The Texas Supreme Court has 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. In Hlvavinka v. HSC Pipeline Partnership, LLC (No. 20-0567), however, the Court 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.)
The litigation arose from HSC’s use of eminent domain to acquire an easement from HSC Pipeline Partnership, LLC v. Hvalinka (No. 20-0567) 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.
SCOTX held that §2.105, Texas Business Organizations Code, which grants common carrier status to pipelines for certain oil products, “directly incorporates” 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 public use, the Court found that HSC clearly established its contract with an unaffiliated third party for the transport of a product owned by that party, which under Denbury Isatisfies the public use requirement of the statute as a matter of law. The court of appeals had 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 an erroneous line of reasoning, the court of appeals 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. SCOTX rejected this reasoning, as well as the court of appeals’ decision to let the jury decide what is a “public use.” Here the Court wisely observed that opening the door to inconsistent decisions applying the “public use” test would inject so much uncertainty and expense into infrastructure development that it would frustrate the legislative scheme authorizing common carriers to develop pipeline projects.
By allowing landowner testimony that the property constituted a “pipeline corridor” that is a “separate economic unit” for valuation purposes as relevant to a “public use” market value analysis, the Court may have unwittingly opened an unpleasant can of worms. 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.”