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In re Samson Resources Corp.

United States District Court, D. Delaware

September 27, 2018


         Chapter 11


         Pending before this Court is appellant Calvin Williams' pro se appeal from a December 13, 2017 Order (B.D.I. 2956) ("Claim Objection Order")[1] entered by the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), which sustained the above-captioned debtors' objection to Appellant's proof of claim. For the reasons set forth below, the Settlement Trust's motion for leave to intervene (D.I. 14) ("Motion to Intervene") is granted[2] and the Claim Objection Order is affirmed.

         1. Background. Samson Resources Corporation and certain affiliates ("Debtors") operate in the oil and gas industry. In September of 2015, Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. In early 2017, the Bankruptcy Court confirmed the Plan, and the Debtors emerged from bankruptcy as reorganized entities. (B.D.I. 2070).

         2. The Lease. The following facts appear uncontested. Appellant's royalties arise from a lease, executed in 1949 by Will Seamster (as amended, "Lease"), which granted Leroy Connell exclusive mineral rights to the land described as the "Northeast Quarter of Northwest Quarter (NE 1/4 of N.W. 1/4), Section 35, Township 18 North, Range 9 West" in Webster Parish, Louisiana (the "Seamster Tract"). The Lease provides that Will Seamster "grants, leases and lets exclusively unto lessee for the purpose of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all other minerals." In return for the mineral rights, the Lease provides that Will Seamster will be paid a one-eighth (1/8) royalty of all oil and gas produced from the wells, in addition to an initial payment of $1, 000. The Lease was amended on May 21, 1951 to provide that drilling on any land unit with which the Seamster Tract was pooled would be sufficient to satisfy the ten-year prescriptive period for developing the mineral rights for the entire Seamster Tract, and not just the portion that was pooled. The pooling arrangement was subsequently amended, as reflected in the Amended Division Order, dated April 18, 1977.

         3. Will Seamster owned a portion (159/160, or approximately 99.4%) of the 40-acre tract covered by the Lease, and that tract is only one-sixteenth (1/16) part of the 640 acres covered by the Stewart 35 Unit with which his land is pooled. Because of this, his 1/8 royalty interest must be reduced by multiplying it by 159/160 and then by 1/16. This results in a .0077637 fractional royalty interest held by Will Seamster. Will Seamster had five children, including Beatrice Seamster Williams. Beatrice Williams, inherited one-fifth (1/5) of Will Seamster's royalty interest or .00155274 royalty interest in the Seamster Tract. Beatrice Williams had six children, including Willie Willams, each of whom inherited one-sixth (1/6) of Beatrice's royalty interest or .00025879 royalty interest in the Seamster Tract. Willie Williams had ten children, including Appellant. Two of Willie Williams' children predeceased Willie with no descendants, and therefore, in accordance with applicable law, Willie Williams' interest was divided into eighths and not tenths. Appellant has a one-eighth (1/8) interest of Willie Williams' royalty interest, or .00003235 royalty interest in the Seamster Tract.[3]

         4. The Williams Heirs[4] own royalty interests in connection with nine wells (the "Wells") located in Webster Parish in which the Debtors owned interests, including, in some instances, the operating interests. All of the Wells are primarily gas-producing wells. However, the operating Wells also produce oil which is called "condensate" and is collected by Samson. Samson acquired the Lease in 2003. (SA849 at 61:19-21; SA813 at 25:16-20).

         5. The Sale Order. As part of their reorganization, Debtors pursued various asset sales, and, on January 29, 2016, filed a motion seeking authority to sell certain assets (B.D.I. 621) ("Sale Motion"), including the Debtors' working interests in certain oil and gas leases. Appellant filed various pleadings objecting to the Sale Motion. (See SA5-23 (B.D.I. 665) (objection to Sale Motion through attached letter asserting Lease was obtained by fraud, was illegally amended in 1951 and again in 1972 and was obtained from a party under disability); SA24-47 (B.D.I. 770) (asserting that Lease was not held by timely production of minerals); SA454-74 (B.D.I. 832) (asserting same)). Appellant argued that because the Lease was invalid, the Debtors could not sell their interest in the Lease. (Id.)

         6. On June 7, 2016, the Bankruptcy Court held an evidentiary hearing on the Sale Motion and heard evidence and argument from the Williams Heirs in support of their claims. (SA480-550). Appellant made various arguments, focusing on his belief that royalty payments were not properly made (see Id. at 44:24-45:3) and that the Lease was invalid because it had expired by its own terms (41:18-44:19; 50:19-51:12). Debtors presented evidence and testimony setting forth, inter alia, the difference between the Debtors' working interest in the assets and Appellant's royalty interest in the assets;[5] the continued validity of the Lease and the Debtors' ownership of a working interest thereunder; evidence showing that drilling sufficient to hold the Lease by production had occurred within ten years after entry into the Lease (see SA93-97 (showing "spud" dates of 1951, 1953, 1955)); and the fact that the proposed sale did not include Appellant's royalty interest. (See Id. 15:22-41:3). The Debtors further argued that, even if that were not the case, Appellant's challenge to the Lease could not be sustained because the relevant prescriptive period[6] under Louisiana law had long since passed, and Appellant and his predecessor in interest had accepted payments arising from the Lease. (Id. at SA58-60).

