PACIFIC WESTERN OIL CO v. BERN OIL CO (1938)

This is an appeal from a judgment restraining the defendants from taking oil from certain land controlled by the plaintiff and awarding compensation for oil already taken.

Briefly stated, the general facts are as follows: The plaintiff, as lessee under an oil and gas lease covering a certain quarter section of land, drilled for oil and completed seven producing wells thereon. In the course of operations it was discovered that due to a “fault” which ran across this quarter section oil could be produced on a part of this land but not on the remainder. Acting under a right given in its lease the plaintiff, on May 18, 1931, quitclaimed approximately 104 acres of this land to the owner and lessor, retaining a described tract of about 56 acres upon which oil had been developed, and specifically reserving all rights thereto as given by the original lease. For convenience, the 56 acres which were retained will be referred to as parcel A and the 104 acres which were reconveyed will be referred to as parcel B.

On March 13, 1933, the defendant Brunwin procured a lease covering parcel B from the owner, to whom it had been reconveyed. Brunwin, with two associates, Abe Bernstein and Sam Bernstein, commenced the drilling of wells on parcel B and then organized a corporation, the defendant Bern Oil Company, through which the project was continued. The corporation was largely owned by these three individuals, who acted as its officers and remained in active charge and management of its affairs. Three wells were drilled on parcel B, one being 211/212 feet, one 17 feet and one 39 feet east of the boundary line between parcel B and parcel A, a surveyor having been employed by the defendants to exactly locate that boundary. Each of these wells was intentionally diverted from the perpendicular in a westerly direction in order to bottom the well in the producing area underneath parcel A. In each instance the producing portion of the well was located from 290 feet to 480 feet west of the boundary line between the two tracts and within parcel A. This result was accomplished by the use of a mechanical device, commonly called a whip stock, capable of diverting a well from the vertical. To this end the defendants employed an expert in surveying and controlling directional drilling. This expert used an instrument and method commonly called a “singleshot” in order that the course and extent of deviation of the wells might be known and charted as the work progressed, and from time to time furnished the defendants with reports showing the extent and direction to which the wells had been diverted, and finally furnished them with a plat or graph showing the point of completion of the wells under the surface of parcel A. There is evidence that in each instance the well had to be “whipstocked” to the west, through the fault, and under parcel A in order to produce.

The first of these wells was completed on June 20, 1933, the second on September 4, 1933, and the third on January 16, 1934, and oil was taken from all of them. In November, 1933, the plaintiff wrote a letter to the defendants demanding that they cease trespassing upon its lands. In March, 1934, a grand jury investigation of the defendants' activities was started, resulting in an indictment against the individuals for grand theft. See People v. Brunwin, 2 Cal.App.2d 287, 37 P.2d 1072. The defendants continued to produce oil and the present proceeding was begun on July 17, 1934, a preliminary injunction being issued on August 6, 1934. The injunction was disobeyed and after citation the individual defendants above named were adjudged guilty of contempt and fined. An attempt to review the contempt proceeding by writ of certiorari failed. Bern Oil Co. v. Superior Court, 5 Cal.App.2d 21, 41 P.2d 939.

In addition to alleging most of the facts above set forth the complaint herein alleged that the defendants Brunwin, Abe Bernstein and Sam Bernstein entered into a conspiracy with the object and purpose of obtaining the right to occupy the surface of parcel B in order to commence thereon the drilling of wells, to drill these wells in such a manner as to cause them to cross over the boundary line and under parcel A, thus penetrating the pool or deposit of oil under said land, and through such wells to remove such oil and bring it to the surface of parcel B; that in pursuance of such plan and conspiracy they obtained a lease from the owner of parcel B and started wells thereon which were intentionally diverted into parcel A and into the oil pool or deposit underlying that parcel at a distance of several hundred feet from the boundary line between the two parcels; that thereafter they commenced to remove oil from parcel A and continued such removal, bringing the same to the surface of parcel B; that they thus removed and converted to their own use oil of a value of $75,000 to the damage of the plaintiff in that amount; that after the organization of the Bern Oil Company these acts were performed by the individual defendants through the agency and instrumentality of that corporation; and that the defendants have installed upon parcel B a derrick and apparatus for the drilling of a fourth well and threaten and intend to drill such fourth well in a similar manner across the boundary and into parcel A. The prayer is for a temporary injunction pending the trial and thereafter for a permanent injunction restraining the defendants from removing oil from strata underlying the lands of the plaintiff, from removing oil from any of the three wells which have been mentioned, from diverting or directing the drilling of any other well in such a manner as to cross the boundary line between the parcels A and B, for the sum of $75,000 damages, for an accounting as to any oil or gas already removed, and for such other relief as may be just and appropriate.

