Current Developments in Eminent Domain and Oil and Gas Pipeline Construction (Under Construction - March 2014)

by Snell & Wilmer

On February 19, 2014, a Nebraska state district court judge invalidated a portion of a Nebraska law that had, until the decision, permitted an alternate, streamlined method of obtaining eminent domain authority for the Keystone XL pipeline right-of-way. In Randy Thompson et al. v. Dave Heineman et al. (CI 12-2060, Lancaster County District Court, February 19, 2014), Judge Stephanie Stacy concluded that the law in question impermissibly divested the state Public Utilities Commission of control “over the routing decisions of the oil pipeline …” and as a result, essentially required that the TransCanada begin anew its attempt to obtain eminent domain authority for its project.

On February 24, 2014, President Obama assured Republican governors that his decision on the Keystone XL pipeline project would be made within the next couple of months. Thus, it seems that the President will not be looking at the Nebraska decision as an excuse to delay his decision until after the November midterm elections, as some have speculated.

The Nebraska ruling was immediately appealed. While the legal maneuvering in Nebraska may not impact President Obama’s decision as to whether the project will be ultimately approved as a trans-border pipeline, it does provide some helpful context for the future of siting and obtaining rights-of-way for construction oil and gas pipelines.

There is, obviously, no certainty as to the manner in which the Nebraska appellate court will ultimately rule and what its impact on Keystone XL will be. However, the Nebraska case continues a trend in state courts of more carefully scrutinizing pipeline companies’ eminent domain authority.

As an example, in Larson v. Sinclair Transportation Co., 284 P.3d 429 (Colo. 2012), the Colorado Supreme Court very narrowly construed a pipeline company’s eminent domain authority. It held that a particular statutory grant, used for decades by pipeline companies seeking right-of-way in Colorado, did not extend to condemnation for “petroleum pipelines,” and limited the reach of that particular statute solely to electric power infrastructure. The decision, while perhaps flawed, still has created uncertainty in the Colorado oil and gas industry, and at least two legislative solutions have been proposed.

Another interesting case in this context is Texas Riceland Partners v. Denbury Green Pipeline—Texas, LLC, 363 S.W. 3rd 192 (Tex. 2012). In that case, the Texas Supreme Court declared that a pipeline owner cannot acquire the power to condemn merely because it registers as a common carrier; it must show, among other things, that there will be a public purpose to the taking. The Court went on to define a standard for achieving common carrier status and made it clear that landowners have the right to challenge eminent domain authority when the project is being built only for private use.

These recent cases all illustrate a clear trend. Although the U.S. energy boom has created an obvious need for increased pipeline infrastructure, many courts and judges are now more carefully scrutinizing owners’ eminent domain authority and how they use it, and are balancing that authority against individual property rights. This, in turn, may create more hurdles for owners to obtain siting and obtain the necessary related rights of way for their pipelines. Hopefully, this will also lead to increased cooperation and understanding between landowners and pipeline companies.


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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