September 16, 2020

Can State Sovereign Immunity Bar Eminent Domain for Interstate Natural Gas Pipelines?

Erin McLaughlin

Introduction

For more than 70 years, developers of interstate natural gas pipelines have used eminent domain to build pipelines and pipeline infrastructure. But earlier this year, the Third Circuit Court of Appeals cast the constitutionality of that long-standing industry practice into doubt—at least in certain circumstances. In In re PennEast Pipeline Co., LLC, the court adopted a limiting interpretation of the Natural Gas Act’s (NGA) eminent domain provision, finding that it stops short of breaching state sovereign immunity. Consequently, according to the Third Circuit, pipelines cannot acquire rights-of-way over state land in federal court, unless a state waives its immunity. According to plaintiff PennEast Pipeline Company (PennEast), the Third Circuit’s decision gives states an “effective veto” over proposed pipelines, thereby “‘disrupt[ing] how the natural gas industry’ has operated ‘for the past eighty years.’” The Federal Energy Regulatory Commission (FERC) also voiced its disagreement with the Third Circuit’s decision, a position consistent with its historic protests that private exercises of eminent domain power are not constitutionally suspect.  

Despite industry and FERC protests, no federal court has ever decided that the NGA’s eminent domain provision breaches state sovereign immunity. Only three federal courts have confronted the issue, and they have all held that the NGA’s eminent domain provision leaves state immunity intact. This essay examines the Third Circuit’s reasoning in In re PennEast and speculates about the decision’s implications for pipeline siting. Part I introduces the PennEast litigation by briefly reviewing the Eleventh Amendment and the NGA’s eminent domain provision. Part II discusses the PennEast pipeline proposal, the In re PennEast litigation, and the two other federal cases that have taken up the question of whether the NGA breaches state immunity. Finally, Part III speculates about the potential effects of the Third Circuit’s decision on the future of natural gas pipeline siting under the NGA.

I. Background: State Sovereign Immunity and the Natural Gas Act

State sovereign immunity doctrine is the first piece of the legal framework underlying the In re PennEast litigation. States’ sovereign immunities shield them from being sued in federal court without their consent.  Critically for the In re PennEast litigation, states may not assert sovereign immunity as a defense to suits brought in federal court by the federal government. This is because it was “inherent in the Constitutional plan” that states could be sued by the federal government.  In other words, by signing on to the Constitution, states implicitly agreed to exempt the federal government from their immunity claims.

The second piece of the legal framework for In re PennEast is the Natural Gas Act of 1938. The NGA prescribes a procedure for siting interstate natural gas pipelines, grants FERC the authority to issue certificates of public convenience and necessity (CPCNs) to pipeline developers, and enables pipelines to use eminent domain in order to obtain the rights-of-way required for pipeline construction.

The NGA does not explicitly mention the Eleventh Amendment or state sovereign immunity, but its legislative history strongly suggests that its drafters intended for pipeline development to proceed in the face of state opposition. The problem of holdout landowners caused Congress to add an eminent domain provision to the NGA in 1947, a point emphasized by PennEast in its pending appeal of the Third Circuit’s decision:

A decade of experience with an NGA that lacked a federal eminent domain provision made clear to Congress that reliance on consensual state actions was incompatible with the development of interstate pipelines. Having gone to the trouble of adding an eminent domain provision to overcome state obstacles to interstate pipelines, Congress would not have exempted states or otherwise given them a de facto veto power over interstate pipeline routes.

Moreover, when a proposed version of the 1947 amendments was before the Senate, an opponent of the amendments argued that they should not pass because they would enable private companies to take state land. Despite that objection, the NGA was passed without a carveout for state land in its eminent domain provision.

PennEast’s favored interpretation of the NGA—that its eminent domain provision breaches state immunity—finds further support in the history of interstate natural gas pipeline siting under the 1947 amendments. For more than 70 years, pipeline developers routinely used eminent domain to condemn state land. And in 1992, when section 814 of the Federal Power Act (FPA) was amended to prevent recipients of delegated eminent domain authority from condemning certain types of state-owned land,  the NGA was not similarly amended, although its eminent domain provision was modeled after section 814.

