Royal v. Halliburton Energy Services, Inc.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
fure 	)
)
STONE&WOLF,LLC 	)
)
Debtor. 	)
)
RANDY L. ROYAL, Trustee for the 	)
Bankruptcy Estate of Stone & Wolf, LLC, 	)
)
Plaintiff, 	)
)
v. 	)
)
HALLIBURTON ENERGY SERVICES, 	)
INC., 	)
Defendant. 	)
Case No. 04-20177
CHAPTER 7
Adv. No. 05-2032
REVISED ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
In this adversary proceeding, the plaintiff/trustee, Randy Royal (Trustee), challenges
the validity of the oil and gas lien asserted by the defendant, Halliburton Energy Services,
Inc. (Halliburton) against the estate's interest in an oil well identified as the Federal 17-5
welL 	The parties filed simultaneous motions for summary judgment and argued their
positions at a hearing held on January 12, 2006.
Jurisdiction
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.c. §§ 157
and 1334. This is a core proceeding within the definition of28 U.S.C. § 157(b)(2)(K). The
motions were brought under Fed. R. Civ. P. 56, made applicable in adversary proceedings
by Fed. R. Bankr. P. 7056.
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Summary judgment is appropriate when there is no disputed issue of material fact and
the moving party is entitled to judgment as a matter oflaw. Hardy v. S.F. Phosphates Ltd.
Co., 185F.3d 1076, 1079 (10thCir. 1999). Under Rule 56(c),summaryjudgmentisproper
only if the evidence, reviewed in the light most favorable to the party opposing the motion,
demonstrates no genuine issue of any material fact. 	Frandsen v. Westinghouse Corp., 46
F.3d 975, 976 (lOth Cir. 1995). In this case, the parties agree there is no dispute of fact.
Undisputed Facts
Halliburton provided equipment, chemicals, materials and services to Stone & Wolf,
LLC (Debtor) at the Federal 17-5 well, located in Niobrara County, Wyoming through
December 5, 2003. 	The amount of the invoices from Halliburton to the Debtor totaled
$391,460.08. The Debtor did not pay Halliburton.
On February 11, 2004, the Debtor filed its voluntary chapter 11 petition for relief.
The chapter 11 case was converted to a chapter 7 case on May 25,2005 and the plaintiff,
Randy Royal, was appointed the chapter 7 trustee of the estate.
Without obtaining relief from the automatic stay imposed by 11 U.S.C. § 362(a),
Halliburton filed a lien statement with the county clerk pursuant to Wyoming's oil and gas
lien statutes, Wyo. Stat. Ann. 29-3-101 through 111 (LexisNexis 2005), for the amount of
the unpaid invoices. The lien statement was filed on March 19,2004 against Federal Lease
W-141163, which contains the Federal 17-5 well.
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At the hearing on these motions, the Trustee advised the court that the Debtor's
working interest in the Federal 17-5 well extends to the federal lease and everything on the
lease. The well is situated on a 40-acre parcel within the larger leasehold. The court assumes
"everything on there" (counsel's description of the estate's interest) includes improvements
such as well casing and well equipment.
Directional LLC (Directional) also provided equipment and services to the Debtor on
the Federal 17-5 well. 	Directional perfected its oil and gas lien prior to the filing of the
Debtor's chapter 11 petition. On September 17,2004, this court granted stay relief to permit
Directional to file a state court complaint to foreclose its perfected statutory lien. That same
month, Directional filed its complaint in the Eighth Iudicial District Court for Niobrara
County, Wyoming (Wyoming District Court). On April 15, 2005, the court further modified
the automatic stay to permit Directional to complete its foreclosure action.
In the meantime, Halliburton sought stay relief to foreclose its asserted lien on the
Federal 17-5 well. On May 4, 2005, the court entered an order granting Halliburton relief
from the automatic stay to defend its lien position in the Directional lawsuit. 	On May 10,
2005, the court entered its Order Clarifying Order for Relief from Stay (Clarification Order)
in which the court expanded the relief to permit Halliburton to file its own complaint of
foreclosure. Halliburton filed the action (Foreclosure Lawsuit) on May 18,2005, but did not
serve a summons and complaint on the Trustee or the Debtor.
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Halliburton commenced the Foreclosure Lawsuit in the same Wyoming District Court
where Directional's lawsuit was pending. 	On November 10,2005, the Wyoming District
Court consolidated the two actions. Halliburton has yet to serve its complaint in either state
court case on the Trustee or the Debtor. A determination is pending in the consolidated state
court case on the extent to which Directional's oil and gas lien extends to the entire leasehold
held by the Debtor, apparently among other things. The Trustee is also a party in that case.
Discussion
The Trustee contends Halliburton's asserted oil and gas lien should be avoided as an
unperfected lien because it was recorded in violation of the automatic stay; Halliburton did
not file a required notice pursuant to 11 U.S.c. § 546(b)(2); and Halliburton did not
commence a civil action to maintain the perfection of the lien within the statutory time limit
of Wyoming's oil and gas lien laws. The Trustee also contends the foreclosure action filed
by Halliburton has not been "commenced" under Wyo. R. Civ. P. 3 because Halliburton has
not served the summons and complaint. Halliburton disputes each assertion.
