In re Enron Corp., 03 Civ. 7145(SAS).

• Decision Date: 17 February 2004
• Docket Number: No. 03 Civ. 7145(SAS).,03 Civ. 7145(SAS).
• Citation: 306 B.R. 33
• Parties: In re ENRON CORP., et al., Debtors, Enterprise Products Operating, L.P., Appellant, v. Enron Gas Liquids Inc., Appellee.
• Court: U.S. Bankruptcy Court — Southern District of New York

306 B.R. 33

In re ENRON CORP., et al., Debtors Enterprise Products Operating, L.P., Appellant, v. Enron Gas Liquids Inc., Appellee.

No. 03 Civ. 7145(SAS).

United States District Court, S.D. New York.

February 17, 2004.

Martin J. Bienenstock, Brian S. Rosen, Weil, Gotshal & Manges LLP, New York City, Gregory S. Coleman, Christian J. Ward, Weil, Gotshal & Manges LLP, Austin, Texas, for Debtor and Appellee.

David A. Rosenzweig, Fulbright & Jaworski, LLP, New York City, Zack A. Clement, R. Andrew Black, Fulbright & Jaworski, LLP, Houston, Texas, for Appellant.

OPINION AND ORDER

SCHEINDLIN, District Judge.

Enterprise Products Operating, L.P. ("Enterprise") appeals from the order of the Bankruptcy Court (Gonzalez, J.) denying Enterprise's request for a self-executing lien pursuant to article XVI of the Texas Constitution.¹ At the heart of this dispute is Enterprise's claim for $528,486.70 in unpaid fractionation services provided to Enron Gas Liquids, Inc. ("EGLI"). The Bankruptcy Court concluded that Enterprise was not entitled to a Constitutional Lien because it is not a mechanic, artisan, or material man.² Enterprise brings this appeal pursuant to Federal Rules of Bankruptcy Procedure 8001(a) and 8002(a), and 28 U.S.C. § 158(a). For the reasons set forth below, the Bankruptcy Court's decision is affirmed.

I. BACKGROUND

The following facts are based on the record designated by the parties and the findings of the Bankruptcy Court.

A. Events Leading to Bankruptcy Proceedings

Enterprise is a Texas-based energy company that specializes in the fractionation, transportation, and storage of natural gas liquids ("NGLs").³ Fractionation is the process whereby Y-grade natural gas, or "Raw Make,"⁴ is separated into its salable parts: ethane, propane, iso-butane, normal butane, natural gasoline, EP mix ethane, and EP mix propane.⁵ The process, in simplified terms, involves the following steps. First, Enterprise takes the Raw Make and removes the contaminants (carbon dioxide and hydrogen sulfide).⁶ Second, the Raw Make is run through the first fractionation tower (the deethanizer). The tower is heated, causing the ethane to rise and come into contact with a liquid that runs along the top of the column. The ethane is then "condensed in the overhead using about 10,000 horsepower refrigerators running at about 20 degrees,"⁷ and pumped out as a "purity product."⁸ Third, the remaining mixture is run through a series of fractionation towers, each removing different NGLs through similar vaporization/condensation processes. Enterprise operates this system continuously (i.e., twenty-four hours per day, seven days per week), employing engineers responsible for setting the controls and parameters, and technicians responsible for monitoring the process, which, owing to the high heat and substances involved, is dangerous.⁹

On July 29, 1998, Enterprise entered into an agreement with EGLI whereby Enterprise provided fractionation, product treatment, and trucking and storage services ("Fractionation Agreement").¹⁰ Under the Fractionation Agreement, EGLI delivered Raw Make to Enterprise's oil and gas processing and storage complex in Mont Belvieu, Texas ("Mont Belvieu Complex"), where Enterprise fractionated it.¹¹ Enterprise then treated, stored, and eventually transported these NGLs, as directed by EGLI.

On December 2, 2001, Enron Corp. and certain of its affiliated debtor entities, including EGLI, filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. At that time, Enterprise had issued invoices to EGLI for pre-petition fractionation and treatment services totaling $528,486.70.¹² Enterprise continued to store NGLs for EGLI until November 2002, when the Bankruptcy Court authorized the sale of those NGL inventories pursuant to section 363 of the Bankruptcy Code.¹³ Enterprise then relinquished possession of the NGL inventories to be sold on the market by EGLI. Under the Sale Order, these NGLs were to be sold "free and clear" of liens. Any liens were to attach only to the proceeds of that sale.¹⁴ The Sale Order set forth procedures for determining lien amounts, pursuant to which Enterprise was required to provide EGLI with written notice of its lien claims within thirty days of the Sale Order.¹⁵

