Loeb Secures Appellate Victory for the State of California and the California State Lands Commission

Loeb & Loeb is pleased to announce that the firm secured an appellate victory on behalf of the California State Lands Commission and the State of California in the case Venoco, LLC, v. State of California and California Lands Commission, a long-running dispute in which the Venoco Liquidating Trust alleged that the California State Lands Commission and the State of California undertook an unlawful taking of the trust’s property.  

In the underlying case in the U.S. Bankruptcy Court of the District of Delaware, the plaintiff, trustee of the Venoco Liquidating Trust, sought $161 million for the alleged unlawful use of trust property by the California State Lands Commission, who was using the property for the sole purpose of decommissioning connected oil and gas wells previously operated by the liquidating debtor, Venoco. Under the plaintiff’s theory of the case, the State Lands Commission’s use of trust property was a taking of private property without just compensation. The State Lands Commission’s position, endorsed by the court, was that the use of the property was necessary to protect the neighboring communities along the Santa Barbara Coast from a potential release of Hydrogen Sulfide gas, which can quickly become hazardous, or even lethal, to humans, protected habitats and marine life.

After a five-day bench trial in 2022, Judge John Dorsey issued a complete defense verdict for the State of California and the California State Lands Commission. Specifically, he ruled that the State Lands Commission’s actions were a reasonable exercise of its police power and not a taking in violation of the Fifth Amendment to the U.S. Constitution or the Constitution of the State of California. As a result of the decision, he awarded no damages.

Venoco appealed the decision to the U.S. District Court for the District of Delaware, arguing that the State Lands Commission’s police power exception, which allows the Commission to take possession of property, is only applicable in an “emergency” where there is an imminent threat of harm to the public, and that the lower court was incorrect in concluding such an “emergency” existed. The Court disagreed, and in an opinion issued in December 2023, affirmed the Bankruptcy Court’s decision, agreeing with that Court’s finding that “Venoco created an emergency when it threatened to leave unmanned a facility that required constant monitoring to ensure public safety emergency.”

The case has major implications for governmental entities faced with environmental remediation, particularly from bankrupt entities unable to complete the remediation themselves. The case clarifies the circumstances under which governmental entities can assert emergency circumstances and clarifies that such an emergency need not be “active and ongoing” and instead can extend to “potentially hazardous situation(s).” It also further clarifies that a governmental entity does not waive its police powers if it previously attempted to reach settlement with a private entity.

The Loeb & Loeb trial team included Litigation partners Marc Cohen, Steven Rosenthal and John D. Taliaferro; Litigation senior counsel Alicia Clough; and Litigation associate Alex Loh. For their work on the underlying litigation, the Loeb litigation team earned a spot as a “Litigator of the Week” runner-up by The American Lawyer Litigation Daily for the week of August 22, 2022.