Haber Oil Co., Inc., Matter of
| Decision Date | 12 January 1994 |
| Docket Number | Nos. 92-1481,92-9067,s. 92-1481 |
| Citation | 12 F.3d 426 |
| Parties | Bankr. L. Rep. P 75,667 In the Matter of HABER OIL CO., INC., Debtor. HABER OIL CO., INC., Appellant, v. David D. SWINEHART, Appellee. In the Matter of HABER OIL COMPANY, INC., and Jay D. Haber, Debtors. HABER OIL COMPANY, INC., Appellant, v. David SWINEHART, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David P. Benjamin, Joseph C. Elliott, Plunkett, Gibson & Allen, San Antonio, TX, for appellant, debtor.
William E. Schweinle, Jr., Ellison, Schweinle, Parish & Beerbower, Houston, TX, for appellee.
Appeals from the United States District Court for the Northern District of Texas.
Before KING and BARKSDALE, Circuit Judges, and DUPLANTIER *, District Judge.
Just as medieval alchemists bent all their energies to discovering a formula that would transmute dross into gold, so too do modern creditors' lawyers spend prodigious amounts of time and effort seeking to convert their clients' general, unsecured claims against a bankrupt debtor into something more substantial. The creditor's lawyer in this case achieved success in this regard that can only be described as phenomenal, transforming the lead of a breach of contract claim into the gold of a constructive trust and, in turn, into the platinum of cash when it turned out that the real property on which the trust was belatedly to be imposed had been sold. Under our Bankruptcy Code, such sorcery demands the highest attention to the requirements of pleading and proof by its practitioner. Because those requirements were not met, we are required to REVERSE in part the decision of the court below.
The appellant in this case is the bankrupt debtor, Haber Oil, Inc. ("Haber Oil"), a corporation that was involved in the acquisition, promotion, and development of oil and gas leases. The appellee is one of Haber Oil's creditors, petroleum geologist David Swinehart.
Swinehart and Haber Oil entered into a series of four contracts, under the terms of which Swinehart agreed to locate, evaluate, and recommend oil and gas drilling prospects to Haber Oil. The dispute in this case concerns only the third and fourth contracts. The third contract, dated July 9, 1982, expressly superseded the prior contract and provided that Swinehart would receive, as compensation for his services, a monthly retainer of $8000 (subject to reduction for production revenues received by Swinehart) and 50% of Haber Oil's carried working interest or other retained revenue interest. The third contract was to expire on December 31, 1983. Before the expiration of the third contract, however, Swinehart and Haber Oil entered into the fourth contract, dated November 21, 1983. The fourth contract, which did not expressly supersede the third contract, provided that it would go into effect on December 1, 1983, and would expire on June 30, 1984. Under the fourth contract, Swinehart was entitled to receive a monthly retainer of $6000 (subject to reduction for production revenues received by Swinehart) and some office and car expenses. Additionally, Swinehart was entitled to a 6% working interest in wells drilled by Haber Oil on prospects reviewed and recommended by Swinehart, and 25% of other interests retained by Haber Oil in prospects without drilled or completed wells.
It appears that Haber Oil's drilling program was largely unsuccessful during much of the period the third contract was in effect. While the third contract was in effect, and before the parties executed the fourth contract, Swinehart reviewed and recommended to Haber Oil six prospects, namely the West Mohat, Cooks Lake, Rosenberg, Deep Bayou, Northwest Englehart, and Black Jack Creek East prospects ("the disputed properties"). Drilling on the disputed properties did not begin until after the effective date of the fourth contract, and significant amounts of oil and gas were eventually discovered on some of the disputed properties. No attempt to drill was ever made on the Black Jack Creek East prospect.
The relationship between Swinehart and Haber Oil grew ever more strained, and a dispute arose between Swinehart and Haber Oil regarding the ownership interest due Swinehart. Finally, in the spring of 1984, Haber Oil sent Swinehart a notice that it was terminating their contractual relationship. Swinehart, in turn, filed a lawsuit against Haber Oil and its president, Jay Haber, in August 1984 in Texas state district court ("the state lawsuit"). In the state lawsuit, Swinehart sought, among other things, a constructive trust to be imposed on certain properties based on breach of a confidential relationship between Swinehart and Haber Oil, an accounting, and compensatory and punitive damages. It appears that purchasers of the minerals produced from the disputed properties paid funds into the state court's registry during the pendency of the state lawsuit, awaiting the eventual determination of ownership. This litigation was still pending when Haber Oil filed for protection under Chapter 11 of the United States Bankruptcy Code on March 2, 1987.
