State of Louisiana v. RLI Insurance Company

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

STATE OF LOUISIANA CIVIL ACTION

VERSUS NO. 19-614-JWD-SDJ

RLI INSURANCE CONSOLIDATED WITH

COMPANY, LLC, et al. NO. 19-640-JWD-SDJ

NOTICE

Please take note that the attached Magistrate Judge’s Report and Recommendation has been filed

with the Clerk of the United States District Court for the Middle District of Louisiana.

Under 28 U.S.C. § 636(b)(1), you have 14 days from receipt of this Notice to file written objections

to the proposed findings of fact and conclusions of law in the Magistrate Judge’s Report. A failure

to object will constitute a waiver of your right to attack the factual findings on appeal.

ABSOLUTELY NO EXTENSION OF TIME SHALL BE GRANTED TO FILE

WRITTEN OBJECTIONS TO THE MAGISTRATE JUDGE’S REPORT.

Signed in Baton Rouge, Louisiana, on September 15, 2020.

S

SCOTT D. JOHNSON

UNITED STATES MAGISTRATE JUDGE

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

STATE OF LOUISIANA CIVIL ACTION

VERSUS NO. 19-614-JWD-SDJ

RLI INSURANCE CONSOLIDATED WITH

COMPANY, LLC, et al. NO. 19-640-JWD-SDJ

MAGISTRATE JUDGE’S REPORT AND RECOMMENDATION

Before the Court are two Motions to Remand filed by Plaintiff, the State of Louisiana,

through its Department of Natural Resources, Office of Conservation (State) in both the lead, No.

19-cv-614 (R. Doc. 6) and consolidated, No. 19-cv-640 (R. Doc. 6), cases. For the reasons given

below, the Court recommends that both Motions to Remand (R. Doc. 6) be granted and that the

State’s cause of action be remanded to the 19th Judicial District Court in East Baton Rouge Parish

for further proceedings.

I. BACKGROUND

In 2016, Northstar Offshore Group, LLC, filed for Chapter 11 bankruptcy in the Southern

District of Texas. See In re Northstar Offshore Group, LLC, No. 16-bk-34028 (Bankr. S.D. Tex.

Dec. 2, 2016), ECF No. 88. As a result of the bankruptcy, Northstar sold most of its assets to

Northstar Offshore Ventures, LLC (NOV).1 However, Northstar did not sell its rights to certain oil

and gas wells on property leased in Louisiana (Creole Wells or Leases). See Sale Order, In re

Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Aug. 2, 2017), ECF No. 792-1 at 129 (Schedule

1 NOV has since changed its name to Sanare Energy Partners, LLC. (No. 19-614, R. Doc. 1 at 3).

1.3(n) (Excluded Assets)); Northstar’s Motion to Reject and Abandon at 3, In re Northstar, No.

16-bk-34028 (Bankr. S.D. Tex. Oct. 13, 2017), ECF No. 891. Instead, Northstar abandoned the

Creole Wells and the Leases were rejected as part of the bankruptcy estate. See Order, In re

Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Nov. 16, 2017), ECF No. 948.

Relevant here, the Creole Wells were covered by performance bonds2 issued and

guaranteed by various sureties: RLI Insurance Company (RLI); as well as Sompo International

Insurance, Lexon Insurance Company and Lexon Surety Group (Lexon).3 (No. 19-640, R. Doc. 1-

1 at 3-4). RLI issued the original performance bond on October 11, 2012 (No. 19-640, R. Doc. 1-

1 at 3, 11-19), which was later replaced by a performance bond issued by Lexon on March 22,

2016 (No. 19-640, R. Doc. 1-1 at 4, 32-40, 42). With the replacement bond, Lexon financially

guaranteed4 Northstar’s agreement to:

[P]lug and abandon the Subject wells, to remove all platforms, pilings, facilities,

pits and to restore the surface pursuant to the Leases, the Rules, Regulations and

Orders of the Commissioner of Conservation/Laws of the State of Louisiana and to

pay all costs and expenses associated therewith . . . .

(R. Doc. 1-1 at 4, 33). According to the State, when Northstar’s obligations to plug and abandon

the wells “were discharged in bankruptcy” (No. 19-640, R. Doc. 1-1 at 7, 53-56), it “call[ed]” the

performance bonds, demanding payment from Lexon (No. 19-640, R. Doc. 6-1 at 2); (No. 19-640,

R. Doc. 1-1 at 57). Lexon, however, allegedly “refus[ed] . . . to honor the terms of the bonds.” (No.

19-640, R. Doc. 6-1 at 2).

2 The original bond was guaranteed by RLI Insurance Company. (No. 19-640, R. Doc. 1-1 at 11-19). A replacement

bond was later issued by Lexon. (No. 19-640, R. Doc. 1-1 at 32-40, 42) (“This bond supersedes, replaces, and assumes

any, and all past, present, and future liability of Bond RLB0014817,” issued by RLI Insurance Company.). While RLI

was originally named as a Defendant, it has since been dismissed with prejudice. (No. 19-640, R. Doc. 38).

3 According to the Petition, Lexon was later acquired by Sompo.

4 The Court makes no comment as to whether the Lexon performance bond is an “enforceable contractual obligation,”

which remains at issue in this litigation. (R. Doc. 19-640, R. Doc. 10 at 2 n.2).

Following Lexon’s refusal, the State filed suit for specific performance5 on August 20,

2019, in the 19th Judicial District Court, against the following Defendants: RLI Insurance

Company, the surety guaranteeing the original bond; Sompo International Insurance, Lexon

Insurance Company and Lexon Surety Group (Lexon), the entity guaranteeing the replacement

performance bond; and Sanare Energy Partners, LLC, formerly known as Northstar Offshore

Ventures, LLC (Sanare), the company that acquired Northstar’s assets during the bankruptcy. (No.

