### REVISED September 16, 2014 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 13

- 10969

In the Matter of: HERITAGE CONSOLIDATED, L.L.C.,
Debtor,
ENDEAVOR ENERGY RESOURCES, L.P.; ACME ENERGY SERVICES, INCORPORATED, D/B/A RIG MOVERS EXPRESS, D/B/A BIG DOG DRILLING,
Appellants , v.
HERITAGE CONSOLIDATED, L.L.C.; HERITAGE STANDARD CORPORATION,

A ppellees

.

Appeal from the United States District Court for the Northern District of Texas

Before STEWART, Chief Judge, an d HIGGINBOTHAM and ELROD, Circuit Judges

. JENNIFER WALKER ELROD , Circuit Judge : Appellants Endeavor Energy Resources, L.P. and Acme Energy Services, Inc. (collect ively, Drillers) performed work on Debtors’ well , but were never paid

. Drillers subsequently filed a mineral lien on the well , and then a claim in Debtors’ bankruptcy. The bankruptcy court dismissed Drillers’ constructive United States Court of Appeals Fifth Circuit 

### FILED August 27 , 2014

Lyle W. Cayce Clerk Case: 13-10969 Document: 00512770489 Page: 1 Date Filed: 09/16/2014No. 13

- 10969 trust and equitable lien claims and granted summary judgment to Debtors on Drillers’ mineral contractor ’s and subcontractor ’s lien claim s

. The district court affirmed

. We AFFIRM the district court’s dismissal of Drillers’ constructive trust and equitable lien claims . We REVERSE and REMAND the district court’s grant of summary judgment on Drillers’ mineral subcontractors’ lien claim s because Drillers submitted sufficient evidence to survive summary judgment

. I. Heritage Standard Corporation (HSC) owned mineral property l eases for a nonfunctioning oil w ell in Winkler County, Texas. This well was governed by a series of contractual arrangements . Because these contracts bear on Drillers ’ ability to recover on their claims, we will briefly outline them here

. In January 20 08, HSC entered into a farmout agreement (Staley Agreement) with George Staley to develop the well. 1 Staley then entered into an assignment contract (Lakehills Agreement) with Lake Hills Productions, Inc. (Lakehills) to perform the work. Staley, HSC, and Lakehills , along with well operator Stratc o Operating Co., Inc. (Stratco) subsequently signe d a Joint Operating Agreement (JOA ) to develop the well. The JOA was made effective as of January 2008, and the parties all signed it between April and June of
2008. Lakehills then sold and assigned its interest s in the well to Trius Energy, LLC (Trius) in February 2008 , and Trius was added to the JOA in September
2008. As a result, HSC was responsible for 12.5% of the well expenditur es, and Trius was responsible for the remaining 87.5% of the expenditures

. In July

1 A farmout is a contract “whereby a lease owner not desirous of drilling at the time agrees to assign the lease, or some portion of it . . . to another operator who is desirous of drilling the tract.” 8

- F Williams & Meyers, Oil Gas Law Scope. “The primary characte ristic of the farmout is the obligation of the assignee to drill one or more wells on the assigned acreage as a prerequisite to completion of the transfer to him.” Id. 2 Case: 13-10969 Document: 00512770489 Page: 2 Date Filed: 09/16/2014No. 13

- 10969 2008, Lakehills replaced Stratco as the official well operator. Under this new arrangement, Lakehills was responsible for ensuring that necessary work was done on the well , and Trius and HSC were to make payments for this work to Lakehills

. In May, June, and July of 2008, Lakehills contracted with Driller s , who then performed work on the well during th at same time period. This arrangement apparently took a downward turn in the late summer of 2008. B oth Trius and HSC stopped making payments to Lakehills. Lakehills then failed to pay Drillers for their work, and Drillers filed mineral liens against HSC to recover the money they were owed . Drillers’ lien s were filed withi n the six month perio d required by the Texas statute, and HSC received notice as required under the statute for a subcontractor ’s lien. See Tex. Prop. Code Ann. § 56.001