On December 21, 2002, Enterprise notified EGLI of the following lien claims: (1) statutory liens of $359,572.39 for storage and trucking charges ("Trucking and Storage Lien Claim") and (2) a Constitutional Lien of $528,486.70, relating to the fractionation and product treatment/finishing charges ("Fractionation and Product Treatment Lien Claim"). EGLI acknowledged Enterprise's Trucking and Storage Lien Claim, but disputed the Fractionation and Product Treatment Lien Claim.¹⁶

B. The Bankruptcy Court Proceedings

On February 10, 2003, Enterprise filed a motion for resolution of the dispute arising under the Sale Order. Specifically, Enterprise sought an order directing EGLI to pay Enterprise $888,059.09 from the NGL inventories sale proceeds owing to it for fractionation and product finishing ($528,486.70), and storage and trucking services ($359,572.39).¹⁷ Enterprise also sought post-petition attorneys' fees under 11 U.S.C. § 506(b).¹⁸ Because EGLI acknowledged the validity of the Trucking and Storage Lien Claim, the sole issues before the Bankruptcy Court were (1) the validity of the Fractionation and Product Treatment Lien Claim and (2) Enterprise's rights, if any, to post-petition attorneys' fees. Enterprise argued that it was entitled to the Fractionation and Product Treatment Lien Claim under article XVI, section 37 of the Texas Constitution, which provides for a self-executing lien for mechanics, artisans, and material men upon the articles made by them, for the value of their labor.¹⁹

The Bankruptcy Court heard oral argument on the motion on April 3, 2003, and subsequently issued an opinion and order denying both the Fractionation and Product Treatment Lien Claim and Enterprise's request for attorneys' fees.²⁰ Judge Gonzalez held that a Constitutional Lien is unavailable to Enterprise because Enterprise is not a mechanic, artisan, or material man. Specifically, Judge Gonzalez stated:

Although certain Enterprise employees might make use of tools and engage in the performance of manual labor, it is Enterprise's engineering acumen and ability to engage in highly technical, complex processes that lie at the core of Enterprise's business. Although Enterprise might be considered to be employed in the energy "industry," the Court finds that Enterprise's scientific and engineering sophistication, coupled with its sheer size, bring the company's operations beyond the scope of an "industrial or mechanic art or trade" as such terms are used in the definition of artisan. Finally Enterprise is not trained for manual dexterity in some mechanic art or trade.²¹

[I]t is Enterprise as a company that is attempting to secure a Constitutional Lien, not those Enterprise employees who might qualify as artisans or materialmen on an individual basis.... [I]t is not clear ... that Enterprise's technicians would qualify as artisans or materialmen as such terms are used in the Constitutional Lien. However, even if those skilled technicians were judged to be artisans and materialmen, employing workers who might be eligible for a Constitutional Lien on an individual basis would not be sufficient to make Enterprise as a company either an artisan or a materialman.... Even if certain of Enterprises technicians would qualify as artisans or materialmen, Enterprise as an entity does not.²²

Judge Gonzalez also denied Enterprise's request for post-petition attorneys' fees. He noted that section 506(b) does not allow for fees in the absence of an agreement between the parties providing for such fees. Because the Trucking and Storage Lien was not created pursuant to agreement between the parties and the Fractionation and Product Treatment Lien was deemed invalid, the Court held there was no contractual basis upon which to award fees.²³

II. STANDARD OF REVIEW

A bankruptcy court's conclusions of law are reviewed de novo and its findings of fact for clear error.²⁴ Mixed questions of fact and law are generally subject to de novo review.²⁵ Because the decision of the Bankruptcy Court involves mixed questions of fact and law, it is subject to de novo review.

III. DISCUSSION

A. The Constitutional Lien

1. Legal Standard

a. The Constitutional Lien Generally

Article XVI, section 37 of the Texas Constitution provides, in relevant part:

Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.²⁶

The Texas Supreme Court has counseled that when interpreting the Texas Constitution, courts should "rely heavily on the plain language of the Constitution's literal text."²⁷ Courts may consider "the purpose of the constitutional provision, the historical context in which it was written, the collective intent ... [of] the people who adopted it, prior judicial decisions, the interpretations of analogous constitutional provisions by other jurisdictions, and constitutional theory."²⁸ "Since the constitution is an instrument adopted by the people generally before it has any vitality, the words employed are to be interpreted as people generally understood them."²⁹

The Fifth Circuit has remarked that "it is apparent that the Texas courts give a liberal construction to the provision of the Constitution, in an effort to give effect to its manifest intent."³⁰ The intention of the framers of the Texas Constitution was "to give full and ample security to all mechanics, artisans, and material men for labor performed and material furnished for the erection of all buildings," and by that reasoning, for the making and repair of...