NOT PRECEDENTIAL 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

_______________ 

No. 22-1729 

_______________ 

IN RE: URSA OPERATING COMPANY, LLC, 

Debtor 

AIRPORT LAND PARTNERS, LTD; JOHN ANDERSON; FERNANDO JOSE 

ARROYO; BAR SEVEN L, LLC; ALLEN BYERLEY; RICHARD N. CASEY; ALICE 

COLTON; DON COLTON; GREGG COLTON; DANIELS PETROLEUM COMPANY 

AND BARRETT BAKER AS PRESIDENT; VERNON P. DEDISSE, JR.; MARY 

RUTH DEDISSE, DIVIDE CREEK ENTERPRISES, LLC; ENERGY INVESTMENTS, 

INC., HUNTER FAMILY LIMITED PARTNERSHIP; JERRY D. JONES, 

INDIVIDUALLY AS TRUSTEE OF THE PAULA JONES SPECIAL NEEDS TRUST; 

CHRISTINE JONES; JUHAN LP; JUHAN-RAY, LLC; JUHAN FORDHAM 

MINERALS, LLC; PETER LANGEGGER; LARAMIDE GEOSCIENCES, LLC; 

THOMAS D. LAWSON; FRED LIMBACH; PAUL LIMBACH; NANCI LIMBACH; 

STACIE ANDERSON MALONE; MAP2003-NET, AN OKLAHOMA GENERAL 

PARTNERSHIP; MAP2004-OK. AN OKLAHOMA GENERAL PARTNERSHIP, 

MAP99A-NET, A TEXAS GENERAL PARTNERSHIP; KRISTINE M. PETERSON; 

MICHAEL PINNELL; PIONEER OIL AND GAS; KELLEY ANDERSON RINEHART; 

ROY ROYALTY, INC.; JASON ALAN SCOTT; JOSEPH EDWARD SCOTT; 

REBECCA P. SCOTT; SHARON SALGADO; SHIDELER ENERGY COMPANY, 

LLC; SHIDELEROSA, LLP; PATRICK L. SHUSTER; TONI M. SHUSTER; THE 

CITY OF RIFLE, COLORADO; TITAN ENERGY RESOURCES CORPORATION; 

WATSON RANCHES, LTD; BRETT JAMES WATSON; DIANA K. WATSON; 

JAMES L. WATSON; LEE WATSON AND EVADEAN WATSON, AS COTRUSTEES OF THE WATSON FAMILY REVOCABLE TRUST, AND VELMA 

WEINREIS (COLLECTIVELY, THE “ROYAL CLAIMANTS”), 

Appellants 

_______________ 

On Appeal from the United States District Court for the 

District of Delaware 

(D.C. No. 1-21-cv-00495) 
2

District Judge: Hon. Maryellen Noreika

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Argued on June 15, 2023

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Before: PORTER, FREEMAN, and FISHER

Circuit Judges.

(Filed: December 1, 2023)

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OPINION∗

______________

Duston K. McFaul

Maegan Quejada

Sidley Austin LLP

1000 Louisiana Street

Suite 5900

Houston, TX 77002

Robert S. Velevis [ARGUED]

Sidley Austin LLP

2021 McKinney Avenue 

Suite 2000

Dallas, TX 75201

Robert S. Brady

Edmon L. Morton

Kenneth J. Enos

Joseph M. Mulvihill

Young Conaway Stargatt & Taylor LLP

Rodney Square

1000 N King Street

Wilmington, Delaware 19801

* This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding 

precedent.
3

Counsel for Appellee Ursa Operating Company LLC

Ana Alfonso [ARGUED]

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

John H. Knight

Amanda R. Steele

Richards Layton & Finger

One Rodney Square

920 N King Street

Wilmington, DE 19801

Counsel for Appellee Wells Fargo Bank NA

George A. Barton [ARGUED]

Barton and Burrows LLC

5201 Johnson Drive

Suite 110

Mission, KS 66205

Counsel for Appellants

PORTER, Circuit Judge.