With that background in mind, was the Third Circuit mistaken when it found that New Jersey’s sovereign immunity precluded PennEast from haling the state into federal court? The essay next turns to the PennEast pipeline proposal that brought the NGA’s sovereign immunity issue to the fore, and why the Third Circuit found that the NGA’s eminent domain provision does not breach state immunity.

II. The PennEast Pipeline Proposal, In re PennEast Pipeline Co., LLC, and Related Case Law

A. The In re PennEast litigation
The proposed PennEast pipeline is a new 116-mile natural gas pipeline that will transport gas from the Marcellus Shale in Luzerne County, Pennsylvania, to eastern markets in New Jersey, New York, and Pennsylvania. As proposed, it would carry approximately one billion cubic feet of natural gas—up to 1,107,000 dekatherms of energy—per day. PennEast filed its application for the pipeline in 2015, and FERC issued a CPCN for the project in early 2018. Having received a CPCN, PennEast initiated condemnation proceedings in federal court for 131 property interests it needed to start construction on the pipeline. There was only one problem: 42 of those property interests belonged to the state of New Jersey, which opposed pipeline construction. New Jersey refused to participate in the condemnation proceeding, arguing that its sovereign immunity deprived the U.S. District Court of jurisdiction.

The court disagreed, finding New Jersey’s immunity defense “inapplicable” in light of the NGA’s eminent domain provision. The court reasoned that because the NGA delegates the federal government’s eminent domain power to CPCN-holders, PennEast “stood ‘in the shoes of a sovereign’” and could therefore pierce New Jersey’s sovereign immunity in the same way that the federal government can.  

New Jersey appealed the decision to the Third Circuit Court of Appeals, which expedited the appeal and halted pipeline construction pending its decision. Ultimately, the Third Circuit decided for New Jersey on the sovereign immunity issue, vacating the District Court’s order that the state’s property interests be condemned. In so holding, the Third Circuit made two critical findings and one policy argument. First, the court held that the District Court erred by conflating the federal government’s exemption from state immunity and federal eminent domain power. Explaining that these two federal prerogatives are different, the Third Circuit found that a delegation of eminent domain is generally not accompanied by a corresponding delegation of the federal government’s exemption from state immunity.

In support of this finding, the court cited Blatchford v. Native Village of Noatak, and decisions from its sister circuits, which collectively expressed doubt that the United States can delegate its exemption from state immunity claims at all. In Blatchford, the Supreme Court held that a group of Alaska Native villages could not sue a state for money under a revenue-sharing statute. Although the Blatchford decision did not involve pipeline siting, the plaintiff tribes had advanced an argument that the Third Circuit found analogous to PennEast’s. The argument was that 28 U.S.C. § 1362—a statute that was interpreted as a delegation of the federal government’s power to file suit in federal district court—also conveyed the federal government’s ability to sue states in federal court. In a portion of the decision relied upon by the Third Circuit, the majority of the Blatchford justices expressed doubt about that argument:

[I]t is impossible to imagine any more extreme replication of the United States’ ability to sue than replication even to the point of allowing unconsented suit against state sovereigns. . . . We doubt, to begin with, that that sovereign exemption can be delegated—even if one limits the permissibility of delegation . . . to persons on whose behalf the United States itself might sue.

Having found that a delegation of eminent domain is not accompanied by an implicit delegation of power to sue states in federal court, the court next looked in the NGA for an express delegation of such authority. The court acknowledged that although Congress has the power to subject states to lawsuits brought by private parties, it can only exercise that power through “unmistakably clear” statutory language. The court found such language missing from the NGA. Additionally, the court also noted that Congress can only abrogate state sovereign immunity when it passes a statute under section 5 of the Fourteenth Amendment. Because Congress passed the NGA pursuant to its Commerce Clause powers, the court reasoned that the constitutional basis for the NGA could not have authorized Congress to pierce state immunity in the first place.

