Eminent Domain from Pipelines and Highways: CONDEMNATION RUNS WILD IN TEXAS

By Glenn Sodd

Dawson & Sodd LLP.

Condemnation (also called eminent domain) has always been hard on Texas landowners.  The condemning party (often the government, sometimes private pipeline or powerline companies), takes your property, and there is often not much you can do to stop it. You can always seek more adequate compensation, but even then, the government (who does most of the condemning) has set up a series of obstacles.

When Republicans took control of the Texas Supreme Court over 20 years ago, we expected better days for our landowner clients from what we hoped would be more conservative justices who valued private property rights. Unfortunately, the opposite has occurred. Supreme Court decisions since then have made it far more difficult for landowners to be adequately compensated when their land is taken.

These problems are compounded by the fact that there is more eminent domain now than ever before. As population increases, the desire to take your land without your consent will continue to worsen.[1] Private property is under attack.

Is the Constitution Still Alive?        

The State can condemn your property for public uses (supposedly for things like schools). The Texas Constitution contains two sections that were supposed to limit the use of eminent domain.  Article 1 section 17 states that “No person’s property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made . . .”, and Article 1 section 19 provides that “No citizen of this State shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land.”  Taken together, these Constitutional provisions are intended to ensure that a condemnor (like the State) only takes private property for a public use, after due process of law, and after providing the landowner adequate compensation.

Bad Changes to the Law

Economic Development. Many of you are aware of our firm’s fights over condemning for baseball stadiums, shopping centers, football stadiums and privately-owned tollways. Economic development is not a public use, and we argue that a privately operated for-profit highway is no more a public use than a private business would be. In Kelo v. City of New London, the US Supreme Court decided the Federal Constitution did not prevent a City from kicking longtime residents off their property and giving it to developers.  In response, the Texas Legislature made a law to try to stop condemnation for economic development in Texas, but condemnors’ lobbyists managed to get too many loopholes inserted for things like ‘flood control’, ‘slums’, ‘blighted areas’ and a host of others. Those loopholes have allowed Fort Worth, for instance, to attempt a huge economic development project along the Trinity River by calling it a ‘flood control’ project.

No More Good Faith Negotiations

  Unfortunately, many of the protections laid out in the Texas Constitution and Property Code have been undermined by recent Texas Supreme Court decisions.  For instance, the Property Code requires the government to attempt to agree on the compensation due to the landowner before filing suit. Older court decisions held that this meant the condemnor must engage in ‘good faith negotiations’, often holding that absent good faith negotiations, the court could dismiss the lawsuit.  The fear of having to start over again provided at least some incentive for condemnors to make reasonable offers to landowners, although exactly what kind of negotiations rise to the level of ‘good faith’ has always been a matter of dispute.

However, in the recent case of Hubenak v. San Jacinto Gas Transmission Company, the Texas Supreme Court took all the teeth out of the good faith negotiations requirement.  In that pipeline construction case, the Court held that the condemnor satisfied the good faith negotiations requirement by making offers only for condemning easement rights they had no power to condemn. No offer was made for the easement actually condemned.

Then the Court held that the dollar amount of an offer was irrelevant to whether it was made in good faith.  Finally, the Court held that even when no offer is made, the case is not dismissed, but merely postponed while an offer is made.

Taken together, these holdings remove any incentive for a condemnor to enter meaningful negotiations with a landowner before condemning.  If the court decides there were no good faith negotiations, it just has to delay the proceedings for a little while and let the parties “negotiate”.  This is of little use to the landowner because, by that point, he or she has already been forced to incur fees and expenses for attorneys and experts.

Check out our other article 13 Tips for Negotiating a Pipeline Easement.

On the other hand, delaying the proceeding briefly causes little added burden or expense for condemnors.  In short, the Hubenak decision effectively eliminated any duty to negotiate in good faith before filing a condemnation suit.

The Pipeline Value Problem

  Another recent Texas Supreme Court decision has made it more difficult for landowners to collect adequate compensation for easements.  As many landowners know, if you have one pipeline on your property, other people will often come along and try to lay their pipelines next to an existing one. 

