Proof that a seller has reserved mineral rights in california

Law & Legal
1

What proof is necessary to see that mineral rights and royalties have been reserved or retained in California?

I have a situation where I am suddenly receiving oil royalties from PXP and Venoco after living in my condo for 24 years. Who was receiving them in the past? The developer—for 35 years! PXP and Venoco say the developer never reserved the rights. The developer (an attorney!) says that he “was informed that he owned the rights.” Obviously, we asked who informed him and he is stonewalling. In HIS deed he was in fact granted (and therefore OWNED) mineral rights and oil royalties, but shouldn’t there be something in MY deed that says the rights have been reserved and I am not entitled to them?

Or shouldn’t there be a “mineral deed” from Chevron (who handled them before PXP) on his deed stating that he is reserving them for himself? I could find no such deed in my search at the LA Recorder’s offices in Norwalk yesterday. We are all out a lot of money and would like to sue, but the developer is so insistent that he is entitled to them. Having said that, he offered us $5,000 and is not contesting that we are now receiving the royalties.

Thank you for any information. Monday I go to the Department of Real Estate!

2

Sounds suspicious that he offered to buy them. If his mineral ownership was clear, I don’t know why he would do that. Based on what the companies allege about there never being a reservation, the individual lot or condo owners may own them. That is what it sounds like. It’s not so important what his deed says, as it is what the deeds say as he sold off the lots, or possibly in the dedication itself. Did he reserve in those deeds? It doesn’t sound like he knew to do that, or thought about it at the time.

The fact that there isn’t mention of a mineral reservation in your deed isn’t tell-tale. Once the minerals are out or gone, they are out or gone. A good draftsman might put or reference prior mineral reservations in any given deed, but it is not uncommon for them not to.

Based on the facts you present, I would have to conclude that developer wants to believe that he owns them (minerals), but doesn’t have the evidence to prove that he does. It also sounds like the condo owners own the minerals based on what the companies told you. It seems that the developer has wrongly been paid the royalties for the past 35 years, possibly due to sloppy mineral title work, or a misunderstanding of how to lease subdivided lots. The well has produced that long? It also sounds like there may be mineral trespass issues if the wrong party signed the original lease.

Conjecture and speculation are allowed here, and that is all any of the above is. To find out anything definite, or beyond a shadow of a doubt, a full mineral title search would need to be done by someone who knows what they are doing, or you can buy into the previous postings here that anyone can do it. Good luck on your continued search for the truth or final resolution.

3

Thank you, Dave. Let me make clear, he didn’t offer to buy them, he just offered the whole building $5,000 as some kind of restitution, we think, and to go away and sign something that we would never go after any more money. He’s probably collected over $150,000. We 18 owners are now getting $300 a year. I am talking to attorneys but still can’t get a definitive answer on what proof you have to have that you RESERVED the rights…or if you don’t reserve them, do they normally flow through to the next owner, even if you own them? Which may be sloppiness on their part, which you suggest above and I suspect might be true!

Thanks for taking time to give me a response. Pat

4

Yes. For example, if nowhere in the chain of title there were never any mineral reservations, then you as the current owner would own them.

If there were six prior owners of the condo and the second owner thought to reserve the minerals in the deed to the third, they would own the minerals, not you, even though there is no mention of the reservation when owner no. 6 sells to you. This assumes that they were not reserved by developer.

The answer to your follow-up is that the proof would typically be found in a deed in the chain of title, or possibly in the original dedication itself.

Be advised however, that while it is possible to find a mineral reservation in a deed selling a condo, it is highly unusual. If the condo is a part of a producing unit, and royalties are being paid, the seller would most likely reserve the minerals. But then again, if they believed the developer owned them because he was receiving the royalties, they would not have any reason to reserve. But again, who signed the original lease? The developer? Why was he being paid for 35 years? If it turns out the condo owners own them (minerals), they don’t have a good lease because the wrong party would have executed it.

5

Again, thank you, Dave. Mineral rights are mentioned in the chain of title, but the references stop when the property is sold to the developer. They were granted to a limited partnership (ABC, Ltd) by the last owner on my chain of title. But then I found the deed where the limited partnership (ABC, Ltd. the attorneys) then sold to the developer (ABC, Inc. the same attorneys) and the mineral rights are not mentioned. I think I have to pop for a major title search and I have a company here, Petru in Santa Paula, that I think can do that. Otherwise I’m chasing my tail.

