Nova Mud, Inc. v. Sandra H. Staley, Individually as Independent of the Estate of George G. Staley, and as Trustee of the Tax Free Trust for Sandra H. Staley

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS

NOVA MUD, INC., §

Appellant, § No. 08-17-00147-CV
v. § Appeal from the
SANDRA H. STALEY, Individually, As § 109th District Court
Independent Executrix of THE ESTATE
OF GEORGE G. STALEY, Deceased, and § of Winkler County, Texas
as Trustee of the TAX FREE TRUST FOR
SANDRA H. STALEY, § (TC# 15,683-B)
Appellee. §

OPINION

Nova Mud appeals the trial court’s judgment denying foreclosure on a purported

materialman’s lien burdening an oil well (the A.G. Hill No. 1 Well) in which Sandra H. Staley,

independently and as the executrix of her husband George Staley’s estate, held an interest. The

trial court held that the lien perfected against the well and the underlying leasehold to secure unpaid

bills related to drilling operations at the wellsite had been extinguished because Nova Mud and the

well’s co-tenant, Heritage Standard Corporation (Heritage), settled claims for the unpaid bills in

bankruptcy court.

In seven issues, Nova Mud contends that the trial court erred by failing to order foreclosure

on the lien against the well, as the bankruptcy settlement extinguished the lien only as to Heritage’s
well interest, not Staley’s. We disagree. The trial court’s refusal to order foreclosure was not

erroneous. We will affirm.

BACKGROUND

Factual History

This appeal arises from a single trial in which a cluster of materialmen-plaintiffs alleged

they performed work on a drilling project at the A.G. Hill No. 1 Well for which they were not

paid.1 Because the ownership of various well interests is partly at issue in this appeal, we will

briefly recite the history of transfers.

Geologist George Staley, believing that A.G. Hill No. 1 Well located on a leasehold known

as Section 6 would be a good prospect for oil and gas production if the well line could avoid a

problematic area, approached the well’s working interest holder,2 Heritage, about executing a

possible farmout agreement3 before the leases governing the well expired for lack of

drilling/production. Heritage, which owned 100 percent of the working interest, and believing

1
This Court is concurrently considering a separate set of consolidated appeals brought by other subcontractors from
the same trial and judgment. See Acme Energy Servs., Inc. d/b/a Big Dog Drilling v. Staley, No. 08-17-00145-CV;
Endeavor Energy Res., L.P. v. Staley, No. 08-17-00146-CV; and Acme Energy Servs., Inc. d/b/a Rig Movers Express
v. Staley, No. 08-17-00148-CV. While these companion cases have been docketed separately on appeal and differ in
terms of the identities of specific subcontractors and the amount of money owed, the subcontractors all participated
jointly in all proceedings including the trial from which this appeal was taken, and the legal arguments raised by all
debtors are essentially indistinguishable. All ultimately turn on the question of whether a settlement they agreed to in
bankruptcy court released the lien at issue in this case.
2
“A working interest is an operating interest under an oil and gas lease that provides its owner with the exclusive right
to drill, produce, and exploit the minerals.” H.G. Sledge, Inc. v. Prospective Inv. & Trading Co., Ltd., 36 S.W.3d 597,
599 n. 3 (Tex.App.—Austin 2000, pet. denied).
3
“A farmout is a common form of agreement between operators, in which a lease owner that does not want to drill
assigns the lease, or some portion of it, to another operator that does.” Young Ref. Corp. v. Pennzoil Co., 46 S.W.3d
380, 389 (Tex.App.—Houston [1st Dist.] 2001, pet. denied). “The primary characteristic of the farmout is the
obligation of the assignee to drill one or more wells on the acreage as a prerequisite to completion of the transfer.”
[Citation and emphasis omitted]. Id. “In essence, an oil company will reward another operator who fulfills its lease
obligations with a sublease or rights assignment, often as a way to fulfill its contractual with the landowner while
sharing financial risks of drilling operations and increasing its ability to profit off of petroleum products it may not be
equipped to market by including a third party in the deal.” Clayton Williams Energy, Inc. v. BMT O & G TX, L.P.,
473 S.W.3d 341, 346 n.2 (Tex.App.—El Paso 2015, pet. denied).