This happens because the geographic advantages that made the site attractive for the first pipeline hold true for subsequent pipelines, and because condemnors can argue that a second pipeline does not greatly diminish the value of land that already had a pipeline running through it.  The way they see it, a second pipeline causes little additional damage. 

Thus, a landowner can wind up with multiple pipelines in a small area and have a harder time getting paid for them. This approach ignores the value of the pipeline itself, and attempts to limit the landowner’s compensation to the damage caused to agricultural land.

A few years ago, in a case called Exxon Pipeline Company v. Zwahr, the Zwahrs found themselves in this situation.  Their land already had a pipeline owned by Koch, and Exxon decided to put another one right beside it.  The landowners argued that the existence of the first pipeline made the land attractive for subsequent pipelines and thereby raised its value from that of farmland to that of prime land for laying pipelines. 

Their appraiser had witnessed pipelines grouping together and thought it was only fair that landowners be paid the value of the land’s use for a pipeline. Exxon’s appraiser valued the land as farmland, with no consideration of the value of the pipeline easement.  Needless to say, the landowners’ appraised value was much higher than Exxon’s, who argued that the landowners’ appraiser should not have been allowed to use his theory of valuation.

The Supreme Court again ruled against the landowners. While the case is much too complicated to fully explain here, suffice it to say that the Court’s decision made it more difficult for a landowner to argue for the value of the land for pipeline use.

The New “I’m Dumb” Defense for the Government. 

Inverse condemnation happens when the government takes private property for a public use without the owner’s consent and without going through the condemnation process.  In that situation, the landowner has to sue to collect the money the government should have paid him in the first place.

Inverse condemnation is based on Article 1 section 17’s prohibition from damaging landowners’ property for public use without adequate compensation.  Although “intent” is never mentioned in the Constitution, courts have increasingly said the government’s action must be “intentional” if the landowner is to be compensated.  In other words, even if the government takes, damages, or destroys your property, you won’t get paid if the government’s actions are shown to be merely negligent, rather than intentional.

As if this wasn’t tough enough, our Supreme Court recently changed the definition of ‘intentional’ to make it even harder for landowners to win inverse condemnation lawsuits. In City of Dallas v. Jennings, the City dislodged a clogged sewer main, and the dislodged material caused sewage backup that flooded the Jennings’ home with raw sewage.  In Tarrant Regional Water District v. Gragg, Schwertner and Priest, (our firm’s case), the operation and design of a new dam on the Trinity River caused a pattern of devastating floods on a downstream ranch.  Both of these cases addressed on the same day whether the government’s actions were ‘intentional’ so that the landowner could be compensated.

Although the Court held that Gragg could recover and Jennings could not, both cases redefined ‘intentional’ in a way that makes it harder for landowners to win inverse condemnation lawsuits.  After Jennings and Gragg, a landowner must prove not only that the government committed an intentional act (releasing water from the dam) but also that the government knew the harm that was being caused (worsened flooding) or knew that the harm was “substantially certain” to occur. 

It is no longer enough that the government intentionally took the action that caused harm to the landowner.  This is an incredibly difficult barrier for landowners to overcome. All the government needs to do now is show that it was too dumb to understand the consequences of its intentional conduct. It will be the rare landowner who prevails in an inverse condemnation case under this new definition of “intentional”. Who can prove that government is not dumb?

Highway Damages are Limited by Schmidt. Sometimes the Court takes great pains to keep condemnors from having to pay for all the damages they cause, despite the Constitution’s clear language calling for adequate compensation for any damages.  In State of Texas v. Schmidt, the State raised Highway 183 in Austin thirty-seven feet and eliminated the direct driveway access that businesses along the highway had previously enjoyed.

  Although the project drastically reduced the businesses’ visibility to their customers and forced their customers to take an inconvenient, roundabout route to get to them, the Supreme Court said the landowners could receive nothing for those losses.  In cases like Schmidt, Gragg, and Jennings, the Court is essentially saying the State is simply not smart enough to act responsibly and pay for the damage it causes landowners.

The Law Must Be Changed

Landowners normally don’t complain about eminent domain until it happens to them. On the other hand, TXDOT, water districts, river authorities, cities, pipeline companies, power line companies, etc. all have their own lobbyists working the legislature. The erosion of property rights by entities who think they know how to use the property better than the owner is rampant.

