January 13, 2012

New Ammunition for Negotiation of Oil and Gas Pipeline Easements for Texas Property Owners

A recent decision by a Texas Court of Appeals may be helpful to Texas property owners who are negotiating an oil and gas pipeline right of way or easement on their property. In its opinion rendered in LaSalle Pipeline LP v. Donnell Lands LP, the Texas Fourth Court of Appeals in San Antonio upheld a jury award to a Texas landowner of $604,950.00 for dimunition in value to approximately half of the landowner's 8034 acre ranch in McMullen County, Texas.

951423_alaskan_pipeline_2.jpg LaSalle, the pipeline company, enjoyed the right of eminent domain, or condemnation, of the right of way for its pipeline, because the pipeline it was laying was intended to be a common carrier. However, LaSalle offered the landowner nothing for for the decrease in value to the Donnell's land due to the 16" gas pipeline stretching across almost five miles of their property.

At trial, the Donnell's expert witness, (an M.A.I. appraiser who specialized in farm and ranch land appraisals), testified that he believed the first tract involved would suffer a 10% decrease in value due to the pipeline, and that the second, smaller, tract, would experience a 25% decrease in value. He arrived at his figures by comparing sales of similiar land, with and without pipelines, both in McMullen County and nearby Webb County. The Donnell's expert testified that the landowner was due $902,255.00 in damages, consisting of dimunition in value damages, payments for the right of way itself and the temporary workspace damages. The landowner also testified about why he believed the pipeline would decrease the value of his property. These reasons included: 1) the pipeline would be there forever, and would always be a "black mark" on his land; 2) the pipeline cut right through the middle of his property; 3) the pipeline owner and operator would have permanent access to come and go whenever they wanted; and 4) the pipeline easement could be freely assigned to any other company.

This last reason is especially important. No one can guarantee that the right of way will not be assigned in the future to a company who is less than diligent in doing maintenance, or who is less than careful with the adjoining land, than the current pipeline company.

LaSalle appealed the jury award to the Fourth Court of Appeals in San Antonio. The Court of Appeals made a small adjustment to the temporary workspace damages, but otherwise upheld the jury's verdict and the damage award. LaSalle will no doubt appeal to the Texas Supreme Court.

I'd say that the pipeline company brought this result on themselves, by refusing to offer the landowner any dimunition in value damages (also called "remainder damages") and by taking the position both in the trial court and in the Court of Appeals that the pipeline did not create any damage to the rest of the landowner's property. That is a pretty arrogant, and ultimately, self-defeating attitude.

The Fourth Court of Appeals was not creating new law in this decision. They relied on established Texas law. I never want to be in the position of predicting how the Texas Supreme Court will decide something, but if I was a betting woman, I'd bet that the Texas Supreme Court will uphold this decision.

The pipeline industry is already complaining that this decision injects "uncertainty" into the process of obtaining pipeline easements. What a strange, and frankly, groundless, argument. First, real estate appraisers have been calculating, and Texas courts and juries have been deciding, these kind of damages for many decades. Secondly, landowners have a right to dimunition in value damages because they have a right to be fairly compensated for all damages caused by pipelines and utility lines.

I'm not going to apologize if this next statement sounds naive to you. There is a moral issue here. Sometimes it seems like the pipeline companies are observing that "other" Golden Rule (the one that says "He who's got the gold, makes the rules") rather than the real Golden Rule: "Do unto others as you would have them do unto you". There is also a practical side to this: pipeline companies might find property owners a whole lot easier to negotiate with if the companies are truly fair to the owners. I suspect that a whole lot more right of way can be acquired a lot more quickly and at a lot less cost that way.

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