In re Jack/Wade Drilling, Inc., Bankruptcy No. 95-50469

• Decision Date: 15 July 1997
• Docket Number: Adversary No. 96-5016.,Bankruptcy No. 95-50469
• Citation: 213 BR 493
• Parties: In re JACK/WADE DRILLING, INC., Debtor. Paul N. DeBAILLON, Trustee, v. Jack WILSON, et al., Defendants.
• Court: U.S. Bankruptcy Court — Western District of Louisiana

213 B.R. 493 (1997)

In re JACK/WADE DRILLING, INC., Debtor Paul N. DeBAILLON, Trustee, v. Jack WILSON, et al., Defendants.

Bankruptcy No. 95-50469, Adversary No. 96-5016.

United States Bankruptcy Court, W.D. Louisiana, Lafayette-Opelousas Division.

July 15, 1997.

Paul DeBaillon, Lafayette, LA, trustee.

Marilyn Castle, Lafayette, LA, for Jack Wilson.

Stewart Peck, New Orleans, LA, for Baker Hughes.

REASONS FOR DECISION

GERALD H. SCHIFF, Bankruptcy Judge.

Jack/Wade Drilling, Inc. ("Jack Wade") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on April 27, 1995. Paul N. DeBaillon ("Trustee") is the duly appointed, qualified and acting chapter 7 trustee. Assets of the estate, consisting of drilling rigs and related equipment were sold at public auction on October 31, 1995. Pursuant to order of this court dated August 31, 1995, the sale of the assets was free and clear of liens and encumbrances, with liens and encumbrances attaching to the proceeds of the sale of such assets. The sales proceeds totalled $1,639,117.75, with the proceeds attributable to each individual rig broken down as follows:

                       Rig No. 1          $223,508.83
                       Rig No. 2          $263,536.83
                       Rig No. 3          $182,447.83
                       Rig No. 4          $224,275.83
                       Rig No. 5          $318,972.70
                       Rig No. 6          $426,375.73
                

Numerous parties have filed secured claims asserting either conventional mortgages or liens pursuant to the Louisiana Oil & Gas Lien Statute, LSA-R.S. 9:4861, et seq.

The Trustee commenced this adversary proceeding seeking a determination of the priority, validity, extent and ranking of liens, as well as for equitable subordination of the lien of Jack Wilson ("Wilson"). In addition to Wilson, the following parties are named as defendants: Timco Services, Inc., Ambar, Inc., Baker Hughes Oilfield Operations, Inc. ("Baker Hughes"), Dia-Log Company, Specialty Rental Tools, Inc. ("Specialty"), TIW Corporation, Halliburton, Eagle Pipe & Supply, Inc., Garber Industries, Inc., Houston Engineers, Inc., Wilson Industries, Inc., Duke Transportation, Inc., Duke Oil Company, Inc., James R. Savoie-Sheriff, Southern Mud and Equipment, Inc., Kenneth Hebert d/b/a Ken's Oilfield & Engine Repair, and Rig Monitoring Systems, Inc.

The trustee seeks relief in the form of a judgment, finding and fixing the existence, extent and priority of the security interests of the defendants against the proceeds of the assets sold. The Trustee also seeks to subordinate the security interest of Wilson under the principles of equitable subordination.

Three matters are presently before the court:

1-Motion for Partial Summary Judgment by Baker Hughes Oilfield Operations Inc 2-Motion for Summary Judgment by Specialty. 3-Objections to Liens filed by Wilson wherein the validity of numerous liens¹ is challenged.

A hearing on these matters was held on April 25, 1997. After hearing argument from counsel, the court took all three matters under advisement.

The following is a summary of the arguments made in each motion or objection. As many of the issues raised by each motion or objection overlap, the court will address the issues separately.

(1) Baker Hughes Motion for Partial Summary Judgment

Baker Hughes filed a Motion for Partial Summary Judgment seeking a judgment that its lien pursuant to LSA-R.S. 9:4861 is valid and enforceable and outranks the alleged security interest of Wilson. Baker Hughes takes the position that its lien outranks Wilson's UCC security interest based upon LSA-R.S. 9:4862(A)(2), which provides that in order for a UCC financing statement to prime a valid lien claim, the UCC statement must be filed prior to the first date that materials and services were furnished. In the present case, there is no dispute that the first labor and services were performed in July 1994 on Rig # 2 (Exhibit "V" to Baker Hughes Motion) and in August 1994 on Rig # 6 (Exhibit "I" to Baker Hughes Motion), which dates were prior to the filing of Wilson's UCC financing statements on January 6 and 24, 1995, respectively (Exhibit "D" to Baker Hughes Motion)

Further, if the Baker Hughes' lien is valid, it becomes effective on the date on which the first labor and services were performed. United States v. DuPriest, 305 F.Supp. 714, 716 (W.D.La.1969). A valid Baker Hughes lien on Rigs # 2, # 5, and # 6, will prime the UCC security interest of Wilson on those rigs. Thus, the issue is the validity of the Baker Hughes lien.