Profits for the condemnor are paramount, while compensation to the owner whose land allows the profit must be fought for in increasingly unfavorable courts. We fought a football stadium for the Cowboys, are currently fighting a Trinity River Vision project that wipes out 82 businesses in north Fort Worth for economic development, a gas treatment plant condemnation, and a host of other so-called private “improvements” dreamed up by someone other than the landowner.

Similarly, pipeline and powerline easements can now be condemned without any mention or consideration of the profits made by the pipeline and power companies from using your land to transport their products for profit (against your will) with no revenue sharing and no annual payments for using it.

In testimony before the Texas legislative committee considering eminent domain changes, Dawson & Sodd LLP made many suggestions:

i.           That landowners condemned for revenue generating projects (like pipelines, powerlines, football stadiums, privately-owned tollways, etc. should be paid based on the revenue to be generated by the use of their land; just like any privately negotiated oil lease or agricultural lease. In the real world, a landowner adjusts his price according to the buyer’s intended use of the property.

If an owner knows that a pipeline will make a lot of money for the buyer for decades to come, the owner will adjust his price to account for that fact.  On the other hand, if the owner knows that a neighbor is just wanting a water line for his livestock, he might give a free easement. Because current law prevents the jury from considering this type of information, it is difficult for the landowner to receive the same level of compensation he would receive in a free and open market transaction.

The day should be long past when for-profit operations can force you to allow the use of your land to generate revenue for them without paying you a fair part of that revenue;

ii.         That the law change to make it clear that damages caused by highway work be fully paid, without exception, as the Constitution requires.

iii.        That government negligence and alleged ignorance of the effects of their conduct should not be a defense to a claim for damages to land under a constitution that requires, with no exception or limitation, adequate compensation for land taken, damaged or destroyed for public use.

iv.        That when low offers are made, forcing a landowner to hire legal and expert help, the prevailing landowner should recover litigation costs. Condemnors know that most landowners will accept low offers  either because they can’t afford the lawyers and experts, don’t know what the compensation should be, or fear lawsuits and their expenses. Right now, there is no incentive for condemnors to make fair offers. Paying a winning landowner’s fees and expenses would provide a real incentive to negotiate in good faith before lawyers are hired and expenses incurred.

v.         That the Texas constitution be amended to assure that condemnations primarily for economic development are forever stopped in Texas.

How Do You Protect Yourself

Getting involved in politics can really help. The legislature and the courts have placed a series of obstacles between the landowners and fair compensation. That said, the system is simply flawed, not corrupt, and some well-aimed modifications to the Property Code could go a long way towards making the system work the way the framers of our Constitution intended.

If landowners will support friendly groups and let their legislators know that voters care about these issues, change can be accomplished. Judges are elected. Landowners have fared better under Democratic judges than Republicans, as crazy at that sounds. However, if elected judges know that landowner defendants in condemnation suits are not the same as ‘phantom-injury’ car-wreck plaintiffs, perhaps that will change. Ask judges about their positions on property rights and eminent domain issues before you vote.  If they won’t talk to you about it, vote the incumbents out until they do.

If you personally face condemnation, the Texas Property Code lays out the process.  Broadly speaking, if the condemnor and landowner are unable to agree on an amount of money, the condemnor may file suit.  The trial court then appoints three (allegedly) disinterested freeholders as special commissioners.  The special commissioners hold a hearing, after notice to the parties, at which they recommend an amount of money the condemnor should deposit before they can start using the land. The commissioners’ award is not binding on either party, and if either files written objections with the court the case goes to trial like any other civil lawsuit.

Of course, this summary of the process necessarily leaves out a lot of detail, and landowners must consult a competent eminent domain lawyer as soon as they are contacted by a condemning authority. Until you talk to an attorney, be very reluctant to share any information with your opponent. These often become wars, and you would not give any information to the opposing general in a war. And, if the case goes to trial, anything you have said can and will be used against you.

The whole process is too complicated for you to assume it is just like any other sale. Most experienced eminent domain attorneys will educate landowners facing these problems free of charge, so you should not be afraid to ask questions.

This article was written by Glenn Sodd at Dawson & Sodd LLP. Feel free to contact them at 903-872-8181.

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