In a decision that will likely attract the attention of the Texas Supreme Court, the First Court of Appeals [Houston] has ruled that evidence of a common carrier pipeline’s contract with an unaffiliated third-party for the transportation of the third party’s product to its manufacturing facility does not as a matter of law establish public use for purposes of the pipeline’s eminent domain authority. The court also determined that the property owner’s testimony regarding valuation of the pipeline easement, which the trial court had excluded, is relevant to establishing market value because: (1) some evidence existed that the property owner valued the easement as part of a “pipeline corridor”; and (2) the property owner’s use of comparable sales of private pipeline easements on his property could show the price at which a willing seller might purchase the easement in a voluntary sale.
Hvalinka v. HSC Pipeline Partnership, LLC (No. 01-19-00092-CV) arose from HSC’s use of eminent domain to acquire an easement from Hvalinka to construct a pipeline for the purpose of transporting polymer grade propylene (PGP) from Texas City to a plant in Brazoria County owned and operated by Braskem America, Inc., a customer of Enterprise, the operator of the pipeline. In 2002 and 2003, Hvalinka purchased close to 16,000 acres in four tracts for, according to Hvalinka, the purpose of generating income by selling additional pipeline easements (more than two dozen pipeline easements currently cross the property). HSC and Hvalinka negotiated for a 30-foot wide easement but could not agree on the price. At trial, Hvalinka argued that HSC did not have eminent domain authority because PGP is not a petroleum product, and, even if it is, HSC is not a common carrier. HSC adduced evidence of its common carrier status, and moved to exclude Hvalinka’s testimony valuing the easement on a per rod basis based on private sales to other pipeline operators. The trial court granted partial summary judgment to HSC on the common carrier issue and excluded Hvalinka’s testimony. Hvalinka appealed.
The court of appeals determined that §2.105, Texas Business Organizations Code, grants common carrier status to pipelines independently of 111.019(a), Natural Resources Code. It next determined that PGP is an oil product for purposes of §2.105. Turning to the issue of HSC’s common carrier status, the court found that under the Supreme Court’s decisions in Denbury, HSC did not establish conclusively that its pipeline would more likely than not serve the public at some time in the future. Although HSC clearly established its contract with an unaffiliated third party for the transport of a product owned by that party, the court distinguished this case from similar appellate decisions that found the existence of public use where the pipeline operator solicited business from multiple third parties. In what we think to be an erroneous line of reasoning, the court seemed to liken HSC’s contract with Braskem to a “private” arrangement designed to allow HSC to claim common carrier status for the purpose of exercising eminent domain authority to “seize” Hvalinka’s land for its own commercial interest.
This somewhat baffling opinion seems to ignore SCOTX’s opinion in Denbury II, which requires a “reasonable probability” that a pipeline will be used by the “public.” Here HSC conclusively established that the pipeline only serves the public, i.e. Braskem. Nowhere in Denbury does the Supreme Court suggest that one customer does not constitute the “public,” but more than one customer might. If it stands, the court of appeals’ decision could also have the effect of forcing trial judges and juries to scrutinize arm’s-length commercial arrangements in the energy marketplace in every case involving a common carrier pipeline. In our amicus brief in Denbury TCJL asked SCOTX for a bright-line test for “public use.” It is clearly time for that, lest we jump off into endless litigation over whether a contract for the transportation of oil products serves a “private” or a “public” interest. That cannot be what SCOTX meant to happen.
Another issue of concern in the court of appeals’ decision is its confusing treatment of Hvalinka’s claim that his “pipeline corridor” is a “separate economic unit” for valuation purposes, and that evidence of private pipeline sales is relevant to a “public use” market value analysis. One wonders whether the Brazoria Central Appraisal District is aware that the landowner is in court arguing that the highest and best use of his property is as a pipeline corridor, while he simultaneously benefits from the tax appraisal of his property as agricultural land. It also seems odd that the landowner is seeking “damages” caused by a pipeline to property that he not only actively sells as a pipeline easement, but that appears to significantly enhance the value of the same property. If Texas courts are going down the road of recognizing agricultural land as industrial property in disguise, maybe we need to tax it that way. Perhaps Hvalinka proves the wisdom of the old saying, “be careful of what you ask for, because you just might get it.”