March30, 1987

Eonorable MackWallace Chairman Railroad Conmission of Texas P. 0. Drawer 12967 Austin, Texas 78711 Opinion No. JM-660 Re: Confiscation of production related equipment at abandoned well sites by agents of the Railroad Commission DearMr.Wallace: Thequestions you ask involve construction of section 89.085 of the Natural Resources Code, “Confiscation of Equipment to Cover Plugging Costs,” whichprovides as follows:

(a) If aperson acting as agent for the commission plugs or replugs a well, the comission mayauthorize the agent to confiscate anyproduction-related equipment at the abandoned well site (abandoned by the operator of the well as defined in this chapter) for the purpose of wholly or partially compensating the agent for plugging or replugging thewell. (b) The commission shall adopt reasonable rules (including aprovision for apublic hearing) for determining whether production-related equipment at a well site is abandoned and for establishing thevalue of production-related equipment for purposes of compensating the agent. Toset the stage for your questions, you provide the following fact situations:

The Railroad Commission, after notice to the operator. holds a hearing pursuant to section 89.085 of the Natural Resources Codeto determine whether production-related equipment at a well site is abandoned and to establish the value of production-related equipment for purposes of compensating the agent. The operator does not appear at the hearing.

a. The Conmission does not know whether there are any lienholders nor If the operator is insolvent or in bankruptcy. The comulssion determines that the production-related equipment at the well site is abandoned and

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establishes the value of the equipment. The established value exceeds the cost the agent incurs toplug thewell. b. The operator is in bankruptcy and a trustee in bankruptcy has been appointed. The trustee has invoked 11U.S.C. section 362which automatically stays any and all activities against the debtor or against the property of the debtor.

c. The production-related equipment does have prior liens on it. Someof these liens are perfected andsomeare not. You state that the Railroad Commission “is presented with the fact situations as stated” and the commission poses the following questions: 1. What& ‘production-related equipment’ as

referred to in section 89.085?

2. Does the mere non-appearance by the operator at the hearing establish that such operator has abandoned the production-related equipment at the well site and, as a result, authorize a taking of such property by the commission’s agent?

3. Section 89.085 states that ‘abandoned by the operator of the well’ will mean that as defined in chapter 89. However, ‘abandoned bythe operator of the well’ is not statutorily defined In chapter 89. Should the commission apply case law to interpret the meaning of ‘abandonment’? Whatdoes it take to prove abandonment? If the operator has abandoned the equipment, does the lessor orlandowner have aright to the equipment? If so, whose right is superior? Since title to equipment which k abandoned vests in the first person to reduce it to possession; what constitutes ‘reduced topossession?’ 4. Is notice to the operator adequate notice, considering that the commission may not have jurisdiction over all lienholders of the production related equipment?

5. In the case where the value of the production-related equipment exceeds the cost incurred by the commission’s agent to plug the well. should the comission retain the excess money? If more production-related equipment exists than is needed to compensate the agent,
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does the commission have the duty to confiscate the additional equipment andsafeguard It? 6. Would the cotmission or the agent who plugs the well or both be the subject of a suit for conversion once the equipment Is confiscated andsold? If so, would the damagesbe confined to the value of the salvageable equipment minus the cost of plugging? Wouldthe cotmissioners or any Railroad Commission employee(s) be liable as individuals for damages? 7. Is the commission precluded byfederal law concerning bankruptcy from authorizing its agent to confiscate property which is in bankruptcy? Doesthe commission haveaduty to find out if the operator has filed for bankruptcy? 8. Does the statutory authorization provided for by section 89.085 give an agent a superior right to production-related equipment thanaprior lienholder? Would securing a statutory lien, under section 89.083 of the Natural Resources Code, be beneficial? If so, what is required to secure it (filings, time periods, etc.) and does the statutory lien have priority over other liens? Would it have priority over amaterialman’s lien or aprior lessor? Wouldthe Railroad Commission be required tohaveacourt foreclose onthe lien? If SO,would the Attorney General represent the Railroad Commissionandwherewouldvenue lie? Is article 5473 et seq. applicable to a Railroad Commissionlien under section 89.083? 9. Would a chapter 89 lien apply to an operator whois not within the chapter 89definition but who has assumed responsibility for plugging? 10. Is aconstitutional lien available to the Railroad Commission? 11. Does the fact that a wellbore Is covered byaperformance bondor aletter of credit change the procedure that should be’ followed by the Railroad Comeission? Does the comeission have a duty in such an instance. to secure a lien and seek foreclosure? Uponreviewing the language embodied in section 89.085 it wasour initial reaction that the statute wasfacially unconstitutional under the due process clause of the Fourteenth Amendmentto the United States Constitution. Ourexamination in light of your questions only

