BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2453
                                                                  Page  1

          CONCURRENCE IN SENATE AMENDMENTS
          AB 2453 (Tran)
          As Amended  August 17, 2010
          Majority vote
           
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          |ASSEMBLY:  |76-0 |(June 2, 2010)  |SENATE: |35-0 |(August 19,    |
          |           |     |                |        |     |2010)          |
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           Original Committee Reference:   NAT. RES.  

           SUMMARY  :  Clarifies the judicial standard of review for an  
          enforcement action of the State Oil and Gas Supervisor  
          (Supervisor); expands procedural safeguards for an administrative  
          appeal of an enforcement action, including the use of the Office  
          of Administrative Hearings (OAH). 

           The Senate amendments  :

          1)Revise procedures for refunding costs incurred by an operator  
            when an enforcement order is set aside or modified on appeal.

          2)Require administrative hearings to be reported by a stenographic  
            reporter and permit hearings to be electronically recorded by  
            either party.

          3)Authorize the Director of the Department of Conservation (DOC)  
            to order testimony of a witness at the hearing, upon petition of  
            the operator.

          4)Authorize the Director to convert an informal hearing to a  
            formal hearing under specified circumstances.

           EXISTING LAW  :

          1)Requires the Supervisor of the Division of Oil, Gas, and  
            Geothermal Resources (DOGGR) in DOC to supervise the drilling,  
            operation, maintenance, and abandonment of oil and gas and  
            geothermal wells, tanks and facilities, including certain  
            pipelines, 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.

          2)Requires the Supervisor to order tests or remedial work  







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            necessary to prevent damage to life, health, property, and  
            natural resources; to protect oil and gas or geothermal deposits  
            from damage; to prevent the escape of water into underground  
            formations; or to prevent the infiltration of detrimental  
            substances into underground or surface water.

          3)Requires a lessor, lessee, operator, or owner of a well, rig or  
            derrick, within 10 days of the date of service of an order  
            above, to comply with the order or appeal it to the Director of  
            DOC.  Due process provisions, including timelines for a hearing,  
            written decision, and judicial review are provided.

          4)Requires any charge, including penalty and interest, imposed by  
            the Director of DOC to constitute a lien on real or personal  
            property if an operator does not seek judicial review of an  
            order or the Director's order is affirmed by a court.

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Required that an order of the Supervisor state the factual basis  
            of the regulatory action being taken, the statutory basis of the  
            action, the associated penalties and requirements, and the right  
            of an operator to appeal.

          2)Eliminated a hearing on appeal of an order before the Supervisor  
            and subjected an order imposing a civil penalty to judicial  
            review.

          3)Revised and bifurcated appeals of an order for both oil and gas  
            and geothermal operations.  Authorized an appeal of an order to  
            be heard by an Administrative Law Judge (ALJ) in the OAH and  
            pursuant to the Administrative Procedures Act (APA) under one of  
            the following circumstances:

             a)   The order is issued upon a finding that a well is deserted  
               and should be abandoned;

             b)   The order imposes a civil penalty greater than $10,000;

             c)   The order rescinds an injection project that has already  
               commenced; or,

             d)   The order imposes a life-of-well or life-of-production  
               facility bond.

          4)Authorized an appeal of an order to be heard by the Director  







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            under any other circumstance.  Established due process  
            requirements, including notice, timelines for decisions, and  
            standard of review.

          5)Provided that the Director's order and decision to affirm or  
            reject the ALJ decision are subject to judicial review with a  
            30-day statute of limitations.  Provided that a court's standard  
            of review is whether the Director acted in excess of  
            jurisdiction, whether there was a fair hearing, and whether  
            there is any prejudicial abuse of discretion.

          6)Provided that a penalty or charge imposed on the operator must  
            constitute a state tax lien against the property of the operator  
            if the operator does not appeal or seek judicial review of an  
            order, or a court, on appeal, affirms the Director's decision.

