Summary

In an 24 page decision signed June 20, 2011, Judge Shannon of the Delaware Bankruptcy Court partially granted several parties’ motions for a continuance opposing several motions for summary judgment, holding that a motion for continuance must be analyzed before even considering a motion for summary judgment. Judge Shannon’s opinion is available here (the “Opinion”).   To those who follow this blog, I apologize that this entry is a bit out of order, but the Court occasionally publishes an opinion out of order and I haven't quite perfected time travel.

Background

On July 22, 2008, SemCrude and certain of its affiliates (the “Debtors”) filed for bankruptcy under chapter 11. Shortly prior to the Debtors’ bankruptcy filing, a large number of oil producers, including Samson Resources Company, Titan Energy, Inc., Winstar Energy I, L.P. and Loren Gas, Inc. (the “Producers”) sold and delivered millions of dollars worth of oil and gas to the Debtors. The Debtors then transferred some of that oil and gas to J. Aron & Company, BP Oil Supply Company, ConocoPhillips Company and Plains Marketing, L.P. (the “Purchasers”). The Debtors did not pay for any of the oil and gas delivered in the seven weeks before the Petition Date.

Since the Debtors’ bankruptcy filing, a number of oil producers asserted their right to payment based on statutory lien claims and trust theories of recovery. The Purchasers filed a number of declaratory judgment actions seeking declarations of the Court that their settlement with the Debtors has released them of any obligation to the oil producers on account of the oil and gas received from the Debtors. After extensive litigation, the Purchasers have moved for summary judgment in this case, seeking confirmation that the oil producers do not have any rights over the oil and gas which the Debtors sold to the Purchasers. Opinion at *10-11.

The Producers oppose the summary judgment motions, arguing that they are premature given the lack of meaningful discovery regarding the Purchasers' affirmative claims. Opinion at *12. In the alternative to their arguments supporting their motion for a continuance, the Producers argue that the motions for summary judgment should be denied.

Judge Shannon’s Opinion

Similar to Judge Walsh’s DBSI decision, discussed here: Decision in DBSI Delays Motion for Summary Judgment, Judge Shannon begins the Opinion with a discussion of Federal Rule of Civil Procedure (“FRCP”) 56 and motions for summary judgment. Judge Shannon cites to opinions which include Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986); Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508 (3d Cir. 1994); and Petruzzi’s IGA Supermarkets v. Darling-Del. Co., Inc., 998 F.2d 1224 (3d Cir. 1993). Opinion at *14-16.

Judge Shannon then turns to a discussion of the legal standard for requesting a continuance by quoting Dowling v. City of Philadelphia, 855 F.2d 136, 139 (3d Cir. 1988), which states in part, “[t]he court is obliged to give a party opposing summary judgment an adequate opportunity to obtain discovery.” Opinion at *16. FRCP 56 provides that a court may defer considering a motion for summary judgment if a nonmovant shows that it cannot present the facts essential to its opposition of summary judgment. “For this reason, courts usually grant properly filed Rule 56(f) motions as a matter of course.” Opinion at *17 quoting St. Surin v. V.I. Daily News, Inc., 21 F.3d 1309, 1314 (3d Cir. 1994). In St. Surin, the Third Circuit “stated that the court should resolve a motion requesting a continuance under Rule 56 before proceeding to the merits of a summary judgment motion.” Opinion at *18.

The Producers sought discovery regarding the affirmative defenses raised by the Purchasers, in which the Purchasers argue that they were (1) buyers for value without knowledge of the Continuance Movants’ liens and (2) buyers in the ordinary course. The Producers supported their argument that they were unable to obtain the necessary discovery with an affidavit as required by FRCP 56. Opinion at *23. Judge Shannon thus followed the precedent of the Third Circuit and granted the motion for continuance, continuing the motions for summary judgment “until more meaningful discovery has occurred….” Opinion at *23.

The Bankruptcy Rules and Federal Rules of Civil Procedure provide a number of rules that are meant to even out imbalances of power or information so that litigation is decided in as fair a way as possible. The Delaware judiciary also has shown a preference for allowing parties an opportunity to litigate their claims, so long as they can do so within the bounds of the rules.