-SMS United Pacific Energy Operations And Consulting, Inc. et al v. Gas And Oil Technologies, Inc. et al, No. 1:2011cv00756 - Document 93 (E.D. Cal. 2011)
Court Description: MEMORANDUM DECISION DENYING PETITION TO INVALIDATE THIRD PARTY CLAIM 17 , signed by Senior Judge Oliver W. Wanger on 09/30/11. (Coffman, Lisa) Modified on 9/30/2011 (Coffman, Lisa).
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1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 8 1:11-cv-00756-OWW-SMS 9 UNITED PACIFIC ENERGY OPERATIONS AND CONSULTING, INC., et al., 10 Plaintiffs, ORDER DENYING PETITION TO INVALIDATE THIRD PARTY CLAIM (Doc. 17) 11 v. 12 13 GAS AND OIL TECHNOLOGIES, INC., et al., 14 Defendants. 15 I. INTRODUCTION. 16 17 On January 5, 2011, United Pacific Energy Operations and 18 Consulting, Inc., and Paul Giller ("UPEOC") filed a Registration of 19 Foreign Judgment and Request for Execution. (Doc. 1). 20 execution issued on February 2, 2011. 21 execution issued on April 14, 2011. On 22 May 6, 2011, Tearlach (Doc. 5). A writ of A second writ of (Doc. 9). Resources (California), LTD 23 ( Tearlach California ) filed a third party claim pursuant to 24 California Code of Civil Procedure 720.110, asserting an ownership 25 interest in the property levied upon by UPEOC. 26 UPEOC filed a Petition to Invalidate Tearlach California s third 27 party claim. 28 /// (Doc. 17). 1 On May 21, 2011 1 The court held a hearing pursuant to California Code of Civil 2 Procedure 720.310 et seq. on August 2 and August 3, 2011. 3 filed proposed findings of fact and conclusions of law on August 4, 4 2011. (Doc. 85). 5 fact and conclusions of law on July 29, 2011. Tearlach California filed proposed findings of (Doc. 72). II. FACTUAL BACKGROUND1 6 7 UPEOC Nature of the Dispute 8 Judgment debtor Western States International, Inc. ( WSI ) is 9 the record owner of federal oil leases with the U.S. Bureau of Land 10 Management ( Federal Leases ) for a property referred to by the 11 parties as Kern Front Field in Bakersfield, California.2 12 Tearlach California each hold judgments against WSI issued in 13 separate proceedings by two separate courts, federal and state, 14 respectively. 15 UPEOC and UPEOC seeks to execute on approximately 900 barrels of crude 16 oil produced at Kern Front Field by WSI. Tearlach California 17 asserts an ownership interest in oil produced at Kern Front Field 18 by WSI. 19 UPEOC s Judgment 20 On May 25, 2007, UPEOC filed suit in the Los Angeles County 21 Superior Court against, inter alia, WSI and Tearlach Resources 22 (Canada) LTD., a Canadian Corporation ("Tearlach Canada"). United 23 Pacific Energy Operations and Consulting, Inc., et al. v. Gas and 24 Oil Technologies, Inc., et al., 2:07-cv-04436-CJC-RNB, Doc. 1. 25 26 1 27 The parties present a deluge of extraneous issues. Only facts material to the petition to invalidate are recounted here. This court is not a forum for relitigating issues previously decided. 28 2 BLM Lease Nos. CACA 45618 and 45619. 2 1 Tearlach California, a subsidiary of Tearlach Canada, was not named 2 as a defendant. The action was removed to the United States 3 District Court for the Central District. 4 UPEOC recorded Lis Pendens with the Kern County Recorder against 5 the Federal Leases. 6 Id. On May 29, 2007, UPEOC filed a first amended complaint ("UPEOC's FAC") on 7 September 26, 2007. United Pacific Energy Operations and 8 Consulting, Inc., et al. v. Gas and Oil Technologies, Inc., et al., 9 2:07-cv-04436-CJC-RNB, Doc. 27. Tearlach California was not named 10 as a defendant in UPEOC's FAC. UPEOC's FAC alleged nineteen causes 11 of action, all but two of which sought only monetary relief. 12 the tenth and eleventh causes of action in UPEOC's FAC asserted 13 interests in real property. 14 Only On October 19, 2007, Default Judgment was entered against 15 Tearlach Canada. 16 Inc., 17 2:07-cv-04436-CJC-RNB, Doc. 26. 18 granted Tearlach Canada's motion to set aside the default judgment. 19 Id., Doc. 42. 20 et al. v. United Pacific Energy Operations and Consulting, Gas and Oil Technologies, Inc., et al., On February 25, 2008, the court On May 2, 2008, the United States District Court for the 21 Central 22 Judgment ("2008 Consent Judgment") against WSI and several other 23 entities. The 2008 Consent Judgment provides: 24 this Court enters Judgment as follows... 