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Morello v. Seaway Crude Pipeline Company, LLC

Court of Appeals of Texas, First District

May 22, 2018

BERNARD J. MORELLO AND WHITE LION HOLDINGS, L.L.C., Appellants
v.
SEAWAY CRUDE PIPELINE COMPANY, LLC, Appellee

          On Appeal from the County Court at Law No. 3 Fort Bend County, Texas Trial Court Case No. 13-CCV-050231

          Panel consists of Justices Keyes, Brown, and Lloyd.

          OPINION

          HARVEY BROWN JUSTICE

         This is a statutory condemnation case. Seaway Crude Pipeline Company, LLC sought to construct a common-carrier crude-oil pipeline that would travel the length of the State of Texas, from the Gulf Coast to Oklahoma, and would include in its path a 115-acre tract of land owned by Bernard Morello and a contiguous 82- acre tract owned by Morello's holding company, White Lion Holdings, L.L.C. (collectively, Morello), near the City of Rosenberg, Texas. After Seaway and Morello failed to agree on terms for the pipeline installation, Seaway began condemnation proceedings. Special Commissioners were appointed, and an appraisal of damages was determined. Morello filed objections in the trial court.

         Seaway moved for partial summary judgment, and Morello filed a plea to the jurisdiction. Both motions addressed whether Seaway effectively declared a necessity for the taking and, if it did, whether Morello presented any summary-judgment evidence in support of his affirmative defenses that Seaway acted arbitrarily or in bad faith, which, if found, would remove the conclusiveness of Seaway's necessity determination.[1] The trial court ruled in Seaway's favor on both motions.

         Seaway also moved to strike various experts retained by Morello to opine on future uses of his property, damages for the taking of the easement, and damages to the remainder of the property because of the taking. The trial court granted Seaway's motions to exclude, leaving Morello without damages evidence on lost market value of the remainder.

         The trial court entered a final judgment in Seaway's favor, holding that Seaway could condemn easements across the land and ordering an award of approximately $88, 000 to Morello for the taking, which was the amount Morello's expert had opined was the market value of the property actually taken, without any compensation for loss of market value of the remainder of the land.[2] See City of Austin v. Cannizzo, 267 S.W.2d 808, 812 (Tex. 1954) (noting that, when government takes only part of property, three controlling issues are (1) "market value of the land taken, considered as severed land, " (2) "market value of the remainder of the tract immediately before the taking, " and (3) "market value of the remainder of the tract immediately after the taking").

         Morello challenges the trial court's judgment in four issues. In his first two issues, he contends that the trial court erred in ruling for Seaway and against him on Seaway's summary-judgment motion and his plea to the jurisdiction. He argues that Seaway failed to demonstrate that it determined a necessity for the taking and that he proved, or at a minimum presented more than a scintilla of summary-judgment evidence in support of, his affirmative defenses. In his last two issues, Morello contends that the trial court erred in denying his motion for costs and in excluding and limiting his experts' testimony.

         We affirm.

         Background

         There are currently three Seaway pipelines that cross Morello's two tracts of land (the Property). The first pipeline was laid in 1975, before Morello purchased the Property. The second pipeline was laid in 2014 and is the subject of this suit. A third pipeline was laid afterward and is not a part of this litigation.

         First Seaway pipeline

         In 1975, a previous owner of the Property entered into a Permanent Easement Agreement with Seaway that established a 60-foot pipeline easement running north-south across the Property. According to Morello, the terms of the 1975 agreement were favorable to the landowner and his future development of the land because Seaway agreed that it would move the pipeline at its own expense to allow future development. Since the 1970s, Seaway has operated a common-carrier pipeline that crosses the Property under the terms of the 1975 agreement as the pipeline travels from the Texas Gulf Coast to Oklahoma.

