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United States District Court, S.D. New York

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


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.


  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


  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 mixed questions of fact and law, it is subject to de novo review.


  A. The Constitutional Lien

  1. Legal Standard

  a. The Constitutional Lien Generally

  Article XVI, section 37 of the Texas Constitution provides, in relevant part: Page 9


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.*fn26
  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."*fn27 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."*fn28 "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."*fn29 Page 10

  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."*fn30 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 all "articles."*fn31 Courts in Texas have long held the Constitutional Lien to be self-executing, which means that the lien-holder's protection is automatic — he is not required to give notice or record his lien to perfect his interest.*fn32 In that sense, the Constitutional Lien provision is unique and grants lien-holders a valuable remedy.*fn33 Page 11

  b. Limitations on the Constitutional Lien

  There are several limitations on the scope of the Constitutional Lien.*fn34 Of paramount importance in the instant appeal is the limitation upon those to whom the lien is available — it only extends to " [m]echanics, artisans and material men, of every class."*fn35

  Texas courts have provided little guidance as to the meaning of the terms "[m]echanics, artisans and materialmen"*fn36 and often find a lien-holder qualifies under more than one category. For instance, the question before the court in Warner Memorial University v. Ritenour was: "Is a plasterer who works for a daily wage a mechanic or artisan, within the meaning of Page 12 those words as employed in said constitutional provision?"*fn37 The court set forth separate definitions for the words "artisan" and "mechanic" but concluded, "We think a plasterer comes clearly within the definition of an artisan or mechanic."*fn38

  In part because courts have generally discussed the terms "artisan" and "mechanic" interchangeably, the term "artisan" for purposes of the Constitutional Lien has been left largely undefined. But at least one court has described an "artisan" as "one skilled in some mechanical craft; one who is employed in an industrial or mechanic art or trade," or "one trained for manual dexterity in some mechanic art or trade."*fn39 Thus, sign painters are considered "artisans."*fn40

  Corporations, as well as individuals, can qualify for Page 13 the Constitutional Lien. There are no reported cases in which a corporation claiming artisan status has been denied a Constitutional Lien simply because it is a business entity, not a natural person. In addition, courts have implied that corporations claiming material man status are entitled to the protection of the Constitutional Lien.*fn41 Page 14

  2. Analysis

  Enterprise argues that it is entitled to a lien under the Texas Constitution because it is an artisan that made (fractionated and finished) articles (salable NGLs). The Bankruptcy Court disagreed, finding that Enterprise is not an "artisan" because (1) Enterprise is a company, not a laborer*fn42 and (2) the use of manual dexterity does not define Enterprise's activities because although some of its employees might use tools and perform manual labor, the core of its business lies in its technical complexity and engineering capabilities.*fn43

  Enterprise challenges the Bankruptcy Court's findings on two principal grounds.*fn44 First, Enterprise argues that the Page 15 Bankruptcy Court erroneously found that a corporation or other limited liability entity is not entitled to a Constitutional Lien.*fn45 Second. Enterprise submits that the Bankruptcy Court incorrectly focused solely on "manual labor" in defining the term "artisan" for purposes of the Constitutional Lien.*fn46 Because Enterprise does not challenge the Bankruptcy Court's finding that Enterprise is not a "mechanic" or a "material man," I do not address these issues.*fn47 Page 16

  a. Corporations As Artisans

  A corporation can qualify for a Constitutional Lien.*fn48 EGLI makes much of Enterprise's failure to cite "a single case in which a Texas court has recognized a business entity as an `artisan' entitled to the constitutional artisan's lien."*fn49 But, as noted in the preceding section, there are very few cases in which an artisan's Constitutional Lien has been granted to anyone — whether a business entity or a natural person. Most Constitutional, Lien cases involve material men.*fn50 A material man lien has been granted to corporations, as well as natural persons.*fn51 Page 17 There is no basis for withholding the artisan's Constitutional Lien from a party simply because it is a business entity, rather than a natural person. To the contrary, under certain circumstances denial of artisan status to a business entity would be inconsistent with both the plain meaning of the Constitutional Lien, which does not define artisan as a "natural person" and the purpose of the Constitutional Lien, which is to protect Texas laborers. Limiting eligibility for the lien to natural persons would leave those workers unprotected.*fn52 For instance, the Ambrose court found that plaintiff-builders were entitled to a lien as artisans or mechanics for the value of their labor performed in the construction of a pier. Ambrose involved two individuals working together, but had they been organized as a "business entity," should that label have deprived them of artisan's or mechanic's status? Narrowing the scope of the Constitutional Lien by precluding corporations from claiming "artisan" status while permitting them to be "material men" is Page 18 unwarranted.*fn53

