March 10, 2012

Texas Landowners' Easement Rights Case Clarified by Texas Supreme Court

Readers may recall that last year the Supreme Court of Texas issued an opinion with profound implications for the rights of Texas landowners when they are faced with a request for a pipeline or utility easement. In Texas Rice Land Partners Ltd. and Mike Latta v. Denbury Green Pipeline-Texas LLC, issued on August 26, 2011, the Court addressed the issue of the requirements a pipeline company must meet in order to be deemed a common carrier and thus be entitled to use the power of eminent domain. My discussion of the original opinion can be found here.

In its original decision, the Court limited the eminent domain powers of pipeline companies, stating that they must show more than that the pipeline could be used by others, aside from the company building the pipeline, at some indefinite point in the future. In addition, the Court held that a permit issued by the Texas Railroad Commission, which was previously assumed to confer common carrier status (and thus eminent domain power), no longer has this effect. This decision, therefore, shifts the burden onto the pipeline company to prove that it meets the requirements to be classified as a common carrier. The Court’s decision gives vastly more power to landowners, and the case is likely to impact the attitude of all pipeline and utility companies negotiating with landowners for easements and rights of way.

In an opinion last Friday, the Supreme Court not only denied Denbury Green Pipeline's motion for rehearing, but Court also clarified its previous judgment in significant ways. In stating that a company cannot wield the power of eminent domain for a private oil or gas pipeline, the Court added that "private" means a pipeline that is limited in its use to wells, stations, plants, and refineries of the owner. The Court went on to say that a “common carrier” means that the company is transporting gas for hire and therefore implies more customers for the gas than the owner of the pipeline. In other words, the pipeline cannot be built for the owner’s exclusive use and still be a common carrier.

In this second decision, the Supreme Court affirmed its prior determination that Denbury’s pipeline was for private use only. It found that this pipeline would not serve a public use by transporting gas only from one Denbury property to another Denbury property. The Court also cited an absence of compelling legislative findings and or a sufficient public purpose in support of its conclusion that this pipeline was private. Finally, the Court stated that for an entity planning to build a CO2 pipeline to qualify as a common carrier under Texas Natural Resources Code Section 111.002(6), there must be a “reasonable probability” that at some point in the future the pipeline will serve the public by transporting gas for more than one customer that will either use the gas or sell it to someone other than the pipeline carrier.

While acknowledging that pipeline construction and the Texas energy industry are important to maintain Texas' economic growth, both the Court's original decision and the substituted opinion denying Denbury's motion for rehearing echo hundreds of years of legal and Constitutional precedent protecting individual property rights as a cornerstone of our government. The Court noted that Texas protects landowner rights even more strongly than neighboring states, and it should take more than simply checking a box on a government form to confer common carrier status and all that goes with it, all without a right of judicial review.

See Our Related Blog Posts:

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

Texas Supreme Court Decision Impacts Texas Oil and Gas Pipeline Negotiations

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