Court Opinion

ID: 4130809
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:08:40.400636+00
Date Added: 2024-06-11T14:33:05.795936
License: Public Domain

March 30, 1987

Eonorable Mack Wallace                        Opinion No. JM-660
Chairman
Railroad Conmission of Texas                  Re: Confiscation     of production
P. 0. Drawer 12967                            related    equipment at abandoned
Austin, Texas   78711                         well    sites   by agents of the
                                              Railroad Commission

Dear Mr. Wallace:

      The questions you ask involve construction    of section 89.085 of
the Natural Resources    Code, “Confiscation     of Equipment to Cover
Plugging Costs,” which provides as follows:

               (a)    If a person acting as agent for the com-
           mission plugs or replugs a well,       the comission
           may authorize the agent to confiscate      any produc-
           tion-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 the well.

               (b) The commission     shall    adopt  reasonable
           rules (including a provision   for a public hearing)
           for determining whether production-related      equip-
           ment at a well site is abandoned and for esta-
           blishing  the value of production-related   equipment
           for purposes of compensating the agent.

       To set 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 Code to 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 comuls-
              sion   determines  that   the production-related
              equipment at the well site      is abandoned and

                                   p. 3009
Eonorable   Mack Wallace   - Page 2    (JN-660)

                establishes  the value of       the equipment.  The
                established  value exceeds       the cost the agent
                incurs to plug the well.

                    b.  The operator  is in bankruptcy      and a
                trustee in bankruptcy has been appointed.       The
                trustee has invoked 11 U.S.C. section 362 which
                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.        Some of these liens
                are perfected and some are 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 by the
            operator of the well’ is not statutorily     defined
            In chapter 89.     Should the commission apply case
            law to interpret      the meaning of ‘abandonment’?
            What does it take to prove abandonment?       If the
            operator   has abandoned the equipment, does the
            lessor or landowner have a right 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 consti-
            tutes ‘reduced to possession?’

                4.     Is notice to the operator adequate notice,
            considering     that  the commission may not have
            jurisdiction     over all lienholders of the produc-
            tion 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,

                                      p. 3010
Bonorable   Mack Wallace - Page 3      (JM-660)

            does the commission have the duty to confiscate
            the additional equipment and safeguard 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
            and sold?    If so, would the damages be confined to
            the value of the salvageable      equipment minus the
            cost of plugging?      Would the cotmissioners   or any
            Railroad    Commission employee(s)      be liable    as
            individuals    for damages?

               7.    Is the commission precluded by federal law
            concerning bankruptcy from authorizing    its agent
            to confiscate    property which is in bankruptcy?
            Does the commission have a duty 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 than a prior
            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 a materialman’s     lien
            or a prior lessor?       Would the Railroad Commission
            be required to have a court foreclose        on the lien?
            If SO, would the Attorney General represent             the
            Railroad Commission and where would venue lie?           Is
            article    5473 et seq.     applicable    to a Railroad
            Commission lien under section 89.083?

                9.    Would a chapter  89 lien   apply to an
            operator who is not within the chapter 89 defini-
            tion   but who has assumed responsibility      for
            plugging?

                10. Is a constitutional      lien   available   to the
            Railroad Commission?

                11. Does the fact that a wellbore     Is covered
            by a performance bond or a letter 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?

       Upon reviewing the language embodied in section 89.085 it was our
initial   reaction  that the statute was facially  unconstitutional  under
the due process      clause of the Fourteenth Amendment to the United
States Constitution.      Our examination in light of your questions only

                                        p. 3011
Eonorable   Mack Wallace - Page 4          (JR-660)

served to strengthen our opinion that              section  89.085          would not pass
constitutional muster under due process            requirements.

      In Fuentes v. Shevin,    407 U.S. 67 (1972)    the United States
Supreme Court held that prejudgment provisions   which deprived one of
property without the right to be heard or without the participation  of
a judicial   officer are a violation   of the due process   clause.  In
order to seize property before final judgment an adversary hearing was
mandated.

      Mitchell v. W.T. Grant Company. 416 U.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, 706 S.W.2d 125 (Tex. App. - Houston [14th Dist.]          1986,
no writ).   the court reviewed the foregoing      Supreme Court opinions    in
passing on the validity      of the seizure of property under a distress
warrant pending the outcome of a suit for rent.        The court applied the
following   standards set forth in Mitchell    in determining the validity
of the prejudgment seizure.      Such writs are valid if

                (1)   issued   by judicial     officers;

                (2) the affidavits      and documents in support of
            said motion set out       the facts relied   on and are
            more than 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).

       The court 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,       and the delinquency."        A determina-
tion of issues       under section     89.085 clearly      involves   questions    of
debt, lien and abandonment.          More importantly,      Mitchell.   Fuentes and
Lincoln Ten, Ltd. address the minimal standards to satisfy              due process
requirements      in prejudgment seizures.        Section    89.085 provides      for
confiscation     of property to satisfy     a $sbt without regard to a future
judicial     determination    of the issues.       "Confiscation"     and "seizure"

     1. The fact that the Railroad Commission may employ some of the
most attractive    and orderly means of arriving        at its conclusions   in
the administration    of Its duties cannot be construed to mean that 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
can not be characterized    as judicial    determinations.

                                       p. 3012
Honorable Mack Wallace - Page 5       (JM-660)

are not necessarily     synonymous term.   It is our opinion that even
more stringent  requirements may be necessary for a "confiscation"      to
meet due process    standards than are required for a "seizure."      See
Black's Law Dictionary     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 a prejudgment seizure.

      Our finding 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 Equipment to cover Plugging Costs,
          is facially    unconstitutional   under the due process
          clause of the Fourteenth Amendment to the United
          States Constitution     in that it fails   to provide 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

JACK HIGHTOWER
First Assistant Attorney   General

NARYKELLER
Executive Assistant   Attorney   General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Tom G. Davis
Assistant Attorney General

                                     p. 3013