Tenn. Gas Pipeline Co. v. Permanent Easement for 7.053 Acres

Decision Date23 July 2019
Docket NumberNo. 17-3700,17-3700
Citation931 F.3d 237
Parties TENNESSEE GAS PIPELINE COMPANY, LLC v. PERMANENT EASEMENT FOR 7.053 ACRES, PERMANENT OVERLAY EASEMENT FOR 1.709 ACRES AND TEMPORARY EASEMENTS FOR 8.551 ACRES IN MILFORD AND WESTFALL TOWNSHIPS, PIKE COUNTY, PENNSYLVANIA, TAX PARCEL NUMBERS; King Arthur Estates, a Limited Partnership; Riothamus Corp, General Partner of King Estates c/o Ernest Bertuzzi President; All Unknown Owners and Interested Parties, King Arthur Estates, L.P. and Riothamus Corporation, Appellants
CourtU.S. Court of Appeals — Third Circuit
OPINION

GREENAWAY, JR., Circuit Judge.

The Natural Gas Act of 1938 ("NGA"), 15 U.S.C. §§ 717 – 717z, allows natural gas companies to acquire private property by eminent domain to construct, operate, and maintain natural gas pipelines. Id. § 717f(h). Here, Tennessee Gas Pipeline Company, LLC ("Tennessee Gas") commenced a condemnation action under the NGA to acquire easements on property owned by King Arthur Estates, LP ("King Arthur"). On interlocutory appeal, this case now presents us with a single legal issue: whether state law or federal law governs the substantive determination of just compensation in condemnation actions brought by private entities under the NGA. Because federal law does not supply a rule of decision on this precise issue, we must fill the void with a common law remedy. In doing so, we opt to incorporate state law as the federal standard. Accordingly, we will reverse the District Court’s order reaching the opposite result.

I. BACKGROUND

As required by the NGA, Tennessee Gas holds a certificate of public convenience and necessity from the Federal Energy Regulatory Commission ("FERC") authorizing it, inter alia , to construct natural gas pipelines in New Jersey and Pennsylvania to augment its natural gas delivery capacity in the region. As part of this project, Tennessee Gas seeks to obtain easements over a 975-acre tract of land in Pike County, Pennsylvania owned by King Arthur. Upon unsuccessfully attempting to purchase the requisite easements from King Arthur, Tennessee Gas filed the instant condemnation action under Federal Rule of Civil Procedure 71.1 (" Rule 71.1").

After the parties stipulated that Tennessee Gas could access and possess the easements, they engaged in discovery pertinent to determining the appropriate compensation for the condemnation. Both parties retained various experts to appraise, inter alia , the value of the land before and after the taking, the value of the timber removed from the land, professional fees, development costs, and timber replacement and reforestation costs. Following the close of this discovery, Tennessee Gas moved for summary judgment on various issues, including that of compensation.

As to the issue of compensation, the District Court granted in part Tennessee Gas’ motion. Relying entirely on a prior opinion deciding the same issue,1 the District Court ruled that federal law governs the substantive determination of just compensation in this dispute. The District Court hence determined that, although King Arthur could recover consequential damages for professional fees and development costs under Pennsylvania law, it could not do so under federal law. Together, the consequential damages at issue total just under $1 million.

A few weeks later, King Arthur filed a motion to certify the District Court’s order for interlocutory appeal, which the District Court granted. Another Panel of our Court then granted King Arthur’s petition for interlocutory appeal. We are now faced with the purely legal question of whether state law or federal law governs the substantive determination of just compensation in condemnation actions brought by private entities under the NGA.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had subject matter jurisdiction under 28 U.S.C. § 1331 and 15 U.S.C. § 717f(h). We have appellate jurisdiction under 28 U.S.C. § 1292(b) and review the legal issue presented in this appeal de novo . Geness v. Cox , 902 F.3d 344, 354 (3d Cir. 2018) (citation omitted); United States v. Hendricks , 395 F.3d 173, 176–77 (3d Cir. 2005) (citations omitted).

III. DISCUSSION
A. Relevant Law

Before we delve into the merits of the instant issue, we pause to consider the legal landscape in which this dispute arises. In particular, we discuss the background legal principles relevant to (1) the NGA, (2) just compensation, (3) federal common lawmaking, and (4) persuasive case law on this subject.

