Supreme Court Says Pipeline Companies Must Prove Status to Tap Eminent Domain

By Janet Elliott, Staff Writer
janet.elliott@texaslawbook.net

AUSTIN (March 2, 2012) – Shrugging off warnings by the oil and gas industry that pipeline projects will be delayed and even killed, the Texas Supreme Court today unanimously declined to rehear an eminent domain case won by a Jefferson County rice farmer.

The court ruled that Denbury Green Pipeline-Texas LLC did not prove that its proposed pipeline was a “common carrier” allowed to condemn land rather than a private pipeline to carry the company’s carbon dioxide reserves from Mississippi to be injected into depleted Texas oil fields.

The decision could have profound effects for pipeline companies, which have been able to fill out a one-page form at the Texas Railroad Commission to obtain common carrier status. Under the ruling, they could be forced into court proceedings, which generally take more time and cost more money.

“There is little doubt this will open the door for more landowners to challenge the process,” said Kent Sullivan, a former Texas court of appeals justice who has been following the case.

Sullivan, a partner in Sutherland Asbill & Brennan’s Houston office, says he expects the Texas Legislature to consider creating a new process for pipelines to prove their status as a common carrier. The Texas Constitution safeguards private property by granting eminent domain for the projects that benefit the public, such as utility lines and highways.

“Before this, pipelines had an efficient and straightforward way to exercise the power of eminent domain,” Sullivan said.

The court, in an opinion by Justice Don Willett, said it is not enough for a company to self-declare as a common carrier.

“Merely registering as a common carrier does not conclusively convey the extraordinary power of eminent domain or bar landowners from contesting in court whether a planned pipeline meets statutory common-carrier requirements. Nothing in Texas law leaves landowners so vulnerable to unconstitutional private takings,” the court said.

The court did clarify that its ruling only applies to pipelines built to carry carbon dioxide or hydrogen. That leaves similar issues involving oil and gas pipelines for another day, said Amy Warr, who represents Texas Rice Land Partners Ltd. and Mike Latta, who leases the land.

Warr, a partner in Austin’s Alexander, Dubose & Townsend, said the court apparently didn’t buy the “sky is falling” arguments from the pipelines who wanted the court to reconsider its August 2011 ruling.

“Legitimate common-carrier pipelines will be able to satisfy the test,” Warr said. “My client just wants to make sure that the law is followed and that pipelines will not be able to do more than allowed under the law.”

Keith Strama, counsel for the Texas Oil & Gas Association, said that energy is a primary driver of the state’s economy and Texas law explicitly grants pipelines the power of eminent domain to develop the infrastructure to access these natural resources.

“Although the Court’s ruling is explicitly limited to CO2 and hydrogen pipelines, the entire industry will continue to support a fair and balanced regulatory process to efficiently determine whether a pipeline may exercise eminent domain. The industry opposes a case by case judicial test which would delay or eliminate oil and gas projects through protracted litigation,” said Strama, a partner in Austin’s Beatty Bangle Strama.

A group of five pipeline companies, including Shell and TransCanada Keystone, said in a friend of the court letter that the Supreme Court’s ruling is a “sea change in Texas eminent domain law.”

Steve Carroll, a Houston partner in Fulbright & Jaworski, wrote that the court “substituted decades-old case law – the workable and universally understood ‘holding itself out’ requirement to establish common carrier status – with an entirely unworkable ‘reasonable probability’ test that will result in ad-hoc decision making, jeopardizing the efficient transport of energy throughout our state.”

Sullivan said the ruling will not necessarily affect other battles between pipeline companies and property owners, such as the high-profile case in which a Northeast Texas landowner is battling TransCanada over the Keystone pipeline. That case is scheduled to go to court in Lamar County next month.

Denbury was represented at the Supreme Court by Lynne Liberato, a partner in the Houston office of Haynes and Boone.