Two recently-decided Texas cases illustrate that heightened scrutiny of pipeline companies' status as common carriers may be applied when landowners challenge their ability to secure easements by eminent domain. Following a departure by the Texas Supreme Court in 2012 from a long-standing practice in which pipeline companies were essentially presumed to be common carriers with eminent domain authority, these recent decisions suggest that courts increasingly will take a harder look to ensure that a pipeline will serve a public use. While many questions remain as to how courts will implement the Texas Supreme Court's critical 2012 decision Texas Land Rice Partners, Ltd. v. Denbury Green Pipeline-Texas (363 S.W.3d 192), certain self-imposed limitations of that seminal case seem to be disintegrating.
Reviewing an injunction granted to a pipeline owner, the Texas Supreme Court in Denbury appeared to signal a change in approach, announcing a new test that must be met before a pipeline owner is entitled to wield "the extraordinary power to condemn private property." First, the Court observed that the Texas Railroad Commission's process for handling T-4 permits employs no investigation, much less adversarial testing, of whether a pipeline owner is entitled to common carrier status. This "administrative" system was criticized as conferring a seemingly irrefutable presumption by a company's self-selection of certain boxes on a one-page government form.
Noting that the Texas Constitution "demands far more," the Denbury court advised that eminent domain authority "is subject to special scrutiny by the courts." While a permit from the Railroad Commission granting common carrier status is prima facie valid, once a landowner challenges that status, "the burden falls upon the pipeline company to establish its common-carrier bona fides." Specifically, a pipeline company must demonstrate a "reasonable probability" that its pipeline at some point will serve the public.
Denbury dealt strictly with the ability of a company to qualify as a common carrier under Texas Natural Resource Code section 111.002(6), which expressly applies only to pipelines carrying carbon dioxide. And the Texas Supreme Court explicitly limited its decision to persons seeking common carrier status under that section, pointedly reserving any opinion on other provisions of law.
For over a year, questions arose as to how Denbury was to be applied going forward, and whether its holding could (or should) be limited to the narrow terms of section 111.002(6) and carbon dioxide pipelines. With two opinions released in May, the Ninth Court of Appeals in Beaumont has indicated that the future of eminent domain jurisprudence will not be so restricted.
The court in In re Texas Rice Land Partners, Ltd. found that a trial court had erred by not making a preliminary finding that a crude oil pipeline company was an entity with common carrier authority. The proceeding relates to the much-publicized Keystone Pipeline that is planned to transport oil from Alberta, Canada to Texas, and arose when a company sought an easement across property of the same landowners involved in Denbury. On May 23, 2013, the Ninth Court of Appeals denied a mandamus request for relief from the trial court's decision that the pipeline company could enter the property while litigation to determine whether it held eminent domain authority remained pending.
In so ruling, the court expressly rejected the landowners' argument that Denbury required the court to determine first the pipeline company's eminent domain authority. Indeed, the court observed that Denbury expressly limited itself to section 111.002(6) governing carbon dioxide pipelines, which was not applicable in this case concerning a pipeline for crude petroleum. Yet the court nonetheless stated that there must be some evidence in the record that reasonably supported TransCanada's assertion that it holds eminent domain authority. While the failure was harmless—as there was evidence in the record sufficient to support TransCanada's contention that the Keystone Pipeline is a common carrier line—the court stated that "it was error for the trial court to refrain from making such a preliminary finding." In essence, the court criticized the trial court's failure to examine the pipeline company's common carrier status, despite the fact that Denbury was deemed inapplicable.
In a second case, the Ninth Court of Appeals more openly indicated that Denbury should not be so limited. In Crosstex NGL Pipeline, LP v. Reins Road Farms-1, Ltd., the court reviewed an interlocutory appeal of a trial court's denial of an injunction to permit Crosstex to enter private land and conduct a survey. On the first point, the appellate court saw no abuse of discretion in the trial court's decision that natural gas liquids did not fall under the definition of "crude petroleum." Accordingly, none of the sub-clauses under Natural Resource Code section 111.002 applied in this case, including sub-clause (6) that was at issue in Denbury.
The court then examined whether Crosstex qualified as a common carrier under section 2.105 of the Texas Business Organizations Code, which by referencing the Natural Resource Code's provisions on eminent domain can also grant the power to limited partnerships (among other entities) engaged in transporting oil products and gas. Acknowledging Denbury's limitations—and despite the fact that Business Organizations Code section 2.105 has no explicit "public use" requirement—the Crosstex court nevertheless stated it was "not persuaded the [Texas Supreme] Court's reasoning concerning the process of obtaining a T-4 permit applies only to carbon dioxide lines." Accordingly, the trial court was found not to have abused its discretion in examining the evidence and—even with conflicting facts—determining the pipeline would not be used by the public, thereby denying common carrier status.
These cases are likely to act as harbingers, even though neither applied Denbury or its "reasonable probability" test. They illustrate that, despite Denbury's language purporting to limit its own scope, the opinion's reasoning is broadly applicable. First, the key requirement in section 111.002(6) that a pipeline transport products "to or for the public for hire" is identical to the requirements in sub-clauses (1) and (7) governing transport of crude petroleum and carbon gasification products, respectively. More significantly, however, Denbury by no means limited the relevant authority to these provisions of the Natural Resources Code. To the contrary, the opinion declares that "our Constitution and laws enshrine landownership as a keystone right," and specifically identifies Article 1, Section 17 of the Texas Constitution and its prohibition on the taking of property for private use. Expanding further, Denbury reasoned that "the right to condemn property is constitutionally limited and turns in part on whether the use of the property is public or private." In other words, satisfying the public use requirement is necessary to exercise eminent domain authority, regardless of whether it is also an express element of establishing common carrier status.
As several additional cases involving a pipeline company's ability to exercise eminent domain authority percolate through Texas courts, more rulings may soon be available concerning the level of scrutiny that courts are expected to devote to such determinations. More decisions may also provide much-needed guidance concerning what evidence might be required to ensure a pipeline company's common carrier status.