Nova Mud, Inc. v. Staley

• Decision Date: 22 February 2019
• Docket Number: No. 08-17-00147-CV,08-17-00147-CV
• Citation: 583 S.W.3d 728
• Parties: NOVA MUD, INC., Appellant, v. Sandra H. STALEY, Individually, as Independent Executrix of the Estate of George G. Staley, Deceased, and as Trustee of the Tax Free Trust for Sandra H. Staley, Appellee.
• Court: Texas Court of Appeals

583 S.W.3d 728

NOVA MUD, INC., Appellant,

v.Sandra H. STALEY, Individually, as Independent Executrix of the Estate of George G. Staley, Deceased, and as Trustee of the Tax Free Trust for Sandra H. Staley, Appellee.

No. 08-17-00147-CV

Court of Appeals of Texas, El Paso.

February 22, 2019

ATTORNEY FOR APPELLEE: Hon. John A. ‘Jad’ Davis, Davis Gerald & Cremer PC, 400 W. Illinois, Suite 1400, P. O. Box 2796, Midland, TX 79702-2796.

ATTORNEY FOR APPELLANT: Hon. Stanley E. Crawford Jr., Johnston & Associates, P.C., 400 West Illinois, Suite 1600, Midland, TX 79702.

Before Rodriguez, J., Palafox, J., and Larsen, Senior Judge, Larsen, Senior Judge (Sitting by Assignment)

OPINION

YVONNE T. RODRIGUEZ, Justice

Nova Mud appeals the trial court’s judgment denying foreclosure on a purported materialman’s lien burdening an oil well (the A.G. Hill No. 1 Well) in which Sandra H. Staley, independently and as the executrix of her husband George Staley’s estate, held an interest. The trial court held that the lien perfected against the well and the underlying leasehold to secure unpaid bills related to drilling operations at the wellsite had been extinguished because Nova Mud and the well’s co-tenant, Heritage Standard Corporation (Heritage), settled claims for the unpaid bills in bankruptcy court.

In seven issues, Nova Mud contends that the trial court erred by failing to order foreclosure on the lien against the well, as the bankruptcy settlement extinguished the lien only as to Heritage’s well interest, not Staley’s. We disagree. The trial court’s refusal to order foreclosure was not erroneous. We will affirm.

BACKGROUND

Factual History

This appeal arises from a single trial in which a cluster of materialmen-plaintiffs alleged they performed work on a drilling project at the A.G. Hill No. 1 Well for which they were not paid.¹ Because the ownership of various well interests is partly at issue in this appeal, we will briefly recite the history of transfers.

Geologist George Staley, believing that A.G. Hill No. 1 Well located on a leasehold known as Section 6 would be a good prospect for oil and gas production if the well line could avoid a problematic area, approached the well’s working interest holder,² Heritage, about executing a possible farmout agreement³ before the leases governing the well expired for lack of drilling/production. Heritage, which owned 100 percent of the working interest, and believing expiration of the leases to be imminent, executed a farmout which assigned Staley a percentage of carried working interest⁴ in the leases once the well project was completed and productive. Per the farmout agreement, Staley’s interest was contingent, and Heritage would retain its 100 percent interest pending completion.

After Staley signed the farmout, Lakehills Production, Inc., was hired to oversee drilling operations. Lakehills, in turn, hired multiple subcontractors including Nova Mud to perform work on the project. Nova Mud performed work at the drill site on June 24, 2008 and July 17, 2008, and sent invoices totaling $262,448.41 to Lakehills. The invoices were never paid. Nova Mud perfected a lien against the property on December 29, 2008. The Mineral Property Lien Affidavit recorded in Winkler County identified Heritage Standard Corporation as the owner and operator of the Section 6 Leases and of the A.G. Hill No. 1 Well; stated that Nova Mud signed a contract with Lakehills Production, who was acting as contractor operator/agent for Heritage Standard Corporation, for certain services at the wellsite; and alleged a claim worth $262,448.41 against the leasehold interests owned by Heritage for non-payment.⁵

Meanwhile, a dispute arose among Heritage, Staley, and well investors. On June 2, 2009, after the well was completed, the well’s investors entered into a settlement agreement that finally allocated the working interest percentages in the subject property. As a result of this settlement, Staley received a 17.75 percent working interest. By the time of trial in this case, Staley would ultimately end up with 19.75 percent of the working interest as the result of subsequent assignments. The settlement agreement among the well’s interest-holders provided that Trius Energy would be responsible for paying the unpaid subcontractors. It is undisputed on this record that Trius did not pay those bills.

Procedural History

In July 2009, Nova Mud and others filed suit against Heritage, Staley, and others seeking foreclosure of its lien against the well. According to the original petition, Staley was included in the lawsuit because Staley was Heritage’s successor-in-interest, as he took his interest in the well while that interest was still subject to Nova Mud’s lien.

