Court Opinion

ID: 9770619
Source: CourtListenerOpinion
Date Created: 2023-08-29 16:13:01.445725+00
Date Added: 2024-06-11T07:31:19.006608
License: Public Domain

*849OPINION
MIRABAL, Justice.
These are three consolidated interlocutory appeals from orders appointing a receiver. We affirm.
Plaintiffs are the holders of statutory mechanics and materialman’s liens on three oil and gas producing leases and wells. Defendants are working interest owners of the three oil and gas producing leases and wells. Plaintiffs filed suit for foreclosure of their M & M liens, and sought the appointment of a receiver to take possession of the proceeds of production attributable to the three wells prior to the foreclosure sale. The trial court in each case found that plaintiffs had met their prima facie burden that they would likely prevail in their foreclosure actions, and appointed a receiver to collect the proceeds of production attributable to the three wells during the pendency of the litigation. The order in each ease states, in part:
It is ORDERED that the receiver shall take possession of the net proceeds from the sale of production from the property payable to the Defendants, after deduction of all operating expenses by the operator, monthly as paid by the operator, and upon receipt of same the receiver shall immediately tender said proceeds to the District Clerk ... to be held by the District Clerk in an interest bearing account maintained by an FDIC insured banking institution until further order of this Court.
The order in each ease further set the amount of the applicant’s bond at $25,000. In one case, the order set the amount of the receiver’s bond at $15,000; in the other two cases, the receiver’s bond was set in the amount of $1000 each. Leonard Pipkin was named the receiver in all three cases.
In their first point of error, defendants assert the trial court erred in granting the plaintiffs’ applications for appointment of a receiver because the plaintiffs, as holders of asserted statutory mechanics and material-man’s liens, are not entitled to the appointment of a receiver as a matter of law.
The appointment of a receiver, either as authorized by statute or equity, will not be disturbed on appeal unless the record reveals a clear abuse of discretion. O & G Carriers, Inc. v. Smith Energy 1986-A Partnership, 826 S.W.2d 703, 706 (Tex.App.—Houston [1st Dist.] 1992, no writ). The appellate court will not substitute its judgment for that of the trial court, but will determine whether the trial court’s decision was either arbitrary or unreasonable. Id.
The parties have stipulated to certain facts contained in “An Agreed Statement of the Case and Facts Proven”, filed in each case; it reads as follows:
The case came before the District Court as a request for a receiver by the [Plaintiffs] herein. [Plaintiffs] herein, as to the evidence submitted, relied upon the affidavits attached to their verified complaints, same being timely filed mechanics and ma-terialman’s liens, along with all of the necessary attachments. For the purposes of the receivership hearing only, all of the prerequisites for a determination that the [Plaintiffs] had presented a prima facie entitlement to foreclosure of their mechanics and materialman’s liens had been met. The amount of said liens was not put into dispute at the hearing on whether to grant the receiver.
[Defendants] herein opposed the granting of the receivership. [Defendants], as to the evidence presented, relied upon Exhibit no. 1, a compilation of business records from Reserve Production, which detailed that the [Defendants] had their working interest conveyed to them and recorded in the county where the lease at issue is located, that [Defendants] had executed Division Orders with Reserve Production, that Reserve Production had executed 100% indemnifying Division Orders with purchasers of oil and of gas, that Reserve internally acknowledged said division of interests. Defendants assert such facts entitle them to a purchase money security interest in the proceeds of the production of the lease at issue under Texas Business and Commerce Code Section 9-319, [which] has been met.
Plaintiffs provided labor and materials for the digging, drilling, completing, maintaining, operating and repairing of the three involved *850oil and gas wells. Plaintiffs have not been paid in full for their services. Plaintiffs perfected their M & M liens against the oil and gas leases prior to defendants’ acquisition of interests in the leases. The main issue in this case is whether the value of plaintiffs’ M & M liens on oü and gas leases can be preserved pending the foreclosure proceedings. Defendants claim they have the right to receive all the proceeds from production of oü and gas from the wells until plaintiffs actually foreclose on their liens, even if this means that the oü and gas reserves become totaüy depleted, leaving the oü and gas leases worthless. Defendants admit that their rights wül be cut off at the time of foreclosure on the M & M liens; they insist, however, that as long as foreclosure can be fore-staüed, proceeds from oü and gas production belong to them exclusively.
Section 64.001 of the Texas Civü Practice and Remedies Code (Vernon 1986) sets forth when the remedy of statutory receivership is avaUable. It reads in relevant part:
(a) A court of competent jurisdiction may appoint a receiver:
(2) in an action by a creditor to subject any property or fund to his claim;
(6) in any other case in which a receiver may be appointed under the rules of equity.
