By Bridget McDonald

In a narrow five-to-four decision, the U.S. Supreme Court in Penneast Pipeline Co., LLC v. New Jersey has held that the Natural Gas Act authorizes private natural gas companies to use eminent domain authority granted by the federal government to seize state public land for interstate pipeline construction. In upholding this authority, the Supreme Court rejected the State of New Jersey’s exercise of sovereign immunity, instead holding that the state could not prevent construction of the PennEast natural gas pipeline on state-held conservation easements. [Penneast Pipeline Co., LLC v. New Jersey, ___U.S.___, 141 S.Ct. 2244 (June 29, 2021).]

Factual and Procedural Background

The Natural Gas Act

Congress passed the Natural Gas Act (NGA) in 1938 to regulate the transportation and sale of natural gas in interstate commerce. The NGA vested the Federal Energy Regulatory Commission (FERC) (formerly the Federal Power Commission) with authority to administer the NGA, which included approving the construction and extension of interstate gas pipelines. To build an interstate pipeline, the act requires natural gas companies to obtain a certificate from FERC that reflects that construction “is or will be required by the present or future public convenience and necessity.” Before FERC issues a such a certificate, it must set and notice the matter for a public hearing thereon.

The original iteration of the NGA did not provide certificate holders with a mechanism to secure the requisite property rights for building gas pipelines. As such, natural gas companies relied upon state eminent domain procedures, which were frequently unavailable. In turn, certificate holders were left with “an illusory right to build.” To remedy this conflict, Congress amended the NGA in 1947. The amendment, as codified under 15 U.S.C. § 717f(h), authorized certificate holders to exercise federal—rather than state—eminent domain power. The statute effectuated certificates of public convenience and necessity by providing that certificate holders who cannot contractually acquire the necessary rights-of-way to construct, operate, and maintain a pipeline for the transportation of natural gas, may acquire the right by exercising federal eminent domain power through a federal or state court order.

Petitioner PennEast Pipeline Co. is a joint venture owned by several energy companies. In 2015, PennEast applied for a certificate of public convenience and necessity from FERC to construct a 116-mile natural gas pipeline from Luzerne County, Pennsylvania, to Mercer County, New Jersey. FERC published notice of the application and received thousands of comments thereon. FERC subsequently issued a draft Environmental Impact Statement (EIS) for the proposed pipeline, which yielded thousands of additional comments. In response to comments, PennEast modified several of the pipeline’s proposed routes. In January 2018, FERC granted PennEast a certificate of public convenience and necessity. After FERC denied rehearing of its decision, several parties, including the state of New Jersey, petitioned review in the District Court for the D.C. Circuit.

Weeks after FERC issued the certificate, PennEast filed various complaints in the New Jersey District Court. PennEast sought to exercise federal eminent domain power under the NGA to obtain rights-of-way along the approved pipeline route and to establish just compensation for affected property owners. PennEast also sought a preliminary and permanent injunction, which would allow it to take immediate possession of each property in advance of any award of just compensation. Of the property PennEast sought to condemn, the State of New Jersey held a possessory interest in two parcels and claimed a nonpossessory interest in forty other parcels as conservation easements.

The State of New Jersey moved to dismiss PennEast’s complaints on sovereign immunity grounds. The New Jersey District Court denied the state’s motion, holding that it was not immune from PennEast’s exercise of federal eminent domain power. The court in turn granted PennEast’s requests for a condemnation order and preliminary injunctive relief. The state appealed the decision to the Third Circuit Court of Appeals.

At the Third Circuit Court of Appeals

The Third Circuit vacated the District Court’s order. The appellate court conceded that the federal government can condemn stated-owned property, but reasoned that this power is the product of two separate powers: 1) federal eminent domain power and 2) the federal government’s ability to sue nonconsenting states. The Court of Appeals thus reasoned that while the federal government can delegate its eminent domain power to private parties, it was doubtful whether the federal government could also extend its exemption from state sovereign immunity. The Third Circuit did not reach the merits of this query, however, and instead found that nothing in the NGA indicated Congress’ intent to delegate this exemption such that PennEast was not authorized to condemn New Jersey’s property.

The U.S. Supreme Court’s Decision

The United States Supreme Court granted certiorari to determine whether the NGA grants FERC certificate holders the authority to condemn land in which a state claims an interest. Justice Roberts delivered the majority opinion of the Court. Justice Barrett filed a dissenting opinion joined by Justices Kagan and Gorsuch. Justice Gorsuch filed a separate dissenting opinion joined by Justice Thomas.

In a narrow five-to-four decision, the Supreme Court held that the federal government can constitutionally confer on pipeline companies eminent domain authority to condemn necessary rights-of-way in which a state possesses an interest. The Court further held that, although nonconsenting states are generally immune from suit, they surrendered their sovereign immunity from the exercise of federal eminent domain power when they ratified the Constitution. Thus, because the NGA delegates federal eminent domain power to private entities, those parties can properly initiate condemnation proceedings against state-owned property.

Federal Eminent Domain Power

At the outset, the Majority chronicled the legal history and evolution of federal and state eminent domain power. As evinced by prior precedent: “the fact that land is owned by a state is no barrier to its condemnation by the United States.” Since its inception, the federal government has wielded its eminent domain power in areas subject to federal jurisdiction and property within a state. In exercising such power, the government may condemn property through physical possession without authority of court order, or it can initiate condemnation proceedings under various acts of Congress.

