In the Matter of: GOODRICH PETROLEUM CORPORATION; GOODRICH PETROLEUM COMPANY, L.L.C., Debtors
GOODRICH PETROLEUM CORPORATION; GOODRICH PETROLEUM COMPANY, L.L.C., Appellees. FALLON FAMILY, L.P., Appellant
from the United States District Court for the Southern
District of Texas
DAVIS, JONES, and HIGGINSON, Circuit Judges.
EUGENE DAVIS, CIRCUIT JUDGE:
2014, appellant Fallon Family, L.P. (the "Fallon
Family"), as part of a settlement agreement with
appellees Goodrich Petroleum Corporation and Goodrich
Petroleum Company, L.L.C. (collectively,
"Goodrich"), executed a ratification of a
previously disputed mineral lease in favor of Goodrich. In
March 2016, Goodrich filed a Chapter 11 bankruptcy
proceeding. Although the settlement agreement required
Goodrich to make substantial cash payments over time to the
Fallon Family, the recorded ratification of the lease did not
reflect this fact but only indicated that good and sufficient
consideration had been paid for the ratification. The Fallon
Family argued that because the bankrupt Goodrich failed to
make payments under the promissory note made part of the
settlement agreement, the Fallon Family had the right to
dissolve the settlement agreement on grounds of non-payment,
thus divesting Goodrich of its interest in the lease. We
agree with the bankruptcy court that when Goodrich filed for
bankruptcy, the debtor-in-possession became vested under 11
U.S.C. § 544(a) with all the rights and powers of a bona
fide purchaser of the real property rights of Goodrich,
including the ratified lease. The lease as ratified may not
be dissolved for nonpayment of the obligations in the
settlement agreement because the public record reflects that
consideration had been fully paid, and a third party was not
placed on notice of the remaining payments. We therefore
September 8, 1954, the Fallon Family's
predecessor-in-interest, Silas F. Talbert, executed a mineral
rights lease (the "Lease") covering a 487-acre
tract of land in Caddo and DeSoto Parishes, Louisiana (the
"Property"). The Lease provided for a five-year
primary term and a secondary term to continue "as long
thereafter as oil, gas or other mineral is produced" on
the Property. The Lease was properly recorded in the
conveyance records of both parishes.
February 28, 2012, the Fallon Family petitioned the 42nd
Judicial District Court in DeSoto Parish to terminate the
Lease and to assess damages and attorney's fees against
Goodrich and other parties. Specifically, the Fallon Family
alleged that Goodrich had ceased continuous operations on
three units of the Property, in violation of the terms of the
Lease. On October 2, 2014, the Fallon Family recorded two
Notices of Pendency of Action (collectively, the "Lis
Pendens") in the conveyance records of Caddo and DeSoto
Parishes, which attached the Lease and evidenced the Fallon
Family's suit to terminate the Lease. On October 6,
2014, the eve of trial, the Fallon Family agreed with
Goodrich and the other defendants to resolve all
controversies relating to the Lease.
settlement was confirmed in a written agreement (the
"Settlement Agreement") between the Fallon Family,
Goodrich, and other defendants. The Settlement Agreement
spelled out the terms of the parties' October 15, 2014
compromise. In the Settlement Agreement, the Fallon Family
agreed to ratify the Lease and to release its claims against
Goodrich in consideration for Goodrich's paying $650, 000
within ten business days of the Settlement Agreement and
executing a promissory note (the "Promissory Note")
in the amount of $1, 000, 000. The Promissory Note was to be
paid in $100, 000 biannual installments, with the first
installment due on October 15, 2015. The $650, 000 was wired
to the Fallon Family and the Promissory Note duly delivered.
The Amendment and Ratification of Oil, Gas and Mineral Lease
(the "Lease Ratification") was recorded in the
conveyance records of both Caddo and DeSoto parishes, with an
effective date of October 15, 2014. The recorded Lease
Ratification, in relevant part, reads:
NOW, THEREFORE, for the promises and covenants exchanged
below, and other good and valuable consideration exchanged by
the Parties on or near this date, the receipt and sufficiency
of which is hereby acknowledged, the Parties agree [to the
listed promises and covenants].
stipulated promises and covenants in the Lease Ratification
are: (1) that except as to land released by prior agreement,
the Lease is "hereby affirmed and ratified in its
entirety, and remains in full force and effect;" (2)
that the Lease "never ceased to be in full force and
effect;" (3) that the Lease is severed by unit for
maintenance; and (4) that an additional royalty clause is
added to the Lease.
October 15, 2015, Goodrich paid the first $100, 000
installment on the Promissory Note; when the second
installment came due on April 15, 2016, Goodrich failed to
make the payment, leaving a $900, 000 outstanding balance on
the Promissory Note. On the same day, it filed voluntary
chapter 11 bankruptcy proceedings in the Southern District of
Texas bankruptcy court.
the course of bankruptcy proceedings, the Fallon Family filed
an emergency motion seeking to compel assumption or rejection
of the Settlement Agreement as an 11 U.S.C. § 365
executory contract. Had the Fallon Family succeeded in this
argument, Goodrich would have been obligated either to
perform fully the terms of the Settlement Agreement and thus
pay the remainder of the debt or to reject the Settlement
Agreement and thus relinquish any interest in the Lease
Ratification. Alternatively, the Fallon Family sought to
dissolve the Settlement Agreement in its entirety, putting
both parties back in their pre-Settlement Agreement positions
and thereby stripping Goodrich of its interest in the Lease.
