State v. KNA Partners

In State of Texas v. KNA Partners, the State challenged the trial court’s judgment in favor of the appellee property owner, KNA Partners. The State sought to condemn a portion of KNA’s property, which included nine driveways. However, the trial’s decision involved conditioning the transfer of title on the State’s restoration of the nine driveways to KNA’s property. The State appealed this decision, arguing that KNA was granted more relief than it was entitled to under Texas law.KNA argued the appeal is moot because the driveways in question have already been constructed.[1]

KNA owned property at the intersection of IH 610 and Old Katy Road in Harris County, Houston, Texas. The site had nine driveways providing access to the IH 610 and one driveway to Old Katy Road. The State sought to condemn 0.2 acres of KNA’s property for the widening of U.S. Highway 290 (“290”) at the intersection of 290, IH 610 and Old Katy Road. The property the State condemned was a strip of land, thirteen-and-a-half feet wide located along the entire length of the property and included the nine driveways connecting to IH 610.[2]

The issue pending at trial was the amount of just compensation due to KNA as a result of the State’s condemnation of its property. The State said it would provide access to the highway from KNA’s remaining property. All nine driveways that existed prior to condemnation would be reestablished to provide KNA the same driveway access as before the taking.[3]

In its final judgment, the trial court ruled that the State’s title to the property was subject to its agreement to restore the nine driveway locations along the new frontage road abutting KNA’s remainder property that the State represented to KNA before trial and to the Court and jury at trial that it would do.[4]

On appeal, the State challenged the trial’s decision to condition the transfer of title on its restoration of the driveways to KNA’s property. The State argued the trial court granted KNA more relief than it requested and that the trial court’s judgment is erroneous because the State “has the right to change its construction plan even long after the condemnation process is completed” and “that right is destroyed if obtaining passage of title is subject to a particular construction plan.”[5]

KNA countered that the State’s appeal is moot because the driveways have already been constructed.[6] If the Court were to accept the State’s argument and delete the State’s requirement to build the nine driveways, there would be no practical legal effect. Since the driveways have already been built, the only relief the State could be granted is that it did not have to build the highways it has built.[7]

The State retorted that without the relief it’s requesting, “the State will not be able to obtain title insurance for the property without proving to the satisfaction of a title company that the access drives have been restored.”[8]

The Houston First Court of Appeals dismissed the State’s appeal as moot.[9]The Court explained that a justiciable controversy must involve “a real and substantial controversy involving genuine conflict of tangible interest and not merely theoretical dispute.”[10]

State v. KNA Partners reinforces the idea that an eminent-domain issue becomes moot when a party seeks a ruling on some matter that, when rendered, would not have any practical legal effect on the just compensation awarded by the jury.[11] 

[1]. State v. KNA Partners, No. 01-14-00723-CV, 2015 WL 4603385 *1 (Tex. App.—Houston [1st Dist.] 2015, no pet. h.).

[2]. Id.

[3]. Id.

[4]. Id.

[5]. Id. at *2.

[6]. Id.

[7]. Id.

[8]. Id. at *3.

[9]. Id. at *1.

[10]. Id. at *3.

[11]. Id. at *2.

State v. Central Expressway Sign Associates

In Central Expressway, the State of Texas (“State”) sought to condemn piece of land near a highway interchange. [1]. Central Expressway Sign Associates (“CESA”) held a billboard easement on the property being condemned. The CESA easement was in turn leased out to Viacom Outdoor, Inc. who sold advertising space on the billboard. After a special commissioners’ hearing was held on the condemnation matter, the State filed objections, transferring the condemnation proceeding from the administrative phase back into court system.

The Texas Supreme Court’s decision in Central Expressway Sign Assoc. centers on the trial court’s decision to strike Grant Wall, the State’s expert appraiser, for failing to include advertising revenue from the billboard in his appraisal. This made his testimony unreliable according to the trial court. The Dallas Court of Appeals affirmed the decision of the lower court. The Texas Supreme Court considered Wall’s exclusion by the trial court on an abuse of discretion standard.

