Reviewing eminent domain law

  Recent decisions by federal courts have made it possible for natural gas transmission pipeline companies to acquire land that is needed to construct a pipeline much more quickly through eminent domain. In the past, there was great uncertainty regarding how long it would take before a pipeline company could take possession of property from unwilling sellers and begin construction. These recent federal court decisions make it possible for pipeline companies to obtain possession in as little as two to four months from the date of filing of a condemnation suit which, in turn, can be filed upon receipt of the Federal Energy Regulatory Commission (FERC) Certificate of Convenience and Necessity for the pipeline.

The court decisions allow pipeline companies to obtain “immediate possession” of necessary properties and lay out a procedure for doing so. A pipeline company must first obtain its FERC certificate, which authorizes it to file a federal court action against the properties that it needs for the pipeline but could not obtain through negotiation. After filing the action, the company should file a motion to obtain an order from the court confirming the company’s authority to condemn the properties at issue. Next, the company may obtain an injunction granting it possession of the properties, if it can satisfy several factors showing the need for, and benefits of, obtaining immediate possession.

If companies do not follow this immediate possession procedure, they may not be able to begin construction on condemned properties until the very end of the condemnation lawsuit, which could take two to three years.

The Natural Gas Act

Natural gas transmission pipeline companies are granted the power of eminent domain by section 717f(h) of the federal Natural Gas Act 15 U.S.C. § 717f(h). Under the Natural Gas Act, a pipeline company may exercise eminent domain to acquire a property if the Federal Energy Regulatory Commission has issued a certificate of public convenience and necessity for a pipeline project that encompasses that property, and the company and the landowner have been unable to agree on a price to purchase the property. If those requirements are satisfied, the pipeline company may bring a lawsuit in the federal court having jurisdiction over the property at issue to condemn (that is take ownership of) the property interests needed for the pipeline.

The Natural Gas Act does not, however, specify when a pipeline company can actually take possession of the property it is seeking to condemn. As in many areas, “possession is 9/10s of the law,” especially with regard to being able to begin construction of the pipeline on the property. Unlike the federal statutes governing condemnation by government agencies, and certain state condemnation laws, the Natural Gas Act does not contain a “quick-take” provision permitting the condemnor to obtain possession immediately upon filing suit. As a result, the issue of when a pipeline company can obtain possession of condemned property has been left to individual courts, with inconsistent results.

Average time to trial

In the absence of some legal mechanism for obtaining immediate possession of condemned property, the general rule in federal court is that a condemnor cannot obtain possession until it receives title to the property.  Under the rules governing federal court condemnations, this does not occur until judgment is rendered at the end of trial court proceedings, after all legal and property valuation issues have been resolved.  Given how long it can take a case to reach trial in federal court, that rule could cause such long delays that it could make a pipeline project infeasible.

In recent years, the median time to trial in all federal courts has been more than two years.  Moreover, individual federal courts vary widely in their median time to trial. For example, in the U.S. District Court for the Eastern District of Virginia, the median time to trial in 2008 was 9.8 months, while in the Northern District of California the median time to trial was 30 months.  Figure 1 shows the differences in median time to trial in representative federal courts.  Generally, if a pipeline company had to wait 20-30 months after obtaining its FERC Certificate (which typically require that construction be completed within one year) before it could begin construction, it could substantially affect the economic feasibility of the project.

Federal courts and immediate possession

Recognizing how critical it is for pipeline companies to complete their pipeline construction quickly and have predictable timetables for construction, historically most federal courts adhered to the view that they had the power to grant a pipeline company prejudgment possession of any property within the scope of a FERC Certificate early in the case and before valuation determinations. Those courts saw no reason to delay granting possession when it was (1) inevitable that the company would eventually get title to the property; (2) the presence of a process to set a fair value of the property interests condemned assured the landowner that they would not be prejudiced by the pipeline company gaining possession earlier rather than at the end of the case; and (3) building the pipeline was clearly in the public interest, as confirmed by the FERC Certificate, which followed an extensive administrative review of the necessity of the pipeline and the reasonableness of the specific route that it would follow and construction methods employed.

In the late 1990s, however, one powerful federal court, the United States Court of Appeals for the Seventh Circuit, ruled that district courts did not have the power to grant prejudgment possession because the pipeline company could not show “a preexisting entitlement to the property.” In other words, the pipeline company could not obtain possession of the property until title transferred or there was some other legal document showing that it had a formal, legal interest in the property.  This would typically not occur until judgment was rendered at the end of the case.

That decision, Northern Border Pipeline Company v. 86.72 Acres of Land, 144 F.3d 469 (7th Cir. 1998), had the potential to wreak havoc on natural gas transmission pipeline construction. The decision directly affected Northern Border’s work to extend an existing pipeline more than two hundred miles through Iowa and Illinois. Moreover, if other courts followed that decision, it could have caused tremendous delays in future pipeline construction projects. The decision was binding on all federal courts in Illinois, Indiana, and Wisconsin, and was persuasive authority in all other federal courts in the country.

Fortunately, most courts did not follow the Northern Border decision.  District courts in Illinois and Wisconsin found ways to grant prejudgment possession without violating the appeals court’s rule, and court in other states simply decided that the Northern Border decision was wrong. The most prominent of these courts was the U.S. Circuit Court of Appeals for the Fourth Circuit, the decisions of which are binding in Maryland, North Carolina, South Carolina, Virginia, and West Virginia. The Fourth Circuit ruled that pipeline companies could obtain immediate possession by asking a court to issue an order confirming that it had the right to condemn the property consistent with the requirements of the Natural Gas Act and the FERC Certificate governing the pipeline. Once a court issued that order, the pipeline company could obtain immediate possession by satisfying the same right to title, balance of harm and public interest factors that courts had looked at in the past to determine whether it was necessary.

