888 F.3d 122
5th Cir.2018Background
- ATP Oil & Gas leased an operating interest on the Outer Continental Shelf and hired vendors/contractors (M&M Intervenors) who recorded liens under the Louisiana Oil Well Lien Act (LOWLA).
- ATP sold term overriding royalty interests (production payments) to OHA in three transactions before and after some liens attached.
- ATP filed Chapter 11 (converted to Chapter 7); OHA sued for a declaration that it owned the royalties free of the bankruptcy estate; M&M Intervenors intervened to enforce their LOWLA liens against OHA's overriding royalties.
- Bankruptcy court found liens attached to ATP’s operating interest and to OHA’s overriding royalties but held LOWLA’s safe-harbor extinguished those liens unless the purchaser had pre-purchase notice.
- The intervenors did not allege pre-purchase notice; district court dismissed their claims. The Fifth Circuit affirmed on the ground that OHA’s purchase falls within LOWLA’s safe harbor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LOWLA liens can attach to overriding royalty/production-payment interests | M&M: Overriding royalties are not mere hydrocarbons/proceeds; liens can attach to the royalty interest | OHA: Overriding royalties are not the statutorily protected "hydrocarbons" that LOWLA targets for lien attachment | Court assumed for argument liens could attach; did not need to decide definitively but treated overriding royalties as interests in hydrocarbons for statutory purposes |
| Whether OHA’s purchase falls within LOWLA’s safe-harbor that extinguishes liens | M&M: Safe harbor covers only post-severance purchases of already-owned hydrocarbons, not conveyances of pre-severance royalty interests | OHA: Safe harbor applies to bona fide purchases from a lessee, including overriding royalty interests in production | Held: Safe harbor encompasses purchases of overriding royalties (interests in produced hydrocarbons), so the purchase qualifies and can extinguish liens absent notice |
| Whether M&M provided the pre-purchase notice required to avoid extinguishment | M&M: (alleged insufficiently) implied purchaser notice not required or was satisfied | OHA: No actual pre-purchase notice was given | Held: M&M did not allege actual pre-purchase notice; because purchase fell within safe harbor, liens were extinguished and dismissal was proper |
Key Cases Cited
- Cutting Underwater Techs. USA, Inc. v. Eni U.S. Operating Co., 671 F.3d 512 (5th Cir. 2012) (applying state law as surrogate federal law on Outer Continental Shelf)
- Henrikson v. Guzik, 249 F.3d 395 (5th Cir. 2001) (statutory interpretation begins with text)
- Martinez v. Mukasey, 519 F.3d 532 (5th Cir. 2008) (use commonly understood legal meaning when statute silent)
- Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) (if statute unambiguous, inquiry ends with its text)
- Barnhart v. Thomas, 540 U.S. 20 (2003) (last-antecedent rule and limits on modifying clauses)
- Total E & P USA Inc. v. Kerr-McGee Oil and Gas Corp., 719 F.3d 424 (5th Cir. 2013) (overriding royalty is an interest in production free of production costs)
- Af-Cap Inc. v. Republic of Congo, 383 F.3d 361 (5th Cir. 2004) (royalty payments may be in kind or in cash)