While the answer does not deny that the defendants secured a lease covering parcel B, that they entered that land and installed machinery and equipment for drilling, that they employed mechanics skilled in the art of directional drilling or that they intentionally so controlled the direction of the drilling of these wells as to cross over under parcel A, it does deny that these things were done in pursuance of any conspiracy and it is further alleged that the defendants have no knowledge as to the penetration of the oil deposit underlying parcel A or as to the distance of such alleged penetration from the boundary line of parcel B, and on that ground it is denied that the three wells drilled upon parcel B penetrated the oil deposit under parcel A to a distance of several hundred feet from the boundary line. It is admitted that oil has been produced from the three wells thus drilled by the defendants and it is alleged that it is impossible to ascertain definitely the actual location of the bottom of an oil well by any means now known. It is denied that any oil produced from these three wells is the property of the plaintiff, and denied that the plaintiff has been damaged in any amount. It is then alleged that any oil taken from these wells belonged to the defendants, that the plaintiff had surrendered and abandoned all its rights in and to any oil strata, and all its rights in and to any part of the land covered by the original lease, except that the plaintiff had retained the right to produce oil from the seven wells in operation when the quitclaim deed was given to the owner of the land, and that said wells were all located in a zone known as the “Upper Vedder Zone” being approximately 1400 feet in depth, while the three wells drilled by the defendants were located at a depth of approximately 2000 feet in a zone known as the “Lower Vedder Zone”. These last allegations disclose the main issue upon which the case was tried, the defendants having contended throughout that the rights of the plaintiff were limited to the operation of the seven wells existing at the time parcel B was reconveyed to the owner of the land and that the defendants had the right to remove oil from any strata on parcel A which was lower than the one which had been penetrated by those wells.

The court found in all respects in favor of the plaintiff, sustantially in accordance with the allegations of the complaint, finding the existence of such a conspiracy to drill wells upon parcel B in such a manner as to direct them over the boundary and into parcel A for the purpose of removing oil therefrom, and that in pursuance of this conspiracy and plan experts in the art of controlling the direction of drilling wells were employed for the purpose of diverting these wells, and they were so diverted, over the line and into parcel A. It was further found that oil was thus removed from parcel A, that the defendants well knew that there was a productive pool or deposit under parcel A, and no such production deposit under parcel B, and that the defendants “intentionally, secretly and fraudulently employed the right to occupy the surface of parcel B for the purpose of accomplishing a clandestine and secret penetration of such productive oil pool” underneath parcel A and the removal therefrom of oil. It was then found that from the accounting which had been had of the production and sale of oil thus taken by the defendants from underneath parcel A and converted to their own use, it appeared that oil of the value of $107,371.93 had been so removed, and that the royalty thereon which had been paid to the owner of the land, and which otherwise would have been payable by the plaintiff, amounted to $17,737.26.

Abe Bernstein died before judgment was entered and the action was dismissed as to him and the executors of his estate. Judgment was entered against the other defendants perpetually enjoining them from removing through the three wells referred to or through any other well any oil, gas or other hydrocarbon substances from any point beneath the surface of parcel A, and awarding judgment against the defendants H.M. Brunwin, Sam Bernstein and Bern Oil Company, Ltd., jointly and severally, in the sum of $89,643.97. From this judgment two of the defendants have appealed.

