applicable to the exploration, drilling and production of oil and gas. (Ordinance, § 19.98.010.)

         Prior to the adoption of the Ordinance, County's zoning provisions did not require a County permit for drilling on lands zoned for exclusive agriculture, limited agriculture, medium industrial, heavy industrial and natural resource. County did require a permit for drilling in certain residential and commercial districts, though few requests for such conditional use permits were processed. In addition, oil and gas activities were subject to (1) the County's basic standards for development, building and safety and (2) the permit requirements of state and regional agencies such as the Division of Oil, Gas and Geothermal Resources (DOGGR), the Department of Fish and Wildlife, and the San Joaquin Valley Air Pollution Control District.

         New Regulations

         The Ordinance adopted a “Tier” system to address different land uses and the permitting requirements were tailored to the type of land use within each Tier. Areas where oil and gas operations are the dominant surface land use are designated as “Tier 1.” (Ordinance, § 19.98.030(A).) Approximately 10.1 percent of the project area is designated Tier 1 land. The County estimates that Tier 1 lands will contain approximately 90.6 percent (4, 400 acres divided by 4, 856 acres) of the acreage disturbed annually by oil and gas activities permitted under the Ordinance. “Tier 2” is agricultural land and is distinct from “Tier 3, ” where neither oil and gas nor agricultural surface activities dominate. (Ordinance, § 19.98.030(B), (C).) “Tier 4” areas are residential, commercial, open space and a few other categories; applicants must obtain a conditional use permit to conduct oil and gas activities on Tier 4 lands. (Ordinance, §§ 19.98.030(D), 19.98.050 [conditional use permit].) “Tier 5” lands include special planning districts or other areas identified in specific plans. The specific plan sets forth the provisions governing oil and gas activities within Tier 5 areas. (Ordinance, § 19.98.030(E).) Oil and gas activities on Tier 4 and 5 lands are rare.

         Before an oil and gas activity may occur in any Tier 1, 2 or 3 area, an application for conformity review or minor activity review must be submitted to and approved by County's planning director as consistent with the standards contained in Chapter 19.98. (Ordinance, § 19.98.040(A).) The Ordinance describes the planning director's approval of an application as “ministerial” rather than discretionary. (Ibid.)

         Split Estates

         The constitutional issues raised in this appeal challenge how the Ordinance's permitting process applies to land where the surface rights and the mineral rights are held by different owners. Such lands are referred to as “split estate” lands. A significant body of law had developed addressing the relationship between the owner of the surface rights and the owner of the mineral rights and their respective rights and obligations. Generally, the owner of the mineral rights has an implied easement that burdens the surface estate and allows the mineral owner to use the surface as is reasonably required to access the minerals.[2] A California statute provides that if a mineral rights owner intends to enter real property and conduct surface-disturbing activities, such as drilling a new well or constructing structures, the mineral rights owner must provide the owner of the surface rights a minimum of 30 days' notice. (Civ. Code, § 848, subd. (a)(2).) The owner of the surface rights may agree to waive the notice requirement. (Civ. Code, § 848, subd. (c).)

         Two Pathways for Split Estates

         In Tier 1 areas, oil and gas operations are the dominant surface land use and there is less potential for conflict between owners of the surface rights and owners of the mineral rights. Applications for oil and gas activities within Tier 1 areas are subject to conformity review under the procedures set forth in section 19.98.080 of the Ordinance. For instance, the site plan presented with the application must address 12 items listed in section 19.98.080(E) of the Ordinance, including the location of boundary lines, proposed wells, roadways, pipelines, and other structures or facilities. The site plan must “[i]dentify the proposed source of water (domestic or production), if applicable.” (Ordinance, § 19.98.080(E)(8).) The County asserts most oil and gas activities on Tier 1 lands will qualify for a seven-day permit process-a process described in greater detail below.

         In comparison, Tier 2, 3 and 5 areas have a greater potential for conflict between owners of the surface rights and owners of the mineral rights. Applications for oil and gas activities within these areas are subject to conformity review pursuant to the procedures stated in section 19.98.085 of the Ordinance. The site plan presented with the application must address 16 items listed in section 19.98.085(F) of the Ordinance.

         Applicants for County oil and gas permits for lands designated as Tier 2, 3 or 5 may obtain permits through one of two pathways. The pathway used depends upon whether the owner of the surface rights has provided written approval of the site plan. (Ordinance, §§ 19.98.085(G), 19.98.090 [application with surface owner signature].) When the applicant has satisfied the conditions specified in the Ordinance, complied with the applicable notice requirements, and obtained the surface owner's signature on the site plan, the permit application may be submitted under an expedited seven-day pathway. (Ordinance, § 19.98.090.) Alternatively, where an applicant is unable to obtain the surface owner's signature, the only way to obtain a permit is through a 120-day pathway. (Ordinance, § 19.98.100 [conformity review without surface owner signature].)[3]

         The 120-day pathway has three main components, which involve a preapplication notice, submitting the application for review by the County, and arranging for an inspector to monitor compliance with mitigation measures and applicable law after the application has been approved. Prior to submitting an application, the applicant must provide the surface owner the 30-day notice required by Civil Code section 848 and must include a copy of the proposed site plan along with an offer to meet with the surface owner. (Ordinance, § 19.98.085(H)(1).)

