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Third Circuit Holds That Private Companies Cannot Condemn State-Owned Property Under The National Gas Act

On September 10, the Third Circuit held that while the National Gas Act (NGA) delegates the federal government’s power of eminent domain to private gas companies, it does not necessarily delegate the federal government’s exemption from state sovereign immunity. In re: PennEast Pipeline Company, LLC, No. 19-1191 (3d Cir. 2019). As a result, private entities acting under the NGA cannot condemn state-owned property absent action by an accountable federal official.

At issue in the case was PennEast Pipeline Company’s suit against the State of New Jersey to condemn state-owned properties to pave the way for construction of a pipeline through the state. The District Court of New Jersey issued a condemnation order and on appeal the State of New Jersey argued that the suit violated the state’s right to sovereign immunity under the Eleventh Amendment.

The Third Circuit recognized that the NGA delegates the federal government’s power of eminent domain to private gas companies to obtain requisite rights-of-way for pipeline construction. The Court, however, was hesitant to assume that a delegation of one federal power to a private entity necessarily carried with it an implicit delegation of additional federal powers, specifically that of the federal government’s sovereign immunity exemption.

In reaching its conclusion, the Court looked to the Supreme Court’s decision in Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), in which the Supreme Court expressed serious doubt as to the theory that a sovereign immunity exemption could ever be delegated to a non-federal official. The opinion highlighted the differences in suits brought by the federal government and private entities – namely the lack of accountability and oversight of private condemnation suits. The Third Circuit found this particularly concerning in the eminent domain context given the fact that private parties’ incentives for condemning land might overshadow the “duty to take care that the laws be faithfully executed.” The Court found that the NGA lacked the “unmistakably clear” intention required to abrogate the Eleventh Amendment. Without a clear congressional intent in the NGA, the Court ultimately decided to avoid settling the constitutional issue and instead opted to hold that the NGA itself did not delegate the federal government’s exemption from state sovereign immunity.

This decision represents a setback for the PennEast pipeline project and potentially for future pipeline projects that rely on the NGA's grant to eminent domain over state-owned lands.  However, the Third Circuit suggested that its decision does not doom such projects.  Rather, moving forward, private gas companies seeking to use eminent domain to obtain a right-a-way over state land can utilize a two-step “work-around” by seeking to have a federal official file the condemnation suit then have the property transferred to the private entity.