PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

Nos. 15-3094, 15-3095, 15-3096 & 15-3097

________________

In re: SEMCRUDE L.P., et al.,

 Debtors

ARROW OIL & GAS, INC., et al

v.

J. ARON & COMPANY, et al

ANSTINE & MUSGROVE, INC; 

ARROW OIL & GAS INC; 

BEASLEY OIL COMPANY; 

BLAKE EXPLORATION LLC; 

BRADEN-DEEM INC; 

CALVIN NOAH, d/b/a Calvin Noah Oil Company; 

CMX INC; CASEY MUSGROVE OIL CO, INC; 

CENTRAL OPERATING INC; 

CLARK EXPLORATION COMPANY; 

CORAL COAST PETROLEUM INC;

CRAWLEY PETROLEUM CORP; DC ENERGY INC; 

D.E. EXPLORATION INC; 

DAVIS PETROLEUM INC; 

DAYSTAR PETROLEUM INC; DK OPERATING INC; 
2

DOUBLE EAGLE EXPLORATION INC; 

DRILLERS AND PRODUCERS INC; 

DUNCAN OIL PROPERTIES INC; 

FAIRFIELD OIL & GAS CORP;

THE GLOCO LLC; GMX RESOURCES INC; 

GRA EX, LLC; 

GREAT PLAINS ENERGY, INC; 

GROUND DEVELOPMENT CO; HERMAN L LOEB, LLC; 

H.I. INC; J&D INVESTMENTS, LLC; 

JACK EXPLORATION, INC; 

KAHAN & ASSOCIATES INC; 

KEITH F. WALKER OIL & GAS CO., LLC; 

KINGERY DRILLING CO; 

KLM EXPLORATION COMPANY INC; 

LANCE RUFFEL OIL & GAS CORPORATION;

LANDMARK RESOURCES INC; LARIO OIL & GAS CO; 

L&J OIL PROPERTIES, INC; 

LD DRILLING, INC; LITTLE BEAR RESOURCES, INC; 

MCCOY PETROLEUM CORPORATION; 

MCGINESS OIL COMPANY OF KANSAS; 

MESA EXPLORATION COMPANY, INC;

MID-CONTINENT ENERGY CORPORATION; 

MOLITOR OIL, INC; 

MULL DRILLING COMPANY, INC; 

MURFIN DRILLING COMPANY, INC; 

MUSGROVE ENERGY INC; MUSTANG FUEL CORP; 

NYTEX ENERGY LLC; 

OIL COMPANY OF AMERICA INC; 

OKLAHOMA OIL & GAS MANAGEMENT INC; 

PICKRELL DRILLING COMPANY, INC; 

PROLIFIC RESOURCES, LLC; 

RAMA OPERATING COMPANY, INC; RANDON 

PRODUCTION COMPANY INC; 
3

RED OAK ENERGY INC; RITCHIE EXPLORATION INC; 

RJ SPERRY CO; ROSS HOENER, INC; SEEKER, LLC; 

SHORT & SHORT, LLC; SNYDER PARTNERS; 

STEPHENS & JOHNSON OPERATING CO; 

TEMPEST ENERGY RESOURCES LP; 

TEX-OK ENERGY LIMITED PARTNERSHIP; TGT 

PETROLEUM CORPORATION; 

THREE-D RESOURCES, INC; 

THOROUGHBRED ASSOCIATES, LLC; 

TRIPLEDEE DRILLING CO., LLC; 

TRIPOWER RESOURCES, LLC;

VIKING RESOURCES, INC; 

V.J.I. NATURAL RESOURCES INC; 

VEENKER RESOURCES, INC; 

VESS OIL CORPORATION; 

VINCENT OIL CORPORATION; 

W.D. SHORT OIL COMPANY, LLC; 

WELLCO ENERGY, INC; 

WELLSTAR CORPORATION; 

WHITE EXPLORATION INC; 

WHITE PINE PETROLEUM CORPORATION, 

Appellants 

________________

No. 15-3121

________________

In re: SEMCRUDE L.P., et al.,

 Debtors
4

BP OIL SUPPLY COMPANY

v.

SEMGROUP, L.P., et al

Star Production, Inc; LSC Production Company,

Appellants

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No. 15-3123

________________

In re: SEMCRUDE L.P., et al.,

 Debtors

J. ARON & COMPANY

v.

SEMGROUP, L.P., et al

IC-Co, Inc.,

Appellant
5

________________

No. 15-3124

________________

In re: SEMCRUDE L.P., et al.,

 Debtors

IC-CO, INC; WEOC, INC.;

RESERVE MANAGEMENT INC

v.

J. ARON & COMPANY

IC-CO, Inc.,

Appellant

________________

Appeal from the United States District Court

for the District of Delaware

(D. Del. Nos. 1-14-cv-00038, 1-14-cv-00039, 1-14-cv-00040,

1-14-cv-00041, 1-14-cv-00357 & 1-14-cv-00358)

District Judge: Honorable Sue L. Robinson

________________

Argued April 4, 2017

Before: AMBRO, JORDAN, and FISHER, Circuit Judges

(Opinion filed: July 19, 2017)
6

Blake H. Bailey

Paul D. Moak

Basil A. Umari

McKool Smith

600 Travis Street, Suite 7000

Houston, TX 77002

Peter S. Goodman

Sarah O. Jorgensen

Michael R. Carney

Hugh M. Ray

McKool Smith

One Bryant Park, 47th Floor

New York, NY 10036

Lewis T. LeClair [Argued]

McKool Smith

300 Crescent Court, Suite 1500

Dallas, TX 75201

Adam G. Landis

Matthew B. McGuire

Landis Rath & Cobb

919 Market Street, Suite 1800

P.O. Box 2087

Wilmington, DE 19899

Counsel for Anstine & Musgrove Inc., et. al.

(The Associated Producers)
7

Don A. Beskrone

Stacy L. Newman

Ashby & Geddes

500 Delaware Avenue

P.O. Box 1150, 8th Floor

Wilmington, DE 19899

Boaz S. Morag

Rishi Zutshi

Thomas J. Moloney [Argued]

Cleary Gottlieb Steen & Hamilton

One Liberty Plaza

New York, NY 10006

Counsel for J. Aron & Co.

James S. Carr

Melissa E. Byroade

David Zalman [Argued]

Monica Hanna

Kelley Drye & Warren

101 Park Avenue

New York, NY 10178

Kevin M Capuzzi

Jennifer R. Hoover

Benesch Friedlander Coplan & Arnoff

222 Delaware Avenue, Suite 801

Wilmington, DE 19801

Counsel for BP Oil Supply Co.
8

Ian C. Bifferato

Thomas F. Discoll, III

Bifferato

800 North King Street, Plaza Level

Wilmington, DE 19801

Kevin G. Collins

Barnes & Thornburg

1000 North West Street, Suite 1500

Wilmington, DE 19801

Mark D. Collins

John H. Knight

Michael Romanczuk

Zachary I. Shapiro

Richards Layton & Finger

920 North King Street

One Rodney Square

Wilmington, DE 19801

L. Katherine Good

Whiteford Taylor & Preston

405 North King Street

The Renaissance Center, Suite 500

Wilmington, DE 19801

Maris J. Kandestin

DLA Piper

1201 North Market Street

Suite 2100

Wilmington, DE 19801
9

Garvan F. McDaniel

Hogan McDaniel

1311 Delaware Avenue

Wilmington, DE 19806

R. Stephen McNeill

Potter Anderson & Corroon

1313 North Market Street, 6th Floor

Wilmington, DE 19801

Travis A. McRoberts

Akin Gup Strauss Hauer & Feld

1700 Pacific Avenu8e

4100 First City Center

Dallas, TX 75201

Benjamin L. Stewart

Bailey Brauer

8350 North Central Expressway

Suite 935, Campbell Centre I

Dallas, TX 75206

Mark Stromberg

Stromberg Stock

8750 North Central Expressway, Suite 625

Dallas, TX 75231

W. Robert Wilson

510 Kihekah Avenue

Pawhuska, OK 74056

Counsel for Semcrude LP
10

Charles J. Brown, III

Shannon Dougherty Humiston

Gellert Scali Busenkell & Brown

913 North Market Street, 10th Floor

Wilmington, DE 19801

Counsel for Star Production Inc., LCS Production Co.

