locomotiveTherapist: “We’re here today in group to bring closure to the traumatic events of Crosstex North Texas Pipeline L.P. v. Gardiner. Each side claims mistreatment by his adversary and by one component or another of the civil justice system. Rancher/property owner Mr. Gardiner, you appear to be the more unhappy party, let’s start with you. Your glorious trial victory ended in soul-crushing defeat. What happened?”

Gardiner: “I own 95 acres in a rural part of Denton County, Texas. I reluctantly gave Crosstex an easement for their 24-inch transmission line when they threatened the confiscatory and intimidating power of emiment domain. I thought it would stop there, but it didn’t. I run cattle and horses on the property. The environment was peaceful and quiet, with your usual country sounds. We could hear coyotes howling, and birds.

Therapist: “Thank you. Crosstex, how does that make you feel?”

Crosstex: “Confiscatory, my %$#. We paid him five times the value we should have for that easement. What’s a company to do?  No matter how carefully we place a facility and then work to alleviate concerns of our neighbors, we get sued in a bad venue. We can’t make everybody happy, especially a local jury.

“We could transport more gas if we had compression along the line. Without it, Barnett Shale producers would have stranded wells with no way to get their gas to market. We built a sixteen million dollar compressor station on 19 acres we purchased across the road from the Gardiners. We chose that area because it was rural and there were no houses anywhere around. Besides Gardiner’s ranch there were only flea markets, mobile homes, welding shops and more pasture. We located the station in a place that was far away as it could be from people it might bother.

Here’s what that rabble did to us – a verdict for two million dollars! In a reflective moment we appealed to our ‘higher power’, which was in Fort Worth. But I digress.”

Therapist: “Crosstex, please look at Mr. Gardiner when you speak, not at me. And it isn’t helpful to wink and smile at the court as if they were your new best friend.

Crosstex:  “We installed hospital grade mufflers. When Mr. Gardiner complained, we hired a consultant and spent thousands of dollars on sound mitigation. We did everything he told us we needed to do. At one test the sound level was a mere 37 decibels. I’m sorry our employee made that report saying “NOISE VERY LOUD”. She really shouldn’t have done that. But we built a roof, walls on three sides, and a sound barrier at the road.”

Gardiner: “Yes, but the wall wasn’t on my side. There were four diesel motors bigger than a mobile home. The noise sounded like a locomotive, one neighbor couldn’t use her yard to entertain outside, you had to scream to be heard when the compressors were running, my son couldn’t hear my directions when we rode horses, the cattle couldn’t hear when I honked the truck horn for dinner time. It sounded like an air impact wrench that takes off lug bolts!  I am a person of ordinary sensibilities and the station caused unreasonable discomfort and annoyance to me.

Crosstex: “You’re saying your cattle are too stupid to know when to eat? Give me a break! And you were holding the property for sale or development. You didn’t care about those country sounds.”

Therapist: “That’s a clever use of sarcasm, Crosstex, but please consider whether it’s helpful. Your Honors, thank you for wearing your robes to the session as a reminder of your authority.

The Court of Appeal: “I don’t even know why we agreed to be here. We aren’t from Denton County, and we are exposed to the electorate only once every six years. Here’s some law for you, Mr. Gardiner:  We found that the evidence was factually insufficient to support the verdict that the operator committed acts constituting negligent nuisance. Our painstaking recitation of all the ugly and highly-contested facts  supports this conclusion.  There was a dissent but we didn’t invite her.

“If you want to know how Texas law defines nuisance, nuisance per se and nuisance in fact, please refer to page 4 and footnote 3 in our opinion. See footnote 4 for a lesson on the elements of a negligence cause of action. That’s where the trial judge got it wrong.”

Crosstex: “We won. Hooray! Go ahead and appeal to the Supreme Court. You know what that bunch thinks about plaintiffs and big judgments. If you don’t like it, vote Democrat next time.”

Therapist: “Mr. Crosstex, I wish you hadn’t said it quite like that. Mr. Gardiner, is that a burdizzo you just pulled from your briefcase?