25 2. $2,465,000 in favor of UNITED PACIFIC ENERGY OPERATIONS AND CONSULTING, INC. and against GAS AND OIL TECHNOLOGIES, INC., WESTERN STATES INTERNATIONAL, INC., and UNITED PACIFIC ENERGY CORPORATION, jointly and severally, on the first, second, third, fourth, sixth, seventh, eighth, ninth, twelfth, and sixteenth causes of action alleged in the First Amended Complaint by 26 27 28 District of California 3 entered a Stipulated Amended 1 Plaintiffs UNITED PACIFIC ENERGY CONSULTING, INC. and PAUL GILLER; and OPERATIONS AND 2 3 4 5 3. $135,000 in favor of Plaintiff PAUL GILLER and against GAS AND OIL TECHNOLOGIES, INC., WESTERN STATES INTERNATIONAL, INC., and UNITED PACIFIC ENERGY CORPORATION, jointly and severally, on the eighteenth and ninteenth causes of action alleged in the First Amended Complaint by Plaintiffs UNITED PACIFIC ENERGY OPERATIONS AND CONSULTING, INC. and PAUL GILLER 6 7 (Doc. 1). 8 Tearlach California s Judgment 9 On March 3, 2011, the Kern County Superior Court entered an 10 Amended Judgment in favor of Tearlach California. 11 The Kern County Superior Court Judgment is entitled Amended 12 Judgment After Court Trial and provides, in pertinent part: 13 IT IS HEREBY ADJUDICATED THAT Cross-Defendant WESTERN STATES INTERNATIONAL, INC. transferred, effective on or before December 13, 2006, to Cross-complaintant TEARLACH RESOURCES (CALIFORNIA) LTD., a sixty percent (60%) working interest in the oil and gas property known as the Kern Front Field described in the TEARLACH RESOURCES (CALIFORNIA) LTD., Cross-complaint...including the Witmer A, B West and Sentinal A Lease...and Mitchell Lease (CACA 045618). 14 15 16 17 18 (Doc. 26-1). (Id.). 19 On March 21, 2011, Tearlach California recorded a Notice of 20 Judgment Lien with the California Secretary of State against all 21 property subject to enforcement of a money judgment against [WSI] 22 to which a judgment lien on personal property may attach. 23 61-14). 24 (Doc. III. LEGAL STANDARD. 25 Where personal property has been levied upon under a writ of 26 execution, a third party who claims ownership of or the right to 27 possess the property may make a third party claim if the interest 28 claimed is superior to the creditor's lien on the property. 4 Cal. 1 Code Civ. P. § 720.110.3 2 may request a hearing to determine the validity of a third party 3 claim filed pursuant to section 720.110. 4 720.310. 5 within 20 days after the filing of the petition unless continued by 6 the court for good cause shown. 7 in hearings pursuant to section 720.310 et seq. 8 § 720.410. Either a creditor or third party claimant Cal. Code. Civ. P. § A hearing requested under section 720.310 must be held Id. There is no right to a jury Cal. Code. Civ. P. 9 The third party has the burden of proving an interest in the 10 subject property by a preponderance of the evidence. Cal. Code Civ. 11 P. § 720.360. 12 section 720.360 by introducing evidence showing that it owns the 13 subject property. Whitehouse v. Six Corp., 40 Cal. App. 4th 527, 14 535 (Cal. Ct. App. 1995) (citation omitted); ITT Commercial Finance 15 Corp. v. Tech Power, Inc.,43 Cal. App. 4th 1551, 1558-59 (Cal. Ct. 16 App. 1996); Banc of Am. Leasing & Capital v. Sferas Inc., 2011 Cal. 17 App. Unpub. LEXIS 3420 * 10 (Cal. Ct. App. 2011) (unpublished). 18 The burden then shifts to the creditor to establish that the third 19 party's interest is invalid or inferior to that of the creditor. 20 Id. The third party claimant can meet its burden under 21 After a hearing pursuant to section 720.310, a court must give 22 judgment determining the validity of the third party claim. Cal. 23 Code. Civ. P. § 720.390. 24 parties to the proceeding. 25 disposition of the property or its proceeds. The judgment is conclusive between the Id. The court need not order the Id. No findings are 26 27 28 3 Pursuant to Federal Rule of Civil Procedure 69(a), California law governs this matter. Fed. R. Civ. P. 69(a); see, e.g., Credit Suisse v. United States Dist. Court, 130 F.3d 1342, 1344 (9th Cir. 1997). 5 1 required in proceedings under section 720.310. 