Texas eminent domain law generally prohibits consideration of income generated from businesses located on the condemned property. [2]. In effort to establish market value of the billboard property taken, CESA argued “billboard advertising revenue is derived from the intrinsic value of the land, and therefore that revenue should be treated like rental income for purposes of a income-method appraisal.” The Texas Supreme Court rejected this argument and explained, “[b]ut Texas courts have not recognized the exception alluded to in Herndon for business profits ‘derived from the intrinsic nature of the real estate.’”

The Texas Supreme Court further concluded that Wall properly valued the easement as a whole without including advertising revenue and that his exclusion by the trial court of the condemned property’s value was an abuse of discretion constituting reversible error. Therefore, the Texas Supreme Court declined to create an exception for profits from the land on which a billboard is located, meaning its advertising revenue could not be considered for valuation purposes.

[1]. See State v. Cent. Expressway Sign Assocs., 302 S.W.3d 866, 871 (Tex. 2009).

[2]. But see City of Austin v. The Avenue Corp., 704 S.W.2d 11, 13 (Tex. 1986) (allowing lost profits to be recovered for material and substantial access interference or denial to the property occurs); City of Dallas v. Priolo, 242 S.W.2d 176, 179 (Tex. 1951) (allowing lost profits to demonstrate the effects on the remaining property in a partial takings case).

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

The Beaumont Court of Appeals recently affirmed the Denbury decision in Crosstex NGL Pipeline, LP v. Reins Road Farms-1, Ltd.[1] Again, the common carrier status of a pipeline was placed under scrutiny. Crosstex’s pipeline at issue was to transport natural gas liquids (NGLs). The Natural Resources Code provides common carrier status for crude petroleum pipelines.[2] The court distinguished between a substance in its natural state and NGLs, which can only be derived by processes above the wellhead.[3] Therefore, NGLs did not fall within the meaning of crude petroleum and common carrier status under this statute was not attained.[4] The Beaumont Court of Appeals then analyzed whether the pipeline met the public use requirement under the Texas Business Organizations Code to be a common carrier.[5] Using the Denbury analysis, the Beaumont Court of Appeals agreed the trial court could properly find the pipeline lacked sufficient public use to qualify as a common carrier.[6] The important point to highlight is that Denbury’s guidelines for proving common carrier status appears applicable to more than just pipelines that transport carbon dioxide. [1] Crosstex NGL Pipeline, L.P. v. Reins Road Farms-1, Ltd., No. 09-12-00563-CV, 2013 WL 2250747, at *5 (Tex. App.—Beaumont May 23, 2013, no pet. h.). [2] Id. at *1. [3] Id. at *3-4. [4] Id. at *4. [5] Id. [6] Id. at *6 (noting, like Denbury, that Crosstex’s website was inconsistent with the evidence presented on common carrier status).

In re Texas Rice Land Partners, Ltd.

Texas Rice Land Partners, Ltd., the landowners who fought against the Denbury Green Pipeline in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC,[1] are now in the midst of another pipeline battle — this time with the contentious Keystone Pipeline. The Beaumont Court of Appeals denied the landowners’ writ of possession challenge and concluded that, based on the Texas Supreme Court’s reasoning in Denbury, Keystone may hold eminent-domain authority as a common carrier.[2] The Court held that once shown, and the other statutory requirements are met, a trial court can grant possession of the property to the pipeline.[3] This is appropriate even as disputed issues, such as Keystone’s common carrier status, remain in the lawsuit.[4] Therefore, the landowners’ right-to-take challenge will be decided during the trial phase of the case.