Hartley B. Martyn [Argued]

Martyn & Associates

820 Superior Avenue, N.W., 10th Floor

Cleveland, OH 44113

Duane D. Werb

Werb & Sullivan

300 Delaware Avenue

13th Floor, P.O. Box 25046

Wilmington, DE 19899

Counsel for IC Co. Inc.

________________

OPINION OF THE COURT

________________

AMBRO, Circuit Judge

Appellants, who are oil producers, sold their product to 

SemGroup L.P. and affiliates (including SemCrude L.P.), 

midstream oil and gas service providers and the Debtors in 

the underlying Chapter 11 cases. SemGroup sold oil to and 

traded oil futures with Appellees, downstream oil purchasers. 

The producers took no actions to protect themselves in case 
11

of SemGroup’s insolvency. The downstream purchasers did;

in the case of default, they could set off the amount they owed 

SemGroup for oil by the amount SemGroup would owe them 

for the value of the outstanding futures trades. Accordingly, 

when SemGroup filed for bankruptcy, the downstream 

purchasers were paid in full while the oil producers were paid 

only in part. 

Because the oil producers did not take precautionary 

measures to ensure payment in case of SemGroup’s 

insolvency, all they have to rely on are local laws they

contend give them automatically perfected security interests 

or trust rights in the oil that ended up in the hands of the 

downstream purchasers. But the parties who took precautions 

against insolvency do not act as insurers to those who took 

none. Accordingly, we affirm the grant of summary 

judgment in the downstream purchasers’ favor. 

I. BACKGROUND

SemGroup’s Two Businesses

SemGroup L.P. and its subsidiaries (jointly and 

severally referred to as “SemGroup”) provided “midstream” 

oil services. It purchased oil from producers and resold it to 

downstream purchasers. It also traded financial options 

contracts for the right to buy or sell oil at a fixed price on a 

future date. At the end of the fiscal year preceding 

bankruptcy, SemGroup’s revenues were $13.2 billion. 

Two of SemGroup’s operating companies, SemCrude, 

L.P. and Eaglwing, L.P., purchased oil from thousands of 

wells in several states and from thousands of oil producers, 

including from Appellants, producers located in Texas, 

Kansas, and Oklahoma. The producers act on behalf of many

parties who have interests in the oil at the wellhead. These 
12

interest owners include the person or entity who owns the 

land in fee simple, and thus owns the rights to the minerals. 

That person or entity transfers the mineral rights to an oil 

company through a lease. The company holds the “working 

interest”—the right to drill and sell the oil from the leased 

land. The working-interest owners appoint an operator to 

work the well. Most of the producers in this appeal are 

owners of working interests or operators. 

After purchase, SemGroup moved the oil via trucks 

and pipelines and stored it in major aggregation centers in 

Oklahoma, Kansas, and elsewhere. Per industry custom, 

SemGroup purchased the oil on credit, paying for it on the 

20th day of the month following the sale. For example, oil 

purchased in January would be paid for on February 20. 

SemGroup always paid the producers for the oil in full 

until the bankruptcy filing. It then resold the product to 

downstream purchasers, including to Appellees, J. Aron & 

Company and BP Oil Supply Co., both large oil distributors. 

SemGroup expressly warranted to the downstream purchasers 

that it sold them oil “free from all royalties, liens, and 

encumbrances.” See, e.g., Conoco General Provisions § B, 

J.A. 2505. Again, per industry custom the downstream 

purchasers bought the oil on credit, with payment due the 

20th of the following month. J. Aron and BP had no 

communication with the thousands of oil producers from 

whom SemGroup purchased the oil and only knew of the 

existence of some of the larger producers. J. Aron and BP 

dispute whether they even purchased any of Appellants’ oil

and contend that Appellants cannot trace the oil they sold, as 

it was mixed with millions of barrels of oil from innumerable

other producers. 

Until the bankruptcy filing, J. Aron and BP paid in full 

for the oil they bought. BP also sold oil to SemGroup, so 
13

when payment was due they would net out their obligations—

i.e., if BP bought $10 million from SemGroup and SemGroup

bought $8 million from BP, then BP would just pay $2 

million to SemGroup. 

In addition to midstream oil services, SemGroup also 

traded oil futures with J. Aron and BP. This trading strategy 

lead to SemGroup’s insolvency. Essentially SemGroup bet 

that the price of oil would drop, while J. Aron and BP wanted 

to secure a low price of oil in the event that prices would rise. 

SemGroup would win the bet if the oil price dropped while J. 

Aron and BP would win if the price rose. The (simplified) 

mechanics are as follows.

SemGroup sold what are known as call options. In 

exchange for an upfront premium, the purchaser of the call 

option received the right to purchase oil at a specified price 

and date. To illustrate, if in December J. Aron purchased the 

right to buy 10,000 barrels of oil at $50 a barrel on March 1, 

but the market price that date was $45 a barrel, that option 

was worthless because J. Aron could buy oil at a cheaper 

price on the market; the $50 buying right did not save J. Aron 

money. SemGroup therefore would make money: it received 

the upfront premium J. Aron paid for the option, but did not 

end up losing the bet because it would not have to sell oil at 

less than market price. Conversely, if the market price on 

March 1 was $55 a barrel, J. Aron would be “in the 

money”—SemGroup would have to sell J. Aron 10,000 

barrels of oil at $50 a barrel, $5 below the market rate. 

SemGroup thus would lose $50,000 dollars on the option 

because, if J. Aron did not have the buying right, SemGroup 

could have sold that oil on the market for the going price of 

$55. These options did not “physically settle.” That is, 

SemGroup would not actually sell these oil barrels; it would 

just owe J. Aron $50,000. 
14

SemGroup’s gambling strategy was in stark contrast 

with hedging oil prices. To hedge a drop in the price of oil, 

SemGroup could have acquired put options—the right to sell

oil at a specified price. This would protect them against price 

drops while still allowing them to take advantage of selling at 

high oil prices. 

As it turns out, SemGroup was a bad gambler. Oil 

prices rose throughout 2007 and 2008. Its CEO believed that 

eventually oil prices would drop. So each time SemGroup 

lost money on these options, rather than realize the financial 

loss, it would sell more options to cover the loss. This is 

referred to as “rolling” in the industry, and is essentially 

doubling down on a lost bet. For example, if SemGroup lost 

$1 million on the March 1 trade, it would resell new options 

and collect $1 million in new premiums, thus betting that the 

price of oil would drop on a date in the future. SemGroup 

thought that, if it kept “rolling” these options, eventually the 

price of oil would drop and all the options would be 

worthless. If that happened, SemGroup would have acquired 

all of these upfront premium payments at no cost. This 

doubling-down strategy had a downside, however. Rolling 

options greatly increased SemGroup’s exposure to future 

losses. By July 2008 it was exposed to a potential $2.8 

billion loss if the option bets did not pay off. 

Liquidity Problems, Setoff Rights, and the Bankruptcy 

Filing

SemGroup had to pledge cash collateral to margin 

accounts to cover its exposure on the options. The cash in 

these margin accounts assured the trading counterparties that 

SemGroup could pay for any loss on the options. The margin

exposure was calculated by the “mark to market” method—

the amount SemGroup would owe the counterparty if the 

option liquidated that day. As SemGroup’s exposure on these 
15

options increased, so did its margin requirements. Eventually 

it ran out of funds to meet those margin obligations, causing 

its bankruptcy. 