         Morello purchases land with existing pipeline and other burdens

         Morello purchased the Property in 2004. The land, combined, is approximately 200 acres. When purchased, the Property already had the 1975 easement and pipeline in place. It also was subject to a 1988 Texas Commission on Environmental Quality compliance plan that addresses groundwater contamination in the northeastern corner of the Property that resulted from earlier use of the site for industrial pipe manufacturing. Three vacant metal buildings remain in that corner of the Property. The TCEQ plan limits the use of the 17 acres surrounding those buildings. Litigation between the TCEQ and Morello regarding plan compliance and related penalties remained pending when the trial court heard the dispositive motions in this litigation.[3]

         Of particular interest to Morello, the Property has rail lines along its southern border. The lines are used by Union Pacific Railroad and Kansas City Southern Railroad. The Property has 3, 500 feet of rail line frontage but has no railroad spurs to connect it to the rail lines. There is a high-voltage electricity transmission line, with its own easement, that runs between the Property and the rail lines.

         There are roadways along two sides of the Property to the east of the 1975 pipeline. Scott Road is on its eastern boundary and can support industrial and heavy traffic. Muegge Road is on its northern boundary and can support only lighter traffic. There is no road frontage or improvements to the west of the pipeline. Below is a rough schematic of the Property.

         (Image Omitted.)

         In Morello's view, the Property's proximity to the rail lines made it ideal for a "rail-served, heavy truck served, industrial warehouse development." In 2009, five years after he purchased the Property, Morello wrote a letter to Kansas City Southern Railroad (but not the other rail line, Union Pacific) about obtaining rail service to the Property. He enclosed a summary site plan and aerial photograph of his land but did not specifically state his plans or provide any drawings or schematics for a rail-served industrial distribution center.[4]

          In this lawsuit, Morello has stated an intent to develop the Property for heavy industrial use and to connect the land to the rail lines, but the record does not contain any evidence that he has taken any concrete steps toward that development. The land has remained relatively unchanged since its purchase, with no industrial development. It continues to be in a raw, undeveloped state, except for the three older metal buildings that sit vacant.

         Morello enters into development agreement with City of Rosenberg

         In 2012, Morello executed a Development Agreement with the City of Rosenberg that kept the Property in the City's extraterritorial jurisdiction and immune from city taxes but also required Morello to obtain the city's prior written consent to use the Property for anything other than agricultural use. The Development Agreement remains in effect until 2027.

         Seaway plans second pipeline parallel to first

         That same year, Seaway decided to add a second pipeline to its common-carrier pipeline system. The $2 billion upgrade would allow it to move crude oil in both directions simultaneously. The new pipeline would cross 2, 820 separate tracts of land and travel in "mostly a straight line" parallel to Seaway's existing pipeline from the Texas Gulf Coast to Oklahoma. Because the first pipeline transverses Morello's land, the second pipeline would as well.

         In June 2012, Seaway adopted a unanimous written Consent of its management committee, which states that the committee "hereby determines that there is a public need and necessity" to have crude petroleum transported by a second pipeline through various listed Texas counties as part of its common-carrier system. Cf. Tex. Nat. Res. Code § 111.019(a)-(b) (providing that common carriers may condemn rights-of-way and easements "necessary for the construction, maintenance, or operation of the common carrier pipeline").

         Seaway undertook to acquire the easements necessary to construct the second pipeline parallel to its older pipeline. It selected the amount of land needed, according to its project management, with the goal of making the project "as safe as possible, as timely as possible, and as cost effective as possible." Seaway sought a 50-foot easement across the Property, adjacent to its existing 60-foot easement.

         Seaway contacts Morello about acquiring the second easement

         As part of the state-long project, Seaway approached Morello regarding a 50-foot-wide pipeline easement across the Property adjacent to the 1975 easement and pipeline. The total land covered by the second easement, which courts treat as severed land, is 2.766 acres. Cannizzo, 267 S.W.2d at 812 (stating that in partial takings, land taken is "considered as severed land"). Combined, the two adjacent easements would span 110 feet as they transverse the Property.

         Morello was not opposed to a second pipeline on the Property, but he did resist having a second pipeline easement. He requested, as an alternative plan, that the second pipeline be laid within the original 60-foot easement. He wanted the second pipeline within the original, 60-feet easement because he believed doing so would cause the second pipeline to be subject to the favorable terms of the 1975 easement. If the second pipeline had its own easement, he would, in his view, effectively lose access to the 1975 easement's favorable terms, and that would negatively impact his development plans. But there is no evidence Morello ever communicated his reasoning to Seaway during the negotiations. Neither his affidavit nor Seaway's communication notes indicate that Morello explained to Seaway before the taking why he wanted the second pipeline to be laid within the original easement. Likewise, there is no evidence that Morello ever told Seaway that he was contemplating developing the Property by building railroad tracks and roads across the Property for a rail-served warehouse distribution center.

