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California Court Decision Creates Uncertainty as to the Ownership of Aggregate Resources on Land Subject to General Mineral Reservations

California Court Decision Creates Uncertainty as to the Ownership of Aggregate Resources on Land Subject to General Mineral Reservations

In a recent court ruling involving Vulcan Lands Inc., CalMat Co., and Arundel Company LLC (collectively the “Mining Companies”) and Victoria Older Currier, Nancy Wood Yarborough, Catherine Older Lapat, Robert M. Older, and Deena Rae Ortiz (collectively the “Olders”), the California Court of Appeals for the Fourth Appellate District addressed the following question: Do general reservations of minerals in deeds include the right to mine sand and gravel? (Vulcan Lands Inc. et al. v. Victoria Older Currier et al. 2023 WL 8821307)

Mine operators and property owners in California previously relied upon the precedent set by the California Court of Appeals for the Fifth Appellate District in Bambauer v. Menjoulet (1963) 214 Cal.App.2d 871, which decision generally held that aggregate (i.e., sand and gravel) is not considered a “mineral” included in a general reservation of minerals in a deed. The Bambauer case held that minerals, to be considered separate from the surface estate for the purposes of a general mineral reservation in a deed, must have a commercial value and a distinct and uniform chemical composition, distinguishing them from the earth itself. (Bambauer, supra, 214 Cal.App.2d at 874.) The court in Bambauer reasoned that gravel did not have a distinct and uniform chemical composition, was not separate from the earth owned by the surface owner, and therefore was not reserved in a general mineral reservation. Subsequent California cases have expanded on the rule from Bambauer when analyzing the ownership of geothermal resources, focusing on whether the specific mineral at issue has value and to what extent extraction will destroy the surface estate; however, the general holding from Bambauer regarding aggregate ownership was not questioned in those cases. (Geothermal Kinetics, Inc. v. Union Oil Co. (1977) 75 Cal.App.3d 56; Pariani v. State of California (1980) 105 Cal.App.3d 923.)

Relying on the holding in Bambauer, owners of the surface estate subject to a general mineral reservation (i.e., the reservation does not explicitly reserve aggregates) have had an expectation that the mineral estate owner does not own and cannot mine for aggregates on the property. While a severed mineral estate still involves some risk of a mineral development project for valuable minerals (e.g., gold, silver, etc.) or hydrocarbons, the Bambauer rule provided the surface owner comfort in moving forward with investment on the land without risk of an aggregate mine being developed by the severed mineral owner. Likewise, under the Bambauer rule, aggregate mining companies presumed the surface estate owned the aggregate resources, even where the mineral estate may be severed by a general mineral reservation. The decision in Vulcan from the California Court of Appeals for the Fourth Appellate District, calls the rule from Bambauer into question and may create uncertainty as to who owns the aggregate resources on any land in California that is subject to a general mineral reservation.

In Vulcan, the Mining Companies owned the surface estate for property in San Bernardino County subject to general mineral reservations in the original grant deeds. The subject deeds reserved the original grantors a 50% interest in "all oil gas and other hydrocarbons and minerals." (Vulcan at *1.) The Mining Companies sought to mine sand and gravel through open-pit excavation, while the Olders (the successors in interest to the original grantors) claimed a right to a share of the mining proceeds, asserting that sand and gravel were included in the mineral reservations. Contrary to the holding in Bambauer, the court in Vulcan held that the term "minerals" in the original deed reservations included the right to mine sand and gravel; and therefore, the severed mineral rights owners were entitled to a share of the proceeds from sand and gravel mining.

In place of the general holding from Bambauer, the Court in Vulcan looked at a number of factors to assess the general intent as to the meaning of "minerals" in the deed reservation, drawn from the Bambauer, Geothermal Kinetics and Pariani cases. First the court looked specifically at the separate layers of topsoil, subsoil and sand/aggregate bearing levels of earth on the property to conclude that the aggregate and sand were distinct from the soil. Next, the court considered the historical context and commercial value of mining in the region, particularly sand and gravel (Vulcan at *9). The court reasoned that a history of aggregate mining in the region, along with a known commercial value for aggregate resources demonstrated that the term “minerals” was intended to include aggregate. Additionally, the court weighed the implications of aggregate mining on the surface estate, i.e, whether the surface would be destroyed by mining a particular mineral, in interpreting the meaning of the term “minerals.” Despite the potential impact of open-pit mining on land usability, the court noted that the surface estate's partial interest (50% ownership) in aggregate resources weighed in favor of including aggregates in the term “minerals” because the surface estate would share in the proceeds from mining (Vulcan at *1 and *12). Finally, the court reasoned that Civil Code Section 1069 establishes a statutory requirement that deed reservations are interpreted in favor of the grantor, thereby tilting the interpretation of the term “minerals” in favor of the mineral rights owner in this case (Vulcan at *1, *5, and *6). Ultimately, diverging from the Bambauer v. Menjoulet precedent, the court in Vulcan considered the above factors to hold that for this particular general mineral reservation, the term "minerals" includes sand and gravel (Vulcan at *10 and *12).

The Vulcan court decision marks a potentially significant shift in the legal landscape regarding ownership of severed mineral rights. General mineral reservations such as used in the Vulcan case are common throughout California, and this ruling may put surface owners with established uses on property in jeopardy of an aggregate mining operation being placed on their property by the severed mineral estate owner. Similarly, aggregate mine operators/owners who mine on land subject to general mineral reservations now may need to pay the owners of the mineral estate for the value of the extracted aggregate. Owners and operators of aggregate mining operations should thoroughly review any existing mineral rights reservations and be prepared for potential claims from severed mineral rights owners. Furthermore, the ruling could trigger a reevaluation of current agreements and possibly increase litigation as parties seek to establish or clarify their rights under this new interpretation. As of the date of this article, we are unaware as to whether the parties in the Vulcan case will appeal this ruling.

For More Information, Please Contact:

Christopher Powell
Christopher Powell
Senior Counsel
Sacramento, CA
Huong 'Jenny' Dao
Huong "Jenny" Dao
Walnut Creek, CA