Restructuring

Contributed by David G. Litvack
Although considered by many to be a ministerial act, the lack of a proper statement by a notary on an affidavit can have far-reaching consequences.  A recent case decided by the United States Court of Appeals for the Fifth Circuit aptly illustrates such consequences.  In Stokes & Spiehler Onshore, Inc. v. Ogle (In re Wave Energy, Inc.), the Fifth Circuit Court of Appeals held that, under Texas law, if an affidavit is acknowledged, but not sworn by a notary, the affidavit is invalid.
Prior to Wave Energy’s bankruptcy filing, it hired various contractors to assist in the drilling of certain gas-producing wells.  One such contractor performed engineering services, and Wave Energy owed it $150,026.54 on account of outstanding prepetition obligations.  Accordingly, prior to the petition date, the contractor timely and properly filed an affidavit of lien against the gas-producing wells.  After the bankruptcy filing, the contractor filed a proof of claim asserting a secured claim based upon its lien filing.   The chapter 11 trustee appointed in the case, however, objected to the claim on the basis that the contractor had failed to properly secure a lien against the gas-producing wells because the affidavit filed by the contractor was defective.
Under Texas law, to secure a lien against mineral property, a lien claimant must file an affidavit with a jurat.  A jurat is a certificate/sentence added to the end of an affidavit by an authorized third party (e.g., a notary) stating when, before whom, and where the affiant so swore to (or affirmed) the statements at issue.  Accordingly, an affidavit without a jurat is not an “affidavit” under Texas law.  A mere acknowledgement that a document has been executed is insufficient under Texas law.  The Fifth Circuit was thus tasked with determining whether the affidavit at issue was properly executed under Texas law.
In Wave Energy, the affidavit contained the following language below the affiant’s signature:

This instrument was acknowledged before me on May 21st, 2009, by Bruce M. Jordan, as President of Stokes and Spiehler Onshore, Inc., a Louisiana corporation, on behalf of said corporation.

/s/ Raymond E. Beyt

Notary Public in and for the

State of Louisiana

The crucial issue in the case was whether the notary’s certification was a valid jurat or merely an acknowledgment.  In other words, the key question was whether the affiant was sworn in the notary’s presence.  Because the notary in this case did not certify that it had witnessed the oath, there was no jurat, notwithstanding the notary’s “acknowledgment.”  The Fifth Circuit also observed that even if an affidavit begins by stating “[John Doe], Affiant, makes oath and says . . .” the notary’s statement must also specifically reference the affiant’s oath.  Accordingly, the Fifth Circuit affirmed the ruling of the bankruptcy court and the district court sustaining the trustee’s objection to the claim as secured.
Although some may feel this decision constitutes an unduly harsh result for a simple wording error, it underscores the importance of properly completed affidavits.  Notably, unlike Texas law, under New York law, an affidavit is typically valid even if the affidavit lacks a proper jurat.  Nevertheless, because the issue may be arguable under contrary case law the old adage rings true regardless of which state you may practice in: better to be safe than sorry.  So make certain that your notary has referenced the affiant’s oath whenever you execute an affidavit:

Subscribed and sworn to before me on [DATE].

Signature: _______________________