         Seaway rejected Morello's request to use a single easement for both pipelines, with two right-of-way agents telling Morello that the existing easement could not be used for the second pipeline for "safety reasons" and that a second, 50-foot easement was needed. One of the agents, Blake Box, told Morello that he nonetheless would convey Morello's request to his supervisor. Morello never received a response. Morello states that he felt "pushed" to make a monetary counter-offer instead of negotiating the placement of the pipeline.

         Around the same time, Seaway attempted to arrange a lunch between Morello and a Seaway engineer, but Morello refused to attend. Morello explains his refusal, saying that Seaway "had already made up their mind that they were going to create a new easement, " and lunch would not change their "foregone conclusion."

         Seaway contends that negotiations for an agreed easement faltered because Morello failed to engage in the process. Seaway then sent Morello its "final offer to acquire easements, " which Morello did not accept.

         Condemnation proceedings and post-condemnation litigation

         After making its final offer, Seaway began condemnation proceedings. The trial court appointed Special Commissioners to determine appropriate compensation. Morello did not appear for the hearing. As a result, at the hearing, the commissioners had before them only Seaway's appraisal, which included damages for the severed land but did not include any damages for loss of market value of the remainder. The resulting commissioners' award compensated for the actual taking but not for losses to the remainder. Seaway deposited the amounts awarded in the court's registry and took possession of its easements in August 2013, establishing the date of the taking. City of Harlingen v. Estate of Sharboneau, 48 S.W.3d 177, 186 (Tex 2001) (Baker, J, concurring).

         Morello filed objections to the Special Commissioners' findings with the trial court. See Tex. Prop. Code § 21.018(a). He argued that Seaway and its agents had acted arbitrarily and in bad faith, among other assertions. Morello also filed motions for injunctive relief and motions to dismiss, which were denied.

         Morello then filed a plea to the jurisdiction, arguing that Seaway acted arbitrarily and in bad faith and that the award did not adequately compensate him for the taking. Seaway filed a motion for partial summary judgment, seeking an order decreeing that it has the right to condemn the easements and dismissing Morello's affirmative defenses. Morello asserted in his response that Seaway's Consent impermissibly authorized the taking out of "convenience, " instead of the statutorily required necessity. Cf. Tex. Nat. Res. Code § 111.019(a)-(b) (providing that common carriers may condemn easements "necessary for the construction, maintenance, or operation of the common carrier pipeline").

         Morello also argued that Seaway demonstrated bad faith while negotiating for the easement. According to Morello, Seaway used the condemnation process as a pretext to avoid its potentially costly contractual obligations to him under the 1975 easement agreement. Morello reads the 1975 pipeline easement as giving him an unfettered right to have Seaway move the pre-existing pipeline if his development plans require route adjustments. He contends that a second easement for a parallel pipeline that does not have as favorable of terms would, in effect, negate the advantages of the first easement: there would never be a scenario in which Morello could legitimately demand that the 1975 pipeline be rerouted if he did not have a contractual right to also have the parallel 2014 pipeline similarly rerouted.[5] Morello has not identified any Seaway documents that evidence this alleged pretext motivation nor any pre-taking documents that discuss the cost of compliance with the 1975 easement agreement.[6]

         Seaway subsequently moved to exclude Morello's experts on the grounds that they were not timely designated and their opinions were irrelevant, speculative, and unreliable. Morello filed a response, seeking leave to late-designate experts for good cause. Thereafter, the trial court struck some of Morello's designated experts and limited the testimony of others.

         Seaway filed an amended motion for partial summary judgment, seeking a ruling that it properly declared a necessity for the taking, that Morello's affirmative defenses to the condemnation fail as a matter of law, and that Seaway has the power of eminent domain to condemn the specified portion of the Property. Seaway's motion argued, in the alternative, that Morello has no evidence that Seaway's condemnation is in bad faith or arbitrary. Morello filed a response and also filed an amended plea to the jurisdiction.

