MidTexas Pipeline Company v. Wilbert O. Dernehl, Jr. and the First National Bank of Bellville

In The Court of Appeals Sixth Appellate District of Texas at Texarkana

______________________________

No. 06-01-00010-CV ______________________________



MIDTEXAS PIPELINE COMPANY, Appellant

V.

WILBERT O. DERNEHL, JR. AND

THE FIRST NATIONAL BANK OF BELLVILLE, Appellees

---

On Appeal from the 25th Judicial District Court Colorado County, Texas Trial Court No. 18,395

---

Before Cornelius, C.J., Grant and Ross, JJ. Opinion by Justice Grant Dissenting Opinion by Chief Justice Cornelius

O P I N I O N

MidTexas Pipeline Company appeals the summary judgment granted in favor of Wilbert O. Dernehl and the First National Bank of Bellville (collectively, Dernehl). MidTexas is a gas corporation with the right of condemnation under Tex. Util. Code Ann. § 181.004 (Vernon 1998). MidTexas began negotiations with Dernehl to purchase an easement over his land for the purpose of building a natural gas pipeline.

After negotiations yielded no agreement, MidTexas filed a condemnation action pursuant to Tex. Prop. Code Ann. § 21.012 (Vernon 1984). The trial court appointed special commissioners to assess damages. See Tex. Prop. Code Ann. § 21.014(a) (Vernon 1984). The commissioners heard evidence and awarded damages, but Dernehl objected to the award. See Tex. Prop. Code Ann. § 21.018(a) (Vernon 1984). Dernehl filed a counterclaim in which he requested the trial court to restore to him possession of the easement, award him damages for the unlawful taking of his property, and award him reasonable attorney's fees.

Dernehl filed a Motion for Partial Summary Judgment in which he contended the trial court did not have jurisdiction because MidTexas failed to comply with the jurisdictional prerequisites for filing a condemnation action. Specifically, Dernehl alleged MidTexas did not negotiate in good faith because its offer required him to grant MidTexas rights it could not obtain through condemnation. Dernehl also filed a plea to the jurisdiction that mirrored his arguments in his Motion for Partial Summary Judgment.

MidTexas filed a Motion for Partial Summary Judgment, in which it contended it met all the jurisdictional prerequisites to filing its condemnation action. With respect to Dernehl's allegation that it failed to negotiate in good faith, MidTexas contended it satisfied the good faith requirement when it made a bona fide offer it believed was the amount of compensation owed. The trial court granted MidTexas's Motion for Partial Summary Judgment and denied Dernehl's motion.

Later, the First Court of Appeals issued its opinion in Hubenak v. San Jacinto Gas Transmission Co., Nos. 01-99-00691-CV, 01-99-00959-CV, 01-99-01359-CV, 01-99-01360-CV, 2000 WL 1056416 (Tex. App.-Houston [1st Dist.] July 27, 2000, no pet. h.) (not yet released for publication), which involved similar issues and arguments to those in the present case. Based on Hubenak, Dernehl reurged his plea to the jurisdiction, requesting the trial court to dismiss the suit. The trial court granted Dernehl's plea to the jurisdiction, dismissing MidTexas's condemnation action. The trial court then severed Dernehl's counterclaim, making its dismissal order a final, appealable order.   

"The Texas land condemnation scheme is a two-part procedure involving first, an administrative proceeding, and then if necessary, a judicial proceeding." Amason v. Natural Gas Pipeline Co., 682 S.W.2d 240, 241 (Tex. 1984). When a governmental entity, or an entity with eminent domain authority, seeks to acquire real property for public use, but is unable to agree with the owner on the amount of damages, the entity may begin a condemnation proceeding by filing a petition in the proper court. Tex. Prop. Code Ann. § 21.012(a); Amason, 682 S.W.2d at 241. Such a petition must (1) describe the property to be condemned, (2) state the purpose for which the entity intends to use the property, (3) state the name of the owner, if known, and (4) state that the entity and the landowner are unable to agree on damages. Tex. Prop. Code Ann. § 21.012(b).

