State law should be used to determine how much compensation landowners are due when their property is seized through eminent domain by a private company under the Natural Gas Act, a federal appeals court has ruled.

The U.S. Court of Appeals for the Third Circuit ruled that, since the federal NGA does not outline what constitutes “just compensation” in a condemnation action by a private company, courts should look to state law. The court's precedential ruling, issued Tuesday in a case captioned Tennessee Gas Pipeline v. Permanent Easement for 7.053 Acres, applied Pennsylvania law, which allowed the landowners to receive nearly $1 million in additional compensation.

The ruling reversed a decision from the U.S. District Court for the Middle District of Pennsylvania.

As part of the reasoning for the decision, Judge Joseph Greenaway Jr., who wrote the majority's opinion, drew a distinction between condemnations by private entities versus takings by the government, saying the considerations for due compensation were different.

“Because federal law does not supply a rule of decision on this precise issue, we must fill the void with a common law remedy,” Greenaway said. “In doing so, we adopt to incorporate state law as the federal standard.”

Judge Thomas Ambro joined Greenaway, but Judge Michael Chagares dissented, arguing that due compensation should not depend on whether the condemnation is by the government or a private company.

The case stems from a project by Tennessee Gas, in which the company is seeking to obtain easements for a 975-acre tract of land owned by King Arthur Estates in northeastern Pennsylvania's Pike County. According to Greenaway, although the parties stipulated that Tennessee Gas could access the property and possess the easements, they retained experts to determine the value of the land, the value of any timber that would be removed, and professional costs, among other things.

After Tennessee Gas sought summary judgment on the just compensation question, the district court determined that federal law governed the issue, which meant King Arthur could not recover for professional fees and development costs under Pennsylvania law.

In support of its efforts to affirm the district court's ruling, Tennessee Gas cited the U.S. Supreme Court's 1943 case United States v. Miller, which said that the Constitution has never been interpreted as requiring lost profits or development costs to be paid.

Greenaway, however, said Miller does not apply to takings by private entities, and said significant distinctions existed because the same cost-containment for spending tax dollars did not apply in private takings and development of a national gas pipeline is not an essential government function.

Greenaway instead looked to the high court's 1979 decision in United States v. Kimbell Foods, which said that, when federal law governs an issue but does not provide a rule on a specific matter, the courts need to either establish a national rule, or incorporate state law into the federal standard. He further looked to the factors outlined in Kimbell, and determined incorporating state law would be the better option. Specifically, he said it is unnecessary to create a national rule for private entities condemning lands, that incorporating the state laws would not upset the goals of the Natural Gas Act, and that property rights have traditionally been defined by state law.

“Nothing in the NGA suggests that Congress was particularly concerned with protecting natural gas companies from the additional costs that varying state laws may impose, or even with making natural gas companies's transactions streamlined or efficient,” Greenway said. “Rather, the Supreme Court has articulated that, in enacting the NGA, Congress was instead concerned with protecting the interests of the public, including consumers and property owners.”

Elizabeth Witmer of Saul Ewing Arnstein & Lehr represented Tennessee Gas, which is owned by Kinder Morgan. She referred comment to a company spokeswoman, who declined to comment.

John Stieh of Levy Stieh Gaughan & Baron represented King Arthur. He did not return a call seeking comment.