BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2453 (Tran)
As Introduced
Hearing Date: June 29, 2010
Fiscal: Yes
Urgency: No
BCP:jd
SUBJECT
Oil and Gas Operations: Enforcement Action
DESCRIPTION
This bill would significantly revise the current appeals process
for operators of oil, gas, and geothermal wells in order to
respond to a recent decision by the Fourth Circuit Court of
Appeal. Specifically, this bill would, among other things:
require administrative orders to provide a clear and
concise recitation of the acts or omissions with which the
operator is charged, and the right to file an appeal;
bifurcate the process for hearing any appeals into a
formal and informal process; and
provide that judicial review shall be limited to whether
the director acted without or in excess of jurisdiction,
whether there was a fair hearing, and whether there is any
prejudicial abuse or discretion.
BACKGROUND
The Division of Oil, Gas, and Geothermal Resources (DOGGR), part
of the Department of Conservation, is headed by the State Oil
and Gas Supervisor. The Supervisor oversees the drilling,
operation, maintenance, and removal or abandonment of tanks,
facilities, wells, and certain pipelines. Upon determination
that a violation of oil and gas regulations has occurred, the
supervisor may impose a civil penalty of up to $25,000 for each
violation. Operators may appeal the orders of a supervisor
through an administrative appeals process, and may seek judicial
review of the administrative decision.
(more)
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This bill seeks to substantially revise that administrative
appeal process in response to the holding of the Fourth Circuit
Court of Appeal in Termo Company v. Bridgett Luther (2008), 169
Cal.App.4th 394. That decision found that the current statutory
administrative procedures lack due process protections and
clarity. This bill seeks to correct those deficiencies by
creating a bifurcated appeals process, providing greater notice,
and additional time to seek judicial review.
This bill was approved by the Senate Committee on Natural
Resources and Water on June 22, 2010.
CHANGES TO EXISTING LAW
Existing law establishes the Division of Oil, Gas, and
Geothermal Resources (DOGGR) in the Department of Conservation
for purposes of regulating the operation of oil, gas, and
geothermal wells, as specified. (Pub. Res. Code Sec. 3000 et
seq.)
Existing law requires the Supervisor of the DOGGR (supervisor)
to supervise the drilling, operation, maintenance, and
abandonment of wells and the operation, maintenance, and removal
or abandonment of tanks and facilities attendant to oil and gas
production, so as to prevent, as far as possible, damage to
life, health, property, and natural resources, as specified.
(Pub. Res. Code Sec. 3106.)
Existing law provides that, upon determination that a violation
of regulations for the 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, 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.
(Pub. Res. Code Sec. 3236.5.(a).)
Existing law 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.
(Pub. Res. Code Sec. 3236.5(b).)
Existing law establishes the procedure for oil, gas, and
geothermal well operators to appeal an order of the DOGGR
supervisor, as follows:
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Operators must either comply with the order or, within
10 days of 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. (Pub. Res.
Code Secs. 3350, 3762.)
The Director of Conservation (director) must call for a
public hearing, which shall be de novo, immediately upon
filing a notice of appeal by an oil or gas well operator.
(Pub. Res. Code Sec. 33511.)
At least 20 days written notice of the time and place of
the hearing shall be given to the appellant. That notice
must be given within 10 days from the date of taking the
appeal. (Pub. Res. Code Secs. 3352, 3764.)
The director, after hearing, must 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). That decision is
final and subject only to review by writ from the superior
court. (Pub. Res. Code Secs. 3353, 3765.)
The decision of the director may be reviewed by a writ
from the superior court of the county, if taken within 10
days from the date the decision was served upon the
appellant. (Pub. Res. Code Secs. 3354, 3766.)
No new or additional evidence shall be introduced in the
court, and the cause shall be heard upon the record of the
director. The review may not be extended further than to
determine 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. (Pub. Res. Code Secs.
3355, 3767.)
Any charge, including penalty and interest, imposed by
the director shall 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.
(Pub. Res. Code Secs. 3356. 3768.)
This bill would significantly revise the above appeals process
for operators of oil, gas, and geothermal wells as follows:
Require an order to provide a clear and concise
recitation of the acts or omissions 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.
