Endeavor Energy Resources, L.P v. Heritage ( 2014 )


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  •      Case: 13-10969   Document: 00512770489    Page: 1   Date Filed: 09/16/2014
    REVISED September 16, 2014
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT     United States Court of Appeals
    Fifth Circuit
    FILED
    August 27, 2014
    No. 13-10969
    Lyle W. Cayce
    Clerk
    In the Matter of: HERITAGE CONSOLIDATED, L.L.C.,
    Debtor,
    ENDEAVOR ENERGY RESOURCES, L.P.; ACME ENERGY SERVICES,
    INCORPORATED, D/B/A RIG MOVERS EXPRESS, D/B/A BIG DOG
    DRILLING,
    Appellants,
    v.
    HERITAGE CONSOLIDATED, L.L.C.; HERITAGE STANDARD
    CORPORATION,
    Appellees.
    Appeal from the United States District Court
    for the Northern District of Texas
    Before STEWART, Chief Judge, and HIGGINBOTHAM and ELROD, Circuit
    Judges.
    JENNIFER WALKER ELROD, Circuit Judge:
    Appellants Endeavor Energy Resources, L.P. and Acme Energy Services,
    Inc. (collectively, Drillers) performed work on Debtors’ well, but were never
    paid. Drillers subsequently filed a mineral lien on the well, and then a claim
    in Debtors’ bankruptcy. The bankruptcy court dismissed Drillers’ constructive
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    No. 13-10969
    trust and equitable lien claims and granted summary judgment to Debtors on
    Drillers’ mineral contractor’s and subcontractor’s lien claims. The district
    court affirmed.       We AFFIRM the district court’s dismissal of Drillers’
    constructive trust and equitable lien claims. We REVERSE and REMAND the
    district court’s grant of summary judgment on Drillers’ mineral subcontractors’
    lien claims because Drillers submitted sufficient evidence to survive summary
    judgment.
    I.
    Heritage Standard Corporation (HSC) owned mineral property leases for
    a nonfunctioning oil well in Winkler County, Texas. This well was governed
    by a series of contractual arrangements. Because these contracts bear on
    Drillers’ ability to recover on their claims, we will briefly outline them here.
    In January 2008, HSC entered into a farmout agreement (Staley Agreement)
    with George Staley to develop the well. 1                Staley then entered into an
    assignment contract (Lakehills Agreement) with Lake Hills Productions, Inc.
    (Lakehills) to perform the work. Staley, HSC, and Lakehills, along with well
    operator Stratco Operating Co., Inc. (Stratco) subsequently signed a Joint
    Operating Agreement (JOA) to develop the well. The JOA was made effective
    as of January 2008, and the parties all signed it between April and June of
    2008.
    Lakehills then sold and assigned its interests in the well to Trius Energy,
    LLC (Trius) in February 2008, and Trius was added to the JOA in September
    2008. As a result, HSC was responsible for 12.5% of the well expenditures, and
    Trius was responsible for the remaining 87.5% of the expenditures. In July
    1 A farmout is a contract “whereby a lease owner not desirous of drilling at the time
    agrees to assign the lease, or some portion of it . . . to another operator who is desirous of
    drilling the tract.” 8-F Williams & Meyers, Oil Gas Law Scope. “The primary characteristic
    of the farmout is the obligation of the assignee to drill one or more wells on the assigned
    acreage as a prerequisite to completion of the transfer to him.” 
    Id. 2 Case:
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    2008, Lakehills replaced Stratco as the official well operator. Under this new
    arrangement, Lakehills was responsible for ensuring that necessary work was
    done on the well, and Trius and HSC were to make payments for this work to
    Lakehills. In May, June, and July of 2008, Lakehills contracted with Drillers,
    who then performed work on the well during that same time period.
    This arrangement apparently took a downward turn in the late summer
    of 2008.    Both Trius and HSC stopped making payments to Lakehills.
    Lakehills then failed to pay Drillers for their work, and Drillers filed mineral
    liens against HSC to recover the money they were owed. Drillers’ liens were
    filed within the six month period required by the Texas statute, and HSC
    received notice as required under the statute for a subcontractor’s lien. See
    Tex. Prop. Code Ann. § 56.001–3, 0.21. After Drillers filed their liens, HSC
    assigned its interest in the well to Heritage Consolidated. Several of the other
    parties to these agreements subsequently defaulted on their contract
    obligations.    As a result, HSC, Heritage Consolidated, Trius, Stratco,
    Lakehills, and Staley negotiated a settlement agreement (Settlement
    Agreement) in May 2009.
    Under the Settlement Agreement, Lakehills received a 1% interest in the
    well as consideration for releasing its operator liens against HSC and Heritage
    Consolidated (collectively, Debtors).      The Settlement Agreement also
    stipulated that Trius was obligated to satisfy Drillers’ liens and to indemnify
    all other signees against claims arising from those liens. In consideration for
    Trius’s agreement to discharge the liens, Debtors forgave Trius’s 87.5% share
    of the working expenses incurred by Debtors after Debtors took over well
    operations in November 2008. Even after this settlement, no one paid Drillers
    for their services.
    Debtors filed for Chapter 11 bankruptcy. Drillers filed proofs of claim in
    their bankruptcies asserting secured lien claims and, alternatively, unsecured
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    nonpriority claims.    Drillers also filed an amended complaint seeking a
    determination of the validity, extent, and priority of their mineral liens. The
    bankruptcy court entered judgment against the Drillers on all claims. The
    bankruptcy court granted summary judgment to Debtors on Drillers’ mineral
    contractors’ and subcontractors’ lien claims, and granted Debtors’ motion to
    dismiss Drillers’ additional claims for a constructive trust and equitable lien
    asserted in their amended complaint. The district court affirmed, and Drillers
    appealed.
    II.
    We review “the decision of a district court sitting as an appellate court
    in a bankruptcy case ‘by applying the same standards of review to the
    bankruptcy court’s findings of fact and conclusions of law as applied by the
    district court.’” Clinton Growers v. Pilgrim’s Pride Corp. (In re Pilgrim’s Pride
    Corp.), 
    706 F.3d 636
    , 640 (5th Cir. 2013) (quoting Wooley v. Faulkner (In re SI
    Restructuring, Inc.), 
    542 F.3d 131
    , 134–35 (5th Cir. 2008)). “‘Generally, a
    bankruptcy court’s findings of fact are reviewed for clear error, and its
    conclusions of law are reviewed de novo.’”       
    Id. at 640
    (quoting In re SI
    Restructuring, 
    Inc., 542 F.3d at 135
    ).
    We review a bankruptcy court’s grant of summary judgment de novo. See
    
