Neil W. Bason, United States Bankruptcy Judge.
The Second Amended Complaint (adv. dkt. 30, Ex.1, "SAC") asserts a single claim for relief against Defendant, the Bureau of Land Management (the "BLM"), for alleged violation of the automatic stay of § 362(a).
For the reasons set forth below, this Court will issue a separate order granting the BLM's motion to dismiss the SAC ("MTD," adv. dkt. 36). Because the grounds for dismissal apparently cannot be cured, the tentative ruling is to dismiss the SAC without leave to amend — this Court will address that issue with the parties, and any other procedural issues such as whether to defer issuing the order implementing this Memorandum Decision, at a continued hearing on April 9, 2019 at 2:00 p.m.
This Bankruptcy Court has jurisdiction, and venue is proper, under 28 U.S.C. §§ 1334 and 1408. In addition, for the following reasons this Court also has the authority to issue a "final" order on the MTD.
The SAC fails to "contain a statement" about whether Debtor "does or does not consent to entry of final orders of judgment by the bankruptcy court," as required by Rule 7008 (Fed. R. Bankr. P.). Nevertheless, this Bankruptcy Court concludes that it does have the authority to
Alternatively, "[e]ven in a non-core proceeding, this Bankruptcy Court can issue final rulings on pretrial matters, including claim-dispositive motions, that do not require factual findings." AWTR Liquidation, Inc., 547 B.R. 831, 839-40 (citations omitted). No factual findings are required on BLM's MTD, so this Court can issue a final order on that motion.
On a motion to dismiss for failure to state a claim (Rule 12(b)(6), incorporated by Rule 7012), this Court generally must accept all factual allegations as true and draw all reasonable inferences in the light most favorable to the plaintiff. Doe v. United States, 419 F.3d 1058, 1062 (9th Cir. 2005). But such factual allegations must be "plausible." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
This Court must consider not only the SAC itself, but also any documents incorporated into the complaint and matters of which a court may take judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Section 362(a) provides, subject to certain exceptions, that a bankruptcy petition "operates as a stay, applicable to all entities," of various acts. The SAC does not specify what portion of § 362(a) the BLM is alleged to have violated. This Court will focus on the emphasized text quoted below, because there does not appear to be any theory under which the other subsections would be applicable.
The automatic stay bars:
Debtor is not a party to the BLM Leases. The lessees of record are Western States International, Inc. ("Western") and Tearlach Resources California, Ltd. ("Tearlach"). See MTD (adv. dkt. 36), pp. 3:7-10, 4:4-14, & Ex. 2 & 3 (BLM Leases).
It is undisputed that the BLM Leases had a ten year term, and that term has expired. Although leases can be extended by continued production (30 U.S.C. § 226(e)), it is undisputed that production ceased long ago: the SAC concedes that on September 6, 2013 Debtor gave notice of stopping production to the BLM. SAC (adv. dkt. 30, part 1) ¶ 35.
Leases also can be extended in certain other circumstances, including (as discussed in later sections of this Discussion) if wells are "
The SAC fails to state a claim for violation of the automatic stay of § 362(a). Construing the SAC in the light most favorable to Debtor, it alleges that Debtor had a sufficient interest in the BLM Leases as of the Petition Date that any subsequent attempt to terminate the BLM Leases constituted (a) an "administrative, or other action or proceeding
But Debtor was not named in any proceeding by BLM, so there was no action "against the debtor" as required by § 362(a)(1). See In re Log, LLC, 2010 WL 4774347, at *2 (Bankr. M.D. N.C. Nov. 9, 2010) (§ 362(a)(1) "has traditionally been interpreted to include only formal legal proceedings against the debtor, and not litigation that collaterally affects the debtor") (citations omitted). See also, e.g., In re Advanced Ribbons and Office Products, Inc., 125 B.R. 259, 263 (9th Cir. BAP 1991) (§ 362(a) "does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtor"), and compare In re Excel Innovations, Inc., 502 F.3d 1086
True, a proceeding "against the debtor" might include a proceeding against "property" of Debtor. See § 102(2) (claim against a debtor in bankruptcy includes a claim against property of the debtor). In addition, for purposes of interpreting both § 362(a)(1) and (a)(3) this Court notes that "property" of the estate is very broadly defined (§ 541) and generally includes the debtor's own claims against third parties. See generally 11 U.S.C. § 541; and see, e.g., In re Ryerson, 739 F.2d 1423, 1425 (9th Cir. 1984) (bankruptcy estate includes rights such as "choses in action and claims against third parties"). See also In re Windmill Farms, Inc., 841 F.2d 1467, 1471-72 (9th Cir. 1988) (ability to seek relief from forfeiture belongs to bankruptcy estate).