  b. "Manual Labor" As a Requirement for Artisan Status

  An "artisan" is "one skilled in some mechanical craft; one who is employed in an industrial or mechanic art or trade"; or "one trained for manual dexterity in some mechanic art or trade."*fn54 As noted in the preceding section, Texas courts have found sign painters, plasterers, and pier builders to be Page 19 "artisans."*fn55 Additionally, the usual and ordinary meaning of "artisan" encompasses persons such as carpenters, plumbers, tailors, and mechanics.*fn56 What distinguishes these "artisans" from "rocket scientists" is the kind of skill that they employ.*fn57 Artisans employ skills requiring some degree of manual dexterity.

  Enterprise argues that the 7/15/03 Order incorrectly superimposes a requirement of "manual labor" onto the Texas Constitution. As defined by Enterprise, the phrase "manual labor" means the use of "hands" or "hand tools" as opposed to the use of "machinery."*fn58 This definition of "manual labor," of course, is distinguishable from "manual dexterity," which refers to adroitness.*fn59 "Manual labor" is not a requirement for artisan status. Just as a skilled laborer using hand tools to create an article can be deemed an artisan, a laborer (e.g., a tailor or a machinist operating a lathe) using machines to accomplish a similar task can also be an artisan. But where the primary "inputs" to production of an object are raw materials and capital (machines) and the laborer serves only an ancillary (e.g., Page 20 supervisory) purpose, there is little, if any, need for the laborer's skills or manual dexterity. In that case, to confer artisan status upon the producer would go beyond the ordinary meaning of the word "artisan."

  Enterprise's failure to qualify as an artisan has nothing to do with the fact that NGL production involves machinery. Enterprise is not an artisan because "it is the technical facilities themselves . . . that ultimately bring about the production of the NGLs."*fn60 The word "artisan," as generally understood, does not encompass a provider of fractionation services, such as Enterprise, whose laborers' primary function is to set the controls and parameters, and "monitor" what is essentially an automated, mechanized process.*fn61

  c. Summary of Constitutional Lien Issues

  To the extent that the Bankruptcy Court implied that a corporation cannot obtain a Constitutional Lien, it was in error. However, the Bankruptcy Court correctly held that Enterprise is not an artisan because the process of fractionation is defined not by the manual dexterity of Enterprise's skilled laborers, but by capital equipment and technical facility. Because Enterprise is not an artisan within the meaning of article XVI, section 37, it is not entitled to a self-executing lien on the sale proceeds Page 21 from the NGLs.

  B. Attorneys' Fees

  1. Legal Standard

  Section 506(b) of the Bankruptcy Code states:

To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.*fn62
  To recover attorneys' fees under section 506(b), a creditor must establish: (1) that its claim is over-secured in excess of the fees requested; (2) that the fees are reasonable; and (3) that the agreement giving rise to the claim provides for attorneys' fees.*fn63 A party failing to meet any of these requirements is not entitled to recovery. For example, unless the underlying agreement provides for attorneys' fees, such fees are not recoverable pursuant to section 506(b).*fn64 Page 22

  2. Analysis

  Although Enterprise disputes the Bankruptcy Court's denial of reimbursement for "reasonable attorneys' fees" pursuant to section 506(b),*fn65 Enterprise failed to brief this issue.*fn66 I agree with the findings of the 7/15/03 Order, which are summarized as follows:

  Since fees, costs and charges are not allowable under § 506(b) in the absence of a contractual entitlement, and given that the Trucking and Storage Lien was not created, and that a valid Fractionation and Product Treatment Lien claim would not be created, pursuant to an agreement between the parties, post-petition attorneys' fees are unavailable to Enterprise under § 506(b),*fn67 Page 23


  For the foregoing reasons, the decision of the Bankruptcy Court is affirmed. The Clerk of the Court is directed to close this motion and this case.

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