         The trial court granted Seaway's motion for partial summary judgment and motion for no-evidence partial summary judgment and denied Morello's amended plea to the jurisdiction. Seaway moved for final judgment, arguing that the only remaining issue was the value of the portion of the Property taken and stating its consent to entry of judgment in the amount of $88, 227 for that taking.

         Final judgment was entered awarding that amount, and Morello appealed.

         Relevant Condemnation Law

         The Texas Constitution provides that "[n]o person's property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation being made, unless by consent of such person." Tex. Const. art. I, § 17. Thus, private land may be condemned only for "public use" with payment of "adequate compensation." Whittington v. City of Austin, 174 S.W.3d 889, 896 (Tex. App.- Austin 2005, pet. denied) ("Whittington I"). The power of eminent domain must be conferred by the Legislature, either expressly or by necessary implication. Anderson v. Teco Pipeline Co., 985 S.W.2d 559, 564 (Tex. App.-San Antonio 1998, pet. denied). Statutes granting the power of eminent domain are strictly construed in favor of the landowner and against the condemnor. Id.

         The statute that grants the power of eminent domain to common carriers is Section 111.019 of the Natural Resources Code, which provides, in pertinent part,

(a) Common carriers have the right and power of eminent domain.
(b) In the exercise of the power of eminent domain granted under the provisions of Subsection (a) of this section, a common carrier may enter on and condemn the land, rights-of-way, easements, and property of any person or corporation necessary for the construction, maintenance, or operation of the common carrier pipeline.

Tex. Nat. Res. Code § 111.019(a)-(b) (emphasis added).

         "The condemnor's discretion to determine what and how much land to condemn for its purposes-that is, to determine public necessity-is nearly absolute." Malcomson Rd. Util. Dist. v. Newsom, 171 S.W.3d 257, 268 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). And a condemnor's determination that a pipeline or other large-scale project is globally necessary and serves a public purpose suffices without the condemnor having to make granular determinations of necessity as to each tract of affected land. Anderson, 985 S.W.2d at 566 ("Teco was not required to produce a resolution finding that the Andersons' particular tract of land was necessary for the project."); Houston Lighting & Power Co. v. Fisher, 559 S.W.2d 682, 685-86 (Tex. Civ. App.-Houston [14th Dist.] 1977, writ ref'd n.r.e.) (holding that board's approval of project for "Cedar Bayou to Webster right-of-way" was sufficient to demonstrate that specific tract of land along route also was necessary); cf. Tex. Gov't Code § 2206.053(b) (providing that single "resolution . . . may be adopted for all units of property to be condemned").

         One rationale for the high degree of discretion afforded condemnors in their necessity determinations is that, if less deference were given and each piece of a project were scrutinized for necessity, a finding that one small piece of a larger-scale project was not necessary could derail an entire project. Wagoner v. City of Arlington, 345 S.W.2d 759, 763 (Tex. Civ. App.-Fort Worth 1961, writ ref'd n.r.e.). In other words, one factfinder might conclude that the land in question was not necessary for the project, resulting in the destruction "of an entire project . . . because of the inability to obtain the small part of land which [was] made the subject of the particular condemnation suit." Id.; see City of Austin v. Whittington, 384 S.W.3d 766, 778 n.7 (Tex. 2012) ("Whittington III") (stating that courts should not second guess advisability of takings because tract-specific challenges to large-scale projects might result in takings being upheld in one county and invalidated in another, making straight-line courses difficult to secure); see also Newsom, 171 S.W.3d at 269 (discussing Wagoner and rationale for deference to necessity determination).

         The condemnor's determination of necessity is presumptively correct and treated as conclusive, unless the landowner establishes an affirmative defense such as arbitrariness or bad faith. See FKM P'ship, Ltd. v. Bd. of Regents of Univ. of Houston Sys., 255 S.W.3d 619, 629 (Tex. 2008); Hous. Auth. of City of Dallas v. Higginbotham, 143 S.W.2d 79, 88 (Tex. 1940); Anderson, 985 S.W.2d at 565. The landowner has the burden of proof for its affirmative defense. Clear Lake City Water Auth. v. Clear Lake Country Club, 340 S.W.3d 27, 35 (Tex. App.-Houston [1st Dist.] 2011, no pet.); Newsom, 171 S.W.3d at 269.