6

Yeah, it’s tough. No one here can really do anything unless they read all of the deeds. There may be someone who THINKS they can give you the right answer, but they really can’t. They need to read the deeds and chain it out, and figure out inconsistencies like why oil companies are telling you the developer didn’t reserve, but yet he was paid for 35 years. No one can do that from here. I know of some regulars here who like to give advice that probably think they can, but they can’t. Good luck.

7

Thank you, Dave,

I will keep that in mind! But it’s good to have a forum to at least get some good feedback, which you gave me!

I’m learning way more about deeds and gas and oil rights than I ever wanted to. I would just like to not let this guy get away with this!

Dave Quincy said:

Yeah, it’s tough. No one here can really do anything unless they read all of the deeds. There may be someone who THINKS they can give you the right answer, but they really can’t. They need to read the deeds and chain it out, and figure out inconsistencies like why oil companies are telling you the developer didn’t reserve, but yet he was paid for 35 years. No one can do that from here. I know of some regulars here who like to give advice that probably think they can, but they can’t. Good luck.

8

Pat, you are correct that these issues are dealt with in the grant deeds. Unfortunately, it often happens that the legal descriptions fail to state that the mineral rights are reserved, etc. A full title search would need to be performed in order to ascertain when the mineral rights were severed from the surface ownership and how those mineral rights were passed on. Apparently, PXP (now Freeport McMoran) has been conducting title reviews and found out that you own the mineral rights.

If the developer is not contesting this then you are likely right and he knows that you are entitled to this royalties. With regard to the past royalties, there are statutes of limitations that apply, but can be extended somewhat if you can show that you could not have known that you were entitled to the royalties.

Obviously, I do not know what amounts you have lost (limited by those statutes of limitations). But, if the developer is offering a settlement, it likely makes sense to negotiate and get something rather than expending a lot in attorney fees (which may not be recoverable) in attempting to prove that he knew that he was defrauding you when he had taken these royalties all of these years. That said, the settlement document should include title work (at his expense) showing that you own the mineral rights. Good luck!

9

Thank you, Jean. Everything you said makes sense. One attorney I spoke to said this is clear “conversion” and if that is the case we could likely go back and get everything owed us. There is a 3 year statute of limitations on fraud and possibly theft to FILE a claim (both of which we feel this is) but we are within that until April 2015.

The question becomes, how much can you collect? If THAT is 3 years we’re talking about $900 per owner. Not enough to bring a major lawsuit. But I have lost $7,200 plus interest.

When I think about what you said, it feels cheaper and smarter to pay for a full-on title search by Petru and simply take that to small claims court. Each owner is owed less than $10,000.

They will absolutely not settle. We have tried that. They are banking on the fact we will not sue them, I think. I mean, after all, we would go into court against lawyers! The president of the developer, an attorney, is being represented by his son, an attorney! It’s a little daunting. Are you in California, Jean?

Jean M. Pledger said:

Pat, you are correct that these issues are dealt with in the grant deeds. Unfortunately, it often happens that the legal descriptions fail to state that the mineral rights are reserved, etc. A full title search would need to be performed in order to ascertain when the mineral rights were severed from the surface ownership and how those mineral rights were passed on. Apparently, PXP (now Freeport McMoran) has been conducting title reviews and found out that you own the mineral rights.

If the developer is not contesting this then you are likely right and he knows that you are entitled to this royalties. With regard to the past royalties, there are statutes of limitations that apply, but can be extended somewhat if you can show that you could not have known that you were entitled to the royalties.

Obviously, I do not know what amounts you have lost (limited by those statutes of limitations). But, if the developer is offering a settlement, it likely makes sense to negotiate and get something rather than expending a lot in attorney fees (which may not be recoverable) in attempting to prove that he knew that he was defrauding you when he had taken these royalties all of these years. That said, the settlement document should include title work (at his expense) showing that you own the mineral rights. Good luck!

10

It sounds like the developer had no problem cashing the checks for 35 years until they got caught. I’m surprised it went on that long with all of the ownership changes before anyone figured it out. PXP would not have started paying current condo owners out of the blue without having done the research already. However, it is extremely doubtful they will share that information with you to get the rest of the facts.

