Thomas J. Forestier, Jamie Lavergne Bryan, and Larence M. “Trey” Lansford III 2016-02-26 13:01:43
An update on eminent domain law. Texas is widely recognized for its rich history of oil and gas production. In recent years, new technologies in hydraulic fracturing and horizontal drilling have led to even more oil and gas development throughout the state. Currently, Texas has the largest network of pipelines in the country, and the energy sector’s importance to the Texas economy can hardly be questioned. The ability of pipeline companies to acquire easements for pipeline construction and operations is critical to the energy industry, but it sometimes leads to conflict with landowners who champion Texas’s long-standing history of protecting private-property rights. To support both of these interests, the Legislature, the courts, and the Texas Railroad Commission have sought statutory, caselaw, and regulatory changes to provide more transparency to the state’s eminent domain process. Some of these changes, however, have led to more litigation or have left unresolved questions that invite future litigation and further reform. Overview of Condemnation Procedure Unlike other civil litigation matters, condemnation is a two-part process: an administrative phase and, if necessary, a judicial proceeding.(1) The administrative phase commences with the filing of the petition.(2) The court must appoint three “special commissioners” (disinterested real property owners residing and owning land in the county) who will set a hearing to determine the amount of compensation owed to the landowner.(3) During the administrative phase, the trial court has limited authority beyond the appointment of special commissioners.(4) After the special commissioners issue their award, either party may file objections with the trial court.(5) If neither party objects, the court must enter a judgment conforming to the award and is without jurisdiction to do otherwise.(6) Only when a party objects to the award will the administrative proceeding become a judicial one, which is tried “in the same manner as other civil causes.”(7) Nevertheless, the condemning entity may obtain possession pending the continuing litigation by complying with certain statutory requirements.(8) Legislative Changes in 2011: The Bona Fide Offer Chapter 21 of the Texas Property Code lists some prerequisites to filing a condemnation action, such as the “unable to agree” requirement, which requires the landowner and the condemning entity to be unable to agree on the appropriate amount of compensation.(9) In 2004, the Texas Supreme Court in Hubenak v. San Jacinto Gas Transmission Co.(10) addressed a split in the courts of appeals regarding the pre-Senate Bill 18 “unable to agree” prerequisite to filing suit. It held that the provisions of section 21.012 of the Property Code—containing the requirements for a petition in condemnation—were not jurisdictional.(11) The Texas Legislature dramatically amended Chapter 21 in 2011 when it passed Senate Bill 18.(12) The bill added several new procedural requirements that must also be satisfied before a condemning entity can initiate a condemnation action. Most notable was the new “bona fide offer” requirement. (13) Before filing suit, a condemning entity must send an initial written offer, and then, after 30 days, a final written offer accompanied by the Landowner’s Bill of Rights prepared by the Texas Attorney General’s Office and a written appraisal report supporting the amount of compensation offered.(14) Although SB 18 was enacted more than four years ago, very little caselaw has emerged on its bona fide offer requirement or other provisions. Until recently, no court had attempted to reconcile Hubenak ’s holding with the new SB 18 requirements. In an issue of first impression, the 14th Court of Appeals in Houston recently held in City of Rosenberg v. State that the 2011 amendments do not undermine Hubenak and that the Hubenak analysis should logically extend to the statutory bona fide offer requirement.(15) The Eminent Domain Registration Bill of 2015 During the 2015 session, the Legislature amended Chapter 2206 of the Texas Government Code to create a continually updated Internet database, to be maintained by the Texas comptroller, containing certain information on each entity claiming eminent domain power within the state of Texas.