Texas Supreme Court Opinion On Denbury Green Pipeline

Posted by on Jan 10, 2017 in Blog, Client Services, Condemnation, News | No Comments

On January 6, 2017, the Texas Supreme Court issued an opinion that will make it easier for private pipeline companies to condemn private land for their own purposes and not necessarily for the public good. Some highlights of this long-fought case are as follows:

Denbury Green Pipeline is an affiliate of Denbury Onshore, LLC, and both are wholly owned, indirect subsidiaries of Denbury Resources, a publicly traded holding company.  Denbury Green was formed in 2008 to build, own, and operate a carbon dioxide pipeline known as “the Green Line” as a common carrier in Texas. A common carrier is an entity whose business transports people or goods from one place to another for a fee. The State of Texas grants common carriers the power to condemn privately owned land. James E. Holland, David C. Holland, and Texas Rice Land Partners, Ltd. (collectively “Texas Rice”) own approximately 13,800 acres of land in Jefferson County, Texas. The land is leased and used for rice farming.

Before construction of the Green Line began, Denbury Green sought permission from Texas Rice, to survey their property. Texas Rice denied Denbury Green access, believing that the company offered too little compensation to account for the amount of damage the pipeline might inflict on their land. Denbury Green responded by filing a Form T-4  Application with the Texas Railroad Commission to obtain common-carrier status, and the right to condemn. The Railroad Commission granted the application, and Denbury Green sued Texas Rice in condemnation (the lawsuit is here referred to as “Texas Rice I”) in Jefferson County, and sought an order from the court forcing Texas Rice to allow Denbury Green access to its property so that it could complete the survey. Texas Rice challenged Denbury Green’s status as a common carrier. At the same time, Denbury Green took possession of Texas Rice’s property using its eminent domain authority, and constructed the Green Line, which was fully completed and operational by December 2010.

In 2009, the Ninth Court of Appeals of Texas, in Beaumont, found that Denbury Green was a common carrier because it filed the Form T-4 Application, and agreed to grant the public the right to use the pipeline. Texas Rice petitioned to the Texas Supreme Court. In August 2011, the Supreme Court, however, found that the Texas Constitution requires Denbury Green to produce reasonable proof of a future customer, demonstrating that the Green Line would indeed transport carbon dioxide to or for the public for hire, and would not be limited in use to the wells, stations, plants, and refineries of Denbury Green, or its parent companies. The Supreme Court sent the case back to the trial court to allow Denbury Green to produce evidence showing reasonable probability that it would have a third-party customer, and would therefore act as a common carrier.  In March 2012, the Supreme Court issued a revised opinion stating that Denbury Green had to show proof of one or more customers in the foreseeable future.

In what is here referred to as Texas Rice II, Denbury Green produced transportation agreements with Airgas Carbonic, Inc., and Air Products and Chemicals, Inc. Neither companies are owned by Denbury Green, or its parent companies, and both have agreements with Denbury Green to transport carbon dioxide via the Green Line, for a fee. The trial court found that this was sufficient evidence to establish common carrier status. On appeal, however, the Court of Appeals, sided with Texas Rice, and concluded that reasonable minds could differ regarding whether, at the time Denbury Green intended to build the Green Line, a reasonable probability existed that the Green Line would serve a substantial public interest. Denbury Green petitioned the Texas Supreme Court.

The Supreme Court stated that once a landowner challenges common-carrier status, “the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain.” In Texas Rice I, Denbury Green failed to provide any evidence of identified potential customers, and the record even included evidence that Denbury Green would use the pipeline solely for its own purpose. This established a mere possibility and not a reasonably probability that the pipeline would, at some point after construction, serve the public. In Texas Rice II, Denbury Green produced contracts to transport carbon dioxide over the Green Line. It was not relevant to the analysis that these contract were entered into after the pipeline was already completed. The Supreme Court also rejected the Court of Appeals requirement that a reasonably probable future use of the pipeline to serve  a “substantial public interest,” finding that if “even one customer unaffiliated with the pipeline owner is substantial enough to satisfy public use under the Texas Rice I test.”

It seems logical to assume that the law requires a pipeline company seeking to acquire common carrier status to establish, at the time of its Form T-4 Application, that its pipeline will serve the public. But that is, in fact, not the way things stand. Instead, the Texas Supreme Court has ruled that a pipeline company need only prove its entitlement to eminent domain powers after it has already exercised those powers to condemn someone’s land, and only when a landowner is willing and financially able to incur substantial legal costs to raise the challenge.

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