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Pipeline Developer Takes on New Jersey in Supreme Court Fight

April 27, 2021, 8:45 AM

The U.S. Supreme Court hears arguments Wednesday in a case pitting states’ rights advocates against energy companies.

New Jersey and backers of the $1 billion PennEast natural gas pipeline face off over developers’ effort to seize state land along the project’s route.

It’s the latest in a series of pipeline cases to reach the Supreme Court in the past year, an outgrowth of sweeping litigation surrounding a nationwide expansion of oil and gas infrastructure over the past decade. The justices heard an Atlantic Coast pipeline case a year ago, and fielded a flurry of filings involving Keystone XL last summer.

Kirkland & Ellis LLP’s Paul Clement, a former solicitor general and powerhouse Supreme Court advocate who successfully argued the Atlantic Coast case, represents PennEast. The Biden administration is maintaining Trump-era support for PennEast’s arguments, a decision that disappointed many pipeline opponents.

Some justices might find it challenging to weigh New Jersey’s asserted state property rights against pipeline lawyers’ claims of broad industry impacts in the case, University of Minnesota energy law professor Alexandra Klass said.

“It tees up that issue directly in a way that some of these other cases have not,” she said. “Here is a situation where you have a state who is opposed to this particular pipeline and has actual land, saying a private party can’t use delegated eminent domain authority to take state land.”

Backed by Enbridge Inc., Southern Co., and other companies, PennEast would stretch 116 miles across Pennsylvania and New Jersey. Construction hasn’t started, and PennEast faces other permitting and legal hurdles even if it prevails at the Supreme Court.

‘Veto Authority’

The dispute centers on PennEast’s attempt to use eminent domain authority delegated under the Natural Gas Act to take state-owned lands and conservation easements along the pipeline’s proposed route in New Jersey.

The U.S. Court of Appeals for the Third Circuit blocked the effort in 2019, ruling that New Jersey’s sovereign immunity bars a private company from bringing land condemnation proceedings against it. The Supreme Court agreed to review the case after PennEast and its allies across the oil and gas industry argued that the decision would disrupt pipeline development by giving states “veto authority” over federally approved projects.

“The scope of that veto is nearly boundless given the extent of state property holdings,” PennEast said in its final brief this month, noting that states generally hold title to streambeds and other land.

PennEast spokeswoman Patricia Kornick points to broad support the company has received from industry and labor groups, along with both the Trump and Biden administrations.

The Justice Department’s brief says the power of eminent domain extends to private parties building projects in the public interest. Veteran Supreme Court advocate Edwin S. Kneedler will appear for the government in the phone arguments.

Sovereign Immunity

But the Natural Gas Act’s delegation of eminent domain authority to pipeline developers “says nothing” about using that power against state-owned lands, and Congress must speak clearly if it wants to override states’ sovereign immunity under the Eleventh Amendment, New Jersey told the Supreme Court in a brief.

State Attorney General Gurbir Grewal (D) pushed back on PennEast’s contention that the Third Circuit’s interpretation barring such state land seizures would cause major disruptions to pipeline construction. Grewal contends a developer could still legally access state lands if the federal government, rather than the private company, pursued a condemnation action.

“Indeed, every other industry has been able to move forward without the right to take our land in federal court over our objection, and the natural gas industry is no different,” he said in a statement last week. Nineteen states and several state and local government groups are backing New Jersey in the case.

Klass agreed the Third Circuit’s ruling isn’t as disruptive as the industry claims. She noted many states welcome pipeline development across their land, and pipeline companies can negotiate or reroute to stick to private lands in other cases.

The New Jersey Conservation Foundation, which holds property interests in state conservation lands that are part of PennEast’s planned route, stressed the impacts to areas protected for their natural or recreational values. The planned crossing of Baldpate Mountain, a Mercer County preserve, illustrates the problem, NJCF campaign director Tom Gilbert said.

“It’s this beautiful property that sits right on the Delaware River. It’s an important bird area—it’s been a place where a very vast array of bird species have been recorded,” Gilbert said. “The pipeline would cut right through that property.”

Sleeper Issue?

The Institute for Justice and other property rights advocates have raised concerns about a second question the Supreme Court is reviewing: the Justice Department’s contention that the Third Circuit never should have entertained New Jersey’s arguments because the Natural Gas Act requires challenges to Federal Energy Regulatory Commission pipeline approvals to go through the agency before going to court.

Government lawyers argued that New Jersey’s challenge, while focused on the land takings, amounted to a “collateral attack” on the FERC certificate for PennEast.

The government’s interpretation is a “sleeper issue” that would hamstring landowners by preventing them from advocating for their rights if they didn’t get involved in FERC proceedings at an early stage, said Carolyn Elefant, a lawyer who often represents landowners in pipeline cases. At that point, they might not even know whether a particular exercise of eminent domain merited a challenge, Elefant said.

The case is PennEast Pipeline Co. v. New Jersey, U.S., No. 19-1039, oral arguments 4/28/21.

To contact the reporter on this story: Ellen M. Gilmer in Washington at egilmer@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com