– 3 , 0.21

. After Drillers filed their lien s , HSC assigned its interest in the well to Heritage Consolid ated. S everal of the other parties to these agreements subsequently defaulte d on their contract obligations. A s a result, HSC, Heritage Consolidated, Trius, Stratco, Lakehills, and Staley negotiated a settlement agreement (Settlement Agreement) in May 2009. Under the Settlement Agreement, Lakehills receiv ed a 1% interest in the well as consideration for releasing its operator liens against HSC and Heritage Consolidated (collectively, Debtors). The Settlement Agreement also stipulated that Trius was obligated to satisfy Drillers’ liens and to indemnify all other signees against claims arising from those liens. In consideration for Trius’s agreement to discharge the liens, Debtors forgave Trius’ s 87. 5% share of the working expenses incurred by Debtors after Debtors took over well operations in November 2008. Even after this settlement, no one paid Drillers for their services. Debtors filed for Chapter 11 bankruptcy

. Drillers filed proofs of claim in the ir bankruptcies asserting secured lien claims and, alternatively, unsecured 3 Case: 13-10969 Document: 00512770489 Page: 3 Date Filed: 09/16/2014No. 13

- 10969 nonpriority claims. Drillers also filed an amended complaint seeking a determination of the validity, extent, and priority of their mineral liens. The bankruptcy court ente red judgment against the Drillers on all claims. The bankruptcy court granted summary judgment to Debtors on Drillers’ mineral
contracto r s’ and subcontractor s’ lien claims, and granted Debtors’ motion to dismiss Drillers’ additional claims for a construct ive trust and equitable lien asserted in their amended complaint. The district court affirmed, and Drillers appealed.
II. We review “ the decision of a district court sitting as an appellate court in a bankruptcy case ‘by applying the same standards of r eview to the bankruptcy court’s findings of fact and conclusions of law as applied by the district court.’” Clinton Growers v. Pilgrim’s Pride Corp. (In re Pilgrim’s Pride Corp.) , 706 F.3d 636, 640 (5th Cir. 2013) (quoting Wooley v. Faulkner (In re SI
Res tructuring, Inc.) , 542 F.3d 131, 134

– 35 (5th Cir. 2008)). “‘Generally, a bankruptcy court’s findings of fact are reviewed for clear error , and its conclusions of law are reviewed de novo .’” Id. at 640 (quoting In re SI Restructuring, Inc. , 542 F.3d at 135). We review a bankruptcy court’s grant of summary judgment de novo

. See
I

d. (citing SeaQuest Diving, LP v. S & J Diving, Inc. (In re SeaQuest Diving, LP) , 579 F.3d 411, 417 (5th Cir. 2009)). When seeking summary judgment, the moving pa rty

— here, Debtors

— bear s the initial burden to demonstrate that there is no genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 322

– 23 (1986). Once this initial burden is satisfied, the burden shifts and the non

- moving party “must come forward with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp ., 475 U.S. 574, 587 (198 6) (quoting Fed. R. Civ. P . 56(e)). We must draw inferences in the light most favorable to the party opposing the motion. 4 Case: 13-10969 Document: 00512770489 Page: 4 Date Filed: 09/16/2014No. 13

- 10969 Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255 (1986). However, t he non

moving party’s burden may not be satisfied by relying upon mere “conclusionary denials, improbable inferences, and legalistic argumentation.” S.E.C. v. Rec ile , 10 F.3d 1093, 1097 (5th Cir. 1993). We also review the dismissal of claims pursuant to Rule 12(b)(6) de novo

. Gonzalez v. Kay , 577 F.3d 600, 603 (5th Cir. 2009). We accept all well

- p leaded facts as true and view those facts in the light mos t favorab le to the plaintiffs. Id. at 603 (quoting Dorsey v. Portfolio Equities, Inc. , 540 F.3d 333, 338 (5th Cir. 2008)). However, “plaintiffs must allege facts that support the elements of the cause of action in order to make out a valid claim.” C ity of Clinto n, Ark. v. Pilgrim’ s Pride Corp. , 632 F.3d 148, 152

