On Dec. 14, 2018, the United States District Court for the District of New Jersey rendered a long awaited decision in the PennEast natural gas pipeline litigation which authorized the pipeline company to use the power of eminent domain to take possession of private property to complete various surveys and tests in order to pursue necessary permits and approvals from state and federal agencies. In re PennEast Pipeline Company, No. 18-1585 (D.N.J. 2018).

The litigation was commenced under the Natural Gas Act (NGA), 15 U.S.C. §717(h) and Rule 71.1 of the Federal Rules of Civil Procedure. There have been several lawsuits and appeals filed relating to the regulatory decision to allow the pipeline to proceed, all of which are beyond the scope of this article. Here, we will address two issues that were litigated in the PennEast case and highlight two differences in NGA eminent domain cases and takings under the New Jersey Eminent Domain Act of 1971. N.J.S.A. 20-3.1, et, seq.

The pipeline in question is a 116-mile natural gas pipeline which is expected to transport natural gas from Pennsylvania into New Jersey, where the new pipeline will hook up to an existing pipeline in Mercer County. After the Federal Energy Regulatory Commission (FERC) issued a certificate of public convenience and necessity, PennEast filed over 130 lawsuits in the United States District Court for the District of New Jersey seeking to use the power of eminent domain, arguing that the NGA allows FERC to convey the federal government's power of eminent domain to private natural gas companies when it approves a pipeline project. As discussed below, the district court not only agreed with PennEast, but found that pipeline companies do not have a pre-litigation obligation to negotiate in good faith with property owners and the process used by PennEast was not a “quick take.”

The NGA has a three-part requirement for a holder of a certificate of public convenience and necessity to institute an eminent domain action in federal court: (1) it first obtained a certificate of public convenience from FERC; (2) it cannot acquire the property by voluntary purchase; and (3) the amount claimed by the owner is more than $3,000. 15 U.S.C. §717f(h). PennEast argued it met these three conditions and had the right to use the power of eminent domain. Many property owners challenged PennEast's allegation, arguing that PennEast failed to negotiate in good faith when it attempted to acquire the property rights for the project. The property owners relied, in part, on section 717(f) of the NGA, which states that:

[T]he practice and procedure in any action or proceeding for that purpose in the district court of the United States shall conform as nearly as may be with the practice and procedure in similar action or proceeding in the courts of the State where the property is situated.

Under the New Jersey Eminent Domain Act of 1971, there is a strict requirement for a taking authority to engage in “bona fide negotiations” with the prospective condemnee, a requirement which has been found to be jurisdictional. PennEast looked to Rule 71.1 of the Federal Rules of Civil Procedure, which was adopted after the NGA, and argued that Rule 71.1 superseded the conformity language in the NGA and that there is no independent good faith negotiation requirement under the NGA or Rule 71.1. The district court noted that the courts around the country are split on whether there is a good faith negotiation requirement in NGA eminent domain cases. In the end, the district court was persuaded by the case law finding no good faith requirements exists under the NGA. The district dourt held that the pipeline must only show it made an offer to the property owners.

This is a significant difference between eminent domain actions filed under the NGA and New Jersey Eminent Domain Act of 1971. It is clear that the New Jersey legislature made certain that private property owners would have certain protections from overreaching governments who, under existing case law, must turn “square corners” when dealing with the public. The PennEast court refused to extend these protections to private property owners who are subject to takings under the NGA.

A second and equally important difference is how the right to possession of property is obtained in NGA eminent domain cases. The NGA does not authorize the government to use the “quick take” procedure to obtain immediate possession in an eminent domain case—it must use the “straight taking” method. Under a quick take procedure, which is allowed in New Jersey when the government (not a private utility company) seeks to acquire real property, the condemning authority files a declaration of taking and deposits the pre-litigation offer into court in order to obtain title and immediate possession to property. This process is very quick, hence the name, and the government can proceed with its project while the parties litigate the amount of just compensation (i.e., the final amount the government must pay for the property rights acquired and any damages).

When a quick take procedure is not allowed, a “straight condemnation” is filed, and title and possession will transfer only after the amount of just compensation is determined and the court enters final judgment, which may take six months to a year, or longer. The government cannot take possession or start the project until the end of the case. Since the NGA does not allow the pipeline to use the quick take procedure, and pipeline companies are anxious to get started on their projects, they look to Rule 65 of the Federal Rules of Civil Procedure to obtain a preliminary injunction for possession, a process that has been approved by the courts. In a recent Third Circuit Court of Appeals decision, the Third Circuit found:

[W]we see no reason to read a repeal of Rule 65, governing preliminary injunctions, into the NGA. In fact, subsection (a) of Rule 71.1 incorporates the other Federal Rules of Civil Procedure—including the preliminary injunction rule, Rule 65—in condemnation proceedings to the extent Rule 71.1 does not govern. We do not so easily exterminate equitable remedies.

Transcontinental Gas Pipe Line Co. v. Permanent Easements for 2.14 Acres, No. 17-3075 (3d Cir. 2018).

In the PennEast case, possession was a hotly contested issue since many private property owners refused to allow PennEast access to their properties. As a result, PennEast was not able to file an application with the New Jersey Department of Environmental Protection for a review of the project under the Federal Clean Water Act. To counter this, PennEast sought a preliminary injunction asking the district court to grant it immediate possession of the private properties and entry of an order for condemnation. Property owners argued that PennEast must wait until just compensation is determined and the entry of final judgment before taking possession. It is important to note PennEast was not seeking a final order resulting in a transfer of title to any property, but a preliminary injunction transferring certain property rights (i.e., right to possession, which is a very expansive right). Title to properties would not transfer until the end of the case after the amount of just compensation is determined and the entry of an order for final judgment. The property owners also argued that this procedure is really a quick take in disguise and not authorized under federal law. The district court overruled the property owners' objection and entered a preliminary injunction finding the use of the preliminary injunction rule did not amount to a quick take.

The issues raised in the district court decision are similar to issues raised in many other NGA cases and are the subject of appeals filed in other jurisdictions. The district court relied on its on reading of the NGA and Rule 71.1, and cases decided in the Third Circuit at the district court and appellate level.

As a post-article note, the State of New Jersey is contesting a pipeline company's right to sue a state government in federal court under the 11th Amendment of the United States Constitution. The State of New Jersey is a defendant in over 40 of the PennEast cases and the district court found that PennEast can sue the State of New Jersey in federal court. The State of New Jersey recently filed a motion for reconsideration.

Timothy P. Duggan is a shareholder of Stark & Stark in Princeton and chair of the firm's Eminent Domain and Real Estate Tax Appeal Group. He represents individuals and businesses in negotiating and challenging eminent domain.