Pipeline Expansion Project May Proceed After Ct Upholds Validity of Easement

With the nation is in the middle of building pipeline infrastructure to transport natural gas from fracking operations as well as Canadian oil, I suspect we will see more case like Enbridge Pipelines (Ill.) L.L.C. v. Moore, 633 F.3d 602 (7th Cir. 2011) where landowners argued that a 1939 pipeline easement had expired. Presumably, the landowners wanted to negotiate a richer deal for new easements.

In this case, the plaintiff was trying to build a 170-mile-long pipeline in Illinois as part of a larger project of pipeline construction to meet increased demand for Canadian oil. A 120-mile segment of the proposed construction route already contained a 10-inch pipeline originally constructed in 1939 and that had not been in use for many years. Enbridge wanted to replace the 10-inch pipeline with a 36-inch one.

The pipeline route had been created by easements from private property that had been granted to predecessors of Enbridge. The easement conveyed the to the original grantee “the right to lay, operate, and maintain a pipe line for the transportation of oil, gasoline and/or other fluids.” The easement also applied to the grantee’s successors and assigns “so long as such pipe lines or other structures are maintained.” The holder of the easement was also required to compensate landowners for any and all damages to crops, fences, and land resulting from the construction, operation or maintenance of the pipe lines.

The pipeline had been inactive since 1988 when Enbridge acquired the rights to the easement. After learning of the proposed pipeline upgrade, the owners whose land was subject to the easement contended that Enbridge had forfeited the easements by failing to maintain the pipeline in good working condition. The owners said that Enbridge had failed to maintain cathodic protection, valves and pumps and seams. They alleged that segments of the pipeline were missing, and that joint or seam failures had not been repaired. The plaintiffs also alleged that the interior of the pipeline had not been cleaned.

The court said that the legal meaning of abandonment was a deliberate act and did not encompass poor maintenance. While the court acknowledged that the original pipeline had not been in use for many years, the court said there was no evidence that the defendant intended to abandon the easement. Using an economic analysis (the court is after all located in Chicago), the court said the easement owner had foreseen the possibility that demand for transportation of oil by pipeline would someday justify placing the pipeline (or a replacement) into service but there was no economic justification for keeping the pipeline in “mint” operating condition until that time.

The court also found that the word “maintain” was ambiguous but did not require that the pipeline be maintained in mint condition. A rule that forfeited a person’s property right because they failed to maintain the property in good condition would cast a cloud of debilitating uncertainty over property rights, the court concluded. To hold that failure to maintain the pipeline would cause the easement to be extinguished, the court said, would engender wasteful maintenance. The court said such a requirement would also induce expenditures on maintenance intended not to enable the productive use of the property but merely to avoid forfeiture of the property right.

The court also said that a reasonable reading of the word “pipeline” in the easement was that the word did not refer to the pipe itself but to the pipeline in the sense of a route for transporting oil, just as one might speak of an “air corridor” between New York and Chicago even if no airlines were operating between those cities. The court said that maintaining the pipeline would then just mean preserving the option to use the easements for future transportation of oil, even if the existing pipeline crumbled to dust.

The defendant landowners argued that because the instrument creating the easement referred to “such pipe lines or other structures”, the phrase applied to the physical pipeline, not the easements. As a result, the dismantlement of the pipe would have terminated the easements. However, the court said even this reading would not defeat Enbridge’s claim. The court said that all that was required of the successive easement holders was to engage in minimal maintenance to put have the pipeline put back into service with additional expenditures to clear out the rust and replace broken parts.

Contrary to the landowners’ claims, the court ruled that Enbridge had engaged in considerable maintenance in 1992, 1993, and 2004. The court said there was no evidence of any missing segments, and that an Enbridge engineer who performed 27 “integrity digs” testified that the pipeline was capable of transporting liquid. His affidavit described the pipeline as being close to being as good as new and could with relative ease be placed back into active service as a crude oil line, a gas line, or a water line.  The court said this was sufficient to show that the owners maintained the pipeline within any meaning that could reasonably be assigned to the easements and had no intention of abandoning it, for if they had intended to do so they wouldn’t have spent even a penny on maintenance.