Tyler Court of Appeals Reverses Summary Judgment on Pipeline Easement Liability After Unauthorized Assignment Voided Transfer
The Tyler Court of Appeals reversed a trial court judgment against successive pipeline easement owners, holding that an assignment made without consent under a Purchase and Sale Agreement's anti-assignment clause was void and could not transfer environmental remediation liability for a 1944 Humble Pipe Line easement. ExxonMobil had argued that successive owners of the Sand Flat Pipeline assumed liability for crude oil contamination from a demolished flowline and tank battery that had been sold separately in 1974.
Background and Transaction History
This case involves a complex chain of assignments stemming from a 1944 pipeline easement granted to Humble Pipe Line Company (ExxonMobil's predecessor) over a 126.7-acre tract in Smith County. The Birdwell easement gave Humble, its successors and assigns, a right-of-way to "lay, maintain, operate, replace, change and remove a pipe line for the transportation of oil, gas, and water and their products (or either of them), and to build, maintain, operate, replace and remove telegraph, telephone and power lines, with all incidental equipment." Humble constructed the Sand Flat Pipeline across the tract, along with a tank battery and flowline that connected to the pipeline. ExxonMobil sold the tank battery and flowline to Scurlock Oil Company in 1974, and by 1978, those facilities were demolished and removed.
The Sand Flat Pipeline itself remained in operation and was transferred through a 2000 Purchase and Sale Agreement (PSA) from ExxonMobil to Salter Creek Resources LLC. In December 2000, Salter Creek assigned its interests in the PSA to Seminole Creek, Ltd. (later known as Coffeyville) in the General Assignment of Longview and Houston Area Pipeline Systems Asset Sale, after which Salter Creek ceased to exist. In 2007, Coffeyville sold the pipeline and easement to Rose Rock, and in 2011, Rose Rock sold the pipeline and easement to its current owner, SemGreen.
The Environmental Contamination and Liability Dispute
In 2017, the current owner of the 126-acre tract discovered crude seeping into a stream and hardpan and complained to the Texas Railroad Commission, which launched an investigation. The Railroad Commission found "sufficient evidence to indicate that the crude oil release originated in the flow line while it was being operated by predecessor entities to ExxonMobil." As a result, the Railroad Commission ordered ExxonMobil to remediate.
ExxonMobil subsequently sued all successive owners of the Sand Flat Pipeline—Coffeyville, Salter Creek, Rose Rock, and SemGreen—arguing they assumed liability under the PSA. The trial court entered judgment in favor of ExxonMobil, but the appellants challenged this decision on appeal, presenting three issues to the Tyler Court of Appeals.
The Appellate Court's Reversal
The Tyler Court of Appeals reversed the trial court's judgment and rendered judgment in favor of the appellants. The court's analysis focused on whether the assignments of the PSA were valid and enforceable, particularly examining whether Salter Creek's assignment to Seminole Creek was made in compliance with the PSA's terms. The court found that the assignment was made without obtaining ExxonMobil's prior written consent as required by the agreement's anti-assignment clause, rendering the assignment void and of no force and effect.
Implications for Midstream M&A Transactions
This decision carries significant implications for pipeline and midstream asset acquisitions. The Tyler court's strict enforcement of anti-assignment provisions demonstrates the importance of carefully reviewing and complying with contractual restrictions on assignment in purchase and sale agreements. Parties acquiring pipeline assets through successive transactions must ensure that all required consents are obtained, as failure to do so may render the assignments void and prevent the transfer of both rights and obligations under the original agreement.