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served to strengthen our opinion that section 89.085 would not pass constitutional muster under dueprocess requirements. In Fuentes v. Shevin, 407 U.S. 67 (1972) the United States SupremeCourt held that prejudgment provisions which deprived one of property without the right to beheard orwithout the participation of a judicial officer are a violation of the due process clause. In order to seize property before final judgment anadversary hearing was mandated. Mitchell v. W.T. GrantCompany.416U.S. 600 (1974). afforded the United States Supreme Court the vehicle to clarify its holding in Fuentes relative to prejudgment seizure of property. In Lincoln Ten, Ltd. v. White, 706S.W.2d 125 (Tex. App. - Houston [14th Dist.] 1986, nowrit). the court reviewed the foregoing SupremeCourt opinions in passing on the validity of the seizure of property under a distress warrant pending the outcome of asuit for rent. Thecourt applied the following standards set forth in Mitchell in determining the validity of the prejudgment seizure. Suchwrits are valid if

(1) issued byjudicial officers; (2) the affidavits anddocuments in support of said motion set out the facts relied on and are morethan conclusion; (3) the debtor has an immediate right to a hearing; and (4) dissolution of the writ will be granted absent proof at the hearing. Lincoln Ten, Ltd. v. White, 706 S.W.Zd at 128. See Attorney General - Opinion JM-510 (1986). Thecourt of appeals found that the issue at this stage of the proceeding "concerns possession pending trial and turns on the existence of the debt, the lien, andthe delinquency." Adetermination of issues under section 89.085 clearly involves questions of debt, lien andabandonment. More importantly, Mitchell. Fuentes and Lincoln Ten, Ltd. address theminimal standards **to**satisfy dueprocess requirements in prejudgment seizures. Section 89.085 provides for confiscation of property to satisfy a$sbt without regard to afuture judicial determination of the issues. "Confiscation" and"seizure"

1. Thefact that the Railroad Commission mayemploy someof the most attractive and orderly means of arriving at its conclusions in the administration of Its duties cannot be construed to meanthat it is a court within the contemplation of the Texas Constitution. Carr v. Stringer, 171 S.W.Zd 920, 922 (Tex. Civ. App. - Fort Worth 1943. writ ref'd). While its findings are quasi-judicial in nature, they cannot be characterized asjudicial determinations.

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are not necessarily synonymous term. It is our opinion that even more stringent requirements maybe necessary for a "confiscation" to meet due process standards than are required for a "seizure." See Black's LawDictionary 271, 1219 (5th ed. 1979). It is our 0pinT;;;; that section 89.085 is unconstitutional in that it does not facially satisfy due process requirements for an adequate hearing to justify eveu aprejudgment seizure. Ourfinding that section 89.085 is unconstitutional precludes the necessity of answering your specific questions. SUMMARY Section 89.085 of the Natural Resources Code, Confiscation of Equipmentto cover Plugging Costs, is facially unconstitutional under the due process clause of the Fourteenth Amendmentto the United States Constitution in that it fails toprovide for an adequate hearing to determine the issues requisite to a confiscation and sale of the well operators equipment.

JIM MATTOX Attorney General of Texas JACKHIGHTOWER First Assistant Attorney General NARY KELLER Executive Assistant Attorney General RICKGILPIN Chairman, Opinion Committee Prepared byTomG.Davis Assistant Attorney General

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