Texas Supreme Court Clarifies Common Carrier Test re: Transportation Agreements
On January 6, 2017, The Texas Supreme Court held in Denbury Green Pipeline-Texas, LLC v. Texas Rice Land Partners, Ltd. that evidence establishing a reasonable probability that a pipeline will, at some point after construction, serve even one customer unaffiliated with the pipeline owner is sufficient to qualify Denbury Green Pipeline-Texas LLC as a common carrier as a matter of law.
Historically, common-carrier status was established by self-identification on Texas Railroad Commission permitting forms. In 2012, in a case between the same parties (Texas Rice I), the Texas Supreme Court established the common-carrier test which required that for a person “intending to build” a pipeline a “reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers who will either retain ownership of their gas or sell it to parties other than the carrier.” The case was remanded to allow Denbury Green to show “reasonable proof of a future customer.”
On remand, Denbury Green produced transportation agreements with unaffiliated entities, including one finalized in January of 2013. Disregarding the 2013 agreement, the court of appeals reversed the trial court’s order granting Denbury Green’s summary judgment, holding that “reasonable minds could differ regarding whether, at the time Denbury Green intended to build the Green Line, a reasonable probability existed that the Green Line would serve the public.” The Texas Supreme Court reversed, finding that the court of appeals incorrectly applied the Texas Rice I test by focusing on intent. The court instead held that post-construction contracts, reviewed with other evidence, such as a pipeline’s proximity to potential customers or lack of competing pipelines in the area, could establish that “at some point after construction” a pipeline will serve the public.
A copy of the opinion can be found here.