Updates

Four years after articulating a new test for pipeline owners to establish common carrier status in Texas Rice Land Partners Ltd. v. Denbury Green Pipeline-Texas, LLC, the Texas Supreme Court has again granted review in that case, this time to resolve how that test should be applied on summary judgment.

In its 2012 decision in Denbury Green, the Texas Supreme Court addressed whether a private property owner could bring a lawsuit challenging the eminent domain power of a carbon dioxide pipeline owner that had been granted a common-carrier permit by the Texas Railroad Commission. Denbury Green, an affiliate of a company engaged in tertiary oil and gas recovery operations, sought to extend a pipeline from the Texas-Louisiana border to operations in the Oyster Bayou Unit in Chambers County and the West Hastings Unit in Brazoria and Galveston Counties, in which a Denbury affiliate held majority interests. The pipeline would transport CO2 from the Jackson Dome reserve in Mississippi, which was majority-owned and operated by Denbury affiliates. In April 2008, Denbury Green obtained a permit from the Railroad Commission to operate a pipeline as a common carrier by completing a one-page T-4 Form and indicating that its pipeline would transport CO2 “owned by others, but transported for a fee.” After obtaining the permit, Denbury Green filed a tariff and subsequently sought entry onto land along the proposed pipeline route owned by Texas Rice Land Partners. When Texas Rice Land Partners refused entry, Denbury Green sought and obtained summary judgment awarding a permanent injunction and the Beaumont Court of Appeals affirmed.1

The Supreme Court granted review and reversed.2 The Court first addressed whether approval of a T-4 Form by the Railroad Commission conclusively established eminent domain power. The Court rejected that position (which had been followed by other courts), finding that the T-4 process was “administrative” and non-adversarial in nature, and opining that “[p]rivate property cannot be imperiled with such nonchalance, via an irrefutable presumption created by checking a box on a one-page government form.”3 Turning to the Natural Resources Code, the Court observed that with respect to CO2 pipelines, a common carrier is one who “owns, operates, or manages, wholly or partially, pipelines for the transportation of carbon dioxide ... to or for the public for hire.”4 Interpreting that language, the Court concluded that to establish common carrier status, “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.”5 Applying this new reasonable probability standard, the Court concluded that Denbury Green had failed to establish, as a matter of law, that it was a common carrier on the evidence presented to the district court at that time. Specifically, the Court found that the record evidence showed that Denbury Green intended to transport CO2 owned by the Denbury companies to tertiary recovery fields operated by those same companies. Noting that “a carrier is not a common carrier if it transports gas only for its own consumption,” the Court reversed and remanded for further proceedings.6 In remanding, the Court acknowledged that “[p]ipeline development is indisputably important given our State’s fast-growing energy needs,” but emphasized that “[a] private enterprise cannot acquire unchallengeable condemnation power under [the Natural Resources Code] merely by checking boxes on a one-page form and self-declaring its common-carrier status.”7

On remand, Denbury Green submitted substantial additional evidence to establish its status as a common carrier under the Court’s reasonable probability standard. That evidence included the following:

  • Evidence that a third party, Airgas Carbonic, had contracted to transport CO2 through the pipeline (which had now been built and named the “Green Line”) to Airgas’ Texas facility, and that Airgas maintained title to the CO2 during shipment.
  • Evidence that another third party, Air Products, had contracted to transport anthropogenic CO2 captured from a Port Arthur refinery to the West Hastings Unit, where it would be used by a Denbury affiliate, Denbury Onshore, for tertiary recovery and then sequestered underground with Denbury Onshore acting as agent for Air Products as part of a carbon capture and sequestration operation.
  • Evidence that Denbury Green was transporting CO2 on behalf of Denbury Onshore and other unaffiliated working interest owners in the Oyster Bayou and West Hastings Units, and that the unaffiliated interest owners also benefitted from use of the CO2 in enhanced recovery operations.
  • Evidence that the Green Line had been routed near CO2 emitters unaffiliated with Denbury who may wish to use the pipeline to transport future CO2 emissions, and that “it was intended from inception that the proposed Green Line would transport carbon dioxide for hire.”8

Weighing this evidence, the trial court again granted summary judgment in Denbury Green’s favor, finding it had established a reasonable probability that it would transport gas for third party customers.

The Beaumont Court of Appeal reversed, however, finding Denbury Green’s evidence insufficient to establish, as a matter of law, common carrier status. In reaching its holding, the Court of Appeals reinterpreted the “reasonable probability” standard, making it much more difficult—if not impossible―for pipeline owners to secure summary judgment dismissing a challenge to common carrier status. The Court of Appeals began by noting that a central element of the reasonable probability inquiry is the pipeline owner’s “intent at the time of its plan to construct” the pipeline.9 Applying that rule, the Court of Appeals refused to consider evidence of the Airgas contract as Airgas did not approach Denbury Green until after the pipeline was constructed. Thus, the contract did not speak to “Denbury Green’s intent at the time of its plan to construct the Green Line.”10 Second, the Court of Appeals found that reasonable jurors could disagree about whether the contract with Air Products, and the presence of unaffiliated working interest owners, were sufficient to establish common carrier status. The Court of Appeals observed that Denbury Onshore was the controlling interest holder in the Jackson Dome and the West Hastings Units, and was the operator of the West Hastings Unit. Given Denbury Onshore’s controlling interests, the fact that only a small number of unaffiliated interest holders ratified the transport agreements, and the fact that unaffiliated interest owners did not take title or possession of the CO2 shipped to the West Hastings Unit, the Court of Appeals found a fact question existed as to whether the pipeline served a “substantial” public interest as opposed to the private interest of Denbury.11 Finally, the Court of Appeals found that the fact that the Green Line passed by CO2 emitters who were potential customers was too speculative and indefinite to establish a reasonable probability of third party use.12 The Court of Appeals concluded by observing that “issues of knowledge and intent are rarely appropriate for summary judgment,” and found that, in light of the evidence, “reasonable minds could differ regarding whether, at the time Denbury Green intended the build the Green Line, a reasonable probability existed that the Green Line would serve the public.”13

On April 1, 2016, the Texas Supreme Court granted Denbury Green’s petition to review the Court of Appeals’ decision. The petition for review identifies three ways in which the Court of Appeals misread and ultimately misapplied the reasonable probability test. First, Denbury Green argues that the Court of Appeals improperly converted the reasonable probability test from an objective test measuring the probability third parties would use the pipeline to one attempting to measure the subjective intent of the pipeline owner to transport CO2 for the benefit of third parties. Second, Denbury Green argues that the Court of Appeals improperly required that the subjective intent of the pipeline owner to operate as a common carrier exist at the time the owner forms the intent to build the pipeline. Third, Denbury Green contends the Court of Appeals improperly required a “substantial” degree of third-party use, as opposed to the existence of a true public use.

The key issues identified in the petition explain why the Court of Appeals’ interpretation of the reasonable probability test has drawn fire for its potential to impede pipeline development in general by precluding summary judgment in suits challenging common carrier status. By granting review, the Supreme Court has the opportunity to further interpret the reasonable probability test in a way that would allow summary judgment findings of common carrier status in appropriate cases, and avoid forcing true common carriers to settle or else face the prospect of potentially inconsistent jury verdicts.