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May 20, 2015 Article

Nebraska Court Upholds Eminent Domain, Facilitating Keystone Pipeline Development

But the fate of the controversial pipeline is still uncertain in the Cornhusker State

by Patrick Gallagher

While the battle over the Keystone XL pipeline rages at the federal level, the future of the proposed 1,179-mile, 36-inch-wide underground pipeline rests in part on the outcome of dozens of ongoing legal battles in Nebraska state courts. After it successfully defended its permit to exercise the power of eminent domain before the state’s high court, TransCanada Keystone Pipeline, LP, began proceedings in late January to acquire rights of way across some 90 Nebraska properties in preparation for construction on the Keystone XL pipeline.

In Thompson v. Heineman (decided on January 9), a divided Nebraska Supreme Court upheld the validity of a 2012 amendment to the state’s law governing the exercise of eminent domain by common carriers, Neb. Rev. Stat. § 57-1101. The amendment, known as L.B. 1161, makes it possible for certain major oil pipeline developers, such as TransCanada, to obtain a permit to construct an oil pipeline and exercise the power of eminent domain without the approval of Nebraska’s utilities regulator.

In Thompson, the court reversed the trial court’s finding that the state legislature had unconstitutionally divested the Nebraska Public Service Commission (PSC) of its regulatory authority over common carriers when it passed L.B. 1161. In Nebraska, the PSC is an independent agency created by the state’s constitution, which provides that the PSC’s powers and duties shall include “general control of common carriers as the Legislature may provide by law.”

However, TransCanada’s victory may have been short-lived. On February 12, a Holt County, Nebraska, district court judge issued a stay halting the condemnation cases that TransCanada had just initiated in that county three weeks earlier. The court halted the condemnation cases after TransCanada and attorneys for the landowners agreed to a stay pending the outcome of two similar lawsuits filed by groups of landowners soon after the Thompson decision was handed down. On February 26, a York County judge issued a similar order staying TransCanada’s condemnation cases in that county. The two landowner lawsuits, like the one that culminated with the Thompson decision, challenge the constitutionality of TransCanada’s state-issued permit.

The Holt County court issued its February 12 order on the same day that the U.S. House of Representatives voted to approve a bill authorizing construction on the controversial pipeline project. (The bill was subsequently vetoed by President Obama on February 24, and the Senate failed to override that veto.)

Although most of the property owners along the Nebraska portion of the proposed pipeline route have reached agreements with TransCanada over right-of-way easements, approximately 10 percent had yet to do so as of February 12, according to public statements by the developer. In contrast, the company has reported that 100 percent of property owners along the Montana and South Dakota portions of the route have agreed to terms with TransCanada. It is against those holdout landowners that TransCanada has brought dozens of condemnation suits, pursuant to its state-issued permit to construct the Keystone XL pipeline and the power to exercise eminent domain that accompanies it.

Law Streamlines Pipeline Review Process, Path to Eminent Domain

Before L.B. 1161’s enactment, a developer such as TransCanada would have needed to secure the approval of the Nebraska PSC in order to obtain a pipeline construction permit. However, under § 57-1101, as amended by L.B. 1161, a so-called major oil pipeline developer may choose to have the state Department of Environmental Quality (DEQ) review its permit application as an alternative to review by the PSC. The statute, § 57-1101, defines a major oil pipeline as one that is larger than six inches in diameter.

When a developer opts for DEQ review, the statute requires the agency to analyze the environmental, economic, social, and other impacts associated with the proposed route and possible alternative routes. The DEQ is then required to submit its report to the governor, at which point the carrier can ask the governor to approve the route. “If the Governor approves a route, § 1 [of L.B. 1161] implicitly gives a pipeline carrier the power of eminent domain in Nebraska,” wrote Justice William M. Connolly, who, along with three colleagues, would have affirmed the trial court’s finding that L.B. 1161 violates Nebraska’s constitution. With L.B. 1161 intact, whenever a carrier elects to proceed under the DEQ procedures, “the Governor has sole authority to approve the route and thereby bestow upon the carrier the power to exercise eminent domain,” Connolly wrote. The evolution of § 57-1101, Connolly continued, effectively means that a pipeline developer can acquire the right to exercise eminent domain powers while bypassing the PSC’s more rigorous application and review process. DEQ review further benefits pipeline developers because it does not provide for appellate review, in contrast to PSC procedures.

