Dear Judge Jones:
I represent LL&E Royalty Trust (the “Trust”). The Trust is a general partner of LL&E Royalty Partnership (the “Partnership”), a Texas general partnership. The Trust holds 99% of the partnership interests.
Under Texas law, a general partner of a general partnership has standing to bring causes
of action on behalf of a general partnership. See Allied Chem. Co. v. DeHaven, 824 S.W.2d 257
(Tex. App. 1992). Similarly, the Trust had standing to file proofs of claim in this bankruptcy case
(and did so in October of 2016), even though, as the holder of a real property interest and/or a
secured creditor, neither the Trust nor the Partnership itself was required to file any proofs of
claim at all. See In re Fink, 366 B.R. 870 (Bankr. N.D. Ill. 2007); In re Soup Kitchen
International, Inc., 506 B.R. 29 (Bankr. E.D.N.Y. 2014); In re Mansaray-Ruffin, 530 F.3d 230 rd
(3 . Cir. 2008); In re W.S.F.–World Sports Fans, LLC, 367 B.R. 786 (Bankr. D.N.M. 2007); Merdrano Diaz v. Vazquez-Botet, 204 B.R. 842 (D.P.R. 1996). The Reorganized Debtor’s suggestion that “disallowance” of the filed proofs of claim will somehow obviate the need for further proceedings in the Texas litigation is, therefore, misguided.
In addition, to the extent any amendment of the proofs of claim is even required (which the Trust disputes), case law would instruct the Court to liberally allow a post-bar date amendment – up to and including substitution of claimants – in the circumstances presented. See, e.g., In re Unioil, Inc., 962 F.2d 988 (10th Cir. 1992). Accordingly, there is nothing to be achieved by the Court entertaining the Reorganized Debtors’ arguments.
As importantly, there is no reason for the Court to take up this issue at all at the present juncture, because the Texas litigation is still ongoing. The Reorganized Debtors invite the Court to unnecessarily insert itself into what is, at best, the early third quarter of complex, multimillion dollar Texas state-court litigation – litigation which has been going on for nearly seven years and is still far from over. The Court should decline to do so. Instead, the Court should continue to follow the prudent path it already set forth in its April 14, 2017 lift-stay decision (Docket No.
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Honorable David S. Jones Page 2
DICKINSON WRIGHT PLLC
1185, together with the related April 28, 2017 Order, Docket No. 1217) allowing the Texas litigation to be adjudicated to completion in the Texas courts before the parties return to this Court.
A brief history of the circumstances leading here may be helpful. On August 12, 2015,
the Reorganized Debtors’ predecessor in interest, QRE Operating LLC (“QRE”), sued the Trust
in the Texas courts for a declaratory judgment regarding QRE and the Trust’s respective rights
pursuant to a 1983 conveyance (the “Conveyance”) of oil and gas interests (“Overriding
Royalties”) in an oil and gas field in Florida and Alabama known as the “Jay Field”. QRE did
not sue the Partnership. Rather, QRE treated the Trust itself as the proper party to the
Conveyance. On February 19, 2016, the Trust counterclaimed against QRE for breach of the
1
On May 15, 2016, QRE and its affiliates (the “Debtors”) filed for chapter 11 in this Court. The Debtors scheduled the Trust as a creditor. They did not schedule the Partnership.
On October 14, 2016, solely out of an abundance of caution, the Trust filed a proof of claim against QRE (and duplicate proofs of claim against three other Debtors). The Trust did so expecting that its2 claims would be litigated in the Texas courts and not through the claim objection process.
In April of 2017, after carefully considering extensive stay relief briefing and oral argument, and after careful consideration of the Sonnax factors, the Court lifted the stay to allow the Texas litigation to continue, specifically stating, “[S]tay relief is granted to allow the Texas courts to determine the parties’ rights under the Conveyance Agreement, and in particular, whether and to what extent LL&E owns or holds a beneficial or other interest in the [Overriding Royalties], or alternatively, is an unsecured creditor[.]” Docket No. 1185, p. 16 (emphasis added).
The Debtors later served a contract rejection notice (Docket No. 1914) on the Trust purporting to reject the Conveyance as an “executory contract” between the Debtors and the Trust. They did not list nor serve the Partnership. The Trust filed an objection (Docket No. 2036), which was subsequently resolved by inclusion of the following agreed language in the Order Confirming the Debtors’ Plan of Reorganization:
1 The Trust later impleaded ConocoPhillips Company, the 1% general partner of the Partnership, as a third-party defendant so that both general partners of the Partnership are parties to the Texas litigation.
2 Consistent with this expectation, to date, neither the Debtors nor Reorganized Debtors have ever filed a substantive objection to the proofs of claim. Rather, on December 3, 2018, the Reorganized Debtors filed a mere “placeholder” objection (Docket No. 2624) in order to comply with the claims objection deadline while the Texas litigation continued. The objection does not assert that the Trust is an improper party to have filed the proofs of claim.
ARIZONA CALIFORNIA FLORIDA KENTUCKY MICHIGAN
NEVADA OHIO TENNESSEE TEXAS TORONTO WASHINGTON DC
Conveyance.
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Honorable David S. Jones Page 3
DICKINSON WRIGHT PLLC
The disposition of whether the Debtors’ agreement with LL&E Royalty Trust (the Conveyance of Overriding Royalty Interest) is subject to rejection under section 365 of the Bankruptcy Code shall be deferred, with the rights of all parties reserved, pending a determination of the issues to be adjudicated in the Texas Court[.] [Docket No. 2387, p. 21 (emphasis added)].
The Texas litigation has not been adjudicated to completion – even at the trial court level. In fact, just this past Friday the trial court re-set trial to October 17, 2022.
The Texas Court of Appeals’ mandamus decision, issued April 19, 2022, which is referred to in the Reorganized Debtors letter, relates to a specific interlocutory trial court order requiring the Reorganized Debtors to deposit certain disputed funds with the trial court. The Texas Court of Appeals based its mandamus decision on a finding that the Trust had not adequately pled claims on behalf of the Partnership. However, in the interim, the Trust amended its counterclaims by right in the trial court to more clearly identify that it was asserting claims on behalf of the Partnership. Importantly, the Reorganized Debtors moved for summary judgment on their “real party in interest” argument in the trial court based on these amended counterclaims, and the trial court denied that motion from the bench on April 4, 2022. Moreover, the trial court’s recent re-setting of the trial date – post-mandamus decision – makes it clear that the trial court still views the Trust as having sufficient standing to bring the claims to trial based on the
3
Because the Texas litigation is still ongoing, the Trust respectfully requests that the Court simply maintain the same prudent path it established in 2017 when it determined to allow the Texas Courts to adjudicate the rights of the parties. However, if the Court determines to take up the issues raised by the Reorganized Debtors now, the Trust respectfully requests that the Court set a full briefing schedule for the Trust to fully present its positions.
amended counterclaims that were not before the Court of Appeals on mandamus review.
Cc: Counsel to Reorganized Debtors
Very truly yours,
/s/ Doron Yitzchaki
3 By separate order, on May 20, 2021, the Texas trial court determined that the Trust, as a general partner of the Partnership, was entitled to a temporary injunction against the Reorganized Debtors because the “Partnership’s overriding royalty interest in the Conveyance is a real property interest,” that the Reorganized Debtors “holds any unpaid overriding royalties in trust for [the Trust],” and that the “Partnership is at the very least a secured creditor as to its accrued but unpaid overriding royalties and therefore enjoys a superior right to the funds in the Account attributable to its accrued but unpaid overriding royalties.” The Reorganized Debtors appealed the injunction, and the appeal remains pending.
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