(16) An entity claiming eminent domain power must have provided the requested information to the comptroller by February 1, 2016, and then must update the comptroller annually.(17) While the new registration requirement will provide a resource for landowners facing condemnation, it is noteworthy that an entity’s noncompliance with the statute will not affect its eminent domain authority.(18) Right-to-Take Challenges: Defining a “Common Carrier” Common carriers in Texas are granted the statutory right to enter upon and condemn the property of any person or corporation necessary for the construction, maintenance, or operation of the common carrier’s pipeline.(19) One of the most active areas in eminent domain litigation in recent years has concerned the condemning entity’s common-carrier status. In March 2012, the Texas Supreme Court issued a landmark opinion in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, which concerned a challenge to the eminent domain authority of a carbon dioxide pipeline.(20) The court determined that a Railroad Commission permit and a filed tariff setting transportation rates are alone insufficient to prove common-carrier status as a matter of law. Instead, the court announced a new test: “[A] reasonable probability [defined as more likely than not] must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.”(21) In contrast, a pipeline is not a common carrier if it will only transport gas for itself or for a “corporate parent or affiliate.”(22) While the court expressly limited its ruling to carbon dioxide pipelines, pipeline project opponents have sought to apply the “reasonable probability” test to other common-carrier pipelines.(23) Texas Rice left several questions unanswered. First, who is an “affiliate” of a pipeline operator? In a concurring opinion on the denial of a second motion for rehearing in Texas Rice, Justice Dale Wainwright recognized that the court’s opinion lacked guidance on whether “corporate parent or affiliate” includes third parties retaining ownership of product flowing through the pipeline or buying product at the tailgate.(24) In the end, the court left the affiliate issue to the Legislature to resolve. Until it does, litigation remains likely. Second, how should courts apply the reasonable probability test to condemning entities? At least three appellate opinions have addressed the issue since Texas Rice .(25) Even the Texas Rice litigants are returning to the Texas Supreme Court to present the issue. There, the trial court found, on remand, that the condemning entity, Denbury Green, had sufficiently proven its common-carrier status as a matter of law. The 9th Court of Appeals in Beaumont reversed, applying new standards for common carriers.(26) The Texas Supreme Court recently asked for full briefing on the merits. Right-to-take issues will likely remain a ripe source of litigation until further clarification. Valuation Issues Recent opinions upholding large jury verdicts in partial-takings cases add more uncertainty for condemning entities. Although the Texas Supreme Court’s 2001 opinion in City of Harlingen v. Estate of Sharboneau(27) prohibits fact-finders from considering hypothetical future development or speculative use in calculating the value of the property and potential damages to the remainder, trial courts have recently entered judgments based on such testimony.(28) Further, landowners’ appraisers are using paired-sales analyses—studies of properties that are not necessarily comparable to the subject property—to propose a range of potential damages to the remainder that are much greater than the compensation for the actual property interest taken.(29) This continuing trend of allowing damages based on speculative use or studies of dissimilar properties creates more uncertainty for the oil and gas industry as it plans and budgets for future infrastructure projects. The Texas Railroad Commission’s New T-4 Permit Application The application process for a Railroad Commission T-4 permit prior to pipeline construction has likewise become more onerous. The new process, effective March 2015, addresses the “rubber stamp” criticism of the Texas Rice opinion—i.e., that the Railroad Commission approved applications for permits with no investigation or documentary support. Rule 3.70 now requires that all new permit applications be accompanied by a sworn statement from the pipeline applicant providing a factual basis supporting the classification and purpose being sought for the pipeline and, if applicable, an attestation to the applicant’s knowledge of the eminent domain provisions in Chapter 21 of the Texas Property Code and the Landowner’s Bill of Rights.