Grosstex: “Get away from me with that thing!” (Screams, … scuffle ensues).

Therapist: “Oh my God! This session is over.”

ernieCo-Author Martin P. Averill

Is Denbury’s Green Pipeline a common carrier? That question is alive and well in Texas. In Texas Rice Land Partners Ltd. v. Denbury Green-Texas Pipeline, LLC,  the Beaumont court of appeals reversed a summary judgment granted by the trial court to Denbury, applying the Texas Supreme Court’s “reasonable probability” of public use standard (announced in the original Denbury Green appeal).  The case will now be in the hands of a Jefferson County jury unless the Texas Supreme Court reviews the decision.

What’s Next?

This decision is likely to strike fear in the hearts of pipeline operators.  For many decades in Texas, the power to condemn private land for a pipeline project was nearly absolute.  Landowners were relatively powerless to prevent a taking.  The original Denbury Green decision gave landowners a way to challenge a pipeline’s right to take their property. Pipeline operators will now likely face extended battles in courthouses throughout the state, including discovery and other procedures that never would have been allowed in years past.

Takeaways

  • Texas Business Organizations Code §2.105’s “fill-in-the-blank” process is not an independent ground for common carrier status—the pipeline operator still must meet the “reasonable probability” of public use standard.
  • Denbury’s proofs were not sufficient to rule out an issue of fact for a jury to decide. The public-versus-private intent of the operator must be judged at the inception of the plan to construct the line.  Contracts executed well after that time, as Denbury’s were, are not definitive.  The court also noted that whether these contracts establish a public use is a matter for “reasonable jurors” to decide.
  • The subjective beliefs of an operator are not probative; for instance, anticipating future contracts, third party use, or availability for public use.  A use is a public use “only when there results to the public some definite right or use in the business or undertaking to which the property is devoted.”
  • Contracts between Denbury Green and Denbury Onshore, ratified by some other small working interest owners, were not enough to establish public use, at least for purposes of summary judgment.  Also, ExxonMobil did not ratify these contracts for its 9.7% interest, and other interest owners do not take title to nor possession of CO2.
  • The public interest in a pipeline project must be substantial.  According to the court, “Specifically, the evidence raises a fact issue regarding whether the taking serves a substantial public interest.”
  • A jury trial is the best way to decide issues of knowledge and intent. Those faccts are rarely appropriate for summary judgment.

Lagniappe

Here is a link to an excellent presentation by Marty to the Energy Law Section of the Houston Bar Association.

Here is another pipeline reaction.

In Texas, more than your dog. Gilbert Wheeler, Inc. v. Enbridge Pipelines (East Texas), L.P. is good news for landowners. The Texas Supreme recognized the intrinsic-value-of-trees exception to the general rule for damages to real property, so that landowners are compensated for the loss of the ornamental (esthetic) and utilitarian (shade) value that trees bring to the property.

What About Fideaux?

PETA might not approve, but an owner can only recover the objective economic value for the negligent loss of his canine, no matter how much you loved the cuddly little ball of fur. Sentimental value and the owner’s subjective emotions are not to be considered.

The Facts Drive The Law

Whether the law is good or bad depends on your perspective. Wheeler and Enbridge had an easement by which Enbridge would construct a pipeline across Wheeler’s 153 acre tract by boring underground in order to preserve the trees and a natural stream on the property. The FUBAR was created when Enbridge failed to tell the contractor about the plan. The contractor cut down several hundred feet of trees, bulldozed the ground, and channelized the stream that once “meandered through the woods”.

The court set out to “clarify an area of the law that has been muddled for decades”. Read the decision for the muddled history. The law now is this:

permanent injury:  It cannot be repaired, fixed or restored or even though the injury can be repaired, fixed or restored it is substantially certain that the injury will repeatedly, continually, and regularly recur such that future injury may be reasonably evaluated. Generally rule: If the injury is permanent, the owner is entitled to the loss of fair market value to the property as a whole.

temporary injury: It can be repaired, fixed or restored and any anticipated recurrence would be only occasional, irregular, intermittent and not reasonably predictable such that future injury could not be estimated with reasonable certainty.  General rule: If the damage is temporary the owner is entitled to costs of restoration.