– 53 (5th Cir. 2010) (citing Bell Atlantic Corp. v. Twombly , 550 U.S. 544 (2007)). “[T]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Gonzalez , 577 F.3d at 603 (internal quotation marks and citations omitted). “In this diversity action, we must apply Texas law as interpreted by Texas state courts.” Gilbane Bldg. Co. v. Admiral Ins. Co. , 664 F.3d 589, 593 (5th Cir. 2011) (quoting Mid

– Continent Cas. Co. v. Swift Energy Co. , 206 F.3d 487, 491 (5th Cir. 2000) )

. “ We consider T exas Supreme Court cases that, while not deciding the issue, provide guidance as to how the Texas Supreme Court woul d decide the question be fore us.” Id. at 594 (intern al quotation marks and citation omitted ) . W e also “ consider decisions of the intermediate appellate courts in determining how the Texas Supreme Court would decide this issue. We are bound by our own pr ecedent interpreting Texas law unless there has been an intervening change in authority. ” Id. (citations omitted).
III. Drillers first argue that the bankruptcy and district court s should not have granted summary judgment to Debtors on their contractors ’ and 5 Case: 13-10969 Document: 00512770489 Page: 5 Date Filed: 09/16/2014No. 13

- 10969
subcontractors’ mineral lien claims

. We agree that it was error to grant summary judgment on Drillers’ subcontractors ’ lien claims , and therefore do not reach the issue of whether Drillers were also entitled to contractors ’ liens

. A. In Texas, material liens are creatures of statute, granted to “both mineral contractors and mineral subcontractors to secure payment for labor or services related to mineral activities, as therein defined.” 56 Tex. Jur. 3d Oil & Gas § 678 (2014); see also Trevor Rees

– Jones, Tr. for Atkins Petroleum Corp.
v. Trevor Rees

- Jones, Tr. for Apache Services, Inc. , 799 S.W.2d 463, 465 (Tex. App.

— El Paso 1990, writ denied). Texas courts have repeatedly noted that the mineral lien statute is “designed to p rotect lab orers and materialmen ” 2 and should therefore be liberally construed. Bandera Drilling Co., Inc. v. Lavino , 824 S.W.2d 782, 784 (Tex. App.

— Eastland 1992, no writ); see also Youngstown Sheet & Tube Co . v. Lucey Prod s

. Co. , 40 3 F.2d 135, 143 (5th Cir. 1968). A mineral contractor is a person who “furnishes or hauls material” or “performs labor” under an express or implied contract with a mineral property owner or with a trustee, agent, or receiver of a mineral property owner. Tex. Prop. Code Ann. § 56.001( 2 ). A mineral subcontractor is a person who “furnishes or hauls material” or “performs labor” under a contract with a mineral contractor. Tex. Prop. Code Ann. § 56.001(4). Contractors and subcontractors are treated interchangeabl y under t he mineral lien statute, with two notable exceptions: First, subcontractors must give notice to the mineral owner when filing material lien s , whereas contractors have no notice

2 While the Te xas statute calls these liens “mineral” contractor or subcontractor lie ns, the case law frequently refers to them as “material and mechanics” or “M&M” liens. Laborers are someti mes referred to as “materialmen ” in the case law. The se terms appear to be interchangeable.

6 Case: 13-10969 Document: 00512770489 Page: 6 Date Filed: 09/16/2014No. 13

- 10969 requirement. 3 Second, contractors must have a contractual relationship with a min eral owner , whereas subcontractors only need to have a contractual relationship with a contractor. When determining whether a laborer is a subcontractor or a contractor,
t he important question is whether there is a contractual relationship between the owner and the laborer performing the work: I f there is a direct contractual relationship between an owner and the laborer, then the laborer is a contractor with regard to that owner . If there is a contract between the laborer and another party who has a contract with an owner, then the laborer is a subcontractor. See Rhett G. Campbell, A Survey of Oil and Gas Bankruptcy
Issues , 5 Tex. J. Oil Gas & Energy L

. 265, 311

– 12 (2010). If a well has multiple owners, it is possible for a single laborer to be bot h a subcontractor and a contractor for the work they perform on that well. For example, the owners may collectively enter into an agreement that makes one owner the well operator, and gives that owner

- operator the power to contract with laborers

. The lab orer s would then be contractor s with respect to the contracting owner

- operator, but subcontractor s with respect to the other

owners. See id. at 311 ( “ In the typical transaction, the operator contracts directly with vendors but the non

- operators do not. A service company contracting with the operator is a contractor as to the operator (if the operator owns an interest in the lease) but a subcontractor as to non

- operators. ” ). It is thus not only possible, but common within the industry for an owner to also be a contractor as defined by the statute. See In re Mid

- Am. Petroleum, Inc. , 83 B.R. 933, 935 (Bankr. N.D. Tex. 1988) (concluding that MAP was both a working interest owner and a mineral contractor); Energy Fund of Am., Inc. v.

