United States District Court, D. Delaware
IN RE VENOCO, LLC, et al., Debtors.
EUGENE DAVIS, in his capacity as Liquidating Trustee of the Venoco Liquidating Trust, Appellee. STATE OF CALIFORNIA, Appellant, CALIFORNIA STATE LANDS COMMISSION, Appellant,
EUGENE DAVIS, in his capacity as Liquidating Trustee of the Venoco Liquidating Trust, Appellee.
above-captioned appeals arise from the decision, In re
Venoco, LLC, 2019 WL 181669 (Bankr. D. Del. Jan. 2, 2019)
("Decision"), entered in an adversary
proceeding currently pending before the United States
Bankruptcy Court for the District of Delaware, which denied
motions to dismiss the Adversary Proceeding filed by
defendants State of California ("State") and the
California State Lands Commission ("Commission")
(together, "Appellants"). Pending before this Court
is Appellants' joint motion (Civ. No. 19-mc-07-CFC, D.I.
8; Civ. No. 19-mc-l 1, D.I. 4) ("Stay Motion")
seeking an order from this Court further extending the stay
of the Adversary Proceeding pending the outcome of
Appellants' joint motion for leave to allow interlocutory
appeal of the Decision (Civ. No. 19-mc-07-CFC, D.I. 3; Civ.
No. 19-mc-l 1-CFC, D.I. 2) ("Joint Motion") and
respective appeals. For the reasons set forth below, the
Court will grant the Stay Motion.
Motions to Dismiss On April 17, 2017, debtor Venoco, LLC and
certain affiliates ("Debtors") filed voluntary
petitions under Chapter 11 of the Bankruptcy Code. On May 23,
2018, the Bankruptcy Court confirmed Debtors' plan of
liquidation. On October 16, 2018, the liquidating trustee
("Trustee"), on behalf of the liquidating trust
established pursuant to the plan ("Trust"), filed a
complaint against Appellants asserting the Trust's state
law claims of inverse condemnation with respect to a facility
owned by the Trust. The substantive issue in the Adversary
Proceeding is whether the Commission has the right to
continue occupying and using the facility without buying it
or paying rent to the Trust.
November 2, 2018, Appellants each filed a motion to dismiss
the Adversary Proceeding (Adv. D.I. 8, 12) (together,
"Motions to Dismiss") on various grounds including:
(i) Appellants are immune from suit in any federal forum
under the Eleventh Amendment to the United States
Constitution and related principles of sovereign immunity;
(ii) the Trustee may not pursue a condemnation claim until it
first exhausts state law remedies; and (iii) the Bankruptcy
Court lacks subject matter jurisdiction over the Adversary
Proceeding. Following oral argument held on December 12,
2018, the Bankruptcy Court issued its Decision denying the
Motions to Dismiss on January 2, 2019. Venoco, 2019 WL
181669, at *9. The Bankruptcy Court concluded that Appellants
are not immune from the Adversary Proceeding as a result of
Eleventh Amendment sovereign immunity ("Sovereign
Immunity Ruling"). See Id. at *3-*4. The
Bankruptcy Court further determined that it had core
jurisdiction over the Adversary Proceeding
("Jurisdiction Ruling"). See Id. at *4-*7.
Finally, the Bankruptcy Court determined that the Trustee was
not required to exhaust state law remedies prior to
initiating the Adversary Proceeding ("Exhaustion
Ruling"). See Id. at *7-8.
January 11, 2019, the Bankruptcy Court entered a scheduling
order that expedited and set a cutoff of date for discovery
in the Adversary Proceeding of February 18, 2019 and also set
a trial date of March 19, 2019 ("Trial Date").
filed their notices of appeal from the Decision on January 7
and 8, 2019, respectively. On January 16, 2019, Appellants
filed their Joint Motion seeking leave to appeal immediately
the Bankruptcy Court's three rulings. Appellants argue
that the Sovereign Immunity Ruling is immediately appealable
by right under the collateral order doctrine. (See Civ. No.
17-mc-07-CFC, D.I. 3 at 6-8). Appellants request leave to
appeal immediately the interlocutory Jurisdiction Ruling and
Exhaustion Ruling pursuant to 28 U.S.C. § 158(a)(3).
Appellants' Joint Motions were fully briefed as of
February 7, 2019.
with this Memorandum Order, the Court has entered an Order
granting the Joint Motion in part and solely with respect to
Appellants' request for leave to appeal immediately the
Sovereign Immunity Ruling. The Court has reserved judgment
with respect to Appellants' request for leave to appeal
the interlocutory Jurisdiction Ruling and Exhaustion Ruling.
meantime, Appellants filed a motion seeking a stay of the
Adversary Proceeding pending appeal. (See Adv. D.I. 39). On
January 22, 2019, the Bankruptcy Court issued a bench ruling
granting "a stay pending appeal which defendants
requested to raise with the District Court the court's
ruling on sovereign immunity. The stay will be in effect for
28 days from today or until February 19 by which time the
District Court will be able to decide if the stay is
appropriate and, perhaps, even to rule substantively on the
merits of the appeal. However, the March 19 trial date will
remain on the court's calendar for the time being."
(Id. at 4:20-5:1). The same day, the Bankruptcy
Court entered an order regarding same (Adv. D.I. 74)
("Stay Order"). The Bankruptcy Court did not grant
an indefinite stay, noting: "[I]t appears that the
defendants may be acting improperly and to the liquidating
trust's prejudice and disadvantage in continuing to
occupy the [facility] without reaching an agreement with the
trust... And by doing so, the defendants are exposing the
trust to potential liability." (Id. at
4:10-15). The Bankruptcy Court granted the stay without
requiring any bond. (Adv. D.I. 74). The Stay Order stays the
entire Adversary Proceeding. (See Adv. D.I. 74).
Stay Motion, seeking a further stay of the Adversary
Proceeding from this Court, was fully briefed on February 8,
2019. The same day, the Court received courtesy copies of the
Stay Motion and related pleadings. According to
Appellants' cover letter, "Given the time urgency of
the matter described in the briefing, the Appellants are
available at the Court's convenience should Your Honor
have any questions regarding the briefing or wish to schedule
a hearing on the [Stay Motion]." (Civ. No. 19-cv-07,
D.I. 27; Civ. No. 19-mc-l 1, D.I. 23). The docket, however,
reflects that no emergency motion or request for expedited
review or hearing has been filed with this Court in either