          7)Clarified that when an order of the Supervisor is issued under  
            emergency circumstances, the order is not stayed by the filing  
            of an appeal.  If an order is set aside or modified on appeal,  
            the costs incurred by the operator must be refunded.

          8)Provided for an expedited hearing before the Director for  
            appeals of emergency orders and required DOGGR to reimburse the  
            operator for required work if an emergency order is invalidated  
            on appeal.

           FISCAL EFFECT  :  According to the Senate Appropriations Committee,  
          additional legal costs of $145,000 a year from the Oil, Gas, and  
          Geothermal Administrative Fund.

           COMMENTS  :  This bill responds to a California appellate court  
          decision, Termo Company v. Luther, holding that the trial court  
          incorrectly applied a "substantial evidence" standard of review  
          when it upheld an order of the Director of DOC requiring an  
          operator to abandon 28 oil wells in Huntington Beach that were  
          allegedly posing a threat to public health and safety and the  
          environment.  The court ruled that the trial court should have  
          applied an "independent judgment standard," particularly since the  
          applicable statute does not clearly specify otherwise nor does it  
          contain sufficient procedural safeguards.  In order words, in this  
          instance, the trial court should have determined whether the DOC  
          Director's order was supported by the "weight of the evidence" not  
          the more deferential "substantial evidence in light of the whole  
          record" standard.
           
           This bill expressly requires a court, on appeal, to apply the  







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          "substantial evidence" standard and more generally, according to  
          the author's office, "Strengthen[s] procedural safeguards and  
          ensure[s] ample protection of due process rights for oil, gas, and  
          geothermal wells operators subject to [the Supervisor's]  
          enforcement orders." 

          In addition to clarifying the judicial standard of review, the  
          bill creates a "formal" and "informal" process for appealing the  
          enforcement actions administratively prior to seeking judicial  
          review, if necessary.  Formal appeals, before an ALJ, would be  
          required when an operator appeals an order imposing civil  
          penalties greater than $10,000 or when an order may threaten the  
          economic viability of an operation or operator (e.g., order to  
          abandon wells or to cease a project that has already commenced).   
          These hearings would be conducted by an ALJ at the Office of  
          Administrative Hearings, pursuant to the APA.  After a hearing,  
          the ALJ would issue a written decision, subject to the approval by  
          the Director.

          According to the DOC, formal hearings include "procedural  
          requirements and mechanisms?to ensure that the [appellant] has a  
          meaningful opportunity to be heard, guard against abuse of  
          process?and ensure that [a] thorough and complete administrative  
          record is available to a reviewing court."  These mechanisms  
          include prehearing discovery and conferences and evidentiary rules  
          governing admissible evidence.  All other actions would be heard,  
          on appeal, by the Director.

          Informal hearings are conducted by a delegate (known as a hearing  
          officer) of the Director who is a member of the DOCs executive  
          staff.  The hearing officer is advised by a DOC attorney, both of  
          whom are expected not to have substantive involvement in the  
          action being appealed.  Since there are no regulations governing  
          the hearing process, the hearing officer is empowered to determine  
          such things as timeframes and admissibility of evidence.  These  
          hearings are considered part of the administrative record so they  
          are either recorded or transcribed.  The appellant can choose to  
          be legally represented and is entitled to bring witnesses and to  
          question the Supervisor's witnesses.  After the hearing, the  
          officer issues a written decision based on the testimony and  
          evidenced presented.

          This bill imposes notice requirements, including the content of  
          notices, deadlines to issue a decision; establishes the DOC  
          Director's standard of review (e.g., preponderance of the  
          evidence); and subjects a decision to judicial review.   







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          Importantly, it extends the statute of limitations to file a  
          lawsuit by 20 days (a total of 30 days) which comports with other  
          statutory schemes.  The Department notes that the Departments of  
          Agriculture, Toxics Substances Control, Public Health, and  
          Pesticide Regulation all have similar bifurcated appeals processes  
          based on the severity of an enforcement action.

           
          Analysis Prepared by  :  Lawrence Lingbloom / NAT. RES. / (916)  
          319-2092                                          


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