By Pam R. Mascari

Pipeline companies may not exercise their powers of eminent domain granted under the federal Natural Gas Act (NGA) in federal courts when seeking to acquire state-owned lands.   On September 10, 2019, in In re: PennEast Pipeline Company, LLC, the United States Court of Appeals for the Third Circuit ruled in favor of New Jersey finding that its sovereign immunity under the 11th Amendment prohibited PennEast Pipeline from condemning property owned by the State of New Jersey.

PennEast Pipeline Company, LLC obtained federal approval to construct a pipeline through Pennsylvania and New Jersey.    After PennEast obtained approval for the project, it sued in federal court to condemn and gain access to properties along the approved route.    Of  the 113 tracts sued upon, 42  are owned, at least in part, by the State of New Jersey.    The United States District Court for the District of New Jersey found that PennEast had met all conditions required under the NGA to exercise the right of eminent domain, rejected New Jersey’s argument that it was immune from suit by a private entity under the 11th Amendment, and granted PennEast orders of condemnation and immediate access to the properties.  New Jersey appealed to the United States Court of Appeals for the Third Circuit.

The Third Circuit opinion does not consider whether PennEast had met the requirements for exercising eminent domain under the Natural Gas Act.  Rather, the Third Circuit opinion is based completely the sovereign immunity created by the Eleventh Amendment to the United States Constitution which provides that:

The Judicial Power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizen of another State, or Citizen or Subjects of any Foreign State.

However, the Eleventh Amendment does not prevent the United States from suing a sovereign state government in federal court.

The Third Circuit pointed to the two competing powers at issue:  the federal government’s eminent domain power and the federal government’s exemption from Eleventh Amendment immunity.  PennEast argued that the NGA impliedly represents a delegation of the federal government’s power to sue a state government when exercising the power of eminent domain.  The Third Circuit rejected this notion finding no authority for a “delegation theory” of the waiver of sovereign immunity.  Further, the Third Circuit noted that Congress may only abrogate sovereign immunity by unequivocal statutory language. The court found no such unequivocal waiver of sovereign immunity in the NGA.

The obvious concerns of PennEast and the natural gas industry were recognized near the end of the opinion:

PennEast warns that our holding today will give State unconstrained veto power over interstate pipelines, causing the industry and interstate gas pipelines to grind to a halt – the precise outcome Congress sought to avoid in enacting the NGA.  We are not insensitive to those concerns and recognize that our holding may disrupt how the natural gas industry, which has used the NGA to construct interstate pipelines over State-owned land for the past eighty years, operates.

But our holding should not be misunderstood.  Interstate gas pipelines can still proceed.  New Jersey is in effect asking for an accountable federal official [rather than a private pipeline company] to file the necessary condemnation actions and then transfer the property to the natural gas company.

This precedential opinion was filed in Docket No. 19-1191 in the United States Court of Appeals for the Third Circuit on September 10, 2019. Due to the vast acreage of state owned water bottoms in Louisiana, this decision portends potentially significant changes in pipeline development within the state.