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Leiper v. Gallegos

California Court of Appeals, Second District, Sixth Division

November 20, 2019

GARY D. LEIPER, as Trustee, etc., Plaintiff and Respondent,
v.
DENNIS GALLEGOS, Defendant and Appellant JOHN L. POOLE et al., Objectors and Respondents.

          Superior Court County of Ventura P073688 Glen Reiser, Judge

          Law Offices of Greg May and Grey May; Jones & Lester; Jones, Lester, Schuck, Becker & Dehesa, Mark A. Lester and Theresa Loss; Norman Dowler and Brett L. Price for Defendant and Appellant Dennis R. Gallegos.

          Musick, Peeler & Garrett and Cheryl A. Orr for Respondent Bank of the West, co-trustee for Austin M. Barnard, deceased.

          John L. Poole, in propria persona, Respondent.

          No appearance for Plaintiff, Gary D. Leiper as Trustee.

          YEGAN, J.

         A tax sale of real property described in the deed as pertaining to surface rights does not include oil and gas rights which are “restrictions of record” in a previously recorded oil and gas lease.

         In 1939, Mr. E.S. Barnard, believed there was oil and gas under a 2.3 acre lot he owned near the Ventura River, Lot 7. He entered into a lease with a major oil company to drill for oil and gas. Mr. Barnard was prescient. For 80 years, it has been a steady and reliable source of oil with no end in sight.

         About 20 years later, Mr. Barnard conveyed fractional interests in the oil and gas royalties to family members. Another 20 years later, one of the fractional owners either did not care, or was not paying attention to a $12.78 tax bill on the surface rights to Lot 7. Upon default, the County of Ventura sold it to the state of California. The state then sold Lot 7 to Mr. and Mrs. Joseph Gallegos for $3000. The tax deed to the Gallegoses was silent on oil and gas. Their son, Dennis, appellant, somehow got the idea that he owned the oil and gas under Lot 7.[1]

         The trial court ruled, and we agree that appellant is the surface owner to Lot 7 but he does not now own an interest in the oil and gas under Lot. 7.

         Dennis Gallegos appeals a quiet title judgment that a tax deed for the sale of Lot 7 did not convey the right to receive royalties on a 1939 oil and gas lease. The judgment states that appellant has no interest in the oil and gas royalties from Lot 7. Appellant claims that the trial court “got it wrong” and “threw up its hands and deferred entirely” to the referee's findings and recommendations. That did not happen. We affirm but modify the judgment to show that upon termination of the oil and gas lease, any remaining oil and gas rights described in the 1939 Memorandum of Oil and Gas Lease revert to the surface owner. (Code Civ. Proc. § 43; American Enterprise, Inc. v. Van Winkle (1952) 39 Cal.2d 210, 219.)

         Facts and Procedural History

         Lot 7, also known as assessor's Parcel 045, lies in the Ventura Avenue Field, the tenth largest producing oil field in California, < https://en.wikipedia.org/wiki/ Ventura_Oil_Field [as of Oct. 1, 2019], archived at <https:// perma.cc/5DDX-A5GC>. In 1939, fee simple owner E. S. Barnard Company entered into an oil and gas lease with British-American Oil Producing Company that was recorded. The lease required that British-American and successor lessees pay oil royalties to the lessor.

         In 1957, E. S. Barnard Company, a family company, dissolved and conveyed its interests in Lot 7, including the oil and gas lease, to its shareholders (the Barnards and Pooles; hereafter, fractional owners). In 1977, the fractional owners entered into an agency agreement titled “Barnard Oil Trust - Hartman - Barnard Leases” (Barnard Oil Trust) for the distribution of oil and gas royalties.

         1978 Tax Sale

         The Ventura County Tax Assessor assessed Lot 7 using two assessor parcel numbers: APN 063-9-190-024 and APN 063-0-190-045. The 1971-1972 tax assessment roll for APN 063-9-190-024 listed a $14, 775 valuation for “LAND Assessed Value of Real Estate and Mineral Rights Except Improvements.” The APN 063-9-190-024 tax bill was mailed to Gulf Oil Corporation, the successor lessee. The tax assessment roll for APN 063-0-190-045 listed a $100 valuation for “LAND Assessed Value of Real Estate and Mineral Rights Except Improvements.” The $12.78 tax bill for APN 063-0-190-045 was mailed to “Barnard HA Attn Barnard Austin M” in Long Beach.[2]

         After Austin M. Barnard “defaulted” on the $12.78 tax bill, Ventura County Tax Collector sold Lot 7 to the State of California for $12.78. The Conveyance of Real Estate described the property as APN 063-0-190-045 but was silent on mineral rights. On February 10, 1978, State of California sold Lot 7 at a public auction to appellant's parents, Joseph and Ruby Gallegos for $3, 000. The tax deed described the property as APN 063-0-190-045. After Joe Gallegos died, Ruby Gallegos deeded Lot 7 to appellant.

         Petition to Quiet Title; Oil Lease Royalties Interpleaded

         In 2014 appellant received a letter from the successor lessee, Aera Energy LLC (Aera), describing the extent, timing, and location of the oil extraction operation. (Civ. Code, § 848.) Responding to the letter, appellant claimed that Aera “was potentially trespassing and drilling on his property....” Appellant further claimed that he was entitled to 5.714 percent of the royalties, representing H.A. Barnard's fractional interest. This caused Aera to suspend distribution of the oil royalties. Appellant tentatively settled the dispute with Gary Leiper, trustee of the Barnard Oil Trust. The proposed agreement provided that appellant would receive $12, 000, plus 5.714 percent of the impounded royalties and future royalties. But the proposed settlement agreement required approval by the Ventura County Superior Court. Trustee filed a petition to confirm the “trust assets” in accordance with the settlement agreement. (Prob. Code, § 850.)[3]

         Aera filed a cross-petition to interplead the oil royalties ($177, 000) and deposited the money with the trial court. John L. Poole, a Barnard Oil Trust fractional owner, objected to the settlement ...


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