2 § 720.400. IV. Discussion 3 4 Cal. Code. Civ. P. A. Federal Rule of Civil Procedure 13 5 UPEOC contends that Tearlach California is the alter ego of 6 Tearlach Canada and is thus barred from asserting its third party 7 claim by Federal Rule of Civil Procedure 13, as Tearlach Canada did 8 not assert the interest claimed as a compulsory counterclaim in the 9 Central District action.4 10 Federal Rule of Civil Procedure 13(a) requires a party to 11 assert a counterclaim when it "arises out of the transaction or 12 occurrence that is the subject matter of the opposing party's 13 claim." 14 counterclaim before the related claim proceeds to judgment results 15 in the barring of the counterclaim. E.g., Dragor Shipping Corp. v. 16 Union Tank Car Co., 378 F.2d 241, 244 (9th Cir. 1967)("Under Rule 17 13(a) a party who fails to plead a compulsory counterclaim against 18 an opposing party is held to have waived such claim and is 19 precluded by res judicata from bringing suit upon it again."). 20 Tearlach Canada has not filed an answer in the Central District 21 action, 22 presented here. See MRW, Inc. v. Big-O Tires, LLC, 2008 U.S. Dist. 23 LEXIS 101902 *29 (E.D. Cal. 2008) (noting that applicability of 24 section 13(a) to this type of situation is an open question in the 25 Ninth Circuit). Fed. R. Civ. P. 13(a). Rule 13(a) does not Failure to assert a compulsory expressly address the As situation 26 27 28 4 Because whether Tearlach California is the alter ego of Tearlach Canada is not relevant to the instant petition, the court makes no factual findings on the issue. 6 1 Several circuit courts of appeal have held that failure to 2 plead a compulsory counterclaim is only fatal to that counterclaim 3 under Rule 13(a) where judgment has already been entered in the 4 related suit. 5 (6th Cir. 1985); Lawhorn v. Atlantic Refining Co., 299 F.2d 353, 6 356-357 (5th Cir. 1962); Martino v. McDonald's System, Inc., 598 7 F.2d 1079 (7th Cir. 1979). 8 the plain language of Rule 13, which requires the party to state 9 such a claim at the time of serving a pleading. 10 Id. (citing U.S. v. Snider, 779 F.2d 1151, 1157 This construction is consistent with Snider, 779 F.2d at 1157. 11 Tearlach Canada has not filed an answer in the Central 12 District Action. 13 in the Central District action in connection with its motion to set 14 aside the Default Judgment. 15 setting aside Tearlach Canada s default did not order that Tearlach 16 Canada s 17 District s docket does not contain an answer from Tearlach Canada. 18 Nor 19 pertaining to UPEOC s claims against Tearlach Canada. 20 unknown, the entire action is designated closed on the Central 21 District s docket. does Rather, Tearlach Canada lodged a proposed answer proposed the answer Central The Central District Court s order be deemed District s filed, docket and contain the any Central judgment For reasons 22 UPEOC offers no legal support for its Rule 13 argument. 23 proposed conclusions of law submitted by UPEOC do not contain a 24 single citation to any legal authority. (Doc. 84). 25 assuming arguendo that UPEOC s unsupported alter ego contention is 26 correct, application of Rule 13(a) to bar Tearlach California s 27 third party claim is inappropriate because Tearlach Canada never 28 filed an answer in the Central District Action, and UPEOC s claims 7 The In any event, 1 against Tealach Canada have not yet proceeded to judgment. 2 MRW, Inc. v. Big-O Tires, LLC, 2008 U.S. Dist. LEXIS 101902 *29 3 ( because there was no responsive pleading in either of the earlier 4 cases, failure to plead a compulsory counterclaim in those cases 5 does not bar plaintiff's claim in the instant suit ); see also 6 Snider, 779 F.2d at 1157; Lawhorn, 299 F.2d at 356-357, Martino, 7 598 F.2d at 1082; Stanton v. City of Philadelphia, 2011 U.S. Dist. 8 LEXIS 19916 *14 (E.D. Pa. 2011) (failure to plead a compulsory 9 counterclaim is only fatal to that counterclaim where judgment has 10 already been entered in the related suit); ZS Assocs. v. Synygy, 11 Inc., 2011 U.S. Dist. LEXIS 55711 *39 (E.D. Pa. 2011). Application 12 of Rule 13 to bar Tearlach California s third party claim is 13 inappropriate in light of the inchoate nature of the proceedings in 14 the Central District. 15 B. Validity of Tearlach California s Third Party Claim 16 See Tearlach California bears the initial burden of establishing 17 an ownership interest in the subject property. 18 40 Cal. App. 4th at 535. 19 burden of going forward by presenting evidence of its ownership of 20 the subject property. 