It is also true that, according to the SAC, Western had transferred an interest in the BLM Leases to Debtor pursuant to a Joint Operating Agreement (the "Agreement"). SAC (adv. dkt. 30, Ex. 1) ¶¶ 4-12. That assertion has been disputed extensively in this and other fora, but it is at least plausible that this was the intent of the parties to the Agreement. Therefore, this Court assumes for purposes of the following discussion that Debtor had a contractual basis to assert an interest in the BLM Leases.
Nevertheless, as the SAC concedes (adv. dkt. 30, Ex. 1, ¶ 13), any assignment or sublease of an oil or gas lease from the BLM is "subject to final approval by the Secretary [of the Department of the Interior, acting through the BLM]." 30 U.S.C. § 187a;
In other words, as of the Petition Date Debtor held a claim against Western, Tearlach, and a long list of other contenders for a partial interest in the BLM Leases. But, as against the BLM, Debtor had only an
Debtor asserts confidence, based on its past operations and past approvals by the BLM, that it would be deemed "qualified" and that its bond would be considered adequate. Opp. to MTD (adv. dkt. 38) p. 9:6-23. But that is still only an expectancy, not a property interest (and this Court cannot presume that the BLM could not reasonably have a different view about whether Debtor is qualified, or what the bond amount should be).
Therefore, BLM's notice to the lessees of record (Western and Tearlach) was neither a "proceeding
As summarized in Allentown, the cases are not uniform in their analysis of § 362(a)(3). But they all require that some "property" interest of the debtor or estate be at issue.
As for any amendment to the SAC to state a claim, that does not appear possible. As a matter of law, and as the SAC concedes, any purported contractual assignment of the BLM Leases is subject to approval by the BLM. So Debtor had only an expectancy not a property interest in the BLM Leases. Accordingly, the tentative ruling is that the BLM's MTD must be granted without leave to amend.
This Court addresses the parties' remaining disputes for the sake of completeness, and because Debtor may argue (although this Court does not concede) that those other disputes have some effect on the foregoing analysis. The remaining disputes all involve the procedures for termination of BLM Leases.
Termination of the BLM Leases in this case is governed by 30 U.S.C. 226(i), which provides in full:
In addition to these statutory provisions, the regulations at 43 C.F.R. 3107.2 provide in relevant part:
As noted above, the Petition Date is November 23, 2016. The SAC appears to concede that a "60-day" termination notice (the "First Termination Notice") was sent on August 29, 2016, far enough in advance of the Petition Date for the 60 day period to have expired prepetition, if it was an effective notice. SAC (adv. dkt. 30, Ex. 1, part 1) ¶ 38, p. 10:25-27 ("The attached BLM Case Recordation report clearly shows that on 8/29/16, BLM sent a 60-day Written Order") & id. (adv. dkt. 30, Ex. 1, part 4) Ex. 18, at PDF p. 13.
Neither party has provided a copy of the First Termination Notice. But, as discussed below, the parties dispute whether the First Termination Notice was effective.
SAC Exhibit 19 is a copy of a later termination notice (the "Second Termination Notice"). That notice is a certified mail letter from BLM to Western and Tearlach, with a date of February 23, 2017 stamped at the top, entitled "DECISION; Lease Terminated by Cessation of Production." It states that the BLM Leases are "declared terminated, effective January 19, 2017, due to the fact that both leases are in their extended term, held by production, and are no longer capable of producing in paying quantities," and that there is a right to appeal "[w]ithin 30 days of receipt of this decision." SAC (adv. dkt. 30 Ex. 1, part 4) Ex. 19 at PDF p. 15.
