Donlan v. Weaver

• Citation: 118 Cal.App.3d 675,173 Cal.Rptr. 566
• Court: California Court of Appeals
• Decision Date: 01 May 1981
• Parties: Joseph J. DONLAN et al., Plaintiffs and Appellants, v. Carl M. WEAVER et al., Defendants and Respondents. Civ. 23543.

Page 566

173 Cal.Rptr. 566

118 Cal.App.3d 675

Joseph J. DONLAN et al., Plaintiffs and Appellants, v. Carl M. WEAVER et al., Defendants and Respondents.

Civ. 23543.

Court of Appeal, Fourth District, Division 2, California.

May 1, 1981.

John A. Dundas II, Shepherd, Shepherd & Dundas, Los Angeles, for plaintiffs and appellants

David M. Garland and R. F. Wade, Newport Beach, for defendants and respondents.

KAUFMAN, Acting Presiding Justice.

Plaintiffs commenced this action under former Code of Civil Procedure section 751.3, now section 772.030 of the Code of Civil Procedure, ¹ which authorizes the owner of land upon which there is an oil and gas lease to institute an action to terminate the lessee's right of entry to or occupation of the surface or surface zone of the leasehold land under specified circumstances. Defendants generally demurred to the complaint on the grounds that the statute violates the impairment of contracts clauses of both the United States and California constitutions (U.S.Const., art. I, § 10; Cal.Const., art. I, § 9) and the substantive due process guarantees of the federal and state constitutions (U.S.Const., 14th amend.; Cal.Const., art. I, § 15). The trial court sustained defendants' demurrer, granting plaintiffs leave to amend. Plaintiffs declined to amend and appeal from the ensuing judgment of dismissal.

Facts

On review of a judgment of dismissal following the sustention of a general demurrer, the facts are derived from the allegations of the complaint.

Plaintiffs are the owner of four adjoining lots (lots 10, 12, 14 and 16) in the City of Huntington Beach. The property is subject to an oil and gas lease executed in 1926 by the predecessors of plaintiffs and defendants, respectively. The lease gives to the lessees "the sole and exclusive right and privilege to explore for, discover, produce, extract, treat, refine, transport, sell and otherwise dispose of and generally handle ... all petroleum, natural gas and other hydrocarbon substances in, under and upon" the described property. The term of the lease is for 20 years from its date "and so long thereafter as petroleum in ... paying quantities ... is produced...."

Plaintiffs allege that on a portion of the land (lots 10, 12 and 16) there is no well or well bore that would preclude relief under the statute and that plaintiffs "are willing to relocate pipelines, roadways, equipment or lease facilities in such manner as will most effectively free the subject land for surface use while safeguarding continued oil and gas operations in a practical and economic manner." It is further alleged that "(t)ermination of the right of entry or occupation as to the surface and surface zone of said Lots 10, 12 and 16 ... in the manner requested by plaintiffs, will not significantly interfere with the right of the defendant lessees under the lease, to continue to conduct operations for the production of oil from the leasehold strata beneath the surface zone in a practical and economic manner, and to gather, transport and market such oil."

The prayer seeks termination of defendants' right of entry to or occupation of the surface and surface zone of lots 10, 12 and 16 "subject to such terms and conditions as the court deems fair and equitable."

Discussion of Contentions and Issues

In addressing the constitutional argument, the parties assume sub silentio that the statute applies retroactively, that is, that it authorizes termination of rights of entry or occupation under oil and gas leases executed before as well as after the effective date of the statute. We agree that that is so. Although the statute contains no express provision for retroactive application and although the operative language does not necessarily establish a legislative intent that the statute apply retroactively, an interpretation that the statute was not to apply to preenactment leases would result in delaying the remedial effect of the statute for more than 20 years. That was probably not what the Legislature had in mind.

Moreover, a legislative intent that the statute apply to preenactment leases is apparent from the language of the legislative finding of public interest and necessity in the 1971 statute by which section 751.3 was enacted. It identified the "evil" to be remedied as "... the continued existence of a right of entry or occupation on the surface ... related to an existing oil and gas lease or community oil and gas lease, which right of entry or occupation affects and encumbers surface areas no longer utilized or needed for the conduct of leasehold operations." ² (Stats.1971, ch. 1586, § 3, p. 3202; emphasis added.)

In turning to the constitutional issues, we observe preliminarily that a number of defendants' contentions and arguments are based upon facts not alleged in the complaint, and it is apparent from the several briefs that some important facts are in dispute. Under these circumstances, the matter having been determined on demurrer, the constitutionality of the statute must be determined on the basis of the facts as alleged in the complaint. Essentially we are concerned with the validity of the statute on its face, not as applied to particular facts, for section 772.040 authorizes rendition of a judgment terminating the lessee's right of entry or occupation of the surface and surface zone only when specified circumstances have been shown to exist, and, even then, "subject to such conditions as the court deems fair and equitable." ³ Here the actual facts have not been ascertained, and the statute has not yet been applied.

