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IN RE ENRON CORP.

February 13, 2004.

In re: ENRON CORP., et al., Debtors, ENTERPRISE PRODUCTS OPERATING, L.P., Appellant -against- ENRON GAS LIQUIDS INC., Appellee


The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

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.*fn1 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, Page 2 artisan, or material man.*fn2 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").*fn3 Fractionation is the process whereby Y-grade natural gas, or "Raw Make,"*fn4 is separated into its salable parts: ethane, propane, iso-butane, normal butane, natural gasoline, EP mix ethane, and EP mix propane.*fn5 The process, in simplified terms, involves the following steps. First, Enterprise takes the Raw Make and removes the contaminants Page 3 (carbon dioxide and hydrogen sulfide).*fn6 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,"*fn7 and pumped out as a "purity product."*fn8 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.*fn9

  On July 29, 1998, Enterprise entered into an agreement with EGLI whereby Enterprise provided fractionation, product treatment, and trucking and storage services ("Fractionation Page 4 Agreement").*fn10 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.*fn11 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,*fn12 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.*fn13 Enterprise then relinquished possession of the NGL Page 5 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.*fn14 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.*fn15

  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.*fn16

  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 Page 6 owing to it for fractionation and product finishing ($528,486.70), and storage and trucking services ($359,572.39).*fn17 Enterprise also sought post-petition attorneys' fees under 11 U.S.C. § 506(b).*fn18 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.*fn19

  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.*fn20 Judge Gonzalez held that a Constitutional Lien is unavailable to Enterprise Page 7 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.*fn21
[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.*fn22
  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 Page 8 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.*fn23

 II. STANDARD OF REVIEW

  A bankruptcy court's conclusions of law are reviewed de novo and its findings of fact for clear error.*fn24 Mixed questions of fact and law are generally subject to de novo review.*fn25 Because the decision of the Bankruptcy Court involves ...


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