    Id. (citing SeaQuest
    Diving, LP v. S & J Diving, Inc. (In re SeaQuest Diving,
    LP), 
    579 F.3d 411
    , 417 (5th Cir. 2009)). When seeking summary judgment, the
    moving party—here, Debtors—bears the initial burden to demonstrate that
    there is no genuine issue of material fact. Celotex Corp. v. Catrett, 
    477 U.S. 317
    , 322–23 (1986). Once this initial burden is satisfied, the burden shifts and
    the non-moving party “must come forward with ‘specific facts showing that
    there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio
    Corp., 
    475 U.S. 574
    , 587 (1986) (quoting Fed. R. Civ. P. 56(e)). We must draw
    inferences in the light most favorable to the party opposing the motion.
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    Anderson v. Liberty Lobby, Inc., 
    477 U.S. 242
    , 255 (1986). However, the non-
    moving party’s burden may not be satisfied by relying upon mere
    “conclusionary denials, improbable inferences, and legalistic argumentation.”
    S.E.C. v. Recile, 
    10 F.3d 1093
    , 1097 (5th Cir. 1993).
    We also review the dismissal of claims pursuant to Rule 12(b)(6) de novo.
    Gonzalez v. Kay, 
    577 F.3d 600
    , 603 (5th Cir. 2009). We accept all well-pleaded
    facts as true and view those facts in the light most favorable to the plaintiffs.
    
