United States District Court, W.D. Texas, Austin Division
IN RE WBH ENERGY, LP, WBH ENERGY PARTNERS LLC, WBH ENERGY GP, LLC
CL III FUNDING HOLDING COMPANY, LLC, APPELLEE. U.S. ENERGY DEVELOPMENT CORPORATION, APPELLANT,
MEMORANDUM OPINION AND ORDER
YEAKEL UNITED STATES DISTRICT JUDGE
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
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
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.
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.
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
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.
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
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
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.
Standard of Review
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).