BILL ANALYSIS                                                                                                                                                                                                    

          |                                                                 |
          |                   Senator Fran Pavley, Chair                    |
          |                    2009-2010 Regular Session                    |
          |                                                                 |

          BILL NO: AB 2453                   HEARING DATE: June 22, 2010  
          AUTHOR: Tran                       URGENCY: No  
          VERSION: As Introduced             CONSULTANT: Marie Liu  
          DUAL REFERRAL: Judiciary           FISCAL: Yes  
          SUBJECT: Oil and gas: operations: enforcement actions.  
          Within the Department of Conservation (DOC) is the Division of  
          Oil, Gas, and Geothermal Resources (DOGGR), headed by the State  
          Oil and Gas Supervisor (supervisor). The Supervisor is  
          responsible overseeing the drilling, operation, maintenance, and  
          removal or abandonment of tanks, facilities, wells, and certain  
          pipelines associated with oil and gas production and geothermal  
          resources as specified in Chapter 1 (commencing with 3000) and  
          Chapter 6 (commencing with 3800) of Division 3 of the Public  
          Resources Code, respectively. 

          The supervisor is required to order tests or remedial work to  
          prevent damage to life, health, property, and natural resources;  
          damage to underground oil and gas or geothermal deposits; loss  
          of oil, gas, or reservoir energy; and damage to underground and  
          surface waters. These enforcement orders must been in writing  
          and must specify the conditions that need to be remedied and the  
          associated necessary work. Within 10 days of the service of an  
          order, the owner or operator must either begin a good faith  
          effort to comply with the order or file an appeal to the  
          director of the DOC (director).

          The current appeals process for an order is as follows:
           Within 10 days of the service of an order, the operator must  
            file an appeal of the order to the director by submitting a  
            written statement to the supervisor. By filing an appeal, the  
            order is automatically stayed. (3350 for oil and gas and  
            3762 for geothermal resources)
           The director then has 10 days to call for a public hearing of  
            the appeal. The operator must be given written notice of the  
            time and location of the hearing at least 20 days before the  


            hearing. The operator may be given as little as 10 days notice  
            if there is an immediate threat to human health and safety or  
            to the environment. (3351 and 3352 for oil and gas and 3764  
            for geothermal resources)
           After the hearing, the director has 20 days for oil and gas  
            orders or 10 days for geothermal orders to submit a written  
            decision that affirms, set asides, or modifies the order. The  
            director's decision is final and only may be reviewed by the  
            superior court. (3353 for oil and gas and 3765 for  
            geothermal resources)
           The operator has 10 days from serving of the written decision  
            to request that the superior court review the director's  
            decision. No new evidence can be considered by the court, and  
            the court's review shall be limited to determining whether:  
            (1) The director acted without or in excess of his  
            jurisdiction, (2) the order or decision was procured by fraud,  
            (3) the order, decision, rule, or regulation is unreasonable;  
            and (4) the order, decision, regulation, or award is clearly  
            unsupported by the evidence. (3354 and 3355 for oil and gas  
            and 3766 and 3767 for geothermal resources)
           If no judicial review is sought by the operator, or if the  
            director's decision is affirmed by the court, any charge,  
            including penalty and interest, imposed by the director will  
            constitute a lien on real or personal property (3356 for oil  
            and gas and 3768 for geothermal resources)

          The supervisor may impose civil penalties of up to $25,000 for  
          certain violations under 3236.5 in an enforcement order.  
          Appeals of the penalties are to be considered in an informal  
          hearing before the supervisor- the same authority which imposed  
          the penalty.  

          Chapter 5 of Part 1 of Division 3 (commencing with Section  
          11500) of the Government Code establishes the procedures for  
          judicial review before an Administrative law judge. 