    Id. at 603
    (quoting Dorsey v. Portfolio Equities, Inc., 
    540 F.3d 333
    , 338 (5th Cir.
    2008)). However, “plaintiffs must allege facts that support the elements of the
    cause of action in order to make out a valid claim.” City of Clinton, Ark. v.
    Pilgrim’s Pride Corp., 
    632 F.3d 148
    , 152–53 (5th Cir. 2010) (citing Bell Atlantic
    Corp. v. Twombly, 
    550 U.S. 544
    (2007)). “[T]o survive a motion to dismiss, a
    complaint must contain sufficient factual matter, accepted as true, to state a
    claim to relief that is plausible on its face.” 
    Gonzalez, 577 F.3d at 603
    (internal
    quotation marks and citations omitted).
    “In this diversity action, we must apply Texas law as interpreted by
    Texas state courts.” Gilbane Bldg. Co. v. Admiral Ins. Co., 
    664 F.3d 589
    , 593
    (5th Cir. 2011) (quoting Mid–Continent Cas. Co. v. Swift Energy Co., 
    206 F.3d 487
    , 491 (5th Cir. 2000)). “We consider Texas Supreme Court cases that, while
    not deciding the issue, provide guidance as to how the Texas Supreme Court
    would decide the question before us.” 
    Id. at 594
    (internal quotation marks and
    citation omitted). We also “consider decisions of the intermediate appellate
    courts in determining how the Texas Supreme Court would decide this issue.
    We are bound by our own precedent interpreting Texas law unless there has
    been an intervening change in authority.” 
    Id. (citations omitted).
                                           III.
    Drillers first argue that the bankruptcy and district courts should not
    have granted summary judgment to Debtors on their contractors’ and
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    subcontractors’ mineral lien claims.            We agree that it was error to grant
    summary judgment on Drillers’ subcontractors’ lien claims, and therefore do
    not reach the issue of whether Drillers were also entitled to contractors’ liens.
    A.
    In Texas, material liens are creatures of statute, granted to “both
    mineral contractors and mineral subcontractors to secure payment for labor or
    services related to mineral activities, as therein defined.” 56 Tex. Jur. 3d Oil
    & Gas § 678 (2014); see also Trevor Rees–Jones, Tr. for Atkins Petroleum Corp.
    v. Trevor Rees-Jones, Tr. for Apache Services, Inc., 
    799 S.W.2d 463
    , 465 (Tex.
    App.—El Paso 1990, writ denied). Texas courts have repeatedly noted that the
    mineral lien statute is “designed to protect laborers and materialmen” 2 and
    should therefore be liberally construed. Bandera Drilling Co., Inc. v. Lavino,
    
