Riverwood Gas and Oil, LLC v. Bureau of Land Mgmt. (In re Riverwood Gas & Oil, LLC)

601 B.R. 685

IN RE: RIVERWOOD GAS AND OIL, LLC, Debtor and Debtor-in-Possession

Riverwood Gas and Oil, LLC, Plaintiff,

v.Bureau of Land Management, Defendant.

Case No.: 2:16-bk-25483-NB

Adv. No. 2:18-ap-01057-NB

United States Bankruptcy Court, C.D. California, Los Angeles Division.

Date: October 2, 2018, Hour: 2:00 p.m., Place: Courtroom 1545, 255 E. Temple Street, Los Angeles, CA 90012 Signed April 3, 2019

Giovanni Orantes, Luis A. Solorzano, The Orantes Law Firm PC, Los Angeles, CA, for Plaintiff.

Kevin P. VanLandingham, US Department of Justice, Civil Division, Washington, DC, for Defendant.

MEMORANDUM DECISION GRANTING MOTION TO DISMISS WITHOUT LEAVE TO AMEND

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).¹ Plaintiff ("Debtor") asserts that acts taken by the BLM to terminate certain oil and gas leases of public land (the "BLM Leases") were void for violation of the automatic stay because those acts occurred after Debtor filed its voluntary bankruptcy petition on November 23, 2016 (the "Petition Date").

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.²

1. JURISDICTION, VENUE AND AUTHORITY

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 enter a final judgment or order because the SAC's sole claim is for enforcement of the automatic stay to protect Debtor's (alleged) property interests. Such claims are both statutorily and constitutionally "core." See 28 U.S.C. § 157(b)(2)(A), (E) & (O) ; and see generally Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) ; In re AWTR Liquidation, Inc. , 547 B.R. 831 (Bankr. C.D. Cal. 2016) (discussing Stern ); In re Deitz , 469 B.R. 11 (9th Cir. BAP 2012) (same); In re Ames Dept. Stores, Inc., 542 B.R. 121, 141 & nn. 60, 67 & 79 (Bankr. SDNY 2015) (automatic stay issues are core).

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.

2. STANDARDS ON MOTION TO DISMISS

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).

3. AUTOMATIC STAY

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:

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and

(8) the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title. [§ 362(a) (emphasis added) ]

4. DISCUSSION

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 "capable" of production in paying quantities. The parties dispute whether the BLM adequately provided notice, either pre- or postpetition, that it had determined there were no such wells and that, therefore, the BLM Leases had terminated by operation of law. But, solely for purposes of the next part of the discussion (part "a"), this Court presumes that the BLM did not provide any effective prepetition notice.

a. As a matter of law, the SAC does not establish any violation of the automatic stay, and apparently the SAC cannot be amended to do so

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 against the debtor" that could have been commenced prepetition (§ 362(a)(1), emphasis added) or alternatively (b) an "act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate" (§ 362(a)(3), emphasis added).

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 (9th Cir. 2007) (in limited circumstances, Bankruptcy Court has power under § 105 to enjoin acts against third parties during the case).

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...