21 evidence the Kern County Superior Court s Judgment and the recorded 22 assignment from WSI of an interest in an oil and gas lease to 23 Tearlach California. 24 without opposition, but no party has directly or collaterally 25 attacked the judgment. Tearlach s judgment against WSI adjudicated 26 that WSI transferred a sixty-percent working interest in Federal 27 Leases 28 Accordingly, the burden shifted to UPEOC to establish that Tearlach which E.g., Whitehouse, Tearlach California met its initial At the hearing, the court received into This may have been collusive and entered produced the oil 8 subject to UPEOC s levy. 1 2 California s interest is invalid or inferior. Id. UPEOC attempts to collaterally attack the Kern County Superior 3 Court s judgment by arguing that it does not mean what it says. 4 UPEOC also contends that the judgment was entered in excess of the 5 Superior Court s jurisdiction. 6 authority to review the validity of state court judgments. 7 e.g., Reusser v. Wachovia Bank, N.A., 525 F.3d 855, 859 (9th Cir. 8 2008)(noting that federal district courts are prohibited from 9 exercising subject matter jurisdiction over a suit that is a de Federal district courts have no See, 10 facto appeal from a state court judgment). 11 disturb the Kern County Superior Court s judgment based on UPEOC s 12 arguments. See, e.g., id. ( A federal action constitutes such a de 13 facto appeal where claims raised in the federal court action are 14 inextricably intertwined with the state court's decision such 15 that the adjudication of the federal claims would undercut the 16 state ruling 17 application of state laws or procedural rules. "). This is not the 18 appropriate forum for UPEOC s collateral challenge to the findings 19 expressed in the Kern County Superior Court s judgment. 20 or require the district court The court may not to interpret the In order to prevail on its petition to invalidate Tearlach 21 California s 22 Tearlach s interest is inferior to the interest UPEOC obtained upon 23 entry of the 2008 Amended Consent Judgment. See, e.g., Whitehouse, 24 40 Cal. App. 4th at 535. 25 hearing: 26 27 28 third party claim, UPEOC must establish that As the court noted at the close of the the only issue that I think is left to be decided is, under the law, what is the effect of the recording of the lis pendens in relation to when the assignment was taken, when it was recorded, and basically what priority in law the lis pendens has in relation to the judgment obtained. 9 And you have argued that, in effect, there is a relation back ab initio to give the judgment priority as of the time the lis pendens was filed. And the Court's recollection is that a lis pendens gives notice to the world that there's a pending lawsuit and claim. And that once a judgment in the case is entered, that lis pendens gives time priority to the judgment as of the date the lis pendens notice was given. That's the general rule. And so the question is if the assignment of the interest in the leases was made to the parties who claim to have that interest, as of a time that was prior to the filing of the lis pendens or the entry of the judgment, what is the effect of a subsequent transfer by way of assignment that is recorded after the lis pendens? 1 2 3 4 5 6 7 8 (Doc. 92 at 93). 9 The court continued: [T]he only issue raised by that transfer is who's the correct owner of that 60 percent interest in the lease. Nobody is arguing -- and there is no evidence before the Court that Tearlach was not issuing and it did, in fact, issue the shares to acquire that interest from the transferring party. And so the 60 percent interest is owned by someone. And your contention is that if it is owned by the debtor, the judgment debtor, then it is fairly the subject of being executed on by the writ of execution. 10 11 12 13 14 And the third party claimant's position is if the assignment occurred and was effective, then if the owner is a party not subject to the judgment, in other words, not a judgment creditor. And there isn't some other basis to say that party owes the third party claimant anything, then you get to execute and levy on 40 percent of that leasehold interest and you may have to get a charging order or some other kind of an order where there's a co-tenancy or whatever the law will say, as between those two parties, where there is a residuary owner who is the original owner, who transferred 60 percent of the interest in the leases. 