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A private company building a gas pipeline can't use eminent domain to acquire properties belonging to the state of New Jersey along the project's route, the U.S. Court of Appeals for the Third Circuit ruled Tuesday.

A district court judge granted PennEast orders of condemnation and immediate access to 42 properties belonging to the state and its various agencies. But on Tuesday, the appeals court reversed, finding that condemnation powers granted to private pipeline builders under the Natural Gas Act do not permit them to take land owned by the state, which enjoys immunity from federal lawsuits by private parties under the 11th Amendment.

The appeals court rejected PennEast's argument that the Natural Gas Act delegates to pipeline-builders the federal government's exemption to a state's sovereign immunity. It's unclear whether the federal government can delegate its power to override a state's 11th Amendment immunity, the appeals court said, but it need not answer that question because "nothing in the text of the NGA suggests that Congress intended the statute to have such a result. PennEast's condemnation suits are thus barred by the state's Eleventh Amendment immunity," the appeals court said.

The 115-mile PennEast Pipeline, undertaken by a coalition of private energy companies, is slated to run from near Wilkes-Barre, Pennsylvania, an area with extensive gas reserves, across the Delaware River near Frenchtown, and end at Pennington, north of Trenton. The Federal Energy Regulatory Commission gave its approval to the project in January 2018, issuing a certificate of public convenience and necessity. That decision was appealed by various parties, including the state of New Jersey, at the U.S. Court of Appeals for the District of Columbia. That appeal is still pending.

After receiving FERC's approval, PennEast filed condemnation petitions in New Jersey for 131 properties, including 42 parcels in which the state has an interest. In many of those properties the state holds an easement requiring the land be preserved for recreational, agricultural or conservation purposes.

U.S. District Judge Brian Martinotti of the District of New Jersey gave PennEast the green light to condemn the state-owned properties, rejecting New Jersey's assertion of immunity. Martinotti found that because "the NGA expressly allows any holder of a certificate of public convenience and necessity" to condemn property, PennEast could do so here—even for property owned by the state. The ruling said the U.S. Marshals could investigate, arrest, imprison or bring to court any property owner who violated the court's order.

The state was granted an appeal and a stay of construction of the pipeline.

At the Third Circuit, Judges Kent Jordan, Stephanos Bibas and Richard Nygaard said it was essential to distinguish between the two powers at issue in the case—the federal government's eminent domain power and its exemption from 11th Amendment immunity. Jordan, writing for the court, stated the federal government can condemn state-owned land in federal court because it enjoys a special exemption from the 11th Amendment.

"Thus, the federal government's ability to condemn state land—what PennEast contends it is entitled to do by being vested with the federal government's eminent domain power—is, in fact, the function of two separate powers: the government's eminent domain power and its exemption from Eleventh Amendment immunity. A delegation of the former must not be confused for, or conflated with, a delegation of the latter. A private party is not endowed with all the rights of the United States by virtue of a delegation of the government's power of eminent domain," Jordan wrote. PennEast "fails to adequately grapple with the constitutional impediment to allowing a private business to condemn state land: namely, Eleventh Amendment immunity."

Assistant Attorney General Jeremy Feigenbaum argued for the state at the Third Circuit. Attorney General Gurbir Grewal, in a statement, called the ruling "a major victory for the state and New Jersey's environment."

"We will not hesitate to stand up to private companies when their actions violate the law—or, in this case, the U.S. Constitution," Grewal said. "From the very beginning, we have made clear that the Eleventh Amendment prohibits private pipeline companies like PennEast from condemning state properties for private use, and we're pleased that the Third Circuit agreed with our position."

James Graziano of Archer in Haddonfield argued for PennEast. He did not respond to requests for comment.