Goodrich, in opposition, argued that 11 U.S.C. § 544(a)
allowed it to rely, as a bona fide purchaser, on
representations in the recorded Lease Ratification that full
consideration had been paid thereby preventing dissolution.
26, 2016, following the receipt of Goodrich's objection
and a motion hearing, the bankruptcy court denied the Fallon
Family's motion, finding that, though the Promissory Note
was integrated into the Settlement Agreement: (1) the
Settlement Agreement was not an executory contract under 11
U.S.C. § 365 that Goodrich could be compelled to assume
or reject; and (2) the Fallon Family's dissolution rights
were not effective as to Goodrich pursuant to 11 U.S.C.
§ 544. On appeal, the district court affirmed.
Fallon Family timely lodged this appeal.
exercise jurisdiction pursuant to 28 U.S.C. § 158(d)(1).
"We review the decision of a district court, sitting as
an appellate court, by applying the same standards of review
to the bankruptcy court's findings of fact and
conclusions of law as applied by the district
court." Thus, we review the bankruptcy court's
findings of fact for clear error and its legal conclusions de
to this case is the interplay between 11 U.S.C. §
544(a), commonly referred to as the "strong arm"
provision of the Bankruptcy Code, and the Louisiana Public
Records Doctrine, Louisiana Civil Code article 3338. As a
threshold matter, the Fallon Family argues that 11 U.S.C.
§ 544(a) only permits a debtor-in-possession (1) to
avoid the transfer of property of the debtor; or (2) to avoid
the obligations incurred by the debtor. In other words, the
Fallon Family argues that these are the only strong-arm
abilities Goodrich has to keep the bankruptcy estate intact.
powers, the Fallon Family argues, are irrelevant in
determining whether the Fallon Family can dissolve the
Settlement Agreement because dissolution is a separate
Louisiana statutory right. We agree with Goodrich that the
Fallon Family's reading of 11 U.S.C. § 544(a) is
much too narrow.
Goodrich, as debtor-in-possession, "occupies the shoes
of a trustee in every way" under the Bankruptcy Code,
Goodrich's abilities as debtor-in-possession are defined
by 11 U.S.C. § 544(a). The relevant text of 11 U.S.C.
§ 544(a) reads as follows:
(a) The trustee shall have, as of the
commencement of the case, and without regard to any knowledge
of the trustee or of any creditor, the rights and powers of,
or may avoid any transfer of property of the debtor or any
obligation incurred by the debtor that is voidable by-
. . .
(3) a bona fide purchaser of real property,
other than fixtures, from the debtor, against whom applicable
law permits such transfer to be perfected, that obtains the
status of a bona fide purchaser and has perfected such
transfer at the time of the commencement of the case, whether
or not such a purchaser exists.
544(a) does not merely bestow upon a debtor-in-possession the
ability to avoid either the transfer of a debtor's
property or its obligations; instead, a debtor-in-possession
is endowed with "the rights and powers"
of, inter alia, a "bona fide purchaser of real
property." In other words, the Bankruptcy Code
creates a legal fiction affording a debtor-in-possession the
abilities it would have as a bona fide purchaser of the
debtor's interests in immovable property at the time the
bankruptcy is filed.
the Bankruptcy Code creates the status of a hypothetical bona
fide purchaser, state law defines that
status." The Fallon Family argues that
debtors-in-possession and bona fide purchasers are not third
persons "under Louisiana's law of registry with
respect to the ratification of a mineral lease pursuant to a
settlement agreement," and thus that Goodrich remains
responsible for its obligations under the unrecorded terms of
the Settlement Agreement. We agree with Goodrich that this
argument is foreclosed by our decision in In re
Zedda, which concluded that 11 U.S.C. § 544(a)(3)
bona fide purchasers are third persons under the Louisiana
Public Records Doctrine.
Louisiana Public Records Doctrine requires certain types of
instruments affecting immovables to be filed in the public
records in order to be effective against third
persons. It states:
The rights and obligations established or created by the
following written instruments are without effect as to a
third person unless the instrument is registered by recording
it in the appropriate mortgage or conveyance records pursuant
to the provisions of this Title:
(1) An instrument that transfers an immovable or establishes
a real right in or over an immovable.
(2)The lease of an immovable.
(3) An option or right of first refusal, or a contract to
buy, sell, or lease an immovable or to establish a real right
in or over an immovable.
(4) An instrument that modifies, terminates, or transfers the
rights created or evidenced by the instruments described in
Subparagraphs (1) through (3) of this Article.
Civil Code article 3343 defines a third person as one
"who is not a party to or personally bound by an
instrument." The article clarifies that, "[a]
person who by contract assumes an obligation or is bound by
contract to recognize a right is not a third person with
respect to the obligation or right or to the instrument
creating or establishing it."
In re Zedda, a panel of this Court considered the
intersection of the Louisiana Public Records Doctrine with 11
U.S.C. § 544(a) where the trustee of a bankruptcy estate
claimed that certain property was part of, and could be
administered by, the estate. In its analysis, the Court
found that, "[f]or purposes of Louisiana's Public
Records Doctrine, a creditor or a purchaser is a third
person." Applying that doctrine to § 544(a),
the Court concluded that it was "clear" that a
trustee was "a third person for purposes of the public
records when he assume[d] the status of a hypothetical
creditor or a bona fide purchaser as of the commencement of
the case." This conclusion, the Court continued,
was "supported by the Trustee's correct assertion
that he occupies the position of a third party who
is entitled to rely on the public
records." As noted above, Goodrich exercises the
identical powers and duties as a trustee.[2 ...