Impairment of Contracts

Plaintiffs first urge that the statute does not violate the impairment of contracts clauses because a contract obligation is not impaired "unless the alteration in the law deprives (a contracting party) of a substantial right or remedy. If, despite a change in the law, the (contracting party) may enforce (his) rights no less effectually than before; if there has been no encroachment upon valuable contractual rights, then the Plaintiffs point out in this connection that a judgment terminating the right of entry or occupation of the surface or surface zone is authorized by the statute only if the evidence shows that "(t)ermination of the right of entry or occupation ... in the manner requested by the plaintiff, or subject to such conditions as the court may impose ... will not significantly interfere with the right of the lessee, under the lease, to continue to conduct operations for the continued production of oil from leasehold strata beneath the surface zone in a practical and economic manner, utilizing such production techniques as will be appropriate to the leasehold area, consistent with good oilfield practice, and to gather, transport, and market the oil." (§ 772.040, subd. (c). ⁴ The complaint, of course, alleges that defendants' right of entry or occupation of the surface or surface zone of lots 10, 12 and 16 can be terminated without significantly interfering with the enumerated rights of defendants.

obligations of the contract have not been impaired." (State School Bldg. Fin. Com. v. Betts (1963) 216 Cal.App.2d 685, 691, 31 Cal.Rptr. 258, and cases there cited; orig. emphasis, cf. Allied Structural Steel Co. v. Spannaus (1978) 438 U.S. 234, 244-245, 98 S.Ct. 2716, 2722-23, 57 L.Ed.2d 727, 736-737.)

It may well be that plaintiffs' position with respect to this point is well taken. However, our decision need not rest on a conclusion that absolutely no right of substance will be impaired.

It is settled that the constitutional prohibitions against impairment of contractual obligations are not absolute but, rather, that contract rights, as all other property rights, may be altered by legislation validly enacted under the state's police power. (Home Building & Loan Assn. v. Blaisdell (1934) 290 U.S. 398, 428, 434-436, 54 S.Ct. 231, 236, 238-239, 78 L.Ed. 413, 423, 426-428; Sonoma County Organization of Public Employees v. County of Sonoma (1979) 23 Cal.3d 296, 305, 152 Cal.Rptr. 903, 591 P.2d Probably the singlemost important factor to be considered in determining whether a particular impairment is constitutionally permissible is the nature and extent of the impairment. "The severity of the impairment measures the height of the hurdle the state legislation must clear." (Allied Structural Steel Co. v. Spannaus, supra, 438 U.S. at p. 245, 98 S.Ct. at p. 2722, 57 L.Ed.2d at pp. 736-737; see Olson v. Cory, supra, 27 Cal.3d at p. 539, 164 Cal.Rptr. 217, 609 P.2d 991; Sonoma County Organization of Public Employees v. County of Sonoma, supra, 23 Cal.3d at p. 309, 152 Cal.Rptr. 903, 591 P.2d 1.) Other important factors to be considered are the nature, importance and urgency of the interest to be served by the challenged legislation; and whether the legislation was appropriately tailored and limited to the situation necessitating its enactment. (See Allied Structural Steel Co. v. Spannaus, supra, 438 U.S. at pp. 242-244, 98 S.Ct. at pp. 2721-2722, 57 L.Ed.2d at pp. 734-736; United States Trust Co. v. New Jersey (1977) 431 U.S. 1, 22, 97 S.Ct. 1505, 1517, 52 L.Ed.2d 92, 109-110; Olson v. Cory, supra; Sonoma County Organization of Public Employees v. County of Sonoma, supra, 23 Cal.3d at pp. 305-308, 152 Cal.Rptr. 903, 591 P.2d 1.)

1; see Allied Structural Steel Co. v. Spannaus, supra, 438 U.S. at p. 241, 98 S.Ct. at p. 2720, 57 L.Ed.2d at p. 734.) The appropriate inquiry is whether the alteration of contractual rights and obligations effected by the statute, the impairment, is "sufficiently necessary to the public welfare as to justify the impairment." (In re Marriage of Bouquet (1976) 16 Cal.3d 583, 592, 128 Cal.Rptr. 427, 546 P.2d 1371; Sonoma County Organization of Public Employees v. County of Sonoma, supra; see Olson v. Cory (1980) 27 Cal.3d 532, 539, 164 Cal.Rptr. 217, 609 P.2d 991.)

Weighing these factors in the case at bench, we have no hesitation in concluding that the statute does not...