The exception to the rules allows compensation for the landowner even if the destruction of trees results in no diminishment of the fair market value or so little diminishment that the loss is essentially nominal. Beware: The court has a history of carefully avoiding what it considers to be overcompensating the landowner.

Inside Baseball

This part is for lawyers. The court held that whether injury to property is temporary or permanent is a question of law for the court, although the jury must decide the facts on which the question of law is decided.

Wheeler actively opposed a jury question whether the injury was temporary or permanent. He believed that it didn’t matter in a breach of contract context, because he was seeking benefit-of-the-bargain damages.  The court agreed, but not quite for the same reason. Because the temporary vs. permanent distinction is a question of law, that jury question was not necessary. Because the court deemed the injury permanent, the trial court improperly instructed the jury to calculate damages based on the cost to restore the property. The jury awarded Wheeler $288,000 in damages for the intrinsic value of the trees that were destroyed. Because of the destruction of the trees had not diminished the value of the property (or at most, according to Enbridge, $3,000) diminution in the fair market value was either zero or negligible. Thus, the intrinsic-value exception was allowed.

A musical interlude the Wheelers might relate to (except for the “my ole man” part).

 

There are certain cases that litigants and their lawyers find difficult to resolve: Lots of money on the line, two reasonable interpretations of a complicated agreement and, I suspect, parties who seek vindication for their actions. El Paso Field Services, L.P.  v. MasTec North America, Inc. is one of those cases.

The Question:

In a pipeline construction contract, which language prevails: Explicit risk-allocation provisions or due diligence specifications? See my January 25, 2012, blog for the court of appeal ruling on the case (This one is from the Texas Supreme Court).

The Takeaways:

  • A promise in your contract to perform a certain job for a fixed sum will not be excused because of unforeseen difficulties. If you want it any other way, be sure your contract says it.
  • A court’s role is not to redistribute risks and benefits of a contract, but to enforce the allocation that the parties agree upon.
  • If the plaintiffs’ bar were going to write a song to the Supreme Court, it might go like this.

The Facts

El Paso purchased a 1940s-era pipeline and made plans to remove the old pipeline and construct a new one. MasTec bid on the project. Tellingly, Mastec’s $3.6M bid was less than half of any other bid.

The only as-builts El Paso had were from the 1940’s and did not show crossings installed after the pipeline was constructed. MasTec understood the risk of underground surprises, assumed the risk of such surprises, and included a contingency markup in its bid. The problem was that MasTec underestimated the amount of that risk.

A survey found 280 “foreign crossings” along the right-of-way. In reality, there were at least 794 foreign crossings.

The Contract

Among other things, MasTec represented that it (1) had fully acquainted itself with the site, including topography accessibility, sub-surface conditions, and obstructions, (2) had an opportunity to examine the contract documents, scope of work, and existing facilities, (3) would perform all the work for the compensation stated in the contract, and (4) assumed full and complete responsibility for “all risks”.

El Paso represented that it will have exercised due diligence in locating foreign pipelines and utility line crossings, but Mastec was to confirm the location of all such crossings.

The Litigation History

The jury said El Paso breached the contract and awarded MasTec $4.7MM; the trial court took it away (finding that the contract allocated to MasTec the risk of additional costs for foreign pipeline crossings); the court of appeal (2 to 1) reinstated the jury award; the Supreme Court (6 to 3) said the risk of undiscovered foreign crossings was on MasTec. Result: MasTec’s claim was rejected.

The court observed that MasTec could have protected itself by having the contract contain a term that would imply the owners “guarantee of the sufficiency of the specifications”. El Paso did not guarantee the accuracy of the alignment sheets and as-builts.

The Dissent

Three dissenting justices believed that El Paso did not exercise due diligence because it found only 35% of the foreign crossings and not the industry standard 85 to 95%, and that El Paso’s specific duty of due diligence prevailed over the more general risk allocation requirements in other parts of the contract.