Provide that the filing of a written notice of appeal
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shall operate as a stay of the order, except when an order
for remedial work or an order to cease and desist
operations is issued as an emergency order, as specified.
Bifurcate the process for hearing any appeals into a
formal and informal appeals process based on severity of
the action.
Formal appeals process
Require a hearing before an administrative law judge
pursuant to the Administrative Procedures Act (APA), for
any order that: (1) is issued pursuant to a finding that
the operator's wells are deserted and should be plugged and
abandoned; (2) imposes a civil penalty of more than
$10,000; (3) rescinds an injection project that has already
commenced; or (4) imposes a life-of-well or
life-of-production facility bond.
An operator may obtain judicial review of the above
decision pursuant to the procedures in the APA.
Informal appeals process
For appeals that do not qualify for a formal hearing,
the hearing shall be conducted by the Director. The
Director must provide notice of the time and place of the
hearing within 30 days of service of the notice of appeal;
that notice must inform the operator of their right to file
a written answer to the charges and to present evidence at
the hearing.
Within 30 days after the close of a hearing, the
director must issue a written decision that either affirms,
sets aside, or modifies, the order being appealed. That
decision must be filed with the supervisor and served on
the operator, at which time shall be deemed final, and
shall supercede the order of the supervisor from which the
appeal was made.
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.
This bill would additionally provide that when an operator seeks
judicial review of a decision of the director, including a
decision following a hearing conducted in accordance with the
APA, the court shall hear the cause on the record before the
director or an administrative law judge.
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New or additional evidence shall not be introduced in
court, and the court's inquiry shall extend to whether the
director acted without or in excess of jurisdiction,
whether there was a fair hearing, and whether there is any
prejudicial abuse of discretion.
Abuse of discretion would be established if the
administrative proceeding has not been conducted in the
manner required by law, the decision is not supported by
the findings, or the findings are not supported by
substantial evidence in light of the whole record.
This bill would provide that a penalty or charge imposed on the
operator shall 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.
This bill would authorize the director to adopt emergency
regulations for the purposes of implementing the above
provisions. Those regulations must be filed with, but not be
repealed by, the Office of Administrative Law and shall remain
in effect until revised by the director.
COMMENT
1. Stated need for the bill
According to the author:
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. The amendments sought in AB
2453 will benefit operators subject to a regulatory action
greater protection by providing additional due process
safeguards not currently in statute.
2. Termo Company v. Bridgett Luther
This bill seeks to respond to deficiencies found in the current
appeals process by which oil, gas, and geothermal operators
appeal orders from the State Oil and Gas Supervisor. In Termo
Company v. Bridgett Luther (2008), 169 Cal. App.4th 394, the
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Fourth District Court of Appeal found that the existing
provisions do not provide the requisite safeguards to assure the
essentials of due process. (Id. at 411.) That case involved
the appeal of an administrative order that directed the plugging
and abandonment of 28 oil wells - that order was objected to by
parties that sought to resume production from those wells. The
court determined that the right at issue was a fundamental
vested right and applied an "independent judgment standard of
review" (as opposed to a substantial evidence review) because
the Public Resources Code provisions do not satisfy the due
process requirements of Tex-Cal Land Management v. Agric. Labor
Relations Bd. (1979) 24 Cal.3d 335. (Tex-Cal requires a statute
to assure the essentials of due process, and provides that the
requirement is satisfied "when the statutory scheme in question
provides the parties to the administrative proceeding with
procedural safeguards equivalent to those provided in Labor Code
section 1140 et seq." Termo Co. at 411.) Those two standards
differ in that the "independent judgment" standard permits the
court to independently review the evidence and make a decision,
while the "substantial evidence" standard defers to the judgment
of the agency and only looks to whether there is substantial
evidence supporting the decision.
