Status as a Common Carrier Denied by a Texas Court

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In Hlavinka v. HSC Pipeline P’ship, LLC, a Texas court denied a pipeline company’s claim that it is a common carrier with the power of eminent domain.

The Hlavinkas own 15,000+acres in Brazoria County. HSC owns pipeline systems in Texas. HSC’s manager Enterprise Products applied to the Railroad Commission for a permit to operate a new 44-mile long pipeline for the transportation of products including polymer grade propylene. The parties were unable to agree on terms for an easement across four tracts of land.

HSC filed a condemnation suit. The Hlavinkas challenged HSC’s eminent domain power asserting that the pipeline was not for public use and propylene is not crude oil. As a result, they alleged, HSC is not a common carrier and thus does not have authority to condemn private property. HSC filed a motion for partial summary judgment to establish its right to condemn as a matter of law.

The trial court excluded testimony of Terrance Hlavinka related to damages and valuation of the easement. Ultimately, the trial court awarded HSC a permanent 30-foot pipeline easement and a temporary workspace easement, and awarded the Hlavinkas $132,293.36. These were the questions on appeal:

Is HSC a common carrier?

No, at least not yet.  Texas Natural Resources Code Section 111 and Business Organizations Code Section 2.105 grant eminent domain authority. To qualify under Section 111.001(6), “a reasonable probability must exist 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 it to parties other than the carrier.” The burden is on the pipeline company to establish its common carrier bona fides.

The Texas Supreme Court said in so-called Texas Rice I that the court must “… balance the property rights of Texas landowners with our state’s robust public policy interest in pipeline development, while also respecting the constitutional limitations placed on the oil and gas industry.” That court referred to individual property rights as a “foundation of liberty, not a contingent privilege”.

HSC failed to establish that it was a common carrier with the power of eminent domain because there was evidence that the pipeline will serve only HSC’s private interest in selling its propylene by transporting the sold product in the most expeditious and least expensive way, by a pipeline traversing seized property. There was a possibility, not a reasonable probability, that the pipeline would serve the public at some point after construction.

Is propylene a common carrier product?

Yes. The court looked to the Natural Resources Code for the definition of “oil,”, the Railroad Commission for the definition of “product,” the industry definition of “crude oil,” and the USEIA for the definition of “crude oil,” and concluded that the propylene that HSC would transport in the pipeline is an “oil product” for purposes of Section 2.105.

Was damage testimony admissible?

Yes. Testimony of a witness who uses an unauthorized and improper valuation method should be excluded. After a lengthy and detailed discussion of the myriad factors involved in evaluating fair market value of a property, the court allowed Terrance’s testimony. The valuation testimony was relevant. Terrance used comparable sales to support his opinions regarding the fair market value of the easement based on its value as a separate economic unit.

Back to the trial court

The court reversed HSC’s summary judgment, approved Terry’s testimony, and remanded for further proceedings.  This could mean a jury trial. Whether a pipeline is a common carrier is a question of law but factual disputes should be submitted to a jury to resolve.

Where have the country artists gone?

RIP Johnny Bush

RIP Jerry Jeff Walker

[View source.]

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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