2
expiration of the leases to be imminent, executed a farmout which assigned Staley a percentage of

carried working interest4 in the leases once the well project was completed and productive. Per

the farmout agreement, Staley’s interest was contingent, and Heritage would retain its 100 percent

interest pending completion.

After Staley signed the farmout, Lakehills Production, Inc., was hired to oversee drilling

operations. Lakehills, in turn, hired multiple subcontractors including Nova Mud to perform work

on the project. Nova Mud performed work at the drill site on June 24, 2008 and July 17, 2008,

and sent invoices totaling $262,448.41 to Lakehills. The invoices were never paid. Nova Mud

perfected a lien against the property on December 29, 2008. The Mineral Property Lien Affidavit

recorded in Winkler County identified Heritage Standard Corporation as the owner and operator

of the Section 6 Leases and of the A.G. Hill No. 1 Well; stated that Nova Mud signed a contract

with Lakehills Production, who was acting as contractor operator/agent for Heritage Standard

Corporation, for certain services at the wellsite; and alleged a claim worth $262,448.41 against the

leasehold interests owned by Heritage for non-payment.5

4
A carried working interest in an oil and gas lease is an executive “fractional interest that is free of some or all costs
of exploring, drilling, and completing the well.” Reeder v. Wood County Energy, L.L.C., 320 S.W.3d 433, 445
(Tex.App.—Tyler 2010), rev’d, 395 S.W.3d 789 (Tex. 2012).
5
The lien affidavit reads, in relevant part:

Claimant having furnished and hauled materials, machinery or supplies for and in
connection with the operating, completing, maintaining, equipping, or repairing of one or more oil
and/or gas wells situated on the oil, gas, and mineral leasehold estate(s) hereinafter described, makes
this Affidavit pursuant to § 56.001 et seq of the TEXAS PROPERTY CODE for the purpose of perfecting
a lien upon the oil, gas, and mineral leasehold(s) described, including all property thereon as
provided in § 56.003 of the TEXAS PROPERTY CODE to secure the amount of Claimant’s claim.

Heritage Standard Corporation . . . and/or Heritage Consolidated, LLC . . . [business
addresses omitted] is the owner or reputed owner of an interest in the following oil and gas lease(s)
and/or oil, gas, and mineral leases(s)[sic]:

. . .
[LEGAL DESCRIPTIONS OF LEASES INCLUDING SUBJECT PROPERTY]

Under a contract with Lakehills Production, Inc., which was acting as a contract operator

3
 Meanwhile, a dispute arose among Heritage, Staley, and well investors. On June 2, 2009,

after the well was completed, the well’s investors entered into a settlement agreement that finally

allocated the working interest percentages in the subject property. As a result of this settlement,

Staley received a 17.75 percent working interest. By the time of trial in this case, Staley would

ultimately end up with 19.75 percent of the working interest as the result of subsequent

assignments. The settlement agreement among the well’s interest-holders provided that Trius

Energy would be responsible for paying the unpaid subcontractors. It is undisputed on this record

that Trius did not pay those bills.

Procedural History

In July 2009, Nova Mud and others filed suit against Heritage, Staley, and others seeking

foreclosure of its lien against the well. According to the original petition, Staley was included in

the lawsuit because Staley was Heritage’s successor-in-interest, as he took his interest in the well

while that interest was still subject to Nova Mud’s lien.

On September 14, 2010, Heritage—the well’s majority working interest holder—filed for

bankruptcy. The state court severed Nova Mud’s claims against Heritage and allowed suit to

or agent for Heritage Standard Corporation, Claimant did furnish materials, machinery, or supplies
and/or perform labor and services on or about June 24, 2008, and July 17, 2008 for and in connection
with the operating, completing, maintaining or repairing of one or more oil and/or gas wells owned
or reputedly owned and/or operated by Heritage Standard Corporation, said well(s) being known as
the AG Hill #1 Well located in Section 6, Block 74, PSL Survey, Winkler County, Texas . . . .