1. The NGA

It is well-established that the federal government wields the authority to exercise eminent domain. See Kohl v. United States , 91 U.S. 367, 370, 23 L.Ed. 449 (1875) ("The right of eminent domain is an ‘inseparable incident of sovereignty.’ " (citations omitted)). But that is not all. Rather, because "the power of eminent domain is merely the means to the end," the federal government also has the authority to delegate its eminent domain power to private entities. Berman v. Parker , 348 U.S. 26, 33, 75 S.Ct. 98, 99 L.Ed. 27 (1954). Indeed, Congress has done so in a number of legislative settings, including the District of Columbia Redevelopment Act of 1945, D.C. Code §§ 5-701 to -737; the Federal Power Act ("FPA"), 16 U.S.C. §§ 824 – 824w ; and, of course, the NGA.

In 1938, Congress enacted the NGA based on its recognition that "the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest."

15 U.S.C. § 717(a). Acknowledging that "[f]ederal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest," Congress ensured that the NGA delegated regulatory authority to an appropriate body. Id. Decades later, this body became FERC. 42 U.S.C. § 7171.

As relevant here, the NGA allows gas companies to acquire private property by eminent domain to construct, operate, and maintain natural gas pipelines. 15 U.S.C. § 717f(h). To do so, however, a natural gas company must first successfully obtain a certificate of public convenience and necessity from FERC and unsuccessfully attempt to purchase the required property from its owner. Id. More fully, the NGA provides:

When any holder of a certificate of public convenience and necessity cannot acquire by contract, or is unable to agree with the owner of property to the compensation to be paid for, the necessary right-of-way to construct, operate, and maintain a pipe line or pipe lines for the transportation of natural gas, and the necessary land or other property, in addition to right-of-way, for the location of compressor stations, pressure apparatus, or other stations or equipment necessary to the proper operation of such pipe line or pipe lines, it may acquire the same by the exercise of the right of eminent domain in the district court of the United States for the district in which such property may be located, or in the State courts. The practice and procedure in any action or proceeding for that purpose in the district court of the United States shall conform as nearly as may be with the practice and procedure in similar action or proceeding in the courts of the State where the property is situated: Provided , That the United States district courts shall only have jurisdiction of cases when the amount claimed by the owner of the property to be condemned exceeds $3,000.

Id. (emphasis in original).

The statute’s reference to state "practice and procedure," however, does not mean that it incorporates state law for the substantive determination of compensation. Id. Although some courts have concluded otherwise, see, e.g. , Miss. River Transmission Corp. v. Tabor , 757 F.2d 662, 665 n.3 (5th Cir. 1985), "this language require[s] conformity in procedural matters only." United States v. 93.970 Acres of Land , 360 U.S. 328, 333 n.7, 79 S.Ct. 1193, 3 L.Ed.2d 1275 (1959) (citations omitted). In any event, that language has been superseded by Rule 71.1, which establishes its own procedures applicable to all condemnation cases in federal court. See Fed. R. Civ. P. 71.1, Advisory Committee Notes (1951) (explaining that the new rule "affords a uniform procedure for all cases of condemnation invoking the national power of eminent domain, and ... supplants all statutes prescribing a different procedure"); see also Alliance Pipeline LP v. 4.360 Acres of Land , 746 F.3d 362, 367 (8th Cir. 2014) (collecting cases).

As a result, the NGA is silent regarding the applicability of state law in condemnation proceedings under the statute. Indeed, the NGA is generally silent on the remedies available in the condemnation proceedings it allows. For example, it does not even expressly require that just compensation be provided.

2. Just Compensation

That concept of just compensation originates from the Fifth Amendment: although the federal government has "the authority to take private property for public use by eminent domain ... [it] is obliged by the Fifth Amendment to provide ‘just compensation’ to the owner" of the property. Kirby Forest Indus., Inc. v. United States , 467 U.S. 1, 9, 104 S.Ct. 2187, 81 L.Ed.2d 1 (1984) (citing Kohl , 91 U.S. at 371 ). Under the Fifth Amendment, just compensation generally means "the fair market value of the property on the date it is appropriated" and nothing more. Id. at 10, 104 S.Ct. 2187 ; see also United States v. Miller , 317 U.S. 369, 374–76, 63 S.Ct. 276, 87 L.Ed. 336 (1943). In other words, in such contexts, "the Constitution has never been construed as requiring payment of consequential damages" like lost profits or development costs. Miller , 317 U.S. at 376, 63 S.Ct. 276. This is because "the sovereign need only pay for what it actually takes rather than for all that the owner has lost." Air Pegasus of D.C., Inc. v. United States , 424 F.3d 1206, 1215 (Fed. Cir. 2005) (quoting Klein v. United States , 375 F.2d 825, 829 (Ct. Cl. 196...

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