Before the bankruptcy, J. Aron and BP started buying 

oil from, and trading options with, SemGroup. In November 

2007, J. Aron entered into a master agreement governing its 

relationship with SemGroup, and in April 2008 BP entered 

into a similar arrangement. Under the agreements, in the 

event of SemGroup’s default J. Aron and BP could set off any 

outstanding amount due for oil purchases with the amount 

owed on options trades. Until SemGroup’s default, J. Aron

and BP always paid in full for their oil purchases and never 

exercised a setoff right. 

Through the late spring and early summer 2008, oil 

prices kept rising and SemGroup continued losing on its 

trades. It failed to receive additional financing to meet its 

ever-increasing margin obligations. On July 17, 2008, as set 

out in their agreement, J. Aron asked SemGroup for adequate 

assurance of performance and that SemGroup meet certain 

credit-support thresholds. When SemGroup did not respond, 

J. Aron called a default. The parties thus set off the 

outstanding amounts due. J. Aron owed to SemGroup $435 

million in oil purchases, and SemGroup owed to J. Aron $345 

million in outstanding options trades. Accordingly, J. Aron

owed $90 million, the net amount after the oil and options 

were set off. 

On July 22, 2008, soon after J. Aron called the default, 

SemGroup filed for bankruptcy. This triggered a default as to 

BP, so it also set off the prepetition amount it owed 
16

SemGroup for oil less the amount SemGroup owed it for the 

options trades. Consequently, BP owed $10 million.1

Bankruptcy Proceedings

Following its Chapter 11 filing, more than a thousand 

oil producers were unpaid. Oil producers, purchasers, and 

SemGroup’s lending banks inundated the Bankruptcy Court 

with adversary proceedings and motions to distribute 

SemGroup’s assets. The Court established omnibus 

procedures to determine the producers’ rights and priorities 

versus the banks, with a single adversary proceeding for each 

state where the producers sold product. The relative priority 

of the producers and downstream purchasers was preserved 

for later rulings. 

In those rulings, the Bankruptcy Court first held that 

the lending banks’ security interests in SemGroup’s assets 

took priority over any purported lien or trust rights granted 

under state law. It certified appeals directly to our Court as 

matters of first impression, 28 U.S.C. § 158(d)(2), but the 

producers and lending banks settled while the appeals were 

pending. By stipulation, the producers reserved their right to 

pursue their claims against the downstream purchasers and to 

appeal these rulings in the future. 

Meanwhile, J. Aron and BP filed separate adversary 

proceedings where they sought to tender the amount they 

owed to the bankruptcy estate in exchange for a release from 

all liability. The producers also filed nearly 30 separate 

lawsuits against J. Aron and BP in state and federal courts. 

These suits were transferred to the Bankruptcy Court for 

 

1

 There is no contention before us that the Bankruptcy Code 

prohibited these setoffs. See generally 11 U.S.C. §§ 362(b) 

and 553.
17

resolution. In September 2009, it confirmed the 

reorganization plan by which J. Aron and BP’s tendered 

funds were turned over to the producers for full payment of 

oil delivered between July 2 and July 21, 2008.2 The 

tendered funds also paid off 12.9% of the amount owed for 

oil sold from June 1 to July 1, 2008. 

After a discovery process involving more than 100 

parties, over 150 depositions, and millions of pages of 

documents, J. Aron and BP moved for summary judgment

against the Appellant-Producers (hereafter, the “Producers”). 

The Bankruptcy Court filed proposed findings of facts and 

conclusions of law recommending summary judgment in 

favor of J. Aron and BP. It concluded in exceptional depth 

and easily understood language that there was no evidence of 

fraud and that J. Aron and BP purchased the oil from 

SemGroup free of any purported security interest either as (1) 

buyers for value, or (2) as buyers in the ordinary course. In re 

SemCrude, L.P., 504 B.R. 39, 44 (Bankr. D. Del. 2013). The 

District Court overruled the Producers’ objections to the 

Bankruptcy Court’s recommendation and adopted it. In re 

Semcrude, L.P., No. 14-CV-41 (SLR), 2015 WL 4594516 (D. 

Del. July 30, 2015).

Summary of Claims on Appeal

The Producers’ claims do not rely on bankruptcy law. 

They are based on state statutes and common law fraud. The 

 

2 This followed from 11 U.S.C. § 503(b)(9), whereby an 

allowable administrative expense includes “the value of any 

goods received by the debtor within 20 days before the date 

of commencement of a case under this title in which the 

goods have been sold to the debtor in the ordinary course of 

such debtor’s business.”
18

Texas and Kansas Producers argue that, under their states’ 

nonuniform amendments to the Uniform Commercial Code, 

they had perfected security interests in the oil they sold to 

SemGroup and J. Aron and BP took the oil subject to these

interests. The Oklahoma Producers bring separate claims 

derived from an Oklahoma statute they contend imposes an 

implied trust for their benefit. They also claim to have an

equitable interest in the oil proceeds J. Aron and BP took to 

set off the options debt.

II. JURISDICTION

We have jurisdiction under 28 U.S.C. § 1291 to review

the District Court’s grant of summary judgment. Yet the 

Producers argue that the District Court lacked subject matter 

jurisdiction even though the confirmed Chapter 11 plan 

expressly provided for jurisdiction over this controversy. 

The Bankruptcy Court determined that the proceeding 

before it was non-core,

3 but both it and the District Court 

exercised jurisdiction because that proceeding was “related 

to” SemGroup’s bankruptcy case. See 28 U.S.C. 

§ 157(c)(1)(“A bankruptcy judge may hear a proceeding that 

is not a core proceeding but that is otherwise related to a case 

under title 11.”); 28 U.S.C. § 1334(b) (“[T]he district courts 

shall have original but not exclusive jurisdiction of all civil 

proceedings . . . related to cases under title 11.”). 

The Bankruptcy and District Courts correctly 

determined that “related-to” bankruptcy jurisdiction exists 

here. That is so where the adversary proceeding has any 

“conceivabl[e]” effect on the bankruptcy estate. Nuveen 

 

3

In contrast to non-core, a core bankruptcy proceeding 

includes, among other things, estate administration, claims, 

plans, and debt discharges. 28 U.S.C. § 157(b)(2). 
19

Mun. Trust ex rel. Nuveen High Yield Mun. Bond Fund v. 

WithumSmith Brown, P.C., 692 F.3d 283, 293 (3d Cir. 2012) 

(citing Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984)). 

All we ask is whether the “outcome could alter the debtor’s 

rights, liabilities, options, or freedom of action (either 

positively or negatively) and which in any way impacts upon 

the handling and administration of the bankrupt estate.” Id. at 

294 (quoting Pacor, 743 F.2d at 994). 

Related-to jurisdiction—like other types of federal 

jurisdiction—is determined at the time of filing. Id. (citing 

Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 

570–71 (2004)). The Producers thus miss the mark by 

arguing that, because the plan has now been confirmed, the 

bankruptcy estates can no longer be affected. See id.

(“[C]onfirmation of a bankruptcy plan does not divest a 

district court of related-to jurisdiction over pre-confirmation 

claims.”) (citations omitted). 

At the time of filing of these adversary actions and 

related Producers’ suits, which was prior to plan 

confirmation, the Producers’ claims unquestionably could 

have affected the bankruptcy estates. Resolving these claims

sets the competing rights among creditors to the estates’

funds. Moreover, if the Bankruptcy Court had disallowed the

setoff process (whereby J. Aron and BP set off the amount 

owed for the oil less what was owed on the options contracts), 

they might have had to return money to SemGroup’s estate. 

