The U.S. Court of Appeals for the Third Circuit recently handed down a precedential decision regarding the federal Natural Gas Act (NGA) and the authority of private companies acting pursuant to a certification of public convenience and necessity from the Federal Energy Regulatory Commission (FERC). See In re PennEast Pipeline, 938 F.3d 96 (3d Cir. 2019). The Third Circuit reviewed a decision from the U.S. District Court for the District of New Jersey, which granted a pipeline company immediate access to easements sought over state land, and ultimately vacated the trial court's opinion, offering interesting insights as to the scope of authority under the NGA.

PennEast Pipeline Co. had initiated an eminent domain action pursuant to the NGA to allow it to acquire property interests necessary for a pipeline being built through Pennsylvania and New Jersey. The general framework of eminent domain authority pursuant to the NGA is well established and allows private gas companies to acquire necessary rights-of-way where the gas company holds a FERC certificate of public convenience and necessity; the gas company was unable to acquire the property by contract or agreement with the property; the property interests are necessary for the FERC-certificated project; and the value of the property condemned exceeds $3,000, see 15 U.S.C. Section 717f(h). PennEast's pipeline project met these requirements and PennEast filed complaints in the U.S. District Court for the District of New Jersey, seeking condemnation orders for easements across properties along the pipeline route, just compensation determinations for those easements condemned, and injunctive relief to gain immediate access to the easements condemned to begin construction of the pipeline. Of the properties where easements were condemned, 42 were owned by New Jersey or divisions of the state.

New Jersey objected to the taking, filing a brief with the district court invoking its Eleventh Amendment immunity. New Jersey's position was that the Eleventh Amendment grants states sovereign immunity from suits by private parties in federal court and because New Jersey had not consented to PennEast's condemnation, the condemnation was barred by the state's immunity. The district court disagreed, reasoning that PennEast was vested with eminent domain power through the federal government and therefore, the Eleventh Amendment immunity did not apply. The district court granted the orders of condemnation and injunctive relief to PennEast. The appeal to the Third Circuit followed.

At the Third Circuit, New Jersey argued that it is entitled to sovereign immunity from PennEast's condemnation suits because the federal government cannot delegate its exemption from immunity to private parties. The Third Circuit agreed, reasoning that the federal government's eminent domain power and its exemption from Eleventh Amendment immunity are distinct from one another. As a result, the appellate court held that the federal government delegation of eminent domain power to private entities by virtue of the NGA does not abrogate Eleventh Amendment immunity. The Third Circuit explained that Congress can abrogate the sovereign immunity of the states only by making this intention unambiguously clear in the statute's language, and found that the NGA was not clear in that regard. The practical effect of the Third Circuit opinion is that pipeline companies may have difficulty using eminent domain to acquire easements across state lands in certain jurisdictions.

The Third Circuit appeared to recognize this effect and the potential disruption of its holding to the operation of the natural gas industry, noting that the NGA has been used to construct interstate pipelines over state-owned land for decades. The appellate court vacated the district court's order condemning New Jersey's property interests and remanded for dismissals of the claims against New Jersey. The Third Circuit denied PennEast's request for reconsideration and rehearing. Any petition for certiorari to the U.S. Supreme Court is due in February.

Nicole Jensen is an associate in Reed Smith's energy and natural resources group. She focuses her practice on general civil and commercial litigation, with an emphasis on oil and gas law. She can be reached at [email protected].

Thomas Galligan is an associate in the firm's energy and natural resources group, practicing in the area of oil and gas, construction, and products liability litigation. He can be reached at [email protected].