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Termo Co. v. Luther

December 17, 2008

THE TERMO COMPANY, PLAINTIFF AND APPELLANT,
v.
BRIDGETT LUTHER, AS DIRECTOR, ETC., ET AL., DEFENDANTS AND RESPONDENTS;
HUNT PETROLEUM (AEC), INC., REAL PARTY IN INTEREST AND RESPONDENT.
ANGUS PETROLEUM CORPORATION, PLAINTIFF AND APPELLANT,
v.
BRIDGETT LUTHER, AS DIRECTOR, ETC., ET AL., DEFENDANTS AND RESPONDENTS;
HUNT PETROLEUM (AEC), INC., REAL PARTY IN INTEREST AND RESPONDENT.



Appeals from a judgment of the Superior Court of Orange County, Thierry Patrick Colaw, Judge. Reversed and remanded. Motion to dismiss denied. Request for judicial notice denied. (Super. Ct. Nos. 05CC00289 & 05CC00280).

The opinion of the court was delivered by: Moore, J.

CERTIFIED FOR PUBLICATION

OPINION

The Director of Conservation (Director) (Pub. Resources Code, § 3003) affirmed an administrative order of the State Oil and Gas Supervisor (Supervisor) (Pub. Resources Code, § 3004) directing the plugging and abandonment of 28 oil wells. The Termo Company (Termo) and Angus Petroleum Corporation (Angus) filed petitions for administrative mandamus seeking to overturn the Director's decision of affirmance and the underlying administrative order. The trial court denied the petitions and Termo and Angus now appeal from the trial court judgment.

Termo and Angus list many reasons why they believe the trial court, as well as the Director, erred. We need address only one of their points. They assert that the trial court erred in applying the substantial evidence standard of review. We agree.

In the context before us, the right to continue to operate existing oil wells and to extract oil is a fundamental right, of particular importance in the current economic climate. Here, the fundamental right is also a vested right, given the number of years the wells have been either in operation or in idle status (Pub. Resources Code, § 3008 subd. (d)). When the wells were ordered plugged and abandoned, such that the right to extract oil from them was terminated, that fundamental vested right was affected. Ordinarily, when a fundamental vested right is at issue, and a writ proceeding is commenced, Code of Civil Procedure section 1094.5 provides that an independent judgment standard of review shall be applied. (Fukuda v. City of Angels (1999) 20 Cal.4th 805, 816, fn. 8 (Fukuda).) However, there is an exception to this general rule. As Tex-Cal Land Management, Inc. v. Agricultural Labor Relations Bd. (1979) 24 Cal.3d 335 (TexCal) teaches us, the Legislature may mandate that a substantial evidence standard of review shall be applied in a particular context instead, provided it also ensures that certain due process safeguards are met. Although Public Resources Code section 3355 sets forth a standard of review to be applied with respect to a decision of the Director, it does not clearly express a substantial evidence standard. Furthermore, the requisite due process safeguards are lacking. Consequently, the trial court should have applied the independent judgment standard of review.

We reverse the judgment and remand the matter to the trial court with directions to reconsider the matter under the independent judgment standard of review. In addition, we deny the motion to dismiss Angus's appeal and we deny Angus's request for judicial notice.

I. FACTS

A. ADMINISTRATIVE ORDER AND DECISION

(1) Supervisor's Order

On July 19, 2005, the Supervisor, on behalf of the Department of Conservation's (Pub. Resources Code, § 3001) Division of Oil, Gas, and Geothermal Resources (Division) (Pub. Resources Code, § 3002), issued Order No. 976 (the Order) pertaining to 28 unabandoned wells comprising the Springfield Unit, located in Huntington Beach, California. The following information is taken from the Order.

Hunt Petroleum (AEC), Inc. (Hunt) and Angus each own one-half interests in the Springfield Unit and Angus was the original unit operator. There has been no production from any of the wells since August 1998. Angus wants to resume production, but Hunt does not.*fn1

Termo acquired all of the stock of Angus in 1995, and then provided a blanket bond for the wells. The Supervisor then viewed Termo as the operator of the wells under Public Resources Code section 3202.

