Denbury Construed by Two Texas Appeals Court Decisions

By:

Baker Botts ENERGY REGULATORY UPDATE - MAY 28, 2013
By: James H. BarkleyRussell LewisBenjamin T. Sweet
 

On Thursday, May 23rd, the Texas Ninth District Court of Appeals issued two important opinions related to eminent domain, pipelines, and natural gas liquids (NGLs). Both opinions apply the far-reaching decision issued by the Texas Supreme Court, Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 363 S.W.3d 192 (Tex. 2012).


In Re Texas Rice Land Partners


TransCanada Keystone Pipeline, LP (Keystone) successfully condemned property owned by Texas Rice Land Partners (TRL, the same landowner in the Denbury case). Following the condemnation proceeding, Keystone sought a writ of possession under Property Code Section 21.021, after posting the deposits and making the payments required by that section. TRL objected to the writ of possession, arguing that it could not issue until the question of Keystone’s common carrier status had been finally resolved on appeal. The Court of Appeals rejected that argument, noting that Property Code Section 21.021 specifically allows possession while challenges to a condemnation are still pending. However, the court also held that it was error for the trial court to have issued the writ of possession without making at least a preliminary finding that Keystone possessed “eminent domain authority.” Because the only evidence in the record supported common carrier status, the court held that the error was harmless and let stand the writ of possession. The court cited, but did not rely on, language in Denburylimiting that decision to the CO2 provisions of the Natural Resources Code.


Crosstex NGL Pipeline, LP v. Reins Road Farms-1, Ltd.


Crosstex NGL Pipeline, LP (Crosstex) sought an injunction to prevent landowner Reins Road Farm-1, Ltd. (RRF) from denying Crosstex access to its land to survey a proposed NGL pipeline route. The trial court denied the injunction request, and Crosstex appealed. The appellate opinion includes two important holdings. First, the court held that the trial court did not abuse its discretion by concluding that the term “crude petroleum,” as used in the Natural Resources Code eminent domain provisions, does not include by-products like NGLs. If NGLs are not included in the term “crude petroleum”—an issue that has always been murky under Texas law—then NGL pipelines will have to look elsewhere for eminent domain authority. Second, the court held that it was reasonable for the trial court, on the evidence before it, to conclude that Crosstex would be transporting only its own NGLs (or those of its affiliates) and could not, therefore, exercise the power of eminent domain given the holdings inDenbury. (In Denbury, the Texas Supreme Court held that a common carrier must serve the public and cannot be used only by its owner and the owner’s affiliates.) Crosstex had gone to some lengths to establish its common carrier status, producing evidence that included at least one contract with an unaffiliated third party, but the trial court scrutinized this evidence and was unconvinced. Notably, the court again cited the language in Denburylimiting that decision to the CO2 provisions of the Natural Resources Code. In this opinion, however, the court concluded, “... we are not persuaded the [Supreme] Court's reasoning concerning the process of obtaining a T-4 permit applies only to carbon dioxide lines.” The court therefore rejected Crosstex's T-4 permit as evidence of common carrier status.


There are a number of immediate lessons to be drawn from these two opinions. First, all evidence of common carrier status is likely to receive increasing levels of scrutiny in eminent domain proceedings. For this reason, companies wishing to exercise eminent domain should ensure that sufficient common carrier evidence exists in the record and seek written findings of fact at every stage of the process. Second, those seeking to transport NGLs should not rely solely on the Natural Resources Code for eminent domain authority, but should invoke and comply with Section 2.105 of the Texas Business Organizations Code as an independent source of eminent domain authority.


The Keystone opinion may be found here. The Crosstex opinion may be found here.