    824 S.W.2d 782
    , 784 (Tex. App.—Eastland 1992, no writ); see also Youngstown
    Sheet & Tube Co. v. Lucey Prods. Co., 
    403 F.2d 135
    , 143 (5th Cir. 1968).
    A mineral contractor is a person who “furnishes or hauls material” or
    “performs labor” under an express or implied contract with a mineral property
    owner or with a trustee, agent, or receiver of a mineral property owner. Tex.
    Prop. Code Ann. § 56.001(2).            A mineral subcontractor is a person who
    “furnishes or hauls material” or “performs labor” under a contract with a
    mineral contractor.         Tex. Prop. Code Ann. § 56.001(4).             Contractors and
    subcontractors are treated interchangeably under the mineral lien statute,
    with two notable exceptions: First, subcontractors must give notice to the
    mineral owner when filing material liens, whereas contractors have no notice
    2 While the Texas statute calls these liens “mineral” contractor or subcontractor liens,
    the case law frequently refers to them as “material and mechanics” or “M&M” liens. Laborers
    are sometimes referred to as “materialmen” in the case law. These terms appear to be
    interchangeable.
    6
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    requirement. 3 Second, contractors must have a contractual relationship with
    a mineral owner, whereas subcontractors only need to have a contractual
    relationship with a contractor.
    When determining whether a laborer is a subcontractor or a contractor,
    the important question is whether there is a contractual relationship between
    the owner and the laborer performing the work: If there is a direct contractual
    relationship between an owner and the laborer, then the laborer is a contractor
    with regard to that owner. If there is a contract between the laborer and
    another party who has a contract with an owner, then the laborer is a
    subcontractor. See Rhett G. Campbell, A Survey of Oil and Gas Bankruptcy
    Issues, 5 Tex. J. Oil Gas & Energy L. 265, 311–12 (2010).
    If a well has multiple owners, it is possible for a single laborer to be both
    a subcontractor and a contractor for the work they perform on that well. For
    example, the owners may collectively enter into an agreement that makes one
    owner the well operator, and gives that owner-operator the power to contract
    with laborers. The laborers would then be contractors with respect to the
    contracting owner-operator, but subcontractors with respect to the other
    owners. See 
    id. at 311
    (“In the typical transaction, the operator contracts
    directly with vendors but the non-operators do not.                  A service company
    contracting with the operator is a contractor as to the operator (if the operator
    owns an interest in the lease) but a subcontractor as to non-operators.”). It is
    thus not only possible, but common within the industry for an owner to also be
    a contractor as defined by the statute. See In re Mid-Am. Petroleum, Inc., 
    83 B.R. 933
    , 935 (Bankr. N.D. Tex. 1988) (concluding that MAP was both a
    working interest owner and a mineral contractor); Energy Fund of Am., Inc. v.
    Drillers averred in their lien affidavit that they gave such notice to the owner (HSC),
    3
    and Debtors do not contest this point.
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    G.E.T. Serv. Co., 
    610 S.W.2d 833
    , 835–36 (Tex. Civ. App.—Eastland 1980),
    aff’d in part and rev’d in part on other grounds sub nom., Ayco Dev. Corp. v.
    G.E.T. Serv. Co., 
    616 S.W.2d 184
    (Tex. 1981). Under these circumstances, “the
    service company would need to perfect its lien both ways, first as a
    subcontractor and second as a contractor” to secure a claim against all owners.
    Campell, supra at 312; see also Mitchell E. Ayer, 34 Energy & Min. L. Found.
    §7.08 (2013).
    In   order   to    determine   whether     Drillers   were   contractors   or
    subcontractors with regard to Debtors, we therefore look to the various
    contractual relationships governing the well at the time that Drillers
    performed their work. Viewed in the light most favorable to non-movant
    Drillers, Drillers have raised a fact issue as to whether they were mineral
    subcontractors with regard to Debtors: Drillers presented evidence that Debtor
    HSC was an owner at the relevant time because HSC owned part of the
    working interest in the lease when Drillers performed their work and perfected
    their liens. Drillers also presented evidence that HSC was the record owner of
    100% of the lease, and retained 12.5% of the working interest even after the
    various farmout agreements and assignments. Drillers presented evidence
    demonstrating that Lakehills was in a contractual relationship with HSC
    because Lakehills was the assignee of the Staley Agreement. Viewed in the
    light most favorable to Drillers, this evidence demonstrates that Lakehills was
    a contractor at the time that Drillers performed their work on the well. Drillers
    also put forth evidence showing that Lakehills contracted with Drillers to have
    Drillers perform work on the well. Taken together, these facts at the very least
    raise a genuine issue as to whether Drillers were mineral subcontractors with
    regard to Debtors at the time Drillers performed their work. Tex. Prop. Code
    Ann. § 56.001(2), (4).
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    B.
    Debtors argue, and the bankruptcy and district courts agreed, that
    Drillers could not be subcontractors because Lakehills subsequently acquired
    a 1% ownership interest in the lease, and was thus a co-owner, rather than a
    contractor.   According to Debtors and the bankruptcy and district courts,
    Lakehills’s ownership interest “relates back” to the time prior to the inception
    of Drillers’ work. The bankruptcy and district courts therefore reasoned that
    Drillers’ liens could only attach to Lakehills’s—and not Debtors’—interest in
    the lease. We disagree. As we explained above, it is possible under Texas law
    for an owner to also be a contractor, and for a laborer to secure liens against
    both the contracting and non-contracting owners.           See In re Mid-Am.
    Petroleum, 
    Inc., 83 B.R. at 935
    ; Campbell, supra at 311–12.
    In reaching a contrary conclusion, the district court relied on the Texas
    Supreme Court’s decision in Diversified Mortgage Investors v. Lloyd D.
    Blaylock General Contractor, Inc., 
    576 S.W.2d 794
    (Tex. 1978). Specifically,
    Debtors and the district court point to language in Diversified Mortgage to
    argue that Drillers’ liens could only attach to Lakehills’s interest—and not
    Debtors’ interest—if Lakehills was an owner at the relevant time. The district
    court relied on the Texas Supreme Court’s statement that “[o]ur courts have
    long held that a mechanic’s and materialman’s lien attaches to the interest of
    the person contracting for construction.      Thus, if a lessee contracts for
    construction, the mechanic’s lien attaches only to the leasehold interest, not to
    the fee interest of the lessor.” Diversified 
    Mortg., 576 S.W.2d at 805
    . After
    reviewing the case law, we conclude that the district court incorrectly applied
    this decision and the accompanying “relation back” doctrine.
    In Diversified Mortgage, general contractor Blaylock held contractor’s
    liens on certain properties based on a construction contract with Dollar Inns.
    
    Id. at 796.
    The Texas Supreme Court explained that “[t]o further determine
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    the priority of the mechanic’s lien, this court must decide whether Dollar Inns,
    the party contracting with Blaylock, held any legal or equitable interest in the
    property at the time of inception of this mechanic’s [contractor] lien.” 
    Id. at 806.
    The Texas Supreme Court determined that:
    [A]t the time of inception of Blaylock’s mechanic’s lien, Dollar Inns
    held an equitable right or interest in the land under a contract of
    purchase to which such mechanic’s lien could attach. Under the
    doctrine of after-acquired title, the security for such mechanic’s
    lien was later expanded to include the legal title to the property
    acquired by Dollar Inns when the sale was consummated on April
    5, 1973.
    
