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In re: SemCrude, L.P.

United States District Court, D. Delaware

January 17, 2018

In re SemCrude, L.P., et al., Reorganized Debtors.
v.
J. Aron & Company, Defendant. New Dominion, LLC, Plaintiff, Adv. No. 11-51774

          PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW PURSUANT TO 28 U.S.C. § 157(C)(1) AND FED. R. BANKR. P. 9033(A) Related to Adv. Docket Nos. 97, 143, 144, 146, 147, 158, 159

          Brendan Linehan Shannon Chief United States Bankruptcy Judge

         Before the Court is the Motion for Partial Summary Judgment (the “Partial MSJ”) filed by New Dominion, LLC (“ND”)[1] and the Renewed Motion for Summary Judgment (the “MSJ”) filed by J. Aron & Company (“J. Aron”).[2] The parties are more than familiar with the complex background of this bankruptcy case and family of adversary proceedings. As relevant here, ND sold oil to SemCrude[3] who promptly sold that oil to third parties. ND was not paid in full for the oil it sold to SemCrude between June 1 and July 1, 2008. ND argues that SemCrude (or one of its affiliates) sold at least some of that oil to J. Aron, and ND asserts a security interest and lien on the proceeds thereof under Oklahoma law. ND commenced this litigation to foreclose upon its asserted lien. By J. Aron's MSJ, J. Aron seeks a ruling from this Court that it purchased oil from the Debtors free and clear of any liens or other rights of ND. As set forth in detail below, the Court finds that ND sold its oil to SemCrude pursuant to standard industry terms that provide a warranty that the oil was sold free and clear of all liens, claims and encumbrances. Accordingly, ND waived its right to assert any lien in the oil it sold. The Court will therefore recommend that J. Aron's MSJ be granted.

         I. BACKGROUND [4]

         On July 22, 2008 (the “Petition Date”), SemGroup, L.P. and certain direct and indirect subsidiaries (collectively, “SemCrude” or the “Debtors”) each filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (the “Code”). By Order dated October 28, 2009 (the “Confirmation Order”), [5] the Court confirmed the Debtors' Fourth Amended Joint Plan of Affiliated Debtors (the “Plan”).[6] 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 ND's claims currently before the Court in this adversary proceeding.[7]

         As of the Petition Date, the Debtors' business involved purchasing oil and gas from upstream producers, like ND (collectively, the “Producers”) and selling it to downstream purchasers, like J. Aron (collectively, the “Downstream Purchasers”). After the bankruptcy filing, many Producers were owed millions of dollars for oil and gas delivered to the Debtors in the weeks leading up to the filing.[8] ND claimed that it was not paid in full for more than 22, 000 barrels of oil, worth roughly $2.75 million, that it provided to SemCrude between June 1 and July 1, 2008.[9] Each of ND's contracts with SemCrude governing the oil sales expressly incorporated the Conoco General Provisions, which include a warranty that the oil was delivered “free from all…liens [and] encumbrances.”

         J. Aron purchased over 24 million barrels of oil from SemCrude, priced at approximately $324 million, for delivery in Cushing, Oklahoma and El Dorado, Kansas in June 2008.[10] On July 21, 2008, the day before SemCrude filed its bankruptcy petition, J. Aron exercised netting rights under its ISDA Master Agreement to set off $435 million of oil purchased from SemCrude against approximately $345 million in SemCrude's oil derivatives trading obligations.[11]

         Shortly after the Petition Date, ND, an Oklahoma-based company, filed liens under the Oklahoma Oil and Gas Owners' Lien Act, Okla. Stat. Ann. tit. 52, §§ 548.1-548.6 (the “Oklahoma Oil & Gas Lien Act”).[12] This statute granted Producers like ND “a lien upon the oil or gas severed [from its wells], or the proceeds of sale if such oil or gas has been sold, to the extent of [its] interest until” full payment is received. Okla. Stat. Ann. tit. 52, § 548.2. On August 4, 2008, ND notified J. Aron that it had filed liens on the proceeds of its oil allegedly held by J. Aron.[13]

         ND filed suit in Oklahoma state court asserting a single count against J. Aron to foreclose on the alleged statutory lien.[14] The matter was eventually transferred to the District of Delaware, and then referred to this Court.

         The record reflects that ND was paid in full for oil delivered between July 2, 2008 and July 21, 2008 pursuant to the administrative priority provisions of 11 U.S.C. § 503(b)(9). Additionally, ND was paid approximately 13% of its sales to SemCrude from June 1, 2008 to July 1, 2008 through a settlement agreement with the Debtors and the secured lenders.[15] The issue before the Court at this stage, therefore, is whether ND possesses lien rights that it can assert against J. Aron to recover on the portion of its claim that was not paid by the Debtors.

         II. JURISDICTION & VENUE

         The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), with the Court determining that this matter is “related to” the Debtors' Chapter 11 cases. Venue is proper in this Court and in this District pursuant to 28 U.S.C. §§ 1408, 1409. These adversary proceedings constitute non-core proceedings under 28 U.S.C. § 157(c)(1). See Arrow Oil & Gas, Inc. v. J. Aron & Co. (In re SemCrude, L.P.), 442 B.R. 258, 271 (Bankr. D. Del. 2010). As such, and in accordance with Fed.R.Bankr.P. 9033(a), the Court herewith files its proposed findings of fact and conclusions of law.

         III. SUMMARY JUDGMENT STANDARD

         Summary judgment is proper where, viewing the evidence in the light most favorable to the non-moving party and drawing all inferences in favor of that party, there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex v. Catrett, 477 U.S. 317, 322-23 (1986). Any doubt must be resolved in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         The movant bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the moving party carries its burden, the opposing party must go beyond the pleadings and identify specific facts showing more than a “mere existence of a scintilla of evidence” that a genuine dispute of material fact exists. Anderson, 477 U.S. at 252; see also Matsushita Elec. Indus. Co., v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (stating that the opposing party “must do more than simply show that there is some metaphysical doubt as to the material facts”).

         When ruling on cross-motions for summary judgment, the Court's analysis does not change. “Each party still bears the initial burden of establishing a lack of genuine issues of material fact.” Liquidating Trust of U.S. Wireless Corp. v. Huffman (In re U.S. Wireless Corp.), 386 B.R. 556, 560 (Bankr. D. Del. 2008). Each motion must be considered independently, and “both motions will be denied if any genuine issues of material fact exist.” WM Inland Adjacent LLC v. Mervyn's ...


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