This case arises from the bankruptcy of Ursa Operating Company, LLC and its 

affiliates (collectively “Ursa”), an extractor and seller of oil and gas in the western United 

States. Ursa operated wells on leased property owned by the Plaintiff-Appellants (“the 

Royalty Claimants”). The Royalty Claimants allege that Ursa wrongfully retained 

mineral royalties due under the leases. They contend those funds are their property and 

therefore not part of Ursa’s bankruptcy estate. 

The Royalty Claimants are correct that under Colorado law they have a real 

property interest in unpaid royalties. And Colorado’s constructive trust doctrine supports 
4

imposition of a constructive trust if a factfinder concludes that Ursa was unjustly 

enriched at the Royalty Claimants’ expense. Accordingly, we will vacate the order of the 

District Court and require remand to the Bankruptcy Court for further proceedings.

I

The Royalty Claimants contend that for eight years, Ursa withheld royalties from 

natural gas sales due to them under the leases. “[N]atural gas purchasers remitted the 

entire payment for [gas] purchases to Ursa, which was then responsible to pay the 

Royalty Claimants their percentage share of the natural gas sale proceeds.” Appellant Br. 

4. From there, two types of Royalty Claimants emerge. The first consists of Claimants 

who expressly contracted for payments to be made to them “without deductions” of 

“various post-production costs.” Appellant Br. 7 & n.3. They contend that Ursa deducted 

costs in violation of their agreements, accumulating undisbursed royalties in excess of 

$24 million. The second category of Claimants negotiated “silent” leases that did not 

address the question of payments being pre- or post-deduction. They argue that Ursa 

violated Colorado law by failing to pay royalties based on the sale price of natural gas at 

the location of the first commercial market.

Both types of Royalty Claimants assert a real property interest in the royalties 

generated by the leased properties and argue that a constructive trust must be established 

to hold those proceeds before Ursa’s estate can be presented to the Bankruptcy Court for

resolution. The Bankruptcy Court and District Court concluded that each of the Royalty 

Claimants’ underpayment claims should be classified as unsecured non-priority claims 

because the underpaid royalties retained by Ursa are property of its estate.
5

II

The Bankruptcy Court had jurisdiction under 28 U.S.C. § 157(b). The District 

Court had jurisdiction to review the Royalty Claimants’ appeal under 28 U.S.C. § 158(a), 

and we have jurisdiction to review that final decision under 28 U.S.C. § 158(d)(1).

“When the District Court sits as an appellate court for the Bankruptcy Court, ‘our 

review duplicates that of the district court and we view the bankruptcy court decision 

unfettered by the district court’s determination.’ ” In re Energy Future Holdings Corp., 

990 F.3d 728, 736 (3d Cir. 2021) (quoting In re Brown, 951 F.2d 564, 567 (3d Cir. 

1991)). We review the Bankruptcy Court’s conclusions of law de novo. Id.

III

Whether any funds currently in Ursa’s possession are traceable to those claimed 

by the Royalty Claimants is a factual issue that has not yet been resolved below and 

cannot be resolved here. The questions presented are whether any withheld royalties are

the Royalty Claimants’ property and, if so, whether the equitable remedy of a 

constructive trust is available. The analysis of these questions is the same for both sets of 

Claimants.

A

The Royalty Claimants argue that under Colorado law, the royalties due to them 

never became part of Ursa’s estate and, therefore, cannot be disbursed to Ursa’s creditors 

according to the normal priority of claims. Their argument is premised upon two statutes.
6

The first is 11 U.S.C. § 541(d), which states, in relevant part, that 

[p]roperty in which the debtor holds, as of the commencement of the case, 

only legal title and not an equitable interest . . . becomes property of the estate 

under subsection (a)(1) or (2) of this section only to the extent of the debtor’s 

legal title to such property, but not to the extent of any equitable interest in 

such property that the debtor does not hold.

