Post v. Prati

• Decision Date: 19 March 1979
• Citation: 90 Cal.App.3d 626,153 Cal.Rptr. 511
• Parties: George P. POST, Plaintiff and Appellant, v. Edward V. PRATI et al., Defendants and Respondents. Civ. 53088.
• Court: California Court of Appeals Court of Appeals

Page 511

153 Cal.Rptr. 511

90 Cal.App.3d 626

George P. POST, Plaintiff and Appellant, v. Edward V. PRATI et al., Defendants and Respondents.

Civ. 53088.

Court of Appeal, Second District, Division 4, California.

March 19, 1979.

Hearing Denied May 17, 1979.

McKenna & Fitting, Aaron M. Peck, Michael D. Berk, and David R. Wilson, Los Angeles, for plaintiff and appellant.

O'Donnell, Waise, Wall & Meschke, and Richard J. Wall and Walter M. Bank, San Francisco, for defendants and respondents Edward V. Prati, John T. Sink, Peter H. Flood and Richard J. Wall, as Trustee for children of Peter H. Flood.

Nossaman, Krueger & Marsh, and Robert B. Krueger and Frederic A. Fudacz, Los Angeles, for defendant and respondent Aminoil USA, Inc.

Evelle J. Younger, Atty. Gen., N. Gregory Taylor, Asst. Atty. Gen., and Richard P. Yang, Deputy Atty. Gen., for defendant and respondent State Lands Commission.

JEFFERSON, Associate Justice.

Plaintiff George P. Post sought injunctive and declaratory relief in an amended and supplemental complaint which challenged the constitutionality of Public Resources Code section 6922, enacted as part of the Geothermal Resources Act of 1967. ¹

Named as defendants were Edward V. Prati, John T. Sink, Peter H. Flood, Richard J. Wall as Trustee for children of Peter H. Flood; these defendants will sometimes be referred to herein as the surface owners. Also named defendants were Aminoil U.S.A., Inc., a Delaware corporation, and Mervyn Dymally, Kenneth Cory and Roy Bell, in their representative capacity as members of the State Lands Commission of the State of California.

Defendants demurred to plaintiff's pleading, contending that it failed to state a cause of action. As a part of their demurrer, defendants requested the trial court to take judicial notice of various materials presented to illuminate the legislative history and objectives resulting in the Act's passage. In support of his complaint, plaintiff also presented materials which were subject to judicial notice.

The trial court ruled in favor of the defendants, sustaining their demurrers without leave to amend, thereby upholding the constitutionality of Public Resources Code section 6922. The order of dismissal (judgment) was entered pursuant to Code of Civil Procedure section 581, subdivision (3). By corrected notice of appeal, plaintiff has appealed from the "Memorandum of Ruling" and the "Order of Dismissal." The "Memorandum," of course, is not an appealable order; we take cognizance of the "Memorandum" on the appeal from the order of dismissal, which is appealable. ²

We take a brief look at the background of this dispute. In 1967, after several years of legislative study, the California Legislature amended the Public Resources Code (Chapter 4 of Division 3, commencing with section 3700) and added Article 5.5 (commencing with section 6902), the addition to be known as the Geothermal Resources Act of 1967. ³ The Act reflected general legislative concern with the necessity for developing new energy sources, among them geothermal resources. ⁴ Geothermal resources located in California constitute potentially the largest amount in the world; many of these resources are found in areas of the state which are presently economically depressed, and where the development of new industry is essential. ⁵

Thus it is provided by statute that "the people of the State of California have a direct and primary interest in the development of geothermal resources." (Pub. Resources Code, § 3700.) The general legislative objective was to promote the orderly and safe development of such resources and to secure maximum economic recovery therefrom.

The Act itself is concerned with the development of this energy source on state-owned lands, or on land which has been conveyed by the state to private interests with a reservation of mineral rights to the state. ⁶ The developmental scheme contemplates the issuance of permits or longterm leases by the State Lands Commission (hereinafter, the Commission) to private developers in return for royalties in specified amounts. As the result of legislative fact-finding, it was determined that economic feasibility requires minimum acreage of 640 acres to 2,560 acres for a geothermal plant; the Act also specifies that no one entity would be able to lease more than 25,600 acres. Permits and leases are to be granted by the Commission to the highest qualified bidder.

