Missouri Breaks, LLC v. Burns
2010 ND 221
| N.D. | 2010Background
- Comanche Oil Company leased land for a Missouri Breaks Unit No. 1 oil and gas well; interests were later assigned to Athens/Alpha Gas Corporation.
- Thomas P. Cawley loaned Athens/Alpha money totaling $46,000 between 1998 and 2002, claiming a 5% working interest as collateral and purchased that interest in 2002.
- Athens/Alpha filed for Chapter 11 bankruptcy in 2002; Cawley was listed as secured creditor and 5% working interest holder but did not file a proof of claim or record the interest.
- The bankruptcy plan confirmed in 2005 transferred Athens/Alpha’s 50% working interest to Missouri Breaks and discharged creditors under 11 U.S.C. § 1141; Missouri Breaks became owner in the unit.
- In 2006, Missouri Breaks brought state court quiet title action; Cawley recorded a 5% working interest in 2006, asserting owed loans and ownership, which the district court held barred by res judicata and lack of timely perfection.
- The district court concluded Cawley’s claims were barred by res judicata since the bankruptcy confirmation determined rights and discharged claims, and Cawley failed to record pre-bankruptcy and did not object to or appeal the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does res judicata bar Cawley’s claims to a 5% working interest and loans? | Cawley argues prior state/and bankruptcy actions did not resolve or bar his interests. | Missouri Breaks asserts the bankruptcy confirmation precludes relitigation under res judicata. | Yes; claims barred by res judicata. |
| Is Cawley’s asserted 5% working interest void as unrecorded pre-petition interest? | Cawley contends interest existed and should be enforceable against Missouri Breaks. | Trustee/bona fide purchaser protections void unrecorded prepetition interests on plan confirmation. | Voided; unrecorded pre-petition interest defeated by plan and 544(a)(3). |
| Does bankruptcy law limit state-law claims to recover on loans and working interests? | Cawley seeks state-law recovery despite bankruptcy discharge. | Discharge and plan preclude state-law claims against the estate. | Yes; plan confirmation discharged the claims, barring recovery. |
| Does the existence of a state-court agreement to litigate in state court defeat res judicata? | Parties agreed to litigate in state court and trial should proceed there. | Res judicata and concurrent jurisdiction govern; agreement cannot circumvent bankruptcy discharge. | No; agreement does not defeat res judicata or bankruptcy law. |
Key Cases Cited
- Hager v. City of Devils Lake, 2009 ND 180 (ND Sup. Ct. 2009) (res judicata framework in North Dakota)
- Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474 (6th Cir. 1992) (elements for res judicata analysis)
- K & K Implement, Inc. v. First Nat’l Bank, 501 N.W.2d 734 (ND 1993) (bankruptcy-related res judicata effect and plan confirmation)
- Littlefield v. Union State Bank, 500 N.W.2d 881 (ND 1993) (final judgment binding for res judicata purposes)
- In re Cascade Oil Co., Inc., 65 B.R. 35 (Bankr. D. Kan. 1986) (trustee/bona fide purchaser concepts in avoidance of unrecorded interests)