For as long as the United States has exercised its eminent domain authority, it has also delegated that power—with approval—to private parties. Private condemnation of land has commonly been exercised for public works projects, and thus, may be exercised within state boundaries or against state property. Early precedent has established that such power may be wielded with or without a concurrent act of the state in which the lands lie. To this end, early cases reflected the understanding that state property was not immune from the exercise of delegated federal eminent domain power. To entertain a contrary position would give rise to the “dilemma of requiring the consent of the state” in virtually every infrastructure that the federal government authorizes.

Based on these principles, the Supreme Court held that the NGA properly delegates certificate holders with the power to condemn any necessary rights-of-way, including land in which a state holds an interest. The delegation conferred under § 717f(h) of the NGA is categorical—it:

. . .solve[s] the problem of States impeding interstate pipeline development by withholding access to their own eminent domain procedures.

At the time the section was enacted, and in the years that followed, it was understood that States’ property interests could be subject to condemnation proceedings. Therefore, the Court held that FERC’s issuance of a certificate of public convenience and necessity to build a pipeline carries, coupled with the condemnation authority conferred therein, is consistent with the nation’s history and the Supreme Court’s precedents.

State Sovereign Immunity Under the Eleventh Amendment

As a defense to PennEast’s complaints, the State of New Jersey argued (and the principal Dissent agreed) that sovereign immunity bars condemnation actions against a nonconsenting state. Alternatively, the state (but not the Dissent) contended that § 717f(h) does not speak with sufficient clarity to authorize such actions. The Majority rejected each of these arguments.

First, the Court recognized that the states’ immunity from lawsuits is a fundamental aspect of the sovereignty they enjoyed before the Constitution was ratified. States thus may only be sued in limited circumstances, such as where a state unequivocally expresses consent to suit, where Congress clearly abrogates the state’s immunity under the Fourteenth Amendment, or by virtue of states’ “implicit agreement” to the structure and intent of the original Constitution (i.e., “the plan of the Convention”).

Based on these principles, the State of New Jersey and the Dissent asserted that private parties cannot condemn state-owned property under the NGA because § 717f(h) does not contain an applicable exception to sovereign immunity, and instead only represents Congress’ attempt to regulate interstate commerce. The Majority rejected this argument and reiterated that states’ consented in the plan of the Convention to the exercise of federal eminent domain power, including condemnation proceedings brought by private delegees. The Majority conceded that, while the State of New Jersey and the Dissent did not disagree with these fundamental principles, their arguments rested on the flawed reasoning that Congress, through the NGA, authorized private parties to bring condemnation suits against nonconsenting states. The Court explained that the error in this rationale is that:

. . .it attempts to divorce the eminent domain power from the power to bring condemnation actions—and then argue that the latter, so carved out, cannot be delegated to private parties with respect to state-owned lands.

Yet, eminent domain power is “inextricably intertwined” with condemnation authority. Therefore, a grant of judicial power, by way of initiating condemnation proceedings, does not imply an improper abrogation of sovereign immunity. Absent the power to condemn state property interests, the Majority reasoned that the only constitutionally permissible way to exercise federal eminent domain power “would be to take property up front and require states to sue for compensation later.” The Majority concluded that this act of “favoring private or Government-sponsored invasions of state-owned lands over judicial proceedings” would not serve state sovereign immunity.

Finally, the Majority rejected the other dissenting theory that, even if states consented in the plan of the Convention to the types of condemnation proceedings that PennEast initiated, the Eleventh Amendment nonetheless divests federal courts of subject-matter jurisdiction over suits filed against a State by a diverse plaintiff. The Court explained that precedent has interpreted the Eleventh Amendment to confer a “personal privilege which a state may waive at pleasure.” As such, the Eleventh Amendment does not bar an action against a state respondent, where, as here, the state consents to suit in federal court.

The Majority Opinion concluded that by summarizing the relationship between federal eminent domain power and state sovereign immunity:

. . .the federal eminent domain power is ‘complete in itself,’ and the States consented to the exercise of that power—in its entirety—in the plan of the Convention. The States thus have no immunity left to waive or abrogate when it comes to condemnation suits by the Federal Government and its delegatees.

Applying this holding to the case at bar, the Supreme Court reiterated that the NGA fits well within the tradition of the nation’s history and the federal government’s longstanding exercise and delegation of eminent domain authority. Here, the PennEast pipeline was made possible not only by these principles, but by their codification through the enactment of § 717f(h). The Majority repeated that § 717f(h) authorized FERC certificate holders to condemn all necessary rights-of-way, whether owned by private parties or states. These condemnation actions due not offend state sovereignty because states consented to such proceedings in the plan of the Convention and at the founding to the exercise of federal eminent domain power. Therefore, the Supreme Court reversed and remanded the Third Circuit for further proceedings consistent with this holding.

Conclusion and Implications

The Supreme Court’s ruling marks one of three takings opinions issued by the Court, thus far, in 2021. In PennEast, the Majority narrowly reaffirmed the scope of the Natural Gas Act and its delegation of federal eminent domain authority to private pipeline developers. The opinion provided additional insight and clarification into the limits of the Eleventh Amendment and the extent to which states enjoy sovereign immunity from condemnation suits. As the Court repeatedly reiterated: states consented to federal eminent domain authority, therefore, sovereign immunity does not protect them from condemnation proceedings initiated thereunder. While the opinion provides important practical implications as to how the NGA may affect future interstate pipeline development on state-owned land, it also sheds provides detailed insight into the history and effect of federal eminent domain power and sovereign immunity under the Eleventh Amendment. The Supreme Court’s opinion is available at: https://www.supremecourt.gov/opinions/20pdf/19-1039_8n5a.pdf