[author: Catherine R. McCabe]

Adding another chapter to the legal controversies that continue to rage over the siting of new gas pipelines, on September 10, 2019 the Third Circuit upheld the State of New Jersey’s sovereign immunity objection to the PennEast Pipeline Company’s attempt to condemn a right-of-way through state-owned property. The Court held that, while the National Gas Act delegates the federal government’s power of eminent domain to private pipeline companies, that power cannot be used by private parties to overcome a state’s assertion of sovereign immunity.

PennEast sought to construct a new pipeline to carry natural gas from the Marcellus shale fields of Pennsylvania into central New Jersey. PennEast’s proposed route would pass through more than 40 properties either owned by the State of New Jersey or protected by state-held easements for conservation, agricultural or recreational purposes. The route was approved by the Federal Energy Regulatory Commission (FERC), over the objections of the state and many private parties.

Armed with its FERC certification, PennEast initiated condemnation actions against the state and private property owners along its proposed route. The state objected, invoking, among other arguments, its right of sovereign immunity from suits by private parties. The U.S. district court ruled in favor of PennEast, citing the Natural Gas Act’s authorization for private gas companies to use the power of eminent domain to acquire rights-of-way for pipeline routes approved by FERC.

On appeal, a three-judge panel of the Third Circuit reversed, ruling that the Natural Gas Act does not go so far as to delegate the federal government’s exemption from states’ sovereign immunity to private parties. The panel cited the Supreme Court’s prior decisions in Blatchford v. Native Village of Noatak and Dellmuth v. Muth holding that Congress can override the sovereign immunity of states only by making its intention to do so “unmistakably clear” in the language of the statute. The panel found nothing in the text of the Natural Gas Act to support the argument that Congress did so in that statute.

Moreover, while not reaching the issue, the court expressed strong doubt that Congress would have the constitutional authority to override states’ sovereign immunity, even if it chose to amend the statute to make that intent clear. The court pointed out that Congress relied on its Commerce Clause powers to enact the Natural Gas Act and that, under the Supreme Court’s ruling in Seminole Tribe of Fla. V. Florida Congress cannot invoke its Commerce Clause powers to abrogate state sovereign immunity.

PennEast’s petition for en banc review was denied by the Third Circuit on November 5, 2019. The company has publicly stated its intent to seek Supreme Court review, but has not explained what basis for review it would urge upon the Court. There is no conflict among the circuits, as no other court of appeals has addressed this issue.

PennEast may argue that this case presents a new and important question of law that has not been settled by the Supreme Court. But the Third Circuit opinion rests firmly on established Supreme Court precedent that will be difficult to overcome.

So is this the end of the pipeline for PennEast? Will the Supreme Court take up an invitation to rule against states’ constitutionally-protected sovereign rights? Will PennEast turn back to FERC and ask for direct federal condemnation? It’s too early to tell. In any case, either route poses significant challenges – including PennEast’s own argument, noted by the Third Circuit, that FERC does not actually have direct condemnation authority under the Natural Gas Act.