When a party files such a petition, the trial court must appoint three special commissioners who assess the damages and file an award reflecting their opinions of the land's value. Tex. Prop. Code Ann. § 21.014(a); Amason, 682 S.W.2d at 241-42. If the condemnee is unsatisfied with the award, he or she may file an objection in the trial court. Tex. Prop. Code Ann. § 21.018(a); Amason, 682 S.W.2d at 242. The filing of an objection vacates the commissioners' award and, coupled with service of citation on the condemnor, forecloses reinstatement of the commissioners' award. Amason, 682 S.W.2d at 242. What had been an administrative proceeding converts into a cause of action with the condemnor as plaintiff and the condemnee as defendant. Id.

Dernehl filed, and the trial court granted, a plea to the jurisdiction alleging MidTexas failed to meet the unable-to-agree requirement of Section 21.012(b). The attempt to agree is a jurisdictional prerequisite to the statutory proceedings. State v. Schmidt, 894 S.W.2d 543, 545 n.1 (Tex. App.-Austin 1995, no writ) (citing Brinton v. Houston Lighting & Power Co., 175 S.W.2d 707, 709-10 (Tex. Civ. App.-Galveston 1943, writ ref'd)). The condemnor has the burden of proof on the unable-to-agree issue. Id. at 544.

The absence of subject matter jurisdiction may be raised by a plea to the jurisdiction, as well as by other procedural vehicles, such as a motion for summary judgment. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). A plea to the jurisdiction is a dilatory plea, the purpose of which is to defeat a cause of action without regard to whether the claims asserted have merit. Id. A dilatory plea is not intended to force the plaintiff to preview its case on the merits, but to establish a reason why the merits of the plaintiff's claims should never be reached. Id. A court deciding a plea to the jurisdiction is not required to look solely to the pleadings, but may consider evidence and must do so when necessary to resolve the jurisdictional issues raised. Id.

This standard is followed in condemnation cases. In State v. Hipp & Dowd, 832 S.W.2d 71, 75-76 (Tex. App.-Austin 1992), writ denied as to Hipp & rev'd on other grounds as to Dowd, State v. Dowd, 867 S.W.2d 781, 783 (Tex. 1993) (per curiam), the court of appeals held the trial court must determine as a threshold matter whether the condemnor has satisfied the unable-to-agree requirement. The court likened the determination of subject matter jurisdiction in this context with the determination of personal jurisdiction, which often requires the trial court to resolve factual issues in the course of determining whether it can exercise personal jurisdiction over the defendant. Id.; see also E.L.M. Leblanc v. Kyle, 28 S.W.3d 99, 101 (Tex. App.-Texarkana 2000, pet. denied) (holding issue of personal jurisdiction is a question of law, but resolution of underlying factual questions are subject to review for sufficiency of evidence).

MidTexas contends it met the unable-to-agree requirement as a matter of law. In Hipp & Dowd, the court of appeals held that in order to show it has complied with the unable-to-agree requirement, the condemnor must show (1) it made a single bona fide offer, which the condemnor in good faith believed was the amount of compensation due, and (2) the landowner rejected the offer. Hipp & Dowd, 832 S.W.2d at 77-78. Prolonged negotiations or a series of offers and counteroffers are not required. Id. A bona fide offer is not arbitrary or capricious, but is based on a reasonably thorough investigation and honest assessment of the amount of just compensation due the landowner as a result of the taking. Id. at 78-79. Under Texas law, a party may also show it fulfilled the unable-to-agree requirement by showing further negotiations would have been futile. Houston N. Shore Ry. Co. v. Tyrrell, 128 Tex. 248, 98 S.W.2d 786, 795-96 (1936); Anderson v. Clajon Gas Co., 677 S.W.2d 702, 706 (Tex. App.-Houston [1st Dist.] 1984, no writ).

As the court did in Hipp & Dowd, we construe MidTexas's contention as a challenge to the legal sufficiency of the evidence on which MidTexas had the burden of proof. ⁽¹⁾ Hipp & Dowd, 832 S.W.2d at 76. When a party challenges the legal sufficiency of an adverse finding on an issue on which it had the burden of proof, it must demonstrate the evidence conclusively established all vital facts in support of the issue. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989). In reviewing such a legal sufficiency challenge, we must first examine the record for evidence supporting the finding, while ignoring all evidence to the contrary. Id. If there is no evidence to support the finding, we must then examine the entire record to determine if the contrary proposition is established as a matter of law. Id.