Section 6922 of the Public Resources Code, the source of this litigation, created a bidding preference in favor of a surface owner of land which contains geothermal resources subject to state development. The section provided: "In the case of an application for a permit or lease covering lands which have been sold by the state, subject to a reservation by the state of the geothermal resources thereof, by anyone other than the owner of such lands, the owner shall have six months from the date of service of notice on the owner of such application within which to file his application for a permit or lease. Such notice shall be served by the applicant together with a copy of the application. If the owner exercises his rights hereunder and is a qualified person, his application shall be granted but subject to all the other provisions of this article. If the owner fails to exercise the rights granted by this section, then the owner's rights hereunder shall thereupon cease and terminate and the original applicant shall be permitted to proceed with his application. (P) In the event that the lands subject to such classification are classified as being within a known geothermal resource area, then, after the commission has determined the highest competitive bid thereon, The owner may within 10 days after notification by the commission Submit a bid identical to such highest acceptable bid, in which case the commission shall issue a lease to such surface landowner. If the surface landowner does not file such a bid within such period of time, the commission may proceed with the award of the bid to other than such surface landowner." (Emphasis added.)

Section 6922, which allows a surface owner to make a preemptive bid, was included in the Act without any specific accompanying explanation of legislative intent that we have been able to discover.

In the instant case, surface rights to the acreage in question, located in a geothermally rich resource area in Sonoma County, known as "The Geysers," were conveyed by the state to defendants Prati and Sink in 1949 and 1950, respectively. In 1953, Prati and Sink quitclaimed their interests to themselves and the other defendants identified herein as the surface owners. On January 1, 1967, all of the surface owners executed an agreement with the Signal Oil Company, thereby leasing the right to develop the geothermal resources; the successor in interest to that agreement is defendant Aminoil U.S.A., Inc.

In September 1976, the Commission announced, pursuant to the Act, that competitive bidding would be held with respect to a geothermal lease of the acreage in question. In December 1976, defendant Commission determined that plaintiff Post had submitted the highest qualified bid, offering to pay the state 47.77 percent of the net profits derived from development pursuant to the lease. Then, as provided by Public Resources Code section 6922, the surface owners were notified of plaintiff's bid, and submitted an identical bid to the Commission; the Commission accepted the identical bid made by the surface owners. The bid, of course, was actually made on behalf of Aminoil, to whom the surface owners were contractually bound.

Plaintiff, deprived of the lease, brought this action to test the constitutionality of Public Resources Code section 6922, and has appealed from the adverse judgment rendered below.

I Judicial Notice

In the instant case, the judgment sustaining the demurrers was entered after the trial court had considered not only the contents of the complaint but also materials offered by the parties, of which the trial court took judicial notice.

With respect to the question of the sufficiency of the complaint, the appellate standard of review is conducted "by the well settled principles governing the testing of (the complaint's) sufficiency by demurrer: A demurrer admits all material and issuable facts properly pleaded. (Citations.) However, it does not admit contentions, deductions or conclusions of fact or law alleged therein." (Daar v. Yellow Cab Company (1967) 67 Cal.2d 695, 713, 63 Cal.Rptr. 724, 737, 433 P.2d 732, 745.)

Judicial notice of a matter means the acceptance by the court of the existence of a matter of law or fact without the necessity of formal proof of that matter. "The doctrine of judicial notice is an evidentiary doctrine that permits the court to consider As established in a case a matter of Law or Fact that is relevant to an issue, without the necessity of formal proof of the matter by any party. Judicial notice is a substitute for formal proof. Judicial notice may be taken of either a proposition of Law or a proposition of Fact. The fundamental theory of judicial notice is that the matter that is judicially noticed is one of law or fact that Cannot reasonably be disputed." (Jefferson, California Evidence Benchbook (1972) Judicial Notice, § 47.1, p. 833.) (Emphasis in original.) Judicial notice may be taken by the trial court in connection with a demurrer (Code Civ.Proc., § 430.70) and may also be considered by an appellate court in conducting review. (Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241.)

We have before us the materials judicially noticed below. Primarily, they consist of two major legislative committee reports on geothermal resources, ⁷ the "final (legislative) history" of the Act, ⁸ excerpts from testimony given at public legislative hearings, and some correspondence directed to the governor's office recommending his signature on Senate Bill 169 (the Act)...