The Texas Supreme Court has declined to revisit its recent decision in Hlavinka v. HSC Pipeline Partnership, LLC (No. 20-0567). Although the Court reversed a Houston [1st] Court of Appeals decision holding 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, it agreed with the court of appeals that the property owner’s testimony regarding valuation of the pipeline easement, which the trial court had excluded, is relevant to establishing market value. SCOTX remanded the case to the trial court for a new trial to determine the market value of the easement.

In an opinion by Justice Bland, the Court reasoned that “[S]ales of easements on this property to other pipeline companies, combined with the existence of pipelines running parallel and adjacent to HSC’s pipeline, provide some evidence from which a factfinder reasonably could conclude that the Hlavinkas could have sold to another the easement that they instead were compelled to sell to HSC.” Justice Bland distinguished this case from both Exxon Pipeline Co. v. Zwahr and Enbridge G&P v. Samford, in which similar landowner testimony was excluded. In Exxon, the landowner argued that the pipeline itself enhanced the value of the land, which the Court held violated the project enhancement rule. Here SCOTX ruled that Hlavinka’s testimony was based on the value of the easement to HSC’s competitors due to its “intrinsic qualities,” i.e. suitability as a pipeline corridor. In Enbridge, there was no evidence that the landowner could have sold the easement to another pipeline company, as there was here. (Note: TCJL filed an amicus brief in the court of appeals, as did Texas Farm Bureau and other landowner groups.)

HSC filed a motion for rehearing on the valuation issue. In its amicus brief, the Texas Pipeline Association takes issue with the Court’s distinction between Exxon Pipeline and this case. According to TPA, the Court’s opinion “is flatly inconsistent with Zwahr, which, again, confirms that a partial taking must be valued with reference to the value and use of the whole, unless the part is proven to be a separate economic unit. . . . The Court’s complete silence on this issue may be construed as a fundamental change to the long-standing before-and-after method this Court affirmed in Zwahr. There is no rationale for changing the method at all, much less without any explanation.”

TCJL’s brief pointed out that the 2017 Legislature explicitly rejected a proposal to allow special commissioners to admit evidence of privately negotiated pipeline easements and that the negotiations conducted by CCI, landowner groups, and legislators, which ultimately produced HB 2730, preserved pre-HSC law. We also asked the Court to consider the anomalous situation created by the opinion in which property appraised at productivity value for ad valorem tax purposes is valued at a vastly inflated “market” value for a partial easement. As we say in our brief, this results “in a tax-free windfall for landowners fortunate enough to have multiple pipeline easements on some part of the property they represent to local taxing units as devoted to ‘agricultural use.’” One simply cannot have it both ways. Finally, our brief urged the Court to defer to the Legislature for such a significant policy change. Chapter 21, Property Code, is a delicately balanced compromise. Any changes to it should be thoroughly vetted through the legislative process, not the courts.

We will now see whether the decision has broader application beyond the facts of this case. Our fear is that it will and that, at least in some cases, ROW acquisition for common carrier pipelines just got a lot more expensive.

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