DMA Props., Inc. v. Krisjenn Ranch, LLC (In re Krisjenn, Ranch, LLC)

661 F.Supp.3d 654

IN RE: KRISJENN, RANCH, LLC, dba as KrisJenn Ranch, LLC-Series Uvalde Ranch;

Ranch and KrisJenn Ranch, LLC Series Pipeline ROW, Debtor.

DMA Properties, Inc., et al., Appellants, v. KrisJenn Ranch, LLC, et al., Appellees.

Bankruptcy Case No. 20-50805-RBK

Case No. SA-21-CV-0358-JKP

United States District Court, W.D. Texas, San Antonio Division

Signed March 14, 2023

(Consolidated Appeal from Final Judgment and Opinion in Adversary Proceeding No. 20-05027-RBK)

Andrew R. Seger, Pro Hac Vice, Key Terrell & Seger, LLP, Lubbock, TX, Austin Krist, Timothy Cleveland, Cleveland Krist PLLC, Austin, TX, Christopher S. Johns, Johns & Counsel PLLC, Austin, TX, Natalie Friend Wilson, Langley & Banack, Inc., San Antonio, TX, for Appellant DMA Properties, Inc.

Austin Krist, Cleveland Krist PLLC, Austin, TX, Christopher S. Johns, Johns & Counsel PLLC, Austin, TX, Michael J. Black, Burns & Black PLLC, San Antonio, TX, Natalie Friend Wilson, Langley & Banack, Inc., San Antonio, TX, for Appellant Longbranch Energy, LP.

Charles John Muller, IV, CJ Muller & Associates, PLLC, San Antonio, TX, for Appellants KrisJenn Ranch, LLC, KrisJenn Ranch, LLC-Series Uvalde Ranch, KrisJenn Ranch, LLC-Series Pipeline ROW.

Charles John Muller, IV, Ezekiel J. Perez, CJ Muller & Associates, PLLC, San Antonio, TX, Ronald J. Smeberg, The Smeberg Law Firm, PLLC, San Antonio, TX, for Appellees KrisJenn Ranch, LLC, KrisJenn Ranch, LLC Series Uvalde Ranch, KrisJenn Ranch, LLC-Series Pipeline ROW, Uvalde Ranch.

William P. Germany, Bayne, Snell & Krause, San Antonio, TX, for Appellee Larry Wright.

Katrina Anelyn Kershner, Forshey and Prostok LLP, Fort Worth, TX, for Appellee TRCG East TX Pipeline LLC.

Ronald J. Smeberg, The Smeberg Law Firm, PLLC, San Antonio, TX, for Appellee Black Duck Properties, LLC.

John Terrill, Oklahoma City, OK, Pro Se.

MEMORANDUM OPINION AND ORDER

JASON PULLIAM, UNITED STATES DISTRICT JUDGE

This consolidated bankruptcy action concerns appeals from a final judgment entered in a single adversary proceeding following a bench trial. Three entities owned by Larry Wright (KrisJenn Ranch, LLC; KrisJenn Ranch, LLC-Series Uvalde Ranch; and KrisJenn Ranch, LLC Series Pipeline ROW (collectively "KrisJenn" or "Appellees")) filed for Chapter 11 bankruptcy and commenced an adversary proceeding to obtain a declaration that two promises to pay a percentage interest in a pipeline right-of-way ("ROW") to Appellants DMA Properties, Inc. ("DMA") and Longbranch Energy, LP ("Longbranch") (collectively "Appellants") do not attach and run with the ROW. Appellants counterclaimed for a contrary declaration and asserted various torts against Appellees and Wright. Frank Daniel Moore, DMA's principal, intervened to assert similar counter-claims and cross actions. The Bankruptcy Court ruled that Appellants' interests are personal covenants that do not attach and run with the ROW rather than real property interests that do attach and run with the ROW.

Pursuant to 28 U.S.C. § 158(a) and Fed. R. Bankr. P. 8001 and 8002, Appellants appeal the Bankruptcy Court's Final Judgment (Bankr. ECF No. 237) and the accompanying findings of fact and conclusions of law set out in the Bankruptcy Court's opinion (Bankr. ECF No. 236) issued on March 24, 2021, in Adversary Proceeding No. 20-05027.¹ Having considered the issues raised in this consolidated appeal, the arguments of the parties, the relevant portions of the record, and the applicable principles of law, the Court finds no need for oral argument and, for the reasons that follow, it AFFIRMS IN PART and REVERSES IN PART the Bankruptcy Court's final judgment and REMANDS this matter for further consideration and entry of judgment consistent with this Memorandum Opinion and Order.

