The U.S. Supreme Court will soon consider the third of several petitions for certiorari asking it to review a question which has split the lower federal courts: whether district courts have the power under the Federal Rules of Civil Procedure to issue preliminary injunctions in takings under the Natural Gas Act which allow private pipeline condemnors to obtain immediate possession of property, even though Congress has withheld the federal “quick take” power in the NGA. The Third, Fourth, Ninth, and Eleventh Circuits have concluded that simply because Congress did not delegate to private pipeline condemnors the quick take authority—the power to obtain immediate title and possession of condemned property upon a deposit of estimated compensation—neither did it withhold from federal courts their usual equitable powers to issue injunctions. The Seventh Circuit concluded otherwise: that because private pipeline condemnors were not delegated the quick take power in the NGA, possession must wait until the court adjudicates the final compensation owed, and the pipeline condemnor exercises its option and makes that payment. This Term, the Court declined to review two of the three petitions, but the issue is one that is not going away.
Chris Johns, Partner, Johns & Counsel PLLC
Jeffrey A. Simmons, Partner, Foley & Lardner LLP
Moderator: Robert H. Thomas, Director, Damon Key Leong Kupchak Hastert
Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Environmental Law & Property Rights Practice Group, was recorded on Friday, June 21, 2019, during a live teleforum conference call held exclusively for Federalist Society members.
Wesley Hodges: Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is, “Possess Now, Pay Later” is constitutional in private pipeline takings is the question. My name is Wesley Hodges, and I’m the Associate Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today’s call.
Today, we are very fortunate to have with us an accomplished panel on this topic, and our moderator today is Robert H. Thomas, who is Director of Damen Key. After our speakers have their moderated discussion, we will have time for an audience Q&A, so please keep in mind what questions you have for this topic or for one of our speakers. Thank you very much for sharing with us today. Robert, the floor is yours.
Robert H. Thomas: Thank you, Wes. This is, of course, a very interesting day for the property law with Knick v. Township of Scott being decided. But we’re going to focus on another issue that may be related. The U.S. Supreme Court will soon consider what is, at least, the third of several petitions for certiorari asking it to review a question which has divided the lower federal courts, and that is whether district courts have the power under the Federal Rules of Civil Procedure and their equitable powers to issue preliminary injunctions in private condemnor takings under the federal Natural Gas Act. And that act allows private pipeline condemnors, or, at least, the way that the courts have interpreted it, to obtain immediate possession of property, even though Congress, in the Natural Gas Act, has withheld the federal “quick take” power.
Several circuits, including the Third, Fourth, Ninth, and Eleventh, have concluded that simply because Congress didn’t expressly delegate to these private pipeline condemnors the quick take authority—which as most of you know, the power to obtain immediate title and possession of condemned property upon a deposit of estimated compensation—neither did Congress withhold from the federal courts their usual equitable powers to issue preliminary injunctions in any type of case. The Seventh circuit has concluded otherwise and has held that because private pipeline condemnors were not delegated the quick take power, under the NGA, a possession must wait until the court adjudicates the final compensation owed and the pipeline condemnor exercises its option and makes that payment to the property owner.
This term, as I mentioned, the Court has declined to review two of those three petitions, but there’s another one forthcoming. And joining us today, please welcome our two expert speakers. Good afternoon to both Chris Johns, who is joining us, who is a partner in Johns & Counsel in Austin, Texas. Chris represents one of the property owners in the forthcoming cert petition, and speaking about from the pipeline’s perspective is Jeffrey Simmons, who’s a partner in Foley & Lardners, Madison, Wisconsin office. Welcome to both of our speakers, and what we’re going to do is have each of them present briefly on the issue and then open it up for some questions both from me, as your moderator, and then hopefully from you as the audience. So for the next few minutes, I’d like to turn over the microphone to Jeffrey Simmons to speak about the perspective of the issue from the perspective of the private pipeline companies. Jeffrey, the microphone is yours.
Jeffrey Simmons: Sure. Good morning, everybody. So I’m Jeff Simmons, and I do a fair amount of work in the eminent domain area. And one of my clients in the past has been a major natural gas pipeline transmission company. And so they are regulated by the federal Natural Gas Act, and their power of eminent domain comes from that act. The projects that this typically involves are quite large. You’re dealing with the interstate transmission of natural gas, and you’ve got pipelines that are 36 inches in diameter or something like that. These are big projects. While the construction’s going on, they’re fairly intrusive on the land that’s affected. Overall, the power of eminent domain, the right to lay these pipelines, all that is governed by the federal Natural Gas Act, which expressly gives natural gas transmission companies the right to exercise eminent domain but doesn’t say a whole lot about the specifics about how they’re supposed to go about doing that. And I think Robert mentioned that the act does not expressly provide the pipeline companies with the right to take immediate possession of property.
And so what has developed over, I guess, about the last 30 years now is judge-made law that, in general, allows natural gas pipeline companies to take immediate possession of these properties as long as they follow certain requirements. And, typically, with these natural gas pipeline cases, what’s being taken typically is an easement. As I said, it’s a fairly intrusive process in that they have to dig a huge trench across the person’s property to lay the pipe, but, once they’re done, they cover it over, and then, typically, the property right that’s taken is just an easement in the property.
The regulatory body that oversees this is the Federal Energy Regulatory Commission, and there’s a whole administrative process that goes on before the pipeline company gets to set foot on the land and start digging. And the Federal Energy Regulatory Commission has to ultimately issue a certificate of authority that says, yes, the pipeline company has the right to go onto the property to take this property for purpose of laying this pipe, and they approve a specific path, and they approve exactly the pathway that can be taken across all these properties. And the cases I’ve been involved in involved 200-300 properties, ultimately. In rural areas, they try to lay them across farms, and so the ones we’ve had have gone more than 100 miles across farms across the state. So they’re big projects. They affect a lot of landowners, and landowners, understandably, are generally not very happy that this is going on.