As Debtor notes, the Second Termination Notice does not have a typewritten date but instead has the date "23 Feb 2017" stamped on the letter. SAC (adv. dkt. 30, Ex. 1, part 1) ¶ 39 at p. 11:9-12 & id. (adv. dkt. 30, Ex. 1, part 4) Ex. 19 at PDF pp. 14-16. The certified mail delivery records appear to show that this notice was not mailed until approximately May 11, 2017. Id., Ex. 20. All of these dates are after the Petition Date, so presumably the precise dates make no difference for purposes of the automatic stay (the only claim in the SAC). But perhaps the SAC's point is that (allegedly) the BLM's records are unreliable.
In any event, under the analysis in part "a" of this Discussion, all of the above factual issues in this part "b" are irrelevant. But the disputes about delivery of the First Termination Notice and the Second Termination Notice run through the parties' other disputes that are addressed below.
The SAC alleges that Debtor acted as an "operator" of the oil and gas
The SAC's grounds for these assertions are as follows. SAC Exhibit 8 is an email to Debtor, not from the BLM but from the Office of Natural Resources Revenue ("ONRR"), which apparently is another unit within the United States Department of the Interior. That email presumably involves one of the BLM Leases. It states in part:
SAC Exhibit 9 is an email to the specified person at ONRR with what appears to be a form to register as a "New Operator." SAC Exhibits 11 and 12 are emails and printouts from a website that purportedly show that Riverwood Energy LLC (Debtor's former name) is listed as an "Operator" and payor by ONRR. (Capitalization altered.) See also SAC (adv. dkt. 30, Ex. 1) Ex. 17 (amendment to LLC articles to change name).
It is unclear if ONRR's apparent recognition of Debtor as an "operator" is the same as recognition by the BLM. But there is some independent evidence that the BLM itself may have recognized Debtor as an "operator," although that also is not entirely clear. SAC Exhibit 14 include "Sundry Notices" from Riverwood Energy LLC regarding several wells (presumably involving the BLM Leases) that are stamped "Operator" and "accepted for the record." (Capitalization altered.) Those stamps might (or might not) mean that Debtor was accepted by the BLM as an "operator."
But the BLM points out that there are different types of "operator," and only some types of operator have any interest in the underlying leases. MTD (adv. dkt. 36) pp. 3:23-4:3 (citing 43 C.F.R. § 3100.0-5(a) & (e)) & pp. 8:27-9:22 (citing In re Platinum Oil Props., LLC, 2013 WL 6195844 at *9 & *16 (Bankr. D. N.M)).
This Court recognizes that the SAC draws much more definitive conclusions from its allegations that Debtor was recognized as an operator. The SAC asserts that Debtor "perfected its security interest" [ownership interest?] by (allegedly) registering with the BLM as operator, and "the BLM Leases became undisputed [sic] property of the estate...." SAC (adv. dkt. 30, Ex. 1) ¶¶ 28-29. First, these assertions are very much disputed.
Second, Debtor's assertions about "perfecting" its interest and obtaining a "property" interest are not factual allegations. They are legal conclusions. This Court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (quoting Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); Robinson v. Salazar, 838 F.Supp.2d 1006, 1014 (E.D. Cal. 2012) (court is "free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations") (quoting Farm Credit Services v. American State Bank, 339 F.3d 764, 767 (8th Cir. 2003)).
In other words, regardless whether Debtor was an "operator," it has not established that any such status would give it a cognizable interest in the BLM Leases. Therefore Debtor cannot establish that the BLM's notices regarding those leases violated § 362(a).
The SAC appears to assert that, even if Debtor had no property interest in the BLM Leases, nevertheless Debtor as an "operator" of the leases was entitled to receive any
In addition, according to the SAC, "[h]ad BLM given [Debtor] proper notice, [Debtor] would have demonstrated that it was capable of producing oil and gas in paying quantities, as it had done in the past." SAC (adv. dkt. 30, Ex. 1) ¶ 46. This Court presumes that this is also so, solely for purposes of this part of the discussion.
