The lower courts agreed that the sale of a pipeline system from a bankruptcy estate was free and clear of an obligation to pay certain fees to “Newco.” Newco Energy v. Energytec, Inc., No. 12-41162 (Dec. 31, 2013). The Fifth Circuit reversed, finding that the obligations arose from a covenant that ran with the land. First, the Court found that the lower courts’ reservation of the “free and clear” issue was sufficient to avoid section 363 of the Bankruptcy Code, which would otherwise moot the appeal for failure to get a stay. On the merits, the Court focused on “horizontal privity” between the parties at the time the covenant was created, expressing doubt that Texas in fact imposed such a requirement, but finding it satisfied in the conveyances here. (discussing Wayne Harwell Props. v. Pan Am. Logistics Center, Inc., 945 S.W.2d 216, 218 (Tex. App.–San Antonio 1997, writ denied)). The Court also concluded that the payment obligation ran with the land, as it related to transportation from the land and was secured by a lien on the entire pipeline. (distinguishing El Paso Refinery, LP v. TRMI Holdings, Inc., 302 F.3d 343 (5th Cir. 2002)).
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