Appellants' first contention is that the court committed prejudicial error in denying their request for a jury trial. Appellants state their position as follows: “The gist of this action was for damages and as ancillary thereto the plaintiff requested injunctive relief. The basis of the action being at law, the defendants were entitled to try the issues before a jury.” It may first be observed that this matter was similarly presented to the trial court, a demand for a jury being made as to all of the issues and no request having been made for a jury in connection with the issue of damages alone. While there is some conflict in the authorities with respect to the right to have legal issues arising in an equitable action tried by a jury it is well settled that a jury trial is not a matter of right in so far as the equitable issues are concerned. Even the right to try a legal issue arising in an equitable case before a jury is not universal but must depend upon a number of considerations and must be determined upon the pleadings, issues and facts appearing in a particular case. In Bettencourt v. Bank of Italy, etc., Ass'n, 216 Cal. 174, 13 P.2d 659, the court said (page 661):

“In determining whether an action is legal or equitable, and consequently whether a jury may be demanded, the court is not bound by the form of the action, but rather by the nature of the rights involved, as determined from the whole of the pleadings, and the facts of a particular case. The allegations of the complaint, the answer, and the cross-complaint may be considered, as may also the prayer for relief in the complaint and in the answer. 15 Cal.Jur. 334, § 12. There is no right to a trial by jury where the gist of the action as thus determined is for the enforcement of some right cognizable only in equity, even though legal relief results as an incidental part of the recovery. The fact, therefore, that the prayer contains a demand for damages is not controlling, for where the cause of action is essentially equitable, the prayer for damages is merely incidental to the relief sought, and if the action is properly brought in a court of equity, that court will determine all the issues in the case. McCarthy v. Gaston Ridge Mill & Mining Co., 144 Cal. 542, 78 P. 7.”

We think it rather clearly appears that this action was essentially equitable in character rather than one for damages. The gist of the action is to secure an injunction to prevent the removal of oil from this property over what might well be a long period of years, with an accounting for the oil already removed. While some damage was alleged and proved this feature of the case is directly involved in the accounting asked for and is purely incidental to the main issues of the case, which were equitable in nature. While the accounting involved an element of damage which was referred to in the complaint the prayer for damages was merely incidental to the equitable relief sought and the rules laid down in the authority above referred to are controlling.

A further consideration is that no prejudice appears in any event. In Union Oil Co. v. Reconstruction Oil Co., 20 Cal.App.2d 170, 66 P.2d 1215, this court said (page 1225):

“In the instant action where the facts disclosed by the record indicate that the correct measure of damages was applied by the trial court and that in our opinion a jury properly instructed and properly performing its duty could have returned no other verdict than one favorable to respondent for the precise amount which was here awarded as damages, we are constrained to follow the rule announced in the former of the two above-noted groups of decisions and to declare that no error was committed by the trial court in refusing the demand of appellants for a jury trial on the issue of damages.”

There was no contest here as to the amount of the damage already suffered or as to the amount involved in the accounting. The court took the figures given by the appellants as to the amount and value of the oil which had been removed, deducting the amount of the royalty paid to the landowner which would have been payable in any event, and the appellants stipulated to the correctness of these amounts thus in effect stipulating that if they were liable at all on account of the oil already removed the amount was that which was included in the judgment. In our opinion, no reversible error appears in connection with the refusal to submit the issues of this case to a jury.

It is next urged that the court erred in not compelling the respondent as a prerequisite to injunctive relief to reimburse the appellants for all moneys expended by them in connection with the drilling of wells upon parcel B. This is based upon the contention that since the respondent was asking for equitable relief it should be ordered to do equity; that the wells on parcel B were drilled by the appellants with the knowledge and tacit consent of the respondent and, therefore, the respondent should be barred from equitable relief by the principles of estoppel and laches; and that the appellants were entitled to such reimbursement under the provisions of section 3493/434 of the Code of Civil Procedure, which section was adopted after this action was begun.