Accordingly, the Bankruptcy and District Courts possessed 

related-to jurisdiction, and we have jurisdiction to hear this 

appeal.

III. STANDARD OF REVIEW

We exercise plenary review over a grant of summary 

judgment. Rosen v. Bezner, 996 F.2d 1527, 1530 (3d Cir. 
20

1993). It is proper when, viewing the evidence in the light 

most favorable to the opposing party, “there is no genuine 

dispute as to any material fact and the movant is entitled to 

judgment as a matter of law.” Id.; Fed. R. Civ. P. 56.

IV. ANALYSIS

As noted, the Texas and Kansas Producers rely on 

their states’ nonuniform amendments to the Uniform 

Commercial Code, which they argue give them automatically

perfected security interests in the oil they sold to SemGroup 

that J. Aron and BP ultimately received. We first conclude 

that the Producers do not have a perfected security interest 

even if Texas or Kansas law applied. Accordingly, J. Aron

and BP purchased the oil from SemGroup free of any lien as 

buyers for value. U.C.C. § 9-317(b).

Next, we turn to these Producers’ fraud claim and 

agree with the Bankruptcy and District Courts that there is no 

evidence of fraud. J. Aron and BP took precautions to protect 

themselves in case SemGroup became insolvent, but they did 

not defraud SemGroup’s other creditors. 

To conclude, we address the Oklahoma Producers’ 

claims based on an Oklahoma statute they contend imposes a 

trust relationship between them and anyone who purchases 

their oil. That interpretation lacks logic and is not supported 

by the statute’s text.

A. The U.C.C. Claim

Because we must parse uniform and state-specific 

versions of U.C.C. Article 9 (the Article on security interests),

it is helpful to explain briefly a few fundamental concepts. A 

security interest is “an interest in personal property or fixtures 

which secures payment or performance of an obligation.” 
21

U.C.C. § 1-201(b)(35). In other words, it is a lien on a piece 

of property that secures payment of a debt. If the debt is not 

paid, the person who holds the security interest can repossess

that property—i.e., take it in satisfaction of the debt. The 

person who owns that security interest is called the “secured 

party.” U.C.C. § 9-102(a)(73) (“‘Secured party’ means: (A)

a person in whose favor a security interest is created or 

provided for under a security agreement, whether or not any 

obligation to be secured is outstanding.”). The property 

subject to the security interest is called “collateral.” U.C.C. 

§ 9-102(a)(12). And a “debtor” is the person with an 

ownership interest in that collateral. U.C.C. § 9-102(a)(28) 

(“‘Debtor’ means: (A) a person having an interest, other than 

a security interest or other lien, in the collateral, whether or 

not the person is an obligor. . . .”) (emphasis added). 

The Producers contend that they sold the oil to 

SemGroup on credit subject to a security interest—that is, 

they retained a lien in the oil as long as SemGroup had not 

paid them for that oil, and if SemGroup did not pay for the oil 

the Producers could hypothetically repossess it. The oil they 

sold here is the “collateral,” and SemGroup, who purchased 

the oil, is the “debtor.” The Producers further assert that their 

security interests continued in the oil even after SemGroup 

resold it to J. Aron and BP. See U.C.C. § 9-315(a)(1) (“a 

security interest or agricultural lien continues in collateral 

notwithstanding sale”). Thus, J. Aron and BP received the oil 

subject to the security interest, and, because SemGroup did 

not pay the Producers in full, the Producers had the right to 

reclaim the oil from J. Aron and BP. Accordingly, J. Aron

and BP would have to return to the Producers the value of the 

oil used to set off options debt with SemGroup. 

J. Aron and BP, however, contend that they took the 

oil as buyers for value and thus free of any security interest. 

See U.C.C. § 9-317(b) (“[A] buyer, other than a secured 
22

party, of . . . goods . . . takes free of a security interest . . . if 

the buyer gives value and receives delivery of the collateral 

without knowledge of the security interest . . . and before it is 

perfected.”). This defense is simple: if a security interest is 

not perfected,4a buyer takes the property free of that security 

interest unless the buyer actually knew of the security 

interest. As discussed below, we conclude that J. Aron and 

BP qualify as buyers for value. To do so, we address whether 

(1) the security interests were perfected, (2) J. Aron and BP

actually bought the oil or acquired it as secured parties, and 

(3) they knew the Producers’ security interests even existed. 

1. Security interests were not perfected.

To perfect a security interest, in most instances a party 

must file a financing statement in the appropriate state office. 

See U.C.C. § 9-310(a) (“[A] financing statement must be filed 

to perfect all security interests.”). Here, the Texas and 

Kansas Producers did not file a financing statement or take 

any other steps to perfect their security interests. Instead, 

they urge us to apply their states’ versions of the U.C.C. 

because they contain nonuniform amendments that the 

Producers argue give oil producers an automatically perfected 

security interest in the oil they produced. See Tex. Bus. & 

Com. Code § 9.343 (“(a) This section provides a security 

 

4 The holder of a “perfected” security interest has much 

stronger recourse to enforce that interest against third parties 

than if the interest was not perfected. Generally perfection 

comes into play to determine priority over conflicting 

interests in collateral: perfected security interests have

priority over unperfected security interests, and, as between 

conflicting security interests, the security interest perfected 

first has priority over interests perfected later. See U.C.C. 

§ 9-322. 
23

interest in favor of interest owners, as secured parties, to 

secure the obligations of the first purchaser of oil and gas 

production, as debtor, to pay the purchase price. . . . (b) The 

security interest provided by this section is perfected 

automatically without the filing of a financing statement.”); 

Kan. Stat. § 84-9-339a(a) (same); Kan. Stat § 84-9-339a(b) 

(“the security interest provided by this section is perfected as 

of the date of recording [the production of that oil]”). But the 

Producers miss that, even if we were to apply Texas or 

Kansas law,5 we apply those states’ versions of Article 9, not 

just their nonuniform amendments in isolation. See Tex. Bus. 

& Com. Code § 9.343(p) (“The rights of any person claiming 

under a security interest or lien created by this section are 

governed by the other provisions of [Article 9] except to the 

extent that this section necessarily displaces those 

provisions.”); Kan. Stat. § 84-9-339a(o) (same). 

Texas and Kansas, along with every other state, 

adopted a key feature of revised U.C.C. Article 9: its uniform 

choice-of-law provision. So even starting with Texas’s or 

Kansas’s U.C.C., we begin with this rule, which states that 

“while a debtor is located in a jurisdiction, the local law of 

that jurisdiction governs perfection, the effect of perfection or 

nonperfection, and the priority of a security interest in 

collateral.” U.C.C. § 9-301(1); see Tex. Bus. & Com. Code 

§ 9.301(1) (same); Kan. Stat. § 84-9-301(1) (same); see also 

 

5 The Bankruptcy and District Courts applied Delaware’s 

U.C.C. choice-of-law rules because that is the forum state. 

See, e.g., Robeson Indus. Corp. v. Hartford Accident & 

Indemn. Co., 178 F.3d 160, 164–65 (3d Cir. 1999) (applying 

choice of law of forum state in resolving adversary 

proceeding based on state-law claim). We need not reach this 

issue for the purposes of this appeal because, regardless of the 

state, each has the same choice-of-law rule, U.C.C. § 9-301. 
24

U.C.C. § 9-301 cmt.4 (“[T]he law governing perfection of 

security interests in both tangible and intangible collateral, 

whether perfected by filing or automatically, is the law of the 

jurisdiction of the debtor’s location, as determined under 

Section 9-307.”). 