Claimant timely served written notice that the lien is claimed on Heritage Standard
Corporation and Heritage Consolidated, LLC.

The true and correct amount claimed by Claimant is Two Hundred Sixty-two Thousand
Four Hundred Forty-eight and 41/100 Dollars ($262,448.41), and said amount is just and reasonable,
due and unpaid, and all just and lawful payments, offsets, and credits have been allowed. . . . This
lien claim for the amount stated above is upon the oil, gas, and mineral leasehold(s), any well or
wells locate[d] thereon, with all personal property, equipment, buildings, appurtenances, pipelines,
right-of-ways, etc. located thereon and used or obtained in connection therewith and other items of
property . . . .

Executed the 9th day of December, 2008.

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continue against the remaining defendants in state court. However, when Nova Mud filed a proof

of claim in bankruptcy court6 against Heritage, the state trial court stayed all proceedings in the

foreclosure case pending resolution of Nova Mud’s claims in the bankruptcy court. It is undisputed

that Nova Mud’s proof of claim in the bankruptcy proceeding for $262,448.41 plus prepetition

interest and attorney’s fees was based off its unpaid invoices worth $262,448.41 from the well

project.

On August 18, 2015, after prolonged bankruptcy litigation,7 Nova Mud and Heritage

entered into a series of stipulations settling claims before the bankruptcy court, which the

bankruptcy court approved on October 1, 2015. In Paragraph 4, Section A of the stipulations,

Heritage acknowledged that it owed Nova Mud $292,073.71 (the Stipulated Amount), which

represented the invoiced amount ($262,448.41) plus 50 percent of the prepetition interest and

attorney’s fees that Nova Mud sought. Section B of the same paragraph specified that a portion

of the Stipulated Amount ($58,648.41) “shall be an Allowed Section 6 M &M Secured Claim in

6
Filling a proof of claim allows a creditor to pursue payment of a claim from the debtor’s bankruptcy estate. With
respect to secured creditors such as Nova Mud, the United States Bankruptcy Court for the Northern District of Texas
explained:

The Bankruptcy Code does not require a secured creditor—i.e., a creditor with a lien—to file a proof
of claim. The law is well established that ordinarily, liens pass through bankruptcy unaffected, and
a secured creditor can ignore the bankruptcy case and look solely to his collateral in satisfaction of
the debt (although he will be stayed from doing so during the pendency of the case).

However, should the creditor elect to seek payment of the debt as a personal obligation of the debtor,
the creditor must file a proof of claim in order to be entitled to a payment of the obligation as a
personal liability of the debtor (instead of from the collateral) and, once bankruptcy intervenes,
payment from the bankruptcy estate. [Internal citations omitted].

In re Kleibrink, 346 B.R. 734 (Bankr. N.D. Tex. 2006), aff’d, No. 3:07-CV-0088-K, 2007 WL 2438359 (N.D. Tex.
Aug. 28, 2007), aff’d, 621 F.3d 370 (5th Cir. 2010).
7
Nova Mud and other subcontractors filed proofs of claim and an adversary proceeding against Heritage in the
bankruptcy court. The bankruptcy judge granted Heritage's motion for summary judgment, and the district court
affirmed. However, the Fifth Circuit reversed and remanded to the bankruptcy court, finding that a fact question as
to whether Heritage in fact owed the debt to the subcontractors. See In re Heritage Consol., L.L.C., 765 F.3d 507,
515–16 (5th Cir. 2014).

5
Class 3A . . . for properly and timely perfected mineral contractor liens . . . ”8 Section D stated

that to the extent “the value of the Section 6 Assets is greater than the total amount of all Allowed

Class 3A Secured Claims,” interest would accrue on Nova Mud’s Allowed Class 3A Secured

Claim until such claim is satisfied in full, but Section E stated that if the value of the Section 6

Assets was less than the total amount of all Allowed Class 3A Secured Claims, Nova Mud would

not be entitled to post-petition interest, attorney’s fees, and expenses, but it could pursue

prepetition deficiencies as an Allowed Class 5 General Unsecured Claim. The remaining

$233,425.36 would be treated as an Allowed Class 5 General Unsecured Claim.

