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In re Venoco, LLC

United States District Court, D. Delaware

May 15, 2019

IN RE VENOCO, LLC, et al., Debtors.
v.
EUGENE DAVIS, in his capacity as Liquidating Trustee of the Venoco Liquidating Trust, Appellee. STATE OF CALIFORNIA and CALIFORNIA STATE LANDS COMMISSION, Appellants,

          MEMORANDUM ORDER

          COLM F. CONNOLLY UNITED STATES DISTRICT JUDGE.

         Pending before the Court is the Joint Motion for Leave to Allow Interlocutory Appeal of the Order and Opinion Denying the Motions to Dismiss the Complaint filed by the State of California and the California State Lands Commission (together, "Defendants"). Civ. No. 19-mc-07-CFC, D.I. 3; Civ. No. 19-mc-11, D.I. 2 (the "Joint Motion"). Defendants' seek in the Joint Motion leave to appeal on an interlocutory basis three rulings made by the Bankruptcy Court in In re Venoco, LLC, 596 B.R. 480 (Bankr. D. Del. Jan. 2, 2019) (the "Decision"). The Bankruptcy Court denied in the Decision motions to dismiss filed by defendants in the adversary proceeding captioned Eugene Davis v. State of California and California State Lands Commission, Adv. No. 18-50908 (KG) (Bankr. D. Del.) (the "Adversary Proceeding").[1] By an order issued on February 19, 2019, see Civ. No. 19-mc-07-CFC, D.I. 29; Civ. No. 19-mc-l 1, D.I. 25, the Court granted the Joint Motion in part and gave Defendants leave to appeal immediately the Bankruptcy Court's Sovereign Immunity Ruling (defined below). The Court reserved judgment with respect to Defendants' request for leave to appeal on an interlocutory basis the Bankruptcy Court's Jurisdiction Ruling and the Exhaustion Ruling (each ruling defined below). The Court also stayed the Adversary Proceeding pending the outcome of Defendants' appeal of the Sovereign Immunity Ruling. D.I. 28 at 8.

         For the reasons discussed below, the Court will deny the Joint Motion with respect to the Jurisdiction Ruling and the Exhaustion Ruling.

         I. BACKGROUND

         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"), initiated the Adversary Proceeding with the filing of a complaint in which the Trustee alleged state law claims of inverse condemnation with respect to a facility owned by the Trust. The substantive issue in the Adversary Proceeding is whether California's State Lands Commission has the right to continue occupying and using the facility without buying it or paying rent to the Trust.

         On November 2, 2018, Defendants each filed a motion to dismiss the Adversary Proceeding (Adv. D.I. 8, 12) on various grounds including: (i) Defendants 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 an inverse condemnation claim until it first exhausts state law remedies; and (iii) the Bankruptcy Court lacks subject matter jurisdiction over the Adversary Proceeding.

         The Bankruptcy Court issued its Decision denying Defendants' motions to dismiss on January 2, 2019. See Venoco, 596 B.R. at 494. The Bankruptcy Court concluded that Defendants are not immune from the Adversary Proceeding under the Eleventh Amendment (the "Sovereign Immunity Ruling"). See Id. at 486-87. The Bankruptcy Court further determined that it had core "arising in" jurisdiction over the Adversary Proceeding, and alternatively, if it did not have core "arising in" jurisdiction, it had non-core "related to" jurisdiction over the Adversary Proceeding (the "Jurisdiction Ruling"). See Id. at 487-90. Finally, the Bankruptcy Court determined that the Trustee was not required to have exhausted state law remedies before it initiated the Adversary Proceeding (the "Exhaustion Ruling"). See Id. at 491.

         Defendants filed their notices of appeal from the Decision on January 7 and 8, 2019, respectively. On January 16, 2019, Defendants filed their Joint Motion, by which they sought an immediate appeal of all three rulings. On February 19, 2019, the Court granted Defendants leave to appeal immediately the Sovereign Immunity Ruling and reserved judgment with respect to Defendants' request for leave to appeal immediately the Jurisdiction Ruling and Exhaustion Ruling. (Civ. No. 19-mc-07-CFC, D.I. 29; Civ. No. 19-mc-11, D.I. 25). On February 27, 2019, the Court entered an Order[2] consolidating these appeals under Civ. No. 19-mc-07-CFC.[3] The Joint Motion is fully briefed.[4] (D.I. 3, 9).

         II. LEGAL STANDARDS

         This Court has jurisdiction to hear appeals "with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title." 28 U.S.C. § 158(a)(3).[5] Section 158(a) does not identify the standard district courts should use in deciding whether to grant such an interlocutory appeal. See Id. "Typically, however, district courts follow the standards set forth under 28 U.S.C. § 1292(b), which govern interlocutory appeals from a district court to a court of appeals." In re AE Liquidation, Inc., 451 B.R. 343, 346 (D. Del. 2011).

         "Piecemeal litigation is generally disfavored by the Third Circuit." In re SemCrude, L.P., 2010 WL 4537921, at *2 (D. Del. Oct. 26, 2010) (citing In re White Beauty View, Inc., 841 F.2d 524, 526 (3d Cir. 1988)). Accordingly, review of an interlocutory order under § 1292(b) is appropriate only when the party seeking leave to appeal "establishes exceptional circumstances [to] justify a departure from the basic policy of postponing review until after the entry of final judgment." In re Del & Hudson Ry. Co., 96 B.R. 469, 472-73 (D. Del. 1989), aff'd, 884 F.2d 1383 (3d Cir. 1989).

         Under the standards of § 1292(b), an interlocutory appeal is permitted only when the order at issue (1) involves a "controlling question of law"; (2) offers "substantial ground for difference of opinion" as to the order's correctness; and (3) if appealed immediately, would "materially advance the ultimate termination of the litigation." Katz v. Carte Blanche Corp., 496 F.2d 747, 754 (3d Cir. 1974) (en banc) (quoting 28 U.S.C. § 1292(b)). Leave for interlocutory appeal may also be denied for "entirely unrelated reasons such as the state of the appellate docket or the desire to have a full record before considering the disputed legal issue." Katz, 496 F.2d at 754.

         III. ANALYSIS

         The Court will decline to exercise its discretion to grant leave to appeal immediately the Jurisdiction and ...


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