The right to immediate possession—there’s a real practical reason for the perceived urgency by the pipeline companies, here. It’s just these projects are so big and involve so much money that any sorts of delays in getting started on them just can cost millions of dollars. And so there is a real push to -- once the pipeline company’s ready to go and the Federal Energy Regulatory Commission has given them the authority, they want to get started right away. And to get started right away, they need to take immediate possession of these properties.
But the Natural Gas Act, again, doesn’t expressly give this right. Federal law does give right of immediate possession to the federal government in certain circumstances, but it’s just silent on the rights of pipeline companies. And there’s actually an analogous act under federal law that deals with electric transmission companies as well—high tension lines. And it’s the same situation there. Statute is almost identical to the Natural Gas Act and doesn’t say anything about immediate possession, but you are under the same immediate possession issues in that context as well.
And so what is -- in the absence of any expressed provision for allowing for immediate possession, what has evolved is a set of rules that basically say, well, the pipeline company can come in and ask for an injunction—a mandatory affirmative injunction saying we need possession of the property now. And the pipeline company has to come in and satisfy all of the standards for an injunction—likelihood of success on the merits, balance of harms, all those sorts of things. If the pipeline company has competent attorneys, it generally ends up, at this point—because the law has become fairly settled—it becomes somewhat of a pro forma exercise. You do it, but the pipeline company is quite confident that the preliminary injunction factors will be satisfied.
And, probably, the key thing for all of this, I think—well, you’ll get it from a preliminary injunction standpoint—is the likelihood of success on the merits. Unless the pipeline company is screwed up in some respect, the likelihood of success on the merits—meaning the likelihood that the pipeline company ultimately would be able to take this property anyway—is gonna be 100%. If they correctly designated the property that they’re allowed to take, for each individual landowner, there’s not gonna be any question that -- it’d be a very rare instance, and would there be any question that, ultimately, they’re gonna have the right to take that property at the end of the day.
And, in my view, that’s what drives a lot of this. The courts never quite say it, but I have to believe that what drives a lot of this is the court’s belief that, well, if the pipeline company is gonna get it at the end of the day, and the landowner is gonna get compensated for the land— maybe, just later on in the process—what’s the real harm to the landowner in allowing the pipeline company to take that property now? Understandably, the landowners are quite upset about this, but I think that practicality drives a lot of courts’ willingness to allow the pipeline companies to come in and take possession early on in the proceedings.
The law was a little less clear, say, 20 years ago. I think the first court of appeals case that dealt with this was a Seventh Circuit case called Northern Boarder Pipeline. It’s 144 F.3d 469. And, in that case, district court had issued the injunction, had allowed the pipeline company to come in and take the property. And the Seventh Circuit, in that case, actually reversed, and said that “Well, no. In order to issue an injunction, in favor of a pipeline company, to allow them to take immediate possession of the land, the pipeline company has to have – it has to have confirmed that it actually has the ownership interest in it.” It’s sort of a, in my view, somewhat of a technical procedural issue. But they’re saying “Look, at the start of the case, if no one has actually said that the pipeline company does literally own the property, then they don’t have a right to just possess it yet.”
And so what then evolved is just a fairly simple fix for that, which is that in conjunction with moving for the injunction, you, the pipeline company, typically files a motion for immediate summary judgement confirming its right to condemn and own this property. And that again is typically something the pipeline companies are gonna win, unless they’re really screwing up in some way.
So the first prominent case, prominent decision, I think—that got around the Seventh Circuit decision, and set forth this new framework for how you take immediate possession, confirmed that this is the way that pipeline companies should go—is a Fourth Circuit case from back in 2004, called East Tennessee Natural Gas Company v. Sage, and it’s 361 F.3d 808. And it spelled out exactly how pipelines could go about taking immediate possession of property, along the lines of what I just suggested.
This procedure’s been tested repeatedly, understandably, because it’s an unusual procedure. It’s an unusual use of an injunction. But, in general, the courts of appeal have upheld that procedure when they’ve been confronted with challenges to it. And I don’t know -- I think, the analysis by the courts of appeals hasn’t been particularly deep on that issue, but there it is. At this point, the law is fairly well set on it. Although, there are some people who are still challenging it and have some creative arguments for challenging it, and, I think, one of them is my colleague on the other side of this issue. So, maybe, with that, I turn it over to Chris.
Chris Johns: Jeff, thank you so much.
Jeffrey Simmons: Yeah.
Chris Johns: That was great summary. I appreciate it. Happy to speak for the property owners, here. Yeah. So I’ll just, maybe, give a little bit more color to add what you shared, Jeff, and just understand why these cases are coming up so much now. There have been a number of circuits who have decided this issue recently and have, as you’ve said, come down on the Sage side that allows the pipelines to have immediate possession. But if we just back up a little bit and think about why these cases are coming up quickly and, also, why it’s an important issue and will continue to be an important issue.
There have been huge advances in technology: hydraulic fracturing, fracking, directional drilling, some of the substances that are used to get the hydrocarbons out of the ground. Those things came together in the early 2000s. So, by 2006, 2007, you really had the technology in place to be able to get oil and natural gas out of some these shale formations, and that includes in areas of the country that really didn’t have an economical way to get those resources out of the ground, but now they do. So, now, we see a bunch of these cases coming up in different circuits.