It is difficult to give legal advice on your situation without knowing the facts that the title search on the mineral rights will reveal. Either way, as a group of condo owners, I would not accept $5000 (as a group) and hold harmless the developer from any additional compensation. Better off to utilize an experienced attorney and get the title work done and determine what remedies are best given the circumstances.

The only other advice I can say is, it is not safe to determine the value of your mineral rights or the past royalties (to calculate losses) based on what you are currently getting paid. There are many factors which have likely changed the royalty amount in 35 years and will continue to change in the future. That lease may have been earning $5 a year 15 years ago, but $5000 a year 20 years ago. That takes additional research to determine an estimate for what the royalties were paying at any given point in time. It may or may not be necessary depending on legal options/limitations for your situation. That is where the experienced attorney should be able to tell you if that kind of research is necessary or not.

11

Yep, he collected them with no problem for 35 years. It’s astonishing to us as well that no one caught it. But you have to remember we are living in an urban area in Los Angeles, the middle of the city, adjacent to Beverly Hills. Not a lot of oil wells around. But there is one - over 2 miles away on the grounds of Beverly Hills High School. And that’s the one! We would never know about the royalties if Venoco had not done a title search and sent us all a letter: “We see you are the owner of this property now. Here’s a check.”

Yes, I’m aware that the amount of royalties changes every year. But we know (in writing) that PXP paid the developer $60,000 between 1999 and 2012. That’s $4,600 a year to the building. Venoco paid a small amount. Chevron was before that but I am playing phone tag with them right now. I would be fine saying, “You owe me $7,200” and then they come back - with clear evidence! - that they only owe me $6,500! They offered the building $5,102.39 (seriously) and said it was too “cumbersome, difficult and not feasible” to dig up the records. Right.

The trick is finding a really good oil and gas attorney who might take it on contingency. Some people are only owed a few thousand. We can’t go back 35 years to find all the owners, some of who are deceased. I don’t think I can get the 13 that might participate to come up with unending lawyer fees. That’s why small claims court would be ideal. We might not get the big bucks, but if even 10 of us took him to small claims, it would force some kind of settlement - better than $5,000. Of course I would like punitive damages but that would be part of a larger lawsuit.

I think I have to just get a full on, stand-up-in-court, title search and put it in front of a judge.

12

I think limits in California for small claims is $10,000.00 for individuals and $5,000.00 for a business.

13

California condo law appears to be very complex. You need a lawyer who knows not just oil & gas, but California real estate law with the subsections that deal with condominiums. Otherwise, I would take the money. The more I think about it, the more I realize all of the various legal issues that may arise, being over the heads of most. This could turn into a huge mess.

Pat Parrish said:

Yep, he collected them with no problem for 35 years. It’s astonishing to us as well that no one caught it. But you have to remember we are living in an urban area in Los Angeles, the middle of the city, adjacent to Beverly Hills. Not a lot of oil wells around. But there is one - over 2 miles away on the grounds of Beverly Hills High School. And that’s the one! We would never know about the royalties if Venoco had not done a title search and sent us all a letter: “We see you are the owner of this property now. Here’s a check.”

Yes, I’m aware that the amount of royalties changes every year. But we know (in writing) that PXP paid the developer $60,000 between 1999 and 2012. That’s $4,600 a year to the building. Venoco paid a small amount. Chevron was before that but I am playing phone tag with them right now. I would be fine saying, “You owe me $7,200” and then they come back - with clear evidence! - that they only owe me $6,500! They offered the building $5,102.39 (seriously) and said it was too “cumbersome, difficult and not feasible” to dig up the records. Right.

The trick is finding a really good oil and gas attorney who might take it on contingency. Some people are only owed a few thousand. We can’t go back 35 years to find all the owners, some of who are deceased. I don’t think I can get the 13 that might participate to come up with unending lawyer fees. That’s why small claims court would be ideal. We might not get the big bucks, but if even 10 of us took him to small claims, it would force some kind of settlement - better than $5,000. Of course I would like punitive damages but that would be part of a larger lawsuit.

I think I have to just get a full on, stand-up-in-court, title search and put it in front of a judge.

14

That’s all true, Dave. It could be a real mess!! At this point the big $5,000 ($283 per owner) is off the table. We either walk away or at least try to make a stand in court. Yes, $10,000 is the limit in small claims court. And they could appeal if we won.

