Shale Law in the Spotlight – UPDATE

 Penn East Pipeline Project – U.S. Court of Appeals Denies Eminent Domain Proceedings by PennEast Pipeline Company, LLC for the Acquisition of New Jersey State-Owned Properties  

Written by Chloe Marie – Research Specialist

The PennEast Pipeline Project is a 120-mile expansion project operated by PennEast Pipeline Company, LLC and proposes to transport 1 billion cubic feet (Bcf) per day of natural gas from Dallas, Luzerne County, in northeastern Pennsylvania to the existing Transco’s pipeline interconnection located near Pennington, Mercer County, New Jersey.  

PennEast Pipeline Company, LLC filed an application in September 2015 with the Federal Energy Regulatory Commission (FERC) to obtain a certificate of public convenience and necessity for the pipeline project. On April 7, 2017, FERC released a Final Environmental Impact Statement (FEIS) and concluded that the approval of the PennEast Pipeline Project would create adverse environmental impacts; however, these impacts would be reduced to acceptable levels through the implementation of mitigation measures recommended by FERC staff. On January 19, 2018, FERC subsequently granted a certificate of public convenience and necessity to PennEast Pipeline Company allowing construction and operation of the proposed pipeline project.

This pipeline project generated a lot of opposition among some landowners, whose lands were to be condemned through eminent domain proceedings. This opposition increased when PennEast Pipeline Company brought condemnation actions in February 2018 before the U.S. District Court for the District of New Jersey.  This eminent domain action targeted some state-owned lands instigating discussion on whether the federal government’s delegation of eminent domain power to private companies under the Natural Gas Act (NGA) also involves a delegation of the federal government’s exemption from the U.S. Constitution Eleventh Amendment’s protection to states from being sued in federal court.

This article is intended to provide an overview of recent legal developments related to these condemnation actions.

PennEast Pipeline Co., LLC v. A Permanent Easement for 1.92 Acres, U.S. District Court for the District of New Jersey, No. 3:18-cv-01597

PennEast Pipeline Company, LLC filed a complaint in condemnation on February 6, 2018, pursuant to Section 7(h) of the Natural Gas Act before the U.S. District Court for the District of New Jersey claiming the necessary rights-of-way and easements in property, including state-owned property, for the construction of the PennEast Pipeline after it failed to negotiate directly with landowners on the issue of compensation. PennEast also sought injunctive relief granting immediate access to property.

On March 20, 2018, New Jersey Attorney General Gurbir S. Grewal, on behalf of the state and three other state agencies, sought dismissal of PennEast’s condemnation proceedings arguing that federal courts do not have jurisdiction to condemn state-owned property. In this regard, New Jersey’s main argument is that states are entitled to sovereign immunity from suits filed in federal courts as defined in the Eleventh Amendment to the U.S. Constitution. In addition, they asserted that the district court should in any case deny such proceedings because PennEast did not make prior contact with the state to acquire their property interests.

The District Court, however, on December 14, 2018, allowed PennEast to take private and state property in order to build the PennEast Pipeline and granted its request for injunctive relief for immediate access to property. Consequently, the District Court denied the State Defendants’ request for dismissal of the condemnation proceedings. Interestingly, the court expressed the view that FERC’s granting of a valid certificate of public convenience and necessity pursuant to the Natural Gas Act gives companies the right to directly sue any state government for eminent domain purposes and asked the State Defendants to show evidence as to why the Eleventh Amendment’s sovereign immunity would apply in this case. On January 11, 2019, the State Defendants appealed the decision of the District Court to the U.S. Court of Appeals for the Third Circuit.

In re: PennEast Pipeline Co. LLC, U.S. Court of Appeals for the Third Circuit, No. 19.1191

The U.S. Court of Appeals for the Third Circuit agreed on March 19, 2019, to hear the appeal on an expedited schedule and to stay the construction of the PennEast Pipeline in New Jersey pending the outcome of this appeal.

On September 10, 2019, the Court of Appeals held that PennEast is prevented from suing the State of New Jersey to obtain rights-of-way and easements in property by eminent domain, in accordance with the Eleventh Amendment to the U.S. Constitution and thus vacated and remanded the case to the U.S. District Court for further proceedings.

In its opinion, the Court of Appeals considered that the delegation of federal power for eminent domain to private companies under the NGA does not provide them with the power to condemn state-owned properties and explained that “[t]he federal government’s power of eminent domain and its power to hale sovereign States into federal court are separate and distinct.”

The court observed that, under Amendment XI, a state is exempt from the jurisdiction of federal courts and cannot be prosecuted by private parties unless the state has so consented; however, this sovereign immunity does not exempt the state from being sued by the federal government itself.

Even though the Natural Gas Act allows private companies to use the federal power of eminent domain for the taking of property subject to receiving FERC’s certificate of public convenience and necessity, New Jersey argued that this does not in any way mean that a private company is also vested with federal powers to sue a state “and that, even if it could, the NGA is not a clear and unequivocal delegation of that exemption.” PennEast in turn argued that from the federal government’s delegation of eminent domain power also derives the right to sue the states “and that concluding otherwise would frustrate the fundamental purpose of the NGA to facilitate interstate pipelines.”

Here, the Court of Appeals emphasized in particular that the federal government’s power for condemning state-owned lands represents the exercise of two separate powers, including the federal government’s eminent domain power and the federal government’s exemption from state sovereign immunity. In this regard, the court warned that “[a] delegation of the former must not be confused for, or conflated with, a delegation of the latter. A private party is not endowed with all the rights of the United States by virtue of a delegation of the government’s power of eminent domain.”

Furthermore, the Court of Appeals pointed out that Congress has the sole power to subject the states to lawsuits by private parties only by making a clear and unequivocal declaration of its intention to do so in the language of the statute. The court contended that the NGA does not clearly indicate that Congress had the intent to allow the delegation of the federal government’s exemption from state sovereign immunity to private parties. Moreover, the court observed that the NGA does not, at any time, refer to the Eleventh Amendment or the states themselves.

Finally, the Court of Appeals stated that this decision is not to be understood as disturbing the development of interstate natural gas pipelines and, in this regard, the court asserted that “[i]nterstate gas pipelines can still proceed. New Jersey is in effect asking for an accountable federal official to file the necessary condemnation actions and then transfer the property to the natural gas company … Whether, from a policy standpoint, that is or is not the best solution to the practical problem PennEast points to is not our call to make.”

In the aftermath of the Court of Appeal’s ruling, New Jersey Department of Environmental Protection (DEP), one of the state parties in this lawsuit, denied on October 8, 2019, PennEast’s application for a Freshwater Wetlands Individual Permit and Water Quality Certification, a key document necessary for the construction of the PennEast Pipeline.

On November 5, 2019, the U.S. Court of Appeals for the Third Circuit denied a petition for rehearing requested by PennEast Pipeline and on December 16, 2019, the U.S. District Court for the District of New Jersey vacated its prior Order dated December 14, 2018 with respect to the property interests owned by the State of New Jersey. In addition, the District Court dismissed all claims filed against the State Defendants.

References:

Website – PennEast Pipeline

“FERC Staff Issues the Final Environmental Impact Statement for the PennEast Pipeline Project (Docket No. CP15-558-000)” (April 7, 2017)

Opinion of the Court, In re: PennEast Pipeline Company, LLC, U.S. Court of Appeals for the Third Circuit, No. 19-1191

Additional Resources:

Shale Law in the Spotlight: PennEast Pipeline Project – An Overview of Status and Current Legal Developments (May 2, 2018)

This material is based upon work supported by the National Agricultural Library, U.S. Department of Agriculture