         The landowner establishes its affirmative defense "by negating 'any reasonable basis' for determining what and how much land to condemn." Clear Lake City Water, 340 S.W.3d at 35 (quoting Newsom, 171 S.W.3d at 269); compare Newsom, 171 S.W.3d at 270 (stating that landowner could negate any reasonable basis by showing that condemnor "had completely abdicated its responsibilities in determining whether, what, or how much land to condemn" when it turned that decision over to interested party) with Ludewig v. Houston Pipeline Co., 773 S.W.2d 610, 614-15 (Tex. App.-Corpus Christi 1989, writ denied) (holding that landowners' evidence that condemnor could have adopted different plans and taken less of their land was no evidence of arbitrary behavior if condemnor reached reasoned decision to do otherwise).

         Whether the condemnor's determination of necessity was arbitrary or in bad faith generally is a question of law for the court. Whittington III, 384 S.W.3d 778 & n.7. "The trial court should only submit the issue to a jury if the underlying facts are in dispute." Id. at 778. Thus, summary judgment against a landowner on the landowner's affirmative defense that the condemnor acted arbitrarily or in bad faith with regard to its necessity determination may not be granted if the landowner proffers evidence creating a factual dispute regarding the necessity determination. See id.

         The parties have analyzed the issue of Morello's affirmative defenses, both at the trial court and on appeal, under the assumption that bad faith with regard to single-tract negotiations impacts necessity only as to that single tract of land. But, because a necessity determination for a large-scale project provides the necessity determination for all constituent tracts, it is not clear what the effect would be if there were a finding of tract-specific bad faith within a large-scale project.[7] We need not determine whether a landowner's arbitrariness defense should be examined in the context of a specific tract's necessity or project-wide necessity given our conclusion, discussed below, that there is no evidence to support Morello's affirmative defenses.

         Necessity Determination

         Seaway's motion for partial summary judgment and Morello's plea to the jurisdiction both raised the issue of Seaway's necessity determination and the conclusiveness of that determination. Morello seeks a reversal of the trial court's ruling on both motions and argues that the proper resolution is to sustain his plea to the jurisdiction, with the result that Seaway did not have the power of eminent domain to take its easement or to install, and now operate, the second pipeline.[8]We address the trial court's ruling on those two motions together.

         A. Standard of review

         Morello's plea to the jurisdiction and Seaway's summary-judgment motion were effectively cross-dispositive motions and are reviewable under the de novo standard that applies to cross-motions for summary judgment; therefore, we will review both motions de novo and render the judgment that the trial court should have rendered. See Harris Cty. Hosp. Dist. v. Textac Partners I, 257 S.W.3d 303, 311-15 & n.11 (Tex. App.-Houston [14th Dist.] 2008, no pet.).

         B. The Management Consent included a necessity determination

         Morello's first argument is that the June 2012 Management Consent did not effectively declare a public necessity to invoke the right of eminent domain. Seaway relies exclusively on its Consent to establish that it made a necessity determination.

         Morello focuses on a particular Consent resolution that authorizes Seaway "to file or cause to be filed . . . proceedings in eminent domain for the acquisition of such rights and interests in the land that may be necessary, convenient, or required for the purpose of . . . constructing, installing, . . . [or] operating . . . the common carrier Pipeline . . . ." (Emphasis added.) Morello argues that the Consent is fatally flawed in that it permits condemnation of property for the impermissible reason of mere convenience.

         The Consent is a six-page document. Morello focuses on a single phrase within that larger document. Yet we are not permitted to read excerpts of legal documents in isolation to determine the drafter's intent; instead, we are to read them in their entirety, allowing each portion to provide context and guidance for the whole. See Hysaw v. Dawkins, 483 S.W.3d 1, 13 (Tex. 2016). The remainder of the Consent contains repeated declarations that Seaway determined a necessity existed and does not support a conclusion that Seaway relied on mere convenience as a basis for condemnation.