19-640, R. Doc. 1-1 at 2-9). Although the State named Sanare in its Petition, it does not allege any

cause of action against Sanare or demand any relief from the company. Instead, the State makes

clear that it seeks an order requiring RLI or Lexon to comply with its obligations under the

performance bonds. (No. 19-640, R. Doc. 1-1 at 9).

After being served, Sanare removed the lawsuit to federal court on September 16, 2019.

(No. 19-614, R. Doc. 1). A week later, Lexon also removed the suit as a separate case, State of

Louisiana v. RLI Insurance Company, No. 19-cv-640 (M.D. La. Sept. 23, 2019), which was later

consolidated with the first. (No. 19-614, R. Doc. 34). Between the two Notices of Removal,

Defendants alleged this Court has subject matter jurisdiction over the State’s cause of action

because it (1) is related to the Northstar bankruptcy proceeding, and (2) meets the conditions for

complete diversity. See 28 U.S.C. § 1334(b) (“district courts shall have original but not exclusive

jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under

title 11.”); 28 U.S.C. § 1452(a) (“A party may remove any . . . civil action . . . to the district court

. . . if [it] has jurisdiction of such claim or cause of action under section 1334 of this title.”); 28

5 Chevron U.S.A., Inc. v. Atmos Pipeline & Storage, LLC, 2018 WL 4517898, at *8 (W.D. La. Sept. 20, 2018)

(“specific performance is a remedy for breach of contract”).

U.S.C. § 1332(a) (parties must be completely diverse and amount in controversy must exceed

$75,000.00); 28 U.S.C. § 1441(a) (removal of civil actions).

Since removal, the State has dismissed Sanare Energy Partners, Northstar Offshore

Ventures and RLI Insurance Company, with prejudice, from both cases. (No. 19-614, R. Docs. 5,

33), (No. 19-640, R. Docs. 5, 38). It has likewise filed Motions to Remand in both cases, which

the Court now considers together. (No. 19-614, R. Doc. 6), (No. 19-640, R. Doc. 6).

II. DISCUSSION

In its Motions to Remand, the state argues remand is warranted on 3 grounds—Eleventh

Amendment immunity; lack of complete diversity; and lack of bankruptcy jurisdiction or, in the

alternative, abstention. The Court has considered each argument below. After applying the law to

the instant case, it recommends remand.

A. Eleventh Amendment Immunity

Citing the Eleventh Amendment, the State first argues that “this Honorable Court lacks

jurisdiction over all claims against the State of Louisiana,” and it is “entitled to sovereign immunity

from the instant suit.” (R. Doc. 19-614, R. Doc. 6-1 at 5). There is an obvious flaw in this argument

— the State is the Plaintiff in this suit, and there are no claims “against” it. But that aside, certain

“[c]onstitutional questions . . . ought not be reached unless doing so is necessary to the resolution

of a case” In re Katrina Canal Litigation Breaches, 524 F.3d 700, 708 (5th Cir. 2008). As

discussed below, the Court finds no basis to exercise jurisdiction over the State’s lawsuit. It

therefore declines to decide whether the State may still claim sovereign immunity after a suit it

filed in state court, based on state law, is removed to federal court. Id. at 710-11 (collecting cases

applying the 11th Amendment where a state was the plaintiff).

B. Complete Diversity

“Ordinarily in an action where a state is a party, there can be no . . . diversity of citizenship

because a state is not a citizen for purposes of diversity jurisdiction.” Louisiana v. Union Oil Co.

of California, 458 F.3d 364, 366 (5th Cir. 2006). “Likewise, state agencies that are” an arm or

“alter ego of the state are not citizens for the purpose of diversity jurisdiction.” Batton v. Georgia

Gulf, 261 F. Supp. 2d 575, 583 (M.D. La. 2003) (“So the problem with diversity jurisdiction is not

that the plaintiffs are citizens of Louisiana and the LDHH is a citizen of Louisiana. Instead, the

problem is that LDHH,” an alter ego of the State, “is not a citizen at all” and “having one defendant

with no citizenship destroys diversity jurisdiction . . . .” Id. at 581). However, an “independent”

agency — one that is “separate and distinct from the state” — is a citizen of the state. PYCA

Industries, Inc. v. Harrison County Waste Water Mgmt. Dist., 81 F.3d 1412, 1416 (5th Cir. 1996)

(if agency is independent, diversity jurisdiction may exist if the conditions of 28 U.S.C. § 1332

are otherwise met).

Aware of these principals, Defendants argue that the “Department of Natural Resources,

Office of Conservation” (DNR) is the real party in interest — not the State. (No. 19-640, R. Doc.

10 at 10). Relevant here, the Department of Natural Resources is a department within the executive

branch of state government, La. Rev. Stat. § 36:4 (listing executive departments); La. Rev. Stat. §

36:351 (creating DNR), and the Office of Conservation is part of the DNR, La. Rev. Stat. § 36:358

(Office of Conservation part of DNR). According to Defendants, because the DNR is an

“independent agency,” as opposed to an ‘arm of the State’ or its ‘alter-ego,’ the DNR is a citizen

of Louisiana for diversity purposes. (No. 19-640, R. Doc. 10 at 11).

To establish jurisdiction under 28 U.S.C. § 1332(a) (diversity jurisdiction), there must be

complete diversity among the parties and the amount in controversy must be met. Here, there is no

dispute that the amount in controversy is satisfied. (No. 19-640, R. Doc. 1-1 at 9). Moreover, none

of the Defendants appear6 to be citizens of Louisiana. Therefore, the only issue is whether the DNR

is an alter ego of the State and therefore has no citizenship, or an independent agency with

Louisiana citizenship, as Defendants’ claim. See Batton, 261 F. Supp. 2d at 581 (if an agency is

an alter ego of the state, it “is not a citizen at all” and “having one defendant with no citizenship

destroys diversity jurisdiction . . . .”).