3 Drillers averred in their lien affidavit that they ga ve such notice to the owner ( HSC ), and Debtors do not contest this point.

7 Case: 13-10969 Document: 00512770489 Page: 7 Date Filed: 09/16/2014No. 13

- 10969
G.E.T. Serv. Co. , 610 S.W .2d 833, 83 5

– 3 6 (Tex. Civ. App.

— Eastland 1980), aff’d in part and rev’d in part on other grounds sub nom. , Ayco Dev. Corp. v. G.E.T. Serv. Co. , 616 S.W.2d 184 (Tex. 1981). Under these circumstances, “ the service company would need to perfect its lien both ways, first as a
subcontractor and second as a contracto r ” to secure a claim against all owners. Campell, supra at 312 ; see also Mitchell E. Ayer, 34 Energy & Min. L. Found. §7.08 (2013). In order to determine whether Drillers were contractors or subcont ractors with regard to Debtors, we therefore look to the various contractual relationships governing the well at the time that Drillers performed their work. Viewed in the light most favorable to non
- movant Drillers, Drillers have raise d a fact issue as to whether they were mineral subcontractors with regard to Debtors : Drillers presented evidence that Debtor HSC was an owner at the relevant time because HSC owned part of the working interest in the lease when Drillers performed their work and perfect ed their lien s

. Drillers also presented evidence that HSC was the record owner of 100% of the lease, and retained 12.5% of the working interest even after the various farmout agreements and assignments

. Drillers presented evidence demonstrating that Lake hills was in a contractual relationship with HSC because Lakehills was the assignee of the Staley Agreement. Viewed in the light most favorable to Drillers, this evidence demonstrates that Lakehills was a contractor at the time that Drillers performed the ir work on the well. Drillers also put forth evidence showing that Lakehills contracted with Drillers to have Drillers perform work on the well. T aken together, t hese facts at the very least raise a genuine issue as to whether Drillers were mineral subco ntractors with regard to Debtors at the time Drillers performed their work. Tex. Prop . Code Ann. § 56.001(2) , (4)

.

8 Case: 13-10969 Document: 00512770489 Page: 8 Date Filed: 09/16/2014No. 13

- 10969
B. Debtors argue, and the bankruptcy and district courts agreed, that Drillers could not be subcontractors because Lakehills subsequently acquired
a 1% ownership interest in the lease, and was thus a co

- owner, rather than a
contractor. According to Debtors and the bankruptcy and district courts, Lakehills’s ownership interest “relates back” to the time prior to the inception

o f Drillers’ work. The bankruptcy and district courts therefore reasoned that Drillers’ lien s could only attach to Lakehills’s

— and not Debtors’

— interest in the lease. We disagree. As we explained above, it is possible under Texas law for an owner to als o be a contractor, and for a laborer to secure liens against both the contracting and non

- contracting owners. See In re Mid

- Am. Petroleum, Inc. , 83 B.R. at 935; Campbell, supra at 311

– 12

. In reaching a contrary conclusion, t he district court reli ed on the T exas Supreme Court’s decision in Diversified Mortgage Inv estors v. Lloyd D. Blaylock General Contractor, Inc., 576 S.W.2d 794 (Tex. 1978)

. Specifically,
Debtors and the district court point to language in Diversified Mortgage to argue that Drillers’ lien s could only attach to Lakehills’s interest

