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Eighth Circuit Flushes All Challenges to Pipeline Condemnation

Landowners who find themselves in the path of an oil or gas pipeline quickly learn that their rights are limited, and that a pipeline company granted a Federal Energy Regulatory Commission (FERC) Certificate of Public Convenience and Necessity hold most of the cards.  Thus, the recent decision in Alliance Pipeline, L.P. v. 4,360 Acres of Land, No. 13-1003 (8th Cir. Mar. 24, 2014), which in a mere 10 pages washed aside the landowners challenges Alliance Pipeline’s condemnation action, comes as no surprise.   

The Smiths, an elderly couple, are owners of two parcels of land in North Dakota through which Alliance sought an easement for a new pipeline spur.  While its FERC application was still pending, Alliance approached the Smiths seeking to purchase the necessary easement and were rebuffed.  Subsequently, Alliance sought and obtained a state court Order allowing them access to the property to conduct a survey.  Finally, less than a month after FERC issued the Certificate, Alliance filed a condemnation action against the property owned by the Smiths.  The District Court granted partial summary judgment condemning the property, and granted Alliance immediate use and possession of the land pending a trial on damages.  The Smiths appealed to the Eighth Circuit, raising many arguments that landowners often raise, so for this reason alone, the Alliance opinion is instructive – a one-stop shop of sorts. 

First, the Smiths challenged the validity of the FERC Certificate on two grounds, contending that they had not received notice of the pending FERC proceedings as they were required to receive under the Natural Gas Act and the United States Constitution and that FERC did not consider criteria for siting pipelines as expressed in the North Dakota Administrative Code.  With respect to these objections, the Court found that it lacked jurisdiction over the non-constitutional claims.  Relying on Section 19 of the Act and several cases, the Court reaffirmed that “any challenge to a FERC order [must] first be brought before FERC itself in a petition for rehearing within thirty days of the order’s issuance.”  Further, the Court rejected the Smith’s constitutional arguments.  While acknowledging that private citizens may not spend their evenings reading the Federal Register (which contains publication of all FERC applications), since Alliance had contacted the Smiths at least twice before the issuance of the FERC Certificate and had filed its condemnation action before the thirty-day rehearing period expired, the Court held that the Smiths had adequate notice of the proceedings.

Next the Smiths argued that Alliance failed to comply with North Dakota’s condemnation procedures, relying on 15 U.S.C. § 717f(h), which provides that condemnation proceedings in federal court must conform to the practice and procedure of the state courts.  What the Smith’s counsel failed to recognize, and what several other circuits had already confirmed, is that Section 717f(h) had been superseded by Federal Rule of Civil Procedure 71.1, adopted in 1951, which preempts state court condemnation procedures. 

The Smith’s third argument was that Alliance had failed to negotiate with them in good faith as the Smith’s claimed the Gas Act required.  Whether there is an implied requirement that a pipeline company negotiate in good faith with a landowner before initiating condemnation proceedings has not yet been determined by the United States Supreme Court, and the circuits are split on the issue.  However, the Court ruled, even if such a requirement existed, Alliance’s initial approach to the Smiths, in which they made an offer and provided the basis for its calculation, which the Smiths rejected outright, met any good faith requirements.

Finally, the Court addressed the Smith’s challenge to the immediate relief, contending that Alliance had not met its burden of proof.  Utilizing the same four-factor test applied to applications for preliminary relief, the Eighth Circuit held that Alliance had met all of the requirements.  According to the Court, the FERC Certificate settled the issue of whether Alliance would prevail on the merits, and FERC’s findings (echoed by the District Court) that the pipeline would “fill a critical need” and that any delays could cost Alliance over $500,000/day outweighed whatever slight countervailing interest the Smith’s had.  Any prejudice to the Smiths, the Court found, would be offset by the amounts that Alliance agreed to deposit with the Court pending final disposition of the case.

In summary, the Eighth Circuit provided a textbook opinion which, if nothing else, is a strong warning to landowners that any challenged to a condemnation action supported by a FERC Certificate must identify faults that are much deeper than a surface analysis.