Keystone Fails Texas Common-Carrier Test, Court Is Told

TransCanada Corp. (TRP) faces court arguments from Texas landowners that its plans for the Keystone XL pipeline to transport Canadian tar-sands oil to coastal refineries don’t give it the right to condemn their property.

One farmer, in an appellate hearing today in Beaumont, Texas, seeks to build on a state Supreme Court decision and what may be a groundswell of support for property rights and environmental protection in a state whose laws and courts have historically accommodated the oil and gas industry.

David Holland, whose cattle and rice farm lies next to a cluster of refineries, argues TransCanada doesn’t qualify as a common carrier under state law and doesn’t have a right to take an easement for the pipeline.

“Someone just can’t avail themselves of the extraordinary power to take someone’s property unless you can prove you fit in with the statutory scheme,” Terry Wood, Holland’s lawyer, told the appellate panel. “TransCanada’s position seems to be as long as we say it with a lot of conviction, say it repeatedly and say it loudly, we should be able to avail ourselves” of condemnation powers.

Lawsuits by four landowners constitute the last hurdle blocking the pipeline’s southern leg from Cushing, Oklahoma, to the Gulf Coast. For the northern leg across the Canadian border, the Calgary-based pipeline and power company needs approval from the Obama administration, which has delayed a decision amid environmentalists’ opposition.

Major Interests

“There’s a lot of contemporary salience” for the landowners’ fight, Lynn Blais, who teaches environmental and property law at the University of Texas in Austin, said in a phone interview. “This is a property-rights state. But while the courts will be sympathetic, I don’t know whether the landowners will win. These are two of the most important interests to appear in court in Texas -- property owners and the oil industry.”

Holland is trying to persuade the state appeals court to reverse a lower-court ruling accepting TransCanada’s contention that it qualifies as a common carrier and therefore is allowed to take land through eminent domain for a pipeline easement.

“I’ve been told from the beginning that I would lose, that no landowner ever beats the pipeline companies in Texas,” Holland said in a phone interview. “But the abuse has simply gotten so bad that landowners are not taking it any more.”

Work Continues

A trial court ruled that TransCanada could start installing the pipeline while Holland appealed. Landowners, some of whom also claim the pipeline doesn’t qualify as a common carrier under state law, so far have failed to stop construction of the 485-mile southern leg.

“What’s at stake here is whether the state should allow a public agency to allow condemnation for private gain,” Tom Smith of Public Citizen, a consumers’ rights advocacy group, said in an e-mail. “TransCanada has yet to prove to the court that they are transporting the product for the public good or for the public for hire as required by law.”

Pipeline companies have been accustomed to “checking the box” on a state regulatory form to claim common-carrier status without having to prove it, said Edward Vassallo Jr., a Dallas property-rights attorney.

“Over time, many courts made it the rule, rather than the exception” by granting eminent-domain power to any pipeline, utility or school that requested it, Vassallo said. “We may start to see the pendulum swinging back.”

Requirements ‘Met’

David Dodson, a TransCanada spokesman, said before today’s hearing that the company has met all legal requirements to prove Keystone is a common carrier. It has “all the necessary permits and legal authority” to finish constructing its line and is confident it will prevail in court, he said in an e-mail.

“One can only speculate as to the consequences if existing interstate pipelines bringing crude oil from outside of Texas to the refineries on the Gulf Coast suddenly lost their common- carrier status,” Dodson said. “This is a much larger issue than a single pipeline or a single project.”

The Texas Supreme Court dealt the pipeline industry its first major eminent domain setback last year.

In the so-called Denbury case, the court denied condemnation rights to a firm that built a carbon-dioxide pipeline for its own use.

TransCanada has argued in court filings that the relatively narrow ruling doesn’t apply to Keystone. Opponents of the pipeline are trying to use it against TransCanada in the current round of court challenges.

Rejected Offer

Before they wound up in a state court last year, Holland rejected TransCanada’s offer of $446,864 for an easement across his farm, according to court papers.

He said he has since granted similar easements to other pipelines for slightly higher prices that included better environmental protections for his land.

“TransCanada isn’t willing to pay fair market value, and they are not willing to provide landowners protection against an obviously dangerous pipeline,” Holland said.

Holland claims Keystone improperly used common-carrier power of eminent domain to take his property after a condemnation proceeding valued an easement at just $20,808.

He wants the court to force Keystone to prove its common- carrier status so it can’t take his land “without paying anything for years,” he said.

Challenging Precedent

“What they are asking you to do is monumental, to upset 114 years of Texas jurisprudence on condemnation,” Tom Zabel, a TransCanada lawyer, told the panel today. “The Texas Legislature said we are not going to stop these projects now to let all these challenges play out because sometimes that takes a year or two and we don’t want delay while we fight about it.”

Justice Hollis Horton of the appeals court challenged Zabel.

“But then you’ve got a pipeline running across your property that shouldn’t be there,” he said.

“That’s why we have damages, if we’re found to have taken wrongful possession,” the lawyer replied.

Texas law was written to favor the development of the oil and gas industry, which needed condemnation powers to build pipelines, he argued.

Blais, the law professor, said state eminent-domain laws historically favored pipelines “because there was so much oil that needed to come and go within the state.” The rules may be different for a foreign-owned pipeline transporting Canadian oil to refineries for export, she said.

Family Farm

The same argument is being pushed by Julia Trigg Crawford, another Texas landowner battling Keystone. She opposes TransCanada’s bid to cross her family farm near Paris, in northeast Texas.

State pipeline regulators admitted they didn’t have jurisdiction over Keystone in her case, “but the trial court allowed TransCanada to take the Crawfords’ private land anyway,” Wendi Hammond, Crawford’s lawyer, said in an e-mail.

Crawford has appealed that ruling to a different state appeals court in Texarkana. No hearing date has been set. Two more Texas landowners are fighting TransCanada on similar grounds.

Nacogdoches farmer Michael Bishop has appealed a county court ruling allowing the company to begin construction of the Keystone pipeline on his land, about 150 miles northeast of Houston. TransCanada fraudulently induced him to accept a settlement by telling him it had the right to condemn his land, Bishop claims.

The fourth landowner, known as Rhinoceros Venture Partners, is also fighting Keystone’s common-carrier status over the condemnation of property near the refining-industry complex in Beaumont, Keystone’s Gulf Coast terminus. The case was accepted by the state Supreme Court with no hearing date yet set.

The case is In re Texas Rice Land Partners Ltd., 09-12- 00484-cv, Court of Appeals, Ninth District of Texas (Beaumont).

To contact the reporter on this story: Laurel Brubaker Calkins in Ninth Court of Appeals in Beaumont, Texas, at laurel@calkins.us.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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