Failure to Launch: Eminent Domain Breaks Down in the Texas Legislature

Eminent domain proceedings in Texas are a complex process governed by multiple constitutions, laws, and regulations.[1] Through this process the Texas government, its agencies, and authorized private entities acquire land to advance initiatives relating to economic development, energy, transportation, public works, and utilities. However, eminent domain proceedings can leave private landowners feeling harassed or ripped off; and can put the industry behind schedule in critical projects while costing it valuable resources. These tensions can also lead to massive pushback from Texas landowners and create negative sentiments against the entities involved and industry groups at large, which causes miscommunication and misunderstanding for the business interests attempting to promote and grow the Texas economy.

The genesis for this fundamental divide is obvious: industry seeks to acquire land under the most advantageous terms, while landowners seek top dollar for their property—or are steadfast against selling at any price. Neither group is acting unreasonably in seeking to defend its position. Yet the groups’ competing goals create an inherent conflict between the condemning authority and the landowners; and these conflicts must be resolved because many of these projects are beneficial to the public at large. Thus, eminent domain proceedings are a necessary reality.

Action by our legislators—to provide realistic protections for both landowners and the entities seeking land by eminent domain—is the only viable method for change. The theory is that legislation providing for transparency and landowners' peace of mind could ease the contentiousness of eminent domain proceedings as Texas and the energy sector continue to grow.[2] If landowners feel protected, consummating a transaction with them will be easier—i.e., less litigious, and fewer harbored resentments could prevent outcry at the sheer mention of eminent domain or a new energy project. But these protections must balance against the need for easy, fair transactions, and the freedom to bargain for an optimal outcome.

Despite extensive negotiations between landowners and the industry, eminent domain legislation did not pass in the 86th session of the Texas Legislature.[3]

Senate Bill 421 as introduced by Senator Lois Kolkhorst,[4] included provisions favored and backed by landowners. These provisions required private entities making a “bona-fide”[5] offer to:

• provide extensive information in their offer relating to the payment and valuation of the property;
• provide multiple covenants and notices in the instrument of conveyance regarding easements and landowner consumer-style protections;
• hold public meetings with landowners regarding numerous mandatory topics when acquiring only two tracts owned by at least four people in one county; and
• be subject to penalties for a “low initial offer.”[6]

These provisions received due criticism from the industry as promoting too much interference from landowners' attorneys and as likely to cause widespread delay on critical projects. This prompted the Committee to make changes backed by the industry. In the bill presented by Representative Tom Craddick, the provisions require:

• an offer based on comparative market analysis or broker valuation;
• less burdensome information on easements, no consumer-style protections, and adherence to freedom of contract in an instrument of conveyance;
• changes in the procedure and timing relating to special commissioners procedures;
• no mandatory owner meeting, or only if requested in a condemnation for large-scale land acquisitions, and fewer mandatory topics at such a meeting;
• no penalty for a “low initial offer”;
• a moratorium on amending the act until 2030; and
• the right to enforce the act against certain pipeline projects after September 1, 2019, but before the effective date in limited cases.[7]

Landowner groups did not warm to these changes, and ultimately the sides could not seem to agree. The original bill submitted by Senator Kolkhorst was viewed by the industry as burdensome, overbroad, and likely to spawn much litigation and expense due to its complexity. Similarly, the industry-backed Committee bill had flaws from the landowners' perspective. It sought to provide a realistic balance of protections and efficiencies, and uphold freedom of contract. The landowners believed it included terms and requirements that could also spur litigation; was too limited in scope; and removed pieces of penalty and transparency legislation without offering any alternatives. Finally, landowners disliked the moratorium that would prevent the legislature from rewriting the statute for over a decade.

Naturally, both groups want to protect their interests. But common ground must be found for legislation to pass. This will require compromise. Some approaches that have proven effective in previous schemes of this nature could also show their effectiveness here, such as:

• a bypass for mandatory covenants and notices, when the entity provides independent representation in the negotiation to landowners;
• a sliding scale recognizing that small groups of landowners will need more protections due to fewer pooled resources and providing alternative methods and protections for dealing with these smaller groups, while affording larger landowner groups with more resources less rigorous protections; and
• a carrot-and-stick methodology regarding any penalties (for example, if independent counsel and appraisers are hired, then the penalties may only be enforced in the case of collusion or fraud).

Hopefully these groups can work in cooperation with the Texas Legislature to draft effective legislation that will reduce the contentiousness of these proceedings and prevent further feuds between the industry and landowners. After the recent session, however, such relief is likely at least two more years away.

[1] See generally U.S. Const. amend. V; Tex. Const. art. I § 17; Tex. Prop. Code §§ 21.001–.103; Tex. Gov’t Code §§ 2206.01–.157. This list is non-exhaustive and a full discussion of the complex practices and procedures of eminent domain proceedings in Texas is beyond the scope of this post.

[2] Pipeline developers are fighting at the state and federal level to apply eminent domain to secure lands for export pipelines. James Osborne, Export Pipelines new front in eminent domain Fights, Houston Chron. (May 28, 2019).

[3] Rhonda Fanning, Eminent Domain Reform Bill Dies, Despite Negotiations Between Property Owners And Industry, Tex. Standard (May 29, 2019); Carlos Anchondo, Eminent domain reform died in the Texas Legislature this session, Tex. Trib. (May 27, 2019).

[4] S.B. No. 421, 86th Legis. Sess. (Tex. 2019).

[5] A bona fide offer is required before eminent domain condemnation can be enforced. Tex. Prop. Code § 21.0113.

[6] S.B. No. 421, 86th Legis. Sess. (Tex. 2019).

[7] C.S.S.B. No. 421, 86th Legis. Sess. (Tex. 2019).