Paragraph 5 of the settlement agreement dealing with releases reads:

Upon approval of this Stipulation, the parties agree that, other than the
continued indebtedness of the Stipulated Amount under the terms of this
Stipulation, Heritage and the Trustee on the one hand, and Nova Mud on the other,
release each other and their respective counsel, agents, subsidiaries, and affiliates
from all claims, causes of action, rights, demands, actions, costs, judgments,
expenses, damages and liabilities whatsoever, at law or in equity, whether known
or unknown, that arise out of or relate to the facts and circumstances made the basis
of the Nova Mud Proofs of Claim, or that were or could have been asserted in the
Nova Mud Proofs of Claim and the Trustee’s objection thereto. In that regard,
Nova Mud acknowledges and agrees that its recovery hereunder shall be in full and
final satisfaction of its putative claims and liens against any interests of Heritage
and/or the Trust in Section 6 Assets, and they shall not assert or enforce any claims
and liens against any such interests, including, without limitation, any interest
currently attributed to Trius in Section 6 Assets and/or recovered by the Trust
through enforcement of claims against Trius in Section 6 Assets. This release is
not intended to release any claims or liens owned or held by Nova Mud against
George Staley, J.R. Operating Company, Dennis Rosini and their successors and
assigns.

On November 10, 2015, George Staley died. His executrix filed an original answer on

June 1, 2016, denying all claims.

Following the bankruptcy settlement, the bankruptcy stay was lifted, and state court

8
A footnote indicates that the phrase “Allowed Section 6 M & M Secured Claim” is a phrase defined in the Confirmed
Second Amended Joint Plan or Reorganization for the Debtors, but the Plan containing the definition of that specific
phrase does not appear in the record.

6
proceedings resumed. A bench trial in Winkler County on Nova Mud’s foreclosure action

commenced on March 28, 2017. By the time of trial, Nova Mud had non-suited all defendants

except Staley. The trial lasted less than a day and was decided largely based on a series of agreed

stipulations filed by both sides and the bankruptcy settlement Nova Mud signed with Heritage.

Per the agreed stipulations, Nova Mud had received $26,561.41 in payment from Heritage as of

the date of trial.

The trial court found in favor of Staley. In its findings of fact, the trial court recognized

the stipulations and stated that there was no debt owed to the plaintiffs on the invoices. In its

conclusions of law, the trial court stated that no debt was owed on the invoices, the lien claimed

by Nova Mud had been extinguished, and that because the lien was extinguished, Nova Mud could

not prevail on the claims it asserted against Staley. This appeal followed.

DISCUSSION

Nova Mud raises seven issues on appeal. In Issues One and Two, Nova Mud argues that

the trial court’s denial of its request for foreclosure was unsupported by legally or factually

sufficient evidence. Nova Mud then weaves its next three issues together, arguing that the trial

court erred by finding the debt did not exist (Issue Three) because the trial court erroneously

concluded that the bankruptcy settlement with Heritage released the lien against the well (Issue

Four) and thus wrongfully determined that Nova Mud could not foreclose on the well (Issue Five).

Because the trial court failed to order foreclosure, the trial court also necessarily erred by denying

Nova Mud any equitable and just attorney’s fees (Issues Six and Seven).

All the issues in Nova Mud’s appeal hinge on the ultimate premise that the trial court

misconstrued the bankruptcy settlement as satisfying the entire debt dispute and releasing the

materialman’s lien as to all well interest holders. Nova Mud asserts that even though it settled its

7
bills related to the well project with Heritage, it may still foreclose on the lien.