Wyoming's Oil and Gas Lien Laws
Under Wyo. Stat. Ann. § 29-3-1 03(a) (LexisNexis 2005), every person who provides
materials or services on an oil well has a lien to secure payment for the materials or services.
The lien covers all production of oil attributable to the interest subject to the lien; the
proceeds of production attaching to a working interest "as the working interest existed on the
date labor was first performed or materials were first furnished;" and the well, derricks,
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tanks, materials furnished and the land or leasehold, including improvements. Wyo. Stat. §
29-3-105(a) (LexisNexis 2005).
The general provisions for statutory liens are set out in Wyo. Stat. Ann. §§ 29-1-301
through 311 (LexisNexis 2005). The priority of statutory liens is provided in Wyo. Stat. Ann.
§ 29-1-305(b). 	The statute provides that any lien perfected under title 29 attaches to the
materials provided and improvements made in preference to any subsequent lien. 	The
Wyoming Supreme Court ruled in the case of Thatcher & Sons v. Norwest Bank Casper, 750
P .2d 1324, 1327 (Wyo. 1988) that the priority of a statutory lien under the subsection "relates
back and attaches to the improvements made from commencement of the project over any
subsequent lien perfected under any other statute."
However, under Wyo. Stat. Ann. § 29-3-1 05(b), a lien on the production or the
proceeds of production is not effective against the purchaser of the oil or gas until written
notice of the claim is delivered to the purchaser in the form set forth in the statute. Further
"[t]he production of any mineral interest or working interest otherwise subject to a lien ...
is not to be encumbered until notice of the lien is delivered as provided ... to the holder of
the interest. At the time notice is given any proceeds remaining unpaid or any proceeds yet
to be paid on future sales of the mineral production shall be encumbered by the lien." Wyo.
Stat. Ann. § 29-3-105(b) & (c) (LexisNexis 2005).
To perfect a statutory lien, "a lien statement shall be filed with the county clerk and
notice by certified mail shall be given by the county clerk." Wyo. Stat. Ann. § 29-3-106(a)
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(LexisNexis 2005). 	The "lien claimant may file a lien statement ... within one hundred
eighty (180) days ... [fJrom the date work was substantially completed .... " 	Wyo. Stat.
Ann. § 29-3-1 06(b)(ii) (LexisNexis 2005).
The statutes further provide for "Limitation of actions and duration ofliens." Under
Wyo. Stat. Ann. § 29-3-109(a), "every person holding a lien created by this chapter may
proceed to obtain a judgment for the amount claimed by civil action commenced on the
account within one hundred eighty (180) days after filing of the lien statement."
Reading these statutes together, the Trustee argues Halliburton's lien perfection is only
effective from the date notice is given under Wyo. Stat. Ann. § 29-3-1 05(b) and therefore,
the lien does not relate back to the date services and materials were provided. 	The court
disagrees. The provisions of Wyo. Stat. Ann. § 29-3-1 05(b) & (c) apply specifically only to
production and production proceeds. Halliburton has not argued in these motions that it has
a perfected lien on any production or proceeds existing prior to the date it filed its lien
statement. If Halliburton's lien on the leasehold, equipment and improvements was properly
perfected, it relates back to the time the work was substantially completed, i.e., December
5,2003.
Exception from the Automatic Stay
Halliburton filed its lien statement as required by Wyo. Stat. Ann. § 29-3-106(a) after
the Debtor filed its chapter 11 petition. 	The Trustee contends that filing violated the
automatic stay and therefore, the perfection of the lien is void.
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Under § 362(b)(3), the filing of a petition does not operate as a stay "of any act to
perfect, or to maintain or continue the perfection of, an interest in property to the extent that
the trustee's rights and powers are subject to such perfection under section 546(b) of this title .
. .. " 	Under § 546(b)(I)(A), the trustee's avoidance power is subject to "any generally
applicable law that permits perfection of an interest in property to be effective against an
entity that acquires rights in such property before the date of perfection."
The court concludes Halliburton did not violate the automatic stay when it filed its
lien statement because the priority of its lien relates back to the last date the work was
performed. 	The Trustee's reliance on Wyo. Stat. Ann. § 29-3-1 05(b) & (c) (LexisNexis
2005) is not well taken for the reasons stated previously.
Section 546(b)
Next, the Trustee asserts that Halliburton's lien is not perfected because Halliburton
did not provide notice of its intent to assert the lien as authorized by 11 U.S.c. § 546(b)(2).
Because Halliburton's lien is effective under § 546(b)(I)(A), a notice under § 546(b)(2) is
unnecessary by the plain language of § 546(b). 	When the lien statement was filed,
Halliburton had a perfected lien and an interest in the property. Commencement of an action
or seizure of the property was not necessary. 	The court disagrees with the Trustee on this
Issue.