[1] Texas Rice Land Partners, Ltd. v. Denbury-Green Pipeline-Texas, LLC, 381 S.W.3d 465 (Tex. 2012). [2] In re Texas Rice Land Partners, Ltd., No. 09-12-00484-CV, 2013 WL 2250717, at *5 (Tex. App.—Beaumont May 23, 2013, no pet. h.). [3] See id. [4] See id. at *4

Crosstex DC Gathering Co., J.V. v. Button

Procedural changes in suburban development are most clearly seen in Crosstex DC Gathering Co., J.V. v. Button.[1] Although their property is undeveloped, 26.26 acres was zoned as residential and the remaining 25.83 acres was zoned as commercial.[2] Crosstex, a natural gas provider, attempted to purchase an easement to build a gas pipeline across the Buttons’ 52.09 acres, and eventually filed a suit in condemnation to acquire the right to build the pipeline.[3] The special commissioners awarded a total of $44,955.00 in compensation to the Buttons, to which they objected.[4]

At trial, Jon Cross, a civil engineer, and Jamie Wickliffe, an appraiser, testified in support of the Buttons.[5] Cross testified that because of the pipeline, developers who wanted to develop the property would incur additional costs and complications.[6] Wickliffe testified that the Buttons’ property was best suited for development.[7] She believed that the highest and best use of the property was for mixed residential and commercial purposes.[8] Wickliffe assumed in her analysis that the zoning on 26.26 acres of the property would change from residential to commercial even though there was no official act by a governmental body before the date of take approving this zoning change.[9] The evidence did show that, 14 of these 26.26 acres were in the city’s future land use plan zoned as commercial.[10] Consequently, Wickliffe valued the “upzoned” acres at a value lower than she would have if the zoning were already in place on the property.[11]

Crosstex’s appraiser stated that the highest and best use of the Buttons’ property was for residential and commercial development but did not support Wickliffe’s premise that part of the residential property should be valued as if it were to change to commercial.[12] The jury awarded the Buttons total compensation of $749,843.99, including an award of $665,968.03 for damages to the remainder of their property.[13]

Crosstex appealed the jury award to the Fort Worth court of appeals, asserting that the evidence provided by Cross and Wickliffe was legally and factually insufficient to support the judgment awarding the damages to the remainder of the property.[14] It contended that both Cross’s and Wickliffe’s testimony was too remote and too speculative.[15]

In affirming the trial court’s opinion, the Court addressed the type of testimony it would allow in regard to the highest and best use of property that is currently undeveloped but could possibly be developed in the future. Generally, the Court held that appraisers and other experts have wide latitude to determine the highest and best use of the property in the future and did not restrict this analysis to the state of the property at the date of take.[16]

Button represents another favorable outcome for Texas landowners. Although a property may be currently undeveloped, Button allows appraisers the flexibility to introduce evidence that in the foreseeable future the property has the potential to be developed. However, Button also requires that appraisers support their opinions with research indicating that any zoning changes could pass possible governmental hurdles and correspond with the future market demands of a community.

Returning to a previously mentioned case, Exxon Pipeline Co. v. Zwahr, we find Texas courts granting favorable circumstances for urban landowners when faced with condemnation proceedings. Although Zwahr did not unfold in an urban setting or have a positive outcome for the landowners, its ruling has the potential to create favorable outcomes for urban landowners in Texas. As oil and gas companies seek to move natural gas and other material in and out of major urban zones, such as Houston, they will face the increased cost of running pipelines through areas with existing pipelines. Zwahr laid the foundation for appraisers to argue that areas with existing pipelines could be assigned a higher value; with a highest and best use as an existing pipeline easement (or “pipeline corridor”). However, for appraisers to successfully establish a pipeline corridor as a separate economic unit, they will want to show more than the existence of pipelines on the property. A review of other pipeline corridor cases suggest that the following factors are likely to help appraisers support their argument that a pipeline corridor exists:

(1) Segregation: characteristics setting land apart from surrounding land (e.g., severing the corridor from the rest of the property by replatting);

(2) Existing Use: existing use as a pipeline corridor;

(3) Improvements: improvements supporting use as a pipeline corridor (e.g., access roads, compressor sites, surrounding wells, gathering lines); and

(4) Sale history and private market: history of selling easements within the corridor (or existence of a private market for easements in the area).[17]

Recent ruling by courts in Texas have strengthened the ability of appraisers to offer more expansive testimony about the highest and best use of properties. In all three settings (rural recreational development, suburban development, and urban development), appraisers are able to demonstrate that pipeline easements often create more damage than acknowledged by condemnors’ appraisers.

