Interstate Pipeline Companies: Condemning the State in Federal Court

October 3, 2019

This article originally appeared in the May 2019 issue of Pipeline & Gas Journal. Since publication, there’s been an important judicial update; additional information immediately follows the article reprint.

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Note: This addendum provides further detail of events and decisions occurring since the original article was published. 

The State of New Jersey appealed the New Jersey District Court’s decision to the U.S. Court of Appeals for the Third Circuit. The Third Circuit has now ruled on this issue and held that the Natural Gas Act did not abrogate New Jersey’s sovereign immunity and that PennEast cannot condemn property in which the state holds an interest without the state’s consent. In its decision, the Third Circuit held that “Congress cannot abrogate state sovereign immunity under the Commerce Clause, and because Congress enacted the NGA pursuant to that Clause, the statute cannot be a valid congressional abrogation of sovereign immunity.” In re PennEast, 2019 WL 4265190 at *5 (3d. Cir. 2019), citing Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 59, 72-73 (1996). 

Having found that Congress cannot abrogate a state’s sovereign immunity through the Natural Gas Act, the court needed to address PennEast’s argument that Congress can delegate the federal government’s authority to overrule a state’s sovereign immunity. On this point, the Third Circuit pointed to Sabine’s holding that there is a distinction between the federal government’s right to condemn and its exemption from sovereign immunity, and that “a private party does not become the sovereign such that it enjoys all the rights held by the United States by virtue of Congress’s delegation of eminent domain powers.” In re PennEast, 2019 WL 4265190 at *7, quoting Sabine 327 F.R.D. at 141. 

The Third Circuit also looked at the U.S. Supreme Court’s decision in Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), in which the justices questioned whether the United States could delegate its exemption from state sovereign immunity. While noting the Supreme court’s doubt about whether Congress could delegate its exemption to sovereign immunity, the court held that even if Congress could delegate its exemption, Congress did not do so under the Natural Gas Act. The court reasoned that since congressional intent to abrogate a state’s sovereign immunity must be “‘unmistakably clear’ … one would think some similar clarity would be in order.” In re PennEast, 2019 WL 4265190 at *10, quoting Blatchford, 501 U.S. at 786. The court ultimately concluded that the Natural Gas Act is silent as to the delegation issue and delegation cannot be implied by the language of the statute. In re PennEast, 2019 WL 4265190 at *10. 

Importantly, while the court makes clear it is addressing “Eleventh Amendment immunity,” which refers to immunity from suit in federal court (see In re PennEast at p. 13, n. 8), the court’s reasoning would apply to condemnations brought by pipeline companies in state courts. The Supreme Court’s decision in Alden v. Maine expanded the court’s sovereign immunity doctrine and its holding in Seminole Tribe to hold that Congress could not, pursuant to the Commerce Clause, abrogate a state’s sovereign immunity from suit in a state’s own courts. The court in Alden reasoned that “a congressional power to authorize private suits against nonconsenting States in their own courts would be even more offensive to state sovereignty than a power to authorize the suits in a federal forum.” Alden, 527 U.S. at 749. Taken together, Seminole Tribe and Alden stand for the proposition that Congress cannot abrogate a state’s sovereign immunity in federal or state court pursuant to its Commerce Clause powers. 

The issue, as the Third Circuit stated, is the “indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties.” In re PennEast, at p. 24, quoting Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 146 (1993). This “indignity” is present whether the state is being hauled into federal or state court. Furthermore, since the court held that Congress did not delegate the federal government’s exemption from sovereign immunity, there is no legal authority for an interstate pipeline company to condemn state property without the state’s consent. Accordingly, the Third Circuit’s reasoning would apply to pipeline companies condemning in state court as well. 

The Third Circuit, understanding the predicament pipeline companies will now be in, proposed a potential solution to the problem. The court noted that the federal government could, with the appropriate statutory authorization, condemn the property in which the state holds an interest and then transfer the necessary easements to the pipeline company. 

The Third Circuit’s decision is significant for the pipeline industry throughout the country. This is especially true in New Jersey, where, inevitably, the alignment of any given project may cross properties in which the State of New Jersey holds a property interest. Unless Congress acts, pipeline companies will be faced with practical difficulties when crossing properties with a state interest.  

Our firm has successfully worked with the state to address its concerns when impacts cannot be avoided while obtaining the property rights needed to build a project. We have been helping our clients cross state lands since the 1950s and have the strategies and experience to get linear projects built in one of the most-regulated states in the country. If you have questions about how to get your project through state lands, give us a call.