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In re SemCrude, L.P.

504 B.R. 39 (2013)

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In re SemCrude, L.P.

United States Bankruptcy Court for the District of Delaware

504 B.R. 39 (2013)

Facts

SemCrude, L.P. (debtor) and a host of affiliated subsidiaries filed Chapter 11 bankruptcy on July 22, 2008. This left over 1,000 producers who had prepared and delivered oil to SemCrude but had not been paid the approximately $400 million value of that oil. It also left many downstream purchasers who had bought and paid for the oil they received from SemCrude. The producers were found to have held unperfected security interests in their provided oil or the proceeds of its sale because they failed to perfect their security interests under state law. The downstream purchasers filed motions for summary judgment, seeking a declaration that the oil and gas they purchased from SemCrude was free and clear of any liens or encumbrances, particularly the security interests asserted by the producers. The downstream purchasers claimed three grounds for relief: (1) they were buyers for value, (2) they were buyers in the ordinary course of business, or (3) the producers expressly or implicitly waived their security interests by selling the oil and gas to SemCrude. The discussion focused primarily on the first issue. The current law indicated that a buyer would take free of any security interest if that buyer (1) gave value and (2) took the collateral without knowledge of the security interest and before the security interest was perfected. Most of the discussion centered around knowledge. The downstream purchasers argued that they had no actual knowledge of the producers’ security interests, and SemCrude had even warranted that the purchases were free and clear of all liens. The producers argued that the downstream purchasers’ knowledge of state lien laws, the identities of some of the producers, and the fact that the producers were unpaid should constitute actual knowledge by the downstream purchasers. The matter was before the court on the downstream purchasers’ summary-judgment motion seeking a declaration that the purchasers took their oil free of the producers’ liens.

Rule of Law

Issue

Holding and Reasoning (Shannon, J.)

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