On September 10, 2019, the United States Court of Appeals for the Third Circuit (“Third Circuit”) vacated a federal district court order permitting PennEast Pipeline Company (“PennEast”) to exercise eminent domain power under the Natural Gas Act (“NGA”) over property interests owned by the State of New Jersey.  The Third Circuit found that while the NGA delegates the federal government’s eminent domain authority to private gas companies, it does not delegate the federal government’s separate and distinct exemption from state sovereign immunity under the Eleventh Amendment.  After acknowledging concerns that its decision would disrupt the interstate gas pipeline industry, the Third Circuit suggested that in the case of state-owned property, a “work-around” might be for a federal official to file the necessary condemnation actions, and then to transfer the property to the natural gas company.

The NGA authorizes private gas companies to acquire the necessary rights of way for their pipelines by the exercise of eminent domain, so long as the gas company has: obtained a Certificate of Public Convenience and Necessity (“CPCN”) from FERC; shown that it was unable to acquire the property by contract; and proven that the value of the property condemned exceeds $3,000.  Upon receiving a CPCN for the 116-mile pipeline running through Pennsylvania and New Jersey, PennEast sought orders of condemnation and determinations of just compensation for 131 properties along the pipeline route in district court, including for 42 property interests held by the State of New Jersey.  Invoking its sovereign immunity from suits by private parties in federal court under the Eleventh Amendment, New Jersey sought dismissal of the condemnation actions against it.  The United States District Court for the District of New Jersey rejected New Jersey’s assertion of Eleventh Amendment immunity, finding that the NGA expressly allows for any CPCN-holder to condemn property, and that PennEast had been vested with the federal government’s eminent domain powers.

On appeal, PennEast argued that private gas companies should be able to condemn state property because the NGA delegated not only the federal government’s eminent domain power, but also and by implication, its exemption from state sovereign immunity.  Because the NGA does not differentiate between privately-held and state-owned property, PennEast argued that Congress intended to make all property subject to a CPCN-holder’s right of eminent domain.

The Third Circuit did not definitively resolve the question of whether the federal government can delegate its exemption from state sovereign immunity to private parties, but it expressed “deep doubt” on the issue.  And while it acknowledged that Congress can abrogate state sovereign immunity, the Third Circuit explained that Congress may do so only when acting pursuant to Section 5 of the Fourteenth Amendment, and that Congressional intent to do so must be “unmistakably clear.”  The Third Circuit reasoned that because the NGA was enacted pursuant to the Commerce Clause, it was not a valid abrogation of state sovereign immunity—nor does the NGA refer to the Eleventh Amendment, state sovereign immunity, or to the States.  In the absence of any textual indication that Congress intended to delegate the federal government’s exemption from state sovereign immunity to private gas companies, the Third Circuit refused to assume or infer such an intent.

The Third Circuit’s ruling is available here.