Bankruptcy Court Strikes Former Counsel's Affidavit Supporting Adverse Party in Working Interest Dispute
The Southern District of Texas Bankruptcy Court struck an affidavit submitted by Larry Jacobs, former counsel to HB2 Origination, LLC, in support of Alpine Non-Op LLC's summary judgment motion seeking a declaratory judgment that non-operating working interests in oil and gas leases were not property of the bankruptcy estate. The court held that Jacobs breached his duty of loyalty under Texas Disciplinary Rules of Professional Conduct Rule 1.09(c) by submitting an affidavit containing information relating to his prior representation of HB2 on the same subject matter, directly adverse to his former client.
Background: Nominee Structure for Non-Operating Working Interests
In August 2022, Sam Haskell approached Alpine Summit Energy Partners to structure an investment whereby Haskell's investor group would contribute capital in exchange for non-operating working interests in oil and gas leases and four wells to be drilled on those properties. The transaction was structured through formation of a general partnership named Alpine 2022 Non-Op, with HB2 Origination, LLC serving as managing partner. Larry Jacobs was retained by HB2 to document the transaction, drafting both a nominee agreement and a general partnership agreement executed with an effective date of August 19, 2022. The Nominee Agreement designated HB2 as nominee holding legal title to the percentage interests in the properties.
The Adversary Proceeding and Contested Affidavit
After Alpine Summit filed for Chapter 11 bankruptcy in 2023, Alpine Non-Op LLC commenced an adversary proceeding seeking a declaratory judgment that the percentage interests in the properties, along with their distribution rights and revenues, were not property of the bankruptcy estate. The properties were subsequently sold pursuant to court order. In support of its summary judgment motion, Alpine Non-Op submitted an affidavit from Jacobs—HB2's former counsel—detailing his role in drafting the investment agreements, including his impressions of their structure and legal effect. At the summary judgment hearing, the court struck Alpine Non-Op's summary judgment motion for relying on the inadmissible affidavit and for soliciting Jacobs to give an affidavit in violation of his duties owed to HB2. The court allowed Alpine Non-Op to provide supplemental briefing to reconsider the ruling.
The Court's Ethical Analysis Under Rule 1.09(c)
After reviewing the supplemental briefs, Judge Marvin Isgur held that Jacobs breached his duty of loyalty owed to HB2 under Texas Disciplinary Rules of Professional Conduct Rule 1.09(c). The court's central concern was that the affidavit was both on the subject of Jacobs's prior representation and adverse to his former client. The affidavit detailed Jacobs's role in drafting the investment agreements, including his impressions of their structure and legal effect, and was offered in support of Alpine Non-Op's summary judgment motion against HB2's interests.
The court's ruling turned on whether Jacobs violated Rule 1.09(c), which prohibits a lawyer who formerly represented a client from using information relating to the representation to the disadvantage of the former client. The opinion makes clear that the affidavit contained information relating to Jacobs's representation of HB2 and was being used adversely to HB2 in litigation concerning the very agreements Jacobs had drafted for his former client. After considering Alpine Non-Op's supplemental briefing, the court concluded that its original ruling striking the summary judgment motion would stand.