Reviewing the record in the present case, we conclude there was evidence supporting the trial court's ruling. It is uncontroverted that MidTexas made an offer to Dernehl. In his affidavit, David Dunwoody, who oversaw all negotiations between MidTexas and Dernehl, states MidTexas retained a real estate appraiser, who "estimated a value of $5,883.64 to compensate [Dernehl] for the acquisition of a 3.05 acre permanent easement and a 3.19 acre temporary easement . . . ." MidTexas's agent contacted Dernehl and offered him $11,333 for the easement. Dunwoody further states Dernehl "declined this offer and demanded $120,000 for the easement rights and damages." MidTexas responded with a final offer of $13,331, to which Dernehl did not respond.

Dunwoody states that "MidTexas . . . made it clear that [it] was seeking to acquire an easement for one natural gas pipeline," that "the terms of any proposed easement were always negotiable," and that in fact other landowners negotiated voluntary agreements with MidTexas, "changing certain terms from those initially offered and otherwise coming to workable compromises." He also states it is MidTexas's policy to pay more than fair market value to avoid litigation.

Dernehl contends MidTexas's offer included rights and imposed obligations it did not seek in condemnation and could not obtain through condemnation. Dernehl directs us to the Right of Way Agreement attached to MidTexas's final offer, which (1) grants MidTexas the right to transport gas, oil, petroleum products, or any other liquids, gases, or substances that can be transported through a pipeline; (2) grants MidTexas the right to assign the easement; and (3) obligates Dernehl to warrant and defend title to the easement. In contrast, MidTexas's second amended petition states MidTexas seeks the right to maintain the pipeline as it deems "necessary or desirable in connection with the use and convenient operation of the pipeline for the transportation of natural gas." (Emphasis added.) MidTexas's petition does not explicitly mention the right to assign the easement, does not seek the right to transport products other than natural gas through the pipeline, and does not seek to obligate Dernehl to warrant and defend title to the easement.

MidTexas contends the relevant question is whether it made a bona fide offer for the easement, irrespective of the rights it sought in the condemnation action. Dernehl contends the relevant question is whether MidTexas made a bona fide offer for the rights it sought in condemnation. In Hipp & Dowd, the court of appeals held the condemnor must make a bona fide attempt to agree with the landowner on the amount of compensation due "as a result of the taking." Hipp & Dowd, 832 S.W.2d at 77. Yet the court did not elaborate on whether the compensation due as a result of the taking was based on the easement sought in the negotiations or the easement sought in the condemnation action.

The Texas Supreme Court has held the landowner is entitled to compensation for the difference in market value of the easement strip and the remainder before and after the taking. White v. Natural Gas Pipeline Co. of Am., 444 S.W.2d 298, 301 (Tex. 1969). While damages are based on the change in market value of the land, market value itself is a function of the rights obtained in condemnation. The greater the burden on the land as a result of the easement, the greater the diminution of market value.

MidTexas would have us hold it made a bona fide offer merely because it made an offer that reflected its good faith belief in the value of the easement. That contention ignores the fact that it sought rights and obligations in its offer it did not seek in condemnation. Dernehl could not have accepted MidTexas's offer without also agreeing to the rights and obligations MidTexas sought.

Hubenak v. San Jacinto Gas Transmission Co., 37 S.W.3d 133, 135 (Tex. App.-Eastland 2001, pet. denied), involved the same pipeline and the same parties, but different tracts of land and different trial courts than the Houston Hubenak case referred to earlier. ⁽²⁾ The Eastland Hubenak case also involved the rights and obligations that MidTexas sought to negotiate in the present case and that the condemnor sought to negotiate in the Houston Hubenak case. Id. In the Eastland Hubenak case, however, the trial court denied the landowners' motions for summary judgment and granted the condemnor's motion for summary judgment on the unable-to-agree issue. Id.

In reversing, the Eastland court held there were fact issues precluding summary judgment. Id. at 137. Specifically, the court noted there was evidence that the condemnor's offer included the rights and obligations the landowner found objectionable and that the condemnor insisted on the right of assignability. Id. at 136. The court also concluded there were fact questions concerning whether further negotiations would be futile. Id.