Part of what happened too is in the 2013 timeframe, the Department of Energy, under the Obama administration, was hearing from industry folks who were saying, “Hey. This is a win-win situation for the United States. We can use these new technologies that we have. We can do this fracking. We can get things out. We can lower the price of gas for consumers. We can also become a net exporter. We can become more energy self-sufficient.” And so the Department of Energy just greenlighted—fast tracked—a bunch of projects that would’ve required a bunch of red tape or, maybe, couldn’t have happened before. So they greenlight LNG plants, port terminals, and then, the third thing you need, besides the plants and the ports, you need the pipelines. And so FERC is responsible for overseeing the interstate pipeline approval process. And, as you mentioned, Jeff, that’s done under the NGA, which does not have a quick take provision in it.
So, how it works, these pipelines, they’re usually set up as a single purpose entity, a single purpose vehicle. A lot of times, they’ll incorporate in Delaware, or whatever, just barely formed. They tend to be joint ventures of really big companies to back the venture and spend the billions of dollars it takes to build one of these big interstate pipelines. And, sometimes, we’re talking about shorter pipelines, but a lot of them are 300 to 500 miles long, which is what we’re seeing in West Virginia, Virginia, North Carolina right now. And those are the pipelines that are involved in my case.
So, anyway, these pipeline companies go to FERC, and they ask to get a certificate of public convenience and necessities. So Congress has delegated to FERC to make -- Congress says, “Yes. It’s the public use to build interstate pipelines, and, FERC, you’re gonna be the one that gets to decide whether a particular pipeline application is in the public convenience and necessity.” And so that’s just a little bit of the background on how this works.
So, what’s happened, the pipelines following Sage have just run and gotten these injunctions allowing them early access to property. But I’d like to talk a little bit more about the split and what I think the Seventh Circuit was saying, why I think the Seventh Circuit’s approach was right, and where I think Sage, and all the circuits that have followed Sage, has gone off the track.
So the Seventh Circuit in Northern Border, that Jeff mentioned, says “Okay. Let’s pause for a second. We’ve got a pipeline company asking for an injunction. Let’s look at what our powers are when we issue injunctions.” There’s an important limitation to the powers of equity which is that you’re not supposed to give somebody a substantive right that they didn’t have before. And so the Seventh Circuit asks, “Where’s the pipeline company’s substantive right to have immediate possession of this property?” And they say, “You may have the right to use it at some point.” Under a case called Kirby Forest, the Supreme Court had said, “Hey. There are three methods of condemnation” that Congress has customarily used. There’s what’s called direct condemnation where Congress itself can take property and pay for it later. There’s quick take condemnation most typically used by the federal government under the Declaration of Takings Act where the government puts an estimate of just compensation in. It immediately takes the property rights, so the taking automatically happens when that deposit is made, and then the government becomes the owner of the property.
And it says, “But if it’s not a direct condemnation, and it’s not a quick take, where both of those require congressional statues, then we use what’s called the default. We use the default,” which is called ordinary or straight condemnation. And, under that procedure, you wait until the end of trial, and, at the end of trial, you get a final judgement that says this is the amount of just compensation that’s due the landowner. And, at that point, the taker has an option. It can either exercise its power to take the property, at that point, by going ahead and paying the final judgement or it can decide “Hey. That’s too rich for me. I’m gonna walk away.”
Back at the farm, on the Seventh Circuit, the Seventh Circuit says, “If that’s the case, where’s the substantive right of the pipeline company to take this property right now?” It doesn’t have it. It can’t point to a congressional statute. The normal process is to wait until the end of the process where you have a final judgement, and then you pay, and then you take at that point. So the substantive right isn’t coming from Congress.
And, so then, they said, “Well, where else could the substantive right be coming from? Does the pipeline company have some right under state law, some state property law, or some state statute, that would allow them to take right now rather than at the end of the process?” And they say, “Well, that’s not there either.” The Seventh Circuit, I think, does a really clean legal analysis, and says, “Hey. If you can point to the substantive right, we’ll let you take it. But Congress hasn’t given that to you, state law hasn’t given it to you, so you’re out of luck.” And I think that’s really the right legal analysis. I think what the Fourth Circuit did is really creative and really interesting, and I wanna talk about why I think they did it. But, first, I’ll describe what they did.
The Fourth Circuit comes in, and says, “Hey. The problem in the Seventh Circuit case was that the condemnor, the pipeline company, made the mistake of not filing a motion for summary judgement first confirming its right to take. If it had done that and gotten what’s called an Order of Condemnation, recognizing its power to take, then there wouldn’t have been any problem.” But that is not what the Seventh Circuit was saying. The Seventh Circuit still would’ve had the issue, I think, saying, “Hey. Just because you have the right to take -- nobody’s disputing whether you may have the right to take. The issue is whether you have the substantive right to take right now, and you don’t.” The Fourth Circuit’s opinion in Sage just papers over that, and never says, where does the right to take right now come from? They just say, “Hey. Timing of possession doesn’t matter.” So I’ll talk about timing of possession in a minute.
But I really think what the Fourth Circuit was grappling with was the fact that, in that particular case, the pipeline was already in the ground. It was already in the ground. Not only that, the trials on compensation had already been done, and so they should’ve decided the case, I think, on mootness, and just said, “Hey. We’re not gonna say that the pipeline company has a right to take now. It should’ve just been decided that this over because we’ve already had a trial on just compensation, at this point.” And so it would’ve been ridiculous for the Fourth Circuit, in that case, to say, “Hey. Pipeline company, yeah, the property owners are right about this substantive rights issue. Why don’t you go ahead and pull out your pipeline? You’ve already paid the just compensation award, so I don’t know what we do with that.” But then, after that, we put the pipeline back in the ground. That would’ve been a ridiculous result.