Here, as noted above, SemGroup is the debtor because 

it purchased the oil on credit subject to the Producers’ 

security interests. SemGroup and its affiliates are registered 

in Delaware or Oklahoma. U.C.C. § 9-307(e) (“A registered 

organization that is organized under the law of a State is 

located in that State.”). Accordingly, the “local law of 

[Delaware or Oklahoma] governs perfection,” not Texas or

Kansas law. U.C.C. § 9-301(1). Oklahoma and Delaware 

require perfection by filing a financing statement. Okla. Stat. 

tit. 12A, § 1-9-310; Del. Code tit. 6, § 9-310. Because it is 

undisputed that the Producers never made such a filing, their 

interests are unperfected. 

The only potential exception to § 9-301(1)’s debtorlocation rule is for as-extracted collateral. See U.C.C. § 9-

301(4) (“The local law of the jurisdiction in which the 

wellhead or minehead is located governs perfection, the effect 

of perfection or nonperfection, and the priority of a security 

interest in as-extracted collateral.”). The Producers’ oil does 

not qualify for this exception because, for oil to be asextracted collateral, a debtor must have a preexisting interest 

in the oil before it is extracted at the wellhead. See U.C.C. 

§ 9-102(a)(6) (“‘As-extracted collateral’ means (A) oil, gas, 

or other minerals that are subject to a security interest that: (i) 

is created by a debtor having an interest in the minerals 

before extraction; and (ii) attaches to the minerals as 

extracted; or (B) accounts arising out of the sale at the 

wellhead or minehead of oil, gas, or other minerals in which

the debtor had an interest before extraction.”) (emphases 

added). Here, SemGroup had no interest in the oil while it 
25

was in the ground. Only after the Producers extracted and 

sold it did SemGroup become involved. 

The Producers nonetheless argue that these automatic 

perfection laws “necessarily displace” the choice-of-law rule. 

See Tex. Bus. & Com. Code § 9.343(p) (“The rights of any 

person claiming under a security interest or lien created by 

this section are governed by the other provisions of this 

chapter except to the extent that this section necessarily 

displaces those provisions.”) (emphasis added); Kan. Stat. 

§ 84-9-339a(o) (same). But nothing about these automatic 

perfection laws “necessarily displace[s]” the rest of Article 9. 

Rather, these local laws apply when the debtor is located in 

Texas or Kansas, or where the debtor is so closely involved at 

the wellhead that it has some preexisting interest in the oil 

before it is extracted from the ground so that the oil 

constitutes as-extracted collateral. U.C.C. §§ 9-301(1) & (4).

The Producers further rely on a provision referring to 

security interests created by the government. U.C.C. § 9-

109(c)(3) (“This article does not apply to the extent that . . . a 

statute of another State, a foreign country, or a governmental 

unit of another State or a foreign country, other than a statute 

generally applicable to security interests, expressly governs 

creation, perfection, priority, or enforcement of a security 

interest created by the state, country, or governmental unit.”)

(emphasis added). An entity of Texas or Kansas government 

did not create the security interests. Instead, the security 

interests were created by SemGroup purchasing oil from the 

Producers. 

The Producers also argue that Delaware or Oklahoma 

perfection laws incorporate the automatic-perfection oil lien 

laws. They rely on an Official Comment to a separate section 

of Article 9 (on buyer defenses) that generally mentions the 

existence of nonuniform amendments. See U.C.C. § 9-320 
26

cmt.7 (“Several [states] have adopted special statutes and 

nonuniform amendments to Article 9 to provide special 

protections to mineral owners.”). This Comment recognizes

that certain states might adopt special provisions to protect 

mineral owners; it does not automatically incorporate 

unspecified local laws. Beyond that, a Comment to the 

U.C.C. does not supersede statutory text, and the Comment 

says nothing about overriding Article 9’s choice-of-law rules.

All told, the Producers misunderstand the burdens and 

uncertainty their U.C.C. interpretation would create. 

SemGroup resold oil from thousands of producers located in 

eight different states. The downstream purchasers, including 

J. Aron and BP, had no dealings with this diverse group of 

producers, did not even know who these producers were, and 

were buying oil in bulk from storage centers, so they did not 

know which producers’ oil they received. To determine 

possible conflicting security interests, instead of merely 

checking the filing records of the states of the entities they 

purchase from, downstream purchasers would have to 

discover the identities and locations of potentially thousands 

of producers with whom they have no contact. 

Eliminating this type of uncertainty was of

foundational importance to the U.C.C.’s simplified notice 

system. Prior to the 2001 revisions of the U.C.C., parties 

normally had to search for financing statements wherever a 

debtor had collateral to know if anything was encumbered. 

See U.C.C. § 9-103(b)(1) (1995) (“Except as otherwise 

provided in this subsection, perfection and the effect of 

perfection or non-perfection of a security interest in collateral 

are governed by the law of the jurisdiction where the 

collateral is when the last event occurs on which is based the 

assertion that the security interest is perfected or 

unperfected.”). Now the U.C.C. requires that a party check 

for filings in the debtor’s location and understand that locale’s 
27

secured transactions laws. See U.C.C. § 9-101 cmt.4(c)

(“This Article changes the choice-of-law rule governing 

perfection (i.e., where to file) for most collateral to the law of 

the jurisdiction where the debtor is located.”). If the oil 

producers want to encumber the oil they sell to an out-of-state 

first purchaser, all they need to do is comply with the rules 

uniformly applicable throughout the country to all sellers of 

goods—file a financing statement in the state where that first 

purchaser is located. 

In conclusion, under U.C.C. § 9-301(1), Delaware and 

Oklahoma law govern perfection. Texas and Kansas’s 

nonuniform amendments to Article 9 do not save the 

Producers. J. Aron and BP thus may qualify as buyers for

value because the security interests the Producers may have 

claimed were not perfected. See U.C.C. § 9-317(b) (buyerfor-value defense only applies “before [the security interest]

is perfected”). 

2. J. Aron and BP purchased the oil from 

SemGroup.

The second premise underlying the Producers’ claims

is that J. Aron and BP did not buy the oil from SemGroup. 

Instead, under the parties’ setoff agreements, J. Aron and BP

acquired oil as a secured party—they took it as collateral for 

the options trades—and thus did not give “value” for it. See 

U.C.C. § 9-317(b) (“A buyer, other than a secured party, of 

. . . goods . . . takes free of a security interest . . . if the buyer 

gives value . . . .”).

The Producers mischaracterize J. Aron and BP’s 

business relationships with SemGroup. J. Aron and BP did 

not acquire the oil because it was collateral for the options

trades; they acquired it on credit per industry custom. These

purchases on credit—promises to pay—are more than 
28

sufficient to satisfy the “value” requirement. See U.C.C. § 1-

204 (“[A] person gives value for rights if the person acquires 

them . . . (4) in return for any consideration sufficient to 

support a simple contract.”). And not only did J. Aron’s and

BP’s promises to pay satisfy the value requirement, the 

purchases gave SemGroup a new, valuable asset—accounts 

receivable, or simply “accounts” for U.C.C. purposes. See 

U.C.C. § 9-102(a)(2) (“‘Account’ . . . means a right to 

payment of a monetary obligation . . . (i) for property that has 

been or is to be sold . . . .”). SemGroup’s accounts receivable

were in turn used as collateral to secure its obligations to J. 

Aron and BP under the options trades. 

To illustrate, when J. Aron and BP purchased oil on 

credit, SemGroup received IOUs from them. These IOUs 

became SemGroup’s accounts. In turn, J. Aron and BP 

contracted for a setoff right between SemGroup’s accounts 

and any amount SemGroup might owe J. Aron or BP for the 

options trades. In the event SemGroup ended up owing them

money on the options trades, J. Aron and BP would get their 

IOUs (the accounts) back. 