We disagree. The bankruptcy settlement, while not a model of drafting clarity, appears to

have settled all debt issues related to the bills from the well project. Once Nova Mud agreed to

the terms of the settlement in the bankruptcy court, the lien against the well securing that debt

dissolved as a matter of law. The trial court correctly determined that there was no longer an

enforceable lien on the well, including on the interest in the well held by Staley’s estate.

Standard of Review and Applicable Law

We note that while Nova Mud frames this dispute in terms of legal and factual sufficiency,

the historical facts underlying this dispute have been stipulated by both parties and are essentially

undisputed. We do not review the legal or factual sufficiency of stipulated facts, but instead review

the correctness of the application of the law to the admitted facts de novo. City of Harlingen v.

Avila, 942 S.W.2d 49, 51 (Tex.App.—Corpus Christi 1997, writ denied). Furthermore, the heart

of this matter is not a dispute about what events actually happened, but rather the interpretation of

the scope of the agreed bankruptcy judgment giving legal force to the settlement agreement. We

review unambiguous legal texts de novo.

A materialman’s lien, also known as a mechanic’s lien, secures payment for a laborer’s

work when, among other things, a laborer makes improvements to real property. See Crawford

Servs., Inc. v. Skillman Int’l Firm, L.L.C., 444 S.W.3d 265, 268 (Tex.App.—Dallas 2014, pet.

dism’d)(discussing history of mechanic’s liens). When a property is burdened by a materialman’s

lien, the laborer who holds the lien has two ways to obtain payment for his or her services. While

the laborer may sue the other party in personam for breach of contract, the laborer may also instead

foreclose on the collateral directly in a judicial proceeding and force the sale of the collateral at

auction to satisfy the debt. This is true regardless of whether the current holder of the collateral

8
was personally liable on the contract for payment. Crawford Servs., Inc., 444 S.W.3d at 268.

Materialmen’s liens are guaranteed by the Texas Constitution and are governed by

constitutional provisions and various specific statutes. Id.; see also TEX.CONST. art. XVI, § 37

(“Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and

articles made or repaired by them for the value of their labor done thereon . . . ”). Chapter 56 of

the Texas Property Code sets out the requirements for perfecting a materialman’s lien against

mineral interests. See TEX.PROP.CODE ANN. § 56.002 (allowing a mineral contractor or

subcontractor to have a lien to secure payment for labor or services related to mineral activities).

The lien attaches to, inter alia, the land, leasehold, oil or gas well, and other property and

machinery, though a lien created by performing labor for a leaseholder does not attach to the fee

title to the property. TEX.PROP.CODE ANN. § 56.003(a)-(b). A person claiming the lien must file

an affidavit with the county clerk of the county in which the property is located not later than six

months after the debt accrues. TEX.PROP.CODE ANN. § 56.021(a). However, before being able to

perfect the lien, a mineral subcontractor claiming the lien must serve the property owner with

written notice that the lien is being claimed not later than the 10th day before the affidavit is filed.

TEX.PROP.CODE ANN. § 56.021(b). The lien affidavit and written notice are subject to various

formal requirements. See TEX.PROP.CODE ANN. §§ 56.022, 55.023.

Properly perfected mineral subcontractor materialmen’s liens are enforced under Chapter

53 using the same procedures employed to enforce other types of materialmen’s liens.

TEX.PROP.CODE ANN. § 56.041(a). To enforce the lien, the lienholder must file a lawsuit, and to

prevail, the lienholder must prove (1) it performed the labor or furnished the materials, (2) the debt

is valid, and (3) it substantially complied with the statutory requirements for perfecting a lien.

Crawford Servs., Inc, 444 S.W.3d at 267.

9
 Staley does not dispute that Nova Mud performed labor at the wellsite, nor does she argue

on appeal that Nova Mud failed to timely and substantially comply with the statutory requirements

necessary to perfect the lien. Staley also does not contest the fact the well-interest held by the

estate was burdened by Nova Mud’s lien when the interest was received from Heritage. The only

issue before this Court is whether the lien remained valid as to Staley’s interest after Nova Mud

settled the underlying bill debt dispute with Heritage in bankruptcy court.

