596 B.R. 480
Bankr. D. Del.2019Background
- Debtors (including Venoco LLC) filed Chapter 11 on April 17, 2017; plan confirmed May 23, 2018 and became effective October 1, 2018; Liquidating Trustee filed an adversary complaint for inverse condemnation on October 16, 2018.
- Venoco formerly owned Platform Holly (offshore) and an integrated onshore Ellwood Onshore Facility (EOF); Debtors quitclaimed SEF leases to California State Lands Commission (Commission) on April 17, 2017.
- The Commission continued operations under interim agreements (RTSA, Gap Agreement) and occupied the EOF; disputes arose over unpaid use/rent and responsibility for decommissioning Platform Holly.
- The Commission (on behalf of the State) filed a $130 million proof of claim in the bankruptcy for related costs; Trustee’s inverse-condemnation suit seeks just compensation or declaration of ownership/rights to EOF and functions as a counter to that claim.
- Defendants moved to dismiss, asserting Eleventh Amendment sovereign immunity, lack of bankruptcy jurisdiction (arising-in/related-to), failure to exhaust state remedies, police-powers bar, and failure to state a claim; court addressed jurisdictional threshold and abstention.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Eleventh Amendment / sovereign immunity | Trustee: State waived or is subject to bankruptcy in rem jurisdiction; Commission acted for State and invoked bankruptcy processes | State: Eleventh Amendment bars suit in federal court; sovereign immunity not abrogated | Court: Sovereign immunity does not bar this in rem bankruptcy adjudication; Commission’s acts attributable to State and proof of claim waives immunity implications at least for jurisdictional purposes |
| 2. Core "arising in" jurisdiction | Trustee: Adversary is intimately connected to administration of estate, affects allowance of $130M proof of claim, and functions as counterclaim under §157(b)(2)(C) | State: Inverse-condemnation is state-law, belongs in state court, not core or plan-enforcement | Court: Proceeding is core/arising-in (estate administration and counterclaim to proof of claim); alternatively, related-to jurisdiction exists because outcome would affect plan/trust administration |
| 3. Requirement to exhaust state remedies (Williamson County) | Trustee: Bankruptcy forum is appropriate; Williamson County is distinguishable and not controlling in bankruptcy context | State: Trustee must exhaust state procedures before federal takings claim | Court: Declines to apply Williamson County to require exhaustion here; Trustee may proceed in bankruptcy forum |
| 4. Abstention and forum appropriateness | Trustee: Bankruptcy court should adjudicate claims tied to proof of claim to preserve judicial economy and estate administration | State: Federal abstention/comity favors state court because claims are state-law and involve public/state interests (police powers) | Court: Declines to abstain after weighing 12 factors (effect on estate, core status, relatedness, forum shopping, etc.); federal adjudication permitted |
Key Cases Cited
- Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996) (Congress cannot abrogate state sovereign immunity absent clear constitutional authority)
- Sacred Heart Hospital v. Dept. of Public Welfare (In re Sacred Heart Hospital), 133 F.3d 237 (3d Cir. 1998) (Third Circuit held §106 unconstitutional as an abrogation of sovereign immunity)
- Resorts Int’l, Inc. v. Price Waterhouse & Co., (In re Resorts Int’l, Inc.), 372 F.3d 154 (3d Cir. 2004) (framework for core vs. related-to jurisdiction post-confirmation)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (test for related-to jurisdiction: conceivable effect on estate)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (bankruptcy jurisdictional principles and congressional intent)
- Peduto v. City of North Wildwood, 878 F.2d 725 (3d Cir. 1989) (inverse condemnation is an in rem proceeding suitable for just compensation remedy)
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy adjudication and consequences of invoking bankruptcy processes)
- Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25 (2014) (bankruptcy courts may issue proposed findings on non-core matters for district court review)
- Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473 U.S. 172 (1985) (federal takings claim ordinarily requires exhaustion of state remedies)