Hence these IOUs served as collateral for the options 

trades, not the oil.6 J. Aron and BP received oil simply 

 

6 The accounts receivable created by the oil purchases were 

valuable to SemGroup, reducing its trading costs and 

increasing its liquidity. For example, as part of its option 

trades with J. Aron, SemGroup had to post cash collateral to

meet margin requirements based on its exposure to that entity. 

This relieved SemGroup from posting the required cash 

margin based on the amount J. Aron owed SemGroup for oil

purchases. To illustrate, if SemGroup had to post a $50,000 

cash margin, it could substitute that amount with the accounts 

receivable (meaning J. Aron’s IOUs) worth $50,000. As a 
29

because they purchased it. Thus, because J. Aron and BP 

purchased oil from SemGroup and did not acquire it as 

secured parties, they meet this requirement of the buyer-forvalue defense. See U.C.C. § 9-317(b) (“A buyer, other than a 

secured party, of . . . goods . . . .”). 

3. J. Aron and BP did not have knowledge of 

the Producers’ security interests.

Whether J. Aron and BP bought the oil “without 

knowledge of the security interest” is the only remaining 

disputed requirement. We agree with the District Court that 

no reasonable factfinder could conclude that they had 

 

result of this arrangement, SemGroup could put its cash to 

other uses.

The accounts receivable also were valuable for the 

Producers and others that dealt with SemGroup. The 

Producers’ security interests could have extended to 

SemGroup’s accounts receivable created by J. Aron and BP’s 

purchases. See U.C.C. § 9-315(a)(2) (“a security interest 

attaches to any identifiable proceeds of collateral”); U.C.C. 

§ 9-102(a)(64) (defining “proceeds” to include “(A) whatever 

is acquired upon the sale, lease, license, exchange, or other 

disposition of collateral; (B) whatever is collected on, or 

distributed on account of, collateral. . . .”). But the Producers 

do not assert their security interests in SemGroup’s accounts 

receivable, likely because their interests could have been 

subordinated to J. Aron and BP’s setoff rights. See U.C.C. 

§ 9-404; see also 504 B.R. at 52. The Producers could have 

contracted with SemGroup to ensure that these accounts 

would not be used as collateral for SemGroup’s options

trading business, but they did not.
30

knowledge of the Producers’ security interests in oil. Despite 

volumes of discovery, at most the Producers have produced

indications of constructive knowledge (a reason to know), but 

U.C.C. § 1-202(b) requires “actual knowledge.”

SemGroup sold oil to J. Aron and BP per the industry 

standard Conoco General Provisions, which expressly 

disclaim the existence of any continuing security interest: 

“The Seller warrants good title to all crude oil delivered 

hereunder and warrants that such crude oil shall be free from 

all royalties, liens, encumbrances and all applicable foreign, 

federal, state and local taxes.” J.A. 2505. Some 15 Producers 

even used this Conoco warranty language in their sales to 

SemGroup, although those Producers now argue that it 

applied only to third-party liens, not the ones created between 

a Producer and the purchaser. 

It is also undisputed that the Producers never 

communicated with J. Aron and BP about any subject, let 

alone a security interest. Indeed, the Producers never took 

any steps to notify anyone about their purported security 

interest. And despite massive document discovery and 

numerous depositions, there is no evidence that anyone at J. 

Aron or BP—or anyone else for that matter—knew about the 

claimed security interests. 

Nonetheless, the Producers contend that we can 

reasonably infer actual knowledge because of testimony that 

J. Aron or BP (1) were aware of state lien laws, (2) knew of 

the existence of some of the Producers, (3) knew that 

SemGroup purchased the oil on credit from the Producers, 

and (4) were aware that SemGroup’s credit agreements with 

its lending banks carved out from the lending base those 

assets encumbered by “statutory Liens, if any, created under 

the laws of [various states].” J.A. 9488-89. This 

circumstantial evidence in no way shows that when 
31

SemGroup resold the oil and expressly warranted that it was 

not encumbered by security interests, J. Aron and BP actually 

knew the truth was otherwise. At most, this establishes 

constructive knowledge—that J. Aron and BP might have a 

reason to believe that some oil was encumbered by a security 

interest at some time. But constructive knowledge does not 

defeat the buyer-for-value defense; only “actual knowledge”

does. U.C.C. § 1-202(b). 

Thus J. Aron and BP did not have actual knowledge of 

any security interest in the oil they purchased and meet all 

other requirements of the buyer-for-value defense. 

Accordingly, they took the oil free of the Producers’ liens to 

the extent they even existed.

7

 

 

7

In light of this ruling, we need not reach the District and 

Bankruptcy Court’s determination in the alternative that J. 

Aron and BP took the oil free of the security interests as 

buyers in the ordinary course. See U.C.C. § 9-320(a) (“[A] 

buyer in ordinary course of business . . . takes free of a 

security interest created by the buyer’s seller, even if the 

security interest is perfected and the buyer knows of its 

existence.”); see also U.C.C. § 1-201(b)(9) (the seller must be 

“in the business of selling goods of that kind”). BP purchased 

oil from SemCrude, and it is undisputed that SemCrude was 

in the business of buying and selling oil and that it created the 

security interests when it purchased the oil from the 

Producers on credit. After the Bankruptcy Court 

recommended summary judgment, however, the Producers 

belatedly argued that J. Aron cannot avail itself of this 

defense because it purchased oil from SemCrude’s parent, 

SemGroup. Because the Bankruptcy and District Courts did 

not have the full opportunity to reach this issue, it is not clear 
32

B. The Fraud Claims

The Producers’ fraud claims also fail. They do not 

bring claims for fraudulent transfers under the Bankruptcy 

Code. See 11 U.S.C. § 548. Rather, they bring a common 

law fraud claim, contending that SemGroup did not intend to 

pay for the Producers’ oil, and J. Aron and BP participated in 

this scheme to defraud. 

The Producers first argue that the District Court erred

procedurally by granting summary judgment sua sponte on 

fraud because J. Aron and BP moved for summary judgment 

only as to the causation element of fraud. Even if this were a 

“sua sponte” grant, the Producers knew they needed to show 

that their fraud claims should survive summary judgment and 

the District Court did not abuse its discretion. 

District courts “possess the power to enter summary 

judgments sua sponte, so long as the losing party was on 

notice that she had to come forward with all of her evidence.” 

Anderson v. Wachovia Mortg. Corp., 621 F.3d 261, 280 (3d 

Cir. 2010) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 

326 (1986)). “Notice” simply requires that “the targeted

party ha[ve] reason to believe the court might reach the issue 

and receive[] a fair opportunity to put its best foot forward.’” 

Couden v. Duffy, 446 F.3d 483, 500 (3d Cir. 2006) (citations 

omitted). Even if the “notice” requirement is not met, the 

grant of summary judgment is only reversible if there is 

prejudice. See id. at 507.

 

to us whether SemGroup (the parent) was in the business of 

selling oil or whether it was involved in creating the security 

interests. Accordingly, out of an abundance of caution, we do 

not reach this issue. 
33

Here, the Producers had the full opportunity to oppose 

summary judgment. The Bankruptcy Court, at the Producers’ 

request, continued J. Aron and BP’s initial motions for 

summary judgment and gave the Producers an additional 

year of discovery. Because there is no direct evidence of 

fraud, the Producers base their entire fraud claim on 

SemGroup’s business structure and its transactions with J. 

Aron and BP. Yet all of this was the subject of discovery. 

The Producers addressed the fraud claims in oral argument 

before the Bankruptcy Court, and they have conducted

numerous depositions and compiled documentary evidence 

that they now rely on in their effort to show fraud. 

Moreover, even if we were to conclude there was 

insufficient notice or opportunity to develop the record, the 

Producers still have not shown prejudice. They argue that

they would have introduced expert affidavits “had they been 

given proper notice that J. Aron/BP were moving for 

summary judgment on all elements of all fraud claims.” 

