BILL ANALYSIS
AB 2453
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2453 (Tran) - As Introduced: February 19, 2010
PROPOSED CONSENT
SUBJECT : OIL AND GAS: OPERATIONS: ENFORCEMENT ACTIONS
KEY ISSUE : SHOULD THE APPEALS PROCESS FOR OIL, GAS, AND
GEOTHERMAL WELL OPERATORS SUBJECT TO REGULATORY ORDERS OF THE
DEPARTMENT OF CONSERVATION'S OIL AND GAS DIVISION (DOGGR) BE
SIGNIFICANTLY REVISED TO INCREASE DUE PROCESS PROTECTIONS IN A
MANNER THAT WOULD ALIGN IT WITH APPEALS PROCESSES EMPLOYED BY
OTHER STATE AGENCIES?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This non-controversial bill would significantly revise the
current appeals process for operators of oil, gas, and
geothermal wells to appeal a regulatory order issued by the
Department of Conservation, the sponsor of the bill. According
to the author, these significant changes are intended to address
purported shortcomings in the oil and gas appeals statute raised
by the Court of Appeal in Termo Company v. Bridgett Luther
(2008), 169 Cal. App. 4th 394. First, the bill does away with
the current appeals process in which an appeal of an enforcement
order issued by the DOGGR supervisor may be made only by
requesting a hearing to be conducted by the Director of the
Department of Conservation-the same authority enforcing the
order. In its place, this bill would establish a bifurcated
appeals process where certain appeals would be entitled to a
formal hearing before an administrative law judge in accordance
with the Administrative Procedures Act, with all other appeals
subject to an informal hearing before the Department Director.
In addition, this bill seeks to improve due process for well
operators, including requirements for additional information to
be stated in the order itself, increased notice of certain
actions, and clarifying timelines for decisions. Finally, this
bill would expressly require the court, upon judicial review of
a decision by the Director, to inquire whether the Director
committed an abuse of discretion, as defined, and apply the
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"substantial evidence" standard of review. This bill passed the
Assembly Natural Resources Committee by a 9-0 vote and has no
known opposition.
SUMMARY : Significantly revises the current appeals process for
operators of oil, gas, and geothermal wells to appeal a
regulatory order issued by the Department of Conservation,
establishing specific due process requirements, including notice
and timelines for decisions, and the judicial standard of review
to be applied, as provided. Specifically, this bill :
1)Requires that an enforcement order of the Supervisor to a well
operator shall state a clear and concise recitation of the
acts or admissions with which the operator is charged, the
statutory basis of the regulatory action, the associated
penalties and requirements the operator must take, and the
right of an operator to appeal.
Authorizes a formal appeals process for an appeal of an
enforcement order issued by DOGGR, as follows :
2)Requires a hearing before an administrative law judge (ALJ),
pursuant to the procedures and timelines of the Administrative
Procedures Act (APA), for any order that:
a) Is issued upon a finding that a well is deserted and
should be abandoned.
b) Imposes a civil penalty greater than $10,000.
c) Rescinds an injection project that has already
commenced.
d) Imposes a left-of-well or life-of-production facility
bond.
3)Provides that the Director shall either adopt or reject the
decision of the ALJ in writing, and allows the operator to
seek judicial review of an unfavorable result in court with a
30-day statute of limitations.
4)Prohibits the introduction of new evidence in court and limits
the court's inquiry to: (a) whether the Director acted in
excess of jurisdiction, (b) whether there was a fair hearing,
and (c) whether there is any prejudicial abuse of discretion.
Authorizes an informal appeals process for an appeal of an
enforcement order issued by DOGGR, as follows :
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5)Repeals provisions requiring a hearing before the Supervisor
on appeal of an order, and eliminates the limitation that
judicial review of the supervisor's order may be sought only
by writ of mandate. Instead, provides for a hearing before
the Director on appeal of any order that does not qualify for
a formal hearing.
6)Requires the Director to provide notice of the time and place
of the hearing within 30 days of service of the notice of
appeal, and requires the notice to inform the operator of the
right to file a written answer to the charges and to present
evidence at the hearing.
7)Requires the Director to issue a written decision within 30
days after the hearing that either affirms, sets aside, or
modifies the order being appealed, and provides that this
decision shall supersede the order of the supervisor from
which the appeal was made.
8)Provides that, after a hearing conducted by the Director, the
operator may obtain judicial review of the Director's decision
by filing a writ of administrative mandamus in the superior
court of the county.
9)Provides 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 if a court affirms the Director's
decision on appeal.
EXISTING LAW :
1)Creates the Division of Oil, Gas, and Geothermal Resources
(DOGGR) in the Department of Conservation ("Department").
(Public Resources Code Section 3002. All further references
are to this code unless otherwise noted.)
