Securities and Exchange Commission v. The Heartland Group Ventures LLC et al. explains what a receiver under federal law has the right to do. Much like Nick Saban’s offense against a certain team, she can do just about anything she wants.
The SEC applied for appointment of a receiver for a group of Heartland companies. The entities’ assets included 403 oil and gas wells and 110 miles of gas gathering and transportation lines called the Palo Pinto Pipeline. The receiver sought an order from the court that she had no right, obligation or interest in the Palo Pinto Pipeline or, alternatively, for permission to abandon her interest in the pipeline. The Texas Railroad Commission objected, asserting that each operator of a pipeline system must obtain a permit from the Commission, to be renewed annually; Dodson Prairie, one of the receivership entities, did not possess a T-4 Permit to operate the pipeline; and the pipeline was not part of the receivership estate.
The receiver’s authority
Under federal law, a receiver in a civil action involving property has complete custody and control and right to take possession over such property. But upon taking possession, the receiver has the burden of managing and operating the property in accordance with state law.
A court imposing a federal equity receivership assumes jurisdiction over the property of the subject entity. Federal receivers must comply with state law and cannot abandon property if doing so would violate a state law reasonably calculated to protect public health or safety from immediate and identifiable harm. The party opposing abandonment, here the Railroad Commission, must prove that the property would create an imminent and identifiable harm to the public which would be aggravated by the abandonment (For example, burying five tons of pesticides in uncontrolled conditions).
The Railroad Commission argued that whether the receiver is an operator of the pipeline was not before the court because only the Commission had jurisdiction to make that decision. Thus, the issue for the court was to determine whether abandoning the pipeline would result in imminent and identifiable harm to the public.
No imminent harm
Assuming without deciding that the receiver had a legal obligation to operate the pipeline, in absence of evidence showing that abandonment would cause an imminent and identifiable harm to the public the magistrate recommended that court permit the receiver to abandon the pipeline.
The receiver argued that she was not liable for plugging the wells because the obligation arose months or even years before her appointment. Relying on a similar situation in the bankruptcy context the magistrate concluded that the receiver has an obligation to expend funds to bring the wells into compliance with state health and safety laws and the duty is not contingent upon when the obligation arose. Regardless of when the violations occurred, the receiver undertook ongoing obligations to comply with applicable state law related to health and safety and plug the wells once she became the operator.
The receiver offered evidence to support her position. Among other actions she emptied tanks to avoid potential spills, removed vegetation to mitigate fire hazards, and insured gathering line pressure was not an immediate environmental threat.
The magistrate concluded that while abandoning unplugged wells could create future environmental hazards, that fear does not present evidence of imminent harm to the public.
The receiver was allowed to abandon the wells and the pipeline.