Dave Quincy said:

California condo law appears to be very complex. You need a lawyer who knows not just oil & gas, but California real estate law with the subsections that deal with condominiums. Otherwise, I would take the money. The more I think about it, the more I realize all of the various legal issues that may arise, being over the heads of most. This could turn into a huge mess.

Pat Parrish said:

Yep, he collected them with no problem for 35 years. It’s astonishing to us as well that no one caught it. But you have to remember we are living in an urban area in Los Angeles, the middle of the city, adjacent to Beverly Hills. Not a lot of oil wells around. But there is one - over 2 miles away on the grounds of Beverly Hills High School. And that’s the one! We would never know about the royalties if Venoco had not done a title search and sent us all a letter: “We see you are the owner of this property now. Here’s a check.”

Yes, I’m aware that the amount of royalties changes every year. But we know (in writing) that PXP paid the developer $60,000 between 1999 and 2012. That’s $4,600 a year to the building. Venoco paid a small amount. Chevron was before that but I am playing phone tag with them right now. I would be fine saying, “You owe me $7,200” and then they come back - with clear evidence! - that they only owe me $6,500! They offered the building $5,102.39 (seriously) and said it was too “cumbersome, difficult and not feasible” to dig up the records. Right.

The trick is finding a really good oil and gas attorney who might take it on contingency. Some people are only owed a few thousand. We can’t go back 35 years to find all the owners, some of who are deceased. I don’t think I can get the 13 that might participate to come up with unending lawyer fees. That’s why small claims court would be ideal. We might not get the big bucks, but if even 10 of us took him to small claims, it would force some kind of settlement - better than $5,000. Of course I would like punitive damages but that would be part of a larger lawsuit.

I think I have to just get a full on, stand-up-in-court, title search and put it in front of a judge.

15

We did…in 2012. He is no longer receiving them.

Dave Quincy said:

I guess I’m missing something. I thought you started receiving the royalties instead of developer - upon a re-read of the initial posting.

16

Good for you. At least you’re not getting shut out completely. Is the well near the La Brea Tar Pits?

17

Pat:

Dave is correct, there are a lot of laws involved in this one.

I am in California but, unfortunately, my firm is too small to handle a large contingency matter. I cannot comment on the “clear case” of conversion or on the potential that someone could “go back” as far as 35 years to obtain amount you are owed. There are a lot of unknowns based on what little we know from these posts.

I always inform people, however, that litigation is not only expensive, it is emotionally draining as well. While lawyers litigate for a living, most people are not used to the demands on both your money and your time to litigate a matter. Many people are also upset (which is why they are litigating in the first instance) and find that filing a lawsuit is not as satisfactory as it may have first seemed.

I don’t have a magic bullet here but I would give a lot of consideration to simply negotiating with the developer (who may have really thought that he had retained the mineral rights) and get the best deal that you can. Once you have a deal, get it in writing.

Good luck!

18

Yes, Jean, you are correct about the stress of a lawsuit, not to mention the money involved. I just learned of a term demurrer that sounds like it could rack up the bills for us! I’m already stressed and angry about this and I’m aware that one does not always “win” even if they are in the right. A judge might throw out Conversion and I think on fraud we could only go back 3 years and it is really not fraud in my case because I did not buy directly from the party involved.

I’m going to the Department of Real Estate this morning to try to clarify something on the Final Subdivision Report that states that we, as owners, “will not own the mineral, oil, and gas rights under your land below a depth of 500 feet.” That’s pretty decisive. I just can’t find evidence that they have a right to say this and it is contradicted by the fact that PXP and Venoco say we DO have the rights. That’s what is making me crazy. I was on the phone with Chevron this morning because that’s who they would have reserved the rights through.

My best attack (if I still believe they are in the wrong and bluffing) is to pay for a serious title search (instead of a lawyer) and if that proves that we are in the right, I would take them to small claims court with that in my hand and accuse them of conversion and ask for the full amount back…my estimated $7,200 plus interest.

If I lost that, then I’m done. If I won, they might appeal and then I’m in a trial de novo, right? I just don’t think these people will settle and it does make me angry that they might get away scot-free. Putting them into small claims court MIGHT force a settlement. But I have to think about how much angst I want to put myself through. There are maybe 4 other people in the building that feel the same, but I am the one doing all the legwork :slight_smile:

Thanks so much, Jean! I appreciate your words of advice and will take them to heart.