On September 14, 2010, Heritage—the well’s majority working interest holder—filed for bankruptcy. The state court severed Nova Mud’s claims against Heritage and allowed suit to continue against the remaining defendants in state court. However, when Nova Mud filed a proof of claim in bankruptcy court⁶ against Heritage, the state trial court stayed all proceedings in the foreclosure case pending resolution of Nova Mud’s claims in the bankruptcy court. It is undisputed that Nova Mud’s proof of claim in the bankruptcy proceeding for $262,448.41 plus prepetition interest and attorney’s fees was based off its unpaid invoices worth $262,448.41 from the well project.

On August 18, 2015, after prolonged bankruptcy litigation,⁷ Nova Mud and Heritage entered into a series of stipulations settling claims before the bankruptcy court, which the bankruptcy court approved on October 1, 2015. In Paragraph 4, Section A of the stipulations, Heritage acknowledged that it owed Nova Mud $292,073.71 (the Stipulated Amount), which represented the invoiced amount ($262,448.41) plus 50 percent of the prepetition interest and attorney’s fees that Nova Mud sought. Section B of the same paragraph specified that a portion of the Stipulated Amount ($58,648.41) "shall be an Allowed Section 6 M &M Secured Claim in Class 3A ... for properly and timely perfected mineral contractor liens ..."⁸ Section D stated that to the extent "the value of the Section 6 Assets is greater than the total amount of all Allowed Class 3A Secured Claims," interest would accrue on Nova Mud’s Allowed Class 3A Secured Claim until such claim is satisfied in full, but Section E stated that if the value of the Section 6 Assets was less than the total amount of all Allowed Class 3A Secured Claims, Nova Mud would not be entitled to post-petition interest, attorney’s fees, and expenses, but it could pursue prepetition deficiencies as an Allowed Class 5 General Unsecured Claim. The remaining $233,425.36 would be treated as an Allowed Class 5 General Unsecured Claim.

Paragraph 5 of the settlement agreement dealing with releases reads:

Upon approval of this Stipulation, the parties agree that, other than the continued indebtedness of the Stipulated Amount under the terms of this Stipulation, Heritage and the Trustee on the one hand, and Nova Mud on the other, release each other and their respective counsel, agents, subsidiaries, and affiliates from all claims, causes of action, rights, demands, actions, costs, judgments, expenses, damages and liabilities whatsoever, at law or in equity, whether known or unknown, that arise out of or relate to the facts and circumstances made the basis of the Nova Mud Proofs of Claim, or that were or could have been asserted in the Nova Mud Proofs of Claim and the Trustee’s objection thereto. In that regard, Nova Mud acknowledges and agrees that its recovery hereunder shall be in full and final satisfaction of its putative claims and liens against any interests of Heritage and/or the Trust in Section 6 Assets, and they shall not assert or enforce any claims and liens against any such interests, including, without limitation, any interest currently attributed to Trius in Section 6 Assets and/or recovered by the Trust through enforcement of claims against Trius in Section 6 Assets. This release is not intended to release any claims or liens owned or held by Nova Mud against George Staley, J.R. Operating Company, Dennis Rosini and their successors and assigns.

On November 10, 2015, George Staley died. His executrix filed an original answer on June 1, 2016, denying all claims.

Following the bankruptcy settlement, the bankruptcy stay was lifted, and state court proceedings resumed. A bench trial in Winkler County on Nova Mud’s foreclosure action commenced on March 28, 2017. By the time of trial, Nova Mud had non-suited all defendants except Staley. The trial lasted less than a day and was decided largely based on a series of agreed stipulations filed by both sides and the bankruptcy settlement Nova Mud signed with Heritage. Per the agreed stipulations, Nova Mud had received $26,561.41 in payment from Heritage as of the date of trial.

The trial court found in favor of Staley. In its findings of fact, the trial court recognized the stipulations and stated that there was no debt owed to the plaintiffs on the invoices. In its conclusions of law, the trial court stated that no debt was owed on the invoices, the lien claimed by Nova Mud had been extinguished, and that because the lien was extinguished, Nova Mud could not prevail on the claims it asserted against Staley. This appeal followed.

DISCUSSION

Nova Mud raises seven issues on appeal. In Issues One and Two, Nova Mud argues that the trial court’s denial of its request for foreclosure was unsupported by legally or factually sufficient evidence. Nova Mud then weaves its next three issues together, arguing that the trial court erred by finding the debt did not exist (Issue Three) because the trial court erroneously concluded that the bankruptcy settlement with Heritage released the lien against the well (Issue Four) and thus wrongfully determined that Nova Mud could not foreclose on the well (Issue Five). Because the trial court failed to order foreclosure, the trial court...