And so I think the Fourth Circuit was looking for a way to avoid being wasteful. Federal judges are smart people. They’re pragmatic folks a lot of the time, and they didn’t wanna just have the pipeline company tear everything out of the ground when, I believe, most of the trials on compensation had already happened in that case. So I really think it’s a case of bad facts making really bad law. But I think what’s happened after the Fourth Circuit’s decision is that these other circuits have said, “Hey. Sage said that there’s no conflict with the Seventh Circuit’s approach. Let’s just follow that.” Everybody wants to be agreeable, and so the Third, the Sixth, the Ninth, the Eleventh Circuit have all followed that -- well, followed that approach.
But I really think that Seventh Circuit’s analysis saying, “Hey. There are limits to the court’s equitable powers. We’re not supposed to use equitable powers to create new substantive rights, nor are we supposed to use injunctions to downgrade somebody’s underlying legal entitlements.” And the same thing shows up -- the Seventh Circuit didn’t rely on this, but the same limits show up under Rule 65. The Fourth Circuit had said, “Hey. These injunctions are okay both because of the court’s inherit equitable power and also under its power under Rule 65,” and said, “Hey, Congress is tacitly given us power to issue these kinds of injunctions because we have the injunctive power under Rule 65.” But what that forgets is that like with the equitable powers, where you’re not supposed to use injunctions to create new rights or downgrade old ones, the Rules Enabling Act has a similar provision that says that you’re not allowed to use the Rules of Civil Procedure to abridge, enlarge, or modify substantive rights.
But that’s exactly what these injunctions do. They give the pipeline companies a new right to immediate possession, and they strip the landowners of their preexisting state law property rights, and that includes the right to exclude others and to use the land the way that they want. And, really, it should be an analysis of, when does the pipeline company’s substantive rights trump or overtake the preexisting state law property rights of the landowners? And I think the clear answer is that Congress is the one that’s in control of how this process works. They didn’t give pipeline companies a statute that says they’re allowed to take early. So the substantive right doesn’t come from that. The only substantive right the pipeline company has is to wait till the end of trial. And, at that point, when the exercise their option to take the property, by paying the amount of the final judgement, that’s when that substantive right supersedes the preexisting property rights of the landowners.
And this is a very, very interesting property rights case because we’ve got people on, traditionally, the right or libertarian end of the spectrum saying, property rights, this is a really important thing that federal courts have just swept the property rights under the rug. We’ve also got organizations like Sierra Club, who are really concerned about the environmental impacts of some of these pipelines, and we’ve also got people all over the country who are being impacted at a faster and faster rate, and becoming more aware of the issues with these private pipeline companies having this kind of power, and being concerned about it.
So a couple of last points. I just wanna talk about the timing of possession. The Fourth Circuit said, “Hey. Pipeline companies are eventually gonna get these easements, so timing of possession really isn’t important.” But I think that’s a really -- in some ways, it’s such a federal judge thing to say to just sweep the state property rights under the law. And it’s kind of the thing where I think a lot of judges, who are very smart, and ethical, and conscientious, they’re just used to having -- the federal judges are just used to having federal power trump the state power.
But, here, it’s really important to remember that Congress itself, it said, “Hey. You’re not supposed to enlarge, abridge, modify substantive rights.” And the substantive rights, here, are -- the timing of possession is really important in state property law. A lot of times, timing of possession defines what the property rights are. If there’s a life estate, that you can cut off early before the life tenant passes away, then that’s not really a life estate anymore. If you’ve got a tenancy of years that you can just cut off before the length of the tenancy, then that fundamentally changes the property interest that the person has.
And I give a lease example. The, really, easiest way for me to conceptualize this problem is, if I have a lease to your house that doesn’t start until October, can I run to court today and ask the court “Hey. I’m gonna get that house anyway. I’m gonna have possession of the house. I’ve got a lease that starts -- it’s some point in the future. Just go ahead and give it to me today.” Most judges would just laugh me out of the court if I try to take your house early like that. Here, Congress has said, “Hey. How this works is your substantive right is at the end of trial when you pay the amount of just compensation.” And so for these companies to run into court, and say, “Hey. We’re gonna get it anyway. Just give it to me early.” To think that that doesn’t enlarge or modify the party’s substantive rights, just gets it wrong.
The case is also important for a few other reasons. One is—and this has happened in my case—we see that permits are not a sure thing. MVP, Mountain Valley Pipeline; ACP, Atlantic Coast Pipeline, which are these huge projects back east, they’re both having huge permit problems. They may require an act of Congress to fix some of them. And so I just wanna put a pin in that.
A permit’s not a sure thing. And so there’s a real possibility these landowners could have the pipeline company come on, cut down their trees, bulldoze their land, change the contour of their property, change the waterflow patterns, and a lot of people are on wells, here. And so this really is a huge damage to them if ultimately things aren’t fixed. And if these permits don’t actually play out, if the pipeline companies can’t get all their permits—and it’s not just the federal permits that they need, sometimes they need permits from states, and I’ll talk about that in just a second—that’s a real risk that these landowners are going to be left holding the bag.
Because, remember, if ultimately these pipeline companies don’t get their permits and can’t build their lines, it’s not the government that we’re dealing with here. I think in Sage, the court said, “Hey. You would have a trespass claim if, ultimately, the project isn’t built.” But what good’s a trespass claim against a single purpose LLC who has no income and who its only asset is not being built. This poses a real risk that the landowners are never gonna be compensated for these farms.
There’s also a second risk to the landowners which is they’re not gonna be compensated at all for lost income, and that kind of thing. We’ve got a lot of property owners who are farmers, and ranchers, and business owners, and so, taking the property early, one, or two, or three years earlier than they would’ve under the normal process, they lose out on the ability to make income for those one, or two, or three additional years. And, for folks who are on fixed incomes, which include some of our clients, to receive rents, to be able to lease out some of their fields, that can be the difference between being able to make ends meet and not.