Finally, the court questioned whether private eminent domain is good policy, due to its concerns about political accountability in condemnation proceedings:

[T]he condemning party controls the timing of the condemnation actions, decides whether to seek immediate access to the land, and maintains control over the action through the just compensation phase, determining whether to settle and at what price. The incentives for the United States, a sovereign that acts under a duty to take care that the laws be faithfully executed and is accountable to the populace, may be very different than those faced by a private, for-profit entity like PennEast, especially in dealing with a sovereign State.

It was partly due to this concern that the Third Circuit was not convinced by PennEast’s argument that FERC’s oversight of pipeline construction should mitigate any qualms about taking state property. Yet, the court clarified that the Eleventh Amendment, and not its policy concerns, were the basis for its holding.

After the Third Circuit issued its decision, PennEast filed a petition for a writ of certiorari with the U.S. Supreme Court. PennEast argued that not only would the Third Circuit’s holding fundamentally disrupt the natural gas industry, but also that the court’s statutory interpretation was faulty. Specifically, PennEast argued that the Supreme Court has consistently upheld statutes that delegate eminent domain power to private parties, and that when Congress has not intended to take state land through eminent domain, it has explicitly said so. Yet, despite PennEast’s critiques of the Third Circuit’s decision, the In re PennEast court was not the first to find that state immunity can halt construction of interstate natural gas pipelines.  

B. The Sabine and Columbia Gas Transmission Decisions
In a decision that predated In re PennEast, the Federal District Court for the Eastern District of Texas dismissed a pipeline’s condemnation proceeding brought against the Texas Parks & Wildlife Department (TPWD). The Sabine Pipe Line, LLC v. A Permanent Easement of 4.25 +/- Acres of Land decision demonstrates remarkably similar reasoning to In re PennEast. In finding that Texas’s sovereign immunity prevented the TPWD from being sued in federal court, the court rejected the idea that delegees of eminent domain power under the NGA also receive the federal government’s exemption from state immunity claims. Like the In re PennEast court, the Sabine court doubted that the federal exemption from state immunity can be delegated at all. However, it, too, was willing to assume for the sake of argument that the federal government’s power to sue states in federal court could be delegated by an express statutory provision. Nevertheless, it found such a provision lacking in the NGA.

The precedent in Sabine also found its way into a recent District Court decision in the Fourth Circuit, Columbia Gas Transmission, LLC v. 0.12 Acres of Land. In August 2019, the court dismissed a pipeline developer’s motion for a preliminary injunction in a condemnation proceeding. The grounds for dismissal were that because the NGA does not abrogate state sovereign immunity, the pipeline failed to demonstrate a likelihood of success on the merits—an important factor for granting a preliminary injunction.

Like the In re PennEast court, the Columbia court did not find that FERC-issued CPCNs are an acceptable safeguard against potential harms from private sector exercises of eminent domain. In so holding, the Columbia court distinguished Fourth Circuit precedent that had held that state immunity is not a defense to federally-sanctioned lawsuits brought for the benefit of private parties. The Columbia court noted that such breaches of state immunity are only permissible when the federal government retains “full political control” over the lawsuit—a factor the court found lacking when CPCN holders bring condemnation actions.

Although the Columbia, Sabine, and PennEast decisions all held that the NGA’s eminent domain provision does not breach state sovereign immunity, it is not clear that they embody a legal consensus. Indeed, the Columbia court expressly noted the dearth of case law in support of its holding when it invited counsel for Columbia Gas Transmission to appeal its decision to the Fourth Circuit.