[1] Crosstex DC Gathering Co., J.V. v. Button, No. 02-11-00067-CV, 2013 WL 257355 (Tex.App.—Fort Worth Jan. 24, 2013, no pet. h.). [2] See id. at *10. [3] Id. at *1. [4] Id. [5] Id. [6] Id. at *3-5. Specifically, Cross pointed out that Crosstex would ultimately have control over its easement thus affecting where developers could locate everything from parking lots, roadways, and fire lanes to landscaping, and fencing. Id. at *4. [7] Id. at *10. [8] Id. [9] Id. [10] Id. [11] Id. at *16. [12] See id. at *10. [13] Id. at *2. [14] Id. at *3. [15] See id. at *3, 5. [16] See id. at *14-16. In addressing whether Cross’s testimony was too speculative, the court held that evidence should not be restricted to only the uses that the land currently has but instead should allow evidence of the property’s condition and adaptability that would increase or decrease the present market value of the property. Id. at *6-8. The Court required Wickliffe to show that the changes to zoning would need to occur in a “foreseeable future” and within “a reasonable time.” Id. at *12; see also Schneider Nat’l Carriers, Inc. v. Bates, 147 S.W.3d 264, 277 (Tex. 2004) (explaining that “estimates of value normally rest on expectations not about future days but about future years”). Wickliffe’s “upzoning” was deemed reasonable because she supported her conclusion with facts that indicated that the property was likely to be zoned commercial in the foreseeable future. Button, 2013 WL 257355 at *14-16. [17] Bauer, 704 S.W.2d at 110-11, Kalmbach v. Seminole Pipeline Co., No. 03-96-00249-CV, 1998 WL 132971, at *4 (Tex.App.—Austin Mar. 26, 1998, no pet.), Bulanek v. WesTTex 66 Pipeline Co., 209 S.W.3d 98, 100 (Tex. 2006).

LaSalle Pipeline, LP v. Donnell Lands, L.P

Changes in the evaluation of rural recreational development are best exemplified through the case of LaSalle Pipeline, LP v. Donnell Lands, L.P.[1] To fuel electricity demands in South Texas, LaSalle Pipeline, LP (“LaSalle”), a gas utility corporation, sued to condemn an easement for a sixteen-inch gas pipeline running a total of 4.4 miles across the 8,034 acre Donnell Family Ranch and for another pipeline easement extending about 1,400 feet across a 46 acre tract.[2] The special commissioners appointed in the case awarded the Donnells $226,000 in total compensation for the pipeline easements, to which the Donnells objected.[3]

At trial, Philip McCormick (the Donnells’ appraiser), whose opinion was based on paired sales data from both McMullen and Webb Counties, testified that the existence of the pipeline and the permanent easements diminished the market value of the two tracts.[4] McCormick justified his use of the sales in Webb County as relevant because, like the subject property, they were South Texas ranch lands with the highest and best use of rural recreational and agricultural land.[5]

Although, on average, the paired sales used by McCormick reflected an approximately 20% diminution in the value, he damaged the tracts at 10% and 25%.[6] McCormick testified that the first tract would suffer a 10% decrease in value due to the pipeline, and the second, smaller, tract, would experience a 25% decrease in value, concluding that the damages for the diminution in value to the remainder totaled $843,490.[7] LaSalle’s appraiser testified that there were no damages to the remainder due to the pipeline and permanent easements.[8] After considering these facts, the jury awarded the Donnells a total compensation of $658,689, which included an award of $604,950 for damages to the remainder of their property.[9]

