New v. New

• Decision Date: 08 February 1957
• Citation: 306 P.2d 987,148 Cal.App.2d 372
• Court: California Court of Appeals
• Parties: Vera A. NEW, Plaintiff and Appellant, v. Robert NEW, Defendant and Respondent. Civ. 20679.

Page 987

306 P.2d 987

148 Cal.App.2d 372

Vera A. NEW, Plaintiff and Appellant, v.Robert NEW, Defendant and Respondent.

Civ. 20679.

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

Feb. 8, 1957.

Rehearing Denied March 4, 1957.

Hearing Denied April 9, 1957.

Wood, Crump, Rogers, Arndt & Evans, by Guy Richards Crump, Stanley M. Arndt and Morris W. Young, Los Angeles, for appellant.

Hanna & Morton, Harold C. Morton and David A. Thomas, Los Angeles, for respondent.

ASHBURN, Justice.

Plaintiff appeals from a judgment which rejects her claim that defendant, her former husband, wrongfully appropriated to himself a 'corporate opportunity' which belonged to two corporations in which he held stock and that he is obligated, by property settlement agreement and decree of divorce, to pay her 25 per cent of the proceeds of such misappropriation.

By property settlement agreement of December 6, 1943, and ensuing divorce decree, the parties divided their community property.The wife received the home and its furnishings together with an automobile, and the husband took a second car.The community property also included 600 shares of capital stock of Continental Corporation and 6 shares of Continental Development Corporation, both incorporated under the laws of California.Each of these corporations had also issued 'compensation interests' which were actually certificates of participation in the net proceeds of certain oil properties operated by them respectively.The New holding consisted of a 17 per cent interest in the net income of Continental and 20 per cent of the net income of Development.¹A 4 per cent interest in Development income was put in trust for the minor child of the parties and the remainder divided equally; each spouse took 8 per cent of Development income and 8 1/2 per cent of that of Continental.The shares of stock in both corporations were awarded to defendant husband as his separate property.The property settlement agreement, in which the wife was designated as first party and the husband as second party, was carried into the divorce decree.Paragraph 14 thereof provides: 'Second party hereby covenants and agrees, from and after the date of this agreement, that he will pay first party twenty-five per cent (25%) of any and all sums, proceeds, benefits, remunerations, compensation and emoluments of whatsoever kind or nature (excepting any director's fee which he may be entitled to, and excepting any proceeds or benefits that second party may be entitled to by virtue of the interest which he retains in and under said Assignment of Compensation dated May 15, 1940 after making the assignments provided for in this agreement[)], ² paid to second party or that second party may receive, or paid to or received by others for the use and benefit of second party, directly or indirectly, from the said Continental Corporation, the Continental Development Corporation, their successors, subsidiaries or assigns, or from any of them by virtue of any interest which second party presently has in said Continental Corporation, Continental Development Corporation or which he may have.Nothing herein contained shall be construed as giving to the second party any interest or any of the proceeds or benefits, remuneration, compensation or emoluments whatsoever for additional interest hereafter acquired by second party by gift, device [sic] or bona fide purchase in and to the Continental Corporation and/or the Continental Development Corporation.'

Continental had entered into a Drilling and Operating Agreement with Los Angeles Flood Control District(which designated Continental as Contractor) for the purpose of producing oil from wells drilled in the west bank of the flood control channel in the city of Long Beach; the document in legal effect amounted to a lease, as was held by this court in County of Los Angeles v. Continental Corp., 113 Cal.App.2d 207 226, 230, 248 P.2d 157.The district did not own in fee the entire channel area, having only an easement upon certain parcels of land lying therein; hence, Continental was granted the right to drill for and produce oil only from those portions which were owned in fee by the district.Of course Continental, as a matter of law, could not slant drill under neighboring property or bottom any well therein.Bell Corp. v. Bell View Oil Synd., 24 Cal.App.2d 587, 595, 76 P.2d 167.It was, however, given exclusive use of the surface of the described area for oil drilling and production, the district reserving the 'right to occupy the lands herein described and to use, and to permit the use of, same for such uses and purposes for which District is organized other than the production of oil, gas and other hydrocarbon substances.'The parcel covered by the agreement was originally 60 feet wide, but an amendment increased the width to 249 feet; because of the existence of Pacific Electric Railway tracks and easement, the property available for drill sites on the west bank was only 25 feet wide; in length it was over a mile.The property was divided into three parcels, A, B and C, and Continental, with consent of the District, assigned all its rights in parcel C to Development which became substituted as to all rights and obligations of the assignor so far as concerned parcel C.Producing wells were developed in all three parcels.By July, 1941, Continental had completed 12 wells, and by 1943 Development had 9 wells, with 6 more to drill.Defendant New was a corporate officer of each company; he and his business associate, Mr. R. F. Ingold, owned enough stock to give them practical control of both Continental and Development (50 per cent of the former and more than 50 per cent of the latter) and they exercised such control at all times.

