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

Eminent Domain Explored  Posted: August 4, 2013

Eminent Domain Explored

Kentucky Constitution Section 13, part of the “Bill of Rights” in Kentucky’s 1981 Constitution, provides that:

No person shall, for the same offense, be twice put in jeopardy of his life or limb, 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.”

Section 242 of the Kentucky Constitution further 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 General Assembly shall not deprive any person of an appeal from any preliminary assessment of damages against any such corporation or individual made by Commissioner or otherwise; and upon appeal from such preliminary assessment, the amount of such damages shall, in all cases, be determined by a jury, according to the course of the common law.

Kentucky’s General Assembly are the “representatives” referred to in Section 13 of Kentucky’s Constitution. That is, the legislature has the power to allow a person’s property to “be taken or applied to public use”. This power is referred to as both “eminent domain” and also “condemnation.” Whether the legislature’s grant of power to take a person’s property is legal does not depend on whether the entity the legislature awards that power to is a public or private entity. Rather, the question is whether the legislature granted that power for public use. For example, as an electric utility, the private corporation LG&E has condemnation powers since the General Assembly has determined that the transmission lines and other facilities are for public use.

There are a number of grants of eminent domain power in the Kentucky Revised Statutes. For example, eminent domain is available to

•Railroads (KRS 416.010)
•Roads (416.100, 416.110, 416.350)
•Dams and other structures for electricity and navigation (416.130)
•Suppliers of water, electricity, gas or gasoline for light, heat, domestic use or power (KRS 416.140
•Telephone Companies (KRS 416.150)
•Cemeteries (416.210)
•Water Associations (416.340)
•Relocation of Public Utility Facilities (416.360)

Unlike the U.S. Constitution, which allows condemnation for a “public purpose,” Kentucky law is clear that the state constitution requires that the property or use of property condemned be available for public use.

All actions for condemnation are required to comply with the 1976 Eminent Domain Act of Kentucky, which is KRS 416.540 through 416.990. The steps in the condemnation process are:

1. The entity seeking to condemn property must first make a good faith offer to purchase the property interest from the landowner.

2. Failing to secure such agreement, the person seeking to condemn the property (“the condemnor”) may condemn the property by filing a petition in Circuit Court in the county where the property is located, providing the description of the property, requesting the appointment of three “commissioners” to determine how much the landowner should be compensated for the condemned property, and alleging that the condemnor has the right to condemn under applicable law. KRS 416.570.

3. The court then appoints the commissioners, who view the property and file a report with the court as to what they believe is the difference between the market value of the entire property before the taking, and the market value of the remainder of the property after the taking. KRS 416.580.

4. Fifteen days after appointment, they file a report with the Court, and then a summons is issued requiring the landowner to file an answer in 20 days of service as to whether the condemnor has the right to condemn. (The landowner can object to the amount of compensation later). KRS 416.600.

5. The court then makes a determination as to whether the condemnor has the right to condemn, and if the court finds it does, enters an “interlocutory judgment” authorizing the condemnor to take possession of the condemned property interest after paying the amount determined by the commissioners into the court to hold in escrow.

6. While the statute is silent on this, the landowner can file an “interlocutory appeal” to the court of appeals challenging the determination of the trial court that the condemnor has the power to condemn.

7. If the landowner doesn’t appeal, within 30 days he or she must filed “exceptions” to the commissioners report on the value of the taking, which is then tried before a jury.

How does this relate to the Bluegrass Pipeline Project?

The companies proposing the Bluegrass Pipeline Project want to transport “natural gas liquids” (NGLs). The companies intend the pipeline to serve as a “common carrier” under federal law, transporting the NGLs under a “tariff” (rate schedule) that will be approved by the Federal Energy Regulatory Commission.

Natural Gas Liquids are a mixture of a number of different hydrocarbons. Because the proposed Bluegrass Pipeline will transport NGLs rather than only the methane fraction of the extracted natural gas, the Interstate Commerce Act will regulate the pipeline.(If the pipeline were only carrying methane, the Natural Gas Act would regulate the Bluegrass Pipeline.) Unlike the Natural Gas Act, the Interstate Commerce Act does not provide a right of condemnation for pipelines like the Bluegrass Pipeline.

Any right of Williams or any other NGL pipeline to condemn would have to be found in Kentucky law. Here is where the analysis gets a little more complicated.

Would the Bluegrass Pipeline be a “common carrier” under Kentucky law?

KRS 278.470 provides that:

"Every company receiving, transporting or delivering a supply of oil or natural gas for public consumption is declared to be a common carrier, and the receipt, transportation and delivery of natural gas into, through and from a pipeline operated by any such company is declared to be a public use."

The General Assembly has not defined what it intended with respect to “for public consumption.” While KRS 278.470 appears to make any and all pipelines that deliver oil or natural gas for consumption anywhere to be a common carrier, the case of In Re: Langford, a Bankruptcy Court decision from the Western District of Kentucky, construed KRS 278.470 to apply only to “companies engaged in the transportation of gas ‘for public consumption’—that is, for ultimate use by Kentucky consumers.”

