Supreme Court Upholds Interstate Pipeline Eminent Domain Powers Over State Immunity | Holland & Knight LLP

Supreme Court Upholds Interstate Pipeline Eminent Domain Powers Over State Immunity | Holland & Knight LLP

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In a 5-4 ruling decided on June 29, 2021, the U.S. Supreme Court in PennEast Pipeline Co. LLC v. New Jersey et al. affirmed the rights of Federal Energy Regulatory Commission (FERC)-certified pipelines seeking to use eminent domain powers granted under the Natural Gas Act (NGA) to seize state-owned lands for private development. In its ruling, the Supreme Court rejected the state of New Jersey claims that the 11th Amendment to the U.S. Constitution prevented PennEast from condemning land either owned by the state or held in conservation easements. While the ruling is a loss for New Jersey and anti-pipeline advocates, the ruling reaffirms the status quo in interstate pipeline development by foreclosing the possibility for states to preemptively acquire land interests to block interstate pipeline projects. Beyond the ruling’s practical implications, the Supreme Court clarified important distinctions about the scope of the 11th Amendment’s grant of state immunity from private lawsuits, the NGA’s condemnation powers and the extent to which the federal government may delegate such powers to private parties.

A Balancing Act Between Property-Owner Rights and the Need for Pipelines

Since Congress passed the NGA in 1938, Congress and the courts have grappled with balancing the rights of landowners with the needs of interstate pipelines to secure the property rights necessary to build interstate pipeline infrastructure. Under the framework established by the NGA, a natural gas pipeline company must first obtain from FERC a certificate reflecting that such construction is consistent with the “public convenience and necessity” (See 15 U.S.C. §717f(e)). As originally enacted, the NGA did not provide a mechanism for certificate holders to secure property rights necessary to build interstate pipelines. Without such federal condemnation power, natural gas companies were either unable to use state eminent domain procedures or were blocked by local restrictions seeking to extract public benefits in exchange for land rights. Congress sought to remedy this defect in 1947 by amending the NGA to authorize certificate holders to exercise the federal eminent domain power, thereby ensuring that certificates issued by FERC under the NGA could be given effect (See §717f(h)). While FERC and the courts have already decided that private landowners are subject to NGA condemnation proceedings, left unresolved was whether the NGA granted private pipeline developers the power to condemn state-owned lands.

State Immunity from Suit Under the 11th Amendment

After receiving a certificate from FERC, PennEast filed various complaints in the U.S. District Court for the District Court of New Jersey seeking to exercise the federal eminent domain power under §717f(h) to obtain rights-of-way along a FERC-approved 116-mile pipeline route from Pennsylvania to New Jersey. PennEast sought to condemn several parcels owned by the state of New Jersey as well as several parcels held by the New Jersey Conservation Foundation located within the proposed pipeline route. The state of New Jersey, citing the 11th Amendment, moved to dismiss PennEast’s complaints, arguing that sovereign immunity prohibited private parties such as PennEast from seizing state-owned or controlled lands.

In its analysis, the Supreme Court first considered whether states have consented to waiver of suit under one of the few limited exceptions to the Constitution’s grant of sovereign immunity to the states. The Supreme Court determined that while no specific exemption to sovereign immunity applied, the states had renounced their rights to retain “the highest dominion in the lands comprised within their limits” in joining the federal system. In joining the federal system, the states had consented in the plan of the convention to the exercise of federal eminent domain power, including in condemnation proceedings brought by private delegates. The court further determined that this fundamental and inherent right was grounded in the ratification of the Constitution and did not require further consent by the states or abrogation by the federal government.

Scope of the NGA’s Eminent Domain Authority

Having rejected New Jersey’s fundamental claim regarding the preservation of its sovereign immunity from private suit, the court next turned to whether the language of the NGA appropriately delegated such powers to private parties. In its analysis of the history of the federal government’s eminent domain power, a narrow majority of the Supreme Court rejected New Jersey’s argument, finding in a 5-4 decision that the federal government has a long history of exercising eminent domain authority through both its own officers and private delegates in various public works projects, including highways, tunnels and bridges. The court found no distinction between the delegation of the federal eminent domain power for these historical public works projects and the delegation of federal eminent domain power to PennEast pipeline under the NGA. The court particularly noted the importance of interstate pipelines to the public, drawing analogies between federal takings for telecommunications, railways and highways. The court further noted that §717f(h) of the NGA was passed specifically to solve the problem of states impeding interstate pipeline development by withholding access to their own eminent domain procedures.

A Broad Ruling with Limited Practical Impacts

The court’s ruling in PennEast tackles fundamental legal questions regarding the scope of federal power and the 11th Amendment, and upholds the existing powers of FERC-certified pipelines to condemn property for development. The ruling may also help interstate pipeline projects elsewhere that face mounting community opposition to expanding pipeline infrastructure. Were the court to have sided with the state of New Jersey, interstate pipeline development would have been thrown into turmoil, as states would have been effectively granted veto rights over pipeline development within their borders. The court rejected this outcome and reaffirmed the importance of the NGA and FERC’s ability to authorize private pipeline developers to acquire the lands needed to develop critical interstate pipelines required by the public. The court’s ruling takes on renewed importance today, as states and environmental advocates are increasing efforts to block interstate pipeline development nationwide.

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