LaSalle appealed to the San Antonio court of appeals arguing that the damages awarded by the jury were not supported by legally or factually sufficient evidence, primarily challenging McCormick’s value opinion for the remainder damages was based on sales outside of McMullen County.[10] The San Antonio court of appeals upheld the jury award, including the compensation awarded for remainder damages.[11] In doing so, the Court granted appraisers great latitude in determining how to calculate the amount of remainder damages in two important ways.[12] First, the Court confirmed that appraisers could expand the area in which their paired sales are located, noting that paired sales need not be from the same county.[13] Second, appraisers’ data did not have to precisely mirror the value opinions they offer.[14] Relying on Gammill v. Jack Williams Chevrolet, Inc., the Court affirmed that expert testimony is unreliable if there is too great an analytical gap between the data and the opinion proffered.[15]

The Court held that the gap between McCormick’s data and his opinion was not too great to invalidate his opinion because: (1) the opinion he offered (10% and 25% damage) was in close proximity to the 20% damage that his data showed, (2) he offered an explanation as to why there was a difference between his data and his conclusion, and (3) the jury’s award was substantially below McCormick’s total damage estimate.[16]

LaSalle represents a major win for Texas landowners and a setback for the energy companies that are eager to transport the newly discovered natural gas produced from the Eagle Ford Shale in South Texas across large recreational ranches. Although LaSalle did not apply strict standards to the admissibility of appraisers’ testimony, it did set out some guidelines for appraisers to follow. To ensure that their testimony is admissible, appraisers should adhere to the following:

1) If the appraiser uses any comparable or paired sales outside the immediate vicinity (or county) of the subject property, he or she should be prepared to demonstrate that the sales have similar characteristics to the subject property.

2) If there are any gaps between the appraiser’s data and the opinion he or she offers, he or she should be able to explain why the gaps exist.

[1] LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. App.—San Antonio 2010, pet. denied). [2] Id. at 310. [3] Id. at 309. [4] Id. at 310-11. [5] Id. [6] Id. at 311. [7] Id. [8] Id. at 316. [9] Id. at 309. [10] Id. at 315-16. [11] Id. at 321. [12] See id. at 317-18. [13] See id. at 316; see also City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001) (“Comparable sales need not be in the immediate vicinity of the subject property, so long as they meet the test of similarity”). [14] See LaSalle, 336 S.W.3d at 318. [15] Id. at 317; Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 726 (Tex. 1998). [16] LaSalle, 336 S.W.3d at 317-18.

Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC

The supreme court’s decisions in Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC[1] and the Texas Legislature’s unanimous passage of Senate Bill 18 – reflect the trend to provide greater protections to landowners.

What has now come to be known as a “Denbury Challenge” is arguably a rejection of the historically established process through which pipeline companies attained their right of eminent domain. The Court begins by stating “the Texas Constitution safeguards private property by declaring that eminent domain can only be exercised for ‘public use.’”[1] The ruling holds that simply checking off a box on a government form designating the pipeline as a “common carrier” is not sufficient to assume it is to be used as such.[2] The Court found that simply filling out the Form T-4 permit and filing it with the Texas Railroad Commission was not conclusive proof of common carrier status and, therefore, a public use.[3] In order for a pipeline to be considered a “common carrier”, the Court explained that the users must be more than the corporation funding the project or its subsequent affiliates; it must be open to public use.[4] However, it is the notion of “affiliate” that Denbury attempted to use to establish their right to eminent domain.[5] The term has been translated as referring to a body with some sort of operational control, percentage ownership of the parent company, or both. Unfortunately for the pipeline company, which is actually a subsidiary of a subsidiary of Denbury Resources, Inc., it was classified as an “affiliate” of the parent corporation, and therefore restricted from claiming “common carrier” status and subsequent eminent domain rights.[6]