According to the Fifth Circuit, there are several factors to consider in determining an

agency’s status:

(1) whether the agency wields generally recognized corporate powers, such as the

right to sue and be sued, hold property, and enter into contracts in its own name;

(2) how the entity has been classified under and for purposes of state law, giving

particular weight to state court decisions; (3) the agency's degree of financial

independence from the state, including whether debt incurred on behalf of the

agency becomes a general obligation of the state; (4) the extent of the agency's

independent management authority; and (5) whether the entity is concerned

primarily with local, as opposed to statewide problems.

Health Educ. Auth. of Louisiana v. APCOA LaSalle Parking Co., LLC (HEAL), 991 F. Supp. 2d

762, 764 (E.D. La. 2013) (“This analysis is “virtually identical” to the test used to determine

whether an agency is an ‘arm of the state’ for [Eleventh Amendment] immunity purposes.”).

Application of these factors makes clear that the DNR is an alter ego of the State of Louisiana and

therefore has no citizenship.

6 The Court notes that Lexon’s Notice of Removal (No. 19-640, R. Doc. 1) does not sufficiently allege the citizenship

of Defendant Sanare. According to the Notice of Removal, Sanare is a limited liability company (LLC) with 2

members, both of which are LLCs — Orinoco Natural Resources, LLC and Stockbridge Natural Resources, LLC (No.

19-640, R. Doc. 1 at 4). See Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008) (“the citizenship

of a LLC is determined by the citizenship of all of its members”). Orinoco’s members, Tom and Ana Clarke, are

citizens of Virginia. (No. 19-640, R. Doc. 1 at 4). However, Lexon does not appear to know the citizenship of

Stockbridge’s only member, Tom Wiley. Instead, Lexon simply alleges that Tom Wiley is “not a citizen of the state

of Louisiana.” (No. 19-640, R. Doc. 1 at 4). This allegation is insufficient to establish complete diversity among the

parties and Lexon has failed to meet its burden of establishing diversity jurisdiction. However, because the Court finds

diversity is otherwise lacking because DNR is an alter ego of the state, and therefore has no citizenship, this issue is

moot.

Corporate Powers. Defendants make much of the fact that the DNR, is a “body corporate

with the power to sue and be sued,” and “even” has a “domicile” in Baton Rouge. (No. 19-640, R.

Doc. 10 at 12) (citing La. Rev. Stat. § 36:351(A)). But while Defendants correctly recite the DNR’s

corporate powers, Defendants misinterpret their significance. The DNR is no different than any

other department in the executive branch of state government, La. Rev. Stat. § 36:4 (listing

executive departments, including DNR), each of which is described as a “body corporate with the

power to sue and be sued.”7 Indeed, federal courts have long recognized that “the ability of an

agency to sue and be sued loses some of its traction in Louisiana because it is a power accorded

all departments in the executive branch.” HEAL, 991 F. Supp. 2d at 764; see also Fireman's Fund

Ins. Co. v. Dep't of Transp. & Dev., State of La., 792 F.2d 1373, 1375 (5th Cir. 1986) (“the State

of Louisiana treats all of the executive departments the same and gives them all power to sue and

be sued as corporate bodies.”). The fact that the DNR has corporate powers, like every other

executive department, does not necessarily weigh in favor of independence. This is especially true

considering how state law characterizes the executive departments, including the DNR and its

various offices.

State Law Characterization. In proceedings like this one — involving an executive

department, including the offices and agencies within it — Louisiana courts have held that “the

7 See La. Rev. Stat. § 36:51 (Department of State Civil Service is “a body corporate with power to sue and be sued”

and is “domiciled in Baton Rouge”); La. Rev. Stat. § 36:101 (Department of Economic Development); La. Rev. Stat.

§ 36:151 (Department of Elderly Affairs); La. Rev. Stat. § 36:201 (Department of Culture, Recreation and Tourism);

La. Rev. Stat. § 36:231 (Department of Environmental Quality); La. Rev. Stat. § 36:251 (Louisiana Department of

Health); La. Rev. Stat. § 36:301 (Louisiana Workforce Commission); La. Rev. Stat. § 36:351 (Department of Natural

Resources); La. Rev. Stat. § 36:401 (Department of Public Safety and Corrections); La. Rev. Stat. § 36:451

(Department of Revenue); La. Rev. Stat. § 36:471 (Department of Children and Family Services); La. Rev. Stat. §

36:501 (Department of Transportation and Development); La. Rev. Stat. § 36:601 (Department of Wildlife and

Fisheries); La. Rev. Sat. § 36:621 (Department of Agriculture and Forestry); La. Rev. Stat. § 36:641 (Department of

Education); La. Rev. Stat. § 36:681 (Department of Insurance); La. Rev. Stat. § 36:701 (Department of Justice); La.

Rev. Stat. § 36:721 (Department of Public Services); La. Rev. Stat. § 36:741 (Department of State); La. Rev. Stat. §

36:761 (Department of the Treasury); La. Rev. Stat. § 36:781 (Department of Veterans Affairs).

State of Louisiana is the real party in interest and is indistinguishable from its executive

departments.”8 Wright v. Moore, 380 So.2d 172, 173 (La. App. 1 Cir. 1973); Roberts v. Sewerage

& Water Bd. of New Orleans, 634 So. 2d 341, 350 (La. 1994) (Wright’s “conclusion was

undoubtedly correct”). The Fifth Circuit has likewise acknowledged:

In every recent case in which a Louisiana political entity has been held to be an

‘arm of the state,’ the state agency [or office] being sued was part of a department

within the executive branch.