Wilson opposes the Motion for Partial Summary Judgment alleging that Baker Hughes does not have a valid lien on either Rig # 2 and Rig # 6, or in the alternative, if Baker Hughes does have a valid lien, such lien does not outrank Wilson's UCC security interest. Wilson's argument is based upon the fact that the Baker Hughes' liens on Rigs # 2 and # 6 were filed after the rigs were removed from the well site. Wilson contends that under Louisiana law the liens only affect property located at the well site when the lien is filed.

(a) Rig # 2

Wilson claims that Rig # 2 was moved from the Henry No. 3 Well site on November 21, 1994. As evidence of this fact, Wilson attaches his own affidavit stating that Rig # 2 was removed from the Henry No. 3 Well site on November 21, 1994, and transported to an abandoned location off the Henry No. 3 Well site but still on the leased property. Baker Hughes' liens were recorded on April 19 and 20, 1995 (one of the liens filed on April 20 was amended on April 26, 1995) (Exhibits "E", "H", "Q", "U", and "N" to Baker Hughes Motion). Baker Hughes claims that Rig # 2 was removed from the Henry No. 3 Well site on April 20, 1995. In support of its position that Rig # 2 was moved on April 20, 1995, Baker Hughes attaches the affidavit of Justin Duke, the president of Duke Transportation, Inc., who was hired to move Rig # 2. Mr. Duke's affidavit states that Rig # 2 was moved from the Henry No. 3 Well site on April 20, 1995. Thus, there appears no dispute that Rig # 2 was moved off the actual well site on November 21, 1994, but remained on the leased property until April 20, 1995.

(b) Rig # 6

Wilson asserts that Rig # 6 was moved from the Hebert No. 1 Well site on January 21, 1995. The liens of Baker Hughes were filed on April 20, 1995 (Exhibits "E", "H", "Q", "U", and "N" to Baker Hughes Motion). Baker Hughes does not dispute that Rig # 6 was moved from the site on January 21, 1995. However, Baker Hughes argues that Louisiana law provides that all equipment used in the drilling or operation of the well is subject to the liens irrespective of whether the equipment was located upon the lease at the time the liens were filed.

(c) Rig # 5

Baker Hughes also asserts a lien on Rig # 5. No opposition was filed to challenge the validity of this lien.

(2) Specialty Motion for Summary Judgment

Specialty filed a Motion for Summary Judgment contesting the liens of Francis Drilling Fluids, Ltd. ("Francis"), Garber Industries and their subsidiaries, Laydown Service, Inc., Offshore Casing Crews, Inc., and Offshore Hammers, Inc. ("Garber"), Houston Engineers, Inc. ("Houston"), Kenneth Hebert, d/b/a Ken's Oilfield and Engine Repair ("Hebert"), Rig Monitoring Systems, Inc. ("Rig Monitoring"), Baker Hughes, The Dia-Log Company and/or Dilo, Inc. ("Dia-Log"), Ambar, Inc. ("Ambar"), and Halliburton Company ("Halliburton").

Specialty disputes the liens of the various parties based upon three arguments, namely:

(1) that such liens are invalid as each was filed after the rigs were moved from the site;

(2) that such liens were not timely filed within 180 days of the last date of the delivery of labor, services, or materials as required by LSA-R.S. 9:4862; and/or

(3) that suits were not instituted within 1 year after the liens were filed as required by LSA-R.S. 9:4865.

First, as to the third argument, the parties have agreed that the imposition of the automatic stay under 11 U.S.C. § 362, as well as the filing of this adversary by the Trustee cures the failure of certain parties to timely institute suit within 1 year after the lien is filed. The liens of Dia-Log, Ambar and Halliburton have been disputed by Specialty only on this basis. Thus, as to these parties, the Motion for Summary Judgment filed by Specialty is denied.

The liens of the remaining parties named by Specialty are disputed based upon the other two grounds and will be addressed below.

(3) Wilson's Objection to Liens

Wilson has filed an Objection to Liens challenging the liens of Baker Hughes, Duke Transportation, Inc. ("Duke"), Southern Mud & Equipment, Inc. ("Southern Mud"), Hebert, Francis, Garber, Wilson Industries, Inc. ("Wilson Industries"), Houston, Dia-Log, Ambar and Specialty. Wilson asserts three arguments for challenging these claims:

(1) such liens are invalid as each was filed after the rig was moved from the well site;

(2) such liens were not timely filed within 180 days of the last date of the delivery of labor, services, or materials as required by LSA-R.S. 9:4862; and/or

(3) the claimants executed lien waivers and therefore waived their rights under the Louisiana Oil & Gas Lien Act, LSA-R.S. 9:4861, et seq. ("Act")

LAW AND ANALYSIS

(A) LIENS FILED AFTER REMOVAL OF THE RIG FROM THE WELL SITE

The validity of several of the liens is disputed on the basis that each was filed after the rig was removed from the well site. Obviously, the provisions of the Act are applicable to the issues in the present case. However, as each lien at issue arose and was recorded prior to the 1995 Amendment of LSA-R.S. 9:4861, the present form of the statute is not applicable. The court must look to the pre-1995 version of the statute.

Apparently no Louisiana court has decided the specific issue presented in the instant case under LSA-R.S. 9:4861 prior to the 1995 amendments. Although the parties reference two cases as having addressed this discreet issue, namely Ogden Oil Company, Inc. v. Venture Oil Corp., 490...