Pearl Res. LLC v. Allied OFS LLC (In re Pearl Res. LLC)

• Decision Date: 26 September 2022
• Docket Number: CASE NO: 20-31585,ADVERSARY NO. 20-3077
• Citation: 645 B.R. 530
• Parties: IN RE: PEARL RESOURCES LLC and Pearl Resources Operating Co. LLC, Debtors. Pearl Resources LLC and Pearl Resources Operating Co. LLC, Plaintiffs, v. Allied OFS LLC and Maverick Oil Tools LLC and Pilot Thomas Logistics LLC and Ricardo Huitron and Adelaida Ramos Huitron and RH Trucking LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Texas

645 B.R. 530

IN RE: PEARL RESOURCES LLC and Pearl Resources Operating Co. LLC, Debtors.

Pearl Resources LLC and Pearl Resources Operating Co. LLC, Plaintiffs,

v.Allied OFS LLC and Maverick Oil Tools LLC and Pilot Thomas Logistics LLC and Ricardo Huitron and Adelaida Ramos Huitron and RH Trucking LLC, Defendants.

CASE NO: 20-31585

ADVERSARY NO. 20-3077

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed September 26, 2022

Joe W. Beverly, Beverly Wallace Joe, Ferguson Braswell Fraser Kubasta PC, Houston, TX, for Plaintiffs.

Joshua Nielson Eppich, Bonds Ellis Eppich Schafer Jones LLP, Fort Worth, TX, Todd Jeffrey Johnston, McWhorter Cobb et al., Lubbock, TX, for Defendants Maverick Oil Tools LLC, Pilot Thomas Logistics LLC.

Basheer Y. Ghorayeb, Toyota Motor North America, Inc., Plano, TX, for Defendant Allied OFS LLC.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

Plaintiffs Pearl Resources LLC and Pearl Resources Operating Co. LLC seek to determine the validity, priority, and extent of a mineral property lien filed by Maverick Oil Tools LLC pursuant to Chapter 56 of the Texas Property Code against Pearl Resources LLC and Pearl Resources Operating Co. LLC's mineral leases. Additionally, Maverick Oil Tools LLC has filed counterclaims against Pearl Resources LLC and Pearl Resources Operating Co. LLC for breach of contract, quantum meruit, and promissory estoppel. A trial commenced on May 18, 2022 and concluded on May 19, 2022. All post-trial briefing concluded on July 15, 2022.

After considering the pleadings on file, evidence in the record, credibility of the witnesses, arguments of counsel and applicable law, the Court finds that Maverick Oil Tools LLC's mineral property lien filed against Pearl Resources LLC and Pearl Resources Operating Co. LLC is invalid. Pearl Resources LLC and Pearl Resources Operating Co. LLC's Objection to Maverick Oil Tools LLC's Proof of Claim Number 6 in 20-31585 is sustained. Maverick Oil Tools LLC's Proof of Claim Number 6 in 20-31585 for $133,635.28 is disallowed in its entirety. Pearl Resources LLC and Pearl Resources Operating Co. LLC's Objection to Maverick Oil Tools LLC's Proof of Claim Number 3 in 20-31586 is sustained. Maverick Oil Tools LLC's Proof of Claim Number 3 in 20-31586 for $133,635.28 is disallowed in its entirety. Furthermore, Maverick Oil Tools LLC's counterclaims for breach of contract, quantum meruit, and promissory estoppel are denied.

I. FINDINGS OF FACT

A. Procedural History

1. On April 10, 2020, Plaintiffs Pearl Resources LLC, ("Pearl Resources ") and Pearl Resources Operating Co. LLC, ("Pearl Operating "), (collectively "Debtors , Pearl or Plaintiffs ") filed the instant adversary proceeding.¹

2. On April 30, 2020, Maverick Oil Tools, LLC ("Maverick ") filed Proof of Claim Number 6 in 20-31585 for $133,635.28 ("Claim Number 6 ").²

3. On April 30, 2020, Maverick filed Proof of Claim Number 3 in 20-31586 for $133,635.28 ("Claim Number 3 ").³

4. On May 12, 2020, Maverick filed its answer and raised affirmative defenses.⁴

5. On May 20, 2020, in case number 20-31585, Pearl filed "Debtors’ Objections to Proofs of Claim Filed by Maverick Oil Tools, LLC, and Notice of Hearing" ("Objection to Claim Number 6 ").⁵

6. On May 20, 2020, in case number 20-31586, Pearl filed "Debtors’ Objections to Proofs of Claim Filed by Maverick Oil Tools, LLC, and Notice of Hearing" ("Objection to Claim Number 3 ").⁶

7. On June 15, 2020, the Court entered an order consolidating the contested matters with respect to the claim objection at Docket No. 117 to the claim (as amended) of Pilot Thomas Logistics LLC, the claim objection at Docket No. 116 to the claim of Maverick, and the claim objection at Docket No. 115 to the claim (as amended) of Allied OFS LLC with Adversary Proceeding No. 20-3077 for all purposes and shall be subject to a single scheduling order.⁷

8. On June 19, 2020, the Court entered an order consolidating the contested matters with respect to the contested matters in case number. 20-31586 with respect to the claim objection at Docket No. 33 to the claim (as amended) of Pilot Thomas Logistics LLC, the claim objection at Docket No. 32 to the claim of Maverick, and the claim objection at Docket No. 31 to the claim (as amended) of Allied OFS LLC with Adversary Proceeding number 20-3077 for all purposes and shall be subject to a single scheduling order.⁸

