Alert: "Easement Rights Eliminated in Bankruptcy"

Recently, the Fifth Circuit Court of Appeals heard argument in Port of Corpus Christi Authority v. Sherwin Alumina Company, LLC, No. 18-40557.  If you possess valuable easements, this is a case worth following.

As alleged by the Port of Corpus Christi Authority (the “Port”), the Port obtained a road easement from Sherwin Alumina Company, LLC (“Sherwin Alumina”) on its real property.  The easement was filed of record.   Sherwin Alumina later filed for Chapter 11 bankruptcy, and as a debtor in bankruptcy, Sherwin Alumina sought to sell its real property free and clear of all liens, claims, and other encumbrances, except as otherwise provided.  Sherwin Alumina then sold the property pursuant to a confirmed bankruptcy plan of reorganization.  The Port was later informed that the confirmed bankruptcy plan had stripped the Port of its easement.  The Port then filed a complaint, seeking revocation of the confirmation of that plan.

On subsequent appeal to the district court, the district court held that the bankruptcy court could eliminate the Port’s easement as part of the bankruptcy sale.  The district court’s order is on appeal to the Fifth Circuit. 

In the meantime, if a company that owns property subject to its easement files for bankruptcy, it should consult with counsel to ensure its easement rights are adequately protected.