Chemicals, Enforcement and Inspection, Environmental Permitting

Supreme Court Delivers Win for Pipeline Industry

By a narrow margin, on June 29, 2021, the U.S. Supreme Court ruled states cannot use sovereign immunity as a defense to prevent federally approved pipeline projects from being built on state-owned land.

pipeline state owned land
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The landmark case, PennEast Pipeline Company, LLC v. State of New Jersey, et.al, pitted a consortium of energy companies against the state of New Jersey and other interested parties. The energy companies, including Enbridge Inc., South Jersey Industries Inc., New Jersey Resources Corp, Southern Co., and UGI Corp., had obtained a certificate for the proposed 116-mile pipeline project from the Federal Energy Regulatory Commission (FERC) and claimed the right to seize necessary parcels of land under the 1938 Natural Gas Act (NGA).

The act “effectively gives private companies the power of eminent domain, in which government entities can take property in return for compensation,” according to Reuters.

The NGA is very specific, calling for three conditions to be met:

  1. The gas company must obtain a Certificate of Public Convenience and Necessity;
  2. The gas company was unable to obtain the property through mutual agreement with the owner of the property; and
  3. The property must be valued at more than $3,000.

Background

The PennEast planned project will deliver “1.1 billion cubic feet per day of gas – enough to supply about 5 million homes – from the Marcellus shale formation in Pennsylvania to customers in Pennsylvania and New Jersey,” according to Reuters.

“PennEast applied for federal approval via the Certificate of Public Convenience and Necessity (“Certificate”) from [FERC] in the fall of 2015. FERC took several years to approve the pipeline, and finally did so on the condition that PennEast meets all of the requirements for a Certificate,” according to an analysis of the case by the Legal Information Institute (LII) at Cornell Law School.

When PennEast hit a snag in acquiring the necessary land for the project, it “filed complaints in the United States District Court for the District of New Jersey,” according to the LII analysis. “In total, PennEast asked for orders of condemnation of 131 properties through which the pipeline would run through. PennEast also sought permanent and preliminary injunctive relief so as to immediately [start] construction of the pipeline. Over forty of these properties are owned by the state government of New Jersey. The state has a possessory interest in two of the properties, and then non-possessory interests in the remaining properties.  The most common non-possessory interests were that the land be held by the state for ‘recreational, conservation, or agricultural’ uses.

“PennEast requested injunctive relief in order to begin the construction of its pipeline. The District Court held that PennEast had satisfied the standard for preliminary injunctive relief. New Jersey appealed to the United States Court of Appeals for the Third Circuit. The Third Circuit vacated the District Court’s condemnation of New Jersey’s property interests and granting of injunctive relief,” according to the LII analysis.

The Third Circuit’s decision was unanimous.

Judge Kent A. Jordon authored the three-judge panel’s decision, where he wrote that there is “deep doubt that the United States can delegate its exemption from state sovereign immunity to private parties.” However, he said there was no need to resolve the question, as the Natural Gas Act had not delegated such a power to private companies, according to The New York Times.

“If Congress had intended to delegate the federal government’s exemption from sovereign immunity,” he wrote, “it would certainly have spoken much more clearly.”

PennEast appealed the decision to SCOTUS and was granted certiorari on February 3, 2021.

SCOTUS Ruling

At the heart of this case is the interplay of the legal questions of eminent domain and sovereign immunity.

Eminent domain refers to a right that is generally reserved for government to seize property by providing “just compensation” to the owner of the property, whereas sovereign immunity is a legal principle that says states cannot commit legal wrongs and, as such, are immune from civil suits and criminal prosecution.

“At the start of his argument on behalf of PennEast, Paul Clement (attorney at Kirkland & Ellis LLP and former U.S. Solicitor General) quickly pointed out that there were no doubts that the federal government’s eminent domain power could be delegated, or as he framed it, private parties could be ‘deputized’ to use the eminent domain power,” according to a May 2, 2021, SCOTUSblog analysis by Mark Latham. “Thus, Clement posited that once Congress delegated eminent domain authority, as it had done in the NGA, states had to surrender their immunity since ‘only one sovereign can have the ultimate authority over land when the federal and state governments assert conflicting claims.’ Clement also asserted that once delegation occurs, the private party then exercises eminent domain as a ‘limited purpose federal actor’ both in terms of the Fifth Amendment’s takings clause and the 11th Amendment. In other words, once PennEast received the certificate from FERC, it stepped into the shoes of the federal government for purposes of both eminent domain and the obligation to pay just compensation.

“Clement also drew a distinction between legal proceedings initiated against a state and those instituted against property owned or controlled by the state,” according to the SCOTUSblog analysis. “Here he argued that suits initiated against a state’s property interests presented few of the risks to state sovereignty that had led to the adoption of the 11th Amendment: ‘They allege no wrong doing, they impose no liability, and they cannot be brought without federal authorization. The whole point of [an eminent domain] proceeding is just compensation for a taking.’”

Chief Justice John Roberts wrote the SCOTUS majority opinion.

“Specifically, we are asked to decide whether the federal government can constitutionally confer on pipeline companies the authority to condemn necessary rights-of-way in which a state has an interest. We hold that it can,” Roberts wrote in the ruling.

Although the U.S. Constitution’s Eleventh Amendment prevents courts from hearing certain lawsuits against states, Roberts said it does not apply in this case as the state had argued, according to Reuters.

