360 Enbridge Pipelines (E. Texas) L.P. v. Avinger Timber, LLC

Friday, September 4th, 2015

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Enbridge Pipelines (E. Texas) L.P. v. Avinger Timber, LLC, 386 S.W.3d 256 (Tex. 2012), held that the condemnation value of the landowner’s interest in an existing gas plant site was measured by the value of the site improved by the infrastructure, but the condemnation value did not include the value of the gas processing facility itself.  Lessor leased 23.79 acres in Marion County, Texas to a gas processing company so that the company could build and operate a gas processing facility.  A gas processing facility was built and easements were granted by Lessor for additional pipelines, roads, and high-voltage electric lines.  When the parties were unable to agree on a rental price for renewal of the lease, the private company Lessee merged with a public utility company and filed a condemnation petition to condemn the land.  The lease required Lessee to remove the gas processing facility after the lease terminated.  The commissioners awarded Lessor $47,580 for the condemned land, but the jury awarded $20,955,000 to Lessor.  The value-to-the-taker rule prohibits measuring land’s value by its unique value to a condemnor in determining a landowner’s compensation.  The principal issues on this appeal were whether Lessor’s expert testimony should have been excluded because it violated the value-to-the-taker rule and how Lessor’s interest should be valued.
 
“The objective of the condemnation process is to make the landowner whole.”  The value-to-the-taker rule “prohibits an owner from receiving an award based on a tract’s special value to the taker, as distinguished from its value to others who may or may not possess the power to condemn.”  “In measuring the landowner’s compensation for condemned property, ‘the question is, what has the owner lost, not what has the taker gained.’”
 
Lessor owned 23.79 acres of land that had been the site of a gas processing facility for thirty-one years, and the lease stated that Lessee owned its improvements, including the gas processing facility.  The lease also required Lessee to remove the plant from the land and restore Lessor’s land to its original condition upon termination of the lease; thus, the only interest that should have been appraised was Lessor’s interest in the land.  Lessor was entitled to have Lessor’s land valued using its highest and best use.  “There is a presumption that the highest and best use of the land is the existing use of the land.”  The land had a history as a gas processing site with all required permits, pipelines, and easements; such that, the value of the land as a gas processing site was not exclusive to Lessee.
 
Although Lessor was entitled to compensation for the distinct suitability of its land as a gas processing site, Lessor was not entitled to be compensated for the land’s unique value to Lessee as a result of the lease’s terms.  Lessor’s expert testimony was premised on a provision in the lease that required the Lessee to remove all improvements on the land within six months of the lease’s termination.  Thus, the expert’s analysis took Lessee’s cost savings into account.  The Court explained that Lessor’s expert was not valuing the 23.79 acres improved by the pipeline infrastructure that Lessor lost, but rather the gas processing facility that Lessee gained.  Lessor’s expert took into account the hypothetical costs of building a new plant nearby and Lessee’s moving costs to the new location.  The court clarified that the moving costs were amounts that Lessee saved by condemning the property; they did not enhance the value of the land that Lessor lost.  Lessee was not required to pay more because it avoided the cost of removing the plant.  The court did not hold that Lessor’s expert should not have considered the effect, if any, that the lease had on the value of the property; however, it was not proper for the expert to consider the cost of removing the plant because of the special value this aspect of the lease provided to Lessee.  Therefore, the court held that Lessor’s expert testimony violated the value-to-the-taker rule because it impermissibly focused on the benefit to Lessee in avoiding the cost of removing the plant.  The case was reversed and remanded to the trial court.
 
It is clear from the opinion that the land is not to be valued as vacant rural residential property, but as a prime location for a potential gas processing site with an existing pipeline infrastructure, easements, permits, etc., without considering the value of the gas processing facility itself or the benefit to Lessee in avoiding moving costs.