2)Requires the Supervisor of DOGGR ("Supervisor") 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.
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(Section 3106.)
3)Provides that, upon determination that a violation of
regulations for operation of oil and gas wells has been
committed by the person charged, the supervisor shall impose a
civil penalty of up to $25,000 upon the person, following
notice to the person and an opportunity to have an informal
hearing before the supervisor, to take place at least 30 days
after the notice. (Section 3236.5(a).)
4)Provides that an order of the supervisor imposing such a civil
penalty shall not be reviewable pursuant to the existing
appeals process, and that the person upon whom the civil
penalty is imposed may obtain judicial review only by seeking
a writ of mandate within 30 days of the final order. (Section
3236.5(b).)
Pursuant to the appeals process available to oil and gas well
operators (Article 6 of Chapter 1 of Division 3 of the Public
Resources Code, commencing with Section 3350) and geothermal
well operators (Chapter 4 of Division 3 of the Public Resources
Code, commencing with Section 3762) to appeal an order of the
DOGGR Supervisor:
5)Requires the well operator to either comply with the order or,
within 10 days from service, file with the supervisor a
written statement that the order is not acceptable, and that
appeal of the order is taken to the Director of DOGGR.
(Section 3350; Section 3762.)
6)Requires the Director to call for a public hearing, which
shall be de novo, immediately upon filing of a notice of
appeal. (Section 3351; Former Section 3763 (repealed.))
7)Provides that within 10 days from the date of taking the
appeal, at least 20 days written notice shall be given to the
time and place of the hearing. (Section 3352; Section 3764.)
8)Requires the Director, after hearing, to affirm, set aside, or
modify the order from which the appeal is taken, and make a
written decision within 20 days (for oil and gas appeals) or
10 days (for geothermal appeals). Provides that the decision
of the Director shall be final and subject only to review by
writ from the superior court. (Section 3353; Section 3765.)
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9)Provides that the decision of the Director may be reviewed by
writ from the superior court of the county, if taken within 10
days from the date the decisions was served on the appellant.
(Section 3354; Section 3766.)
10)Prohibits any new or additional evidence from being
introduced in the court, but requires the cause to be heard
upon the record of the director. Limits the scope of what may
be determined in the review to whether or not: (1) the
Director acted without or in excess of his jurisdiction; (2)
the order or decision was procured by fraud; (3) the order,
decision or rule is unreasonable; (4) the order, decision or
regulation is clearly unsupported by the evidence. (Section
3355; Section 3767.)
11)Requires any charge, including penalty and interest, imposed
by the Director 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.
(Section 3356; Section 3768.)
COMMENTS : This bill would significantly revise the current
appeals process for operators of oil, gas, and geothermal wells
to appeal a regulatory order issued by the Department of
Conservation, the sponsor of the bill. Instead, this bill would
establish a bifurcated appeals process where certain appeals
would be entitled to a formal hearing before an administrative
law judge, with all other appeals subject to an informal hearing
before the Department Director. This bill would establish
specific due process requirements, including notice, timelines
for decisions, and judicial standard of review for each step in
the appeals process. When all is said and done, this bill would
align the appeals process for DOGGR enforcement orders with
appeals processes already being used by some state agencies for
their regulated communities.
The author writes in support:
AB 2453 strengthens procedural safeguards and ensures
ample protection of due process rights for oil, gas,
and geothermal well operators subject to enforcement
orders issued by DOGGR. Without these additional
procedural safeguards, courts must independently
determine whether certain enforcement actions are
merited, forgoing the regulatory expertise of DOGGR.
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AB 2453 will benefit operators subject to a regulatory
action greater protection by providing additional due
process safeguards not currently in statute.
Furthermore, the statutory changes sought in AB 2453
would align DOGGR's appeals process with the process
used by other State agencies.
The author also states that these statutory changes are intended
"to address the procedural concerns raised by the court in the
Termo Company v. Luther decision, (as well as) similar concerns
that might be raised by other courts in the future."
Background on Termo Company v. Luther: In Termo Company v.
Bridgett Luther (2008), 169 Cal. App. 4th 394, the California
Court of Appeal (4th Dist.) held that the trial court
incorrectly applied a "substantial evidence" standard of review
when it upheld an order of the Director 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 of Appeal held that the trial court was not justified
in departing from the normal "independent judgment" standard of
review, required by Code of Civil Procedure Section 1094.5,
because the statute at issue (Public Resources Code Sections
3350 et seq.) does not contain sufficient procedural safeguards
that otherwise might allow the court to employ a "substantial
evidence" standard of review (pursuant to Tex-Cal Land
Management v. Agricultural Labor Relations Board (1979) 24
Cal.3d 335.) The Court also found that although the applicable
Public Resource Code set forth a standard of review to be
applied, it does not clearly express a "substantial evidence"
standard, and that, in any case, the requisite due process
safeguards are lacking that would justify use of that standard.