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Lien Foreclosure
Under the oil and gas lien statutes, the creditor is required to enforce a perfected lien
within 180 days of filing by commencing a lawsuit to enforce the lien. The commencement
of the lawsuit continues perfection of the lien until the action is resolved. Wyo. Stat. Ann.
§ 29-3-109(a) (LexisNexis 2005). 	Because the commencement of a foreclosure action is
barred by the automatic stay, Halliburton was required to obtain stay relief in order to file its
lien enforcement lawsuit.
Halliburton argues the state law 180-day statute of limitation was tolled under 11
U.S.C. § 108(c) while the automatic stay was in effect. That section provides:
Except 	as 	provided 	in 	section 	524 	of this 	title, 	if applicable
nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an
agreement fixes a period for commencing or continuing a civil action in a court
other than a bankruptcy court on a claim against the debtor ... and such period
has not expired before the date of the filing of the petition, then such period
does not expire until the later of-
(1) 	the end of such period, including any suspension of such period
occurring on or after the commencement of the case; or
(2) 	30 days after notice of the termination or expiration of the stay
under section 362 ... with respect to such claim.
The tolling provisions of § 108(c) apply to Halliburton's lien enforcement action.
Valley Tansit Mix ofRuidoso, Inc. v. Miller (In re Valley Transit Mix ofRuidoso, Inc.), 928
F.2d 354,356 (10th Cir. 1991)(New Mexico mechanic's lien foreclosure tolled by § 108(c»;
Diamond Hill Inv. Co. v. Shelden, 767 P.2d 1005, 1011 (Wyo. 1989)(statute oflimitations
for foreclosure of contractor's lien tolled by § 108(c». To the extent the case cited by the
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Trustee, In re Birdview Satellite Communications, Inc., 90 B.R. 465 (Bankr. D. Kan. 1988)
holds otherwise, the case is not controlling.
However, the Trustee argues that the tolling provision of § 108(c)(2) expired on June
9, 2005, because Halliburton was granted stay relief in the Clarification Order to pursue its
lien foreclosure action. Having failed to serve its summons and complaint on the Trustee and
the debtor, the argument goes, Halliburton failed to timely commence its state court action
under Wyo. Stat. Ann. § 29-3-109(a) and has lost its statutory lien rights.
The Trustee's argument is based on application of the Wyoming Rules of Civil
Procedure. Under Wyo. R. Civ. P. 3(b), a civil action is deemed commenced upon the filing
of the complaint if service is made upon the defendant within 60 days. 	If service is not
accomplished within 60 days, then the action "shall be deemed commenced on the date when
service is made." 	Wyo. R. Civ. P. 3(b). 	Halliburton has yet to "commence" its lawsuit.
Halliburton contends the order granting stay relief was too narrow to permit
Halliburton to serve a summons and complaint. 	Halliburton also argues it would be
inequitable to rule for the Trustee on this issue due to the limits of the Clarification Order.
To the extent Halliburton deemed the Clarification Order too restrictive to permit
service of the complaint, or believed expanded relief was necessary, Halliburton was free to
return to this court for further clarification or relief. Halliburton did not do so.
Regardless, the court agrees with Halliburton that the Clarification Order, by its plain
language, only authorized Halliburton to "file" its complaint and motion to consolidate.
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Black's Law Dictionary 642 (7th ed. 1999) defines "file" as a verb meaning either to
commence a lawsuit or deliver a legal document to the records custodian for placement in
the record. 	The term "service" is defined as formal delivery of a summons or other legal
process. Id. at 1392.
The court concludes Halliburton strictly complied with the explicit language of the
Clarification Order. Therefore the automatic stay remains in effect as to service of process
on the debtor or the estate and the tolling provisions of § 108( c) remain in effect as to service
of process. The proper forum for a determination of any other issues connected with service
of the complaint or issues related to Wyo. Stat. Ann. § 29-3-109(a) is the Wyoming District
Court.
Conclusion
The court concludes that Halliburton did not violate the automatic stay when it
perfected its oil and gas lien. Except to the extent of any production or proceeds, the lien
relates back to December 5,2003. Further notice under 11 U .S.C. § 542(b) was not required.
The statutory period for Halliburton to file an action to enforce its perfected lien was tolled
under 11 U.S.C. § 108(c) until 30 days after the entry of the Clarification Order, but the
automatic stay remains in effect as to service of process against the debtor or the estate.
Judgment on the complaint will be entered on behalf of Halliburton and against the Trustee
on all claims for relief.
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IT IS ORDERED that Halliburton's motion for summary judgment is granted and the
Trustee's motion for summary judgment is denied. The court will enter a Summary Judgment
on the Trustee's complaint.
DATED this 	/ 	S 	day of June, 2006.	,
Service to:
Gregory Dyekman
William Eikenberry
Charles Greenhouse
By the Court
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