United States Supreme Court Blocks New Jersey’s Sovereign Immunity Challenge to FERC Certificate Holder’s Condemnation of State-Owned Land

United States Supreme Court Blocks New Jersey’s Sovereign Immunity Challenge to FERC Certificate Holder’s Condemnation of State-Owned Land

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On June 29, 2021, the United States Supreme Court, in a 5-4 vote, held that a natural gas company’s right to condemn property for a pipeline under the Natural Gas Act includes the right to condemn state-owned property. In PennEast Pipeline Co. v. New Jersey,[1] the divided Court held that a certificate from the Federal Energy Regulatory Commission (FERC) entitled PennEast Pipeline Company (PennEast) to use the federal government’s power of eminent domain to seize property owned by the State of New Jersey.

In this case, PennEast sought to exercise the federal eminent domain power bestowed upon it by the Natural Gas Act (NGA). Under the NGA, FERC confers eminent domain authority to private entities through issuing a certificate of public convenience and necessity to certain authorized entities, including interstate natural gas transporters. The issue in this case centered around the relationship between the federal eminent domain power afforded to a FERC certificate holder and the sovereign immunity rights held by a state.

In 2015, PennEast sought a certificate of public convenience and necessity from FERC authorizing the construction of a 116-mile pipeline from Luzerne County, Pennsylvania, to Mercer County, New Jersey. In January 2018, FERC granted PennEast’s request. Shortly thereafter, PennEast exercised the federal eminent domain power bestowed upon it NGA by filing several condemnation lawsuits across the pipeline’s planned route. Relevant to this case, PennEast sought to condemn two parcels in which New Jersey asserted a possessory interest, and 40 parcels in which the state claimed nonpossessory interests.

New Jersey moved to dismiss PennEast’s condemnation actions based on its sovereign immunity. The district court denied New Jersey’s motion to dismiss and held that New Jersey’s sovereign immunity did not protect it from PennEast’s exercise of the federal government’s eminent domain power. On appeal, the Third Circuit reversed because, in its view, PennEast’s exercise of eminent domain would infringe on New Jersey’s sovereign immunity. Although the Third Circuit acknowledged that the federal government can condemn state-owned property, it reasoned that the ability to bring a condemnation suit against a state is in fact the product of two separate powers: (1) the federal government’s eminent domain power and (2) its ability to sue nonconsenting states. Accordingly, the Third Circuit accepted that the federal government properly delegated its eminent domain power to PennEast but did not accept that the delegation allowed PennEast to bring a condemnation suit against New Jersey to enforce that power. Therefore, the Third Circuit concluded that because the NGA delegated only the power of eminent domain and not the power to sue nonconsenting states PennEast was not authorized to condemn New Jersey’s property. On appeal, the Supreme Court disagreed.

In its decision, the Supreme Court noted that since its founding, the federal government has exercised its eminent domain authority through its own officers and private delegates. The Court further noted that the eminent domain power has long been used to take property interests held by both individuals and states. Contrary to the Third Circuit’s reasoning, the Supreme Court stated that the eminent domain power is inextricably intertwined with the ability to condemn. Therefore, the federal government’s eminent domain power cannot be separated from its ability to bring a condemnation proceeding against a nonconsenting state. The Court made clear that a natural gas company’s exercise of its rights under the NGA are an “unexceptional instance” of this established practice.

As to New Jersey’s claim of sovereign immunity, Chief Justice Roberts writing for the Court opined that states surrendered their immunity from the exercise of the federal eminent domain power when they ratified the Constitution. Justice Roberts went on to make clear “that power carries with it the ability to condemn property in court.” Therefore, the Court concluded that by virtue of its exercise of federal eminent domain power, a FERC certificate holder is not precluded by a state’s sovereign immunity from condemning state-owned property.

While the PennEast decision is certainly a win for the pipeline industry, opponents of fossil fuel development worry the decision is detrimental to nationwide environmental efforts. Nevertheless, as PennEast emphasized in its statement on the Supreme Court victory, this decision represents a win for consumers who rely on infrastructure projects like the PennEast project for much-needed energy.[2] As illustrated most recently by the energy crisis in Texas early this year, “interstate natural gas infrastructure is so vital for our way of life, public safety, and enabling clean energy goals.”[3]

[1] 19-1039, 2021 WL 2653262 (U.S. June 29, 2021).

[2] PennEast Pipeline, PennEast Pipeline Statement on Favorable U.S. Supreme Court Decision, June 29, 2021, https://penneastpipeline.com/penneast-pipeline-statement-on-favorable-u-s-supreme-court-decision/.

[3] Id.

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