    Id. The Texas
    Supreme Court thus expanded the interest to which the lien
    attached based on the “relation back” doctrine. The Texas Supreme Court
    explained the “relation back” doctrine as follows:
    [T]he majority of the courts generally applies the doctrine of “after-
    acquired title” or the “relation back” doctrine. These doctrines hold
    that the lien attaches to whatever legal or equitable interest the
    contracting party had when the work was begun, and thereafter
    attaches to any other or greater interest whenever acquired before
    the lien is enforced: provided that the after-acquired title enlarges
    an estate or interest to which the lien has already become
    attached. Accordingly, the priority of a mechanic’s lien not only
    depends upon the inception of the lien, but also upon whether the
    party contracting with the mechanic or the materialman has a
    legal or equitable interest in the property at the time of
    contracting.
    
    Id. at 805–06
    (internal citations and quotation marks omitted). In other words,
    the “relation back” doctrine is designed to expand the interest to which the lien
    can attach, thus helping to effectuate the statute’s purpose in protecting
    laborers and materialmen.         See 
    Youngstown, 403 F.2d at 143
    ; Bandera
    
    Drilling, 824 S.W.2d at 784
    .
    We have previously given the Texas Supreme Court’s decision in
    Diversified Mortgage a similar reading in Matter of Waller Creek, Ltd., 
    867 F.2d 10
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    228, 234 (5th Cir. 1989). There, we addressed a contractor’s lien claim and
    explained that the “relation back” doctrine:
    [H]olds that the lien attaches to whatever legal or equitable
    interest the contracting party had when the work was begun, and
    thereafter attaches to any other or greater interest whenever
    acquired before the lien is enforced: provided that the after-
    acquired title enlarges an estate or interest to which the lien has
    already become attached.
    Matter of Waller Creek, Ltd., 
    867 F.2d 228
    , 234 (5th Cir. 1989) (emphasis
    added).   The “relation back” doctrine is therefore intended to expand the
    interest to which a lien can attach.
    In contrast, the district court’s construction of the “relation back”
    doctrine would have just the opposite effect: because Lakehills later acquired
    a greater interest than it had at the time of Drillers’ work, Drillers would no
    longer be able to attach to HSC’s continued interest, despite the fact that HSC
    had a 12.5% interest in the lease, whereas Lakehills only acquired a 1%
    interest in the lease. This application of the “relation back” doctrine thus
    shrank rather than enlarged the interest to which Drillers’ liens could attach.
    If Lakehills gained a 1% ownership interest in the lease at the time that
    Drillers performed their work, then Drillers may have gained an additional
    claim for contractors’ liens against Lakehills. It would not, however, prevent
    Drillers from asserting separate subcontractors’ liens against HSC. Such a
    result would be contrary to the statutory scheme, which provides laborers with
    a method of recourse against both contractors and owners with whom they do
    not have privity of contract. See Campbell, supra at 311 (“The basic principle
    is that the service company who contracts through the operator and perfects a
    subcontractor’s lien is entitled to a lien on all amounts due from non-operator-
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    [owner]s to the operator.”). 4 The district court’s application of this doctrine
    conflicts with both the language in Diversified Mortgage, and our own
    subsequent interpretation of the “relation back” doctrine. “We are bound by
    our own precedent interpreting Texas law unless there has been an
    intervening change in authority,” and thus reject the district court’s
    application of the doctrine here. Gilbane Bldg. 
    Co., 664 F.3d at 593
    (citations
    omitted).
    Moreover, the passage in Diversified Mortgage cited by the district court
    and Debtors discussed a contractor’s rather than a subcontractor’s lien. As we
    have explained, a contractor’s lien requires privity of contract with an owner,
    whereas a subcontractor’s lien does not. Placed in context, the Diversified
    Mortgage court was explaining that a contractor’s lien could only attach to the
    interest of the party “contracting for construction.” Diversified 
    Mortg., 576 S.W.2d at 805
    . It was not, as Debtors suggest, implying that a subcontractor’s
    lien could not also be asserted against other owners. See Campbell, supra at
    311. Instead, the Diversified Mortgage court was distinguishing between the
    ability of a contractor’s lien to attach to a leasehold interest, and the lien’s
    ability to attach to the real property on which the lease is located. It does not
    mean that a subcontractor cannot reach the leasehold interests of owners who
    have contracted with a contractor to have the labor performed.
    Under Debtors’ reading, the entire category of “subcontractors” under
    the statute would be superfluous, because a subcontractor by definition never
    has a contract with the owner. We reject such a reading. See Nat’l Ass’n of
    Home Builders v. Defenders of Wildlife, 
    551 U.S. 644
    , 668 (2007) (“But this
    reading would render the regulation entirely superfluous.”); see also Antonin
    4  Non-operator is an industry short-hand for “non-operating working interest owner”
    and refers to those owners who have not been designated as an operator of the lease. It is
    also possible to be an operator without being an owner.
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    Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174
    (2012) (“If possible, every word and every provision is to be given effect (verba
    cum effectu sunt accipienda). None should be ignored. None should needlessly
    be given an interpretation that causes it to duplicate another provision or to
    have no consequence.” (footnote omitted)). In the case before us, the passage
    from Diversified Mortgage means only that Drillers’ liens could not attach to
    an interest held by the real property owner on which the mineral lease was
    located.
    Finally, the approach advocated by Debtors would allow HSC and
    Lakehills to alter Drillers’ statutory rights to recover payment for the work
    Drillers performed by entering into a subsequent contract after the completion
    of the work that Drillers were not party to. It is undisputed that Lakehills was
    not a legal owner of any interest in the well in mid-2008 when Drillers
    performed their work. Lakehills later did receive a 1% working interest in the
    lease after Drillers had completed their work and perfected their liens. Indeed,
    Lakehills received this interest from a separate Settlement Agreement that
    had not even been contemplated at the time that Drillers performed the work. 5
    5 Even assuming arguendo that the “relation back” doctrine could prevent Drillers
    from asserting subcontractors’ liens against Debtors, it is not clear that Lakehills’s interest
    actually would relate back to the time that Drillers performed their work. The district court