Vogt v. Bd. of Comm'rs of Orleans Levee Dist., 294 F.3d 684, 692 (5th Cir. 2002) (entity classified

as “political subdivision,” which was not part of any executive department, was not an arm of the

state); compare Earles v. State Board of Certified Public Accountants of Louisiana, 139 F.3d 1033,

1039 (5th Cir. 1998) (State Board of Certified Public Accountants, an agency within the

Department of Economic Development, was an arm of the state); Delahoussaye v. City of New

Iberia, 937 F.2d 144, 147-48 (5th Cir. 1991) (University of Southwestern Louisiana, which was

governed by the State College and University System, an agency within the Department of

Education, was an arm of the state); Neuwirth v. Louisiana State Board of Dentistry, 845 F.2d 553,

556 (5th Cir. 1988) (Board of Dentistry, an agency within the Department of Health and Human

Resources, was an arm of the state); Darlak v. Bobear, 814 F.2d 1055, 1059 (5th Cir. 1987)

(Charity Hospital of New Orleans, which was governed by the Department of Health and Human

Resources, was an arm of the state); Voisin's Oyster House v. Guidry, 799 F.2d 183, 186 (5th Cir.

1986) (Wildlife and Fisheries Commission, which is part of the Department of Wildlife and

Fisheries, was an arm of the state). The Fifth Circuit has even suggested, albeit in dicta, “that all

8 Both the DNR and its Office of Conservation were created by statute. See La. Rev. Stat. § 36:4 (DNR is executive

department); La Rev. Stat. § 36:351 (creating DNR); La. Rev. Stat. § 36:358(C) (Office of Conservation is part of

DNR); La. Rev. Stat. § 30:1 (creating Office of Conservation). The Louisiana Supreme Court has held “[i]f the office

is created by the legislature, or is established in the first instance by the constitution, it is a state office.” Mullins v.

Louisiana, 387 So.2d 1151, 1152 (La.1980). Based on this pronouncement, federal courts have viewed legislatively

created agencies and departments, like DNR, “as part of the state.” Voisin's Oyster House, Inc. v. Guidry, 799 F.2d

183, 186 (5th Cir. 1986).

Louisiana executive departments have Eleventh Amendment immunity.” Champagne v. Jefferson

Parish Sheriff's Office, 188 F.3d 312, 313 (5th Cir. 1999); see also SkyRunner, LLC v. Louisiana

Motor Vehicle Comm'n, 2019 WL 5681537, at *3 (W.D. La. Oct. 31, 2019) (“The Fifth Circuit

has routinely held that a department within the executive branch qualifies as an arm of the state.”).

Therefore, DNR’s status as an executive department weighs heavily in favor of finding both it and

its Office of Conservation are alter egos of the State of Louisiana.

But perhaps most important, several state and federal courts, including this one, have

specifically found the DNR, or an office within the DNR, to be an arm or alter ego of the State.

See Deumite v. State, 692 So.2d 1127, 1140 (La. App. 1 Cir. 1997) (“As far as status is concerned,

DNR is [] the alter ego of the state. . . . The DFW and the DNR are coterminous departments within

the executive branch . . . they are state agencies as contrasted with political subdivisions of the

State.”); see also La. Rev. Stat. § 36:359 (State Mineral Board is part of the Department of Natural

Resources); Louisiana Land & Expl. Co. v. State Mineral Bd., 229 F.2d 5, 8 (5th Cir. 1956) (“We,

therefore, are of the opinion that this suit against the State Mineral Board, a mere agency or arm

of the State, is in effect, a suit against the State . . . under the Eleventh Amendment . . . .”); Tardan

v. Chevron Oil Co., 463 F.2d 651, 653 (5th Cir. 1972) (“This Court is unwilling to accept the

notion that the State Mineral Board is a separate body from the State.”); Dunhill Res. I, L.L.C. v.

Louisiana ex rel. Louisiana State Mineral Bd., 298 F. Supp. 2d 404, 412–13 (M.D. La. 2003) (State

Mineral Board is arm of the state).

Federal district courts have also consistently remanded cases against the DNR, or one of

its offices, for lack of subject matter jurisdiction — because the case was either barred by the 11th

Amendment or complete diversity did not exist. See Meyer v. Callon Petroleum Oil Co., 1995 WL

222179, at *1 (E.D. La. Apr. 10, 1995) (allowing plaintiff to add Louisiana Department of Natural

Resources as a defendant required remand; under 11th Amendment, court lacked jurisdiction to

hear damages claim against Louisiana Department of Natural Resources); Crimson Expl.

Operating, Inc. v. State Mineral Bd. for Louisiana, 2009 WL 10679384, at *3 (M.D. La. Oct. 2,

2009) (“It is also apparent that the plaintiff asserted its federal and state law claims against the

State and State entities” — specifically, the Louisiana Department of Natural Resources and the

State Mineral Board. “These allegations plainly trigger the Eleventh Amendment bar to this court's

exercise of federal jurisdiction.”); Broussard v. BP America Production Co., 2008 WL 114222671,

at *1 (W.D. La. Sept. 8, 2008) (“[I]t is clear that granting plaintiffs' motion to amend” to add the

Louisiana Department of Environmental Quality and the Louisiana Department of Natural

Resources as defendants “would destroy diversity. A state is not a ‘citizen’ within the meaning of

the diversity statute.”). The consistent treatment of the DNR, including its offices, as an alter ego

or arm of the State convinces this Court that the Department of Natural Resources, Office of

Conservation is an alter ego of the State of Louisiana. Therefore, the Plaintiff’s lack of citizenship

precludes diversity jurisdiction under 28 U.S.C. § 1332(a). Nonetheless, we will briefly consider

the remaining factors.

