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Don’t Bet the Farm on Utopia

Posted on July 07, 2016

Landowners took a hit last week from Ohio’s Fifth District Court of Appeals, who ruled that petroleum giant Kinder Morgan Cochin, LLC, has a legal right to enter private property over the landowner’s objection to conduct surveys for its Utopia pipeline project. For those with an interest in private property rights and oil and gas development, this is a significant decision.  The case, Kinder Morgan Cochin, LLC v. Simonson, 2016 Ohio 4647 (5th Dist.), was decided in Ashland County.

Kinder Morgan refers to the pipeline as “Utopia,” and its current proposed route crosses a large section of central and eastern Ohio, impacting thousands of landowners whose property Kinder Morgan needs to acquire to complete the pipeline construction. Ohio law, like the law in many states, gives certain private companies specific rights of eminent domain, similar to what a government has to acquire private property for public use against the will of the private property owner.  There are limits on this of course, and they primarily revolve around utility and common carriers that are privately owned.  A private company involved in transportation of oil and gas may qualify for these rights depending on circumstances – Kinder Morgan asserts it has such rights with respect to Utopia.

Before a private company like Kinder Morgan can take private property through eminent domain, they must first survey it. A survey requires access, and if they can’t get access then they have to sue the landowner to get a court order.  This is what happened in the Simonson case.  The trial court ruled that Kinder Morgan qualified under Ohio law to survey Simonson’s land for the purpose of later filing an eminent domain lawsuit to appropriate his property.  The Fifth District upheld that decision last week, and, in so doing, set a precedent that could be applied in other cases that have not been decided.  The impact of the Simonson decision could be far-reaching, as Kinder Morgan has filed dozens of lawsuits across the Utopia route challenging landowner’s property rights.

In Simonson, the Fifth District ruled that Kinder Morgan had sufficiently proven it was a “common carrier,” and that the ethane it proposed to transport via Utopia qualified as a “petroleum” product –the two things Kinder Morgan had to prove to win the right to survey.  The Fifth District refused to determine whether Utopia was for a “public use,” which is the third element required to win an eminent domain claim, because the issue wasn’t yet ripe for decision.   Because that issue wasn’t decided, it remains open and Ohio courts could still decide in another case that Utopia is not for a “public use.”

While Simonson has set a precedent for now, the real question is whether it lasts, and how far it reaches.  Technically, the precedent is only binding on courts in the Fifth District, and Utopia covers counties outside of that.  There are cases pending in the Seventh District for example, and while courts in other appellate districts frequently follow precedent from other jurisdictions, they are not required to, and so those other courts are free to rule their own way.  Whenever there is a conflict in the legal rulings among different appellate districts, the Ohio Supreme Court decides the issue and establishes controlling precedent throughout the state.  Simonson has the right to appeal now to the Ohio Supreme Court, and if it agrees to hear the appeal (which it is not required to do), then that ruling, once made, will govern all Ohio courts on the same legal issue.  Knowing the economic impact Utopia will have on Ohio’s economy, as well as the individual landowners who are directly affected, it’s reasonable to believe the Ohio Supreme Court will agree to hear an appeal on either the Simonson case or one like it.

It’s also important to note that even with the Simonson precedent, another court within the Fifth District could find a way to distinguish the ruling if different evidence is presented in another case, not to mention there is still the open question of whether Utopia is a “public use”.  While it is unlikely another Fifth District Court would interpret the law differently, it is possible that, with different evidence applied against the same law, there could be a different outcome; and with the open public use issue, a Fifth District Court in an appropriation case is still free to decide whether Utopia is a “public use” or not.  Given what is publically known about Utopia, there are real questions whether it is for a public use.  If a court finds there is no public use with Utopia, then Kinder Morgan can’t appropriate private property, and landowners would be free to negotiate for higher prices (knowing Kinder Morgan can’t take their property but would have to buy it for an agreed price), or refuse to sell and force Kinder Morgan to move the line.

Others besides landowners are watching these cases as well. The construction industry stands to benefit somewhat if the pipeline goes through and if landowners start winning these cases, it could change the path or the viability of the pipeline all together.  Kinder Morgan advertises that Utopia will generate up to 900 temporary local construction jobs, but who knows if those jobs will truly be “local” and what the net economic impact will be.  The lack of qualified trade labor in the area will be a limiting factor, as it has been in the past.  We have already seen the boom and bust from an influx of outsiders who were here and then left.  There are other considerations as well that will drive groups to be for or against the development.

Simonson is the first of what will likely be many decisions interpreting the private eminent domain laws in Ohio. It will take time for these cases to be heard and decided, and then eventually the Ohio Supreme Court is likely to weigh in.  Until that happens, the law in Ohio (developer v. landowner) will remain largely unsettled, which means the stakeholders (developers and landowners) are gambling with the potential outcomes. Simonson may or may not be a harbinger, but until we know for sure, don’t be the farm on Utopia.

For questions regarding the Ohio’s eminent domain laws, or other business law issues, please contact the attorneys at Harpst Ross, Ltd.Business Lawyers for the Construction Industry®, at (330) 983-9971.

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