(b) Under Subsection (a) ... (2) ... the receiver may be appointed on the application of the plaintiff in the action or another party. The party must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.
Tex.Civ.PRAc. & Rem.Code Ann. § 64.001(a) (Vernon 1986).
Plaintiffs asserted the foUowing in their first amended petition:
[T]his is an action by plaintiffs as creditors to subject property to plaintiffs’ claim; plaintiffs have a probable interest in or right to the property and the property is in danger of being lost, removed, or materially injured by depletion;
[The weUs are] being produced and the proceeds of sale are being disbursed to Defendants. Plaintiffs’ security for its debt [are] the oü and gas leases, and their security is being impaired by draining of the oü and gas from the oü and gas leases upon which Plaintiffs’ liens have attached. Hydrocarbons are unique because they are not reproducible and the amount is finite. The Oil and Gas Leases to which Plaintiffs’ liens have attached are likewise unique because as production occurs, the value of the leases diminishes and finaUy becomes worthless. The value of Plaintiffs’ liens diminish daüy as the weU is produced. Plaintiffs’ security is being impaired, and their debt is being converted from a secured debt into a worthless unsecured debt. Plaintiffs have no adequate remedy at law and wül be irreparably harmed and damaged unless the Defendants are required to preserve the status quo by setting aside, out of the proceeds of production, and depositing into the registry of this Court, a sum which is sufficient to preserve the status quo pendente lite ...
Defendants argue that plaintiffs are not entitled to appointment of a receiver as a matter of law because plaintiffs did not prove a statutory basis for the appointment of a receiver. As to subsection (a)(2), defendants argue that it is not applicable because plaintiffs’ liens do not extend to current ■production of oil and gas.
Plaintiffs acquired a mineral contractor’s lien to secure payment for labor and materials related to mineral activities at the oü and gas wells. According to the lien statute, the foüowing property is subject to the lien:
(a)(1) the material, machinery, and supplies furnished or hauled by the lien claimant;
(2) the land, leasehold, oü or gas weü, water weü, oü or gas pipeline and its right-of-way, and lease for oü and gas purposes for which the labor was performed or material, machinery, or supplies were fur*851nished or hauled, and the buildings and appurtenances on this property;
(3) other material, machinery, and supplies used for mineral activities and owned by the owner of the property listed in Subdivision (2).
(4) other wells and pipelines used in operations related to oil, gas, and minerals and located on property listed in Subdivision (2).
Tex.PROP.Code Ann. § 56.003 (Yemen 1995). Plaintiffs’ recorded lien affidavits state that plaintiffs provided labor and materials to Reserve Production, Inc. (defendants’ predecessor), and that Reserve Production, Inc. was the owner of the “oil and gas leasehold estate and of the oil and gas wells.” Therefore, plaintiffs’ M & M liens attached not only to the materials they supplied, but also to the oil and gas leaseholds and the oil and gas wells. Bethlehem Supply Corp. v. Wotola Royalty Corp., 140 Tex. 9, 165 S.W.2d 443, 445 (1942) (mineral lien extends to specified property owned by persons to whom labor and materials are furnished); Tex.PROP.Code Ann. § 56.003. The oil and gas leases grant the right to extract and produce the oil and gas from the land.
There is no dispute that the value of plaintiffs’ liens diminish as the wells are produced, and it is clear that the action to foreclose on plaintiffs’ M & M liens is an “action by creditors to subject the oil and gas leases to the creditors’ claims”, as contemplated by section 64.001(a) governing the appointment of receivers. Under the facts of this case, we cannot say that plaintiffs are not entitled to the appointment of a receiver as a matter of law, as asserted by defendants. See Texas Co. v. Kent, 60 S.W.2d 857, 860 (Tex.Civ. App.—Waco 1933, writ dism’d); Leroy Jeffers, Statutory Liens on Current Production of Oil and Gas, 13 Tex.L.Rev. 180, 194-195 (1934). The record does not reveal a dear abuse of discretion; therefore, we will not disturb the trial court’s order on appeal. O & G Carriers, Inc., 826 S.W.2d at 706.
We overrule point of error one.
In their second point of error, defendants assert the trial court erred in granting plaintiffs’ applications for appointment of a receiver because defendants, as the holders of purchase money security interests under Texas Business and Commerce Code section 9.319, have a superior right to the production from the oü and gas leases at issue.
The record shows that plaintiffs perfected their recorded M & M liens against the oil and gas leases prior to defendants’ acquisition of working interests in the same oil and gas leases. The title acquired by defendants in the oil and gas leases was thus encumbered by plaintiffs’ lien claims. Tex.Prop. Code Ann. § 13.002 (Vernon 1984).
Accordingly, we overrule defendants’ point of error two.
We affirm the judgment.
HUTSON-DUNN, J., dissenting.