The second is Colo. Rev. Stat. § 38-30-107.5, which provides that

[a]ny conveyance, reservation, or devise of a royalty interest in minerals or 

geothermal resources, whether of a perpetual or limited duration, contained 

in any instrument executed on or after July 1, 1991, creates a real property 

interest which vests in the holder or holders of such interest the right to 

receive the designated royalty share of the specified minerals or geothermal 

resources or the proceeds therefrom in accordance with the terms of the 

instrument.1

Reading the two together: If a debtor holds only legal title to but not an equitable interest 

in property, that property will not become part of the debtor’s bankruptcy estate, 11 

U.S.C. § 541(d); and under Colorado law, a reservation of a royalty interest in minerals 

or geothermal resources creates a real property interest in the designated share of 

royalties, Colo. Rev. Stat. § 38-30-107.5. Therefore, when Ursa leased lands to extract 

and sell minerals or geothermal resources, it did not have an equitable interest in the 

1 The Royalty Claimants cite Colo. Rev. Stat. § 38-30-107.5 for the first time on appeal 

before this Court. Ursa contends that because Appellants are “claiming for the first time 

that they have a statutorily granted property interest,” they are “shifting to a new 

argument” which has been waived. Appellees’ Br. 27. But, as discussed below, this 

statute codified longstanding Colorado common law, and the Royalty Claimants argued 

below that they have a property interest in royalty proceeds under Colorado law. See, 

e.g., App. 2512–19. Their argument is therefore preserved for appeal. See United States v. 

Joseph, 730 F.3d 336, 342 (3d Cir. 2013). And we will take judicial notice of the statute.

Gallup v. Caldwell, 120 F.2d 90, 93 (3d Cir. 1941) (calling it “well established” that we 

may “take[] judicial notice of the laws of every state of the Union, because those laws are 

known to the court below as laws alone, needing no averment or proof”) (quoting Hanley 

v. Donoghue, 116 U.S. 1, 6 (1885)).
7

Royalty Claimants’ designated share of the proceeds that it received from the sale of 

those resources.

The Royalty Claimants are correct. They “reserv[ed] . . . a royalty interest in 

minerals or geothermal resources.” Id. Those reservations were “contained in . . . 

instrument[s] executed on or after July 1, 1991.” Id. Therefore, a “real property interest”

in royalty proceeds from natural gas sales was vested in the Royalty Claimants by the 

leases entered with Ursa. Id. The language of the statute and the nature of the leases

establish that interest.

As the Royalty Claimants note, the statute codifies longstanding Colorado 

common law on the nature of the interest retained by lessors of land for mineral and 

geothermal resource extraction. Keller Cattle Co. v. Allison, 55 P.3d 257, 263 (Colo. 

App. 2002). 

Ursa argues that “Appellants’ argument would create a new super priority in 

bankruptcy that would surpass even that of purchase money security interests, by 

allowing contract claims to completely circumvent the bankruptcy process by claiming to 

be owners of a debtor’s operating cash.” Appellee Br. 31. But this misconstrues the 

Royalty Claimants’ position. They do not contend that any contract claim creates a 

property interest in a debtor’s operating cash. Instead, they argue that the specific oil and 

gas leases at issue created a property interest in mineral proceeds under Colorado law. 

And excluding their property from Ursa’s before the estate is parsed out is not a new 

invention in bankruptcy law; it is explicitly provided for in the code. 11 U.S.C. § 541(d).
8

The code contemplates that a debtor in bankruptcy may be holding property that 

equitably belongs to another and provides that such property should not be disbursed to 

creditors along with the debtor’s own. That is the scenario here.

Colorado law gives the Royalty Claimants a property interest in royalties on the 

leases that they granted to Ursa. The remaining question is whether the remedy of 

constructive trust is available to them in defense of that interest.

B

On that issue, we face a preliminary choice-of-law question. The Royalty 

Claimants direct us to Colorado courts’ rules for imposing a constructive trust. Ursa’s 

arguments vary between reliance on state and federal authorities. We will apply Colorado 

law.

We generally look to state law to determine the existence of a trust relationship. 