         1. Recital paragraph

         The Consent's recital paragraph refers to public necessity three times. First, the recital states that Seaway "hereby determines that there is a public need and necessity to have oil . . . transported by pipelines through [various listed] Counties in the State of Texas . . . as a part of its common carrier System." It continues by stating that Seaway "finds and hereby affirms that the public convenience and necessity require the location, construction, operation and maintenance of said common carrier Pipeline . . . for the receipt, transportation . . . and processing of oil . . . through [various listed] Counties in the State of Texas." Finally, it states that the location will be "as public necessity and engineering feasibility may require, " thus adding a limitation to the location of the pipeline to that which is both necessary and feasible. (Emphasis added.)

         Morello argues that recital paragraphs cannot be considered to determine a legal document's meaning. But that rule has exceptions. While recitals are generally not considered part of a legal document, they may be considered if the drafter intended them to be. All Metals Fabricating, Inc. v. Ramer Concrete, Inc., 338 S.W.3d 557, 561 (Tex. App.-El Paso 2009, no pet.). The Consent directly resolves that "all findings . . . as hereinabove recited be and the same are hereby approved, adopted, and affirmed." We therefore will consider the recital paragraph, which include three statements that Seaway determined a public necessity, in determining the meaning of the agreement as a whole.[9]

         2. Resolution paragraphs

         In addition to the recital, the Consent's first two resolution paragraphs state that Seaway "hereby determines that in order to provide efficient common carrier service to the public . . . public convenience and necessity requires the location, construction, operation and maintenance of the common carrier Pipeline and appurtenant facilities generally along" the statewide route and that Seaway's agents are authorized to negotiate with "all persons or parties having or claiming an interest in the lands necessary for the location, construction, operation and maintenance of the common carrier Pipeline . . . ." (Emphasis added.)

         The resolution paragraphs further authorize Seaway to exercise "the power of eminent domain for the acquisition of the necessary easement or easements . . . for the construction of the common carrier Pipeline" and to use discretion in "routing of all parts of said common carrier Pipeline . . . and in causing said eminent domain proceedings to be filed." (Emphasis added.)

         3. Consent, when read as a whole, contains necessity determination

         Reading the Consent as a whole, and giving consideration to all of its terms, we conclude that Seaway expressed a determination of necessity and did not purport to authorize condemnation out of mere convenience. See Circle X Land & Cattle Co., Ltd. v. Mumford Indep. Sch. Dist., 325 S.W.3d 859, 865-67 (Tex. App.-Houston [14th Dist.] 2010, pet. denied) (concluding, on review of all evidence, that condemnor made necessity determination even if minutes did not expressly state finding); cf. Whittington I, 174 S.W.3d at 904-05 (holding that "magic words" of necessity are not needed and that determination of necessity can be established through evidence of affirmative acts manifesting determination). We overrule Morello's first issue.

         Arbitrariness or Bad Faith

         Morello next contends that the trial court erred in ruling against him on his arbitrariness and bad faith affirmative defenses. First, he argues that he presented evidence that Seaway arbitrarily delegated its condemnation authority and, in doing so, abused its discretion. Second, he argues that he established that Seaway failed to supervise land-choice decisions and, thus, acted arbitrarily. Third, he argues that documentary and testimonial evidence established disparate treatment of landowners by Seaway and, with it, bad faith, because Seaway willingly negotiated with other landowners while ignoring his tract-specific requests. He argues that he established his affirmative defenses as a matter of law or, alternatively, that his summary-judgment evidence raised a fact issue to preclude summary judgment in Seaway's favor.

         A. Applicable law and standard of review

         A condemnor's determination of necessity is treated as conclusive unless the landowner establishes an affirmative defense such as bad faith or arbitrariness. See FKM P'ship, 255 S.W.3d at 629 & n.9. The landowner establishes its affirmative defenses "by negating 'any reasonable basis' for determining what and how much land to condemn." Clear Lake City Water, 340 S.W.3d at 35 (quoting Newsom, 171 S.W.3d at 269); see Circle X Land & Cattle Co., 325 S.W.3d at 864. Whether the necessity determination was in bad faith or arbitrary is a question of law for the court, unless there is a factual dispute regarding the necessity determination. See Whittington ...


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