In this instance, Williams Co. has stated that the pipeline will be transporting NGLs from Pennsylvania, Ohio, and West Virginia, to the Gulf of Mexico for further processing, use, and export. The conclusion as to this issue is that even though state law appears to make all pipelines for oil and gas “common carriers,” the proposed Bluegrass Pipeline, would appear not be a common carrier within the meaning of state law because it would transport only in interstate rather than intrastate commerce.

Does the Bluegrass Pipeline Have the Power of Eminent Domain?

The power of pipeline companies to condemn people’s property is provided in KRS 278.502:

"Any corporation or partnership organized for the purpose of, and any individual engaged in or proposing to engage in, constructing, maintaining, or operating oil or gas wells or pipelines for transporting or delivering oil or gas, including oil and gas products, in public service may, if it is unable to contract or agree with the owner after a good faith effort to do so, condemn the lands and material or the use and occupation of the lands that are necessary for constructing, maintaining, drilling, utilizing, and operating pipelines, underground oil or gas storage fields, and wells giving access thereto and all necessary machinery, equipment, pumping stations, appliances, and fixtures, including tanks and telephone lines, and other communication facilities, for use in connection therewith, and the necessary rights of ingress and egress to construct, examine, alter, repair, maintain, operate, or remove such pipelines or underground gas storage fields, to drill new wells and utilize existing wells in connection therewith, and remove pipe, casing, equipment, and other facilities relating to such underground storage fields and access wells. The proceedings for condemnation shall be as provided in the Eminent Domain Act of Kentucky."

In this statute, the General Assembly has granted eminent domain power under KRS 278.502 to companies and individuals that are engaged in constructing pipelines for “transporting or delivering oil and gas, including oil and gas products, in public service[.]”

What is “in public service”? The term is not defined in the statute and there is little case law on the issue, but what law there is supports the conclusion that the proposed pipeline would not be “in public service.”

In a 2012 Kentucky Court of Appeals decision, the court rejected a distinction that the landowner tried to make between “gathering lines” and “transmission lines,” and held that any transmission by a common carrier was “in public service” and therefore the power of condemnation was available.

That case, Milam v. Viking Energy Holdings, 370 S.W.3d 530 (2012) held that Viking could use KRS 278.502 to condemn properties for its gathering lines because the condemnation power is granted to all pipelines, even to a company shipping only natural gas from its own leases and purchased gas to another entity that actually distributed it to the public. The Court concluded that it was a common carrier transporting in public service, noting that “we have reviewed and agree with Viking's arguments that it is a common carrier and engaged in public services for purposes of this suit, although we acknowledge that the Milams did not specifically address these questions in their appellate brief.”

The distinctions drawn by Viking, in arguing that it was a common carrier “in public service,” all suggest that a purely interstate pipeline not serving Kentucky customers or producers, may be outside the phrase “in public service.”

An earlier version of KRS 278.502 did not limit the power of condemnation to pipeline operators “in public service,” but instead gave all oil and gas wells had the right of eminent domain and were declared a public use. Under that earlier statute, transportation by a company that sold to a second company that then distributed the gas to the public was held to be subject to a franchise (privilege) tax because all pipeline companies had the power eminent domain authority. State Tax Commission v. Petroleum Exploration, 68 S.W.2d 777, 779 (Ky. 1933). The narrowing of the statute was likely intended to place an outer bound on which companies would have that power (and thus which would be subject to a privilege tax).

In the Milam case, Viking drew the distinction that “in public service” referred to the intrastate services and benefits of the activity, and this interpretation of “common carrier” status is supported by the Langford case. Viking rested the argument that it had condemnation powers under KRS 278.502 because it was in “public service,” on several points: first, that it was required to provide a farm tap under KRS 278.485 because it had wells producing gas in Kentucky; second, that it provided general economic benefits in taxes, availability of gas to the public, and transportation for Kentucky gas producers; and third, that the eventual sales of the gas were to Kentuckians. None of those conditions exist here, other than property taxation.

The interstate nature of the Bluegrass Pipeline appears to place it outside both the “common carrier” and “public service” limitations under Kentucky law. This conclusion is reinforced by the Public Service Commission’s inability to order that the Bluegrass Pipeline transport natural gas for others in intrastate commerce if it has unused capacity. KRS 278.505. Finally, the fact that Kentucky vests condemnation power to pipelines “in public service” in the same chapter that creates the Public Service Commission, rather than including that grant of eminent domain authority in KRS Chapter 416, suggests that only those pipelines regulated by the Public Service Commission enjoy the power to condemn citizens’ property.

Are NGLs “oil, gas, or oil or gas products?”