    noted that “[a]lthough it is a close question, the Court finds that under Diversified, Hoffman,
    and related cases, Lakehills was a mineral owner.” Endeavor Energy Res., L.P. v. Heritage
    Consol., LLC, No. 3:12-CV-03765-B, 
    2013 WL 4045250
    , at *8 (N.D. Tex. Aug. 9, 2013). This
    case, however, is distinguishable from those cited by the district court. In Hoffman v.
    Continental Supply Co., Lockhart and Humble Oil had already entered into a contract where
    Lockhart agreed to purchase leases and to complete some drilling activities. 
    120 S.W.2d 851
    ,
    854 (Tex. Civ. App.—Eastland 1938), rev’d on other grounds, 
    144 S.W.2d 253
    (Tex. 1940).
    Similarly, in Diversified Mortgage, Dollar Inns had executed a contract to purchase the Irving
    property from First Madison and paid First Madison $200,000 prior to the inception of the
    mechanic’s lien. Diversified 
    Mortg., 576 S.W.2d at 806
    . The court therefore concluded that
    “Dollar Inns held an equitable right or interest in the land under a contract of purchase to
    which such mechanic’s lien could attach.” 
    Id. In contrast,
    there was no contract in place
    pursuant to which Lakehills would receive an ownership interest at the time that Drillers
    performed their work.
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    As one Texas appellate court reasoned:
    Can the issue of whether those who provide services and materials
    are contractors or subcontractors be dependent upon events that
    occur after the contract for such services and materials is made?
    We believe the answer should be “No”. Having dealt with Atkins
    when that company owned all of the working interest and at a time
    when there is no question about its right or authority to contract
    for services and materials, the rights of those parties should not be
    governed by subsequent events between the owner and third
    parties who received assignments after the drilling cost had been
    incurred.
    ...
    The lien claimants’ status as contractors cannot be converted to
    that of subcontractors by another contract to which they are not
    privy.
    Trevor 
    Rees-Jones, 799 S.W.2d at 465
    –66. 6 As Drillers note, if subsequent
    contracting by the owner of any portion of the mineral interest, no matter how
    small and whether or not the interest is filed of record, precluded a
    subcontractor’s lien, then laborers would have little remedy for nonpayment.
    See 
    Youngstown, 403 F.2d at 143
    (“It is a rule of long standing that the
    mechanic’s and materialman’s lien statutes of this state will be liberally
    construed for the purpose of protecting laborers and materialmen.” (internal
    6 Although not well briefed by the parties, there is another aspect of the Texas mineral
    lien statute that suggests that it is meant to protect subcontractors from going without pay:
    The mineral contractor chapter of the Texas Property Code also has a trapping
    statute. If an unpaid mineral subcontractor or supplier who has led a lien
    notice then also sends notice to working interest owners, the statute has a
    similar effect, “trapping” monies otherwise due and owing to the operator, so
    that they are to be paid directly to the mineral lien claimants instead. Like
    the similar provision for building subcontractors, the trapping statute is only
    available to those who have or are eligible to have a lien on the owner’s
    property, but it does not expressly create a lien as such on the monies that are
    intended to be trapped.
    In re S. Tex. Oil Co., No. 09-54233-C, 
    2010 WL 1903750
    , at *1 (Bankr. W.D. Tex. May 10,
    2010).
    14
    Case: 13-10969       Document: 00512770489          Page: 15     Date Filed: 09/16/2014
    No. 13-10969
    quotation marks and citation omitted)). Viewed in the light most favorable to
    Drillers, these facts demonstrate that Drillers were subcontractors with regard
    to Debtors. The district court therefore erred in granting summary judgment
    to Debtors on Drillers’ subcontractors’ lien claims. 7
    IV.
    We next turn to Drillers’ argument that the bankruptcy court erred in
    dismissing their claims for relief for a constructive trust or equitable liens. In
    dismissing the claims, the bankruptcy court reasoned that Drillers had
    insufficiently pleaded the existence of a fiduciary duty or fraud, which are
    necessary components of a constructive trust claim, and the district court
    affirmed. 8 We agree.
    A constructive trust requires a breach of fiduciary duty or fraud,
    accompanied by unjust enrichment of the wrongdoer and traceability to a res.
    Haber Oil Co. v. Swinehart (In re Haber Oil), 
    12 F.3d 426
    , 437 (5th Cir. 1994).
    In recognizing a constructive trust, the critical requirement for purposes of this
    case is that the parties have a confidential or fiduciary relationship prior to
    and apart from the transaction in question. Harris v. Sentry Title Co., 
    715 F.2d 7
    The evidence also shows that Drillers complied with the subcontractors’ lien notice
    requirements, and therefore have liens on Debtors’ interest in the well. As a practical matter,
    these liens are the same in substance whether we classify them as contractors’ liens or
    subcontractors’ liens. As a result, we need not reach the issue of whether Drillers might also
    have contractors’ liens. We therefore do not reach the questions of whether Drillers had an
    express or implied contract with Debtors, or whether Lakehills was the agent, joint-venturer,
    or partner of Debtors.
    8  The bankruptcy court also concluded that the equitable lien claims were not
    adequately pled because Drillers and Debtors did not agree to create any security interest
    between them, and there is a remedy at law for Drillers, violating two requirements of an
    equitable lien. Drillers do not brief this point and thus waive it on appeal. See Kmart Corp.
    v. Aronds, 
    123 F.3d 297
    , 299 n.4 (5th Cir. 1997) (citing Cinel v. Connick, 
    15 F.3d 1338
    , 1345
    (5th Cir. 1994) (stating that a party who inadequately briefs an issue waives the claim)).
    15
    Case: 13-10969        Document: 00512770489          Page: 16     Date Filed: 09/16/2014
    No. 13-10969
    941, 946 (5th Cir. 1983) (citations omitted). A fiduciary duty must come from
    a preexisting relationship beyond mere business interactions. 
    Id. As we
    have
    previously explained:
    [I]n Rankin v. Naftalis, 
    557 S.W.2d 940
    (Tex. 1977), the Supreme
    Court of Texas refused to impose a constructive trust on oil and
    gas lease transactions. The court noted that the parties had been
    involved in a joint venture. It also recognized that confidential
    relationships such as partnerships could impose a broader reach
    for a constructive trust than simple business dealings. However,
    the court found that the transactions in question were not based
    upon the joint venture between the parties. It refused to extend a
    fiduciary duty to cover the business dealings, saying: “[s]ubjective
    business trust, cordiality and the trust which prevails between
    businessmen which is the foundation of ordinary contract law”
    could not be a basis for imposing a trust that would thwart the
    statute of 
    frauds. 557 S.W.2d at 944
    .
    