Source of Funding. In its Reply Memorandum, the State makes clear that the Department

of Natural Resources, including its Office of Conservation, is largely funded by the State General

Fund. (No. 19-640, R. Doc. 26 at 10) (“[T]he Office of Conservation is funded through the State’s

General Fund.” (citing State Budget FY2018-2019 at 121-22 (funding DNR and the offices within

it, including Office of Conservation)).9 The Louisiana Constitution also provides that judgments

against state agencies will be paid only from “funds appropriated” for that purpose by the state

legislature. La. Const. art. XII, § 10(C); see also Voisin's Oyster House, Inc. v. Guidry, 799 F.2d

9 Available at: https://www.doa.la.gov/opb/pub/FY19/StateBudgetFY19_revised.pdf.

183, 187 (5th Cir. 1986) (fact that any judgment against executive department and its commission

would be paid by state weighed in favor of department being arm of the state). This factor also

weighs in DNR’s favor.

Degree of Local Autonomy. This factor concerns an “entity’s degree of authority

independent from the state.” Voisin’s Oyster House, Inc. v. Guidry, 799 F.2d 183, 187 (5th Cir.

1986). Here, the secretary of the DNR is under the control and supervision of the Governor. See

La. Rev. Stat. § 36:353 (“There shall be a secretary of natural resources, who shall be appointed

by the governor with consent of the Senate and who shall serve at the pleasure of the governor at

a salary fixed by the governor . . . the secretary shall perform his functions under the general

control and supervision of the governor.”). And the governor exercises similar control over the

commissioner of conservation. See La. Rev. Stat. § 30:19(A)-(B) (“a commissioner of

conservation [] shall be appointed by the governor, with the consent of the Senate . . . . the salary

of the commissioner of conservation shall be fixed by the governor.”). This lack of local autonomy

also weighs in favor of the Department of Natural Resources, including its Office of Conservation,

being considered an alter ego of the State of Louisiana. See Darlak v. Bobear, 814 F.2d 1055, 1059

(5th Cir. 1987) (“The third factor in our analysis, the degree of local autonomy that the agency

enjoys, also points to a finding of immunity on the part of both DHHR and Charity. The Secretary

of DHHR is under the control and supervision of the governor, and serves at the pleasure of the

governor.”); Voisin's Oyster House, Inc. v. Guidry, 799 F.2d 183, 187 (5th Cir. 1986) (“The

Department is headed by a secretary who functions under the control and supervision of the

governor and serves at the governor's pleasure. This indicates a lack of independence . . . . Members

of the Commission are appointed by the governor and are confirmed by the state senate . . . .

Considering the relationship between the Department and the Commission, this factor does not

point away from Eleventh Amendment immunity as to the Commission.”).

Degree of Local Concern. The DNR, and specifically its Office of Conservation, are

concerned with statewide functions and preempt local authority. See La. Rev. Stat. § 36:351 (“The

Department of Natural Resources, through its offices and officers,” including the Office of

Conservation, “shall be responsible for the conservation, management, and development of water,

minerals, and other such natural resources of the state, including coastal management, except

timber and fish and wildlife and their habitats.”); La. Rev. Stat. 36:358(C) (“The office of

conservation . . . shall exercise the functions of the state with respect to the regulation,

conservation, and use of the natural resources of the state.”); St. Tammany Par. Gov't v. Welsh,

199 So. 3d 3, 8 (La. App. 1 Cir. 2016) (“The Commissioner [of Conservation’s] power is an

exercise of the State's police powers” and preempts local efforts to regulate oil and gas.). This

factor also weighs in DNR’s favor.

Considering all of the factors listed above, combined with the numerous cases recognizing

the DNR, or one of its offices, as part of the state, it is clear that the Department of Natural

Resources, Office of Conservation is the alter ego of the State of Louisiana. The State is therefore

the real party in interest. And because the State of Louisiana is not a “citizen” for purposes of

diversity jurisdiction, this Court cannot exercise subject matter jurisdiction pursuant to 28 U.S.C.

§ 1332(a).

The Court will now turn to the second basis for jurisdiction alleged by Defendants,

bankruptcy jurisdiction under 28 U.S.C. § 1334(b). As explained below, the Court will

permissively abstain from exercising bankruptcy jurisdiction, and this case will instead be

equitably remanded to the state court. See 28 U.S.C. § 1334(c)(1) (permissive abstention); 28

U.S.C. § 1452(b) (equitable remand). And because permissive abstention may be appropriate even

when an independent basis for federal jurisdiction exists, the Court notes that the ultimate result

— remand — would not change even if it agreed with Defendants’ assertion of diversity

jurisdiction. See In re Podnemny, 2010 WL 1795269, at *6-8 (Banr. D.N.M. May 3, 2010)

(permissibly abstaining under § 1334(c)(1), despite the presence of diversity jurisdiction); In re

Sun Healthcare Group, Inc., 267 B.R. 673, 678-79 (Bankr. D. Del. 2000) (permissibly abstaining

under § 1334(c)(1), despite independent basis for federal jurisdiction under 28 U.S.C. § 1332(a)).

C. Related to Bankruptcy

The bankruptcy jurisdiction statute provides that “the district courts shall have original and

exclusive jurisdiction of all cases under title 11,” 28 U.S.C. § 1334(a), also known as “core

proceedings.”10 Otherwise, in all “non-core proceedings,” the district courts shall have original but

10 The various Defendants do not argue that the State’s cause of action constitutes a ‘core’ proceeding and therefore

must remain in federal court. Instead, they suggest the bankruptcy court’s retention of jurisdiction in 2 of its orders

now “preclude[s] the State from objecting to federal jurisdiction related to these bonds.” (No. 19-640, R. Doc. 10 at

9) (citing Order at 3, In re Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Nov. 16, 2017), ECF No. 948 (retaining

“exclusive jurisdiction”)); (No. 19-614, R. Doc. 1 at 2-3) (citing Sale Order at 39, In re Northstar, No. 16-bk-34028

(Bankr. S.D. Tex. Aug. 2, 2017), ECF No. 792 (retaining “jurisdiction”)). But this argument misses the mark.