The BLM argues that any extended term of a lease "
In fact, although the first sentence of the statute (30 U.S.C. § 226(i), quoted above) appears to make the 60 day period run from cessation of production
This Court agrees that, apart from any statutory requirement, the above-quoted regulations establish that any "automatic" termination is only effective if the BLM first provides 60 days' notice that it has determined such termination has occurred, and the lessee can contest and appeal from that determination. See 43 C.F.R. § 3107.2-2 ("Cessation of production. ... The 60-day period commences upon receipt of
The BLM's reply (adv. dkt. 39, pp. 5:7-6:5) cites Two Bay Petroleum v. United States Dept. of Interior, 2007 WL 2028192 (E.D. Cal. 2007), for the proposition that the courts should defer to an agency's determination that leases terminated long ago. But Two Bay is inapposite. That case involved a direct review, on appeal, of an agency's acts. It did not involve bankruptcy, so there was no automatic stay that would (allegedly) interfere with any retroactive determination that the BLM Leases were no longer capable of paying production. Nor does the case say anything to contradict the foregoing analysis that, although the BLM's analysis looks to the past, it must provide a 60-day notice and opportunity to contest and appeal that analysis before its determination that the lease has terminated becomes final.
The SAC also provides a sufficient basis to conclude that, not only must notice be provided, it must be provided to the "operator" of the lease. The SAC alleges that the BLM's own handbook H-3107-1 instructs authorized officers ("AOs") that they cannot terminate a lease for cessation of production or for a determination that a well is not capable of production in paying quantities without giving notice to the "operator." See SAC (adv.dkt. 30, Ex. 1, part 1) ¶¶ 9-16 & 69. SAC Exhibit 23 appears to be an excerpt from that handbook, and it provides:
For all of the foregoing reasons, this Court concludes that under the plausible allegations in the SAC Debtor
If the BLM violated non-bankruptcy law or rules, perhaps Western or Tearlach could seek relief from the 60-day deadline regarding non-producing wells. Perhaps Western or Tearlach could also seek relief from any deadline to appeal the BLM's decision. Debtor might even have a contractual right and obligation to do those things on behalf of Western or Tearlach. But those are all remedies that must be sought from the BLM, or from courts with jurisdiction over the BLM's decisions, not from this Bankruptcy Court.
The SAC appears to allege that both the First Termination Notice and the Second Termination Notice were not delivered to Tearlach at the correct address. SAC (adv. dkt. 30, Ex. 1, part 1) ¶¶ 40-42 & Ex. 18-21. That appears to be true.
But Debtor is asserting its rights through Western, not Tearlach. So Debtor has not established that it has standing to object to any failure to provide notice to Tearlach.
In addition, this Court takes judicial notice that Debtor has asserted that Tearlach no longer has any interest in the BLM Leases, in other proceedings before this Court. Accordingly, Debtor has not established that any lack of proper notice to Tearlach is relevant.
The SAC does not allege anything about delivery of the First Termination Notice to Western. Instead it alleges that delivery of the Second Termination Notice to Western was "defective." SAC (adv. dkt. 30, Ex. 1)
The SAC seeks to raise plausible doubts about any notice to Western on other grounds. SAC Exhibit 22 appears to be a printout from the USPS website showing that the certified mail tracking number listed for Western on the Second Termination Notice is a duplicate, so the website provides no tracking information. SAC (adv.dkt. 30, Ex. 1, part 4), Ex. 22 at PDF pp. 22-23. But the same printout states that "more details" are needed to provide any tracking information, and it instructs the user to "enter send date." Id. There is no allegation in the SAC that Debtor attempted to enter dates at or around February 23, 2017 (the date stamped on the Second Termination Notice) or dates at or around May 11, 2017 (the date when the certified mail records for Tearlach show receipt of the notice by the post office). See SAC (adv.dkt. 30, Ex. 1, part 4) Ex. 20 (at PDF pp. 17-19).