In the present case, there was no evidence that MidTexas ever made an offer which comprehended only the rights it sought in condemnation. Dunwoody's affidavit asserts MidTexas's offer was based on the real estate appraiser's assessment of the fair market value of the land, increased by an amount intended to induce Dernehl to forestall litigation. Yet its offer contained additional rights and obligations it did not seek in condemnation.

In the recent case of Cusack Ranch Corp. v. MidTexas Pipeline Co., No. 13-00-247-CV, 2001 WL 1558360 (Tex. App.-Corpus Christi Nov. 29, 2001, no pet. h.) (not yet released for publication), the Corpus Christi Court of Appeals addressed a similar issue. That court stated that the law requires a "bona fida attempt to agree." We agree. However, the legislative intent for such a requirement was to avoid the necessity of litigation if the parties could reach an agreement on the purchase price of the property to be condemned. Thus, the Legislature contemplated that the bona fida attempt to agree would be for the purchase price of the property to be condemned. We believe that the Legislature, by making this requirement as a prerequisite to condemnation, intended bona fide negotiations for the property to be condemned, not a negotiation that included other properties or rights beyond the condemnation. At no point does the evidence show in the present case that MidTexas made an offer including only those rights that it was authorized to acquire through a condemnation proceeding. Offers to purchase property that included the property to be condemned but going beyond that in acquiring additional rights or properties is not enough to satisfy a good faith negotiation.

MidTexas contends there is no evidence supporting the inference that Dernehl would have agreed to its offer if it did not seek the additional rights and obligations or that the additional rights and obligations had any bearing on Dernehl's decision to refuse MidTexas's offer. However, MidTexas had the burden to prove it met the unable-to-agree requirement. See Schmidt, 894 S.W.2d at 543. There was legally sufficient evidence supporting the trial court's implied finding it did not.

MidTexas contends this case is like Mercier v. MidTexas Pipeline Company, 28 S.W.3d 712 (Tex. App.-Corpus Christi 2000, pet. denied). In Mercier, the court of appeals concluded there was evidence the condemnor offered the landowner twice what his land was worth. Id. at 720. However, there is no indication in Mercier whether the condemnor's offer included the rights and obligations at issue in this case.

MidTexas also contends it met the unable-to-agree requirement because the evidence shows further negotiations would have been futile. Dernehl contends futility of further negotiations is in the nature of an affirmative defense that MidTexas had to plead, citing Madison Rayburn, Texas Law of Condemnation § 45(4) (1960). There is some authority for that position. In Tyrrell, 98 S.W.2d at 795, the landowner contended the condemnor's petition was fatally defective in failing to allege futility. The Texas Supreme Court held the allegations, though wanting in particularity and conclusory, were sufficient against a general demurrer when aided by other allegations contained in the petition and by facts reasonably inferred from the petition. Id.; see also Brinton, 175 S.W.2d at 709. Courts in more recent cases have not required that a party have pleaded futility in order to show it met the unable-to-agree requirement, looking instead to whether the evidence fairly raised the issue. Hubenak, 37 S.W.3d at 136; Anderson, 677 S.W.2d at 706; Willoughby v. Upshur Rural Elec. Coop. Corp., 562 S.W.2d 33, 35 (Tex. Civ. App.-Tyler 1978, writ ref'd n.r.e.); Mid-America Pipeline Co. v. Hadwiger, 471 S.W.2d 157, 159 (Tex. Civ. App.-Amarillo 1971, no writ); Aronoff v. City of Dallas, 316 S.W.2d 302, 306 (Tex. Civ. App.-Texarkana 1958, writ ref'd n.r.e.).

Regardless of whether MidTexas was required to plead further negotiations would be futile in order to show it met the unable-to-agree requirement, the evidence supports the trial court's implied finding that further negotiations would not be futile. Because there was no evidence MidTexas ever made an offer comprehending only the rights it sought in condemnation, MidTexas failed to show further negotiations would have been futile.

The judgment is affirmed.