A real harm here is that, in the condemnation process, those kinds of lost income, lost rents, lost business income are not compensable because the courts say, “Hey. We’re only compensating you for the -- the pipeline company only has to compensate you for the value of your property. It doesn’t necessarily have to compensate you for the lost income that you suffered during those years.” And so these early takings create a dead-weight loss to these folks.
Another problem, with these takings, is that it really does infringe on Congress’ power to decide the methods in those of condemnation. It’s not for the judiciary to create those. It’s for Congress. The Supreme Court has said there are three ways we can do this. We either do it direct take, where congress takes it directly. Congress can pass a quick take statute and give this quick take power to either other branches of the federal government, or it can give it to departments of the federal government, or it can even give it to private actors, but it hasn’t chosen to do so here. So we have to use the default mode which is that you wait until the end of trial, and then you compensate the landowners then, and only after paying first does the pipeline company get possession. And so the judiciaries basically created a fourth method of condemnation, but that’s not an appropriate thing for the judiciary to do. It’s really Congress who is in control of the federal eminent domain power and is the one that gets to decide how these things go down.
As far as federalism, there’s also an impact there, and that should be important for all the people on this call. The states: under the Clean Air and Clean Water act, Congress recognized that the states had a role to play in taking care of the environment, and taking care of the air, taking care of their water. And, a lot of the permits that are required for these pipelines, the states have control on whether to say yes or no to the project. They could say that this project really has a negative impact on our water quality, for example, on erosion, on water patterns.
And, by allowing federal courts to go ahead and give this, essentially, quick take power to the pipeline companies, it short circuits the state’s ability to be able to say yes or no to the project. Because, by the time the states actually get around to deciding the permits—and they’re required to do so within a year—but by then, quick take’s already happened, the trees have already been cut, the bulldozing has already happened. A lot of the environmental harm is already happened, and so, this is really not just an infringement on Congress’ power, it’s also an infringement on the state’s power to have some say in environmental things. So I think, with that, I’ll turn it back over to Robert.
Robert H. Thomas: All right. Thank you, Jeffrey and Chris. So I have a couple of questions that I’d like to put to our speakers. But I’d like to start with this one to Chris. The Supreme Court has already denied, this term, two petitions. One from the Third and one from the Eleventh Circuit. Is there something different about the Fourth Circuit case—I understand the cert petition is going to be filed shortly—that makes it different than the other two already denied cases?
Chris Johns: Yeah. Thanks for that question. Yeah. I’ll say, maybe, two things about that. One is that because of the permit problems that MVP has had, this case in a little different situation than some of the previous cases. I mentioned, in Sage, the pipe was already in the ground. The trial got compensation. It had already happened. In this case, the pipeline is not all in the ground. There are huge swathes of it that just don’t have any pipeline at all; trees have been cleared and that kind of thing. But the pipeline is not operational. There’s not even pipeline in the ground in huge sections of it.
And so this is a unique set of circumstances where this issue has been allowed to hang out there, and it has not been mooted, and there are good arguments why it wouldn’t have been mooted anyway. The damages to the landowner here would prevent mootness. But I think the Court likes to weigh in on cases where its decision can actually stop the final taking from happening. And, in this case, because of these permit problems -- in most cases, the lifetime of this situation is just so short—where the pipeline company gets immediate possession—they get through their permits, and they go ahead and put the pipeline in the ground. In this case, that hasn’t happened, and so I think the Court might be a little more interested in that.
I think the other thing is that—seeing some of these other denials—there have been some states that have expressed interest in weighing in because of some of the federalism -- Clean Water Act-type issues that I mentioned. I think some environmental groups are interested. Groups like CATO are interested. And so we’ve got all of these diverse groups who are very interested in the case and, really, I think, an amicus showing that would be strong, like I hope we get, where you have the states -- you, maybe, have CATO; you have Sierra Club; you have an organization like Owners’ Counsel, that can explain why these immediate possession orders mess with the eminent domain procedure; potentially, members of Congress, too, that have weighed in and have been writing some letters to FERC concerned about the situation. I think there’s gonna be a lot of interest from a lot of different people, and the Court’s going to see that in form of amicus support, and, maybe, that makes a difference. I hope so.
Robert H. Thomas: Right. All of us who follow this and other issues before the Court understand that sometimes it’s not, necessarily, the best position to be the first case presenting an issue and that timing is a lot of this, when you get their attention.
Jeffrey -- and Wes, before we open the floor up, I’d like to ask Jeffrey a question to follow up with his thoughts about this being inevitable, and I agree with you that even though it’s unstated in most of these opinions, coming out of the courts of appeals, particularly, that certainly does seem to be the underlying sense to all this, that “Oh, well, this is going to happen anyway. It’s eventual.” Isn’t this just a technical problem because they’re going to lose, and do you know of any instances where a pipeline gets early possession by way of injunction, but then eventually decided, for whatever reason, to not take the property? Its plans change, determines that the compensation adjudicated is simply more than its willing to pay. Are there any instances, that you know of, where the eventuality that the courts predict, in this preliminary injunction, doesn’t come to pass?
Jeffrey Simmons: I can’t name any specific instance, but I’m pretty sure it does because my recollection is that there is case law in how you address those sorts of circumstances, and I can’t remember if it’s in the federal context or the state context. But, yeah, things could come up that could affect the project. For example, if the price of natural gas suddenly plummets and changes the economics of the market, dramatically, it’d be a pretty drastic step to stop building the pipeline, but it’s not inconceivable. The projects are so expensive.
And I know that after the last project I did was done when the market was booming, and the gas companies were hot to build pipelines all over the place, but shortly after that, the market -- I don’t know if it tanked exactly, but it dropped significantly, and these projects dried up. And I don’t know -- I can’t name an example, specifically, but it wouldn’t surprise me if a project could get called off mid-stream or, maybe, earlier on. It’s not inconceivable.
