In a case that raises several important issues involving condemnation by a common carrier pipeline of property owned by a political subdivision, the Houston Court of Appeals has handed a significant victory to the pipeline. Harris County Fresh Water Supply District No. 61 v. Magellan Pipeline Company, L.P. and V-Tex Logistics, Inc. (No. 01-20-00805-CV) arose out of a Magellan project to construct a common carrier pipeline from east Houston to Hearne, Texas. The project required Magellan to acquire easement rights across about 600 tracts owned by about 300 landowners. Harris County FWSD owned a 34-acre tract on the route. The parties entered into negotiations for the sale of the easement.

This is where things get interesting. The parties negotiated a deal in which Magellan would pay the district an initial sum for right-of-entry to the property and then Magellan would file an agreed condemnation proceeding to resolve further compensation over and above the initial payment. Upon execution of the agreement, Magellan paid the district nearly $500,000 plus another $21,000 to reflect changes in the dimensions of the easement. As part of this agreement, the district agreed not to contest Magellan’s authority to acquire the easement or Magellan’s compliance with the bona fide offer requirement. Consequently, Magellan filed for condemnation in a Harris County county court-at-law, which appointed special commissioners. The commissioners returned an award of additional compensation of $160,000.

The District filed objections to the award with the court, as well as a plea to the jurisdiction, claiming that the condemnation proceeding should be dismissed because its property was already being used for a public purpose (retention ponds) and that the easement would “practically destroy that public use” (the so-called “paramount-public-purpose defense”). Magellan filed two motions for partial summary judgment on the basis of the prior right-of-entry agreement, which the trial court granted. The trial court also granted summary judgment for Magellan on the paramount-public-purpose defense claim. The case was then tried to the bench on the remaining claims. The district sought $34.3 million in additional compensation and damages for breach of contract. The trial court awarded the $160,000 in additional compensation determined by the commissioners and ordered that the district take nothing on its claims that Magellan breached the right-of-entry agreement. The district appealed.

The court of appeals affirmed. On appeal the district for the first time raised a governmental immunity issue, arguing that the Legislature had not clearly and unambiguously waived governmental immunity in condemnation suits and that the district had not waived its immunity from suit by entering into the right-of-entry agreement. The court first determined that the Legislature has not clearly and unambiguously waived a government landowner’s immunity from a condemnation suit, citing two appellate decisions, Dallas Rapid Transit v. Oncor Elec. Delivery Co., 331 S.W.3d 91, 106 (Tex. App.—Dallas 2010), rev’d on other grounds, 369 S.W.3d 845 (Tex. 2012) and Hidalgo Cnty. Water Improvement Dist. v. Hidalgo Cnty. Water Irrigation Dist. No. 1, 627 S.w.3d 529, 540 (Tex. App.—Corpus Chjrist 2021, pet filed.). In Oncor, SCOTX declined to reach the issue of legislative waiver of a government landowner’s immunity, but the issue is squarely before it in the Hidalgo County case. For these reasons, the court of appeals declined to find legislative waiver.

The court then turned to the question of whether immunity was judicially abrogated. Abrogation will not be implied merely when a governmental entity enters into a contract with another party. Nor has SCOTX clarified “what sort of conduct, if any, would warrant a waiver-by-conduct exception.” The court of appeals nevertheless has recognized waiver-by-conduct when a governmental entity contracted with a private business for $13 million in equipment services and promised to pay any judgment, only to turn around and plead immunity when it refused to pay the bill and got sued. Texas Southern University v. State Street Bank & Trust Company, 212 S.W.3d 893, 907 (Tex. App.—Houston 2007, pet. denied).

Moreover, SCOTX has recognized a “variation on the waiver-by-conduct exception for cases in which the governmental entity voluntarily engages in certain litigation.” Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 374 (Tex. 2006). There SCOTX ruled that if the governmental entity chooses to engage in litigation “to assert affirmative claims for monetary damages, the entity will presumably have made the decision to expend resources to pay litigation costs.” Thus, abrogating immunity in this case would be entirely consistent with the policy rationale for sovereign immunity, which is to prevent governmental entities from being forever dragged into litigation at public expense. This case, the court of appeals ruled, fits that description. The district contractually agreed to participate in the condemnation proceeding. It promised not to contest Magellan’s right to acquire the easement. And it initiated the judicial portion of the condemnation proceeding by objecting to the commissioners award and seeking additional damages for breach of contract. In the Hidalgo County case, by contrast, the irrigation district landowner is not a “willing participant in the condemnation proceeding” and will, absent immunity, “be compelled to expend public funds to defend itself.” The court of appeals concluded that the district’s governmental immunity had been abrogated by its participation in the condemnation proceeding.

The court of appeals likewise overruled the district’s issues regarding Magellan’s authority to condemn and the paramount-public-use defense. The district urged the court to view these issues as jurisdictional, thus rendering the right-of-entry agreement irrelevant. The court of appeals rejected this argument. Relying on Denbury, the court observed that while SCOTX authorized a landowner to challenge a pipeline’s common carrier status and right to condemn, it did not make  common carrier status a jurisdictional prerequisite. Similarly, the paramount-public-use defense is a defense to condemnation, not a jurisdictional requirement. Because these issues are not jurisdictional, the parties may “stipulate to or waive the requirement of proof thereon.” This is exactly what they did in the right-of-entry agreement, which waived the district’s right to contest Magellan’s authority to condemn. Even so, the court noted that Magellan had provided more than sufficient evidence that it was a common carrier through testimony indicating that the company had “enough [third party] commitments, volume commitments from various destinations that would support the project.” Additionally, the district presented no evidence suggesting that the pipeline would destroy the current use of the property for retention ponds.

This case is worth reading for its thorough discussion of the waiver of immunity issues. It also shows an unfortunate side of dealing with parties who agree to do one thing and do quite the opposite. We also have to wonder what somebody was smoking when they asked for $34 million after the commissioners had awarded $160,000. We very much doubt the trial court was amused, and the court of appeals certainly wasn’t.

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