Pipeline companies’ right to condemn land may be questioned

By MIKE LEE - The Fort Worth Star Telegram - June 22, 2008
When a gas drilling company wants a piece of land for a pipeline, its representative usually shows up at the owner’s door with a letter from the Texas Railroad Commission, stating that the company has a right to take the land.

Pipeline companies can condemn land because they’re considered either utility companies, which serve the public the same as Atmos or TXU, or "common carriers," a legal term that means they carry oil or gas for anyone.

Major gas companies have formed their own pipeline divisions as they seek routes for gathering pipelines to serve the Barnett Shale. These divisions have the power to condemn land.

However, several local lawyers specializing in pipeline and condemnation matters question whether these divisions should have that power because these pipelines typically serve only one company.

"In order to determine the ultimate answer to that question, somebody’s going to have to get some of these landowners together and challenge this," said Jim Bradbury, a pipeline lawyer who serves on Fort Worth’s gas drilling task force.

Captive utilities

The laws that allow pipeline companies to condemn land were written decades ago, when there was a greater division between the oil business and the pipeline business, said Glenn Sodd, a Corsicana lawyer who specializes in condemnation cases.

Chesapeake Energy’s pipeline division, Texas Midstream Gas Services, was created in 2006 and got its permit from the Railroad Commission in 2007, records show.

XTO Energy acquired its pipeline division, Barnett Gathering, from Antero Resources in 2005 and got a permit from the Railroad Commission in 2006, records show.

The commission issues permits, known as T-4s, that designate a company as a gas utility or common carrier. But commission officials say it isn’t responsible for deciding who gets the power to condemn land.

Spokeswoman Ramona Nye said that the commission has never denied a permit and that the agency gives them out only for administrative purposes.

"A pipeline is a common carrier or gas utility by virtue of their business organization, business activities, and they way they hold themselves out as conducting their business under Texas statutes," she said in an e-mail.

The question is whether "captive utilities" fit the traditional definition of a common carrier, since they carry gas for only one company.

"It’s uncharted territory, as far as I know," said Rick Disney, a Fort Worth lawyer who has handled pipeline cases.

Julie Wilson, vice president of Barnett Shale operations for Chesapeake Energy, said there’s no question that the company’s pipeline division is a gas utility, which gives it the right to condemn land.

"Ownership is irrelevant to a gas utility, so long as you receive the designation of a gas utility company," she said.

Charles Fiscus, a Dallas attorney who also works on condemnation issues, agreed with Wilson. Even if a pipeline serves only one company, it might still be a common carrier, the same way a trucking company might still be a common carrier even though all its trucks are leased to one customer, he said.

"Until there is a determination that a common carrier means you must offer your services to the public and you cannot contract your services to one person, I think there’s an ability to do that," he said.

Wilson said Chesapeake could probably ship other producers’ gas, "provided there’s capacity."

Pipeline power

Pipeline companies have wider condemnation power than a city or an electric company.

When a city wants to condemn land, it is required to have the property appraised.

When an electric company wants to condemn land, it has to file its route with the Public Utility Commission and submit alternate routes, Sodd said.

A pipeline company can condemn land without taking either of those steps, Sodd said.

The Legislature passed a law in 2007 that would have given landowners more rights in all types of condemnation, but Gov. Rick Perry vetoed it. The law would have required companies or governments to make a "bona fide offer" — an offer close to fair market value — for the land before beginning condemnation proceedings.

Matt Miller, executive director of the Institute for Justice-Texas, which advocates for landowner rights, said the Barnett Shale drilling boom might affect enough people to force the Legislature to act again.

"That has to be a legislative fix," he said. "They’re using the fact that we’re facing an energy crisis to push the issue."

City regulation

In the meantime, Fort Worth’s task force is discussing what, if anything, the city can do to regulate pipelines and possibly give homeowners a recourse.

In an April letter to the Mayor and City Council, Assistant City Attorney Sarah Fullenwider wrote that the city can do little about pipelines because they’re already regulated by state and federal agencies.

Southlake and Flower Mound have passed ordinances that require pipeline companies to file detailed maps of their routes.

Southlake requires pipeline companies to get a permit before they begin work. And there are additional requirements for pipelines that aren’t covered by the state and federal government, including "a description of the consideration given to matters of public safety and the avoidance, as far as possible, of existing habitable structures."

Fort Worth’s gas task force is scheduled to discuss the Southlake ordinance when it begins considering pipeline regulations in the next few weeks.

Sodd said the city should use its zoning authority to require pipelines to steer clear of neighborhoods.

"If I tried to build a business in a residential neighborhood, you would see the Planning and Zoning Commission of the city come down on me," he said.

Fullenwider said it’s not clear whether Fort Worth can adopt regulations similar to Southlake’s without getting sued.

"The issue is going to be what happens if the pipeline company refuses to get a permit — cities are going to be in an interesting position," she said.

And the city can’t curtail the pipeline company’s power to condemn land.

Wilson, of Chesapeake, said she thinks Southlake’s ordinance is "in direct violation of state and federal laws and regulations." She said the same would apply if Fort Worth tried to adopt similar regulations.

Even revealing pipeline routes the way Southlake and Flower Mound require would be problematic, Wilson said. The company would lose its flexibility in selecting routes and might be forced to condemn more property, she said. Also, just as it’s common for land speculators to buy property in the path of a proposed highway, the same thing could happen if pipeline companies publicized their routes.

One situation in which the city has some control is when a pipeline company needs to cross a city street. Utilities can’t condemn streets, and city officials have used that advantage to negotiate the routes of a few pipelines.

But, Wilson said, "the city is not allowed to unreasonably withhold approval, either."



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Eminent domain
Eminent domain is the legal term for the process that governments and private companies such as utilities use to acquire land. Pipeline companies and government agencies are required to pay for land they take. Here’s a look at how it works.

Informal negotiation The process differs depending on whether the government or a company is taking a piece of land. Government agencies typically must have the land appraised and show the appraisal to the landowner. When a pipeline company wants a piece of land, a right-of-way agent typically approaches landowners and makes an initial offer, but there’s not always a formal appraisal.

The company is not condemning the land at this point, even though the company typically shows landowners a letter stating that it has the power of eminent domain. A spokeswoman for Chesapeake said the company typically acquires 80 percent of its land at this phase, before any court action.

Condemnation suit If the two sides can’t agree on a value, the company or government that wants the land can file a condemnation suit in a county court at law.

At that point, the judge appoints a group of "special commissioners," who are usually real estate agents or lawyers with real estate experience. The commissioners listen to testimony and determine the value of the land. They can also determine if a landowner should be compensated for other damages, such as the decrease in value to the rest of his or her property.

A landowner is restricted in the evidence he or she can present at this phase. For instance, landowners can’t challenge the government’s or a company’s right to take their land, or complain about quality-of-life issues, said Glenn Sodd, a lawyer who specializes in condemnations.

But they can present appraisals and expert testimony that show how much the land is worth.

Landowners can have their case heard by a jury if they aren’t happy with the value set by the commissioners.

Appeal to District Court Landowners can challenge a county court at law verdict in state District Court.

At this level, a landowner can challenge the government’s or company’s right to take land. An owner can also argue that the seizure is "arbitrary and capricious."

But "that is a very, very tough burden," said Charles Fiscus, a Dallas attorney who handles condemnation cases.

Sources: Star-Telegram research, Texas attorney general’s office


The issue is going to be what happens if the pipeline company refuses to get a permit.

Sarah Fullenwider,
assistant Fort Worth city attorney

Read more in the Fort Worth Star Telegram