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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Constitutional Concerns With Carbon Dioxide Pipeline Bill  Posted: February 12, 2010

February 9, 2010

William M. Lear, Jr., Esq.
James LeMaster, Esq.
Stoll Keenon Ogden
300 W. Vine Street, Suite 2100
Lexington, KY 40507

By email

Dear Bill and Jim,

Thank you for meeting with Liz and me to discuss our concern regarding House Bill 213. As I indicated at our meeting with representatives of Denbury Resources, KRC supports the proposal to capture CO2, to transport, and to utilize the waste gas as a replacement source of carbon dioxide to support tertiary recovery of oil reserves.

As you will recall, I also expressed a grave concern that the portion of the bill that seeks to empower your client to condemn an easement for excavation and installation of a pipeline on lands along the two proposed corridors in Kentucky would violate the constraints on the exercise of eminent domain contained in Sections 13 and 242 of the Kentucky Constitution. I committed to you at the meeting that I would revisit the Owensboro v. McCormick decision and the cases upon which the McCormick Court relied. Having done so, I am more firmly convinced that the extension of the power of eminent domain would, in this instance, violate the Kentucky Constitution.

Ky. Const. Section 13 states, in relevant part, “nor shall any man’s property be taken or applied to public use without the consent of his representatives, and without just compensation being previously made to him.”

Ky. Const. Section 242 provides that:

"Municipal and other corporations, and individuals invested with the privilege of taking private property for public use, shall make just compensation for property taken, injured or destroyed by them; which compensation shall be paid before such taking, or paid or secured, at the election of such corporation or individual, before such injury or destruction."

The common thread of these two provisions of the state Constitution is the limitation that property cannot be taken except for a “public use.”

Unlike some state and federal courts, Kentucky courts have adopted a restrictive view of the “public use” requirement. Rather than allowing the “public use” requirement to be satisfied when it can be demonstrated that the “public interest” is in some manner promoted by the taking of private property, Kentucky courts limit the exercise of eminent domain to those circumstances where the property to be taken is under the direct control of the public or public agencies or where the public has a right to use the property. Chesapeake Stone Co. v. Moreland, 104 S.W. 762 (Ky. App. 1907).

In Owensboro v. McCormick, the Kentucky Supreme Court considered and specifically rejected the proposition that a “public benefit” or “public purpose” is interchangeable with or sufficient to support a finding of “public use,” stating that “[t]he parties have not cited nor does our research reveal a single Kentucky case which declares that either ‘public benefit’ or ‘public purpose’ is equivalent to “public use” in the eminent domain sense.” Owensboro v. McCormick, Ky., 581 S.W.2d 3, 5 (Ky. 1979).

The court in Chesapeake Stone Co. v. Moreland similarly rejected equating “public benefit” with “public use,” warning that such a dilution of the Constitutional restriction would leave no person’s land safe from confiscation:

"If public use was (sic) construed to mean that the public would be benefited in the sense that the enterprise or improvement for the use of which the property was taken might contribute to the comfort or convenience of the public, or a portion thereof, or be esteemed necessary for their enjoyment, there would be absolutely no limit on the right to take private property. It would not be difficult for any person to show that a factory or hotel or other like improvement he contemplated erecting or establishing would result in benefit to the public, and under this rule the property of the citizen would never be safe from invasion."

Chesapeake Stone Co. v. Moreland, 104 S.W. 762, 765 (Ky. App. 1907).

In addition to requiring “public use” rather than mere “public benefit” or “public purpose”, the Kentucky courts forbid the taking of private property for private uses. Owensboro v. McCormick, 581, S.W.2d 3, 4 (Ky. 1979). As noted by the McCormick court,

"Naked and unconditional governmental power to compel a citizen to surrender his productive and attractive property to another citizen who will use it predominantly for his own private profit just because such alternative private use is thought to be preferable in the subjective notion of governmental authorities is repugnant to our constitutional protections whether they be cast in the fundamental fairness component of due process or in the prohibition against the exercise of arbitrary power."

Id., 581 S.W. 2d at 5.

According to the Chesapeake Stone Court,

"[t]he controlling and decisive question is: Have the public the right to [the use of property taken under the law of eminent domain] upon the same terms as the person at whose instance the way was established? If they have, it is a public use; if they have not, it is a private one. If the owner can exercise the same kind of dominion over it as he does over other property owned by him, if he can close it up, if he can prohibit all or any part of the public from its use, then it is clear that its establishment would be private and not public; and the right of eminent domain could not be invoked in its creation."

104 S.W. 762, at 765.

While private corporations have been and may be granted the power of eminent domain in a manner consistent with the Kentucky Constitution, as is the case for various utilities, such a power can only be granted where the “public has some right to use or enjoy the property taken, as distinguished from the absolute control of the individual.” Chesapeake Stone Co. v. Moreland, 104 S.W. 762, 764 (Ky. App. 1907).

