Co-author Nathan Cox *
Good morning class. Welcome to an advanced course on what can go wrong with the Model Form just when you need it.
Do you know where to file your UCC financing statement?
Operator wants to perfect both a mineral lien and a financing statement against Non-operator, a Delaware Corporation. The property is in Texas. The mineral lien, of course, will be filed in the county where the property is located. Where to file the UCC financing statement? With the Secretary of State of Texas, the state where the property is located, or in Delaware, the state where Non-op is registered?
See Article VII B of the 1989 Model Form Operating Agreement:
“To perfect the lien and security agreement provided herein….Operator is authorized to file this agreement or the recording supplement executed herewith as a lien or mortgage in the applicable real estate records and as a financing statement in the applicable real estate records and as a financing statement with the proper officer under the [UCC] in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate…. ” (our emphasis)
So, you file with the Texas SOS? Not so fast.
The Uniform Commercial Code itself requires that a financing statement be filed in the proper office (usually the Secretary of State) in the jurisdiction where the entity is organized. One arrives at that conclusion by a circuitous route through UCC Sections 9-501, 9-301 and 9-307.
The 2016 revision repeats the 1989 language, so this problem, if that’s what it is, will be around for a while.
So do this
Record the financing statement both in the state where the lands are located and the state where the debtor is organized. Otherwise, the debtor could make a mess of your foreclosure efforts.
When can you recover attorney’s fees under the Model Form? See Article VII.D.5 of the 1989 form (far different from the 1982 form): “In the event any party is required to bring legal proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of collection, and a reasonable attorney’s fee…”
The answer, according to the U. S. Bankruptcy Court for the Western District of Texas, in In re, WEB LP et al, is when you obtain a monetary award, but not when you obtain injunctive relief.
WBH, LP was the operator; USED was a non-operator. WBH failed to pay vendors who filed lien affidavits. USED obtained injunctive relief in state court to remove WBH as operator. WBH filed for bankruptcy and the bankruptcy court adopted the state court injunction. Eventually, the court ordered the sale of the assets to Castlelake, WBH’s lender. The order of sale provided that the debtors assets were subject to any valid senior liens asserted by USED under the JOA. USED’s proof of claim totaled $500,000 in attorney fees for the injunction action. The court reasoned that the word in the document was “financial” obligations, which an injunction was not. No attorney’s fees for USED.
EULOGY FOR THE RALLY POSSUM
Our treasured marsupial was with us for a mere 36 days; a life too short but yet so full of memories, beginning a half-inning after he was carried off the Alex Box outfield in a trash bag. Overcoming a nine-run deficit against Arkansas, sweeping Tennessee, taking 3 of 5 from No. 1 Florida, thwarting the Cowbells and the Brainiacs. Done in by sloppy fielding and poor clutch hitting, he has shrugged off the mortal coil, much like a freshman would the “take” sign. But our good Possum is not really gone. He is with his Higher Power, and we who have faith are solid in our conviction that one day we will be reunited with him in a glorious homecoming in that Heaven that he would call Omaha. That is, if he could talk. But he can’t talk because he’s a possum and he’s dead, so we have to imagine that’s what he would say. (Unless he was “talking” through that lady’s balloon hat at the Super Regional.) Nevertheless, his death is our inspiration to a greater cause, like going 1st-to-3rd on a single to right field.
Let’s hope our journey with Mr. RP does not parallel this musical interlude. May his rallying powers return on September 3.
* Nathan is a 2L at Baylor Law School, U.C. Davis undergrad, clerking at Gray Reed for the summer.