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In re WBH Energy LP

United States District Court, W.D. Texas, Austin Division

February 17, 2017

IN RE WBH ENERGY, LP, WBH ENERGY PARTNERS LLC, WBH ENERGY GP, LLC
v.
CL III FUNDING HOLDING COMPANY, LLC, APPELLEE. U.S. ENERGY DEVELOPMENT CORPORATION, APPELLANT,

          MEMORANDUM OPINION AND ORDER

          LEE YEAKEL UNITED STATES DISTRICT JUDGE

         This cause is an appeal of two orders entered on May 20, 2016, by the United States Bankruptcy Court for the Western District of Texas, Austin Division. Before the court are Appellant's Brief filed August 19, 2016 (Clerk's Doc. No. 8), Appellees' Brief filed September 19, 2016 (Clerk's Doc. No. 9), and Appellant's Reply Brief filed October 19, 2016 (Clerk's Doc. No. 10). On November 21, 2016, the court entertained oral argument, at which all parties were represented by counsel. Having carefully considered the briefs, argument of counsel, applicable law, and record on appeal, the court concludes that the bankruptcy court's orders should be affirmed for the reasons to follow.

         I. Background

         In September 2011, WBH Energy LLC ("Debtor LLC") entered into a Joint Operating Agreement (the "Operating Agreement") with WBH Energy LP ("Debtor LP") and U.S. Energy Development Corporation ("U.S. Energy"), under which Debtor LLC was the operator, and Debtor LP and U.S. Energy were the working interest owners. WBH Energy GP, LLC ("Debtor GP") was the general partner of Debtor LLC, but is not a party to the Operating Agreement. The Operating Agreement contains the following provision:

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.

         U.S. Energy brought suit in state court in December 2014 against Debtor LP and Debtor LLC, seeking to remove Debtor LLC as operator under the Operating Agreement (the "State Court Proceeding"). U.S. Energy obtained a temporary restraining order at the beginning of the case in December 2014, and ultimately voluntarily dismissed the case.

         On January 4, 2015, Debtor LP, Debtor LLC, and Debtor GP (collectively, "Debtors") each voluntarily filed for bankruptcy under Chapter 11 of the Bankruptcy Code ("Bankruptcy Proceeding"). The cases are jointly administered.

         U.S. Energy later filed an adversary proceeding in the bankruptcy court to remove Debtor LLC as operator under the Operating Agreement ("Operator Adversary Proceeding"). U.S. Energy obtained a preliminary injunction in the bankruptcy court removing Debtor LLC as operator. The proceeding was ultimately dismissed pursuant to an agreement between U.S. Energy and the Debtors.

         U.S. Energy also filed an action in interpleader in the bankruptcy court to resolve billings U.S. Energy owed to Debtor LLC ("Interpleader Adversary Proceeding"). The interpleader action was disposed of by an agreed final judgment.

         On September 9, 2015, Debtors sold substantially all of their assets to CL III Funding Holding Company, LLC ("CL III") pursuant to a sale approved by the bankruptcy court.

         In May 2015, U.S. Energy submitted to the bankruptcy court claims against Debtors in the amount of $11, 400, 000 for attorney's fees. U.S. Energy based its claims on the Costs-and-Attorneys'-Fees provision of the Operating Agreement and asserted a lien on the assets of the Debtors based on U.S. Energy's alleged entitlement to attorney's fees. As then-owner of Debtors' assets, CL III objected to the allowance of the claims. On May 20, 2016, the bankruptcy court rendered orders granting CL Ill's objections and denying U.S. Energy's claims, which U.S. Energy now appeals.

         II. Standard of Review

         On appeal, this court may affirm, modify, or reverse a bankruptcy court's judgment, order, or decree, or remand the matter at issue with instructions to the bankruptcy court to conduct further proceedings. See Fed. R. Bankr. 8013. The district court reviews the bankruptcy court's findings of fact under a clearly erroneous standard and conclusions of law de novo. Matter of Berryman Products, Inc., 159 F.3d 941, 943 (5th Cir. 1998). Mixed questions of fact and law are subject to de novo review. In re CPDC, Inc., 337 F.3d 436, 441 (5th Cir. 2003).

         III. ...


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