— and not Debtors’ interest

— if Lakehills was an owner at the relevant time. The district
court relied on the Texas Supreme Court’s statement that “[o]ur courts have long held that a mechanic’s and materialman’ s lien attaches to the interest of the person contracting for construction. Thus, if a lessee contracts for construction, the mechanic’s lien attaches only to the leasehold interest, not to the fee interest of the lessor.” Diversified Mortg. , 576 S.W.2d at 805. After reviewing the case law, we conclude that th e district court incorrectly applied this decision and the accompanying “ relation back” doctrine.
In Diversified Mortg age , general cont ractor Blaylock held contractor’ s liens on certain properties based on a construction contract with Dollar Inns. Id

. at 796. The Texas Supreme Court explained that “[t]o further determine 9 Case: 13-10969 Document: 00512770489 Page: 9 Date Filed: 09/16/2014No. 13

- 10969 the priority of the mechanic’s lien, this court must decide whether Dollar Inns, the party contracting with Blaylock, held any l egal or equitable interest in the property at the time of inception of this mechanic’s [contractor] lien. ” Id. at 806. The Texas Supreme C ourt determined that: [A] t th e time of inception of Blaylock’s mechanic’ s lien, Dollar Inns held an equitable right or interest in the land under a contract of purchase to which such mechanic’ s lien could attach. Under the doctrine of after

- acquired title, the security for such m echanic’ s lien was later expanded to include the legal title to the property acquired by Dollar Inns when the sale was consummated on April 5, 1973

. Id. The Texas Supreme Court thus expanded the interest to which the lien attached based on the “relation back” doctrine. The Texas Supreme Court explained the “relation back” doctrine as follow s: [T] he majority of the courts generally applies the doctrine of “after

acquired title” or the “relation back” doctrine. These doctrines hold that the lien attaches to whatever legal or equitable interest the contracting party had when the work was begun , and thereafter attaches to any other or greater interest whenever acquired before the lien is enforced: provided that the after

- acquired title enlarges an estate or interest to which the lien has already become attached. Accordin gly, the priority of a m echanic’ s lien not only depends upon the inception of the lien, but also upon whether the party contracting with the mechanic or the materialman has a legal or equitable interest in the property at the time of contracting. Id. at 805

– 06 (internal citations and quotation marks omitted). In other words, the “relation back” doctrine is designed to expand the interest to which the lien can attach, thus helping to effectuate the statute’s purpose in protect ing laborers and materialmen. See Youngstown , 403 F.2d at 143; Bandera Drilling , 824 S.W.2d at 784

. We have previously given the Texas Supreme Court’s decision in Diversified Mortg age a similar reading in Matter of Waller Creek, Ltd. , 867 F.2d 10 Case: 13-10969 Document: 00512770489 Page: 10 Date Filed: 09/16/2014No. 13

- 10969 228, 234 (5th Cir. 1989). There, we addressed a contractor’s lien claim and explained that the “relation back” doctrine : [H] olds that the lien attaches to whatever legal or equitable interest the contracting party had when the work was begun, and thereafter attaches to any other or greater interest whenever acquired before the lien is enforced: provided that the after

acquired title enlarges an estate or interest to which the lien has already become attached

. Matter of Waller Creek, Ltd. , 867 F.2d 228, 234 (5t h Cir. 1989) (emphasis added). The “relation back” doctrine is therefore intended to expand the interest to which a lien can attach. In contrast, t he district court’s construction of the “relation back” doctrine would have just the opposite effect: because Lakehills later acquired a greater interest than it had at the time of Drillers’ work, Drillers would no longer be able to attach to HSC’s continued interest, despite the fact that HSC had a 12.5% interest in the lease, whereas Lakehills only acquired a 1% interest in the lease. This application of the “relation back” doctrine thus shrank rather than enlarged the interest to which Drillers’ lien s c ould attach. If Lakehills gained a 1% ownership interest in the lease at the time that Drillers performed their work, t hen Drillers may have gained an additional claim for contractors’ lien s against Lakehills . It would not, however, prevent Drillers from assert ing separate subcontractors’ lien s against HSC. Such a result would be contrary to the statutory scheme, which p rovides laborers with a method of recourse against both contractors and owners with whom they do not have privity of contract. See Campbell, supra at 311 (“ The basic principle is that the service company who contracts through the operat or and perfects a