          PROPOSED LAW
          This bill would significantly rewrite the appeals process for  
          enforcement orders issued by the supervisor pertaining to oil  
          and gas and geothermal resources by establishing specific due  
          process requirements, including notice and timelines for  
          decisions, and the judicial standard of review to the applied.  
          Specifically, this bill would:
           Require that enforcement orders state a "clear and concise"  
            narration of violations included in the order, including  
            references to the appropriate statutes and regulations and a  
            statement of all of the penalties and requirements imposed on  


            the operator in connection with the order. The written order  
            must also notify the operator of its right to appeal. 
           Create the following appeals process: 
             o    Within 10 days of the service of an order, the operator  
               must file an appeal by submitting a written statement to  
               the supervisor. By filing an appeal, the order is  
               automatically stayed unless the order is for remedial work  
               or is a cease and desist emergency order. The operator may  
               seek an order from the superior court to stay an emergency  
             o    The process for hearing the appeal is bifurcated into a  
               formal or informal appeals process based on the severity of  
               the enforcement action.
                Formal hearing: severe enforcement actions
                f      The appeal must be heard in a formal hearing before  
                 an administrative law judge (ALJ) pursuant to the  
                 Administrative Procedures Act (APA) is if the order: (1)  
                 requires that a well be plugged and abandoned, (2)  
                 imposes a civil penalty of more than $10,000, (3)  
                 rescinds approval for an injection project that has  
                 already commenced, or (4) imposes life-of-well bond or  
                 life-of-production bond. 
               f      Under the APA, the director shall either adopt or  
                 reject the decision of the ALJ in writing.
                Informal hearing: minor enforcement actions  
               f      For all other orders, appeals will be heard in a  
                 hearing conducted by the director. 
               f      The director has 30 days to establish a time and  
                 location for an appeals hearing. The operator must be  
                 given at least 30-days written notice of the hearing, or  
                 10-days notice in the case of an appeal of an emergency  
               f      The director then has 30 days after the hearing to  
                 issue a decision that affirms, set asides, or modifies  
                 the order. The written decision must include the  
                 director's factual findings, legal conclusions, and  
                 rational for the decision.
             o    Within 30 days of the service of the director's  
               decision, whether made through the informal or formal  
               hearing process, the operator may obtain a judicial review  
               of the director's decision by petitioning the superior  
               court. The court may not consider new evidence and it's  
               review must be limited to determining (1) whether the  
               director acted within his jurisdiction, (2) whether there  
               was a fair hearing, and (3) whether there was prejudicial  
               abuse of discretion.
           Require that civil penalties imposed under 3236.5 would also  


            follow the above appeals process instead of a hearing before  
            the supervisor. 

          According to the author, "Because certain procedural safeguards  
          are not in place for those appealing orders, courts must  
          independently determine whether certain enforcement actions are  
          merited, forgoing the regulatory expertise of DOGGR. Legislation  
          is necessary to clarify the standard of review to be used by  
          courts in reviewing such actions. This bill will give operators  
          subject to regulatory action greater protection by providing the  
          additional due process safeguards not currently in statute."

          None received.

           Changes to the appeals process is in response to a recent court  
          case  : Under current law, when the superior court revises a  
          director's decision, it is directed by statute to use a  
          "substantive evidence" standard of review. This means that the  
          court usually is to give deference to DOGGR's expertise by  
          considering that the facts and law that the director used in  
          making her decision are correct.

          In Termo Company v. Bridgett Luther (2008), 169 Cal. App. 4th  
          394, the superior court used the substantive evidence standard  
          of review in considering the director's decision. However, the  
          California Court of Appeal (4th Dist.) found that the appeals  
          process set in statute has a number of due process deficiencies,  
          raising concerns that the defendant may not have had adequate  
          protections in the appeals process. Because of these  
          deficiencies, the appeals court found that the lower court erred  
          in using the substantive evidence standard of review and  
          instead, the lower court should have reevaluated the facts used  
          in the director's decision without giving deference to DOGGR's  
          expertise (i.e. the "independent judgment" standard of review).  
          Additionally, the appeals court felt that existing statute is  
          not sufficiently clear in expressing that the substantial  
          evidence standard should be used.