Analysis

At the outset, we reiterate that while Staley is named as the defendant in this proceeding, a

foreclosure action on a lien is aimed at a piece of property, not a person. Nova Mud readily admits

that it has no claims against Staley personally, only against Staley’s interest in the well subject to

the purported lien. Furthermore, we agree with Nova Mud that there is no question the lien against

the well was properly perfected and that Staley in the state court and Heritage in the bankruptcy

court acknowledged the debt was valid. But as we have said, the critical, dispositive issue here is

whether that lien survived the bankruptcy settlement. The ultimate resolution of Nova Mud’s first

five appellate issues all hinge on this question.

Ordinarily, liens survive bankruptcy proceedings unscathed, meaning that secured

creditors can still enforce liens even after personal debt is discharged. See Johnson v. Home State

Bank, 501 U.S. 78, 85 (1991)(bankruptcy eliminates in personam recovery but still allows for in

rem recovery against collateral). Even so, litigants in bankruptcy court will often voluntarily

release liens held against collateral in exchange for the right to payment directly from the

reorganized assets of a person or corporation. See In re Penrod, 50 F.3d 459, 462–63 (7th Cir.

1995). In addition to voluntary release, a lien ceases to exist when the underlying debt is satisfied.

In this case, the bankruptcy settlement between Nova Mud and Heritage indicates that the lien

10
would be released in favor for certain in personam recovery granted against Heritage by the

bankruptcy court. Nova Mud interprets the lien release as applying only to Heritage’s interest,

arguing that a sentence at the end of the release section of the bankruptcy settlement agreement

specifically allowed Nova Mud to proceed in foreclosure proceedings against Staley to satisfy the

debt. Staley, on the other hand, argues that the bankruptcy settlement agreement shows that Nova

Mud and Heritage (the original debtor) resolved all aspects of the debt dispute by signing a

settlement that both superseded the terms of any preexisting debt arrangement and that released

the unitary lien burdening both Heritage and Heritage’s successors-in-interest.

We are inclined to agree with Staley. Although the lien listed the well as collateral, the

lien also identified Heritage as the sole party that owed Nova Mud money. Additionally, while

Staley later took an undivided fractional carried working interest in the same well from Heritage

that was subject to the lien, the transfer of that interest to Staley did not fundamentally alter the

nature of the lien. The well remained the collateral for a secured debt owed by Heritage as debtor

to Nova Mud as creditor until the debt was satisfied or the lien was otherwise released. No one

contends otherwise.

Nova Mud is correct when it says that after the transfer of title from Heritage to others, it

would have been free to foreclose on the well either as to all working interest holders collectively

or as against each individual successor-in-interest’s fractional interest until the debt was finally

satisfied. See Efficient Energy Sys., Inc. v. J. Hoyt Kniveton, Inc., 631 S.W.2d 538, 540

(Tex.App.—El Paso 1982, no writ)(holding that a subsequent well-holder who took title subject

to a mechanic’s lien could still have its interest foreclosed upon even where the original debtor

was slated to have its debts discharged in bankruptcy); Bancroft v. Welch, 258 S.W.2d 406, 408

(Tex.App.—Eastland 1953, no writ)(foreclosure of materialman’s lien against 1/10th interest in

11
lease).

But Nova Mud did not choose to go that route. Instead, in bankruptcy proceedings, Nova

Mud settled its claim for the debt with its debtor Heritage on mutually acceptable terms that were

ratified by the bankruptcy court. These terms included in personam rights against Heritage and a

sweeping release. Other than its claim for the Stipulated Amount, Heritage and Nova agreed to:

[R]elease each other and their respective counsel, agents, subsidiaries, and
affiliates from all claims, causes of action, rights, demands, actions, costs,
judgments, expenses, damages[,] and liabilities whatsoever, at law or in equity,
whether known or unknown, that arise out of or relate to the facts and
circumstances made the basis of the Nova Mud Proofs of Claim [i.e. the unpaid
bill on the A.G. Hill No. 1 Well Project], or that were or could have been asserted
in the Nova Mud Proofs of Claim . . . Nova Mud acknowledges and agrees that its
recovery hereunder shall be in full and final satisfaction of its putative claims
and liens against any interests of Heritage and/or the Trust in Section 6 Assets,
and they shall not assert or enforce and claims and liens against any such
interests . . . . [Emphasis added].