The act adopting section 3493/434 (Stats.1935, p. 2285) contained a declaration of policy declaring that there are many oil and gas wells in this state which are not wholly within the land owned or controlled by the owners or operators of the wells, that until recent years there was no way to determine even approximately the subsurface location of the well, and that in many cases such wells were drilled without any intent to invade the land of another. It fully appears that this section was not intended to have any application in a case where a well is intentionally diverted into the land of another. In the instant case it fully appears that the respondent retained all rights given by its original lease in so far as parcel A is concerned and it not only appears that the appellants' lease applied only to parcel B but the court found upon ample evidence that the appellants well knew that the productive pool of petroleum oil underlying parcel A did not extend to or underlie parcel B and that they intentionally, secretly and fraudulently employed the right to occupy the surface of parcel B for the purpose of accomplishing a clandestine and secret penetration of the oil pool underlying parcel A and the removal therefrom of oil, well knowing that this oil was the property of the respondent. Under such circumstances the appellants were chargeable with the value of the oil without any deduction for expenses incurred in bringing it to the surface. Lightner Min. Co. v. Lane, 161 Cal. 689, 120 P. 771, Ann.Cas.1913C, 1093. Under such circumstances the appellants had no equities and may not rely upon the equitable rule that he who seeks equity must do equity. Hibernia Sav. & L. Society v. Ordway, 38 Cal. 679; Richman v. Bank of Perris, 102 Cal.App. 71, 282 P. 801.

Nor is there any room here for the application of the principles of laches or estoppel as against the respondent. The appellants contend that the respondent knew what was being done and tacitly consented thereto because this proceeding was not begun for several months. Drilling was begun on the first of the three wells on May 17, 1933, and the well was completed on June 20, 1933. When a representative of the respondent inquired as to whether this well was being whipstocked he was told by the appellants they were trying to keep the well straight. After that well was completed the respondent was told that the bottom of the well was within parcel A but was not told that this had been intentionally done. The second well was started August 10, 1933, and completed September 14, 1933, and the third well was begun on November 24, 1933, and completed on January 16, 1934. No information as to the underground location of these wells came to the respondent until after the respective wells were completed and there is evidence that surveys and reports were intentionally kept from the respondent. The respondent had no information as to the underground location of the second and third wells until after March 20, 1934, when through a grand jury investigation surveys and reports were secured. There was no estoppel both because the respondent did not possess full information prior to or during the drilling of the wells and because the facts were fully known to the appellants, who were intentionally and secretly proceeding against the property of the respondent, and they were in no way or manner deceived or misled by anything done by the respondent. While the respondent learned after its completion that the first well penetrated their land it was not informed that this had been intentionally done or that there was any intention to do the same thing as the second and third wells were drilled. Since it was refused access to surveys and reports it became necessary for the respondent to ascertain the facts and to procure evidence in other ways. Not only would this take considerable time in view of the natural difficulties involved in obtaining such evidence, but the respondent was justified in taking steps to be very sure of the facts before proceeding with a charge of this nature. This action was begun on July 17, 1934, and it cannot be held as a matter of law that the trial court erred in failing to find that the respondent was guilty of laches which would bar relief.

The only other point raised is that the evidence was insufficient to justify the rendition of a money judgment against the appellant Sam Bernstein. It is contended that there is no evidence showing that this appellant participated in the acts of which the respondent complains. While the appellants set forth certain of the testimony in this regard they omit several other portions of the testimony which is to a contrary effect. Among other things, one witness testified that he visited parcel B with Sam Bernstein and that Sam Bernstein explained to him the plan to drill wells on parcel B in such a manner that they would cross the boundary line and be bottomed in and produce oil from parcel A. The most that can be said is that a conflict appears, and the evidence fully sustains this portion of the judgment.

For the reasons given the judgment is affirmed.

BARNARD, Presiding Justice.

I concur: MARKS, J.