Robert H. Thomas: Go ahead, Chris.
Chris Johns: I was just gonna say there’s the example of the Constitution pipeline that was -- Governor Cuomo, he said “Hey. I’m not gonna give the certification.” And, because of that, the Second Circuit recently upheld his power to do that. In that case, the project was called off, and that’s in a case where the courts had given quick take power. And so there’s an example of the Holleran family in Pennsylvania who their 200-year-old sugar maple grove that they use to make maple syrup was cut down, and yet the project wasn’t built. And so that’s an example that part of why it’s a good idea to let Congress make these kind of decisions and to figure out what would happen if a pipeline company -- if they give quick take power, and then a pipeline company can’t pay it, maybe, there’s some kind of deposit that is required as part of that process. Right now, I feel sick for the Holleran family and for some other families that have their trees cut for a project that was canned.
Robert H. Thomas: And that is one of the differences between this process and the quick take, as you mentioned, Chris, in what I might call true federal quick takes, statutory quick takes, title actually transfers to the federal government upon the deposit, right? So they can’t quite -- or it’s very difficult, at that point, for them to walk away from the take. They may walk away from the project, but they can’t really walk away from the take. They already own it at that point.
Wesley Hodges: Robert, it does look like we do have one question. Would you like to go to that caller?
Robert H. Thomas: Yes, please.
Wesley Hodges: Wonderful. Caller, you are up.
Bethany Ace: Hi. My name is Bethany Ace. I’m actually a former associate of Robert, and he invited me to participate. So thank you so much for holding this teleconference. My question is has Congress attempted to address this issue either in the Natural Gas Act or the analogous act that Jeffrey mentioned per electrical companies. Chris mentioned that some of the senators may have been writing about their concerns to FERC, directly, so I’d love to hear if you’re aware of any of those sorts of efforts.
Chris Johns: Happy to answer that, but why don’t you go first, Jeff.
Jeffrey Simmons: No. I was gonna say -- I’m not aware of any, so, Chris, if you are, go ahead.
Chris Johns: Yeah. I don’t think there are any bills right now. I think there’s some activity, especially, in the House right now to address eminent domain reform. There was, of course, a huge upswing and interest after the Kelo case. But this issue with the Natural Gas Act is not something that -- I’m not aware of any legislation, but I just know there’s some movement, right now, especially, in a Congress that is unable to get a lot done, that, maybe, there’s an opportunity here from people on the left, and the right, and the center to do something that’s with eminent domain reform.
Robert H. Thomas: And that kind of nicely leads to the question I was going to ask and, maybe, throw your way first, Chris, is because there seems to be a shortcoming, maybe, in the way that the -- in Congress. But, in light of that -- and remember back to the Stop the Beach Renourishment case that the Supreme Court dealt with, roughly, 10 years ago, when they flirted with the idea of a judicial taking. Are there any judicial takings threads in this case, in your view, Chris?
Chris Johns: Well, I’m no expert on the Stop the Beach decision. As far as a little background, my understanding is that there are some property owners in the Destin area, who owned the beach out in front of them, but there’d been a lot of erosion, so then some state actor comes in and officially creates some new land. And the issue was that the -- and that goes to the Florida Supreme Court, and the property owners say, “Hey. The state let people on the new land that they created. It’s now become a public beach, where before I had a private beach.” And they changed the state law in such a way that that counts as a taking.” And I think there’s a plurality of justices led by -- I think, the opinion was Justice Scalia, who didn’t buy it in that particular case, but said, “Hey. It shouldn’t matter which branch of government is doing the taking.” If there’s a taking going on, whether -- it’s usually the Executive or the Legislative Branch. But if the judiciary’s involved in creating a new right with somebody else that takes away somebody else’s right to property, then that can be a taking.
But, again, that’s for justices. There have been some lawsuits, but I think, for the most part, judiciary hasn’t been super enthusiastic about recognizing judicial taking. So I guess it’s possible. And in this case, I would think the judicial taking would be -- a good example would be the two or three years of lost income that happened because the cases were settled that Congress would set up these three procedures, and this is a fourth procedure that the judiciary created, so we should be able to get the two, or three, or four lost years of income that we would’ve gotten, that are not compensable, through the normal eminent domain process. So it’s an interesting theory, but I don’t have a whole lot of hope for it. My hope is that the Supreme Court steps in, or Congress just steps in, and clarifies this area of law.
Jeffrey Simmons: Yeah. At least, 30 years ago, 30 or more years ago, the Court seemed to start flirting in the case called Pruneyard Shopping Center v. Robins with the idea the courts could, by way of their rulings, take property. In that case, it was the U.S. Supreme Court on an appeal considering whether the California Supreme Court, by interpreting the California Constitution a certain way, had somehow resulted in a physical invasion of a shopping center owner’s property rights to exclude the public. And, of course, in that case, the Court flirted with the idea of judicial takings but didn’t ultimately rule in the property owner’s favor, and I think the Curt just [inaudible 43:53]. Again, flirting with the idea.
And this may raise it in somewhat the same context that if Congress has not delegated the power of quick take to the property owners, and the courts do it by way of injunction by allowing a physical invasion prior to adjudication of final compensation, is that somehow a taking? I agree with you. I don’t think the courts would be terribly open to that idea. But, at least, theoretically, I suppose it’s an argument.
Robert H. Thomas: Jeff, I’d like you to respond to Chris’s assertion that there really is a circuit split. I take it, maybe, your view is different than his. And, as we all know, one of the fast tickets to Supreme Court review is the circuit split, and some people have suggested that there really isn’t one, that the Seventh Circuit is -- the property owner’s side is reading the Seventh Circuit ruling too broadly, and that the critical difference between that Seventh Circuit case and the others is once the pipeline company obtains summary judgement under those three factors in the Natural Gas Act, that that makes all the difference in the world. What’s our view on that?