Ben Z. Grant

Justice

DISSENTING OPINION

I believe the evidence shows as a matter of law that MidTexas Pipeline Company made a bona fide effort to agree with Wilbert O. Dernehl on the amount of damages for the easement it sought to condemn. See Cusack Ranch Corp. v. MidTexas Pipeline Co., No. 13-00-00247-CV, 2001 WL 1558360 (Tex. App.-Corpus Christi, Nov. 29, 2001, no pet. h.) (not yet released for publication). The Cusack Ranch case is on all fours with the case here.

The marjority opinion says that MidTexas never made Dernehl an offer for the easement it later sought in condemnation. That statement is inaccurate. The summary judgment evidence shows that MidTexas never sought to condemn anything but an easement for a thirty-inch pipeline to transport natural gas. MidTexas' initial offer, dated May 19, 1995, offered Dernehl $11,333.00. In its initial letter offers to the landowners, MidTexas stated that the easement sought to be purchased was "a 50-foot permanent easement for one 30 inch pipeline used to transport natural gas." ⁽³⁾ That is exactly what, and only what, MidTexas later sought to acquire by eminent domain. Summary judgment evidence shows that MidTexas never sought to condemn any property or right other than a fifty-foot easement for a thirty-inch natural gas pipeline.

It is true that MidTexas' initial letter offer to purchase the easement had attached to it a right-of-way agreement form that contained provisions for warranty of title, a right to assign the easement, and an authorization for MidTexas to transport other substances through the pipeline. MidTexas made it clear, however, that the terms of the right-of-way form were negotiable. MidTexas' summary judgment affidavits and deposition testimony also state that the terms of the right-of-way form were always negotiable, ⁽⁴⁾ and the letter offer makes the form of the right-of-way agreement subject to the landowner's acceptance.

Dernehl never objected, before condemnation proceedings were instituted, about the terms of the right-of-way form, but only made a counter-offer to MidTexas of $120,000.00 for the easement. MidTexas had engaged an independent real estate appraiser who appraised the value of the easement at $5,883.64. MidTexas, however, initially offered $11,333.00, nearly twice the appraised value. After Dernehl demanded $120,000.00, MidTexas made another offer of $13,331.00, which was more than twice the amount awarded by the special commissioners for the easement, which was $6,000.00.

Even if the extra ownership incidents set out in the right-of-way form could be considered property rights in MidTexas' offer to purchase, MidTexas' offers still included the property ultimately condemned, i.e., the easement for a thirty-inch pipeline to transport natural gas. MidTexas offered $13,331.00 for the natural gas pipeline easement and the incidental rights. Having offered a reasonable sum for all of the rights, the offer necessarily included the natural gas pipeline easement, because the greater includes the lesser. In the negotiations, Dernehl never objected to the terms of the right-of-way agreement, and he never made a counter-offer for just the natural gas pipeline easement without the extra incidents. Nor did he request that MidTexas make an offer for the natural gas pipeline only. See Cusack Ranch Corp. v. MidTexas Pipeline Co., 2001 WL 1558360.

Dernehl asserts in his brief that MidTexas threatened and intimidated him by including in its initial offer the incidental rights set out in the right-of-way form, and by telling him that if he did not voluntarily sell the easement and the other incidental rights, MidTexas would take the matter to condemnation. There is absolutely no summary judgment evidence to support any allegation of threats or intimidation. A pipeline company has a perfect right to try to purchase an easement granting a larger interest, and then later decide to condemn only a lesser interest. A reasonable offer to purchase the greater estate necessarily serves as a reasonable offer for the lesser estate because the greater includes the lesser. And the company has a perfect right to advise the landowner that if they cannot agree on damages, it will seek to acquire the easement by eminent domain. See Marburger v. Seminole Pipeline Co., 957 S.W.2d 82 (Tex. App.-Houston [14th Dist.] 1997, pet. denied).

If MidTexas had sought to purchase only the natural gas pipeline and negotiated for it, and then filed condemnation proceedings to acquire greater rights than it had tried to purchase, the marjority opinion would be correct because the landowner would not have been offered a reasonable price or negotiation for the property actually sought in condemnation. But that is the opposite of what occurred here.