It is not clear from KRS 278.502 whether natural gas liquids are covered by the phrase “oil or gas, including oil and gas products” since there is no definition of oil, gas, or oil or gas products in Chapter 278. A Court would look to the common meaning of the terms, and other statutes defining the terms. The severance tax law, for example, distinguishes between natural gas, natural gas liquids, and oil. Having demonstrated a knowledge of the difference between NGLs, and oil or gas, a court would likely conclude that the use of "oil and gas" but not NGLs in KRS Chapter 278 is intentional, and that NGLs pipelines are not within the scope of that chapter. The Energy and Environment Cabinet, which is responsible for the implementation of KRS Chapter 353, has concluded that NGLs are not within the scope of KRS 278.502.

Is KRS 416.560 Constitutional?

Landowners may wonder what will happen if they refuse permission to the companies to survey their properties. Can the companies survey without a landowner’s permission? KRS 416.560, which is part of the Eminent Domain Act, is captioned “Initiation of condemnation proceedings; costs; right of entry; damages;” and has four subsections. The first three subsections are limited to governmental entities and dictate what entity must approve an action to condemn property. The fourth subsection is not so limited, and provides in full that:

"(4) Prior to the filing of the petition to condemn, the condemnor or its employees or agents shall have the right to enter upon any land or improvement which it has the power to condemn, in order to make studies, surveys, tests, sounding, and appraisals, provided that the owner of the land or the party in whose name the property is assessed has been notified ten (10) days prior to entry on the property. Any actual damages sustained by the owner of a property interest in the property entered upon by the condemnor shall be paid by the condemnor and shall be assessed by the court or the court may refer the matter to commissioners to ascertain and assess the damages sustained by the condemnee, which award shall be subject to appeal."

This subsection could be read to be limited to state and local government agencies, since the first three subsections are so limited, or more broadly to allow any condemnor to access landowner’s property for surveys before even filing a condemnation action and receiving a court determination of the “right to condemn.” It is likely that the General Assembly has, in either case, sanctioned an unlawful trespass onto the land of another absent any judicial approval. If this is the case, this statutory section would likely violate the state constitution because it would allow a “taking” of the right to exclude others from one’s land before compensation has been paid. This would violate Sections 13 and 242 of Kentucky’s Constitution. If the companies hoping to build the Bluegrass Pipeline enter and survey land over the objection of any landowner, that landowner may have an actionable claim that would test the constitutionality of subsection (4) of KRS 416.560, and is encouraged to contact an attorney.

Constitutional Constraints On The Bluegrass Pipeline

Kentucky’s Constitution requires that any taking be only for “public use.” In the wake of the U.S. Supreme Court decision in the Kelo case, the General Assembly reaffirmed that every authorization for eminent domain in the state laws is subject to the condition that it effectuate a “public use.” In amending KRS 416.675 after Kelo in order to reaffirm that all grants of eminent domain authority anywhere in the Kentucky Revised Statutes are subject to the “public use” requirement, the General Assembly explicitly identified “(d) The use of the property for the creation or operation of public utilities or common carriers” as being a public use. This is not an independent grant of eminent domain authority to pipelines – that power, to the extent that it does exist, rests in KRS 278.502 – but it does suggest that a pipeline that is neither a public utility nor a common carrier, may not be a “public use,” and that the General Assembly has, by statute, constrained whatever power might exist under KRS 278.502 to those two categories.

Conclusion

Until a court of law determines, in the context of an adjudicated condemnation action, that the company has the power of eminent domain by virtue of state law, and that the state grant of that power is consistent with the state constitution restraints on the exercise of eminent domain, it is not settled that the company would have the power. A strong argument exists that the Bluegrass Pipeline project lacks the authority under Kentucky law to condemn lands for the location of and access to easements for the proposed pipeline, since it is not a “common carrier” and is not “in public service.”

Among the legal issues that would be expected to be raised in any action in which Williams asserted the right to condemn or to enter on property prior to condemnation to survey are:

1. Does 416.560 unconstitutionally allow a prospective condemnor to trespass onto the lands of another for surveying purposes since there is no prior finding of a court that the person possesses that power?

2. Are NGLs “oil or gas” or “oil and gas products” so as to allow a pipeline company to invoke condemnation authority under KRS 278.502?

3. Is the proposed Bluegrass Pipeline transporting “oil or natural gas for public consumption” within the meaning of KRS 278.470 so as to be a common carrier and thus a “public use” under KRS Chapter 416? The Milam decision would suggest so, at first blush, but the consumption is not by Kentuckians, and so under the Petroleum Exploration and Milam decisions there may not be enough public (i.e. Kentucky) benefit. Additionally, KRS 416 does not grant any additional authority to the Bluegrass Pipeline Company, and irrespective of whether KRS Chapter 416 defines a common carrier as a "public use," it is whether the pipeline is in "public service" within the meaning of KRS 278.502 that is determinative.

4. Is the proposed Bluegrass Pipeline “in public service” so as to have the power of condemnation under KRS 278.502?

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