But not all courts agreed, and that uncertainty could be costly to pipeline companies. For example, in 2008 a district court in Arizona found the Northern Border decision persuasive and denied Transwestern Pipeline Company’s request for prejudgement possession. That decision affected work on at least 129 parcels of land on which the pipeline was to be built.

Recent court decisions

Although the Arizona district court’s decision was harmful to Transwestern’s project, it ultimately led to another court decision that should create a more favorable and predictable legal environment for pipeline companies. Transwestern appealed the Arizona court decision to the U.S. Court of Appeals for the Ninth Circuit, in a case titled Transwestern Pipeline Co. v. 17.19 Acres of Property Located in Maricopa County, 550 F.3d 770 (9th Cir. 2008). In its decision, the appeals court clearly described the procedure that pipeline companies should follow if they wish to obtain immediate possession of property interests under the Natural Gas Act.

The procedure has two steps. First, the pipeline company must request that the court issue an order directing that the properties at issue be condemned.  To obtain that order, the pipeline company must show that:

1) It holds a FERC certificate
authorizing the relevant project;

2) The land to be taken is necessary to the project; and

3) The company and the landowners have failed to agree on a price for the taking.

Second, once the company obtains the condemnation order, it must request an injunction granting it immediate possession of the property interests.  To determine whether the company should receive the injunction, the court will look at four factors:  whether the company is likely to succeed on the merits of its case at trial; whether the company will suffer irreparable harm if it does not receive immediate possession; whether the balance of harms favors the company over the landowner; and whether granting immediate possession would be in the public interest.

In the specific case before it, the court affirmed the district court denial of prejudgment possession, because Transwestern had failed to request and obtain an order directing that the needed properties be condemned, but rather had proceeded directly to a request for prejudgment possession.  However the court made clear that following the procedure which it set forth would entitle a pipeline company to an order granting it prejudgment possession.

The Transwestern decision is binding on federal courts in a large portion of the country, including Arizona, Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington. In addition, it is very likely that federal courts in other parts of the country will follow the decision because it is well-reasoned, it lays out a procedure that is easy for courts and pipeline companies to follow, and it fixes a legal problem of great importance to the country’s energy infrastructure.

Successfully using the procedure

The authors were recently involved in a condemnation action that illustrates how the legal procedure for obtaining immediate possession works, and how it can save natural gas transmission pipeline companies time and money. The case, Guardian Pipeline, L.L.C. v. 295.49 Acres of Land, 2008 WL 1751358 (E.D. Wis. 2008) was filed in 2008 in the United States District Court for the Eastern District of Wisconsin. The median time to trial in that court is two years. If the pipeline company had to wait two years to start construction, it would have created intolerable uncertainties for the project.

To speed up the condemnation process as quickly as possible, the authors followed the procedure that was later approved in the Transwestern decision. The authors filed the condemnation lawsuit in January 2008. On the same day that we filed the lawsuit, we also filed two motions: one asking the court to confirm the pipeline company’s authority to condemn the properties at issue in the lawsuit, and the other asking the court to grant the company immediate possession of those properties so that it could begin construction as soon as possible.

The district court granted both motions just three months after filing the suit, which enabled the pipeline company to begin construction as soon as weather permitted. The court confirmed the company’s power to condemn the properties at issue, finding that the company had obtained a FERC certificate for the project, that the properties were within the scope of that certificate, and that the company had unsuccessfully attempted to negotiate a voluntary acquisition of the property.

The court also found that the company had “easily satisfie[d]” the four requirements for granting immediate possession. First, the company was likely to succeed on the merits of its case because, in light of the FERC Certificate, there was no question that the company would be granted title to the property at the end of the case. Second, the company would suffer irreparable harm if it did not receive immediate possession because FERC had set a one-year deadline for completing the project; Wisconsin has a very short construction season; and it was not economically feasible to skip over the contested properties during the construction process.  Third, the balance of harms favored the pipeline company because it would be significantly harmed by delay, while any harm suffered by the landowners would be the same no matter when the project started, and there was a court-directed process to assure that the landowners received just compensation for the property interests condemned. Fourth, the public interest favored granting immediate possession because FERC had found that the pipeline was necessary to meet Wisconsin’s growing demand for natural gas and had approved the pipeline route.

Succeeding on those motions enabled the pipeline company to start construction early enough that it placed the pipeline in service one year after filing suit and months before any hearings regarding just compensation began. Had the company not successfully obtained immediate possession, construction of the pipeline would likely not be finished as of time of this writing. The timeline in Figure 2 shows the key dates in those proceedings.

Without the benefits offered by the immediate possession procedure, the only other way to have accelerated the construction schedule would have been to offer the landowners exorbitant sums of money in order to purchase their properties outside of the condemnation process.

Education about immediate possession

While the recent court decisions regarding immediate possession are very beneficial to pipeline companies, they will only be effective if pipeline company attorneys educate federal courts about the process. Condemnation cases are uncommon in federal courts. As a result, most federal judges are unfamiliar with the Natural Gas Act; the time-sensitive nature of transmission pipeline construction schedules; and procedures for granting companies possession of property interests under federal law. To a judge who has never dealt with a pipeline condemnation case, granting a company “immediate possession” of a landowner’s property before a determination of the merits of the case can sound like a drastic remedy. Pipeline company attorneys must make every effort to thoroughly explain the immediate possession process, and the urgency of having this issue resolved, as early possible in condemnation proceedings.