Bankruptcy courts often issue orders that include similar provisions retaining jurisdiction. See Unico

Holdings, Inc. v. Nutramax Prod., Inc., 264 B.R. 779, 785 (Bankr. S.D. Fla. 2001) (“It is extremely common for a

bankruptcy court to insert a clause . . . that reserves the jurisdiction of the bankruptcy court.” (collecting cases)). Even

still, an order “may not delegate unlimited authority to a bankruptcy judge” and those jurisdictional provisions are

“meaningful only to the extent that core jurisdiction is otherwise found.” Kalamazoo Realty Venture Ltd. Partnership

v. Blockbuster Entm't Corp., 249 B.R. 879, 886 (N.D. Ill. 2000). Here, there is no dispute that the State’s cause of

action is a non-core proceeding, rendering insignificant the Bankruptcy court’s retention of jurisdiction.

But most fatal to Defendants’ argument is that a bankruptcy court does not divest any other court of

concurrent jurisdiction, including state courts, when it retains jurisdiction over certain matters. See In re Brady, Texas,

Mun. Gas Corp., 936 F.2d 212, 219 (5th Cir. 1991) (“[T]he plan stated that the bankruptcy court would retain

jurisdiction to resolve the controversy between Brady Gas and the appellants. However, the appellants have drawn an

erroneous legal conclusion from that fact. At most, this provision enabled the bankruptcy court to adjudicate the

dispute . . . even though the debtor's plan was already confirmed; it did not divest the state court of its concurrent

jurisdiction to resolve that dispute.”); In re Friede Goldman Halter, Inc., 602 B.R. 307, 312 (Bankr. M.D. La. 2019)

(“[A] bankruptcy court’s retention of jurisdiction over a specific dispute does not divest another court of concurrent

jurisdiction . . . . Therefore, the FGH plan’s retaining bankruptcy court jurisdiction . . . did not divest the state court

of jurisdiction . . . .”). And finally, “[j]urisdiction to interpret bankruptcy orders is not exclusive to federal courts.” In

re Friede Goldman Halter, Inc., 602 B.R. 307, 312 (Bankr. M.D. La. 2019). Therefore, nothing in the bankruptcy

court’s orders “preclude the State from objecting to federal jurisdiction” or otherwise mandate “federal jurisdiction,”

as Defendants suggest. (No. 19-640, R. Doc. 10 at 9).

not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to

cases under title 11.” 28 U.S.C. § 1334(b). Here, the State has sued non-debtor Defendants for

specific performance. “Under Louisiana's civil law system, specific performance is the preferred

remedy for” a state law claim for “breach of contract.” Charter Sch. of Pine Grove, Inc. v. St.

Helena Par. Sch. Bd., (La. 9 So. 3d 209, 222 (La. App. 1 Cir. 2009). Because the State’s cause of

action “do[es] not arise under federal bankruptcy law,” it “do[es] not constitute a ‘core’

proceeding” over which the district court would have exclusive jurisdiction. Adelsflugel v.

Consolidated Aluminium Corp., 2014 WL 4181002, at *1 (M.D. La. Aug. 19, 2014); see also In

re Wood, 825 F.2d 90, 97 (5th Cir. 1987) (“If the proceeding does not invoke a substantive right

created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a

core proceeding.”). At most, the State’s claims may be “related to” the Northstar bankruptcy

proceeding and would constitute a non-core proceeding. The State argues that the Court only had

‘related to’ jurisdiction over its claims against Sanare and NOV; and following their dismissal,

“there is no conceivable way . . . the current dispute could have any effect on the estate being

administered in bankruptcy.” (No. 19-614, R. Doc. 6-1 at 5). Under the circumstances, the State

suggests, abstention is appropriate pursuant to 28 U.S.C. § 1334(c) (allowing district court to

permissively abstain even where ‘related to’ jurisdiction exists).

“Congress has not specifically defined what constitutes ‘related to’ jurisdiction and,

therefore, a non-core proceeding. Adelsflugel, 2014 WL 4181002, at *1. In broadly defining

bankruptcy jurisdiction under § 1334(b), the Fifth Circuit has held that a proceeding is “related to”

bankruptcy, or non-core, where “the outcome . . . could conceivably have any effect on the estate

being administered in bankruptcy.” In re Wood, 825 F.2d 90, 93 (5th Cir. 1987); see also In re

Bass, 171 F.3d 1016, 1022 (5th Cir. 1999) (“For jurisdiction to attach, the anticipated outcome of

the action must both (1) alter the rights, obligations, and choices of action of the debtor, and (2)

have an effect on the administration of the estate.”).

Here, the Court will assume without deciding that the State’s cause of action is ‘related to’

the Northstar bankruptcy, thereby conferring jurisdiction under 28 U.S.C. § 1334(b). See

Adelsflugel, 2014 WL 4181002, at *2 (court “need not decide” whether related to jurisdiction

exists, where permissive abstention and equitable remand are otherwise appropriate). But even if

the Court agreed with Defendants’ contention that this case is “related to” the Northstar

bankruptcy, both permissive abstention, 28 U.S.C. § 1334(c), and equitable remand, 28 U.S.C. §

1452(b),11 apply here and support remand of the State’s cause of action.

