As oil and gas exploration companies continue developing the EagleFord Shale and other plays throughout Texas, the need increases for pipelines capable of transporting production from such development. Pipeline companies' negotiations with landowners to obtain necessary easements usually end in one of two ways. Either the pipeline company and landowner reach an agreement with respect to the value and terms of the easement or the pipeline company is forced to turn to the courts via eminent domain actions to obtain the applicable easement. Not surprisingly, the main point of contention typically disputed during these actions is the value of the property affected by the desired easement. This is exactly the type of situation that led to the valuation issues discussed before the Fourth Court of Appeals – District of Texas (San Antonio) in LaSalle Pipeline, LP v. Donnell Lands, L.P.1
LaSalle Pipeline, LP, filed an eminent domain action to acquire temporary workspace easements and permanent right-of-way easements on two tracts of land in McMullen County, Texas, owned by Donnell Lands, L.P. The first tract of land comprised approximately 8,034 acres (of which LaSalle acquired 15.95 acres of permanent easement), and the second tract comprised about 46 acres (of which LaSalle acquired .97 acres of permanent easement). LaSalle's natural gas pipeline was approximately 16 inches in diameter and spanned almost 52 miles. The jury found Donnell Lands was entitled to damages in the amount of $658,689, which included $19,206 for the temporary workspace easements, $34,533 for the permanent easements and $604,950 for the diminution in value to the remainder of the tracts. LaSalle complained on appeal that the damages for the temporary workspace easements and for the diminution in value to the remaining tracts were not supported by legally or factually sufficient evidence.
"The ordinary method of calculating damages for a temporary workspace easement is the fair rental value of the property."2 The only evidence of the rental value of the property was provided by LaSalle's appraisal expert, who testified that the fair rental value of the temporary workspace easements for both tracts was $6,402.
Therefore, the Court of Appeals held that the evidence was legally insufficient to support the jury's finding of temporary workspace easement damages in the amount of $19,206, but there was sufficient evidence to support damages in the amount of $6,402. When a company takes a portion of a landowner's property, the landowner is entitled to compensation in the amount of the market value of the portion taken, plus the damage to the remainder of the land caused by the condemnation.3 The measure of damages to the remainder is the difference in market value of the land immediately before and immediately after the taking. Courts have long favored the comparable sales approach when determining the market value of real property.4 With respect to the diminution in value to the remainder of Donnell Lands' tracts, Donnell Lands' appraisal expert testified that, in his opinion, the existence of LaSalle's pipeline and the permanent easements diminished the market value of the tracts. Donnell Lands' expert based his opinion on comparable sales data from McMullen and Webb counties, and he stated that the comparable sales data reflected a 20 percent diminution in value, at least part of which was attributable to LaSalle's pipeline. LaSalle's expert based his opinion on the analysis of approximately 15 sales in McMullen County, and he opined that the existence of the pipeline did not diminish the market value of the remainder of the tracts. LaSalle's expert also spoke to either a buyer or a seller in all of the McMullen County sales, and they all told him the existence or absence of a pipeline had no bearing on the sales price.
The Court of Appeals noted that case law indicates there is no requirement that comparable sales be in the same county as the subject property, and, in fact, there is nothing in the record indicating that standard appraisal methodology requires an appraiser to first consider sales within the subject property's county before considering sales outside the subject property's county. "Comparable sales need not be in the immediate vicinity of the subject land, so long as they meet the test of similarity."5 Additionally, the Court of Appeals held the record did not establish that standard appraisal methodology requires an appraisal expert to inquire about whether the parties to a sale subjectively believed that the existence of a pipeline easement affected the price paid.
The jury arrived at a value that was less then Donnell Lands' expert's valuation but greater than LaSalle's expert's valuation. The Court of Appeals noted that the jury was entitled to set the value of the remainder at any amount between the lowest and highest values the appraisal experts put in evidence. Therefore, there was nothing in the record that showed the jury arrived at its finding by impermissibly blending evidence or leaping outside of the evidence presented at trial. At the end of the day, the Court of Appeals concluded that the evidence was legally sufficient to support the jury's finding that the diminution in value to the remainder was $604,950.
This case is important because it shows the lingering uncertainty in determining damages related to eminent domain actions. In the case at hand, both parties provided testimony from experts that held the highest designation that can be achieved in the appraisal business, yet each expert determined a substantially different valuation. As noted by one of the experts in the case, the appraisal business is interpretive and more of an art than a science. Determining values that should be offered to landowners for necessary easements will continue to create issues for oil and gas exploration companies and pipeline companies as they continue developing shale plays. This case is worth monitoring, as the Supreme Court of Texas has asked for briefs on the merits but has not yet decided to hear the case.
Footnotes
1. No. 04-10-00272-CV (Tex: Court of Appeals, 4th Dist. 2010).
2. Id. at 9.
3. Id. at 11.
4. City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001).
5. LaSalle, No. 04-10-00272-CV at 14.
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