Associated Producers Br. 51. These experts merely ask us to 

infer fraud because J. Aron and BP knew SemGroup’s trading 

strategy was risky yet continued to trade options. But these 

reports would not have defeated summary judgment. 

J. Aron and BP never communicated with the 

Producers, so naturally they did not make any false 

statements to them. As noted already, J. Aron and BP did not 

even know the identities of the thousands of producers that 

sold SemGroup the oil. SemGroup, until the bankruptcy 

filing, always paid the Producers in full for the oil, and J. 

Aron and BP also always paid in full for the oil they 

purchased. 

Despite the lack of evidence that anyone did not intend 

to pay for the oil, the Producers contend that SemGroup

purchased the oil without intending to pay for it and J. Aron
34

and BP aided and abetted this fraudulent scheme. But we fail 

to find one item of evidence indicating that SemGroup ever 

intended to avoid paying for oil. 

The Producers never identify a time at which 

SemGroup started buying oil without an intent to pay or with 

a reckless disregard for its ability to do so. The only evidence 

of SemGroup’s fraud comes from the Bankruptcy Examiner’s 

report, but it has nothing to do with SemGroup’s oil 

purchases. Instead, it addresses certain SemGroup 

executives’ misconduct, which formed the basis of a 

shareholder lawsuit. See In re SemCrude L.P., 796 F.3d 310 

(3d Cir. 2015). And, if anything, the findings of the 

Examiner cut against fraud, as he concluded that SemGroup 

became insolvent because it kept losing on its options trades 

and that “[l]ast minute attempts by it to increase its credit 

facility failed.” J.A. 869. If SemGroup had successfully 

increased its credit facility and avoided bankruptcy, all 

evidence suggests that it would have paid the Producers.

Even if we were to assume, for the sake of argument, 

that this evidence demonstrated that SemGroup defrauded the 

Producers, the evidence that J. Aron and BP conspired with 

SemGroup or aided and abetted this fraudulent scheme is still 

nonexistent. A civil conspiracy requires a shared intent to 

commit fraud—a “meeting of the minds.” See State ex rel. 

Mays v. Ridenhour, 811 P.2d 1220, 1226 (Kan. 1991); Cotten 

v. Weatherford Bancshares, Inc., 187 S.W.3d 687, 701 (Tex. 

App. 2006); Brock v. Thompson, 948 P.2d 279, 294 (Okla. 

1997), as corrected (Apr. 3, 1998). Aiding and abetting 

requires, in addition to substantial assistance or participation, 

knowledge of the fraud. See Mays, 811 P.2d at 1232; Cotten, 

187 S.W.3d at 701; Cooper v. Bondoni, 841 P.2d 608, 612 

(Okla. Civ. App. 1992). 
35

There simply is no evidence that either J. Aron or BP 

knew it was taking oil that had not been paid for. Their mere 

knowledge that SemGroup purchased oil on credit, as was 

industry custom, does not suggest that they knew that any 

unidentified producers were still owed money or that 

SemGroup did not intend to pay for the oil when payment 

was due. Again, J. Aron and BP were purchasing oil at large 

aggregation centers where oil mixed with the same 

commodity from myriad other producers in various states. J. 

Aron and BP did not know that any of the millions of barrels 

of oil they purchased—to the extent it actually was the 

Producers’ oil (a point J. Aron and BP vigorously dispute)—

had not been paid for on the agreed payment date or that 

SemGroup did not intend to pay for it. At most the 

purchases-on-credit arrangement that is industry custom 

allows for a reasonable inference that, when J. Aron and BP

transacted with SemGroup, they may have known that 

SemGroup might still have owed the Producers. However, no 

evidence leads to a reasonable inference that J. Aron and BP 

knew SemGroup intended to avoid paying for this oil or was

reckless with its ability to pay for the oil. 

The Producers also attempt to infer fraud from the 

options trades. They contend that J. Aron and BP knew that 

SemGroup’s trading was speculative and not legitimate 

hedging, and thus, “[d]espite numerous concerns and red 

flags, no one from J. Aron or BP took reasonable steps to 

verify that this was a legitimate trading or hedging strategy,”

all the while continuing to do business with SemGroup. 

Associated Producers Br. 56. This lawful activity simply 

does not permit an inference of fraud. 

J. Aron and BP paid millions in premiums up front for 

options to secure a price for oil, protecting themselves against 

an oil-price increase. SemGroup bet the opposite—that oil 

prices would drop. The prices kept rising, so SemGroup lost. 
36

While this was a risky strategy that did not pay off, and in 

hindsight hedging might have served SemGroup better, this 

business arrangement does not demonstrate that J. Aron and 

BP intended to take the oil away from the Producers without 

payment. 

C. The Oklahoma Production Revenue Standards Act

Claims

The Oklahoma Producers separately argue that the 

Oklahoma Production Revenue Standards Act (the “PRSA”), 

Okla. Stat. tit. 52, §§ 570.1 et seq., creates an implied trust in 

their favor that, absent full payment, travels perpetually down 

the stream of commerce; in other words, so long as those

Producers have not been paid, whoever possesses the oil does 

so for their benefit.8 In addition, the argument goes, so long 

as an Oklahoma Producer has not been paid, whoever owns 

the proceeds of the oil needs to account for those proceeds to

that Producer. Thus, even though downstream purchasers 

(like J. Aron) generally do not know the oil producers who 

sold the oil to the midstream purchasers, they allegedly have 

legal obligations to each Oklahoma Producer. Based on these 

trust duties, that Producer may bring claims against J. Aron

for conversion, unjust enrichment, constructive fraud, and 

declaratory relief. 

Fortunately for J. Aron and anyone who has 

unwittingly filled a gas tank with Oklahoma-produced oil,

 

8 There is a sound argument that the Oklahoma Producers 

waived their PRSA trust arguments by expressly disclaiming 

them in the District Court. Nevertheless, in light of the 

importance of the legal questions at stake, we exercise our 

discretion to consider the issue despite the waiver. Issa v. 

Sch. Dist. of Lancaster, 847 F.3d 121, 139 n.8 (3d Cir. 2017). 
37

this interpretation simply fails the text of the statute. First, 

whatever duties the PRSA creates, they do not apply to 

downstream purchasers like J. Aron. The PRSA regulates the 

relationships of the many parties at the wellhead, which 

include the various interest owners and the operators of those 

wells. Those interests are highly fractionalized and multiple 

persons may have a right to revenue from any well. See Okla. 

Stat. tit. 52, § 570.2 (defining an “owner[’s]” interest, 

“proportionate production interest,” “royalty interest,” and 

“subsequently created interest”). The Oklahoma Producers

themselves might owe many obligations to the various 

interest owners of their production. As there are numerous 

parties involved at the wellhead, the PRSA regulates all 

manner of these parties’ relationship, for example, dictating 

specific procedures for how proceeds of production are

shared among interest owners and operators, id. § 570.4, the 

process for “[d]esignation of person[s] for certain royalt[ies], 

accounting and remittance functions,” id. § 570.5, detailed 

reporting requirements for all those involved at the wellhead, 

id. 570.8, and the “[i]nformation to be included with 

payments to [the] interest owner,” including how many 

decimals revenue should be calculated and the measurements 

to describe gas volume. Id. § 570.12. 