9. On August 26, 2020, the Court entered an order consolidating Adversary Proceeding No. 20-3077 and Adversary Proceeding No. 20-3193 into Adversary No. 20-3077.⁹

10. On September 9, 2020, Debtors filed their "Debtors’ Amended Complaint To Determine The Validity, Priority, And Extent Of Liens Filed By Various Creditors Against The Debtors’ Property" ("Amended Complaint ").¹⁰

11. On September 23, 2020, Maverick filed its answer to the Amended Complaint, raised affirmative defenses and asserted counterclaims against Debtors ("Maverick's Counterclaims ").¹¹

12. On October 30, 2020, Debtors filed their answer to Maverick's Counterclaims.¹²

13. On May 14, 2021, Maverick filed its response to the motions for summary judgment.¹³

14. On July 29, 2021, the Court entered its Memorandum Opinion and Order denying the motion for summary judgment.¹⁴

15. A two-day trial commenced on May 18, 2022 and concluded on May 19, 2022.¹⁵

16. At the conclusion of the trial, the Court ordered post-trial briefing.¹⁶

17. Pearl filed its post-trial brief on July 14, 2022.¹⁷

18. Maverick filed its post-trial brief on July 15, 2022.¹⁸

B. Stipulation of facts¹⁹

19. Debtors are Texas limited liability companies.²⁰

20. Maverick is a Texas limited liability company.²¹

21. Pearl Resources is the lessee of a mineral lease known as the Garnet State Lease in Pecos County, Texas (the "Garnet State Lease "). The legal property description for the Garnet State Lease is: Section 20, Block 8, H&GN RR Co Survey, Abstract 5206 and the South Half (S/2) of Section 22, Block 8, H&GN RR Co Survey, Abstract 5208, Pecos County, Texas.²²

22. The mineral estate of the Garnet State Lease is owned by the State of Texas and is subject to the Relinquishment Act.²³

23. Pearl Resources is the lessee and 93% working interest owner of the Garnet State Lease. Pearl Operating was the operator of the Garnet State #4 Well on the Garnet State Lease. Pearl Operating owns an undivided 1% working interest in the Garnet State Lease. The State of Texas owns a 6% working interest in the Garnet State Lease as the holder of unleased interests.²⁴

24. With respect to the Garnet State Lease, Pearl Resources receives 99% of the net proceeds and Pearl Operating 1% of the net proceeds, prior to payout of the carried working interests of the State of Texas.²⁵

25. In years 2016 and 2017, Pearl Operating met the requirements under Texas law to drill and operate oil and gas wells by providing information to the Railroad Commission of Texas (the "RRC ") required by Tex. Nat. Res. Code § 91.142, having on file with the RRC the approved organization report and financial security required by Tex. Nat. Res. Code §§ 91.103 - 91.1091 and 16 Tex. Admin. Code § 3.1, and meeting the other requirements of Texas law to drill and operate oil and gas wells. The RRC provided Pearl Operating the license to operate oil and gas wells on the Garnet State Lease.²⁶

26. In 2016 and 2017, Pearl Resources had not satisfied the requirements under Texas law that would allow it to drill and operate oil and gas wells. Pearl Resources has never drilled or operated oil and gas wells in Texas.²⁷

27. Pearl Resources contracted with Pearl Operating to operate and oversee drilling of the Garnet State #4 Well (the "Well "). The contract was an oral agreement between Pearl Resources and Pearl Operating.²⁸

28. Pearl Resources and its equity owner, Dr. Myra Dria ("Dr. Dria "), provided the funds for Pearl Operating to undertake the project of drilling and operating the Well.²⁹

29. Pursuant to the agreement between Pearl Resources and Pearl Operating, the money to fund drilling the Well came in part from proceeds of the sale of oil and gas from the Brandenburg #1 Well – a well that is also located on the adjacent Brandenburg Lease in Pecos County, Texas. In early 2013, the Brandenburg #1 Well was reworked by Pearl Operating as the operator for Pearl Resources.³⁰

30. Pearl Operating owns 1% of the working interest and is also the operator of the Brandenburg Lease. Pearl Resources owns 95% of the working interest in the Brandenburg Lease and the remainder is unleased ownership. As an owner of the Brandenburg Lease, Pearl Resources is entitled to receive 99% of the net revenues from production before payout of the unleased share and until payout for the unleased share of Brandenburg Lease operating and drilling expenses. As an owner of the Brandenburg Lease, Pearl Operating is entitled to receive 1% of the net revenues from production.³¹

31. As the operator, Pearl Operating received the funds from the sale of oil and gas from the Brandenburg Lease and used those funds to make payments to the Brandenburg royalty owners and vendors for services.³²

32. Net revenues due to Pearl Resources from production on the Brandenburg Lease were contributed to conduct drilling operations on the Garnet State Lease.³³

33. Pursuant to their agreement, Pearl Resources authorized Pearl Operating to use Pearl Resources’ share of the net proceeds from production on the Brandenburg Lease to drill the Garnet State #4 Well.³⁴

34. On September 13, 2016, Pearl Operating entered into a Turnkey Drilling Contract (the "Turnkey Contract ") with PDS Drilling, LLC ("PDS ") to drill the Garnet State #4 Well.³⁵

35. The Turnkey Contract was a binding agreement between PDS and Pearl Operating.³⁶

36. The Turnkey Contract price was $928,987. To be entitled to full payment, PDS was required to furnish equipment, labor and perform services to reach the depth of 11,000 ft. subsurface (+/- 200 ft.) and deliver a Successful Well as defined in Exhibit A. PDS

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