D. Permissive Abstention and Equitable Remand

A federal district court may remand an action removed under 28 U.S.C. § 1452 “on any

equitable ground.” 28 U.S.C. § 1452(b). Similarly, a district court may permissively abstain from

hearing a proceeding “related to” a bankruptcy “in the interest of justice, or in the interest of comity

with State courts or respect for State law.” 28 U.S.C. § 1334(c)(1). “The factors that a district court

considers to determine whether it should permissively abstain also support equitable remand under

11 The Court notes that the State has not argued that equitable remand is appropriate. And while the State asserts

permissive abstention under 28 U.S.C. § 1334(c) in its Motions to Remand, it also confusingly argues that Pullman

abstention is likewise appropriate. (No. 19-614, R. Doc. 6-1 at 5-9) (arguing both permissive abstention and Pullman

abstention); (No. 19-640, R. Doc. 6-1 at 5, R. Doc. 26 at 16) (permissive abstention under § 1334(c)). Under Pullman,

“federal courts should abstain from decision when difficult and unsettled questions of state law must be resolved

before a substantial federal constitutional question can be decided.” Hawaii Housing Authority v. Midkiff, 467 U.S.

229, 236, (1984). There is clearly no ‘substantial federal constitutional question’ before this Court and Pullman is

wholly inapplicable. Nonetheless, the Court finds permissive abstention under § 1334(c) appropriate, as well as

equitable remand under § 1452(b). The fact that the State failed to argue equitable remand in their filings is of no

moment. This Court has previously recognized that both permissive abstention and equitable remand may be raised

by the Court sua sponte. See Vitter v. Johnson & Johnson, 2019 WL 2913983, at *3 n.6 (M.D. La. July 8, 2019); see

also Smith v. Wal-Mart Stores, Inc., 305 F. Supp. 2d 652, 658 n.9 (S.D. Miss. 2003) (“Although mandatory abstention

requires that a timely motion be made by a party, permissive or discretionary abstention under § 1334(c)(1) may be

raised by the court sua sponte, as may equitable remand under § 1452(b), which imposes no requirement of a motion

by a party.”). Moreover, the Court notes that Defendants have responded to the State’s assertion of permissive

abstention under 28 U.S.C. § 1334(c). (No. 19-640, R. Doc. 10 at 9, R. Doc. 13 at 15-18). And because the analysis is

identical for both permissive abstention and equitable remand, there is no prejudice in the Court’s decision to consider

equitable remand in addition to permissive abstention.

28 U.S.C. § 1452.” Orion Ref. Corp. v. Fluor Enterprises, Inc., 319 B.R. 480, 488–89 (E.D. La.

2004); see also Adelsflugel, 2014 WL 4181002, at *2 (“Courts have equated the factors for

equitable remand and permissive abstention.”); Borne v. New Orleans Health Care, Inc., 116 B.R.

487, 494 (E.D. La. 1990) (“[T]he considerations underlying discretionary abstention and remand

are the same.”).

To decide whether equitable remand and permissive abstention are appropriate, the Court

considers the following factors:

(1) forum non conveniens; (2) a preference for a bifurcated action to be tried in the

same court; (3) whether the state court is better able to respond to questions

involving state law; (4) expertise of the court; (5) duplicative and uneconomic effort

of judicial resources; (6) prejudice to the involuntarily removed parties; (7) comity;

(8) a lessened possibility of an inconsistent result; (9) the presence in the proceeding

of nondebtor parties; (10) the absence of any basis for jurisdiction other than section

1334; (11) the predominance of state law issues; (12) the degree of relatedness of

the proceeding to the bankruptcy case; and (13) the likelihood of forum shopping.

Nase v. TECO Energy, Inc., 2010 WL 924290, at *4 (E.D. La. March 9, 2010). As this Court

recently explained, because the relevant statues “afford[] an unusually broad grant of authority,

any one of the relevant factors may provide a sufficient basis for equitable remand.” Vitter v.

Johnson & Johnson, 2019 WL 2913983, at *3 (M.D. La. July 8, 2019). Application of these factors

convince the Court that remand is warranted.

Here, the State’s cause of action arises entirely under state law. See Charter Sch. of Pine

Grove, Inc. v. St. Helena Par. Sch. Bd., (La. 9 So. 3d 209, 222 (La. App. 1 Cir. 2009) (“Under

Louisiana's civil law system, specific performance is the preferred remedy for” a state law claim

for “breach of contract.”). Moreover, the state court will be more familiar with DNR’s

responsibility for ensuring the plugging and abandoning of oil wells and its use of performance

bonds to guarantee those obligations. Indeed, the State’s requested relief supports the Court’s

decision to abstain and allow the state court to decide this case.

[T]he State prays that a judgment for specific performance issue in its favor

directing [the sureties] to either: (1) tender the amount of [$2.5 million]; or (2) plug

and abandon the outstanding wells on a schedule approved by the Commissioner in

accordance with the applicable Louisiana laws and regulations.

(No. 19-640, R. Doc. 1-1 at 9). The State court is undoubtably “better able to respond to [these]

questions involving state law” and the Department of Natural Resources, Office of Conservation’s

enforcement scheme. In re Friede Goldman Halter, Inc., 602 B.R. 307, 314-15 (Bankr. M.D. La.

2019) (“Permissive abstention and equitable remand both favor comity and the resolution of state

law questions by state courts.”). Permissive abstention and remand to the state court will also

“decrease the likelihood of inconsistent state law decisions.” Orion Refining Corp. v. Flour

Enterprises, Inc., 319 B.R. 480, 488 (E.D. La. 2004) (abstention appropriate under § 1334(c),

where plaintiff asserted only state law claims).

And as discussed above, there is no basis for federal jurisdiction other than the asserted

connection to the Northstar bankruptcy. See Vitter v. Johnson & Johnson, 2019 WL 2913983, at *

(M.D. La. July 8, 2019) (absence of another basis for federal jurisdiction weighs in favor or

abstention and remand); Adelsflugel, 2014 WL 4181002, at *4 (lack of independent basis for

federal jurisdiction favored remand and permissive abstention).