Therefore, it is questionable whether the SAC's assertion about a "defective" Second Termination Notice to Western is plausible. Nevertheless, this Court recognizes that the SAC and its exhibits do raise questions about the BLM's recordkeeping and mailing — the odd use of a date stamp on the Second Termination Notice; the apparent lack of any copy of the First Termination Notice; the apparent lack of any certified mail tracking numbers for the First Termination Notice; and the apparent errors in sending both notices to Tearlach at incorrect addresses. So it is plausible that a reasonably jury (or other finder of fact)
That still leaves the First Termination Notice. The SAC does not actually allege any lack of delivery of the prepetition First Termination Notice to Western. To the contrary, the SAC appears to concede that the First Termination Notice was sent on August 29, 2016. SAC (adv. dkt. 30, Ex. 1, part 1) ¶ 38, at p. 10:25-27 ("The attached BLM Case Recordation report clearly shows that on 8/29/16, BLM sent a 60-day Written Order") & id. (adv. dkt. 30, Ex. 1, part 4) Ex. 18, at PDF p. 13.
Accordingly, the SAC fails to dispute that the BLM Leases were terminated prepetition as to Western, which is the lessee through whom Debtor asserts any interest in the BLM Leases. That undermines Debtor's ability to state any claim for a subsequent violation of the automatic stay because if the BLM Leases were already terminated then the automatic stay could not have applied to protect those leases.
Perhaps Debtor could amend the SAC to allege that, based on circumstantial evidence, the First Termination Notice was not properly delivered. But that any such amendment would not cure the other failures by the SAC to state a claim, as discussed above.
This Court will issue a separate order directing Debtor to file the SAC as a separate document (if Debtor has not already done so before this Court issues such an order). This Court also anticipates issuing a separate order implementing this Memorandum Decision by granting the BLM's MTD, and dismissing the SAC. The tentative ruling, to be addressed at the hearing on April 9, 2019 at 2:00 p.m., is that such dismissal will be with prejudice.
Perhaps Debtor's failure to file the SAC stems from the following events. Debtor and the BLM stipulated (adv. dkt. 30, the "Stipulation") that Debtor would "have leave to file its [SAC]" (emphasis added) and this Court's order (adv. dkt. 33) (a) approved that stipulation and (b) provided that, once the SAC was filed, it would relate back by being "
The BLM questions whether the BLM Leases are part of whatever Western purported to transfer to Debtor. MTD (adv. dkt. 36) p. 4:21-23, p. 6:9-10, & pp. 9:22-10:4 & n. 4. Western, Debtor, and others have also litigated in various fora who has what interests, but apparently without any final conclusion. See SAC (adv. dkt. 30, Ex. 1) ¶¶ 17-29) (referencing Kern County Superior Court Case No. 5-1500-CV-272590); id. ¶ 37 (referencing another lawsuit, Inviron Technologies v. WSI, Kern County Superior Court, Case No. 2015-CV-264931); MTD (adv. dkt. 36) pp. 4:24-5:1 (referencing litigation between Debtor and Western); dkt. 130 (Aliet-Gass Motion); Adv. P. No. 2:17-ap-1326-NB (Debtor's claims for declaratory and other relief against Western and numerous other parties). As stated in the text, this Court assumes for purposes of this discussion that the Agreement does in fact purport to transfer the BLM Leases to Debtor.
The Allentown court itself applied a more elaborate test, but it too is tied to whether the estate has a "property" right:
Handwritten on the Second Termination Notice is a notation that it, too, is addressed to Tearlach at the wrong address. SAC (adv. dkt. 30 Ex. 1, part 4) Ex. 19 at PDF p. 15. SAC Exhibit 21 is a copy of a form filed with the California Secretary of State listing a different address for Tearlach than the one on the Second Termination Notice. SAC Exhibit 20 appears to be a printout from the United States Postal Service ("USPS") corresponding to the tracking number listed for Tearlach on the Second Termination Notice, and the last entry for that notice appears to show that it was still at the USPS regional facility, not delivered to Tearlach.