The purpose of the unable-to-agree requirement of the statute is to avoid litigation and prevent needless appeals when the matter of price might have been settled by the parties. This purpose should not be thwarted by a hypertechnical interpretation of the requirement. See Cusack Ranch Corp. v. MidTexas Pipeline Co., 2001 WL 1558360. The majority in this case, by holding that an offer for the property to be condemned, together with certain incidental rights, does not also constitute an offer for the lesser property to be condemned, honors hypertechnicality to the ultimate. This is especially true where, as here, the parties' respective offers are so far apart it is obvious they will not be able to agree. See id.

Even if it can be considered that the offer for the easement, plus the additional ownership incidents, did not constitute an offer for the easement actually condemned, the summary judgment evidence shows as a matter of law that MidTexas made a bona fide attempt to agree with the landowners under the principles announced in the Cusack case. As the court stated in the opinion in that case, "the fact that MidTexas' final offer contained those [additional] terms is not, alone, enough to negate the other evidence showing that MidTexas engaged in a good faith attempt to agree with Cusack regarding the amount of damages." Id. at *3.

If the summary judgment evidence does not establish as a matter of law that MidTexas made a good faith attempt to agree, then it certainly raises a fact question on that issue. Consequently, at the least, the summary judgment dismissing MidTexas' suit should be reversed and remanded for trial, as the Eastland Court of Appeals did under almost identical circumstances in Hubenak v. San Jacinto Gas Transmission Co., 37 S.W.3d 133 (Tex. App.-Eastland 2001, pet. denied).

For the reasons stated, I would reverse the judgment and render judgment as prayed for by MidTexas in its motion for partial summary judgment. In the alternative, I would remand the matter to the trial court for a factual determination of the unable-to-agree requirement.

William J. Cornelius

Chief Justice

Date Submitted: August 28, 2001

Date Decided: December 21, 2001

Publish

1. In Hubenak, the court of appeals concluded it was not limited to a review of the legal sufficiency of the trial court's implied finding that the condemnor satisfied the unable-to-agree requirement. Hubenak v. San Jacinto Gas Transmission Co., Nos. 01-99-00691-CV, 01-99-00959-CV, 01-99-01359-CV, 01-99-01360-CV, 2000 WL 1056416, at *4 (Tex. App.-Houston [1st Dist.] July 27, 2000, no pet. h.) (not yet released for publication). Instead, the court reviewed the trial court's finding "in the same manner [it] review[s] factual findings in special appearance cases--the trial court's findings are helpful but not binding." Id.

However, in personal jurisdiction cases where a reporter's record is available on appeal, parties may challenge the trial court's implied findings by factual and legal sufficiency points in the same way they could challenge jury findings or a trial court's findings of fact. E.L.M. Leblanc v. Kyle, 28 S.W.3d 99, 102 (Tex. App.-Texarkana 2000, pet. denied). While in the present case there is not a reporter's record, the parties stipulated at oral argument the case was submitted to the trial court on the proof attached to their motions for summary judgment, which the record does contain.

2. In the Houston Hubenak case, the landowners contended the condemnor did not negotiate in good faith because its offers included the same rights and obligations at issue in the present case, but its board of directors did not authorize it to negotiate for those rights and obligations. Hubenak, 2000 WL 1056416, at *1. The court of appeals agreed, holding that a good faith offer must be comparable to one approved by the condemnor's board of directors. Id. at *5. The reasoning in Hubenak is not applicable in the present case because Dernehl does not contend MidTexas's board failed to authorize it to negotiate for the additional rights and obligations.

3. MidTexas' final offer to Dernehl is in the record, but its initial offer of May 19, 1995 is not in the record. The final offer, however, refers to the initial offer, and I assume that the initial letter offer contains the same statement as the initial letter offer to the other landowners in the companion cases that concern the same pipeline. For example, the letter to Roy Wright, one of the landowners, is in the record in a companion case. It contains the statement about MidTexas seeking to purchase a pipeline for natural gas and it appears that MidTexas used the same form of initial offer and final offer for all landowners involved in this taking because the final offers all use the same language, and are identical except for the amounts of money offered.

4. Dernehl's summary judgment supporting affidavit posits that some of the right-of-way form terms were actually not negotiable, but at best this would raise a fact issue.