Moreover, “the degree of relatedness” between the State’s claims and the bankruptcy

proceeding do not appear strong. Vitter, 2019 WL 2913983, at *4 (considering degree of

relatedness). To begin, the oil wells covered by the bonds at issue were not made part of the

bankruptcy estate, nor were they included in the Sale Order transferring the majority of Northstar’s

assets to Sanar. See Disclosure Statement at 12, 23-24, In re Northstar, No. 16-bk-34028 (Bankr.

S.D. Tex. Nov. 22, 2017), ECF No. 983. Moreover, on December 22, 2017 — almost 2 years

before this suit was filed — the bankruptcy court confirmed Northstar’s Chapter 11 Plan of

Liquidation, Confirmation Order, In re Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Dec. 22,

2017), ECF Nos. 1078, 1092, which took effect on January 19, 2018. Accord In re WRT Energy

Corp., 402 B.R. 717, 724 (Bankr. W.D. La. 2007) (“[C]ourt's ‘related to’ jurisdiction is

considerably more limited once the court confirms a plan under Chapter 11.”). Beyond that, the

State’s lawsuit could arise “independent of a bankruptcy case” if Northstar had otherwise failed to

comply with its P&A Obligations. In re Sun Healthcare Grp., Inc., 267 B.R. 673, 678-79 (Bankr.

D. Del. 2000) (considering independence of claim in connection with relatedness).

Nonetheless, Lexon characterizes this suit as an effort by the State to “revive its right to

pursue Northstar through the subject bonds,” even though the State entered into an “unequivocal

release of all its claims and rights against Northstar” during the bankruptcy proceedings. (No. 19-

640, R. Doc. 10 at 9). While this might suggest a substantial degree of relatedness, and potentially

even a core proceeding, Lexon’s characterization is not supported by either the State’s Complaint,

which seeks no relief from Northstar, or the bankruptcy record.

On November 16, 2017, the bankruptcy court issued an Order excluding the Creole Wells

and Leases from the estate and relieving Northstar of its obligations to plug and abandon (P&A

Obligations) those wells. See In re Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Nov. 16, 2017),

ECF No. 948. In support of its motion requesting abandonment, Northstar suggested that:

[I]f the abandonment [of the Creole Wells and Leases] is denied, any non-

abandoned property will remain with the Debtor, who has no means to fund any

P&A Obligation . . . . [A]llowing abandonment is the only viable solution to ensure

that any P&A Obligations are met vis-a-vis [performance] bonds . . . .

Northstar’s Response at 7, In re Northstar, No. 16-bk-34028 (Bankr. S.D. Tex. Nov. 6, 2017),

ECF No. 920. The bankruptcy court agreed, relying on the State’s separate ability to call on the

performance bonds, which would “guarantee[] at least partial compliance with P&A Obligations,”

in granting Northstar’s requested relief. ECF No. 948 at 3. To be clear, the bankruptcy court

recognized the State’s rights under the performance bonds were separate and unimpaired by the

release of its rights against Northstar.12 So while the Court recognizes the relatedness of this case

to the bankruptcy proceedings, the two are not so related that this Court should retain jurisdiction,

as Lexon suggests.

The Court also notes that the debtor is not a party to this litigation, Adelsflugel, 2014 WL

4181002, at *3 (a consideration favoring remand), and finds no evidence that litigating the State’s

case in state court will have any “detrimental effect on the efficient administration of the

bankruptcy estate.” Orion Refining Corp., 319 B.R. at 489. Beyond that, nothing suggests this

action cannot be timely adjudicated by the state court following remand. See Adelsflugel, 2014

WL 4181002, at *3 (considering this and other factors which are relevant to mandatory abstention

under 28 U.S.C. § 1334(c)(2)).

Finally, the Court does not find any party will be prejudiced by remand to the 19th Judicial

District Court for the Parish of East Baton Rouge. Indeed, Lexon consented to jurisdiction in state

court when it executed the performance bond:

The surety consents and agrees that any legal action against it under this

Performance Bond may be brought in the 19th Judicial District Court for the Parish

of East Baton Rouge, State of Louisiana, hereby irrevocably submitting itself to the

jurisdiction and venue of such court.

(No. 19-640, R. Doc. 1-1 at 35).

And so, placing great emphasis on “comity and the resolution of state law questions by

state courts,” In re Friede Goldman Halter, Inc., 602 B.R. at 314-15, this Court recommends

abstaining from the exercise of bankruptcy jurisdiction over the State’s cause of action, 28 U.S.C.

§ 1334(c)(1), and equitably remanding this case to the state court, 28 U.S.C. § 1452(b).

12 Lexon also argues the State’s lawsuit may potentially result in “new claims against [Northstar]” in the bankruptcy

proceeding, suggesting a higher degree of relatedness. But the Court notes that Lexon’s Proof of Claim already

includes the performance bond at issue, see Proof of Claim No. 50, albeit any related litigation expenses remain

unspecified. (Lexon Proof of Claim No. 50, available at: https://cases.primeclerk.com/northstar/Home-ClaimInfo).

III. CONCLUSION

For the reasons given above, the Court RECOMMENDS that the State’s Motions to

Remand (No. 19-614, R. Doc. 6), (No. 19-640, R. Doc. 6) be GRANTED and the State’s cause of

action be REMANDED to the 19th Judicial District Court for the Parish of East Baton Rouge,

State of Louisiana.

Signed in Baton Rouge, Louisiana, on September 15, 2020.

S

SCOTT D. JOHNSON

UNITED STATES MAGISTRATE JUDGE