City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95 (3d Cir. 1994) (“We are satisfied 

that in determining whether a trust has been created we look to the entire body of 

germane state law, including the relevant case law.”). However, we have previously 

noted an exception to that rule when the issue before us “sufficiently implicates important 

federal interests to warrant the application of federal common law.” In re Columbia Gas 

Sys. Inc., 997 F.2d 1039, 1055 (3d Cir. 1993). In determining whether that exception is 

satisfied, we look to “(1) the need for a nationally uniform law; (2) whether incorporation 

of state law would frustrate specific objectives of the federal program at issue; and (3) the 

extent to which application of a federal common law rule would upset commercial 

expectations that state law would govern.” Id. In Columbia Gas, we chose to apply 
9

federal common law because the customer refunds at issue in that case were “created by 

an order of [the Federal Energy Regulatory Commission]”—and thus were extensively 

regulated by federal regulation—and implemented the central objective of the federal 

Natural Gas Act. Id. at 1055–56. 

In this case, we see no reason to apply our exception rather than the rule. The 

underpaid royalties are not subject to any federal statutory provision or federal regulatory 

oversight; it is Colorado law that creates the real property right in this case. Colo. Rev. 

Stat. § 38-30-107.5. So, unlike in Columbia Gas, we are not faced with any uniformity 

concerns or uniquely federal program. And because we are applying longstanding, 

precedential state law and not fashioning a new and unforeseen federal common law rule, 

the parties’ commercial expectations cannot be upset. 

Applying Colorado law, we hold that a constructive trust is a legally available 

remedy in this case. Colorado law defines constructive trusts broadly: “A constructive 

trust is a remedial device designed to prevent unjust enrichment,” and it is “imposed . . . 

because the person holding the title to the property would profit by a wrong or would be 

unjustly enriched if he were permitted to keep the property.” Mancuso v. United Bank of 

Pueblo, 818 P.2d 732, 737 (Colo. 1991) (citations and quoted source omitted). “Unjust 

enrichment occurs when[,] . . . at the plaintiff’s expense, . . . the defendant received a 

benefit . . . under circumstances that would make it unjust for the defendant to retain the 

benefit without paying.” Lawry v. Palm, 192 P.3d 550, 564 (Colo. App. 2008). “The 

doctrine of constructive trusts is extremely flexible” and is not limited to instances of 

“fraud, duress, or abuse of confidential or fiduciary relationships.” Mancuso, 818 P.2d at 
10

737–38 (specifying that those are only “some instances” where a constructive trust may 

be imposed).

A constructive trust remedy is available in this case if Ursa was unjustly enriched 

at the Royalty Claimants’ expense.2 As alleged by the Royalty Claimants, Ursa failed to 

pay the Royalty Claimants their percentage share of the natural gas proceeds, either by 

deducting costs in violation of their agreement or failing to pay royalties based on the 

sale price of natural gas at the location of the first commercial market. Ursa then retained 

those proceeds to its benefit. Because Ursa would be unjustly enriched if it were 

permitted to retain the benefit of the property that belongs to the Royalty Claimants, a 

constructive trust may be imposed.

Ursa’s arguments to the contrary are unpersuasive. Ursa first contends that the 

Royalty Claimants’ claim is for an alleged breach of contract under the leases and 

therefore, pursuant to Lawry, a constructive trust is unavailable. But Lawry in fact 

forecloses this very argument. The Colorado Court of Appeals in Lawry “disagree[d]” 

with the defendants’ argument that it was “improper . . . to impose a constructive trust . . . 

under the theory of unjust enrichment because the parties had a written contract.” 192 

P.3d at 564. The court made clear that “[a] plaintiff is entitled to recover based on the 

unjust enrichment of a defendant when the plaintiff has no alternative right under an 

enforceable contract, if justice requires.” Id.; see also, e.g., Syfrett v. Pullen, 209 P.3d 

2 The Bankruptcy Court reserved for a future hearing whether Ursa made any improper 

deductions and, if so, the amounts of those deductions as related to each Royalty 

Claimant. App. 2570–71. On remand, additional factfinding will be necessary to 

determine which if any Royalty Claimants may be entitled to a constructive trust remedy.
11

1167, 1172 (Colo. App. 2008) (imposing constructive trust for funds not otherwise 

recoverable under a written, enforceable contract). Because the Royalty Claimants have 

no such alternative rights following Ursa’s discharge pursuant to the Chapter 11 Plan, 

imposition of a constructive trust is an available remedy for any unjust enrichment.