          According to the author, the intent of this bill is to enhance  
          the due process provisions for the appeals of enforcement orders  
          so that that a substantial evidence standard of review is valid  
          and justified and that the statutory mandate for the application  


          of substantial evidence review standard is clear. Below is a  
          summary of the changes to appeals process:
          | Appeals process |      Current Law      |      Proposed law       |
          |      step       |                       |                         |
          |Enforcement      | Order must be in     |  Increases the         |
          |order issued     |  writing and  must    |  information that must  |
          |                 |  specify the          |  be included in the     |
          |                 |  conditions that need |  order, including a     |
          |                 |  to be remedied and   |  notification of the    |
          |                 |  the work necessary   |  operator's right to    |
          |                 |                       |  appeal                 |
          |If the operator  | All appeals to be    | Orders regarding more  |
          |chooses to       |  given an informal    |  severe violations and  |
          |appeal an order: |  hearing before the   |  penalties would be     |
          |director's       |  director.            |  given a formal hearing |
          |decision.        | Appeals of civil     |  consistent with the    |
          |                 |  penalties are to be  |  Administrative         |
          |                 |  given an informal    |  Procedures Act.        |
          |                 |  hearing before the   | Orders for more minor  |
          |                 |  supervisor.          |  violations would       |
          |                 | Filing an appeal     |  continue to be         |
          |                 |  automatically stays  |  considered with an     |
          |                 |  the order.           |  informal hearing       |
          |                 |                       |  before the director.   |
          |                 |                       |  This bill would give   |
          |                 |                       |  the director a longer  |
          |                 |                       |  timeline to call the   |
          |                 |                       |  hearing and to issue a |
          |                 |                       |  written decision but   |
          |                 |                       |  would also specify     |
          |                 |                       |  more information that  |
          |                 |                       |  the director must      |
          |                 |                       |  include in the written |
          |                 |                       |  decision.              |
          |                 |                       | Civil penalties would  |
          |                 |                       |  follow the same        |
          |                 |                       |  appeals process as     |
          |                 |                       |  other orders.          |
          |                 |                       |  Emergency orders are  |
          |                 |                       |  not automatically      |
          |                 |                       |  stayed with the filing |
          |                 |                       |of an appeal             |
          |"Appeal" of      | Unclear the standard |  Clarifies that the    |


          |directors        |  of review that the   |  judicial review shall  |
          |decision:        |  courts should use    |  use the substantial    |
          |judicial review  |                       |  evidence standard of   |
          |                 |                       |  review for all         |
          |                 |                       |reviews.                 |
          |                 |                       |                         |

           Proposed appeals process would increases due process safeguards:   
          Under current law, all appeals are heard through an informal  
          hearing process. According to the DOC, while the informal  
          hearing is less costly and quicker for both parties involved,  
          formal hearings involve a number of procedural requirements and  
          mechanisms that are designed to ensure that the respondent has a  
          meaningful opportunity to be heard, guard against abuse of  
          process by the respondent, and ensure that thorough and complete  
          administrative record is available to a reviewing court. 

          The committee may find that the more extensive formal process is  
          appropriate when considering appeals of severe penalties, but  
          the quicker and less costly informal hearing process is  
          sufficient for more minor violations. 

          The committee may also wish to find that this bill improves  
          DOC's informal hearing process by clarifying the hearing  
          timelines and increasing the specificity of information that  
          must be included in the director's written decision after the  

           Other state departments use similar bifurcated appeals process:   
          Several state departments, including the Departments of Food and  
          Agriculture, Toxics Substances Control, Public Health, and  
          Pesticide Regulation all employ similar bifurcated appeals  
          process to allowing for hearings before either the Director of  
          the Department or an administrative law judge, based on the  
          severity of the enforcement action. In addition, the Division of  
          Recycling in the DOC, the sponsor of this bill, utilizes a  
          similar process for appeals of various penalties and certificate  

           Double referral to Judiciary  : Should this committee allow this  
          bill to move forward, this bill will next be considered by the  
          Judiciary committee who will presumably take a closer look at  
          the portions of the bill dealing with the courts.
          The Department of Conservation (sponsor) 


          Western States Petroleum Association

          None Received