Once again, the proper procedure for an interstate natural gas pipeline to take private property necessary for the construction of a pipeline has been affirmed. The U.S. Court of Appeal for the Fourth Circuit in Mountain Valley Pipeline LLC v. 6.56 Acres of Land, rejected efforts to overturn Sage v. East Tennessee Natural Gas Co., and the now well-accepted procedure to take property as authorized by the relevant portions of the Natural Gas Act.
The Natural Gas Act provides that natural gas pipeline companies that have obtained a certificate of public convenience and necessity from the Federal Energy Regulatory Commission and are unable to obtain the necessary property interests by agreement have the right of eminent domain. However, the Natural Gas Act does not expressly provide for quick take or immediate possession of the properties necessary for construction of the pipeline.
The seminal decision by the Fourth Circuit in Sage provided natural gas companies a clear path to obtain access to the land necessary to build pipelines without the unreasonable and unnecessary delay to fully complete the condemnation process through the judicial system. The Fourth Circuit in Mountain Valley reaffirmed this procedure.
First, a natural gas company must obtain a judgment that it is entitled to exercise eminent domain. Mountain Valley obtained partial summary judgment on this issue and the landowners did not appeal that decision confirming the company’s right to exercise eminent domain.
After establishing the right to use eminent domain, the company must meet the injunction standards of Rule 65 to gain access to the property immediately. The standards of Rule 65 generally require (1) a showing of likely success on the merits; (2) irreparable harm without preliminary injunctive relief; (3) balancing of the equities tip in favor of the company; and (4) that the injunction is in the public interest. Each of these elements may be established by sworn testimony from the company that is primarily centered on the construction schedule and the in-service date for the pipeline.
The landowners in Mountain Valley directly attacked Sage — they disputed the court’s ability to grant possession of the property to the company before a determination and payment of just compensation and argued that Sage was wrongly decided. However, after denial of a request for an en banc hearing before the Fourth Circuit, the court reiterated the holding of Sage that Rule 65 is the proper procedure to determine whether immediate possession of the property is appropriate considering the facts of each case.
The landowners also disputed the application of the Rule 65 standards. The Fourth Circuit appropriately relied on Sage and rejected that challenge as well. Success on the merits was guaranteed because partial summary judgment was granted on the right to exercise eminent domain. The company would be irreparably harmed because it would be forced to breach existing contacts and face delay that would make it impossible to meet the FERC in-service date.
Of note, the Fourth Circuit recognized that without the injunctive relief granted by the district court, Mountain Valley would not be able to meet the FERC in-service deadline. Because of the time required to complete the sequencing of linear pipeline construction coupled with the complicated process of determining compensation owed to landowners, the court reasoned that Mountain Valley might lose the right to construct the pipeline at all. Losing the right to construct the pipeline would be irreparable harm to Mountain Valley.
The Fourth Circuit also rejected the landowners’ claim that Mountain Valley could wait until a later time to access their properties and still meet the in-service deadline. The court reasoned that Mountain Valley would continue to incur unrecoverable financial losses if it waited to the last minute to seek injunctive relief. The court rejected the landowners’ assertion that these prospective financial losses never warrant injunctive relief, unless the company’s financial viability is at issue. The prospective monetary losses that Mountain Valley established it would incur without the injunction are not recoverable at the end of the condemnation case or in any other litigation. Thus, the presumption that monetary damages do not rise to the level of irreparable injury is overcome.
This conclusion will be valuable to interstate natural gas pipeline companies in other condemnation cases where injunctive relief is needed. Landowners routinely claim that the precedent agreements with natural gas shippers that pipeline companies enter into to establish a need for the additional infrastructure cannot establish irreparable harm because these contracts are self-created. Considering the regulatory framework established to obtain a certificate of public convenience and necessity from FERC, the Fourth Circuit rejected this argument too. Lining up these service contracts years in advance is encouraged, if not required, by FERC to establish market demand for the project.
The landowners identified no harm by granting possession of the properties before compensation was paid. The court reiterated that this is nothing more than a timing argument. The alleged harm will occur at some point in time and even if there were unique damages that landowners might incur by allowing immediate possession, the harm to Mountain Valley outweighed that harm.
Finally, the Fourth Circuit acknowledged that any delay in construction of the pipeline would delay the public benefit determined by FERC as sufficient to support the issuance of the Certificate of Public Convenience and Necessity.
Practice Pointer: The procedural process to obtain immediate possession and use of property necessary to construct an interstate natural gas pipeline set out in Sage has been adopted by almost every court to consider it. However, the natural gas pipeline companies must continue to defend against these repetitive attacks on this process.
The companies must also ensure the evidentiary basis to support the requirements of Rule 65 are specifically presented to each court. Mountain Valley is an important precedent on the issue of what evidentiary showing will support injunctive relief, and it will be salient in many interstate natural gas eminent domain cases beyond the Fourth Circuit. No step in the process can be taken for granted despite the abundance of case law supporting an interstate natural gas pipeline company’s right to establish the need for immediate possession of the properties needed to begin construction of the pipeline.
The original article, "4th Circ. Reaffirms Path To Land Access For Pipeline Cos." first appeared in Law360 on March 5, 2019.