Ursa also argues that the Royalty Claimants cannot establish the elements of 

unjust enrichment because it did not keep the funds for its own benefit but instead 

distributed them to its secured lenders. But if Ursa did keep and retain the benefit of the 

Royalty Claimants’ property for over eight years prior to filing for bankruptcy, as 

Royalty Claimants allege, the elements of unjust enrichment are satisfied even if Ursa 

later distributed the property. See Yetter Well Serv., Inc. v. Cimarron Oil Co., 841 P.2d 

1068, 1070 (Colo. App. 1992) (stating that imposing a constructive trust, including in 

instances of unjust enrichment, is “appropriate” even if “innocent third persons have 

subsequently acquired an interest in the property”). And in any event, the underpaid 

royalties were not property of Ursa’s bankruptcy estate to distribute with priority to 

secured lenders.

Although we hold that a constructive trust is an available remedy under Colorado 

law, none of this absolves the Royalty Claimants of the responsibility of identifying the 

funds that they assert to be equitably theirs. “To protect the interests of secured and 

unsecured creditors, beneficiaries of trust funds bear the burden of identifying and tracing 

their trust property.” Columbia Gas, 997 F.2d at 1063. On remand, the Royalty Claimants 

will have the opportunity to satisfy that burden. If they do so, the Bankruptcy Court shall 
12

consider whether the equitable remedy of a constructive trust is appropriate as to each 

Royalty Claimant.

C

Finally, Ursa raises the issue of the Debtor-in-Possession (DIP) Order issued by 

the Bankruptcy Court, alleging that failure to go through the DIP Order’s prescribed 

Challenge Procedure precludes any challenge to the composition of Ursa’s estate now.

The DIP Order states that “Debtors represent, stipulate, acknowledge, and agree, 

on their own behalf and their estates, and subject to Paragraph 6 of this Final Order, that 

all of the Debtors’ cash, including any cash in deposit accounts of the Debtors, wherever 

located, constitutes Cash Collateral of the Prepetition Secured Parties.” App. 575. The 

Order goes on to state that this stipulation shall be binding on all creditors and parties in 

interest “unless, and solely to the extent that, a party in interest with standing . . . 

challenges the Debtors’ Stipulations by commencing a Challenge Proceeding . . . by a 

date that is on or before . . . seventy-five (75) days following the entry of the Interim 

[DIP] Order.” App. 601.

Ursa argues that the Debtors’ stipulations are binding on the Royalty Claimants, 

the Royalty Claimants are already outside of the seventy-five-day window to initiate the 

Challenge Proceeding, and their whole effort here is estopped.

The Royalty Claimants argue a variety of reasons why they did not improperly 

ignore the orders. One is sufficient: the DIP financing facility was secured by firstpriority liens on Ursa’s assets, and those liens do not extend to property that was never 

part of Ursa’s estate in the first place. If a financing facility is a secured agreement 
13

backed by a lien on Ursa’s assets, it follows that it could not extend to what was never 

part of Ursa’s estate in the first place and therefore could not defeat a collateral challenge 

on the composition of the estate as such. See JP Morgan Chase Bank v. Altos Hornos de 

Mexico, S.A. de C.V., 412 F.3d 418, 426 (2d Cir. 2005) (“Bona fide questions of property 

ownership . . . are antecedent to the distributive rules of bankruptcy administration 

because they seek to determine whether an asset is actually part of the debtor’s estate, 

rather than deciding the entitlement of certain creditors to pieces of that estate. Property 

ownership questions thus precede distribution[.]”).

* * *

For the foregoing reasons, we will vacate the order of the District Court and 

require remand to the Bankruptcy Court for further proceedings consistent with this 

opinion.