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Arrow Oil & Gas, Inc. v. J. Aron & Company (In re Semcrude L.P.)

Case Type:
Case Status:
15-3094, 15-3095, 15-3096, 15-3097, 15-3121, 15-3123, 15-3124, (3rd Circuit, Jul 19,2017) Published
Oil producers failed to perfect their security interests in extracted oil under state law and/or the downstream purchasers of that oil acquired the oil free and clear of any security interests as "buyers for value" under the UCC. Further, no state law imposed a constructive trust on oil after it had been sold downstream by the initial purchaser. Lastly, the downstream purchasers did not defraud the oil producers or engage in a conspiracy with the initial purchaser to defraud the oil producers.
Procedural context:
Appeal of multiple decisions of the District Court for the District of Delaware granting summary judgment in favor of the downstream purchasers. The District Court had accepted the reports and recommendations previously by the Bankruptcy Court for the District of Delaware in these non-core proceedings.
SemGroup, LP and its subsidiaries (the "Debtor") purchased oil from producers in multiple states on credit and resold that oil to downstream purchasers, including J Aron & Company, Inc. and BP Oil Supply Company (the "Purchasers"), also on credit. In addition to these purchases, the Debtor and the Purchasers entered into option transactions predicated on the future price of oil. The Debtor's option transactions were not successful and ultimately it could not afford to satisfy its margin obligations on the options trades and filed for bankruptcy. Prior to filing for bankruptcy, the Debtor failed to pay a number of the producers for oil. Also, the Purchasers were able to setoff their obligation to pay the Debtor for purchased oil against the Debtor's obligations to them under the option trades. The oil producers filed numerous actions against the Purchasers, which were removed to the Bankruptcy Court, and consolidated based upon the State in which each producer was located. The producers alleged that, based upon applicable state law, they had perfected security interests or trust rights in the oil and that those rights survived the Debtor's sale of the oil to the Purchasers. They also alleged that the Purchasers had conspired with the Debtor to defraud the producers because they knew or should have known that the Debtor had no intent to pay the producers for the purchased oil.
Ambro, Jordan and Fisher

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