Court Scrutinizes “Public Use” in Gas Utility Condemnation

Keating Muething & Klekamp PLL

Last week, a court called into question whether a condemnation by a gas utility was for a “public use,” even though the take was initiated by an entity that had the statutory authority to enter, condemn and appropriate land. The case is In re DeRuiter Ranch, LLC, Case No. 13-21-00001-cv, pending in the Thirteenth Court of Appeals in Texas.

In DeRuiter Ranch, a gas utility sought permanent and temporary easements on a 356-acre ranch for the construction of a pipeline. When negotiations failed, the gas utility initiated a condemnation action. During the proceedings, the ranch propounded discovery requests upon the gas utility to challenge that the take was related to “public use.” These questions included discovery into contracts for sale of products related to the pipeline, and documents relating to customers of the pipeline. The gas utility objected based on relevance and burdensomeness, arguing that the discovery constituted a “fishing expedition.”

Notably, the gas utility argued that the legislature had determined that gas utilities are “common carriers,” and that a gas utility has the right of eminent domain “by legislative decree.” The relevant code provided that “[a] gas or electric corporation has the right and power to enter on, condemn, and appropriate the land, right-of-way, easement, or other property of any person or corporation.”

In deciding whether the gas utility established it had a “public use” as a matter of law, the court found in the negative. The court found that, in challenging a condemnation action, a landowner could assert as an affirmative defense that the taking was “fraudulent, in bad faith, or arbitrary and capricious.” Therefore, the documents requested by the ranch were relevant to its affirmative defense. The discovery was therefore permissible.

The federal and Ohio constitutions forbid the state to take private property for the sole benefit of a private individual even when just compensation for the taking is provided. In Ohio therefore, it is the understanding that the sovereign may use its appropriation powers only upon necessity for the common good. The DeRuiter Ranch case stands for the proposition that an appropriation is not automatically for a public use, even when the take is done by a gas utility. Property owners challenging eminent domain actions should seek counsel that will evaluate all their available defenses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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