Although many states permit oil or gas pipeline developers to exercise eminent domain, condemnation proceedings are generally required to be in furtherance of a public use. For example, in Texas, common carriers (which can include pipelines) have the “right and power of eminent domain,” Tex. Nat. Res. Code Ann. § 111.019. In order for a pipeline to be classified as a common carrier, the Supreme Court of Texas held in Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, that it must first be established that the pipeline serves a public purpose. The court held that a state permit bestowing common-carrier status is prima facie valid but that in the face of a landowner challenge, the burden shifts to the pipeline developer “to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain.”

Justices Uphold Law on State Constitutional Technicality

In Thompson, Justice Connolly and the three concurring justices stated that L.B. 1161 should be struck as unconstitutional on its face for divesting the Nebraska PSC of its control over a class of common carriers and for transferring the PSC’s powers to an executive agency and by extension, to the governor. While the four technically constituted a majority of the court’s seven justices, the law was nonetheless upheld under a clause of the state constitution that provides that no legislative act shall be held unconstitutional except by the concurrence of five justices.

The remaining three justices, in an opinion by Chief Justice Michael Heavican, declined to reach the question of whether L.B. 1161 violated Nebraska’s constitution. Instead, they maintained that the plaintiffs—three rural landowners—had not met the injury-in-fact requirement for traditional standing because they failed to prove that the proposed pipeline route intersected any of their properties, and that they had likewise failed to establish taxpayer standing under a prudential exception recognized by the court in 1979 for matters of “great public concern.” In that case, Cunningham v. Exon, the court adopted a “great public concern” exception to traditional standing, reserving its applicability to claims where “a legislative enactment may go unchallenged unless [the] plaintiff has the right to bring the action.” Justice Connolly and the others who joined his opinion would have applied that exception to the plaintiffs in Thompson.

In contrast, Justice Heavican distinguished Cunningham, where he said the court intervened because otherwise no one may have had standing to challenge the constitutional amendment at issue. By contrast, he wrote, in this matter dozens, if not hundreds, of Nebraskans who own property along the proposed pipeline route would have traditional, common-law standing to challenge the constitutionality of L.B. 1161. Indeed, as noted above, many affected property owners have sought to do just that since the Thompson decision was handed down.

Echoing the sharp public debate, the justices of the Nebraska Supreme Court were divided in their opinions of the case. Justice Heavican and the two justices who joined his opinion criticized the majority—which it repeatedly referred to as a plurality—for choosing to analyze the merits of a constitutional issue that it knew it lacked the votes to resolve. The four justices who supported overturning L.B. 1161 countered that only a simple majority is necessary to decide issues like standing. They maintained that the three justices who failed to reach the constitutional question should have accepted their colleagues’ determination on standing, and accordingly, should have at least reached the merits of the case. “[T]here is no constitutional or jurisprudential barrier that precludes the dissenting judges from proceeding to decide the landowners’ constitutional challenge,” Justice Connolly wrote.

Ultimately, Justice Connolly’s discussion of the merits of L.B. 1161 is dicta. However, it appears likely that the court will soon be asked (again) to decide the law’s constitutionality, at which point standing (as Justice Heavican predicted) will likely not be at issue. Should that occur, it remains to be seen how the justices will split over the constitutional question.

Debate over the future of the Keystone XL pipeline is far from over. A new bill in the state legislature aims to strip the right to exercise eminent domain from private companies seeking to construct large oil pipelines. The proposal, L.B. 473, was introduced by Omaha Sen. Ernie Chambers (I). As of March 11, the Judiciary Committee of the state legislature had not yet determined whether to advance the proposal to the full chamber.

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