    Id. at 947.
    Likewise, Drillers have not pleaded sufficient facts demonstrating
    a special trust relationship here. Instead, the facts pleaded indicate that they
    had an ordinary business relationship with Debtors. As Debtors point out,
    Drillers rely solely on language in the Settlement Agreement and Option
    Agreement to try to establish that a special trust relationship existed.
    However, Drillers did not participate in the negotiation, execution, or
    performance of these agreements.                In addition, the language of these
    agreements does not support Drillers’ claims. 9
    Drillers also assert that they are entitled to funds from Debtors under
    the Texas Trust Fund Act. We disagree. While the Trust Fund Act might
    provide Drillers with a claim against Lakehills, it does not give Drillers a claim
    against Debtors, because Debtors were not contractors. As one Texas appellate
    9 A trust can also be established if an owner behaves fraudulently. Haber Oil 
    Co., 12 F.3d at 437
    . Drillers have neither briefed this issue, nor pleaded facts sufficient to show that
    Debtors behaved fraudulently. Any such argument is therefore waived. See 
    Kmart, 123 F.3d at 299
    .
    16
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    No. 13-10969
    court has explained, “[t]he Trust Fund Act imposes fiduciary responsibilities
    on contractors to ensure that Texas subcontractors, mechanics, and
    materialmen are paid for work completed.” Kelly v. Gen. Interior Constr., Inc.,
    
