(CN) – A Texas appeals court tossed a $17 million judgment for the owners of land near one of Houston’s main sources of drinking water, a court majority holding that rules that bar new oil wells on the land was not a taking.
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Lake Houston is a reservoir 15 miles northeast of downtown Houston, and the city’s secondary water supply after Lake Livingston. For decades the area around Lake Houston has been the subject of numerous revisions to ordinances pertaining to the drilling of new oil and gas wells.
Trail Enterprises Inc. dba Wilson Oil Company and Daystar Oil and Gas Corp., along with 10 individual property owners, brought an inverse condemnation lawsuit against the city in Harris County Court, claiming the city’s drilling ban amounted to a compensable taking of their property.
The owners lawsuit was dismissed in an initial trial, but after a review by the Texas Supreme Court, that decision was reversed and the case remanded.
After a second trial, the court sided with the owners and awarded them $17 million in damages based on a jury’s verdict. The court also awarded the city all the oil and gas not recoverable from existing wells on the owners’ property.
Both sides appealed with the city contesting the takings ruling, and the owners challenging the mineral interest awarded to the city.
Writing for the majority of a three-judge panel, Judge Martha Hill Jamison of the 14th Court of Appeals in Texas, reversed the trial court’s judgment, and ruled that the landowners should get nothing.
Houston changed its laws in 1997 so drilling restrictions were placed on properties around Lake Houston within city limits, and within its extraterritorial jurisdiction, “containing waters that flow into or adjacent to the watershed of Lake Houston.”
Because there is evidence that Lake Houston is a critical water source for Houston, and that oil drilling causes pollution the city was justified in enacting the restriction, Hill Jamison wrote in a 16-page ruling.
The panel then considered whether the landowners made any investment in their property with expectations that new wells would be drilled there.
According to the city’s discovery, the majority of owners inherited their property, and never invested any money in drilling or potential drilling, activities.
Since most of the landowners inherited or bought their land during a time when drilling was prohibited they had no reasonable expectation of profits other than that from existing wells, Hill Jamison wrote, siding with the city.
While the majority did find the city’s drilling restriction had a significant economic impact on the landowners this alone does not establish a taking, Hill Jamison wrote.
Also, the economic loss was not complete, she noted.
“There is considerable evidence indicating that production continues from existing wells on the property, so it cannot be said that appellees’ mineral interests have been rendered valueless by the drilling prohibition,” Hill Jamison wrote.
In light of all the factors the majority sided with Houston.
“With substantial government interests at stake and minimal-to-no investment-backed expectations, justice and fairness do not require compensation in this case,” Hill Jamison wrote.
But in an eight-page dissenting opinion Judge Kem Thompson Frost wrote that even if no taking resulted from the city’s drilling ban, the appeals court could affirm the trial court’s $17 billion judgment on a “damage theory of recovery.”
This would be based on the decline in the market value of the owners’ mineral interests after the city enacted the ban, Frost wrote.