986 F.3d 914
5th Cir.2021Background
- First River Energy, LLC (FRE), a Delaware LLC and midstream purchaser, bought crude from Texas and Oklahoma producers in Dec. 2017, resold it downstream, and held ≈ $27.6M in accounts receivable when it filed Chapter 11.
- Producers claim statutory, automatically perfected liens in the production and proceeds: Texas UCC § 9.343 (non‑uniform Article 9 provision) and the Oklahoma Oil & Gas Owners’ Lien Act (statutory real‑property lien outside Article 9).
- Deutsche Bank (Agent) held a Delaware‑governed security interest in substantially all of FRE’s assets (including accounts/proceeds), perfected by continuous Delaware UCC filings and a blocked‑account control agreement with JPMorgan (New York law governs deposit account control).
- Bankruptcy was filed in Delaware and transferred to Texas; Bank sued in the Texas bankruptcy to declare its priority over the Producers’ claimed liens; Producers counterclaimed.
- The bankruptcy court held that Delaware law governs perfection/priority (per Texas UCC choice‑of‑law rules as interpreted by Fifth Circuit precedent), that Bank’s perfected Delaware interests prime Texas § 9.343 claims but are subordinate to Oklahoma statutory liens, and dismissed Producers’ affirmative defenses.
- The Fifth Circuit affirmed the bankruptcy court’s order in all material respects.
Issues
| Issue | Producers' Argument | Bank's Argument | Held |
|---|---|---|---|
| Whether ConocoPhillips warranty in sales contracts waived Producers’ lien rights | Warranty functioned as waiver of liens in proceeds | Warranty is a title warranty, not a waiver; it does not extinguish statutory liens | Warranty did not waive producers’ rights; no waiver of § 9.343 or Oklahoma lien claims |
| Choice of law governing perfection/priority (Does Texas § 9.343 displace UCC choice‑of‑law and compel Texas law?) | § 9.343 "necessarily displaces" general choice‑of‑law rules so Texas law should apply to protect Producers | General UCC choice‑of‑law (debtor’s state of organization) applies; Fishback Nursery controls; Delaware law governs FRE (Delaware LLC) | Delaware substantive UCC governs perfection/priority under Texas UCC §§ 9.301/9.307 and Fifth Circuit precedent; § 9.343 does not displace choice‑of‑law rules |
| Priority between Bank and state statutory/nonuniform liens | Texas § 9.343 grants automatically perfected PMSI in proceeds that should beat the Bank | Bank holds earlier, continuously‑perfected Delaware filings and control of deposit accounts; first‑to‑file/first‑to‑perfect under Delaware controls | Bank’s perfected Delaware security interest beats Texas § 9.343 claims (unless Producer filed earlier in Delaware); Oklahoma statutory liens (real‑property statutory liens) prevail over Bank |
| Producers’ equitable defenses (estoppel, unclean hands, waiver) and attorney’s fees for Oklahoma producers | Defenses challenge Bank’s sweep and priority; Bank waived fees defense by omissions | Bank’s loan and collateral documents do not subordinate or waive its liens; Oklahoma statute authorizes fee recovery | Affirmative defenses dismissed; Oklahoma producers may seek attorney’s fees under their statute if they prevail and prove their liens |
Key Cases Cited
- In re SemCrude, L.P., 864 F.3d 280 (3d Cir. 2017) (discusses producers’ lien claims under state non‑UCC statutes and treatment of ConocoPhillips warranty)
- In re SemCrude, L.P., 407 B.R. 112 (Bankr. D. Del. 2009) (bankruptcy court decision prompting legislative fixes to producers’ lien protections)
- Fishback Nursery, Inc. v. PNC Bank, N.A., 920 F.3d 932 (5th Cir. 2019) (applies Restatement/UCC choice‑of‑law rules and governs which jurisdiction’s law controls priority)
- Butner v. United States, 440 U.S. 48 (1979) (principle that property rights in bankruptcy are generally determined by state law)
- Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156 (1946) (discussed as authority for federal choice‑of‑law approach in bankruptcy)