J. Aron & Co. v. Semcrude, L.P. (In re Semcrude, L.P.)
| Decision Date | 28 June 2013 |
| Docket Number | 11–51773,11–53148,10–51825,10–51797,09–50105,Adv. Nos. 09–50038,Case No. 08–11525 (BLS) (Jointly Administered) |
| Court | U.S. Bankruptcy Court — District of Delaware |
| Parties | In re: SemCrude, L.P., et al., Reorganized Debtors. J. Aron & Company, Plaintiff, v. SemCrude, L.P., et al., Defendants. BP Oil Supply Company, et al., Plaintiffs, v. SemCrude, L.P., et al., Defendants, Anstine & Musgrove, Inc., et al., Plaintiffs, v. J. Aron & Company, et al., Defendants. Arrow Oil & Gas, Inc., et al., Plaintiffs, v. J. Aron & Company, et al., Defendants. IC–CO, Inc., et al., Plaintiffs, v. J. Aron & Company, Defendant. Orange Creek Energy LPV, LP, Plaintiff, v. J. Aron & Company, et al., Defendants. |
OPINION TEXT STARTS HERE
Patrick J. Reilley, Esq., Cole, Schotz, Meisel, Forman & Leonard, P.A., 500 Delaware Avenue, Wilmington, DE 19801, Peter S. Goodman, Esq., McKool Smith, P.C., One Bryant Park, 47th Floor, New York, N.Y. 10036, Lewis T. LeClair, Esq., Basil A. Umari, Esq., McKool Smith, P.C., 600 Travis Street, Suite 7000, Houston, TX 77002, Counsel for the Associated Producers.
Duane D. Werb, Esq., Werb & Sullivan, 300 Delaware Avenue, Suite 1300, Wilmington, DE 19801, Hartley B. Martyn, Esq., Martyn & Associates, 820 Superior Avenue N.W., 10th Floor Cleveland, OH 44113, Counsel for IC–CO.
William D. Sullivan, Esq., Sullivan Hazeltine Allinson LLC, 901 N. Market Street, Suite 1300, Wilmington DE, 19801, Alexander L. Kaplan, Esq., Susman Godfrey LLP, 1000 Louisiana, Suite 5100, Houston, TX 77002, Counsel for Orange Creek Energy LPV, LP.
Don A. Beskrone, Esq., Ashby & Geddes, P.A., 500 Delaware Avenue, Wilmington, DE 19899, Thomas J. Moloney, Esq., Cleary Gottlieb Steen & Hamilton LLP, One Liberty Plaza, New York, N.Y. 10006, Counsel for J. Aron & Company.
Raymond H. Lemisch, Esq., Benesch, Friedlander, Coplan & Aronoff LLP, 222 Delaware Avenue, Suite 801, Wilmington, DE 19801, Thomas B. Kinzler, Esq., Kelley Drye & Warren LLP, 101 Park Avenue, New York, N.Y. 10178, Counsel for BP Oil Supply Company.
Related to Adv. Docket Nos. 659, 660, 701, 704, 710, 711, 716, & 737
Related to Adv. Docket Nos. 702, 721, 733, 734, 735, 738, 741, 748, 750, 751, 772, & 774
Related to Adv. Docket Nos. 425, 426, 427, 444, 447, 448, 449, 450, 453, 454, 459, 460, 464, 472, & 491
Related to Adv. Docket Nos. 430, 431, 432, 471, 474, 475, 476, 477, 480, 487, 491, 499, & 518
Related to Adv. Docket Nos. 126, 127, 140, 143, & 158
Related to Adv. Docket Nos. 66, 67, 68, 76, 79, 80, & 96
PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW PURSUANT TO 28 U.S.C. § 157(c)(1) AND FED. R. BANKR. P. 9033(a)
In these adversary proceedings, the Court has before it a collection of motions for summary judgment (the “Motions”) filed by the Downstream Purchasers.1 The sequence of relevant events is not in dispute: before the Petition Date, the Producers sold oil and gas to the Debtors, and the Debtors promptly sold that oil and gas to third parties, including the Downstream Purchasers. By these Motions, the Downstream Purchasers are seeking a ruling from this Court that they purchased that oil and gas from the Debtors free and clear of any liens or other rights of the Producers who originally sold such product to the Debtors. As set forth in detail below, the Court finds that the Downstream Purchasers are “buyers for value” within the meaning of U.C.C. § 9–317 and are thus insulated from the claims of the Producers. Further, the Court also finds that the Downstream Purchasers are buyers in the ordinary course under U.C.C. § 9–320, providing a separate, complete defense to the Producers' claims. The Court will therefore recommend that the Downstream Purchasers' Motions be granted.
