On February 27th of this year, the Texas Supreme Court heard oral argument in a suit filed by landowners (“Wheeler”) against Enbridge Pipelines (East Texas), L.P. (“Enbridge”). The basis of the suit was damage to land on a right of way. The fact that there was damage was not contested. What was contested was the amount Enbridge had to pay to Wheeler: the amount it would cost to restore the property, or the amount that equaled the diminished value of the land?

Wheeler had vacation property in Shelby County that had been in the Wheeler family for years. A cabin was on it, and the family spent quite a bit of time relaxing on what they called the “Mountain”. Enbridge needed to partially locate a 23.8 mile long pipeline across the Mountain. An agreement was reached between Wheeler and Enbride, in which, Wheeler claimed, protection of the land and trees was tantamount. As such, the final Easement provided that Enbridge must use a boring method (i.e. directionally drill) to locate the pipeline beneath the ground, with no excavation. Despite the Easement, Enbridge did not bore 550-600 feet of the pipeline path, and cleared the trees on that part of the path.

Wheeler sued Enbridge for clearing 600 feet of trees, claiming breach of contract and trespass for failure to bore the entire property. Wheeler argued that “the normal measure of contract damages is the benefit of the bargain, which seeks to place the injured party in the position he would have occupied had the contract been performed.” (emphasis added). In other words, Wheeler demanded that Enbridge pay to restore the property to the condition it was in before Enbridge breached the agreement. The jury found breach of contract and awarded the amount that equaled cost-to-restore damages of $300,000.00.

Enbridge appealed the jury’s verdict. Enbridge complained that cost-to-restore was not the correct measure of damages. Instead, Enbridge claimed, damages should be measured by the diminution in value of the land. Enbridge’s expert valued the diminution in value at $3,000.00.

On appeal, the court of appeals found that when the “subject of a contract is real property, contract damages are not measured by the benefit of the bargain, but by the same measure as in tort cases: diminution in value for permanent injury and cost of restoration for temporary injury.” As a permanent injury, then, Wheeler was only entitled to diminution in value. Wheeler appealed to the Texas Supreme Court.

The decision, once issued by the Supreme Court, will give guidance to both landowners and companies with respect to appropriate damages. Obviously, when the parties’ ideas of appropriate damages to pay are apart by a multiple of 100, clarity is required. The thing to keep in mind here is that this could apply to almost every contract operators make with landowners. If the Court determines that the appropriate damages are the heftier restoration cost, operators with likely need to make adjustments to their contracts to either minimize the damages or supplant this damage recovery theory with a palatable alternative.