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Denbury Secures Major Pipeline Industry Win at Texas Supreme Court

Published: 01-06-2017

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.

On January 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 longstanding precedent.

The 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 CO2 pipelines.

V&E 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.

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