I. BACKGROUND

On March 24, 2021, Chief United States Bankruptcy Judge Ronald B. King entered an opinion, R. 3719-47 (KrisJenn Ranch, LLC v. DMA Props., Inc. (In re KrisJenn Ranch, LLC), 629 B.R. 589 (Bankr. W.D. Tex. 2021)), and final judgment, R. 3748-49, in Adversary Proceeding No. 20-05027-RBK. The opinion constitutes the Bankruptcy Court's findings of fact and conclusions of law under Fed. R. Bankr. P. 7052. See R. 3747. As the Bankruptcy Court stated, "a chronology of the facts is helpful" to fully understand the transactions forming the basis for the Adversary Proceeding. R. 3720. The Bankruptcy Court then thoroughly set out relevant background facts from 2015 through 2020. See R. 3720-27. The parties know the relevant transactional history and assert no disagreement with it factually unless otherwise noted. Because the factual chronology is crucial to understanding the various transactions at play, the Court will repeat much of the Bankruptcy Court's efforts. This Court will include appropriate citations to the record as it reviews the record. But unless a party disputes a relevant background fact, the Court sees no need to provide a citation for each background fact, especially when neither the Bankruptcy Court nor the parties provide a specific citation to the record. The following timeline provides the needed transactional detail.

In 2015, Wright, Moore, and a third individual (Darin Borders) were "flipping" saltwater disposal wells. With two successful flips and a third under contract, Wright and Moore formalized their business relationship by forming Black Duck Properties, LLC, ("Black Duck"). Attorneys drafted a Black Duck Company Agreement (the "Company Agreement") that Moore and Wright executed on December 28, 2015. See Bankr. ECF No. 28-6 (found at R. 546-87). Black Duck's members (Wright, Moore, and Hagan Cohle) witnessed and adopted this agreement in January and February 2016. See R. 587. According to the agreement, Wright owned half of Black Duck through KrisJenn Ranch, LLC, and Moore owned half through his entity, SCMED Oilfield Consulting, LLC ("SCMED"). See R. 588. SCMED has assigned all interests, claims, and causes of action related to the ROW to Moore and that entity is not a party to this consolidated bankruptcy appeal.

The next year, separate from any Black Duck investment, Moore and Borders learned of an opportunity to purchase the relevant ROW from its then-owner Express Pipeline Connection, LLC ("Express"). So, on February 19, 2016, through Borders's company ("Longbranch"), Moore and Borders agreed to purchase the ROW from Express. See ECF No. 28-7 (found at R. 590-634); DX6. The resulting "Longbranch Purchase Agreement" gave Longbranch a contractual right to purchase the ROW for $5 million. R. 593. Moore and Borders paid $25,000 in earnest money to secure the purchasing right. R. 592-93. Exhibit A of that agreement is a map of the ROW. See R. 603. Exhibit B provides the legal description of the ROW. See R. 604. The agreement also includes additional information for each county through which the ROW runs, including dates, grantors, grantees, and the specific book with page number. See R. 605-24 (Exs. C-1 through C-4). Exhibit D is a proposed "Deed, Conveyance and Assignment" between Express and Longbranch. See R. 629-33.

After securing that Purchase Agreement, Moore and Borders set out to find another investor. When Wright indicated he wanted to be the capital investor, they added him as the "money guy." He reimbursed the earnest deposit and agreed to participate in the ROW purchase through Black Duck. R. 3601.

In June 2016, Longbranch assigned its rights to purchase the ROW to Black Duck through a two-page contract (the "Longbranch Assignment"). See Bankr. ECF No. 28-8 (found at R. 636-37); DX1. Interpretation of this assignment is a primary issue in this consolidated bankruptcy appeal. The assignment agreement includes the following language:

Consideration: ASSIGNOR [(Longbranch)] shall be paid twenty percent (20%) ("Net Profits Share") of the Net Profits from ASSIGNEE [(Black Duck)] or its successors or assigns during the period of time beginning on the date of first written above (the "Period").

a. Net Profits shall mean gross revenues actually received by ASSIGNEE, or its successors or assigns directly from the operation, use, maintenance or sale (including partial sales or conveyances) of the pipe and related facilities commonly known as the P-21 or Express pipeline less actual cost of goods and costs and expenses associated with the operation or sale of the same.

b. ASSIGNEE's obligation to pay the Net Profits Share shall attach and run with the P-21 or Express pipeline and ASSIGNEE binds its successors and assigns to the payment of the Net Profits Share.

R. 636. The Assignment Agreement also states:

The parties agree to execute such other and additional legal instruments, consents, ratifications and other matters that may be reasonably required in order to effectuate the intent of this Assignment and Assumption Agreement. The terms and provisions hereof shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns.

R. 636-37.

Borders recorded the Longbranch Assignment in Shelby County on October 2, 2017, but not in the other three counties in which it was located. Despite the "attach and run" language, the Longbranch Assignment did not include a legal description of the ROW. Furthermore, although the two-page assignment referenced the Longbranch Purchase Agreement as "attached hereto as Exhibit 'A,' " see R. 636, the assignment lacked any attachment. Nevertheless, a full legal description of the ROW was attached as Exhibit B to the Longbranch Purchase Agreement.

Separate from its efforts concerning the ROW, Black Duck agreed to sell a saltwater disposal well (the "Harris SWD") to Bigfoot Energy Services, LLC ("Bigfoot") for $500,000. Black Duck agreed to seller-finance the purchase. In March 2017, Bigfoot paid $50,000 as a down payment to Black Duck and gave Black Duck a $450,000 promissory note for the remainder of the purchase price (the "Bigfoot Note"), which was secured by the Harris SWD. The Bigfoot Note required quarterly payments to...