610 B.R. 239
D. Del.2020Background
- Venoco operated Platform Holly (offshore) and the Ellwood Onshore Facility (EOF); Venoco held the EOF and related permits and leased offshore rights from the State (Lands Commission).
- A pipeline rupture and subsequent events led Venoco to file Chapter 11; Venoco quitclaimed its SEF leases and the Lands Commission assumed responsibility for decommissioning and plugging wells.
- The Lands Commission contracted a third party to perform decommissioning, refused to buy the EOF, and later filed a proof of claim in the bankruptcy for roughly $130 million (including $29–35 million tied to EOF operations).
- Venoco’s Plan created a Liquidating Trust that received the EOF and any claims against the State; the Liquidating Trustee sued the State and the Lands Commission in an adversary proceeding asserting inverse condemnation claims under the U.S. and California Constitutions and § 105(a).
- The Bankruptcy Court denied the State Defendants’ motions to dismiss, concluding in part that the court’s in rem bankruptcy jurisdiction defeats Eleventh Amendment sovereign-immunity defenses; the State defendants appealed that ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Eleventh Amendment bars the Trustee's post‑confirmation inverse‑condemnation suit | Trustee: Katz and the Bankruptcy Clause mean states surrendered sovereign immunity for proceedings ancillary to bankruptcy in rem jurisdiction; claims implement the Plan | State: Eleventh Amendment immunity applies; inverse‑condemnation damages are "for dollars" not tied to a res and thus outside in rem bankruptcy jurisdiction | Court: Rejected State; Katz controls—States acquiesced to suit in proceedings necessary to effectuate bankruptcy in rem jurisdiction; Trustee's claims are closely tied to Plan and res, so immunity does not bar suit |
| Whether §106(a)/Congress could abrogate state sovereign immunity (as relevant to the dispute) | Trustee: Katz makes state waiver by ratifying Bankruptcy Clause dispositive; statutory abrogation need not be reached | State: Third Circuit precedent (Sacred Heart) held §106(a) unconstitutional; Congress cannot abrogate state immunity here | Court: §106(a) debate is irrelevant because Katz finds waiver via the Bankruptcy Clause itself; therefore Eleventh Amendment defense fails |
| Whether State's claimed substantive immunity under California law bars the suit | Trustee: Not argued below; focus on federal immunity only | State: California Tort Claims Act provides substantive immunity from liability independent of Eleventh Amendment | Court: Issue waived—State did not raise this argument in bankruptcy court, so it cannot be raised on appeal (substantive immunity is not a jurisdictional defect like Eleventh Amendment) |
Key Cases Cited
- United States v. Clarke, 445 U.S. 253 (1980) (defines inverse condemnation as a claim to recover value of property taken in fact)
- Hans v. Louisiana, 134 U.S. 1 (1890) (Eleventh Amendment extends to suits by in‑state plaintiffs)
- Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139 (1993) (Eleventh Amendment is an immunity from suit; denial is appealable collateral order)
- Central Virginia Community College v. Katz, 546 U.S. 356 (2006) (States waived sovereign immunity for proceedings necessary to effectuate bankruptcy courts' in rem jurisdiction)
- Knick v. Township of Scott, 139 S. Ct. 2162 (2019) (distinguishes inverse condemnation from direct condemnation; explains Takings Clause procedures)
- Sacred Heart Hosp. v. Dep’t of Pub. Welfare, 133 F.3d 237 (3d Cir. 1998) (held §106(a) abrogation of state immunity was beyond Congress's power under earlier Third Circuit law)
- In re Resorts Int’l, Inc., 372 F.3d 154 (3d Cir. 2004) (post‑confirmation bankruptcy jurisdiction exists when matters closely relate to plan implementation)
- Lombardo v. Pennsylvania Dep’t of Public Welfare, 540 F.3d 190 (3d Cir. 2008) (distinguishes immunity from suit and immunity from liability)
- Edelman v. Jordan, 415 U.S. 651 (1974) (Eleventh Amendment defense is jurisdictional and need not be raised in trial court)