Texas Oil and Gas Well Operators Can Receive Protection from Threatened Liens

July 16, 2012

Protection is now available for oil and gas well operators subject to threatened liens by drilling contractors’ subcontractors. A Texas court has recently upheld a temporary injunction preventing a drilling contractor’s subcontractor from filing liens against oil and gas wells when certain proactive steps were taken by the operator. The court reasoned that an operator has the right to protect property from liens and encumbrances by pleading and proving the essential elements of a proper temporary injunction. In addition, the court also held that a cash deposit into the registry of the court will suffice to satisfy the requirement of filing a bond with the court.

In Adobe Oilfield Services, Ltd. v. Trilogy Operating, Inc., 305 S.W.3d 402 (Tex. App.—Eastland 2010, no pet.), the court held that injunctive relief granted to prevent threatened liens from being filed by the drilling contractor’s subcontractors was proper. Pursuant to multiple drilling contracts, Adobe, the drilling contractor, drilled multiple wells for Trilogy, the operator. Trilogy was contacted by a bank which claimed a right to Adobe’s accounts receivable pursuant to a security interest perfected under the Uniform Commercial Code. With the bank and Adobe both claiming the right to receive payment, Trilogy deposited the remaining amount owed to Adobe under the contracts into the registry of the trial court. When Adobe’s subcontractors threatened to file liens on the property, Trilogy filed suit seeking injunctive relief to protect the properties from the threatened liens and to have the trial court determine the parties entitled to the money in the registry. The trial court granted the temporary injunction, Trilogy posted a cash bond, and subcontractors appealed.

A temporary injunction preserves the status quo of the litigation’s subject matter pending trial on the merits. An applicant for temporary injunction must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.

To prove an irreparable injury, the injured party cannot be adequately compensated in damages or damages cannot be measured on a monetary basis. During the hearing on the temporary injunction, Trilogy’s president testified that Trilogy was contractually obligated to protect the land from liens, and, if the liens were filed, the liens would prevent Trilogy from being able to raise money and would negatively affect its reputation. Proof at the hearing also showed that Trilogy would pay the remaining amounts held in suspense if it knew whom to pay. Accordingly, the court added: “Trilogy brought forth evidence showing a probable right to the relief sought and probable, imminent, and irreparable injury that could not be measured by any certain pecuniary standard.”

Further, when the lawsuit was filed, the subcontractors had not filed a lien on the properties. The temporary injunction sought to prevent such liens from being filed, and, therefore, granting the temporary injunction maintained the status quo. Chapter 56 of the Texas Property Code provides that an owner of land or a leasehold may not be subjected to liability greater than the amount agreed to be paid in the contract for furnishing material or performing labor. Because Trilogy had paid the full contractual obligation to Adobe or into the court, Trilogy had a probable right to the relief sought. As a result, the trial court granted the temporary injunction, and the Court of Appeals upheld the injunction because Trilogy was able to show that it had a cause of action against Adobe, it had a probable right to the relief sought, and that there would be probable imminent and irreparable injury if the liens were filed.

Another important issue decided in the case involved whether or not the deposit of a sum of cash into the trial court’s registry is sufficient to satisfy the requirement of filing a bond with the court. The case held that anytime a surety bond is required, a party may instead deposit cash in lieu of filing the bond. Here, the cash that the operator deposited with the clerk of the trial court insured that the operator would abide by the decision in the case and would pay all sums of money and costs adjudged against it if the temporary injunction was dissolved. Thus, the cash deposit of the operator constituted a proper bond under Texas Rules of Civil Procedure 684 and 14c.

The significance of this case is that 1) a temporary injunction may be granted to prevent the filing of subcontractor’s liens against oil and gas wells when the contractor has been fully paid or the balance due has been paid into the court, and 2) cash in lieu of a bond meets the statutory requirements.