As further background, case law interpreting Code of Civil
Procedure Section 1094.5 generally provides that when a
fundamental vested right is at issue, an independent judgment
standard of review shall be applied. An exception to that
general rule arises if the Legislature mandates a substantial
evidence standard of review. Even when mandating that review,
the substantial evidence standard only applies when certain due
process safeguards are met. In applying the "independent
judgment standard of review" in the Termo case, the court
stated:
Even were we to agree that Public Resources Code section
3355, subdivision (d) articulated a substantial evidence
standard of review, we still would not hold that standard
applicable given the statutory scheme as a whole. This is
because the apposite Public Resources Code provisions do not
provide the requisite procedural safeguards. Tex-Cal []
requires that for a statutory substantial evidence standard
of review to be applied in lieu of an otherwise applicable
independent judgment standard, the statutory scheme in
question must "assure[] the essentials of due process." The
due process requirement is satisfied when the statutory
scheme in question provides the parties to the
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administrative proceeding with procedural safeguards
equivalent to those provided in Labor Code section 1140 et
seq.
. . .
Consequently, even were we to construe the standard of review
set forth in Public Resources Code section 3355, subdivision
(d) as a substantial evidence standard of review, we would
still hold that the independent judgment standard of review
must nonetheless be applied, because the apposite Public
Resources Code provisions do not satisfy the due process
requirements of Tex-Cal. The Termo Co. v. Luther (2008) 169
Cal. App. 4th 394, 411, 413 (citations omitted).
To address that decision, this bill would substantially revise
the existing appeals process so that the "substantial evidence
standard" may be used as the measure for review. Under that
standard, the question for the court is only whether there is
"substantial evidence" to support the administrative decision -
as opposed to the "independent judgment" standard which permits
the court to examine the administrative record for errors of law
and exercise independent judgment upon the evidence (without
giving deference to DOGGR's expertise).
The author states that "[w]ithout these additional procedural
safeguards, courts must independently determine whether certain
enforcement actions are merited, forgoing the regulatory
expertise of DOGGR."
3. Procedural safeguards and clarifications
The Termo court found deficiencies with regards to several
components of existing law regarding oil, gas, and geothermal
wells. Those deficiencies include: (1) no separation of
prosecutorial functions; (2) inadequate notice of violation; (3)
that several code sections do not provide a right to file an
answer to charges or require the proceedings to be conducted in
accordance with the Evidence Code; and (4) the statute does not
specify a clear standard of review.
Under existing law, oil, gas, and geothermal well operators may
appeal an order of the DOGGR supervisor by filing a written
statement with the supervisor within 10 days of service.
Although similar, those appeal processes are separated out into
those for oil and gas wells (Pub. Res. Code Sec. 3350 et seq.)
and geothermal wells (Pub. Res. Code Sec. 3762 et seq.). Upon
receiving a written statement of appeal, the director must call
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for a public hearing - the appellant must receive at least 20
days written notice of the time and place of that hearing.
After the hearing, the director must make a written decision to
either affirm, set aside, or modify the order. That decision
may be reviewed by a writ from the Superior Court, and that
ability to review is 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, or rule was unreasonable; and (4) the order, decision,
or regulation is clearly unsupported by the evidence. (Pub. Res.
Code Secs. 3355, 3767.)
To address the above concerns of the Termo court, this bill
would revise the above process by, among other things, creating
a bifurcated appeals process.
a. Bifurcated appeals process
The proposed bifurcated process consists of a "formal" and
"informal" procedure for administrative appeals of enforcement
actions, prior to the ability to seek judicial review.
The "formal" process would require a hearing before an
administrative law judge pursuant to the Administrative
Procedures Act for any order that: (1) is issued pursuant to a
finding that the operator's wells are deserted and should be
plugged and abandoned; (2) imposes a civil penalty of more
than $10,000; (3) rescinds an injection project that has
already commenced; or (4) imposes a life-of-well or
life-of-production facility bond. Committee staff notes that
the first type of case - those dealing with deserted wells -
would appear to directly address the appeal process at issue
in the Termo case. As noted above, that case involved a
finding that wells should be plugged and abandoned.
The author notes that "[s]hifting certain appeals from an
informal hearing to a formal hearing process affords operators
significant procedural safeguards. A formal hearing is
conducted by an independent Administrative Law Judge (ALJ)
employed by the Office of Administrative Hearings (OAH), and
is conducted in accordance with procedures set forth in the
Administrative Procedures Act, which, among other thing,
affords the operator an opportunity to review the evidence
against it before the hearing."