Nova Mud argues that the bankruptcy settlement’s last sentence containing a purported

reservation of rights to proceed with claims cabins these sweeping releases and allows for

foreclosure against Staley’s interest to continue. We disagree. Nova Mud admits it has no claims

against Staley in personam; Staley is in this suit only because the estate holds property that is

purportedly Nova Mud’s collateral in its dispute with Heritage. True, Staley received his well

interest subject to Nova Mud’s lien. But Staley’s interest is entirely derivative of Heritage’s

interest, and the lien that burdened Staley’s interest in the well no longer burdens the well because

the original parties identified in the lien affidavit (Nova Mud as creditor and Heritage as debtor)

have settled their dispute. If Staley’s interest in the well had transferred prior to the perfection of

the mechanic’s lien, and if the lien affidavit had been perfected as to both Heritage and Staley,

then perhaps Nova Mud could argue severance and have reserved a right to proceed separately

against Staley’s interest after settling with Heritage in bankruptcy court.

12
 But timing in this case is everything. This case involves one lien securing one debt. The

one lien inhered in the well to secure payment for a dispute between Nova Mud and Heritage,

which held 100 percent of the working interest at the time of perfection. Staley took title to his

undivided fractional carried working interest under the cloud of this dispute as Heritage’s

successor-in-interest, meaning that he held his interest in the well at the mercy of Nova Mud, which

could foreclose on it at any time to satisfy its debt with Heritage. When instead Nova Mud settled

the underlying controversy with Heritage and agreed to release the lien in settling its claim against

Heritage, Staley’s interest was no longer subject to foreclosure because the claim underpinning the

lien was settled and subject to a novation that included a release of the lien on Heritage’s interest.

Regardless of whether the trial court viewed this as a novation substituting one debt for another

(which would extinguish the lien), or as a voluntary release of the lien itself in exchange for certain

preferences in its in personam recovery against Heritage in the bankruptcy court, it is clear that

the lien no longer burdened the well as of the point of settlement. Foreclosure against Staley would

have been improper.

Nova Mud complains that Staley’s reading of the bankruptcy settlement “is based on the

palpably false premise that Heritage’s indebtedness as reflected in the 2008 invoices . . . had been

magically transformed by the Bankruptcy Stipulation into a ‘different and new debt.’” This

process did not happen by magic. This process happened by Nova Mud’s own agreement to the

terms of the settlement agreement resolving its controversy with Heritage in bankruptcy court. If

Nova Mud wished to foreclose on the lien, it could have elected to proceed directly in state court

proceedings rather than file a proof of claim in the bankruptcy court, or it could have filed the

proof of claim but then asked the bankruptcy court to lift the stay as to the state foreclosure

proceedings to allow foreclosure on the lien and recoupment of any remaining losses against

13
Heritage in personam. Nova Mud elected to litigate in bankruptcy proceedings, and then settle

and release the lien and all claims related to the debt. In doing so, it lost its right to foreclose on

the lease as to Staley. The trial court did not err in declining to order foreclosure. We overrule

Issues One, Two, Three, Four, and Five.

Attorney’s Fees

In Issues Six and Seven, Nova Mud maintains that the trial court erred by failing to award

it attorney’s fees. Because Nova Mud did not prevail on its substantive claim in the trial court,

and because we determine that the trial court’s decision was not in error, Nova Mud was not

entitled to attorney’s fees. Issues Six and Seven are overruled.

CONCLUSION

There is no reversible error in the record before us. The judgment of the trial court is

affirmed.

February 22, 2019
YVONNE T. RODRIGUEZ, Justice

Before Rodriguez, J., Palafox, J., and Larsen, Senior Judge
Larsen, Senior Judge (Sitting by Assignment)

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