15 16 17 18 19 20 21 And that 60 percent holder, who is not the subject of a judgment, holds those rights free and clear of the judgment lien, unless you can prevail in your theory. And that's going to be decided as a matter of law. We have all the evidence on it. The evidence is not in dispute. It's strictly a matter of what's the legal effect. 22 23 24 25 (Id. at 94). 26 (Id.). 27 /// UPEOC s counsel agreed with the court s assessment. 28 10 1 UPEOC contends that its interest is superior to Tearlach 2 California s interest because Tearlach California did not record 3 WSI s assignment of the sixty-percent interest until after UPEOC 4 filed its lis pendens. 5 established by the 2008 Consent Judgment, relate back to May 29, 6 2007, the date on which UPEOC filed its lis pendens on WSI s 7 Federal Leases. 8 of California s lis pendens law. UPEOC argues that UPEOC s rights, as UPEOC s position is based on a misinterpretation 9 A lis pendens is a recorded document giving constructive 10 notice that an action has been filed affecting title or right to 11 possession of the real property described in the notice. 12 Park 100 Investment Group II, LLC v. Ryan, 180 Cal. App. 4th 795, 13 807 (Cal. Ct. App. 2009). 14 be a party asserting a Real Property Claim as defined in California 15 Code of Civil Procedure section 405.4. Id. Pursuant to California 16 Code of Civil Procedure section 405.4, a real property claim 17 means the cause or causes of action in a pleading which would, if 18 meritorious, affect (a) title to, or the right to possession of, 19 specific real property or (b) the use of an easement identified in 20 the pleading... 21 405.31 requires expungement of a lis pendens if the pleading on 22 which the notice is based does not contain a real property claim. 23 Id. Even when a real property claim has been properly pled, where 24 the real property claim lacks evidentiary merit, the lis pendens 25 must be expunged. Id. E.g., The party recording a lis pendens must California Code of Civil Procedure section Id. 26 UPEOC s interest arising out of the 2008 Consent Judgment does 27 not relate back to the filling of its lis pendens, as the 2008 28 Consent Judgment does not adjudicate any interest in real property. 11 1 To the contrary, the only claims on which judgment was entered 2 under the 2008 Consent Judgment are claims for money damages. 3 Pursuant to California Code of Civil procedure section 405.24, the 4 rights and interest of the claimant in the property, as ultimately 5 determined in the pending noticed action, shall relate back to the 6 date of the recording of the notice. Cal. Code Civ. P. 405.24 7 (emphasis rights 8 determined in the 2008 Amended Consent Judgment. Factual merit is 9 necessary to the maintenance of a lis pendens. added). No real property were ultimately Palmer v. Zaklama, 10 109 Cal. App. 4th 1367,1378 (Cal. Ct. App. 2003); Park 100, 180 11 Cal. App. 4th at 808. 12 which a lis pendens is based must be finally adjudicated in favor 13 of the party asserting the lis pendens in order to confer the 14 benefits provided in section 405.24. A fortiori, the real property claims on See id. 15 Because UPEOC has not carried its burden of establishing that 16 Tearlach California s interest is inferior to UPEOC s interest, the 17 petition to invalidate must be denied. 18 Cal. App. 4th at 535. 19 UPEOC s challenge to Tearlach California s interest as established 20 by the Kern County Superior Court s judgment. This is not the appropriate forum for ORDER 21 22 See, e.g., Whitehouse, 40 For the reasons stated, UPEOC s petition to invalidate the 23 third party claim of Tearlach California is DENIED. Tearlach 24 California s claim of priority has not been adjudicated in this 25 proceeding and Tearlach California s claims for relief are likewise 26 DENIED. 27 disposition of property in resolving petition to invalidate under 28 section 720.390). Cal. Code. Civ. P. § 720.390 (court need not order 12 1 IT IS SO ORDERED. 2 Dated: hkh80h September 30, 2011 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13
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