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Landowners Prevail Against Utopia: Private Property Rights Upheld

Posted on October 17, 2016

In July, this blog discussed the Ohio Fifth District Court of Appeals’ ruling in Kinder Morgan Cochin, LLC v. Simonson, 2016 Ohio 4647 (5th Dist.), 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. The Simonson decision was limited, however, to whether Kinder Morgan could enter private property to conduct surveys, and did not go so far as to address whether Kinder Morgan had a right of eminent domain.

Last week, the Wood County Court of Common Pleas took up the issue, ruling in favor of Ohio landowners protesting the right of Kinder Morgan to appropriate their property for the Utopia pipeline using Ohio’s eminent domain law. This is the first case of which we are aware, where an Ohio court has decided an appropriation case involving Utopia.  To this point, all previous court decisions, like Simonson, were in right to survey cases.  The case is Kinder Morgan Utopia, LLC v. PDB Farms of Wood County, LLC, et al, Case No. 2016 CV 0220 (Oct. 12, 2016).

Kinder Morgan generally prevailed in the right to survey cases, with Ohio courts largely finding Kinder Morgan was proposing to transport “petroleum” products with the Utopia pipeline, and therefore qualified under the statute. In Simonson, the court even went so far as to say that Kinder Morgan qualified as a “common carrier” with regard to Utopia, thus entitling it to a rebuttable presumption that it could eventually appropriate private property for the pipeline.  However, even the Simonson Court reserved judgment on the separate requirements of “public use” and “necessity,” by finding those two issues were not a stake when only the right to survey was involved.  These early court victories no doubt emboldened Kinder Morgan, as some landowners can attest.

Utopia is a 215 mile line that will connect a refinery in Harrison County, Ohio to an existing Kinder Morgan line in Northwest Ohio, which will then be used to transport ethylene to NOVA Chemical (a manufacturing company) in Ontario, Canada. Kinder Morgan has decided where it wants to put this pipeline, which is not surprisingly the shortest route.  However, not every landowner wants to sell Kinder Morgan an easement for this line, and others may be willing to sell, but not for the price Kinder Morgan would like to pay.  As a for-profit entity with shareholders, Kinder Morgan has an obvious incentive to pay as little as possible for land access.  Rather than negotiate at arm’s  length on price or take the line around an unwilling landowner (at greater time & cost), Kinder Morgan has filed lawsuits attempting to just take the land needed for Utopia under Ohio’s eminent domain law.

Ohio law permits private entities like Kinder Morgan to appropriate land for pipelines under certain circumstances, and Kinder Morgan has claimed in the case of Utopia that it qualifies. The law required Kinder Morgan to prove that it proposed to transport a “petroleum” product, that Utopia was for a “public use,” and that there is a “necessity for the appropriation.”  It seems settled that ethylene counts as a “petroleum” product for purposes of the law, given its chemical composition, so many of those watching this unfold predicted the appropriation cases would be won or lost on the issue of “public use” and “necessity,” which were the issues squarely before the Wood County Court.

Wood County Judge Robert Pollex was rightfully concerned about the impact Kinder Morgan’s claims had on a landowner’s private property rights. Private property rights are considered some of the most important in this country, so when Kinder Morgan invoked the court system to take that property against the landowners’ wishes (even when Kinder Morgan proposed to pay something for it), the court became the landowners’ last, and only, defense against an attack on their constitutional rights.  The Wood County Court used this as context for its analysis of Kinder Morgan’s claims.

As to the public use issue, the Court first noted that “economic development” isn’t enough to qualify – the use “must have the objective of promoting the public health and welfare.” Utopia doesn’t do this.  Evidence showed that Utopia was not transporting energy – such as natural gas, electricity, or like products to benefit Ohioans – but is being built merely to serve the production needs of a single, non-U.S. entity, who is paying for the construction.  The use couldn’t be more private.  Though Kinder Morgan claimed others could use Utopia to transport petroleum based products, that was only a hypothetical, because Kinder Morgan had no such users signed up even after having conducted supposed efforts to find some.  The Court held the “Utopia Pipeline does not benefit the public in any way and therefore the property rights of the owners should not be burdened with the encumbrance.”

The Court also held that Kinder Morgan does not qualify as a common carrier “in any sense of the word” because Utopia is not available to the public – and will not transport goods for the public. Instead, its “sole purpose” is to convey “a petroleum derivative to a company in Canada who is willing to pay the costs.”  The Court seemed troubled by the notion that a private company like Kinder Morgan could acquire land by force to further its own business objectives, which is contrary to everything Americans hold dear.

As to the necessity argument, the Court likewise found the appropriation was not necessary, but did not discuss it with the same detail. From the record, it seems Judge Pollex was swayed (at least in part) by evidence that Kinder Morgan could have taken the line around the objecting landowners, avoiding the need to appropriate their land.  If Kinder Morgan can use the eminent domain law instead, what reason would they have to pursue alternate routes?

From a legal standpoint, this may end up being a fine point – because the statute does not describe necessity as in the necessity for the specific land, or necessity for appropriation generally. In the Sunoco Pipeline LLC v. Teter, a case decided last month by Ohio’s 7th Appellate District, it was held that the necessity determination looks at whether appropriation is necessary generally, and found that because using trucks or rail to transport petroleum was not as efficient as a pipeline, that appropriation was necessary.  If the Wood County case is correct, then the fact Kinder Morgan has viable alternate routes to pursue is going to be a killer.  The language in the statute better fits the Wood County decision.

The truth is, Kinder Morgan should have to negotiate and pay for land access rights, or move its line around those who won’t sell at any price. As it stands, Utopia is being built to supply manufacturing ingredients to a private entity who plans to use the ethylene Utopia transports to make goods that it will then sell on the market for a profit.  NOVA Chemical is not offering to share any of these profits with the landowners whose property it proposes to take by force.   Looking at it this way, there isn’t much of an argument that Utopia is anything close to a public use, and the Wood County Court seems to have got that part absolutely right. If Utopia was being built to transport gasoline or propane to a market where it would be available for consumer use, the outcome would probably have been different.

There are dozens of cases currently pending in the trial courts all along the Utopia route. PDB Farms is the first of what will likely be many.  Common Pleas Court decisions are not considered binding precedent, so other judges in the other counties are free to go their own way with the rulings.  However, given that Judge Pollex’s decision is well-reasoned on the law, and that the facts are for the most part not disputed, it stands to reason that this decision will take hold across Ohio.

The law allows for an immediate appeal in these kinds of cases, so we can bet Kinder Morgan will exercise that right. This won’t be the last we hear on this issue by far, and the appellate court could rule the other way.  The Simonson case held that Utopia qualifies for common carrier status under Ohio law, and is contrary to Judge Pollex’s decision on this point.  The 7th District Court of Appeals ruled last month that the Mariner East 2 pipeline Sunoco is proposing qualifies under the eminent domain law on all points. While there are important differences between Utopia and Mariner East 2, whether those differences are enough to change the legal decision remains to be seen.

Landowners should be pleased and comforted by the PDB Farms decision, but there is a long way to go before the law regarding Utopia is settled.

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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