s ubcontractor’ s lien is entitled to a lien on all amounts due from non

- operator

11 Case: 13-10969 Document: 00512770489 Page: 11 Date Filed: 09/16/2014No. 13

- 10969 [owner]s to the operator. ”). 4 Th e district court’s application of this doctrine conflicts with both the language in Diversified Mortgage , and our own

su bsequent interpretation of the “relation back” doctrine. “We are bound by our own precedent interpreting Texas law unless there has been an intervening change in authority , ” and thus reject the district court’s application of the doctrine here. Gilbane Bldg. Co. , 664 F.3d at 593 (citations omitted). Moreover, the passage in Diversified Mortgage cited by the district court and Debtors discussed a contractor’s rather than a subcontractor’s lien. As we have explained, a contractor’s lien requires privity of contr act with an owner , whereas a subcontractor’s lien does not

. Placed in context, t he Diversified Mortgage court was explaining that a contractor ’s lien could only attach to the interest of the party “contracting for construction.” Diversified Mortg. , 576 S .W.2d at 805. It was not, as Debtors suggest, implying that a subcontractor ’s lien could not also be asserted against other owners. See Campbell, supra at
311. Instead, the Diversified Mortgage court was distinguish ing between the ability of a contracto r’s lien to attach to a leasehold interest, and the lien’s ability to attach to the real property on which the lease is located. It does not mean that a subcontractor cannot reach the leasehold interests of owners who have contracted with a contractor to have the labor performed. Under Debtors’ reading, the entire category of “subcontractors” under the statute would be superfluous, because a subcontractor by definition never has a contract with the owner. We reject such a reading. See Nat’l Ass’ n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 668 (2007) (“But this reading would render the regulation entirely superfluous.”); see also Antonin

4 Non

- operator is an industry short

- hand for “non

- operating working interest owner” and refers to those owners who have not been designated as an operator of the lease. It is als o possible to be an operator without being an owner. 12 Case: 13-10969 Document: 00512770489 Page: 12 Date Filed: 09/16/2014No. 13

- 10969 Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012) (“If possible, every word and every provision is to be given effect ( verba cum effectu sunt accipienda ). None should be ignored. None should needlessly be given an interpretation that causes it to duplicate another provision or to have no consequence.” (footnote omitt ed)). In the case before us, the passage from Diversified Mortgage mean s only that Drillers’ lien s could not attach to an interest held by the real property owner on which the mineral lease was located

. Finally , the approach advocated by Debtors would allow HSC and Lakehills to alter Drillers’ statutory rights to recover payment for the work Drillers performed by entering into a subsequent contract after the completion of the work that Drillers were not party to. It is undisputed that Lakehills was
not a legal owner of any interest in the well in mid

- 2008 when Drillers performed their work. Lakehills later did receive a 1% working interest in the lease after Drillers had completed their work and perfected their lien s

. Indeed, Lakehills received this i nterest from a separate Settlement Agreement that had not even been contemplated at the time that Drillers performed the work. 5

5 Even assuming arguendo that the “relation back” doctrine could pr event Drillers from asserting subcontractors’ lien s against Debtors, it is not clear that Lakehills ’s interest actually would relate back to the time that Drillers performed their work. The district court noted that “[a]lthough it is a close question, the Court finds that under Diversified , Hoffman , and related cases, L akehills w as a mineral owner.” End eavor Energy Res., L.P. v. Heritage Consol., LLC, No. 3:12

- CV

- 03765

- B, 2013 WL 4045250 , at *8 (N.D. Tex. Aug. 9, 2013)

. T his

case , however, is distinguishable from those cited by the district court

. In Hoffman v. Continental Supply Co. , Lockhart and Humb le Oil had already entered into a contract where Lockhart agreed to purchase leases and to complete some drilling activities. 120 S.W.2d 851, 854 (Tex. Civ. App.

