An intermediate Texas appellate court has called for an extensive jury role in the ongoing issue of determining when a pipeline is a common carrier. Common carrier status is critical to the pipeline company’s ability to use eminent domain power to condemn and obtain property for its line. Before a company can acquire property by eminent domain, the affected property owners can now demand that the pipeline establish its common carrier status to a jury. This opinion indicates that it will not be easy for a pipeline company to establish common carrier status in pre-trial proceedings. In many situations, companies will either need to meet the property owner’s settlement demand or expect the increased transaction costs of a jury trial on its common carrier status.
In Texas Rice Land Partners, Ltd. V. Denbury Green Pipeline – Texas, LLC, No. 09 – 14–00176 – CV, decided February 12, 2015, the Court of Appeals for Beaumont, Texas determined that Denbury could not establish, without a jury trial, its status as a common carrier. Denbury had convinced the trial court judge in a pre-trial motion that the undisputed evidence conclusively established its common carrier status. The appellate court reversed the trial judge, ruling that the potentially affected landowners, including Texas Rice Land Partners, are entitled to a jury trial to determine the issue of common carrier status.
This is the second time for this intermediate appellate court to consider the common carrier status of the Denbury pipeline. The property owners appealed an earlier decision, which led to a Texas Supreme Court ruling that the designation of common carrier by the Texas Railroad Commission was not adequate, and that pipelines wishing to exercise eminent domain needed to establish common carrier status as part of any condemnation case. In Texas, property owners have historically been entitled to a jury trial to determine the amount of compensation due to a condemnation. Now, they are also entitled to a jury trial to determine if the pipeline is a common carrier.
In its consideration of the Denbury matter, the Texas Supreme Court established certain requirements to prove common carrier status. Most notably, the pipeline company must establish a “reasonable probability” 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 the gas to parties other than the carrier.”
In applying the Texas Supreme Court standard, the appellate court indicated that the pipeline needed to establish that this “reasonable probability” existed when the company was “intending to build” the pipeline. Thus, it appears that trial courts will need to focus on the planning or pre-construction stage of the pipeline to determine if it was reasonably probable that the pipeline will serve at least one non-carrier customer.
In pre-trial proceedings before the trial court, Denbury presented evidence of potential non-carrier customers, some of whom were Denbury affiliates. The intermediate appellate court held that the pipeline’s evidence of the possibility of serving these customers was not sufficient to conclusively establish common carrier status as a pre-trial matter. The court held that a reasonable jury might not find the potential contracts sufficient to meet the "reasonable probability" test. In essence, the appellate court stated that determining reasonable probability is usually a fact question that jurors must decide.
The decision gives affected property owners another way to increase the litigation costs to the pipeline, by forcing the pipeline to prove to a jury that it meets common carrier status. Indeed, given that companies must establish that common carrier status existed at the planning stage, it appears that many pipeline projects will try to obtain definitive non-carrier contracts even before all the necessary land is acquired. Otherwise, the pipelines should expect to incur significant costs to try to prove to a jury not only the proper compensation due to the property owner, but also that the pipeline company is a common carrier. The increase in potential litigation costs give pipeline companies even more incentive to over pay in settlements, in order to obtain the land rights necessary for the pipeline.
For a copy of the appellate court decision click here.
