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Municipal Drilling Ordinances as Constitutional Takings
Posted 5/11/08 Koy R. Killen, Winstead, P.C.In an earlier submission, a recent appellate opinion was discussed in which a jury’s award of $16,849,099.00 to an oil company was affirmed based upon the premise that municipal drilling ordinances can qualify as constitutional takings in situations where access to minerals is effectively denied. Trail Enterprises, Inc. v. City of Houston, 2007 Tex. App. LEXIS 9199 (Tex. App. Waco Nov. 21, 2007). On joint motions for rehearing, the Court’s prior opinion was withdrawn, and its substituted opinion is even more favorable for urban oil and gas producers. See Trail Enters. v. City of Houston, 2008 Tex.App. LEXIS 2575 (Tex. App. Waco Apr. 9, 2008).
In its original opinion, the Court found that a constitutional taking had occurred and awarded inverse condemnation damages to the Plaintiff, but also rendered judgment awarding the City of Houston fee simple title to all of the oil, gas, and other minerals in and under 1,025 acres of land in Harris County. Upon reconsideration, the Court changed its earlier ruling, holding that the imposition of the ordinance prohibiting drilling merely qualified as a “damaging” of the oil company’s mineral interests rather than a true “taking.” The end result is that although the Court left the $16,849,099.00 damages award in favor of the Plaintiff intact, it divested the City of the title to the mineral which were conveyed via the prior opinion.
The City unsuccessfully argued that a judgment which does not grant title to the City would result in a windfall to the oil company because it may well be able to further develop its mineral interests in the future. The City further pointed to the fact that oil company took the position at trial that the City had “effectively taken” the mineral estate because the mineral rights had been “rendered valueless.” However, the Court nevertheless ruled that a true taking had not occurred because the oil company continued to receive some royalties from the mineral estate after the ordinance was enacted, citing prior caselaw labeling ordinances that deprive an owner of “all economically beneficial or productive use of the property as constitutional takings”. See Hallco Texas, Inc. v. McMullen County, 221 S.W.3d 50, 56 (Tex.2007).
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1 The Waco Court of Appeals decided this appeal due to docket equalization.