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Tennessee Gas Pipeline Company, LLC v. Permanent Easement for 7.053 Acres

United States Court of Appeals, Third Circuit

July 23, 2019

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

          Argued November 28, 2018

          APPEAL 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

          Albert 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

          John T. Stieh [Argued] Levy Stieh Gaughan & Baron Counsel for Appellants

          Before: AMBRO, CHAGARES, and GREENAWAY, JR., Circuit Judges.

          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 (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.

         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 (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 (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. 1967)).

         Thus, 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.

         By 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).

         But 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).

         Further, 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 §§ 1101-06).

         Pennsylvania 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.

         3. Federal Common Law

         "Federal 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, 350 (1939)).

         Thus, "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)).

         In 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)).

         In 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 ...


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