On July 22, 2008 (the “Petition Date”), SemGroup, L.P. and certain direct and indirect subsidiaries (collectively, the “Debtors”) 2 each filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the “Code”). By Order dated October 28, 2009 (the “Confirmation Order”),3 the Court confirmed the Debtors' Fourth Amended Joint Plan of Affiliated Debtors (the “Plan”).4 The Plan and the Confirmation Order expressly preserved certain claims and causes of action and provided for this Court's retention of jurisdiction over those claims, including the claims currently before the Court in these adversary proceedings.5
As of the Petition Date, the Debtors were engaged in a number of different business segments in the energy industry. The Debtors' primary business was providing midstream oil and gas services, moving petroleum products and natural gas via trucks and a network of pipelines, and storing these products in Oklahoma and elsewhere. The Debtors' consolidated revenues for the fiscal year of 2007 totaled approximately $13.2 billion.
In addition to their physical purchasing and selling of petroleum products and natural gas, the Debtors had a substantial marketing business, which consisted of purchasing and reselling physical product, and other producer services. As part of this marketing business, the Debtors also traded in derivatives on both the New York Mercantile Exchange (“NYMEX”) and the over-the-counter (“OTC”) markets.
In the weeks leading up to the Petition Date, the Debtors' business experienced a series of setbacks, including massive trading losses and increased margin requirements on futures contracts driven by volatility in the energy commodities markets.6 As a result of a liquidity crisis brought on by the trading losses and margin calls, the Debtors were forced to seek Chapter 11 bankruptcy protection in the summer of 2008.
Before further discussion of the complex history of the instant litigation, the Court will summarize the relevant factual background on the oil and gas industries developed in earlier litigation in this bankruptcy case. 7 The record reflects that the Debtors purchased oil and gas from producers in at least eight states.8 As a general matter, crude oil extracted from the ground is routed into a storage tank for ground transportation or to a gathering line into a pipeline; natural gas is always directed through gathering lines into a pipeline. Title to the oil and gas may be transferred at some point within the spacing unit, at a market center or hub, or at any place in between. Unit operators typically sell product to purchasers on behalf of various interest and royalty owners. Division orders executed by all interested parties set forth the distribution of product sale proceeds. By industry custom, purchasers pay for oil on the 20th day of the month following delivery of oil and on the 25th day of the month following delivery of gas.9
Debtors SemCrude and Eaglwing contracted with certain producers in at least eight states to purchase oil and gas. These producers—working interest owners or operators—regularly delivered substantial volumes of oil and natural gas to the Debtors pursuant to written or oral agreements between the parties.
As of the Petition Date, over one thousand producers had not been paid for oil and gas product delivered between June 1, 2008 and July 21, 2008. The total production that the Debtors purchased, but did not pay for, was valued in excess of four hundred million dollars.10
As noted above, the Debtors operated a midstream oil company. They owned neither wells nor refineries, but moved and stored petroleum products. The record reflects that after receiving oil and gas from the various producers, the Debtors sold or transferred that oil and gas to various purchasers. 11
The Debtors' Chapter 11 filing generated a wave of litigation between and among certain oil and gas producers (collectively, the “Producers”), 12 the Debtors, certain purchasers of oil and gas product from the Debtors (collectively, the “Downstream Purchasers”),13 and the Debtors' secured lenders (collectively, the “Banks”).14 Within a few weeks following the Petition Date, the Producers filed numerous complaints commencing adversary proceedings relating to reclamation demands and alleged liens on oil and gas (and the proceeds thereof) sold to the Debtors.15 In a nutshell, the Producers moved promptly in this Court to take back oil and gas (or related sale proceeds) that they had delivered to the Debtors on or after June 1, 2008 through the Petition Date, and for which such Producers had not been paid. The Producers either sought stay relief to pursue their asserted state law liens and trust rights (described in detail below), or to reclaim their delivered product under state laws governing reclamation. The Banks, as the Debtors' first priority senior secured lenders, vigorously opposed the relief sought by the Producers claiming that the oil and gas (and the proceeds thereof) constituted the Banks' collateral.
Faced with a tidal wave of disparate adversary proceedings and motion practice, the Debtors requested authorization to establish omnibus procedures for a determination of the Producers' rights and priorities pursuant to §§ 105(a) and 362 of the Bankruptcy Code and Rule 9019(a) of the Federal Rules of Bankruptcy Procedure.16 On September 17, 2008, the Court entered an Order (the “Procedures Order”) 17 adopting a proposed structure negotiated and supported by the Producers, the Debtors, and the Banks. In further hopes of efficiently administering these proceedings, the Court appointed a Producers' Committee by Order dated October 15, 2008. 18 The Producers' Committee was not a named party to the litigation commenced under the Procedures Order. Pursuant to the Procedures Order, the Producers filed one adversary proceeding with respect to each of the eight states in which the Producers sold product to the Debtors.19
The purpose of these eight lawsuits was to obtain a declaratory judgment establishing (i) the state law lien and trust rights, if any, afforded to...
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