SCOTX Clarifies Rules for Value and Common-Carrier Status of Pipeline Easements
In a test of eminent-domain standards for pipelines, the Texas Supreme Court has held that a petroleum-products pipeline’s “public use” is a legal question for judges to decide, not juries. But the court also held the landowner may testify to negotiations for other pipeline easements crossing its property “as some evidence” of the current highest and best use of the property taken.
That holding reversed the trial court’s limit on valuation testimony to the property’s agricultural use.
Terrance Hlavinka, who runs the Brazoria County family business, testified that the family’s primary purpose when acquiring tracts interlaced with easements was to sell pipeline easements. Evidence offered by the Hlavinkas showed that they recently negotiated $3.45 million for one pipeline easement and $2 million for another from other pipeline companies in private sales.
Based on this comparative evidence, the Hlavinkas calculated the property HSC Pipeline Partnership condemned had a $3.3 million fair-market value. But limited to the agriculture valuation, the trial court awarded the Hlavinkas $132,293 for the 6.4-acre easement – a strip of land 30 feet wide and nearly 1.8 miles long. That represented $108,967 for crop and surface damage and $23,326 for the easement itself.
The trial court in this case concluded HSC could condemn the property because it established its pipeline was a common carrier and transporting polymer-grade propylene for public use – a state constitutional limitation – because it was intended to transport crude oil-derived products for other companies.
The Supreme Court agreed.
The questions in the case arise from two cases that limited standards for condemning pipeline easements. The first, Denbury Green Pipeline v. Texas Rice Land Partners, decided by the Supreme Court in 2013, held a company cannot take property for a pipeline that carries only products for that company’s use. In the second case, in 2017, Denbury Green Pipeline v. Texas Rice Land Partners (Texas Rice II), the court held common use allowing condemnation can be shown by a reasonable probability that other, unaffiliated companies will use the pipeline.
But the Hlavinkas argued for an additional requirement: The manufacturer of the transported product must also have no affiliation with the pipeline owner. The Supreme Court rejected that argument.
In the case decided Friday, Hlavinka v. HSC Pipeline Partnership, the court’s unanimous opinion by Justice Jane Bland concluded public use was satisfied because the pipeline’s only customer so far, Braskem America, was not affiliated with HSC even though Braskem bought its polymer-grade propylene from a company related to HSC. And the court noted HSC negotiated with another potential customer but ultimately failed to secure a contract.
HSC owns the pipeline and Enterprise Products OLPGP Inc. is HSC’s sole managing member. Enterprise Products Operating LLC is the pipeline’s operator and also manufactures and sells polymer-grade propylene, which HSC transports. Braskem is not an Enterprise-affiliated entity, the court explained, but it purchases the polymer-grade propylene from Enterprise Products before it enters HSC’s pipeline.
The Hlavinkas sought dismissal of HSC’s suit by filing a jurisdictional plea challenging HSC’s power to exercise common-carrier eminent domain authority.
The Supreme Court reasoned that “evidence establishing a reasonable probability that the pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner” satisfies the public-use requirement.
As for valuation evidence, the court agreed with the appeals court that recent fair-market sales for easements across the property before the taking may be used to establish the “property’s highest and best use, and its market value, at the time of the taking.”
The court remanded the case to the trial court for a new trial to determine the market value of the property taken.
Of 10 amici briefs, seven were from private property-rights interests supporting the Hlavinkas. In one, Texas Realtors argued the appeals court correctly held HSC failed to meet its burden to establish public use and correctly held the landowners should be allowed to prove the value of the condemned property by comparing other easements the Hlavinkas negotiated.
In the Texas Rice cases, the court noted, the test for determining public use in context is whether a pipeline serves a public use as a matter of law if “it is reasonably probable that, in the future, the pipeline will ‘serve even one customer unaffiliated with the pipeline owner.’”
The Hlavinkas argued that the holding in Texas Rice I should be enlarged to limit pipelines for public use to those that carry products for which a pipeline or its affiliate never possess an ownership interest.
The Supreme Court held the lower court erred in its suggestion a jury must resolve the public-use issue. “This would inject substantial uncertainty into multi-parcel infrastructure development, risking inconsistent adjudications among multiple triers of fact,” the court concluded.
HSC argues that the Hlavinkas’ valuation testimony impermissibly considers enhancement to the land resulting from the pipeline itself, which violates the project-enhancement rule. “Hlavinka’s testimony, however, is not that the easement is valuable because of HSC’s interest,” the court reasoned, “… rather, it is valuable because purchasers other than HSC also value the easement’s geographic qualities — its location between industrial areas and the unsuitability of the land to the north and the south.”
The many pipelines across the property and how much paid to secure those easements, the court held, “is evidence that the land is valuable to other pipeline carriers for its intrinsic qualities, notwithstanding HSC’s decision to condemn it.”
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