Angus did not remain a Termo subsidiary, however. In 2004, Termo sold all of the Angus stock to South Coast Oil Corporation (South Coast). However, neither Termo nor South Coast filed a report of property/well transfer or acquisition with the Division, and South Coast provided neither a bond nor a designation of agent. Consequently, the Supervisor continues to recognize Termo as the operator of the wells.

The Order stated: "The Supervisor has concluded that the Unit wells have no potential for future commercial production and as idle wells pose a threat to public health and safety and natural resources. This unsatisfactory state appears to be the consequence of the impasse between the two working interest owners in the Unit, Hunt and Angus (as now owned by South Coast), regarding the propriety of attempting to resume unit production operations. . . . This impasse now has taken the form of litigation brought by Hunt against Angus to terminate the Unit so that the wells can be plugged and abandoned. . . . [¶] The Supervisor agrees with Hunt's assessment of the Unit wells' potential and disagrees with Angus' assessment and has determined that the state of affairs surrounding operations, or rather the absence of operations, in the Unit . . . constitutes credible evidence of desertion of all Unit wells under Section 3237(a)(2) of the [Public Resources Code], warranting the plugging and abandonment of all Unit wells. The failure of South Coast to comply with Section 3202's bonding requirement, causing a failure to complete the operator transfer from Termo to South Coast, constitutes a rebuttable presumption of desertion of all Unit wells under Section 3237(a)(3)(E) of the [Public Resources Code], warranting the plugging and abandonment of all Unit wells. The Supervisor also has determined that all Unit wells should be plugged and abandoned to protect public health and safety and natural resources."

In conclusion, the Supervisor ordered that all of the wells be plugged and abandoned and that all production facilities be removed, citing Public Resources Code sections 3208, and 3228-3230, and certain regulations. The Order stated that the implementation of its terms was the responsibility of Termo, as the operator of the wells, but that Angus and/or Hunt were at liberty to undertake the plugging, abandonment, and facilities removal. The Order also provided that if the specified work had not been undertaken within the stated timeframe, the Supervisor would contract for the work and recover the costs from Termo's blanket bond, and, furthermore, that to the extent the costs were not satisfied by the blanket bond, the unrecovered costs would constitute a lien against the real or personal property of Termo.

(2) Director's Decision

South Coast, on behalf of Angus, and Termo appealed the Order to the Director. In his November 16, 2005 decision (the Decision), the Director affirmed the Order. The Decision stated that the wells were deserted, within the meaning of Public Resources Code section 3237, because: (1) there had been no production for seven years and no attempt at production; (2) Angus and Hunt were at a stalemate concerning future operations; and (3) the geology was "not conducive to a contained flood operation." It also said that a rebuttable presumption of desertion had arisen under Public Resources Code section 3237, subdivision (a)(3)(E), since neither Angus nor South Coast had posted an indemnity bond as required by Public Resources Code section 3202.

B. COURT PROCEEDINGS

(1) Petitions for Administrative Mandamus

Termo filed a petition for administrative mandamus in the superior court, seeking to set aside the Decision. It contended that the Director had acted in excess of his jurisdiction and that the Decision was unreasonable and unsupported by the evidence. Termo also filed an amended petition and complaint for declaratory relief. It sought a judicial declaration concerning: (1) whether it had ever been an operator of the wells; (2) whether it had, since the date it sold its interest in Angus, any obligation to maintain a performance bond; (3) the respective rights and obligations of the parties pertaining to the plugging and abandonment of the wells; (4) the respective rights and obligations of the parties with respect to the satisfaction of the costs of compliance with the Order; and (5) the party whose assets could be subjected to a lien with respect to those costs.

Angus also filed a petition for administrative mandamus to challenge the Decision. Angus joined in Termo's arguments and made additional arguments as well. The two petitions were consolidated. The court denied both petitions, dismissed Termo's complaint for declaratory relief, and entered judgment accordingly.

(2) Appellate Filings

Angus filed a petition for a writ of supersedeas and a request for a temporary stay of the Order and Decision. Termo joined in the petition. This court denied the petition and the request for stay.

Termo and Angus also filed notices of appeal from the judgment and from an order denying a request for a statement of decision. The Director, the Supervisor and the Division (collectively "the Director" where the context requires), jointly, and Hunt have filed briefs in support of the judgment, as well as the Order and Decision. We turn now to the appeals.

II. DISCUSSION

A. PRELIMINARY ...


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