— Eastland 1938), rev’d on other grounds , 144 S.W.2d 253 (Tex. 1940)

. Similarly, in Diversified Mortgage , Dollar Inns had executed a contract to purchase the Irving property from First Madison and paid First Madison $200,000 prior to the inception of the mechanic’s lien. Diversified Mortg ., 576 S.W.2d at 806. The court therefore concluded that “Dol lar Inns held an equitable right or interest in the land under a contract of purchase to which such mechanic’s lien could attach.” Id. In contrast, there was no contract in place pursuant to which Lakehills would receive an ownership interest at the time that Drillers performed their work. 13 Case: 13-10969 Document: 00512770489 Page: 13 Date Filed: 09/16/2014No. 13

- 10969 As one Texas appellate court reaso ned: Can the issue of whether those who provide services and materials are contractors or s ubcontractors be dependent upon events that occur after the contract for such services and materials is made? We believe the answer should be “No”. Having dealt with Atkins when that company owned all of the working interest and at a time when there is n o question about its right or authority to contract for services and materials, the rights of those parties should not be governed by subsequent events between the owner and third parties who received assignments after the drilling cost had been incurred.

. . . Th e lien claimants’ status as contractors cannot be converted to that of subcontractors by another contract to which they are not privy. Trevor Rees

- Jones , 799 S.W.2d at 465

– 66. 6 As Drillers note , if subsequent contracting by the owner of any portion of the mineral interest, no matter how small and whether or not the interest is filed of record, precluded a subcontractor ’s lien, then laborers would have little remedy for nonpayment. See Youngstown , 403 F.2d at 143 (“It is a r ule of long standing that the mechanic’s and materialman’s lien statutes of this state will be liberally construed for the purpose of protectin g laborers and materialmen.” (internal

6 Although not well briefed by the parties, there is another aspect of the Texas mineral lien statute that suggests that it is meant to protect subcontractors from going without pay: The mineral contractor chapter of the Texas Property Code also has a trapping statute. If an unpaid mineral subcontractor or supplier who has led a lien notice then also sends notice to working interest owners, the statute has a similar effect, “trapping” monies otherwise due and owing to the operator, so that they are to be paid directly to the mineral lien claimants instead. Like the similar provision for building subcontractors, the trapping statute is only available to those who have or are eligible to have a lien on the owner’s pro perty, but it does not expressly create a lien as such on the monies that are intended to be trapped. In re S. Tex. Oil Co ., No. 09

- 542 33

- C, 2010 WL 1903750 , at *1 (Bankr. W.D. Tex. May 10, 2010)

. 14 Case: 13-10969 Document: 00512770489 Page: 14 Date Filed: 09/16/2014No. 13

- 10969 quotation marks and citation omitted) ). Viewed in the light most favorabl e to Drillers , these facts demonstrate that Drillers were subcontractors with regard to Debtors. The district court therefore erred in granting summary judgment to Debtors on Drillers’ subcontractor s’ lien claims

. 7
IV. We next turn to D r illers’ argument t hat the bankruptcy court erred in dismissing their claim s for relief for a constructive trust or equitable lien s . In dismissing the claims, t he bankruptcy court reasoned that Drillers had insufficiently plead ed the existence of a fiduciary duty or fraud, which are necessary components of a constructive trust claim, and the district court affirmed. 8 We agree. A constructive trust requires a breach of fiduciary duty or fraud, accompanied by unjust enrichment of the wrongdoer and traceability to a res

. Haber Oil Co. v. Swinehart (In re Haber Oil) , 12 F.3d 426, 437 (5th Cir. 1994). In recognizing a constructive trust, the critical requirement for purposes of this case is that the parties have a confidential or fiduciary relationship prior to and apart f rom the transaction in question. Harris v. Sentry Title Co. , 715 F.2d

7 T he evidence also shows that Drillers complied with the subc ontractor s’ lien notice req uirements, and therefore have lien s on Debtors’ interest in the wel l. As a practical matter, these lien s are the same in substance whether we classify them as contractors’ lien s or subcontractors’ lien s . As a result, we nee d not reach the issue of whe ther Drillers might also have contractors’ lien s

. We therefore do not reach the questions of whether Drillers had an express or implied contract with Debtors, or whether Lakehills was the agent, joint

- venturer, or partner of De btors.