After Haber Oil filed for bankruptcy, Swinehart filed a proof of claim in the bankruptcy court seeking damages in the amount of $2,300,000. Swinehart did not claim that he held any security interest for his claim, but he apparently attached to his proof of claim his pleadings from the state lawsuit against Haber Oil and Jay Haber. Haber Oil filed an objection to Swinehart's claim, alleging that the claim was "disputed contingent and unliquidated," and also alleging that more than enough funds had been placed in escrow to satisfy Swinehart's claim. Swinehart responded to the objection, alleging that he would be entitled to priority status as to part of his claim following a favorable outcome in his pending state lawsuit.
On July 22, 1988, Swinehart filed an "expedited application to temporarily allow claim for the purpose of voting on plan of reorganization." Three days later he filed an objection to confirmation of the plan of reorganization, contending that the plan would discharge his claim pending in the state court without ever being adjudicated.
At this point, a significant discrepancy develops between the account of the proceedings given by Swinehart in his brief and the documents actually contained in the record. According to Swinehart's brief before this court, he filed an adversary proceeding on July 21, 1988 (elsewhere in his brief he states that the date was July 27, 1988), raising issues of contract application and fraud and seeking the imposition of a constructive trust. He also states that the bankruptcy court logged this proceeding as Adversary No. 288-2054. Swinehart, however, does not provide any citations to the record to substantiate these assertions, and we have been unable to discover any complaint or summons in the record as would have been necessary to initiate an adversary proceeding. We do find, however, the above-mentioned "objection to confirmation of plan," which was filed on July 25, 1988, under docket numbers 287-20131 and 287-20130 (the case numbers assigned to the Haber Oil and Jay Haber bankruptcies). Needless to say, an objection to a reorganization plan is a far cry from the formal filings required to initiate an adversary proceeding. The objection did state that Swinehart was seeking a constructive trust in the pending state lawsuit, and that a discharge in bankruptcy without resolution of the state lawsuit would allow the debtor or its successors to "unjustly and inequitably" hold title to interests rightfully belonging to Swinehart.
The bankruptcy court approved the debtor's plan of reorganization by order entered on July 28, 1988. Under the plan, McFadden Acquisition Corporation ("McFadden"), an unrelated entity, was to advance to Haber Oil the cash required to fund the plan and was to obtain a security interest in all property in the Haber Oil estate. Although Swinehart is not specifically treated in the plan, there is a handwritten notation by the bankruptcy judge at the bottom of the approval order to the effect "that Haber Oil will not seek to withdraw the funds held in escrow on account of the Swinehart [claim]." The post-confirmation committee filed an objection to Swinehart's claim in October 1988. Swinehart filed a response to the committee's objection, in which he stated, "The Post-Confirmation Committee is supposed to represent the interests of all the general unsecured creditors of J.D. Haber and Haber Oil Company, Inc. David D. Swinehart is a member of that class, having filed a valid timely Proof of Claim in each of these matters."
The record next discloses that counsel for Haber Oil filed a trial memorandum in support of the objection to Swinehart's claim on November 22, 1988. The trial memorandum is devoted largely to the issue of whether Swinehart's compensation with respect to the disputed properties should be determined by the third contract or the fourth contract (Haber Oil arguing that the fourth contract should govern). On November 30, 1988, counsel for Swinehart filed an unsigned trial memorandum in support of Swinehart's claim; in this document, that claim has ballooned into an amount "in excess of 4.35 million dollars." Swinehart's counsel also alleged in his memorandum that a "confidential relationship" existed between Swinehart and Haber Oil in connection with their joint activities, and the memorandum requested the court to impose a constructive trust on the disputed properties and award Swinehart either his ownership interests in the properties or their fair market value. The memorandum also contains a general allegation of fraud.
The bankruptcy court held a hearing on these matters on December 1, 1988. The clerk called the case as "case number 287-20131 and 287-20130, Haber Oil Company, Inc., Jay D. Haber on an objection to the claim of David Swinehart brought by the debtors, and it's also...
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