In May, 1944, Mr. William Smith; then chairman of Los Angeles County Board of Supervisors and chairman of its flood control committee, informed Mr. New that Associated Oil Company was seeking a lease to a portion of the surface of the flood control channel to enable it to slant drill into the area east of the channel, the proposed lease to cover lands already under the Continental drilling agreement.Such drilling was then forbidden by an ordinance of the city of Long Beach, in which the land was located.Indeed, Continental and Development had been able to drill on the west bank of the channel only after procuring a judgment of court declaring said ordinance unenforceable as to them and the property covered by their drilling agreement.Knowing that there were numerous parcels within the channel area which were owned by third parties subject only to an easement in the flood control district, which owners apparently did not realize their possession of drilling rights, New and Ingold were apprehensive lest they come to life and assert their rights to the detriment of Continental and Development.While they did not consider the area east of the channel as an especially good prospect for oil, the fact that Associated desired to slant drill into that property alerted them to the fact that the possibilities might be considerable better than they then thought.They desired to keep Associated out of the channel and later, when Crown Petroleum Company was trying to get such a lease, they were anxious to thwart its desire.Of course that project would require as a condition of success leases from the other fee owners in the channel and community leases from owners east of the channel whose property was to be subjected to the bottoming of directionally drilled wells.

Notwithstanding the apparent obstacles to success, New and Ingold wanted and negotiated for the channel lease.Mr. Smith and another Supervisor told them emphatically that no such lease could be obtained by Continental or Development.This seems to have been based upon certain political considerations.New and Ingold organized Continental Northern Corporation and Continental Southern Corporation, wholly owned by them, and the Flood Control District gave them channel leases which roughly corresponded to the west bank areas held by Continental and Development.This was on October 3, 1944.The leases conferred oil exploration rights limited to directional drilling, with no wells to be bottomed within the leased lands; they were expressly subject to the rights of Continental and Development under their drilling agreement.The court found: 'Under the lease which Northern executed with the District, Northern was a tenant of the District, and occupied portions of the general surface area of said Flood Control right-of-way where wells of Continental and Development were located, but was limited to the production of oil only from areas outside of the Flood Control right-of-way; and Northern did bottom all of its wells in, and did produce oil only from, areas outside of the Flood Control right-of-way.'A like finding was made as to Southern.Northern and Southern procured the necessary community leases, obtained a judgment invalidating the obstructing ordinance, and Northern proceeded to drill on February 25, 1946.On March 15th Southern began a well; in April of that year its well No. 102 pierced a virgin oil pool situated just east of a fault, now known as the Golden Avenue fault, which was previously unknown.The wells of Northern and Southern proved to be rich ones, far beyond any expectations.

Defendant sold his stock in Northern to Southern in May, 1946, for $560,000.On or about November 1, 1947, he sold his remaining stock and compensation interests in Continental, Development, Southern and Eastern ³ for $2,764,154.82, of which amount the sum of $2,623,675.15 was allocated to the shares of Southern and Eastern; certain stock which he had turned over to his second wife was also sold for $327,959.39.Of the amount received by defendant $9,960.34 was allocated to his 600 shares of Continental stock and $33,059.00 to his 6 shares of Development stock.The court found that each...