III. The Future of Interstate Natural Gas Pipeline Siting under the Natural Gas Act

With only three federal cases on point, it is difficult to predict whether and how the In re PennEast decision might change the future of siting interstate natural gas pipelines. What is more certain is that if the Third Circuit’s decision stands, states will have gained a powerful tool for opposing pipeline construction. As one of the amicus curiae in the In re PennEast litigation pointed out, states own “not only lands and conservation easements, but also the streambed of every navigable waterway within their boundaries,” so the Third Circuit’s broad holding gives states substantial leverage in decisions about pipeline routes.

If Congress is uncomfortable with states’ newfound leverage in the pipeline siting process, it could pursue a legislative fix by amending the Natural Gas Act. For example, an amendment might give FERC or another federal entity the power to bring condemnation proceedings on behalf of pipelines. This type of legislative fix was suggested by both the Columbia and PennEast courts, which indicates that it would be an easy way for future takings of state land in federal court to survive judicial review. Also, it would increase the federal government’s political accountability for eminent domain power in pipeline siting—an important consideration in both the Columbia and In re PennEast holdings. On the other hand, shifting to FERC the burden of litigating condemnation proceedings is arguably a poor use of agency resources, and could overburden the agency.

A second type of legislative fix might involve amending the NGA’s eminent domain provision to exclude state property from its reach. For example, amendments to the FPA in 1995 exempted state parks from the eminent domain power delegated to hydropower licensees. An advantage of this approach is that the amendment can be narrowly tailored; it might only carve out certain types of state land, or certain types of state ownership interests. However, an amendment that is too narrowly tailored might not foreclose future litigation like In re PennEast, because the FPA’s carveout only applies to state parks, recreation areas, and wildlife refuges. Many of New Jersey’s interests in the In re PennEast dispute were easements, so even if the NGA contained a similar carveout to the one in the FPA, New Jersey would not have been precluded from asserting its immunity against condemnation proceedings for those interests.  

Finally, a third legislative fix would be for Congress to pass new legislation under the section 5 of the Fourteenth Amendment explicitly providing that pipelines may breach state immunity when exercising delegated eminent domain power. This would provide the clear congressional intent that courts look for, but the passage of such a statute could be politically infeasible.

Even if the NGA is not amended, the future of siting interstate natural gas pipelines may look different after In re PennEast. Pipelines wary of having condemnation proceedings dismissed by federal courts could instead file in state courts, where state sovereign immunity does not apply. Although the NGA authorizes pipelines to file in either federal or state court, it is likely that pipeline developers prefer to file in federal court due to slight differences between federal and state procedures for determining “just compensation.” To what extent pipelines might abandon this preference in light of the In re PennEast, Sabine, and Columbia decisions remains to be seen. Relatedly, another way in which pipelines may change their behavior is by favoring settlement with state landowners. Whether pipelines will be more likely to settle with states in the future, and whether states will treat the In re PennEast decision as a boon to their bargaining position during negotiations with pipelines, are also interesting questions.

Conclusion

To date, three federal courts have found that the NGA’s eminent domain provision does not breach state sovereign immunity. According to these courts, states may halt pipeline construction when condemnation proceedings have been filed in federal court—a prospect that has generated alarm in the natural gas industry. These decisions cast a shadow upon a long-standing practice that has for over 70 years played a critical role in constructing interstate natural gas pipelines. With an appeal of the Columbia decision pending before the Fourth Circuit, and a petition for a writ of certiorari before the Supreme Court in the In re PennEast litigation, the issue of whether the NGA breaches state immunity is likely to receive additional scrutiny from judges, advocates, and legislators in the near future. Ultimately, future courts will have to decide whether industry practice and legislative history will justify constitutional avoidance, or whether they must give states a newfound veto power over pipeline proposals because “that is what the Eleventh Amendment demands.”

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    Erin McLaughlin

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    Erin McLaughlin is a 3L at Colorado Law School, where she is an articles editor of the University of Colorado Law Review. She holds a B.A. in biology and society from Cornell University. After graduation, she will clerk for Judge Gregory B. Wormuth of the U.S. District Court for the District of New Mexico.