(30) The new rule also requires documentation supporting the pipeline classification and purpose sought, along with any other information requested by the Railroad Commission.(31) New permits must be renewed annually.(32) What “other information” may be “requested” by the Railroad Commission, and how courts will characterize the Railroad Commission’s application process in right-to-take disputes, remains to be seen. Conclusion As oil and gas development and transportation continue throughout the state, the pipeline industry will occupy a prominent place in Texas litigation. Changes brought about by the Legislature, courts, and regulatory agencies since 2011 have set the stage for increased disputes in the area of eminent domain. As oil and gas infrastructure projects continue to proceed, these issues will affect the pipeline companies as well as the property owners. Notes Amason v. Natural Gas Pipeline Co., 682 S.W.2d 240, 241-42 (Tex. 1984). In re Energy Transfer Fuel, LP, 250 S.W.3d 178, 181 (Tex. App.—Tyler [12th Dist.] 2008, orig. proceeding). Id.; Tex. Prop. Code Ann. § 21.014 (West Supp. 2014). In re Energy Transfer Fuel, 250 S.W.3d at 181; Tex. Prop. Code Ann. § 21.014. Tex. Prop. Code Ann. § 21.018 (West 2004). Id. § 21.061 (West 2000). Id. § 21.018(b). Id. § 21.021 (West 2004). Id. § 21.012 (West Supp. 2014). 141 S.W.3d 172 (Tex. 2004). Id. at 191. Act of May 19, 2011, 82d Leg., R.S., ch. 81, §§ 7-19, secs. 21.0111-.103, 2011 Tex. Gen. Laws 81. Tex. Prop. Code Ann. § 21.0113 (West Supp. 2014). Id. No. 14-15-00745-CV, 2015 Tex. App. LEXIS 10485, *2-5 (Tex. App.—Houston [14th Dist.] Oct. 13, 2015, no pet.). Act of June 19, 2015, 84th Leg., R.S., S.B. 1812, § 1 (to be codified at Tex. Gov’t Code §§ 2206.151-157). Id. Id. Tex. Nat. Res. Code Ann. § 111.002 et seq. 363 S.W.3d 192 (Tex. 2012); see Tex. Nat. Res. Code Ann. § 111.002(6) (West 2011). 363 S.W.3d at 202. Id. at 200 n. 23. E.g., Crosstex NGL Pipeline, L.P. v. Reins Rd. Farms-1, Ltd., 404 S.W.3d 754, 761 (Tex. App.—Beaumont [9th Dist.] 2013, no pet.) (citing Tex. Rice, 363 S.W.3d at 202 n. 28). Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 381 S.W.3d 465, 466-67 (Tex. 2012) (Wrainwright, J., concurring). See Crosstex, 404 S.W.3d 754 (NGL pipeline); Crawford Family Farm P’ship v. Trans Canada Keystone Pipeline, L.P., 409 S.W.3d 908 (Tex. App.—Texarkana [6th Dist.] 2013, pet. denied) (crude pipeline); Rhinoceros Ventures Grp., Inc. v. TransCanada Keystone Pipeline, L.P., 388 S.W.3d 405 (Tex. App.—Beaumont [9th Dist.] 2012, pet. denied) (crude pipeline). See Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 457 S.W.3d 115, 120-22 (Tex. App.—Beaumont [9th Dist.] 2015, pet. filed). 48 S.W.3d 177, 183-85 (Tex. 2001). See, e.g., Crosstex DC Gathering Co., J.V. v. Button, No. 02-11-00067-CV, 2013 Tex. App. LEXIS 683 (Tex. App.—Fort Worth [2nd Dist.] Jan. 24, 2013, no pet.) (mem. op.). See LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. App.—San Antonio [4th Dist.] 2010, pet. denied). 16 Tex. Admin. Code § 3.70(b) (2015). Id. Id. § 3.70(a). TOM FORESTIER is a shareholder in Winstead’s Commercial Litigation Practice Group and Energy Law Practice Group with experience in representing pipeline companies and other energy companies, banks and other lending institutions, television stations and other media entities, condemning authorities, landowners and developers, and insurance companies. He has represented local, regional, national, and international clients in complex litigation in state and federal courts throughout the country in matters involving breach of contract claims, business tort claims, defamation and libel claims, invasion of privacy claims, eminent domain, and condemnation. JAMIE LAVERGNE BRYAN is a shareholder in Winstead’s Energy Law Practice Group, maintaining a diverse litigation practice focusing on energy-related litigation, financial services litigation, and complex business disputes. She also counsels clients on land use, policy issues, and litigation avoidance. TREY LANSFORD is an associate in Winstead’s Energy Law Practice Group. He represents pipeline companies, energy transmission companies, condemning entities, and upstream oil and gas companies in complex litigation in state and federal courts.
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