But Denbury was not a direct challenge on the right to condemn, but rather the landowner’s refusal to allow the pipeline company access to survey his land. As part of the eminent-domain process, a pipeline company often needs to gain the right to survey a parcel of land early in the condemnation process. If consent is not given by the landowner, then the pipeline company may be forced to file a Temporary Restraining Order (TRO) against the landowner. During this process, the company must also designate whether it claims “common carrier” status. To claim this designation, pipeline companies often produce the Form T-4 permits from the Texas Railroad Commission to establish a public use. To be considered a common carrier, a pipeline company is required to “present reasonable proof of a future customer”, one “who will either retain ownership of their gas or sell it to parties other than the carrier”.[7] The Texas Supreme Court rejected the Form T-4 as conclusive proof of public use and looked to other evidence such as the company’s own website.[8] The Court explained:

Under our test, Denbury Green did not establish common-carrier status as a matter of law. A Denbury Green vice president attested that Denbury Green was negotiating with other parties to transport anthropogenic CO2 in the pipeline, and that the pipeline “can transport carbon dioxide tendered by Denbury entities as well as carbon dioxide tendered from other entities and facilities not owned by Denbury.” This affidavit does not indicate whether Denbury Green itself intended to use all of that gas for its own tertiary recovery operations. As discussed above, a carrier is not a common carrier if it transports gas only for its own consumption. The witness also stated in his deposition that the CO2 carried in the pipeline would be owned by affiliate Denbury Onshore, but that there was “the possibility we’ll be transporting other people’s CO2 in the future.” He did not identify any possible customers and was unaware of any other entity unaffiliated with Denbury Green that owned CO2 near the pipeline route in Louisiana and Mississippi. This evidence does not establish a reasonable probability that such transportation would ever occur. Further, the record includes portions of Denbury’s own website that suggest the pipeline would be exclusively for private use.[9]

Although Denbury did not provide enough evidence to prove its common carrier status, the Denbury decision may arguably be limited to challenging common carrier status of carbon dioxide and hydrogen pipelines.[10] Nevertheless, pipeline companies should expect disclosure requests, discovery, and litigation regarding whether the Denbury decision should be extended to other common-carrier pipelines that follow a similar T-4 application process.[11]

[1] Id. at 195.

[2] Id. at 204.

[3] Id. at 198.

[4] Id. at 200.

[5] See id.

[6] See id. at 200-01.

[7] Ken McKay, The Denbury Decision: What it Says, What it Doesn’t Say & What People Say it Says, University of Texas School of Law: 11th Annual Gas and Power Institute (2012); Denbury, 363 S.W.3d at 204.

[8] Denbury, 363 S.W.3d at 202-03.

[9] Id.

[10] Id. at 202 n. 28; see also Rhinoceros Ventures Group, Inc. v. TransCanada Keystone Pipeline, L.P., 388 S.W.3d 405, 409 (Tex.App.—Beaumont 2012, pet. filed) (noting that the Denbury opinion is limited to person seeking common-carrier pipeline status under Section 111.002(6) and expressed no opinion concerning other pipelines).

[11] Ken McKay, The Denbury Decision: What it Says, What it Doesn’t Say & What People Say it Says, University of Texas School of Law: 11th Annual Gas and Power Institute (2012).

[1] Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 363 S.W.3d 192 (Tex. 2012); see also 381 S.W.3d 465 (Tex. 2012) (denying rehearing).

[2] LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. 2011).

Not in my Backyard – How About Yours?

The chairman of the Texas Railroad Commission, Barry Smitherman, spoke about the benefits of the Keystone pipeline at the energy conference hosted by the Greater Houston Partnership last weekend. In his speech, he mentioned the immense amount of profit possible from investment in the line. But who is making all the profit? Definitely not the landowner whose land is condemned so that a private company can install a hazardous pipeline for the transport of oil from tar sands in Canada. Whenever the issue of eminent domain has come up in relation to the Keystone XL pipeline or to energy expansion in general, the landowner’s rights have been swept under the rug.  The best way to fight for your rights is to know them (jmehcondemnation.com). Once we know our rights, protests against condemnation will evolve into civil litigation in favor of the landowner. But to get to this point, we must understand our rights as landowners in the face of eminent domain proceedings.

Read more athttp://www.chron.com/business/energy/article/Regulator-says-pipeline-fight-raises-issues-for-3965890.php.