         After the application is submitted to the County, there are two successive 30-day reviews. First, the application is reviewed for completeness. The County must inform the applicant on the 30th calendar day of receipt that the application is complete or that additional information is required. (Ordinance, § 19.98.100(B).) In addition, the County must inform the surface owner of the option for an in-person meeting with staff of the planning and community development department to discuss the conformity review process and address questions about the proposed site plan. (Ordinance, § 19.98.100(B).)

         During the second 30-day review period, the County schedules a mandatory meeting with the applicant, provides the surface owner time to review any revisions to the proposed site plan, and determines whether “the proposed use meets the implementation standards and conditions specified” in the Ordinance. (Ordinance, § 19.98.100(C)(5).) If the County determines the application meets the Ordinance's standards, the permit is issued. (Ordinance, § 19.98.100(C)(5).)

         After issuance of the permit, the applicant must wait an additional 30 days before starting construction. (Ordinance, § 19.98.100(H).) The post-issuance “period shall be used to coordinate deposits and inspections pursuant to 19.98.140 (Inspection Compliance).” (Ordinance, § 19.98.100(H).) The applicant must contact the planning and community development department and “provide a signed Cost Recovery Agreement, and schedule an inspector to be present during all activities related to the Oil and Gas Conformity Review.” (Ordinance, § 19.98.140.) The inspector, either from the County or a third-party retained by the County, shall confirm compliance with all requirements of the Ordinance, adopted mitigation measures, and other federal and state laws. The cost of on-site monitoring is to be paid by the permit applicant. (Ordinance, § 19.98.140.)

         Under the expedited process of the seven-day pathway, the surface owner can waive the initial 30-day preapplication notice requirement. (Ordinance, § 19.98.085(H)(1).) If the surface owner also signs the site plan submitted with the application and affirms the surface owner and the applicant have agreed on the terms contained in the site plan, the permit is to be issued within seven days. (Ordinance § 19.98.085(G), 19.98.090(A), (B).) If the applicant and surface owner reach an agreement during the 120-day pathway, the permit application is processed under the seven-day pathway. (Ordinance § 19.98.100(F).) When a surface owner agrees to the site plan, no post-permit monitoring period is required and, thus, no arrangements need to be made for an inspector. As a result, the activities described in the permit can begin immediately.

         PROCEEDINGS

         In December 2015, Vaquero filed a petition for writ of mandate and complaint for declaratory and injunctive relief against the County and three real parties in interest. Vaquero's lawsuit was assigned case No. BCV-15-101645 by the Kern County Superior Court. The real parties in interest were California Independent Petroleum Association, a California nonprofit mutual benefit corporation; Independent Oil Producers' Agency, a California corporation; and Western States Petroleum Association, a California nonprofit mutual benefit corporation (collectively, Oil Associations). The Oil Associations were listed as the proponents of the Ordinance in the environmental review documents prepared for the project.[4]

         Vaquero's operative pleading is a first amended petition and complaint filed in August 2016. It named the County and County's board of supervisors as defendants and omitted the Oil Associations. Vaquero's action challenged the new ordinance provisions as unconstitutional violations of Vaquero's equal protection and due process rights.

         Based on a stipulation of the parties, Vaquero's lawsuit was consolidated with two actions alleging the new ordinance provisions were adopted in violation of the California Environmental Quality Act (CEQA; Pub. Resources Code, § 21000 et seq.). The CEQA actions were assigned case Nos. BCV-15-101666 and BCV-15-101679. The consolidation of the three matters achieved several efficiencies for the court and the parties, including the preparation and lodging with the court of a single administrative record.

         The trial of the consolidated matters was conducted in June, August and December of 2017. In March 2018, the trial court issued its written ruling resolving all claims and issues. The ruling stated Vaquero had failed to prove the Ordinance was unconstitutional. On April 20, 2018, the court entered a separate judgment in case No. BCV-15-101645, stating Vaquero's claims for relief were denied. That same day, another judgment was entered in the consolidated CEQA actions.

         In June 2018, Vaquero filed a notice of appeal. Earlier in the month, the plaintiffs in the CEQA matters filed notices of appeals. The three appeals were assigned case No. F077656 by this court. In August 2019, we bifurcated Vaquero's constitutional ...


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