Jeffrey Simmons: I don’t think there is a circuit split in the way we traditionally think about it in that I don’t think any -- to my knowledge, no other circuit court and, certainly, not Sage has come out, and said, “Look, we just disagree with the Seventh Circuit’s approach to this.” Instead, what Sage did, and what my understanding, is that all the other circuits, either expressly or implicitly, did is saying, “We’ve found a way to address the concerns expressed in the Seventh Circuit’s decision.” The Seventh Circuit was worried about whether the ownership interest was festered or not, and, here, we found a procedural way to fix that, to address that.” But I think Chris is right, that it’s not 100% clear that that’s what the Seventh Circuit really intended, and, if you ask the Seventh Circuit, I wouldn’t be 100% sure you’d get the same answer from the Seventh Circuit judges. I don’t know that they would agree that the Fourth Circuit fixed the problem they addressed.
So I do think there is, arguably, a disagreement amongst the circuits on this. The overwhelming number of circuits have followed Sage and said that this is okay. And, usually, in that circumstance, you would not expect the Supreme Court to accept the cert petition. This is one where, I think -- obviously, it’s rare for them to accept a cert petition in any event. But if they were going to take a case where most of the circuit seemed to be in alignment with each other, to me, this seems like this still could be one because it is just an unusual circumstance, and it is an unusual assertion of judicial power. They may ultimately say it’s correct, but it is kind of odd, and it does affect important rights of people. Yeah.
Robert H. Thomas: Thank you. And before I follow up with another question, Wes, I wanted to see if we have any callers from the audience over the question in the queue.
Wesley Hodges: Absolutely. It looks like we do have two more questions in the queue. Let’s go to our next caller.
Dan Kelly: Hi. This is Dan Kelly. I’m a professor of law at Notre Dame and the director of our Fitzgerald Institute for Real Estate. First, I just wanna say thank you to each of the participants, Robert, Jeffrey, and Chris, because I think this is fascinating, and I’ve learned a lot listening to your call. I wasn’t aware of this issue before the call, but I think it’s fascinating in several respects.
Second, just to lay my cards on the table, one of my early pieces of scholarship was actually on eminent domain and the Kelo-style use of eminent domain for private parties. Generally, I’m very skeptical of that type of use of eminent domain. Although, in that article, I actually carved out an exception for pipelines and other things that are long, thin, continuous assemblies because, obviously, there are some issues there with private assembly not working. I’m aware that there are some assemblies for pipelines that didn’t use eminent domain, but obviously there’s both financing and regulatory approval issues. At the same time, I’m very skeptical of the quick take power, and I think that’s a whole other discussion about whether there are constitutional issues with that.
But I what I really think is interesting, here, is actually not the property right issues—although those are obviously very much related—but, in addition to property, I’ve taught remedies once, although, there’s definitely people on the faculty who have much more expertise than I do, so I’m getting a little bit out on a limb here. But it seems to me that this is really a case of a remedies. The use of a preliminary injunction, in this way, seems to me – even before you laid out, Chris, some of the arguments, it just struck me as funny that, well, how can you get a preliminary injunction without, actually, some substantive right? Normally, somebody does a PI motion if they want to prevent a trespass or something.
So here I was wondering, well, what’s the substantive right that they have? And it does seem to me that both on traditional equitable principles, as well as Rule 65, this would really be a major change in how to use a preliminary injunction. So I haven’t read any of the circuit split cases or the cert petitions, and, obviously, there’s a big property overlay. But, to me, the preliminary injunction issue here and the potentially -- the Court doesn’t necessarily always know what to do with equity. Even the eBay v. MercExchange case, they messed things up there. But, to me, the equitable principles and the PI thing is something that should definitely be front and center.
Chris Johns: Well, we’re making it front and center. Yeah. Two things: one is where’s the substantive right? What we’re trying to do is say the Seventh Circuit’s approach is saying where are the substantive rights. Let’s be really clear about that. For the property owners, it’s state law. They have their property rights. They get it. And, at some point, the pipeline company’s substantive rights will trump it, right? But that doesn’t happen until the end of trial. Otherwise, the judiciary’s creating a new substantive right to take early, and they’re not allowed to do that under either equitable principles or the Rules Enabling Act. On a related point, these things trespass the limits on injunctive power in another way because they give a relief that’s different than what the pipeline company would’ve gotten in a final judgement.
If you think about what they would’ve gotten in a final judgement, what is it that they get? There’s a compensation, and they get an option. They say, “Hey. Here’s the price. You get an option to decide whether to exercise the option and take the property rights by paying this price.” Where here, they’re getting immediate possession. Those are not the same. They’re different things. And so they’re getting something different through the preliminary injunction than what they would’ve been entitled to at the end of the process. So I think it’s a great point that this is -- it’s huge. It’s about remedies and what the underlying substantive rights were, and I think that’s what the Fourth Circuit lost sight of.
Robert H. Thomas: Thank you. And before we get to what looks like to be our last question in the remaining two minutes. So Professor Kelly’s article is one that I think a must read for all of us interested in this area called “The Public Use Requirement in Eminent Domain Law: A Rationale Based on Secret Purchase and Private Influence,” and it’s at 92, Cornell Law Review, page one. Wes, do we have the other question lined up?
Wesley Hodges: There is one more question, and, like you said, probably, our last of the day. So, caller, you are up.
Jim Bankey (sp): Hi. My name is Jim Bankey. I know we’re talking about -- we just talked about remedies, and we also talked about landowner protections. But my memory of Sage is -- one of the big discussions there, in the case, was how to protect the landowner. And I think there was a determination. The way the landowner is protected under the Due Process Clause was in terms of getting adequate security to make certain that, number one, he would get paid at the end.
