Deutsche Bank, et al v. US Energy Dev, et al

Case Type:
Case Status:
19-50646 (5th Circuit, Feb 03,2021) Published
Fifth Circuit affirmed bankruptcy court (WD Tx.) ruling on lien priority and conflict of law issue. Applying Delaware UCC law, bank's prior perfected blanket security interest encompassed proceeds deposited into bank account notwithstanding Texas law granting sellers of oil and gas a senior lien in proceeds of their sales. Bank’s interests were subordinate to statutory real property liens asserted by the Oklahoma Producers.
Procedural context:
Bank initiated adversary seeking declaration of senior lien priority and naming competing lienors as defendants. Debtor intervened. Bankruptcy court’ (WD Tx.) granted in part and denied in part bank's motion for partial summary judgment, declaring bank held senior lien priority in proceeds from debtor's prepetition sale of oil. Appellants (who had sold oil to debtor from which proceeds were derived) sought interlocutory appeal to 5th Circuit, which 5th Circuit granted.
First River Energy, LLC (“Debtor” or “FRE”) filed Chapter 11 in Delaware bankruptcy court in January 2018. The case subsequently transferred to the Western District of Texas. In the month before filing, FRE had purchased crude oil and condensate from Texas and Oklahoma producers (“Producers”), which it sold to downstream purchasers, but FRE did not pay the Producers. The Producers assert liens created by statute in Texas and Oklahoma on the production and proceeds. However, Deutsche Bank, as Agent for various secured lenders (collectively “Bank”), also asserts the Bank’s priority claim to the sale proceeds as a secured creditor. In December 2017, the Bank swept Debtor's bank accounts, putting Debtor out of business. According to their agreements and standard oil and gas industry practice, the Debtor’s payments for Producers’ deliveries that occurred in one month would be made “on or before the 20th of the month following delivery.” As of the petition date, Debtor held $27,613,066.81 in accounts receivable from the downstream purchasers. The Producers filed proofs of claim in bankruptcy asserting that they had statutorily created first-priority, perfected purchase money security interests in the proceeds of the oil and condensate pursuant either to Texas or Oklahoma law. Bank held a blanket security interest in Debtor's assets perfect in July 2015, well before the purchases from the Producers.
Jolly, Jones, Engelhardt

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