864 F.3d 280
3d Cir.2017Background
- SemGroup (a midstream oil services company) bought oil from thousands of producers on credit, resold pooled oil to downstream purchasers (J. Aron and BP), and traded oil options; mounting losses on options led to insolvency and Chapter 11.
- J. Aron and BP had master agreements allowing setoff: on SemGroup default they could net amounts owed for oil against amounts SemGroup owed on options; they exercised setoff prepetition and tendered net amounts to the estate after bankruptcy.
- Over a thousand producers remained partially or wholly unpaid and sued J. Aron and BP claiming downstream purchasers took oil subject to producers’ liens or trust rights under Texas, Kansas (UCC amendments) or Oklahoma (PRSA).
- Producers asserted (1) automatic perfection of security interests under state nonuniform UCC provisions or (2) an implied trust under Oklahoma law that follows proceeds through commerce; they also alleged common-law fraud and related claims.
- Bankruptcy and District Courts granted summary judgment to J. Aron and BP; the Third Circuit affirmed, holding producers’ security interests were unperfected under choice-of-law rules, no evidence of actual knowledge or fraud by purchasers, and PRSA does not create an automatic trust that binds downstream buyers.
Issues
| Issue | Producer's Argument | J. Aron/BP's Argument | Held |
|---|---|---|---|
| Whether producers’ security interests in sold oil were perfected under state UCC nonuniform oil-lien statutes | Texas/Kansas statutes automatically perfect producers’ liens without filing, so liens attached and followed oil into downstream purchasers’ hands | Article 9 choice-of-law makes perfection governed by debtor's location (SemGroup in DE/OK); producers didn’t file in debtor’s jurisdiction so interests unperfected | Held: Choice-of-law governs; Delaware/Oklahoma law required filing; producers’ interests unperfected and do not bind buyers |
| Whether J. Aron/BP are buyers for value who take free of unperfected security interests | Producers say purchasers had notice and therefore could not take free | Purchases on credit gave value; purchasers bought oil (not acquiring it as secured parties); no actual knowledge of producers’ liens | Held: J. Aron/BP are buyers for value without actual knowledge; took oil free of unperfected interests |
| Whether producers proved common-law fraud or conspiracy by J. Aron/BP | Producers argue SemGroup never intended to pay producers and purchasers aided scheme by continuing trades and buying oil | No direct evidence purchasers communicated with producers or knew producers’ identities; risky trading alone does not show intent to defraud | Held: No evidence of fraud, conspiracy, or aiding/abetting; summary judgment appropriate |
| Whether Oklahoma PRSA creates an implied trust in proceeds that binds downstream purchasers | Oklahoma producers claim §570.10 creates a perpetual implied trust, so holders of proceeds must account to producers | PRSA regulates wellhead relationships and does not impose express or automatic trust burdens on downstream buyers; statute’s language does not support perpetual trust transferrable down commerce | Held: PRSA does not create an implied trust that binds downstream purchasers; summary judgment for buyers affirmed |
Key Cases Cited
- Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v. WithumSmith Brown, P.C., 692 F.3d 283 (3d Cir.) (defining related-to bankruptcy jurisdiction scope)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (test for related-to jurisdiction in bankruptcy matters)
- Rosen v. Bezner, 996 F.2d 1527 (3d Cir.) (standard of plenary review on summary judgment in this circuit)
- Anderson v. Wachovia Mortg. Corp., 621 F.3d 261 (3d Cir.) (courts may grant summary judgment sua sponte with adequate notice)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S.) (summary judgment framework and party burden allocation)
- Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567 (U.S.) (jurisdictional facts assessed at filing)
- In re SemCrude, L.P., 504 B.R. 89 (Bankr. D. Del. 2013) (bankruptcy court findings rejecting producers’ claims and recommending summary judgment)