The PRSA, however, has no provisions relating to 

downstream purchasers. Those purchasers could be located 

out of state, and, as in the case of J. Aron, could be so far

removed from the wellhead they do not even know the 

identities of the producers or the interest owners those 

producers represent. See Okla. Stat. tit. 52, § 570.2(1) 

(“‘Owner’ means a person or governmental entity with a legal 

interest in the mineral acreage under a well which entitles that 

person or entity to oil or gas production or the proceeds or 

revenues therefrom.”). The statute simply does not govern 

the relationship of persons who later, down the line of 

commerce, repurchase this oil.
38

Second, while the PRSA contains some language 

suggesting a trust-like relationship, there is no language 

stating that it creates an implied trust that travels perpetually 

down the stream of commerce. PRSA § 570.10(a) states: 

All proceeds from the sale of production shall 

be regarded as separate and distinct from all 

other funds of any person receiving or holding 

the same until such time as such proceeds are 

paid to the owners legally entitled thereto. Any 

person holding revenue or proceeds from the 

sale of production shall hold such revenue or 

proceeds for the benefit of the owners legally 

entitled thereto. Nothing in this subsection shall 

create an express trust.

Okla. Stat. tit. 52, § 570.10(a). 

The Oklahoma Producers rely on a 2008 Oklahoma 

Attorney General Opinion that concluded the language 

“owners legally entitled” to proceeds of the oil actually meant 

“implied beneficiaries,” and therefore “[t]he holder of the 

revenue or proceeds of oil and gas production acquires no 

right, title or interest in such revenue or proceeds.” 2008 OK 

AG 31 ¶ 22 (citations omitted). The Bankruptcy Court 

rejected the Attorney General’s interpretation, and so have an 

Oklahoma intermediate appellate court and District Courts in 

Oklahoma. See In re SemCrude, L.P., et al., 407 B.R. 140, 

155 (Bankr. D. Del. 2009); Gaskins v. Texon, LP, 321 P.3d 

985, 989 (Okla. Civ. App. 2014); Naylor Farms, Inc. v. 

Anadarko OGC Co., 2011 WL 7267853, at *1 (W.D. Okla. 

June 23, 2011); McKnight v. Linn Operating, Inc., No. CIV10-30-R, 2010 WL 9039794, at *3 (W.D. Okla. Apr. 1, 

2010). We agree. 
39

Although the PRSA’s language—that sale proceeds 

“shall be regarded as separate and distinct” and shall be held 

for the benefit of the owners “legally entitled thereto”—

echoes trust language, these words cannot be stretched to 

create automatically an implied trust. First, it is a conceptual 

leap to take the language “paid to the owners legally entitled 

thereto” to mean that interest owners and producers 

automatically possess the “legal entitlement” of ownership of 

a beneficial interest in the proceeds, and that whoever 

actually holds the proceeds has no title to them. As the 

Bankruptcy Court noted, in the few instances where 

Oklahoma statutes have been construed to create an implied 

trust, those statutes imposed many more trust duties. See 407 

B.R. at 152 (“[Those other statutes] demonstrated the 

requisite clear intent to form a trust because the State of 

Oklahoma (or an organ thereof) is the trustee, holding 

identified funds, for the benefit of identified beneficiaries. In 

sharp contrast, the PRSA does not identify a specific trustee, 

actually require segregation of a trust res or otherwise impose 

rights and duties typically associated with a 

trustee/beneficiary relationship.”). 

Second, a more faithful interpretation of the PRSA is 

that it provides for the imposition of a trust only in limited 

ways. As the concluding sentence of PRSA § 570.10(a)

states, “Nothing in this subsection shall create an express 

trust.” In contrast to an express trust, implied trusts arise in 

Oklahoma where it would be inequitable for one party to keep 

title to property. There are two types of implied trusts—

resulting or constructive. A resulting trust may be judicially 

imposed “where the circumstances indicate that the grantor of 

legal title to property did not intend for the beneficial interest 

to be enjoyed by the grantee of the legal title.” Gaskins, 321 

P.3d at 989 n.5 (citation omitted). A constructive trust may 

be imposed “when an individual obtains a legal right to 

property through fraudulent, abusive means, or through a 
40

method which violates equity and good conscience.” Id. 

(citation omitted). In either case, equity or good conscience 

could require imposing trustee burdens on a party who 

violated a duty owed to another under the PRSA. However,

the Oklahoma Producers do not argue that equity demands 

imposition of a trust, but only rely on the Attorney General’s

interpretation that the PRSA automatically implies a trust.

Finally, the Oklahoma Producers argue that the 

legislature “restated” that the PRSA created trust rights when 

it passed the 2010 Oklahoma Lien Act. This new Act created 

automatic oil liens in favor of producers that are outside the 

scope of the U.C.C. See Sahar Jooshani, There’s A New Act 

in Town: How the Oklahoma Oil and Gas Owners’ Lien Act 

of 2010 Strengthens the Position of Oklahoma Interest 

Owners, 65 Okla. L. Rev. 133 (2012); Alvin C. Harrell and 

Frederick H. Miller, Aftermath of the SemGroup Case: 

Oklahoma Enacts the Oil and Gas Owners’ Lien Act of 

2010, 81 Okla. Bar Assoc. J. 2818 (2010). 

The 2010 Lien Act does not apply to our appeal

because it post-dated SemGroup’s bankruptcy. Yet the 

Oklahoma Producers point to it as evidence that the 

Oklahoma Legislature believed the PRSA created

automatically an implied trust. The Lien Act includes buyer 

defenses for the liens it creates, which also apply to PRSA 

§ 570.10(a): if the downstream purchasers were buyers in the 

ordinary course or had paid all consideration due, they take 

free of “any obligations created by [the PRSA].” Okla. Stat. 

tit. 52, § 549.6. The logic is that if the Oklahoma Legislature 

did not believe that the PRSA creates trust rights, the 2010 

Lien Act would not have included buyer defenses to the 

PRSA. However, our take is that to the extent an implied 

trust could be imposed under PRSA § 570.10(a), all the 

Oklahoma Legislature made clear was that downstream 

purchasers could avail themselves of buyer defenses. 
41

In summary, the PRSA did not create an implied trust

here and did not impose any duties on J. Aron. As all the

Oklahoma Producers’ theories of relief were predicated on 

this construal of the Act, the District Court correctly entered 

summary judgment against the Oklahoma Producers.

* * * * *

Texas, Kansas, and Oklahoma all include statutes that 

provide some protections for those who produce oil in their 

States, but those protections do not reach downstream parties 

like J. Aron and BP. The Producers theoretically could have 

perfected their security interests, traced those interests in the 

oil that extended to their accounts receivable, and forbade

SemGroup from using those accounts as margin collateral for 

their options trades. 

But why didn’t the Producers take such precautions? 

They contend they are a loose collection of relatively 

unsophisticated parties. However, these parties pool their 

interests and choose operators to extract and sell their oil; it 

does not seem farfetched that they could also choose a 

representative to file financing statements to perfect security 

interests or take other measures to protect against an oil 

purchaser’s insolvency. The more likely explanation is that 

no midstream or downstream oil purchaser would buy oil 

from the Producers if they sought to encumber that oil as it 

flowed through interstate commerce and changed hands.

The oil industry operates through sales on credit. It 

involves thousands of producers and those producers 

represent countless interest owners who have fractionalized 

interests at the well. Downstream purchasers have no contact 

with these producers and do not even know who they are. 

This oil is pooled with myriad other producers’ oil and is 

resold many times before consumers get it at the retail pump. 
42

The industry thus uses the Conoco warranty that this oil is 

sold free and clear of any liens because it is a hard-to-trace, 

liquid asset that flows throughout the country. 

In sum, if any producer of oil tries to sell it subject to a 

security interest or implied trust that flows endlessly down the 

stream of commerce, it will be unsold. The Producers’ 

contention that a lien or trust follows oil from their wells to 

the gas pump does not make sense for this type of market. 

The effect of any opinion from us upholding the Producers’ 

positions would be chaos. We thus affirm the superbly 

reasoned rulings of both the Bankruptcy and District Courts.