“Although nonconsenting States are generally immune from suit, they surrendered their immunity from the exercise of the federal eminent domain power when they ratified the Constitution,” Roberts wrote.  “That power carries with it the ability to condemn property in court. Because the [NGA] delegates the federal eminent domain power to private parties, those parties can initiate condemnation proceedings, including against state-owned property.”

Although SCOTUS now has a 6-3 conservative majority, this term has been marked by decisions that cross political parties. This decision was no different.  Conservative Roberts’ majority opinion was joined by Justices Stephen Breyer (liberal), Samuel Alito (conservative), Sonia Sotomayor (liberal), and Brett Kavanaugh (conservative).

Two separate dissents were filed in the case. Justice Neil Gorsuch (conservative) penned one of the dissents that was joined by Justice Clarence Thomas (conservative). A separate dissent was filed by Justice Amy Coney Barrett (conservative). Her dissent was joined by Justices Thomas, Gorsuch and Elena Kagan (liberal).

In her dissent, Justice Barret wrote, “Congress passed the [NGA] in reliance on its power to regulate interstate commerce, and we have repeatedly held that the Commerce Clause does not permit Congress to strip the states of their sovereign immunity. Recognizing that barrier, the court insists that eminent domain is a special case.”

“The dissenting justices rejected the majority’s finding that New Jersey cannot assert sovereign immunity because states surrendered to private condemnation cases all the way back at the 1787 Constitutional Convention,” according to Courthouse News.

“This argument has no textual, structural, or historical support,” Barrett wrote.  “Because there is no reason to treat private condemnation suits differently from any other cause of action created pursuant to the Commerce Clause, I respectfully dissent.”

According to Oyez, a Cornell LII project that provides access to Supreme Court audio recordings, Justice Gorsuch’s dissent “added only a clarification that states have two federal-law immunities from suit: structural immunity and Eleventh Amendment immunity. The lower court should consider whether either type of immunity bars the suit.”

Gorsuch wrote that there is much confusion over the use of the Eleventh Amendment as a defense and that SCOTUS itself has contributed to that confusion.

The intent of the Eleventh Amendment is simple, according to a February 2021 University of Pennsylvania Law Review article by William Baude and Stephen Sachs, professors of law.

“(T)he Eleventh Amendment means what it says. It strips the federal government of judicial power over suits against states, in law or equity, brought by diverse plaintiffs. It denies subject-matter jurisdiction in all such cases, to federal claims as well as state ones, and in only such cases. It can’t be waived. It can’t be abrogated,” according to the law review article.

What’s Next?

“PennEast said it plans to put the first phase of the project – about 68 miles (110 km) of pipe in Pennsylvania – into service in 2022 and is targeting completion of the second phase – the line from Pennsylvania into New Jersey – in 2023,” according to Reuters.

“We are pleased that the Supreme Court kept intact more than seven decades of legal precedent for the families and businesses who benefit from more affordable, reliable energy. This decision is about more than just the PennEast project,” said Anthony Cox, chair of the PennEast board of managers, in the Reuters article.

While the SCOTUS decision cleared a significant obstacle to the project, the State of New Jersey’s fight against the project is far from over, said New Jersey Attorney General Gurbir Grewal, according to Reuters.

“We still have other, ongoing legal challenges to this proposed pipeline, which is unnecessary and would be destructive to New Jersey lands,” Grewal added, as he urged the federal government “to take another look at this harmful proposal.”

Grewal expressed extreme disappointment over the state’s loss in his Twitter feed. “I’m proud to continue standing up for our residents & championing environmental protection,” he tweeted. “I urge the feds to take another look at this harmful proposal.”

“Climate activists, Native American groups and some states have increased opposition to pipeline construction across the United States, shutting down some projects including the long-planned Keystone XL crude pipeline from Canada,” according to Reuters. “Few pipeline battles have been fought over eminent domain issues.”

“Tom Gilbert, campaign director for New Jersey Conservation Foundation and ReThink Energy NJ, similarly condemned the reversal of the Third Circuit’s ruling in the state’s favor,” according to Courthouse News. “His group was among the organizations that joined the state in the dispute.”

“The PennEast pipeline would threaten the health and safety of our communities, seize private land and taxpayer-preserved open space, and harm our drinking water, natural and historic resources,” he said in a statement.

Gilbert’s group was represented at SCOTUS by Jennifer Davis, a senior fellow at Columbia Law School’s Sabin Center for Climate Change Law.

“This result was achieved because it was the gas industry on the line,” she said, arguing that the lack of precedent cited by the majority suggests the interest was in preserving the nation’s energy economy and not legal principles, according to Courthouse News.

“But she also noted most disputes linked to gas pipelines aren’t usually gummed up by immunity disputes, but rather challenges to the FERC permits which [allow a] project to be built. To that end she pointed to the D.C. Circuit’s recent decision on the St. Louis-based Spire Pipeline permit as evidence of the ongoing challenges pipeline companies and the commission might face.

“‘Recent precedent in Spire would tend to indicate the project and the agency’s decision making is subject to heavy criticism,’ she added, noting that despite being up and running, the appeals court vacated the pipeline’s permit and sent it back to FERC to be reauthorized,” according to Courthouse News.

Grewal said he is hopeful the recent Spire decision and a separate pending appeal by the state will soon halt the PennEast project.