For those appeals that do not fall under the "formal" process,
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the proposed "informal process" would require the director to
provide a notice of the time and place of the hearing that
informs the operator of their right to file an answer and
present evidence. The director must issue a written decision
within 30 days after the close of the hearing, and must serve
that decision on the operator. The operator may obtain
judicial review of the decision by filing a writ in superior
court.
Given the serious deficiencies found in the existing
administrative appeals process, and that the proposed
"informal process" is an adaptation of that flawed internal
process, the Committee should consider whether all appeals
should, instead, proceed through the "formal" process, thereby
requiring a hearing before an ALJ pursuant to the
Administrative Procedures Act. Processing all appeals
through the "formal" process should also provide greater
security to the DOGGR that a subsequent court will not find
their appeals process to be statutorily deficient.
SHOULD ALL APPEALS GO THROUGH THE "FORMAL PROCESS?"
b. Additional safeguards and clarification
In an effort to address due process issues raised in Termo,
the bill seeks to provide greater notice and additional due
process safeguards. Committee staff notes that the end result
of all of those safeguards would be to create a situation
where a court could use the "substantial evidence" standard
for review - thus, deferring to the expertise of the DOGGR, as
opposed to conducting the independent review required by
Termo.
Those additional safeguards include: (1) requiring orders to
provide a clear and concise recitation of the acts or
omissions with which the operator is charged, the statutory
basis of the regulatory action, and right to an appeal; (2)
extending the time frame for filing a petition for judicial
review from 10 to 30 days; and (3) requiring use of the
"formal" appeals process for civil penalties of more than
$10,000. The bill would also define the parameters for
judicial review of the decision of a Director (including a
decision following a hearing conducted in accordance with the
APA) - that inquiry would extend to whether the director acted
without or in excess of jurisdiction, whether there was a fair
hearing, and whether there was any abuse of discretion. Abuse
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of discretion would be established if the proceeding had not
been conducted in a manner required by law, the decision is
not supported by the findings, or the findings are not
supported by "substantial evidence."
As a result, the author further contends that the bill would
address "each of the procedural concerns raised by the court
in the Termo decision, and these procedural amendments would
apply to a broader set of regulatory enforcement actions than
what was considered in the Termo decision. This makes it
likely that the bill will not only address the problems
described in the Termo decision, but also address similar
concerns that might be raised by other courts in the future."
Despite that contention, as discussed above, the Committee
should consider whether it would be more appropriate to,
instead, require all appeals to proceed through the proven
requirements of the Administrative Procedures Act instead of
attempting to revise an internal appeals process that the
court previously found to be flawed.
4. Comparison to other state agencies
The author, in support of adopting the proposed bifurcated
process for DOGGR conteds that "[t]he statutory changes sought
in AB 2453 would align DOGGR's appeals process with the process
used by other State agencies. For example, the Department of
Resources Recovery and Recycling conducts informal hearings for
appeals associated with the denial of an application for
certification to operate a recycling or processing center, the
termination of a probationary certification, and penalty or
restitution actions of $1,000 or less; but it provides for a
formal hearing before an ALJ for revocation of a nonprobationary
certificate, and for larger penalty or restitution actions. The
California Boating and Waterways Commission must hold a formal
hearing if the Department of Boating and Waterways refuses to
grant an operator's license, or suspends or revokes an
operator's license. Also, the Department of Forestry and Fire
Protection must hold a formal hearing for the appeal of any
corrective action."
5. Emergency regulations
This bill would also permit the director to adopt emergency
regulations for purposes of implementing specified sections, and
state that adoption of those regulations are an emergency, and
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shall be considered by the Office of Administrative Law as
necessary for the immediate preservation of the public peace,
health and safety, and general welfare. Those regulations would
be filed with, and could not be repealed by, the Office of
Administrative Law and remain in effect until revised by the
director.
Given that this bill would codify that an emergency does, in
fact, exist, the Committee should ask the sponsor to fully
explain why the present situation is, in fact, an emergency.
Support : None Known
Opposition : None Known
HISTORY
Source : Department of Conservation
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Natural Resources Committee (Ayes 9, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
Senate Natural Resources Committee (Ayes 8, Noes 0)
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