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Conceding disruption, court finds PennEast lacked power to condemn state land

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Decision seen giving states new tool in pipeline battles

Court finds NGA does not override state immunity

Washington — In a ruling that observers say could shake up the process for condemning lands for natural gas pipelines, the 3rd US Circuit Court of Appeals found because of state sovereign immunity, a private pipeline company lacked authority to pull states into federal court for condemnation proceedings.

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The case centered around the 116-mile, 1.1 Bcf/d PennEast Pipeline's efforts to condemn about 40 properties owned at least in part by the state of New Jersey and some of which were preserved for conservation, recreation or agriculture.

The ruling could add to state levers in battles with pipeline projects at a time when the Trump administration is seeking to limit their powers to slow projects under the Clean Water Act.

The ruling creates another snag for a project designed to connect northeastern Pennsylvania production with major demand markets to its east. Proposed nearly four years ago, PennEast Pipeline has also faced state regulatory hurdles under the CWA.

COURT FINDING

The court Tuesday found that nothing in the Natural Gas Act suggests Congress intended to delegate to private companies the federal government's exemption from state sovereign immunity that would allow the companies to bring states into federal court for condemnation proceedings. It vacated a district court order affecting New Jersey property interests and remanded the matter for dismissal of claims.

"We will vacate because New Jersey's sovereign immunity has not been abrogated by the NGA, nor has there been -- as PennEast argues -- a delegation of the federal government's exemption from the state's sovereign immunity," the ruling said.

State sovereign immunity goes to the core of the national government's constitutional design and therefore must be carefully guarded, the court said. "Yet accepting PennEast's delegation theory would dramatically undermine the careful limits the Supreme Court has placed on abrogation," it added.

FEDERAL WORKAROUND

The court recognized its ruling may disrupt the gas industry practice, going back over 80 years, of using the NGA to construct interstate gas pipelines over state-owned land.

"To be sure, such a change would alter how the natural gas industry has operated for some time. But that is what the 11th Amendment demands," the court said.

A possible workaround could be for "an accountable federal official" to file condemnation actions, according to the court. While PennEast argued the NGA does not provide for the US Federal Energy Regulatory Commission to condemn properties, the court said that even if the federal government needs different statutory authorization, "that is an issue for Congress, not a reason to disregard sovereign immunity."

Howard Nelson, attorney and DC shareholder with Greenberg Traurig, said the ruling could have a significant impact for pipelines that have to go through state lands in states with policies that may be at odds with gas industry development.

"If you're building a pipeline through Texas, you probably don't have a problem," he said. But in New York, if a project goes through state land, the ruling could give the state the hook it needs to stop the project. In states like that, he suggested, pipelines may need to build around state land.

FUTURE ROUTING DECISIONS

"It will definitely mean routing decisions will be more difficult until this is resolved," said Gary Kruse of LawIQ. States like New York now have a very strong lever that they did not have prior to the decision, he said.

In response to the ruling, PennEast said it would review the opinion in detail to determine its next steps, and remained committed to moving the project forward.

Maya van Rossum of Delaware Riverkeeper Network said the ruling would "reverberate across the nation" in other pipeline battles. She added: "Frankly, I think it's stunning that it came out of the 3rd Circuit. Finally, states' rights are winning the day."

New Jersey Attorney General Gurbir Grewal said he was pleased the court agreed the 11th Amendment prohibits private pipeline companies from condemning state properties for private use. "We will not hesitate to stand up to private companies when their actions violate the law -- or, in this case, the US Constitution," he said.

Carolyn Elefant, a lawyer who often represents landowners, said the court's ruling, as she reads it, calls into question whether a pipeline, as a private company, can be delegated the federal sovereign's authority to take state property.

"If that is the appropriate way to read the 3rd Circuit decision, then it is an extremely significant development and a huge victory for the state of New Jersey," she said.

-- Maya Weber, maya.weber@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com