Oil and Gas Lawyer Blog
A recent Texas Supreme Court decision on pipeline eminent domain, Hlavinka v. HSC Pipeline:
The Hlavinka family own some 13,000 acres in Brazoria County, Texas, situated near the Texas Gulf Coast directly between refinery and industrial centers. The family originally acquired this land because there are multiple existing pipelines crossing the property, for the opportunity to make money granting additional pipeline easements. At the time of trial, the land had about twenty-five pipeline easements on it, including at least two the family negotiated with other pipeline companies in recent, arms’ length transactions; the family received $3.45 million for one pipeline easement and $2 million from other pipeline companies in private sales.
In 2016, HSC reached out the Hlavinkas about acquiring an easement. After the Hlavinkas rejected HSC’s offer, HSC initiated condemnation proceedings. HSC sought to condemn a total of 6.41 acres of the Hlavinkas’ property for an easement 30 feet wide and about 1.8 miles long. The Hlavinkas sought dismissal of HSC’s suit, challenging its power to exercise common-carrier eminent domain authority.
The trial court concluded that HSC possessed common-carrier eminent domain authority and had established that its pipeline transport was for public use.
Hlavinka sought to testify about the value of the easement by including evidence of sales of easements to other pipelines. The trial court excluded that testimony. The trial court awarded the Hlavinkas $132,293.36 in compensation, and the Hlavinkas appealed.
The Supreme Court first considered whether HSC qualified as a common carrier entitled to condemn the easement for its line.
HSC’s pipeline transports propylene (used to make plastics) from Texas City to its terminal point at a Braskem America plant. Braskem purchases the propylene from Enterprise Products before it enters HSC’s pipeline. HSC is affiliated with various Enterprise entities; Enterprise Products OLPGP, Inc., is HSC’s sole managing member. Thus, the HSC pipeline was being used to ship propylene owned by Enterprise Products to its customer, who would be the sole and end user of the product, through an Enterprise-affiliate’s pipeline. Braskem is the pipeline’s only customer.
The Court agreed with the trial court that a pipeline transporting polymer-grade propylene is eligible for common-carrier status with eminent domain authority, holding that polymer-grade propylene constitutes an “oil product” under Section 2.105’s predecessor statute, the Common Carrier Act.
Disagreeing with the Court of Appeals, the Court upheld HSC’s right to condemn the easement. In spite of the Court’s decision in Denbury Green Pipeline v. Texas Rice Land Partners (Texas Rice II), in which the Court held that, to prove the public use requirement for exercising eminent domain, a pipeline must introduce “evidence establishing a reasonable probability that the pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner”, the Court concluded that HSC demonstrated that its pipeline serves a public use.
But the Court agreed with the Court of Appeals that the trial court erred in excluding the Hlavinka’s testimony about past sales of pipeline easements across the property as evidence of the value of the easement. The Court held that sales of easement rights granted on the same property are admissible as some evidence of the market value of the easement taken at its highest and best use.
The Court concluded that a property owner may testify to sales of pipeline easements across the property made to other pipeline carriers, secured through arms’ length transactions, as some evidence of the current highest and best use of the property taken. The Hlavinkas offered testimony that the highest and best use of the condemned land was for pipeline development. The family recounted two recent, arms’ length easement sales to other pipeline operators as evidence of the property’s highest and best use before the taking. Based on these comparisons and other assumptions, the Hlavinkas valued the easement at $3.3 million. The existing use of the land is presumed to be its highest and best use, “but the landowner can rebut this presumption by showing a reasonable probability that when the taking occurred, the property was adaptable and needed or would likely be needed in the near future for another use.”
The Court remanded the case to the trial court for a new trial as to the easement’s value. On remand, HSC is free to challenge any assumption made by the Hlavinka family and the jury is free to adjust the market valuation of the property based on all admissible evidence.
For landowners, the Court’s decision that a landowner may testify as to other recent, arms’ length easement sales is a significant victory.