Third Circuit Court of Appeals Delivers Knockout Punch to PennEast Natural Gas Pipeline, Eminent Domain Squashed

Previously, we reported that that the United States District Courts for the Middle District of Pennsylvania and the District of New Jersey granted a consortium of natural gas companies the right of eminent domain to take steps toward building the PennEast pipeline to connect natural gas sources in Pennsylvania to parts of New Jersey. We then reported that the Third Circuit Court of Appeals issued a stay to temporarily stop any physical construction from beginning on the pipeline in New Jersey until the appeal was decided. 

​Now, in the next development—and what could be the death knell for this interstate pipeline project—the Third Circuit Court of Appeals has vacated the District Court’s grant of eminent domain and remanded for the dismissal of any such claims against the state of New Jersey. In the opinion, the court ruled that PennEast cannot force the sale of state-owned land because private parties cannot sue states in federal court, pursuant to the Eleventh Amendment and the language of the Natural Gas Act (NGA). The ruling applies not only to the two parcels of land that New Jersey owns outright, but also to 40 additional parcels of land where landowners have an “easement” agreement with the state to preserve the land for recreational, conservation, or agricultural use. 

​In addressing whether condemnation actions under the NGA are barred by Eleventh Amendment immunity, the district court originally found that PennEast was vested with the federal government’s eminent domain power because it “stood in the shoes” of the sovereign. The district court reasoned that because the NGA expressly allows any holder of a certificate of public convenience and necessity to condemn property—and those prerequisites had been satisfied—PennEast could do so here, even for property owned by the state. On the state’s appeal, PennEast maintained the argument that the federal government’s eminent domain power had been delegated to the natural gas industry under the NGA.  

However, the Third Circuit Court of Appeals disagreed, and was skeptical that the federal government can delegate its exemption from state sovereign immunity to private parties—even when the private party seeks to assert the interests of the United States, rather than the party’s own. While the court expressed significantly deep doubt that the United States can delegate its exemption from state sovereign immunity to private parties, that question was not specifically answered here. Instead, the court narrowed its decision to the language of the NGA, finding that nothing contained within the statute serves to support the assertion that Congress intended to create an exception to a state’s Eleventh Amendment immunity. Ultimately, the court rejected PennEast’s delegation theory because it would “dramatically undermine the careful limits the Supreme Court has placed on abrogation.”  

The inability to run the pipeline across the parcels of land at issue in New Jersey seemingly renders the pipeline project obsolete, as gas cannot be delivered to markets beyond Pennsylvania. Yet, the industry could also pursue other avenues to complete the project, including potentially rerouting the pipeline through private land, thereby reopening negotiations with private landowners. Alternatively, the gas industry may appeal this decision to the U.S. Supreme Court and it would not be surprising if certiorari is granted, as this is a critical constitutional law matter that could have an expansive impact across the country for the energy industry as a whole.

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