         7. Following argument, the Bankruptcy Court ruled from the bench. (SA539-46 at 60:4-67:4). As the Bankruptcy Court explained, "[W]hat's in front of me today is whether or not the Debtors can sell their alleged working interest in the Seamster tract to a third party. What's not in front of me today is anything to do with the royalty payments . . . The royalty issue and who owns the working interests are two separate things." (Id. at 60:7-60:20). The Bankruptcy Court determined, based on the facts and evidence presented, that "there is a valid lease," that "[t]he lease was entered in 1949, production began prior to 1959 and continues to today," and that "the Debtor has the ability to sell that working interest." (Id. at 65:9-65:12).[7] The next day, the Bankruptcy Court entered the Order overruling Appellant's objection and approving Debtors' Sale Motion with respect to the assets. (B.D.I. 1024) ("Sale Order").

         8. On July 11, 2016, Appellant filed a Motion to Present New Evidence (B.D.I. 1154) ("First Reconsideration Motion"). The Bankruptcy Court treated this as a motion for reconsideration under Federal Rule of Civil Procedure 59, held a hearing on September 7, 2016, and denied the First Reconsideration Motion the same day. (B.D.I. 1325). On September 15, 2016, Appellant filed a Motion to Alter or Amend the Judgment Pursuant to Fed.R.Civ.P. 59(e) to Prevent Manifest Injustice (B.D.I. 1355), and subsequently filed a revised version on October 5, 2016 (B.D.I. 1446) ("Second Reconsideration Motion")- The Bankruptcy Court held another hearing to consider the Second Reconsideration Motion on November 16, 2016, and again denied Appellant's request for relief by order entered the same day. (Civ. No. 16-1124-RGA at D.I. 22, 11/16/16 Hr'g Tr. at 56:19-58:20; B.D.I. 1663).

         9. Appeal of Sale Order. On December 5, 2016, Appellant filed his Notice of Appeal of the Sale Order. (B.D.I. 1719). On August 30, 2017, this Court dismissed Appellant's appeal of the Sale Order as untimely. (See Williams v. Samson Resources Corp., Civ. No. 16-1124-RGA (D. Del. Aug. 30, 2017) at D.I. 60, 61). Appellant appealed that decision to the Court of Appeals. (Id. at D.I. 69). On April 12, 2018, the Third Circuit affirmed the dismissal. (Id. at D.I. 83-1). On May 15, 2018, Appellant's petition for rehearing en banc was denied by the Third Circuit. Appellant filed a Petition for Writ of Certiorari with the United States Supreme Court on June 8, 2018, which remains pending at No. 18-5661.

         10. The Claim. Appellant filed a proof of claim (Claim No. 732) ("Claim") against Samson in the Chapter 11 cases. Appellant's Claim asserted that Samson owed him an undetermined amount for fraud, theft, and misappropriation of funds. (See SA1-4)). The Claim did not include any supporting documentation. (See id.)

         11. Claim Objection Order. Following the Bankruptcy Court's entry of the Sale Order, on May 5, 2017, Debtors filed the Claim Objection. (SA551-67). The Claim Objection asserted that the Debtors' books and records reflected no liability to Appellant and that Appellant failed to provide the requisite documentation to support his claim. (SA565-67). Appellant filed a response on May 12, 2017 (SA568-73) and an additional response on July 24, 2017 (SA592-95). Appellant again asserted that certain grants of interest in mineral servitudes on the Seamster Tract that were created prior to the Lease (the "Pre-Lease Grants") expired by operation of law. (SA570-72; SA592). Appellant further asserted that the Pre-Lease Grants had not been extended under Louisiana law. (Id.) In addition, Appellant asserted that the Lease "that assigns to me a 1/8 share of all oil and gas and it also expired under its own terms absent sufficient drilling and operations" was amended in 1951 to exclude interests in oil. (SA571). Appellant claimed that the Debtors had not produced a payment history for the initial lessee, and also claimed that the first well was not drilled on the property until 1971. (SA572). Appellant further asserted that the Pre-Lease Grants somehow relate to the Debtors' interest in the Seamster Tract and resulted in an unjust enrichment. (SA592).

         12. On August 7, 2017, the Debtors filed a reply and declaration in support of the Claim Objection. (See SA596-777; SA778-97 ("Johnson Declaration")). Debtors argued that Appellant's challenge to the validity of the Lease was res judicata as it already had been fully presented and ruled upon the by Bankruptcy Court. (SA599). Even if the Bankruptcy Court's previous opinion did not have preclusive effect, Debtors submitted several independent bases to conclude that the prescriptive period barred any challenge to the Lease. (SA609). Debtors submitted evidence demonstrating Appellant had accepted benefits under that contract and therefore could not challenge the Lease. (SA609-10). Debtors also submitted evidence supporting ...

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