The Chesapeake Stone Co. v. Moreland decision appears to clearly foreclose the possibility that the General Assembly could declare a “public use” to exist when both the pipeline and easement would remain under the absolute dominion and control of a private entity, in this case Denbury Resources. As is the case in the proposed Denbury pipeline, the condemnor in Chesapeake sought an easement across the lands of another private party. In that case, the landowner appealed from a circuit court decision allowing C.S. Moreland to condemn a private tramway over the lands of the Chesapeake Stone Company in order to move quarried stone to a railroad track. Id. at 763. The statute at issue allowed the condemnation of a private way for, among other things, the establishment of a tram road over the land of another person to enable the condemnor to reach a railroad switch. Id.

The Chesapeake Court reflected on the importance of transportation of mineral resources in the state, and that the development of such resources (or, in the case of HB 213, the development of a method for utilizing or disposing of a greenhouse gas in order to facilitate continued utilization of coal for generation of electricity) and noted that:

"in many states influences of this character have induced the courts to adopt the view that whatever is or may be useful to the public is a public use, in the meaning of the Constitution. But the fact that the resources of mines and quarries are necessary for the public use will not in itself authorize the private owner in their development to take the land of the citizen for his individual use. While the courts will not shut their eyes to the necessity that exists for the development of this State, and will aid in every reasonable way the efforts of those who are trying to build it up, yet these considerations will not be permitted to destroy the ancient and valuable right that private property shall not be taken except for public use."

What saved the statute in question from invalidation was that, unlike House Bill 213, the statute in Chesapeake forbade the exclusive private use of such a tram road by the condemnor, and instead assured that any other person or corporation would have the right to use the road upon paying proper compensation for that use.

The Court explained the decision in this manner:

"The act goes to the very limit of legislative power and discretion. Under it is provided a means by which the owner of land, upon which may be found coal, oil, gas, timber, or mineral of any character, may take land to enable him to carry the product to any of the natural or artificial highways of transportation. The only limitation upon the right of the individual to the exclusive use, operation, and control of the way is found in the provision that any other person desiring to do so shall have the right to its use upon paying reasonable compensation. This is the only clause that saves the act from judicial condemnation. Giving to this provision the most liberal construction, it may be deemed to allow a use by the public of the way, although the person at whose instance it was taken opposes it; and hence it will be considered to have been taken for a public use, not upon the ground that the public will be benefited by the product gathered from the mine, well, or forest, but upon the ground that the public, or any number so desiring, may use the way."

104 S.W. 762, at 766.

While Kentucky has expanded the power of eminent domain to allow a taking where an area is blighted and to regulated utilities and common carriers transporting natural resources for the public use, we can find no instance where Kentucky Courts have held to be constitutional a legislative measure that authorizes the power of eminent domain to be employed by a private corporation that will exercise complete control and dominion over the easement and pipeline installed thereon, for the benefit of that entity.

In this case, Denbury Resources seeks the power of condemnation to condemn an easement on the property of a private party in order to transport carbon dioxide that it purchases to use in enhanced oil recovery. Granting that the transportation of carbon dioxide for this purpose may incidentally be of public benefit, because it would utilize as a product carbon dioxide that would otherwise likely be exhausted into the atmosphere, but since the public has no right to use the pipeline that cannot be extinguished or controlled by Denbury, the condemned easement and pipeline do not constitute a “public use.”

I understand, and take at face value, the statement by Denbury’s representative that they do not prefer to use condemnation over negotiated easements, and that they rarely utilize the power where it is available to them. Our concern is that by extending the power of eminent domain to Denbury Resources, or for that matter to any private entity that seeks to condemn the lands of another for a private use, the General Assembly would deprive the condemnee of the most essential of the “bundle of sticks” that constitute land ownership, which is, the right to say “no” to another private party who seeks to purchase an easement across that landowner’s property. A negotiation that occurs under the implied threat of condemnation is, by definition, one conducted under duress.

As we discussed, KRC is open to exploring and supporting other approaches that would facilitate pipeline routing, including the use of public rights-of –way and co-locating in existing natural gas or electric utility easements. We are concerned, however, that if the General Assembly adopts the bill in a form that grants the power of eminent domain to a private pipeline company such as Denbury Resources, it will not expedite construction of the pipeline, but will provoke constitutional challenges that will embroil your client in litigation and will result in delaying the pipeline construction and utilization.

Again, we appreciate the opportunity to have visited with you and your clients, and wish them every success, within the bounds of Kentucky’s Constitution, in capturing the CO2 for use as a replacement to the natural CO2 from the Jackson Dome.

Cordially,


Tom FitzGerald
Director

Cc: Tom Dorman

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