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 and CALIFORNIA STATE LANDS COMMISSION, Appellants,
F. CONNOLLY UNITED STATES DISTRICT JUDGE.
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"). 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.
reasons discussed below, the Court will deny the Joint Motion
with respect to the Jurisdiction Ruling and the Exhaustion
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.
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
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.
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 consolidating
these appeals under Civ. No. 19-mc-07-CFC. The Joint Motion
is fully briefed. (D.I. 3, 9).
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). 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).
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).
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.
Court will decline to exercise its discretion to grant leave
to appeal immediately the Jurisdiction and ...