    262 S.W.3d 79
    , 84–85 (Tex. App.—Houston [14th Dist.] 2008), rev’d in part on
    other grounds, 
    301 S.W.3d 653
    (Tex. 2010) (emphasis added).
    Under chapter 162, construction payments are trust funds if the
    payments were made to a contractor or to an officer under a
    construction contract for improvement of specific real estate in
    Texas. Tex. Prop. Code Ann. § 162.001. The contractor or officer
    who receives the trust funds is a trustee of the funds. 
    Id. [at] §
    162.002. The artisan, laborer, mechanic, contractor,
    subcontractor, or materialman who labors or furnishes labor or
    material for the construction or repair of an improvement on
    specific real property located in Texas is the beneficiary of any
    trust funds paid or received in connection with the improvement.
    
    Id. [at] §
    162.003. A trustee who intentionally or knowingly or with
    the intent to defraud directly or indirectly retains, uses, disburses,
    or otherwise diverts the funds has misapplied the trust funds.
    
    Id. at 85
    (emphasis added). The language in Chapter 162 does not support
    Drillers’ argument that a fiduciary relationship also exists between Drillers
    and Debtors. As a result, Drillers’ constructive trust claims were properly
    dismissed.
    V.
    We AFFIRM the district court’s dismissal of Drillers’ constructive trust
    and equitable lien claims, and REVERSE the district court’s grant of summary
    judgment on Drillers’ subcontractors’ lien claims.           We REMAND for
    proceedings consistent with this opinion.
    17
    

Document Info

Docket Number: 13-10969

Filed Date: 9/16/2014

Precedential Status: Precedential

Modified Date: 10/30/2014

Authorities (22)

Wooley v. Faulkner (In Re SI Restructuring, Inc.) , 542 F.3d 131 ( 2008 )

City of Clinton, Ark. v. Pilgrim's Pride Corp. , 632 F.3d 148 ( 2010 )

The Youngstown Sheet and Tube Company v. Lucey Products ... , 403 F.2d 135 ( 1968 )

Mid-Continent Casualty Co. v. Swift Energy Co. , 206 F.3d 487 ( 2000 )

Matter of Haber Oil Co., Inc. , 12 F.3d 426 ( 1994 )

Energy Fund of America, Inc. v. G. E. T. Service Co. , 1980 Tex. App. LEXIS 4247 ( 1980 )

in-the-matter-of-waller-creek-ltd-debtor-hb-zachry-co-v-waller , 867 F.2d 228 ( 1989 )

Ayco Development Corp. v. G. E. T. Service Co. , 24 Tex. Sup. Ct. J. 407 ( 1981 )

Kmart Corp. v. Aronds , 123 F.3d 297 ( 1997 )

Diversified Mortgage Investors v. Lloyd D. Blaylock General ... , 22 Tex. Sup. Ct. J. 146 ( 1978 )

Trevor Rees-Jones, Trustee for Atkins Petroleum Corp. v. ... , 799 S.W.2d 463 ( 1990 )

Anderson v. Liberty Lobby, Inc. , 106 S. Ct. 2505 ( 1986 )

Celotex Corp. v. Catrett, Administratrix of the Estate of ... , 106 S. Ct. 2548 ( 1986 )

Bell Atlantic Corp. v. Twombly , 127 S. Ct. 1955 ( 2007 )

Dorsey v. Portfolio Equities, Inc. , 540 F.3d 333 ( 2008 )

SeaQuest Diving, LP v. S&J Diving, Inc. (In Re SeaQuest ... , 579 F.3d 411 ( 2009 )

S.E.C. v. Recile , 10 F.3d 1093 ( 1993 )

Gilbane Building Co. v. Admiral Insurance , 664 F.3d 589 ( 2011 )

Kelly v. General Interior Construction, Inc. , 2008 Tex. App. LEXIS 4981 ( 2008 )

The Continental Supply Co. v. Hoffman , 135 Tex. 552 ( 1940 )

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