November 28, 2018
FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT
OF PENNSYLVANIA (D.C. No. 3-12-cv-01477) District Judge: Hon.
A. Richard Caputo
F. Moran Patrick F. Nugent Sean T. O'Neill John F.
Stoviak Saul Ewing Arnstein & Lehr Elizabeth U. Witmer
[Argued] Saul Ewing Arnstein & Lehr 1200 Liberty Ridge
Drive Counsel for Appellee
T. Stieh [Argued] Levy Stieh Gaughan & Baron Counsel for
Before: AMBRO, CHAGARES, and GREENAWAY, JR., Circuit Judges.
GREENAWAY, JR., CIRCUIT JUDGE.
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.
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").
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.
the issue of compensation, the District Court granted in part
Tennessee Gas' motion. Relying entirely on a prior
opinion deciding the same issue,  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.
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.
JURISDICTION AND STANDARD OF REVIEW
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)
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
well-established that the federal government wields the
authority to exercise eminent domain. See Kohl v. United
States, 91 U.S. 367, 370 (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 (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.
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.
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
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).
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 (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)
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
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 (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; see also United States v.
Miller, 317 U.S. 369, 374-76 (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. 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.
in cases involving partial takings, as here, the standard is
"the difference between the market value of the entire
holding immediately before the taking and the remaining
market value immediately thereafter of the portion of
property rights not taken." United States v. 68.94
Acres of Land, 918 F.2d 389, 393 n.3 (3d Cir. 1990).
"If the value of the remaining land, on a unit basis,
diminishes when the condemned parcel is removed from the
larger whole, the landowner is entitled to compensation
'both for that which is physically appropriated and for
the diminution in value to the non-condemned
property.'" United States v. 4.0 Acres of
Land, 175 F.3d 1133, 1139 (9th Cir. 1999) (quoting
United States v. 33.5 Acres of Land, 789 F.2d 1396,
1398 (9th Cir. 1986)); see also Miller, 317 U.S. at
376 ("If only a portion of a single tract is taken[, ]
the owner's compensation for that taking includes any
element of value arising out of the relation of the part
taken to the entire tract."). But, if the taking somehow
benefits the value of the remaining land, "the benefit
may be set off against the value of the land taken."
Miller, 317 U.S. at 376.
contrast, Pennsylvania has enacted its own remedial scheme
that is applicable to condemnation proceedings that take
place within the state. Similar to federal law, Pennsylvania
law defines just compensation as consisting of "the
difference between the fair market value of the
condemnee's entire property interest immediately before
the condemnation and as unaffected by the condemnation and
the fair market value of the property interest remaining
immediately after the condemnation and as affected by the
condemnation." 26 Pa. Cons. Stat. § 702(a).
fair market value appears to be a more inclusive concept
under Pennsylvania law. In contrast to the federal rule
regarding partial takings, the recoverable market value under
Pennsylvania law appears to include any benefits to the value
of the remaining property as a result of the taking. See
id. § 706(a).
although Pennsylvania law generally defines fair market value
as "the price which would be agreed to by a willing and
informed seller and buyer," it allows consideration of
certain consequential damages within the concept.
Id. § 703. For example, the relevant law
provides that one of the factors for determining fair market
value is the "cost of adjustments and alterations to any
remaining property made necessary or reasonably required by
the condemnation." Id. § 1105(2)(v);
see also id. § 703(4) (stating that
considerations for fair market value include factors
regarding what evidence may be proffered pursuant to
law also permits recovery of professional fees such as
appraisal, attorney, and engineering fees. Id.
§ 710. The default rule limits such recovery to $4, 000.
Id. § 710(a). But a property owner is entitled
to complete reimbursement for those professional fees when
the "condemnor attempts to avoid the payment of monetary
just compensation to which the [owner] otherwise would be
entitled by use of a substitute for monetary compensation and
the [owner] incurs expenses" as a result. Id.
§ 716. On the whole, then, Pennsylvania law allows
private property owners within the state to obtain more money
from condemnors than they could under federal law.
Federal Common Law
common law refers to the development of legally binding
federal rules articulated by a federal court which cannot be
easily found on the face of a constitutional or statutory
provision." McGurl v. Trucking Emps. of N. Jersey
Welfare Fund, Inc., 124 F.3d 471, 480 (3d Cir. 1997)
(citations omitted). The need for common lawmaking
"stems from the inability of legislators to anticipate
every possible contingency and the impracticability of
judges['] returning all unanswered questions to the
legislature." Id. at 481 (citation omitted).
Justice Jackson once explained that federal common law
"implements the federal Constitution and statutes and
is conditioned by them. Within these limits, federal courts
are free to apply the traditional common-law technique of
decision and to draw upon all the sources of the common
law." D'Oench, Duhme & Co. v. FDIC, 315
U.S. 447, 472 (1942) (Jackson, J., concurring) (citing
Bd. of Comm'rs v. United States, 308 U.S. 343,
"when Congress has not spoken 'in an area comprising
issues substantially related to an established program of
government operation, '" United States v.
Kimbell Foods, Inc., 440 U.S. 715, 727 (1979) (quoting
United States v. Little Lake Misere Land Co., 412
U.S. 580, 593 (1973)), the Supreme Court has "direct[ed]
federal courts to fill the interstices of federal legislation
'according to their own standards, '"
id. (quoting Clearfield Trust Co. v. United
States, 318 U.S. 363, 367 (1943)).
crafting such federal common law, however, courts need not
"inevitably . . . resort to uniform federal rules."
Id. at 727-28 (citations omitted). Instead,
"[w]hether to adopt state law or to fashion a nationwide
federal rule is a matter of judicial policy 'dependent
upon a variety of considerations always relevant to the
nature of the specific governmental interests and to the
effects upon them of applying state law.'"
Id. at 728 (quoting United States v. Standard
Oil Co., 332 U.S. 301, 310 (1947)).
Kimbell Foods, the Supreme Court addressed the
propriety of applying state law under an ambiguous or
incomplete federal statute. Id. at 718, 723. There,
the issue was whether, lacking an express statutory
directive, a certain federal loans program needed a uniform
federal rule of lien priorities. Id. at 718. The
Supreme Court answered this question in the negative, holding
that state law governed the priority of the liens.
Id. at 740. In incorporating state law as the
federal rule, the Supreme Court employed a three-factor test,
considering (1) whether the federal program, by its very
nature, required uniformity; (2) whether application of state
law would frustrate ...