The Texas Supreme Court has ruled that landowners may use privately negotiated pipeline easement transactions as evidence of market value in eminent domain cases.
The case, Hlavinka et al. v. HSC Pipeline Partnership LLC, was brought to the court after both parties sought a review of the decision by Texas’ 1st District Court of Appeals in Houston. The appeals court ruled that HSC did not establish “common carrier” status, and the landowner should not have been excluded from testifying in the jury trial on the easement’s value.
Background
The Hlavinkas purchased four tracts of land in 2002-2003, totaling 15,000-16,000 acres in Brazoria County, TX, for the purpose of generating income by acquiring pipeline easements. The land had 25 easements at the time of the purchase. The land was acquired due to its unique location between the refinery and industrial centers in Texas City and the Oyster Creek and Freeport areas.
Terrance Hlavinka negotiated arm’s-length easements for $3.45 million and $2 million, respectively, prior to HSC wanting to install a polymer-grade propylene pipeline across Hlavinka’s property.
HSC, a subsidiary of Enterprise Products Partners, applied to the Texas Railroad Commission for a pipeline project named the Oyster Creek Lateral Project. The pipeline would carry propylene—a product of refining crude oil—from Texas City, across Galveston and Brazoria counties, to a plant owned and operated by Braskem America Inc., an Enterprise customer.
HSC contacted the Hlavinkas and attempted to acquire a 30-foot-wide permanent right-of-way easement and temporary workspace easement across the four tracts of land. The Hlavinkas and HSC were unable to reach an agreement for the easement. As a result, HSC filed condemnation proceedings.
Challenging the use of eminent domain, the Hlavinkas argued that the “trial court did not have jurisdiction over this matter because HSC was not a common carrier. Therefore, HSC did not have the authority to condemn their property.”
The trial court did not allow Hlavinka to testify despite having 30 years of experience negotiating pipeline easements and oil and gas leases. Hlavinka was asking $3.3 million for the easement based on the two prior easement sales, the number of acres and the measurement of “rods”—an imperial measurement of 16.5 feet used by surveyors for pipelines. HSC, however, valued the easement at just $23,326 and moved to exclude his testimony in court.
The trial court excluded Hlavinka’s testimony and awarded him solely the agricultural value of the land, which came out to $132,293.36 in compensation. Hlavinka appealed.
The Court of Appeals ruled that HSC was entitled to use eminent domain under business codes because polymer-grade propylene constitutes an “oil product” under that statute. It also ruled that Hlavinka should be allowed to testify.
Ruling
Several issues were brought before the court, including whether HSC has eminent domain authority, whether polymer-grade propylene is an “oil product” and whether Hlavinka’s testimony should be admitted.
The Supreme Court concurred with the Court of Appeals that HSC was entitled to eminent domain under Business Organizations Code Section 2.105, which expanded authority to pipeline entities engaged as common carriers.
The Supreme Court found polymer-grade propylene is an “oil product,” as the Railroad Commission defines “product” to include “refined crude oil, … processed crude petroleum, residue from crude petroleum, … blends or mixtures of petroleum, and/or any and all liquid products or by-products derived from crude petroleum oil or gas, whether hereinabove enumerated or not.”
Thus, the Supreme Court affirmed the holding that HSC has the authority to condemn property to build its pipeline.
With the court establishing HSC has the authority to use eminent domain, the question was whether Hlavinka should be allowed to testify on the value of the property. The court found a property owner may testify about the value of the property and that arm’s-length transactions are evidence of market value. They found Hlavinka’s prior arm’s-length pipeline sales offered at least some evidence that the condemned land could have been sold to another pipeline at a significantly higher price than its agricultural value.
In remanding the case to the trial court, the court wrote, “A condemnation should not be a windfall for a landowner. Nor should it be a windfall for a private condemnor. A condemnor must pay a fair price for the value of the land taken. Evidence of recent fair market sales to secure easements running across the property that precede the taking are admissible to establish the property’s highest and best use, and its market value, at the time of the taking.”
The Texas and Southwestern Cattle Raisers Association (TSCRA) celebrated the decision, stating while it does not uphold legal challenges for a pipeline’s ability to use eminent domain, it removes the obstacle of obtaining a fair market value for the property.
“I am extremely pleased with (the) Texas Supreme Court decision in favor of the Hlavinkas,” said Arthur Uhl, president of TSCRA. “Some pipeline companies abuse the power of eminent domain to drive down their costs. Unfortunately, landowners remain at a significant disadvantage in eminent domain proceedings, but this decision is an important step towards leveling the playing field.” — Charles Wallace, WLJ editor
