On March 2 2012 the Supreme Court of Texas issued an opinion (withdrawing and replacing the August 26 2011 opinion previously issued in the same case) examining the requirements for qualifying as a common carrier with the power of eminent domain.(1)
The lawsuit arose out of a plan by Denbury Green Pipeline Texas, LLC to build a pipeline in Texas to carry carbon dioxide from its storage facility in Mississippi to certain oil wells in Texas. Denbury's proposed pipeline crossed two properties owned by Texas Rice Land Partners, Ltd, but Texas Rice refused to allow Denbury to enter its properties to conduct surveys for the pipeline. Denbury filed suit and obtained summary judgment:
- declaring that it was a common carrier with the power of eminent domain; and
- enjoining Texas Rice from interfering with Denbury's right of access to the properties.
Texas Rice appealed the trial court's judgment that Denbury was a common carrier with the power of eminent domain. The Beaumont Court of Appeals affirmed (with one dissenting opinion), concluding that Denbury had applied for and received a permit to operate the pipeline as a common carrier from the Texas Railroad Commission, and that Denbury had otherwise complied with the common carrier requirements of the Texas Natural Resources Code, and therefore qualified as a common carrier with the power of eminent domain.
The Supreme Court of Texas disagreed, reversing the appeal court and remanding the case to the district court for further proceedings. The court's holding was based on two principal conclusions. First, the court held that the commission's grant of a T-4 permit for a common carrier pipeline, while establishing a prima facie presumption of common carrier status, does not conclusively establish that the pipeline is, in fact, a common carrier. Instead, the court characterised the commission's permit grant as a "clerical" act that in no way endeavoured to determine whether the pipeline would operate as a common carrier, and that this clerical act did not preclude landowners from challenging the common carrier designation.
Second, the court examined Section 111.002(6) of the Texas Natural Resources Code, which defines a 'common carrier' as including any person who "owns, operates, or manages... pipelines for the transportation of carbon dioxide... to or for the public for hire". The court concluded that pursuant to this statute, a "pipeline owner is not a common carrier if the pipeline's only end user is the owner itself or an affiliate". In so holding, the court rejected prior law that making the pipeline available for public use was sufficient to qualify as a common carrier. The court then announced that for a carbon dioxide pipeline to qualify as a common carrier under Section 111.002(6), there must be 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 it to parties other than the carrier". The court further instructed that the pipeline company has the burden in proving "reasonable probability".
The court limited its holding to persons seeking common carrier status under Section 111.002(6).
Applying its newly articulated test, the court concluded that Denbury had not established common carrier status as a matter of law, and was therefore not entitled to summary judgment. The court examined affidavits and deposition testimony that indicated Denbury was negotiating with other parties to transport carbon dioxide and that there was a possibility of transporting other people's carbon dioxide in the future. However, the court concluded that this testimony was insufficient, as it did not identify any unaffiliated entities or possible customers that might use the pipeline. In closing, the court stated the following rule:
"If a landowner challenges an entity's common-carrier designation, the company must present reasonable proof of a future customer, thus demonstrating that the pipeline will indeed transport 'to or for the public for hire', and is not 'limited in [its] use to the wells, stations, plants, and refineries of the owner'."
For further information on this topic please contact Alaina King Benford, Stephen K Carroll or Seth Isgur at Fulbright & Jaworski by telephone (+1 713 651 5151), fax (+1 713 651 5246) or email ([email protected], [email protected] or [email protected]).
Endnotes
(1) Texas Rice Land Partners v Denbury Green Pipeline-Texas, LLC, No 09-0901 (Tex March 2 2012), available at: www.supreme.courts.state.tx.us/historical/2012/mar/090901rh.pdf