U.S. Energy Development Corp. v. CL III Funding Holding Company

Filing

UNPUBLISHED OPINION FILED. [17-50217 Affirmed] Judge: PEH, Judge: EHJ, Judge: JEG. Mandate issue date is 02/01/2018 [17-50217]

Case: 17-50217

Document: 00514302185

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Date Filed: 01/10/2018

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit

FILED
No. 17-50217

January 10, 2018
Lyle W. Cayce
Clerk

In the Matter of: WBH Energy, L.P., WBH Energy Partners, L.L.C., WBH
Energy GP, L.L.C.
Debtors
U.S. ENERGY DEVELOPMENT CORPORATION,
Appellant
v.
CL III FUNDING HOLDING COMPANY, L.L.C.,
Appellee

Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:16-CV-884
Before HIGGINBOTHAM, JONES, and GRAVES, Circuit Judges.
PER CURIAM:*
U.S. Energy Development Corporation (“USED”) argues that it is
entitled to attorneys’ fees for previous legal disputes under a Joint Operating

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*

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Agreement (“JOA”) among USED, WBH Energy Partners, LLC (“Debtor
LLC”), and WBH Energy, LP (“Debtor LP”). The bankruptcy and district
courts held that USED was not entitled to attorneys’ fees. Having considered
the briefs, oral argument, and pertinent portions of the record, we AFFIRM.
In September 2011, Debtor LLC entered into the JOA with Debtor LP
and USED wherein Debtor LLC would act as the operator of various oil and
gas leases and wells and Debtor LP and USED took working interests. The
JOA included the following provision regarding attorneys’ fees for disputes
between the parties:
Costs and Attorneys’ Fees: In the event any party is required to
bring legal proceedings to enforce any financial obligation of a
party hereunder, the prevailing party in such action shall be
entitled to recover all court costs, costs of collection, and a
reasonable attorney’s fee, which the lien provided for herein shall
also secure.
WBH Energy GP, LLC (“Debtor GP”) was not a party to the JOA. The JOA
choice of law provision states that Texas law applies.
USED contends it is entitled to attorneys’ fees under the JOA. USED
bases this contention on four legal proceedings involving the parties:
1. The State Court Proceeding:
In December 2014, before the bankruptcy cases commenced, USED filed
suit against Debtor LLC, Debtor LP, and Debtor GP in order to remove Debtor
LLC as the operator under the JOA and replace it with USED. USED obtained
a temporary restraining order barring Debtor LLC from acting as the operator
and replaced it with USED. This action was dismissed by USED after the
debtors declared bankruptcy in January 2015.

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2. The Operator Adversary Proceeding
In January 2015, USED filed a complaint in the bankruptcy court again
seeking to remove Debtor LLC as the operator under the JOA and to replace it
with USED. USED won a preliminary injunction that granted this relief
pending trial. During bankruptcy proceedings, Castlelake (also known as “CL
III”) and USED filed an agreement providing that if Castlelake acquired the
oil and gas properties, USED would become the operator.

The suit was

dismissed by agreement of the parties in December 2015.
3. The Interpleader Adversary Proceeding
In February 2015, USED filed an interpleader action in the bankruptcy
court. USED “sought to interplead approximately $1.9 million representing
joint interest billings that USED admitted that it owed to Debtor LLC (as
operator) into the registry of the Court.”

In this action, USED sought

attorneys’ fees and to be discharged “from all liability including the mineral
subcontractor liens asserted against USED’s interest in the Oil and Gas
Properties.” The parties settled during mediation and the suit was resolved by
an agreed final judgment. The final judgment “discharged USED and its
interest in the Leases and the Wells (as defined in USED’s complaint) from all
claims asserted by all Defendants” in the Interpleader Adversary Proceeding.
4. The Bankruptcy Case
The bankruptcy court approved a sale of substantially all of the Debtors’
oil and gas assets to CL III, which now owns Debtor LP’s working interest. In
September 2015, the court approved the debtors’ plan of reorganization, which
allowed USED to remain the operator of the Oil and Gas Properties.
The bankruptcy court held that USED was not entitled to fees for any of
the four proceedings discussed above because USED was not a “prevailing
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party” in a legal proceeding brought to enforce a “financial obligation,” under
the JOA. The district court affirmed.
“This court applies ‘the same standard of review to the decisions of a
bankruptcy court as does the district court.’” In re Dorsey, 870 F.3d 359, 364
(5th Cir. 2017) (citation omitted). Therefore, “we review questions of fact for
clear error and conclusions of law de novo.” In re Cowin, 864 F.3d 344, 349
(5th Cir. 2017) (citation omitted). Texas contract law requires that courts “give
meaning, effect, and purpose to every word in the contract.” Tennessee Gas
Pipeline Co. v. F.E.R.C., 17 F.3d 98, 102-03 (5th Cir. 1994) (emphasis in
original) (citation omitted).
The State Court Proceeding and Operator Adversary Proceeding were
brought to remove Debtor LLC as the operator and replace it with USED. In
each proceeding, USED obtained temporary injunctive relief that granted this
remedy.

The attorneys’ fees section of the JOA requires that the legal

proceeding in question be brought to enforce a “financial obligation.” The lower
courts did not err when they held that these proceedings fail to meet the
“financial obligation” requirement.
The Interpleader Adversary Proceeding and Bankruptcy Case also fail
to meet the requirements of the JOA. The Interpleader Adversary Proceeding
was brought by USED in order to settle USED’s financial obligations.
Therefore it fails to meet the requirement that USED bring an action to enforce
the financial obligations of another party. The Bankruptcy Case was brought
by the debtors, not USED. On that elementary level, USED was not a party
“required to bring legal proceedings to enforce [a] financial obligation” in the
Bankruptcy Case.

But equally significant is that USED’s filings and

agreements in connection with the debtors’ reorganization were all designed
principally to maintain USED’s position as the operator, a position that entails
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numerous duties apart from USED’s “enforcing a financial obligation” against
the JOA parties.
For these reasons, we conclude that USED is not entitled to attorneys’
fees under the JOA. The judgment of the district court is AFFIRMED.

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