8 The bankruptcy court also concluded that the equitable lien claim s were not adequately pled because Drillers and Debtors did not agree to create any security interest between them, and there is a remedy at law for Drillers, violating two requ irements of an equitable lien. Drillers do not brief this point and thus waive it on appeal. See Kmart Corp. v. Aronds, 123 F.3d 297, 299 n.4 (5th Cir. 1997) (citing Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994) (stating that a party who inadequat ely briefs an issue waives the claim) )

.

15 Case: 13-10969 Document: 00512770489 Page: 15 Date Filed: 09/16/2014No. 13

- 10969 941, 946 (5th Cir. 1983) (citations omitted). A fiduciary duty must come from a preexisting relationship beyond mere business interactions. Id. As we have previously explained: [I]n R ankin v. Naftalis , 557 S.W.2d 940 (Tex. 1977), the Supreme Court of Texas refused to impose a constructive trust on oil and gas lease transactions. The court noted that the parties had been involved in a joint venture. It also recognized that confidential relationships such as partnerships could impose a broader reach for a constructive trust than simple business dealings. However, the court found that the transactions in question were not based upon the joint venture between the parties. It refused to e xtend a fiduciary duty to cover the business dealings, saying: “[s]ubjective business trust, cordiality and the trust which prevails between businessmen which is the foundation of ordinary contract law” could not be a basis for imposing a trust that would thwart the statute of frauds. 557 S.W.2d at 944. Id. at 947. Likewise, Drillers have not plead ed sufficient facts demonstrating a special trust relationship here. Instead, the facts pleaded indicate that they had an ordinary business relationship with De btors. As Debtors point out, Drillers rely solely on language in the Settlement Agreement and Option Agreement to try to establish that a special trust relationship exi s ted. However, Drillers did not participate in the negotiation, execution , or performa nce of these agreements . In addition, the language of these agreements does not support Drillers’ claims

. 9 Drillers also assert that they are entitled to funds from Debtors under the Texas Trust Fund Act. We disagree. While the Trust Fund Act might provide Drillers with a claim against Lakehills , it does not give Drillers a claim against Debtors, because Debtors were not contractors. As one Texas appellate

9 A trust can also be established if an owner behaves fraudulently. Haber Oil Co ., 12 F.3d at 437. Drillers have neither brief ed this issue, nor plead ed facts sufficient to show that Debtors behaved fraudulently. Any such argument is therefore waived. See Kmart , 123 F.3d at 299. 16 Case: 13-10969 Document: 00512770489 Page: 16 Date Filed: 09/16/2014No. 13

- 10969 court has explained, “[t] he Trust Fund Act imposes fiduciary responsibilities

on contractors t o ensure that Texas subcontractors, mechanics, and materialmen are paid for work completed.” Kelly v. Gen. Interior Const r ., Inc ., 262 S.W.3d 79, 84

– 85 (Tex. App.

— Houston [14th Dist.] 2008), rev’d in part on other grounds , 301 S.W.3d 653 (Tex. 2010) (emph asis added). Under chapter 162, construction payments are trust funds if the payments were made to a contractor or to an officer under a construction contract for improvement of specific real estate in Texas. Tex. Prop. Code Ann. § 162.001. The contrac tor or officer who receives the trust funds is a trustee of the funds. Id. [at] § 162.002. The artisan, laborer, mechanic, contractor, subcontractor, or materialman who labors or furnishes labor or material for the construction or repair of an improvement on specific real property located in Texas is the beneficiary of any trust funds paid or received in connection with the improvement. Id. [at] § 162.003. A trustee who intentionally or knowingly or with the intent to defraud directly or indirectly retai ns, uses, disburses, or otherwise diverts the funds has misapplied the trust funds. Id. at 85 (emphasis added). The language in C hapter 162 does not support Drillers’ argument that a fiduciary relationship also exists between Drillers and Debtors

. As a r esult, Drillers’ constructive trust claims were properly dismissed

. V. We AFFIRM the district court’s dismissal of Drillers’ constructive trust and equitable lien claims, and REVERSE the district court’s grant of summary judgment on Drillers’ subcontract or s’ lien claim s . We REMAND for proceedings consistent with this opinion.

17 Case: 13-10969 Document: 00512770489 Page: 17 Date Filed: 09/16/2014