Denbury Secures Major Pipeline Industry Win at Texas Supreme Court
In a decision that has
major implications for the pipeline industry, the Texas Supreme Court has ruled
that a carbon dioxide pipeline owned by Vinson & Elkins client Denbury
Green Pipeline-Texas qualifies for “common carrier” status with the power of
eminent domain. The ruling significantly clarifies how common carrier pipeline
status may be established under state law.
6, the high court ruled that Denbury ’s CO2 pipeline is, as a matter of law, a
common carrier and that Denbury therefore had eminent domain authority at the
time the pipeline was constructed. Reversing a 2015 decision issued by the
Beaumont Court of Appeals in favor of private landowner group Texas Rice Land
Partners, the Texas Supreme Court held that Denbury’s evidence—including a
contract Denbury entered into with third party shipper Airgas after the
pipeline was constructed—was sufficient to establish common carrier
status. Texas Rice challenged
Denbury’s common carrier status in an effort to invalidate an easement,
acquired by Denbury through eminent domain, for the pipeline across private
property owned by Texas Rice members.
“When considered in the light most favorable to
Texas Rice, indulging every reasonable inference in its favor, Denbury Green
conclusively established that there was a reasonable probability that, at some
point after construction, the Green Line would serve the public,” the Texas
Supreme Court ruled.
The Texas Supreme Court held in 2012, in an earlier opinion, that to qualify as
a common carrier, Denbury had to demonstrate a "reasonable
probability" that its pipeline would at some point
after construction serve the public by carrying CO2 for one or more
third party shippers not related to Denbury or its affiliates. In that 2012
opinion, the Supreme Court remanded the case after holding a Railroad
Commission-issued common carrier permit didn't meet that burden.
On remand, Denbury successfully argued that its pipeline had always been
available to transport carbon dioxide for companies unaffiliated with Denbury,
and that it was currently in use by third parties. In February 2014, Jefferson
County District Judge Donald Floyd held, on summary judgment, that Denbury’s
pipeline met the test for common carrier status set forth in the Supreme
Court’s 2012 decision.
Texas Rice appealed that decision and in February 2015, the Beaumont Court
of Appeals overturned the trial court, finding that rational minds could differ
as to whether or not a reasonable probability existed that sometime after
construction, the pipeline would serve the public. If allowed to stand, the
appeals court’s decision could have
created disastrous delays for pipeline projects across the state and threatened
Supreme Court’s January 6 opinion is important to the pipeline industry because
it holds that contracts with third party shippers entered into after
pipeline construction can be used to prove that the pipeline was a common
carrier years earlier when the pipeline owner condemned the land to build the
pipeline. The opinion also holds that one such third party shipment
contract is enough for the pipeline to meet the common carrier test. Moreover,
the ruling is critically important to the pipeline
industry because the Supreme Court’s 2012 test for common carrier status has
been applied by Texas trial courts to other types of pipelines, in addition to
took the lead in Denbury’s second appeal to the Texas Supreme Court, arguing
successfully that Denbury’s contracts and the pipeline’s proximity to potential
third party customers demonstrated a reasonable probability that the pipeline
would serve the public, establishing it as a common carrier.
The V&E team includes partners Marie Yeates,
Michael Heidler, George Murphy and Matt Stammel.