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In re Sherwin Alumina Company, L.L.C.

United States Court of Appeals, Fifth Circuit

August 6, 2019

In The Matter Of: SHERWIN ALUMINA COMPANY, L.L.C.; SHERWIN PIPELINE, INC., Debtors
v.
SHERWIN ALUMINA COMPANY, L.L.C.; SHERWIN PIPELINE, INC., Appellees PORT OF CORPUS CHRISTI AUTHORITY, Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before HIGGINBOTHAM, SMITH, and HIGGINSON, Circuit Judges.

          PATRICK E. HIGGINBOTHAM, CIRCUIT JUDGE:

         A bankruptcy sale extinguished an easement of the Port of Corpus Christi Authority, an arm of the State of Texas. The Port initiated an adversary proceeding against the debtors, Sherwin Alumina Company and Sherwin Pipeline Incorporated, seeking to invalidate the sale and regain its easement. The bankruptcy court rejected the Port's sovereign immunity and fraud claims, and the district court affirmed. On appeal from the district court, we find no Eleventh Amendment violation or basis for a claim of fraud. We affirm.

         I.

         In 1998, the Port of Corpus Christi Authority purchased an 1, 100 acre parcel near Corpus Christi Bay in San Patricio County, Texas, adjacent to land owned by the Sherwin Alumina Company, together with an easement granting use and access to a private roadway on the Company's land known as La Quinta Road. Fifteen years later, in 2013, the Port and Sherwin Alumina Company agreed to modify the easement, giving the Port permanent nonexclusive access along a specific portion of the road and across an adjoining drainage ditch.[1] The easement provided the primary means of commercial access to the Port's parcel.

         Three years later, on January 11, 2016, Sherwin Alumina Company and Sherwin Pipeline Incorporated (collectively "Sherwin") filed voluntary petitions for Chapter 11 relief in the Bankruptcy Court for the Southern District of Texas. Sherwin also filed an initial Joint Plan for reorganization, proposing in relevant part to sell real property in the bankruptcy estate "free and clear of all Liens, Claims, charges and other encumbrances" under Section 363(f) of the Bankruptcy Code.

         The bankruptcy court approved bidding procedures. The Port bid for a part of the bankruptcy estate, a port facility that did not include the La Quinta Road parcel. The Port conditioned its bid on "an access easement . . . over Seller's private roadway known as La Quinta Road . . . if Buyer has been unable to obtain such an easement before the Closing." On April 21, 2016, the Port and other bidders participated in an auction from which Corpus Christi Alumina emerged as the successful bidder.

         In the following months Sherwin filed modified plans and associated purchase agreements in which encumbrances other than those deemed "permitted" would be stripped off the estate's property in the proposed sale, as authorized under Section 363(f) of the Bankruptcy Code. Permitted encumbrances would be defined in a future proposed confirmation order. None of these documents suggested that the Port's easement would be a permitted encumbrance.

         Sherwin filed a final proposed confirmation order in the early hours of February 17, 2017, the day of the confirmation hearing. As with previous filings, the proposed confirmation order provided that the buyer would receive the property free and clear of all encumbrances, subject to a limited exception for permitted encumbrances. In the proposed order, Sherwin defined permitted encumbrances to encompass a number of specific servitudes-not including the Port's easement-as well as "easements or encumbrances . . . recorded prior to July 1, 2009." The definition was not redlined or otherwise identified as a modification. The Port was served with the proposed confirmation order. Later that day, the bankruptcy court held a hearing on the proposed plan and confirmation order, which the Port "attended" telephonically. During the hearing, Sherwin's counsel stated that the proposed order submitted earlier that day included "extensive modifications," but that Sherwin "d[id]n't believe that they are material in any real way." The court entered the order without objection, confirming Sherwin's modified Plan. The Plan went into effect on February 27, 2017, on which date Sherwin sold its real property to Corpus Christi Alumina. On March 3, 2017, the Confirmation Order became final and non-appealable.

         On March 31, 2017, Corpus Christi Alumina sold the land encompassing La Quinta Road to Cheniere Land Holdings LLC. Cheniere notified the Port that its easement had been extinguished by the sale of the land. As the time to appeal the confirmation order had expired, the Port filed an adversary complaint with the bankruptcy court, collaterally attacking the confirmation order as having been procured by fraud, barred by the state's sovereign immunity, and a denial of due process for want of notice. The bankruptcy court dismissed the claims of fraud and sovereign immunity, and denied dismissal of the due-process claim and leave to amend. The Port appealed the dismissals and denial of leave to amend to the district court, which affirmed. This appeal followed.

         II.

         A.

         We have jurisdiction to hear the appeal of the district court's dismissals of the Eleventh Amendment and fraud claims.[2] We review cases originating in bankruptcy "perform[ing] the same function, as did the district court: [f]act findings of the bankruptcy court are reviewed under a clearly erroneous standard and issues of law are reviewed de novo."[3] At this stage, we take the well-pleaded facts as true, viewing them in a light most favorable to the plaintiff.[4] We review the denial of leave to amend for abuse of discretion.[5]

         B.

         Under the Eleventh Amendment, federal courts lack jurisdiction over "any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State, "[6] or the state's own citizens.[7] "States, nonetheless, may still be bound by some judicial actions without their consent, "[8] including a bankruptcy proceeding. Congress has the power to establish "uniform Laws on the subject of Bankruptcies throughout the United States."[9] The Supreme Court has ...


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