November 30, 2013 § Leave a comment
The Beaumont Court of Appeals recently affirmed the Denbury decision in Crosstex NGL Pipeline, LP v. Reins Road Farms-1, Ltd. 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. The court distinguished between a substance in its natural state and NGLs, which can only be derived by processes above the wellhead. Therefore, NGLs did not fall within the meaning of crude petroleum and common carrier status under this statute was not attained. 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. 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. 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.  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.).  Id. at *1.  Id. at *3-4.  Id. at *4.  Id.  Id. at *6 (noting, like Denbury, that Crosstex’s website was inconsistent with the evidence presented on common carrier status).
November 30, 2013 § Leave a comment
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, 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. 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. This is appropriate even as disputed issues, such as Keystone’s common carrier status, remain in the lawsuit. Therefore, the landowners’ right-to-take challenge will be decided during the trial phase of the case.
 Texas Rice Land Partners, Ltd. v. Denbury-Green Pipeline-Texas, LLC, 381 S.W.3d 465 (Tex. 2012).  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.).  See id.  See id. at *4
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. 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. The special commissioners appointed in the case awarded the Donnells $226,000 in total compensation for the pipeline easements, to which the Donnells objected.
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. 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.
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%. 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. LaSalle’s appraiser testified that there were no damages to the remainder due to the pipeline and permanent easements. 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.
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. The San Antonio court of appeals upheld the jury award, including the compensation awarded for remainder damages. In doing so, the Court granted appraisers great latitude in determining how to calculate the amount of remainder damages in two important ways. 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. Second, appraisers’ data did not have to precisely mirror the value opinions they offer. 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.
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.
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.
 LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. App.—San Antonio 2010, pet. denied).  Id. at 310.  Id. at 309.  Id. at 310-11.  Id.  Id. at 311.  Id.  Id. at 316.  Id. at 309.  Id. at 315-16.  Id. at 321.  See id. at 317-18.  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”).  See LaSalle, 336 S.W.3d at 318.  Id. at 317; Gammill v. Jack Williams Chevrolet, Inc., 972 S.W.2d 713, 726 (Tex. 1998).  LaSalle, 336 S.W.3d at 317-18.
November 30, 2013 § Leave a comment
The supreme court’s decisions in Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC 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.’” 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. 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. 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. However, it is the notion of “affiliate” that Denbury attempted to use to establish their right to eminent domain. 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.
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”. 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. 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.
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. 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.
 Id. at 195.
 Id. at 204.
 Id. at 198.
 Id. at 200.
 See id.
 See id. at 200-01.
 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.
 Denbury, 363 S.W.3d at 202-03.
 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).
 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).
 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).
 LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. 2011).