This bill increases due process safeguards and requires
application of the "substantial evidence" standard. The Termo
court found that the applicable statutory scheme in the Public
Resources Code for appeals and review was less than optimal in
three areas. First, the statute lacks adequate separation of
prosecutorial and adjudicatory functions. Second, the statute
provides inadequate notice provisions and other procedural
safeguards. Finally, the statute does not specify a clear
standard of review or the court to apply to the evidence on the
record.
This bill proposes significant changes to the appeals and review
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process for oil and gas well operators (commencing with Section
3350) and geothermal well operators (commencing with Section
3762) to address the shortcomings raised by the Court in its
Termo decision. First, the bill does away with the current
appeals process in which an appeal of an enforcement order
issued by the DOGGR supervisor may be made only by requesting a
hearing to be conducted by the Director of the Department of
Conservation-the same authority enforcing the order. Currently,
judicial review of an unfavorable decision by the Director is
only available by seeking a writ of mandate in the superior
court. Instead, this bill creates a bifurcated appeals process
which, depending on the penalties imposed by the order,
prescribes "formal" and "informal" processes for appealing
enforcement actions administratively prior to seeking judicial
review, if necessary. (A general description of how formal and
informal hearings are conducted appears below.)
This bill also provides for greater notice and other due process
safeguards. For example, the bill requires that an order of the
Supervisor to state a clear and concise recitation of the acts
or admissions with which the operator is charged, the statutory
basis of the regulatory action, the associated penalties and
requirements the operator must take, and the right of an
operator to appeal. 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. Most notably, for
an order that imposes penalties greater than $10,000 or could
terminate operations, this bill provides for a "formal" hearing
to be conducted by an administrative law judge subject to the
due process requirements of the Administrative Procedures Act
(APA). After this hearing, the ALJ must issue a written
decision, which the Director must adopt or reject in writing.
The operator would still retain the ability to obtain judicial
review by writ if the Director's result is unfavorable to the
operator.
Finally, this bill amends the Public Resources Code to require a
court, upon judicial review of the decision of the Director, to
inquire whether the Director committed an abuse of discretion,
as defined, and expressly requires the court to apply the
"substantial evidence" standard. Supporters of the bill contend
that the Termo decision unnecessarily requires a court to make a
judgment on the validity of certain DOGGR orders de novo,
whereas it is more reasonable to allow the court to give some
deference to the judgment and expertise of the Department in
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matters involving oil, gas, and geothermal well operations. By
increasing due process safeguards in the appeals process, this
bill provides an appropriate basis to allow a court to employ
the "substantial evidence" standard.
Formal and Informal Hearings . This bill revises the "informal
hearing" process under current law, and simultaneously creates a
separate "formal hearing" process for appeals of certain orders.
If the order imposes civil penalties greater than $10,000 or
threatens the economic viability of an operator (for example, an
order to abandon wells or to cease a project that has already
begun), then the operator is entitled to a formal hearing
conducted by an administrative law judge following procedures
prescribed by the APA.
According to information provided by the author:
Formal hearings under the APA are conducted by an
administrative law judge (ALJ) at the Office of
Administrative Hearings. In essence, there is little
difference between a formal hearing and an informal
hearing: both sides are given an opportunity to
present their case through witness testimony and
documentary evidence. Based on that evidence, the ALJ
drafts a written decision, which is subject to
approval by the Director of the Department.
Formal hearings involve a number of procedural
requirements and mechanisms that differ from the
barebones procedural requirements of informal
hearings. These procedural requirements and
mechanisms serve 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.
By contrast, informal hearings are conducted by a delegate of
the Director (known as a hearing officer) who is a member of the
Department's executive staff. The hearing officer is advised by
a Department 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
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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. Neither the hearing officer nor his legal advisor
should have had any substantive involvement in the matter being
considered.
Several State Departments currently use bifurcated appeals
processes. The Committee's research verifies the author's
contention that several state departments, including the
Departments of Food and Agriculture, Toxics Substances Control,
Public Health, and Pesticide Regulation all employ similar
bifurcated appeals processes 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 Department of Conservation, the
sponsor of this bill, utilizes a similar process for appeals of
various penalties and certificate orders.
This bill would adopt a similar general model for DOGGR, without
replicating any single statutory scheme already in use. This
bill would, however, create uniformity between the appeals
process specified for oil and gas well operators and that
specified for geothermal well operators. Even though oil, gas,
and geothermal well operators are all subject to enforcement
orders by the DOGGR supervisor, the respective appeals statutes
are not identical for historical reasons because they were
enacted many years apart.
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Conservation (sponsor)
Western States Petroleum Association (WSPA)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334