And number two, I think as part of the equity discussion, whether to issue an injunction or not, the court itself could decide, under the Rules of Civil Procedure, whether an additional bond or deposit to secure damages would be appropriate. Can our panelists discuss that issue, and is it relevant to the way this entire issue should be viewed since -- that’s where I think the real protection should be—or according to Sage—and it seems to me that, maybe, landowner’s lawyers haven’t really focused on that and haven’t really argued that point when faced with this Sage situation.
Chris Johns: I’ve actually dealt with that. This is Chris. I think they’re two separate issues. One is what the court’s powers are: do these orders trespass equitable limits? Do they trespass the limitations of the Rules Enabling Act? And is creating a fourth mode of condemnation, does that violate separation of powers? That’s on one side, but the point you raised is that they also have some protections under the just compensation clause not to be put at risk. And so, Judge Dillon from the Western District of Virginia in the District Court, she agreed with us. She disagreed with us because she felt bound by Sage on that kind of equitable limits, Rules Enabling Act, separation of powers issue. But she did say, “Yes. Under the Fifth Amendment, there’s this separate issue of making sure that landowners are protected.” And she did agree with us and ordered the pipeline company to pay in five times the pipeline company’s own estimate of just compensation.
Of course, it’s a problem for the landowners because they got the preliminary injunction request the same day they got the condemnation complaint. So they didn’t have time -- unlike the pipeline company that’s had potentially months or years to plan this project and has already got an appraisal team on board, the landowners are really put at a disadvantage because they haven’t hired appraisers. There are hundreds and hundreds of these things going on—hundreds of tracks with these bigger projects. It’s very hard just practically to get appraisers who are available on super short notice to provide their own estimates of just compensation, and so you really go into the preliminary injunction setting at a disadvantage because one side has got their appraisals and appraisers and the other side really doesn’t. And they just make this happen so fast that it’s a real unfortunate-, unfair-type situation for the landowners.
Jim Bankey: Are you saying that the pipeline company didn’t try negotiating with the landowner in the first place to get a voluntary easement? I think, in most situations, these pipeline companies spend some time in trying to get voluntary. So it’s not like the -- and in fact, FERC—as part of the FERC process—make certain that the pipeline companies notify each landowner who’s potentially affected. That’s right in the FERC rules.
Chris Johns: It’s in the Natural Gas Act as well that they have to make an offer. Yeah. That’s right.
Jeffrey Simmons: Yeah. And this is Jeff. Yeah. In my experience, yeah. At least, my clients typically make a pretty significant effort to negotiate with the landowners beforehand. One, because there is case law out there saying you need to do it. But, two, it is, in some ways, more economically efficient. At least, in my experience, they wanna be checking landowners off the list. And if they can do it without litigation, they like doing that.
But, with that said, I think, Chris does make a valid point in that all the procedures are sort of tilted against—maybe not all—but most of the procedures are tilted in some way against the landowners. And, maybe, the most obvious thing is under federal law, the landowners don’t have a right to get their attorney’s fees, whereas, under a lot of state law, eminent domain procedures, landowners do have a right to get attorney’s fees under certain circumstances, basically, if they can show that there really was a legitimate dispute about the value of the property. And that--
Jim Bankey: My understanding, again -- I’m sorry to interrupt.
Jeffrey Simmons: No, it’s okay.
Jim Bankey: My understanding, again, is that the issue of attorney’s fees is actually decided under state law if the state law provides it when the federal court looks at the issue of what the landowner gets in terms of just compensation. In some cases, if the state law provides that he can get attorney’s fees, then he can get them.
Jeffrey Simmons: It could vary by circuit. And, maybe, I’m just speaking from my own circuit, but here, that’s not the case.
Jim Bankey: Okay.
Jeffrey Simmons: I’ve done cases under state law and under federal law, and I know that it changes the negotiating dynamics dramatically.
Jim Bankey: Sure.
Jeffrey Simmons: Even though it’s a benefit to my client, to me, that’s always the one thing that’s bugged me the most is it’s -- the only other situations you can think of where the government, or some entity on behalf of the government, takes legal action against a person and doesn’t pay for their fees is in the criminal context. And, here, you’re taking somebody’s land, and they have to go out and get an attorney if they wanna fight you on it. It’s part of what makes these things -- I think it’s part of what also makes landowners quite angry in these circumstances.
Chris Johns: Yeah. And, in this particular case that we’re petitioning the Supreme Court on, the process from when they got their first certificate to when they were suing our clients, super-fast. It was not a real time for negotiation. It was very, very short.
Robert H. Thomas: Well, I’ll throw in the final comment on that question—and our caller was correct—it was generally a matter of state law, and here’s a case to watch. There’s a case that’s been briefed, and I don’t think it has been argued in the Eleventh Circuit regarding whether -- it’s called Sabal Trail. Of course, in Florida court, you may recover -- the landowner in certain circumstances may recover their attorney’s fees as part of just compensation under the Florida Constitution, and the district court, in that case, awarded the property owner’s fees and cost. That issue was then appealed by the pipeline to the Eleventh Circuit. I’m not sure of the status of that case, but I know the briefing is done.
And, with that, Wes, is there anything left for us to do but to thank our audience and our two presenters, Jeffrey Simmons of Foley & Lardner, and Chris Johns of Johns & Counsel?
Wesley Hodges: I think a thanks is well due, Robert. That’s all I have.
Robert H. Thomas: All right. Well, thank you very much everyone, and stay tuned for more on this issue.
Wesley Hodges: On behalf of The Federalist Society, I would like to thank everyone for the benefit of their very valuable time and expertise. We welcome all feedback by email at firstname.lastname@example.org. Thank you all for joining. The call is now adjourned.
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