Article courtesy of Ariel Emmanuel (King & Spalding)
In re Jet Oilfield Servs., 160 F.4th 679 (5th Cir. 2025).
Jet Oilfield Services (“Jet”), a limited liability company, was formed by Brandon Smith, Lorne Mosely, and Brandon Wilkins in 2018. Shortly after its formation, Brian Owen (“Owen”) acquired 43% of Jet’s membership interests. As a minority owner, Owen could not enter transactions on Jet’s behalf without the consent of at least one other member under Jet’s governing documents. In 2022, Owen entered an agreement (“Spin Agreement”) with Spin Capital, L.L.C. (“Spin”) for Jet to sell its future receivables for a lesser present sum. To verify Owen’s authority to bind Jet to the agreement, Spin reviewed Jet’s tax returns and bank statements prior to execution. Jet’s unsigned tax returns listed Owen as Jet’s “Partnership Representative” and indicated he was a “General Partner or LLC member-manager”, while its bank statements revealed Owen had access to Jet’s accounts.
When Jet filed for Chapter 11 bankruptcy later in 2022, Spin filed a proof of claim based on the Spin Agreement. In answering the complaint, Jet asserted counterclaims seeking disallowance of the claim and avoidance of transfers to Spin. The bankruptcy court entered judgment for Jet, holding that Spin’s claim against Jet was unenforceable due to Owen’s lack of actual or apparent authority to execute the Spin Agreement on Jet’s behalf and a lack of consideration supporting it.
Following the district court’s affirmance of that judgment, Spin appealed to the Court, which analyzed the enforceability of Spin’s claim against Jet. The Court noted that Spin was required to prove both Owen’s authority to bind Jet to the Spin Agreement and the existence of sufficient consideration supporting it to prevail in its claim.
The Court applied Texas law in analyzing Owen’s authority to enter Jet into the Spin Agreement. It began its analysis by noting that under Texas law governing persons and officers of limited liability companies vested with either actual or apparent authority are empowered to carry out a company’s business affairs as agents. Because Owen was not vested with actual authority to enter the Spin Agreement by Jet’s governing documents or otherwise, the Court’s analysis focused on whether Owen possessed apparent authority to bind Jet. Articulating Texas law, the Court stated apparent authority arises when a principal, either by knowingly permitting an agent to hold themself out as possessing authority or taking actions lacking ordinary care clothing an agent with the appearance of authority, leads a reasonably prudent counterparty to believe the agent possesses the purported authority. Accordingly, the Court analyzed both Jet’s conduct and the reasonableness of Spin’s assumptions regarding Owen’s authority to enter the Spin Agreement during the negotiation process in assessing Spin’s claim.
Spin contended that Jet’s principals, the company’s member-managers, assented to Owen’s authority by listing him as a general partner or member-manager on the entity’s tax return. The Court rejected this argument, reasoning that because the tax return was not signed by any of the principals, it represented no statement regarding Owen’s authority. Despite its failure to communicate with Jet’s principals regarding Owen’s authority or review Jet’s Certificate of Formation to confirm such authority, Spin further argued it reasonably assumed Owen possessed requisite authority due to his access to Jet’s bank accounts. The Court also rejected this argument, declaring that Spin’s assumption was not reasonable because bank account access does not equate to authority to act on a company’s behalf, citing an admission to this effect by Spin’s own representative in support of its conclusion.
The Court therefore affirmed the bankruptcy court’s judgment, ruling that Spin’s claim was not enforceable due to Owen’s lack of authority to enter the Spin Agreement under Texas law. Having ruled for Jet on the question of authority, the Court did not address whether the Spin Agreement was supported by adequate consideration.
