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

November 30, 2013 § 1 Comment

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

November 30, 2013 § Leave a comment

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.

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