Endeavor Energy Resources, L.P. v. Heritage Consolidated, LLC

Summarized by Bryan Robinson , Law Offices of Bryan Robinson
11 years 5 months ago

Citation:

Endeavor Energy Resources, L.P. v. Heritage Consolidated, LLC., 5th Cir. Court of Appeals, No. 13-10969, September 16, 2014

Tag(s):

Ruling:

The 5th Circuit Court of Appeals affirmed the 5th Circuit District Court’s dismissal of Drillers’ constructive trust and equitable lien claims. The 5th Circuit Court of Appeals reversed and remanded the district court’s grant of summary judgment on Drillers’ mineral subcontractors’ lien claims because Drillers submitted sufficient evidence to survive summary judgment.

Procedural context:

Debtors filed for Chapter 11 bankruptcy. Drillers filed proofs of claim in their bankruptcies asserting secured lien claims. Drillers also filed a complaint seeking a determination of the validity, extent, and priority of their mineral liens. The bankruptcy court entered judgment against the Drillers on all claims. The bankruptcy court granted summary judgment to Debtors on Drillers’ mineral contractors’ and subcontractors’ lien claims, and granted Debtors’ motion to dismiss Drillers’ additional claims for a constructive trust and equitable lien asserted in their amended complaint. The district court affirmed, and Drillers appealed.

Facts:

Heritage Standard Corporation (HSC) owned mineral property leases for a nonfunctioning oil well in Winkler County, Texas. This well was governed by a series of contractual arrangements. Because these contracts bear on Drillers’ ability to recover on their claims, we will briefly outline them here. In January 2008, HSC entered into a farmout agreement (Staley Agreement) with George Staley to develop the well. Staley then entered into an assignment contract (Lakehills Agreement) with Lake Hills Productions, Inc. (Lakehills) to perform the work. Staley, HSC, and Lakehills, along with well operator Stratco Operating Co., Inc. (Stratco) subsequently signed a Joint Operating Agreement (JOA) to develop the well. The JOA was made effective as of January 2008, and the parties all signed it between April and June of 2008. Lakehills sold and assigned its interests in the well to Trius Energy, LLC (Trius) in February 2008, and Trius was added to the JOA in September 2008. HSC was responsible for 12.5% of the well expenditures, and Trius was responsible for the remaining 87.5% of the expenditures. In July 2008, Lakehills replaced Stratco as the official well operator. Under this new arrangement, Lakehills was responsible for ensuring that necessary work was done on the well, and Trius and HSC were to make payments for this work to Lakehills. In May, June, and July of 2008, Lakehills contracted with Drillers, who then performed work on the well during that same time period. This arrangement apparently took a downward turn in the late summer of 2008. Both Trius and HSC stopped making payments to Lakehills. Lakehills then failed to pay Drillers for their work, and Drillers filed mineral liens against HSC to recover the money they were owed. Drillers’ liens were filed within the six month period required by the Texas statute, and HSC received notice as required under the statute for a subcontractor’s lien. See Tex. Prop. Code Ann. § 56.001–3, 0.21. After Drillers filed their liens, HSC assigned its interest in the well to Heritage Consolidated. Several of the other parties to these agreements subsequently defaulted on their contract obligations. As a result, HSC, Heritage Consolidated, Trius, Stratco, Lakehills, and Staley negotiated a settlement agreement (Settlement Agreement) in May 2009. Under the Settlement Agreement, Lakehills received a 1% interest in the well as consideration for releasing its operator liens against HSC and Heritage Consolidated (collectively, Debtors). The Settlement Agreement also stipulated that Trius was obligated to satisfy Drillers’ liens and to indemnify all other signees against claims arising from those liens. In consideration for Trius’s agreement to discharge the liens, Debtors forgave Trius’s 87.5% share of the working expenses incurred by Debtors after Debtors took over well operations in November 2008. Even after this settlement, no one paid Drillers for their services. Debtors filed for Chapter 11 bankruptcy. Drillers filed proofs of claim in Drillers filed proofs of claim in their bankruptcies asserting secured lien claim. Drillers also filed an amended complaint seeking a determination of the validity, extent, and priority of their mineral liens. The bankruptcy court entered judgment against the Drillers on all claims. The bankruptcy court granted summary judgment to Debtors on Drillers’ mineral contractors’ and subcontractors’ lien claims, and granted Debtors’ motion to dismiss Drillers’ additional claims for a constructive trust and equitable lien asserted in their amended complaint.

Judge(s):

STEWART, Chief Judge, and HIGGINBOTHAM and ELROD, Circuit Judges Opinion Authored by JENNIFER WALKER ELROD, Circuit Judge:

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