998 F.3d 94
3rd Cir.2021Background
- Venoco operated an Offshore Facility (leased from California/Lands Commission) and an Onshore Facility (owned by Venoco with air permits), connected by pipeline; a 2015 rupture halted operations.
- Venoco filed Chapter 11 (again) in April 2017, quitclaimed its state leases, and the Lands Commission stepped in to decommission the offshore rig and later used the Onshore Facility under a reduced "Gap Agreement."
- Venoco’s Chapter 11 liquidation plan transferred estate assets (including the Onshore Facility) to a Liquidating Trust; Eugene Davis became the Trustee responsible for liquidating and distributing assets.
- After the Commission stopped Gap Agreement payments and asserted large decommissioning claims, the Trustee filed an adversary proceeding seeking inverse condemnation damages (just compensation) for the Commission’s use/taking of the Onshore Facility.
- The California Parties asserted sovereign-immunity defenses; the Bankruptcy Court denied immunity, the District Court affirmed as to Eleventh Amendment immunity (and found state-law immunity forfeited), and California appealed to the Third Circuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Katz waives state sovereign immunity for this adversary proceeding | Trustee: Katz waived immunity because the suit adjudicates rights in estate property and furthers bankruptcy in rem functions | California: Katz is limited; this is a money-damages takings suit implicating state sovereignty and not an in rem bankruptcy proceeding | Held: Katz applies; proceeding furthers bankruptcy in rem functions (rights in res and equitable distribution), so immunity is waived |
| Whether Katz waiver covers post-confirmation / post-effective-date claims administered by a liquidating trust | Trustee: Trust is continuation of estate; bankruptcy court retained control so Katz applies | California: After plan effective date the estate ceased to exist so Katz waiver should not apply | Held: Waiver can apply; where the Trust continues estate functions and the court retains control, Katz covers these post-effective-date matters |
| Whether Eleventh Amendment and state-law substantive immunity survive Katz | Trustee: Katz forecloses Eleventh Amendment and state-law immunity here because it would frustrate equitable distribution | California: Eleventh Amendment and California substantive immunity shield it; takings suits must be litigated in state courts | Held: Eleventh Amendment immunity rejected under Katz; state-law substantive immunity forfeited below and in any event fails because takings remedies are available under federal and California law |
| Whether a separate state-law immunity-from-suit (forum) defense is recognized | Trustee: No separate immunity-from-suit defense that can evade Katz | California: State can require takings suits be brought in state courts | Held: Court declined to recognize a separate state law immunity-from-suit that defeats Katz; forum arguments do not nullify the deemed waiver |
Key Cases Cited
- Central Virginia Community College v. Katz, 546 U.S. 356 (2006) (Bankruptcy Clause causes states to forfeit sovereign-immunity defenses in proceedings that further a bankruptcy court's in rem jurisdiction)
- Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004) (a bankruptcy court's in rem jurisdiction can permit suits that bind states in certain contexts)
- Allen v. Cooper, 140 S. Ct. 994 (2020) (distinguishing intellectual-property context from Katz and noting Bankruptcy Clause's unique character)
- In re Resorts Int'l, Inc., 372 F.3d 154 (3d Cir. 2004) (post-confirmation proceedings may remain within bankruptcy jurisdiction when they have a close nexus to the bankruptcy plan)
- Lombardo v. Pennsylvania Dep't of Pub. Welfare, 540 F.3d 190 (3d Cir. 2008) (distinguishing Eleventh Amendment immunity and state-law substantive immunity and discussing waiver/consent issues)