PUT THAT IN YOUR PIPE AND SMOKE IT! MATTER OF NATIONAL FUEL GAS SUPPLY v SCHUECKLER

The Fourth Department of New York’s Appellate Division handed down the decision in Matter of National Fuel Gas Supply Corp. v Schueckler, ___ AD3d ____, 2018 NY SLIP OP 07550 (Nov. 9, 2018).  The appeal involved the granting of a petition for the acquisition of easements for an interstate gas pipeline.

Now gas pipelines have gotten pretty used to obtaining what they need.  But not in New York.  The State of New York has blocked the entire pipeline project by denying the necessary environmental permits.  Notwithstanding the barrier posed by the State’s regulatory action, the pipeline still sought to condemn easements by eminent domain.

At the outset, pipelines have powerful statutory authority.

The regulatory process for constructing a natural gas pipeline across state lines is spelled out in the federal Natural Gas Act (NGA) (15 USC § 717 et seq.).  Under the NGA, a company wishing to construct such a pipeline must apply for a “certificate of public convenience and necessity” (certificate) from the Federal Energy Regulatory Commission (FERC) (15 USC § 717f [c], [d].  Following the necessary review and public hearing, “the application shall be decided in accordance with the procedure provided in subsection (e) of [section 717f] and such certificate shall be issued or denied accordingly” (§ 717f [c] [1] [B]).

Subsection (e) of section 717f, in turn, says as follows: “a certificate shall be issued to any qualified applicant therefor, authorizing the whole or any part of the…construction…covered by the application, if it is found that the applicant is able and willing properly to do the acts and to perform the service proposed and to conform to the provisions of [the NGA] and the requirements, rules, and regulations of the [FERC] thereunder, and that the proposed…construction…, to the extent authorizated by the certificate, is or will be required by the present or future public convenience and necessity; otherwise such application shall be denied.  The [FERC] shall have the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require.”

The NGA explicitly provides that “[n]o natural-gas company…shall…undertake the construction or extension of any [pipeline] facilities…unless there is in force…a certificate of public convenience and necessity issued by the [FERC] authorizing such acts” (15 USC § 717f [c] [1] [A] [emphasis added]).

In exercising its power conferred by section 717f (e) to condition a certificate “[i]n conjunction with the…review of a natural gas project application, [the FERC] must ensure that the project complies with the requirements of all relevant federal laws, including…the Clean Water Act (CWA) [33 USC § 1251 et seq.]”

Critically, however, the CWA provides that “[n]o license or permit shall be granted if a Water Quality Certification [“WQC”] has been denied by the State” (33 USC § 1341 [a] [1]).  It therefore follows that, given the requirements of both the NGA (15 USC § 717f [e]) and the CWA (33 USC § 1341 [a] [1], the FERC must condition the construction of an interstate natural gas pipeline upon the issuance of a WQC by each affected State (see Delaware Riverkeeper Network, 857 F3d at 397-399; see generally Islander E. Pipeline Co., LLC, 482 F3d at 84).

 

The National Fuel Gas Supply Court then looked at New York’s Eminent Domain Procedure Law.  It stated, “The main purpose of article 2 of the EDPL” – the first step of the eminent domain process – “is to ensure that an appropriate public purpose underlies any condemnation” (City of New York, 6 NY3d at 546; see EDPL 204 [B] [enumerating factors relevant to the public purpose inquiry]).  The alternative procedures permitted by EDPL 206 are not designed to obviate the condemnor’s obligation to demonstrate that the condemned land will be put to public use.  Nor could they, for the existence of a “public use” for condemned property is indispensable to any constitutional exercise of the eminent domain power (NY Const, art I, § 7 [a]; see generally Matter of Goldstein v New York State Urban Dev. Corp., 13 NY3d 511, 546-552 [2009, Smith, J., dissenting] [discussing background and history of the “public use” requirement in the State Constitution’s eminent domain clause]).  Rather, the alternative procedures permitted by EDPL 206 simply allow the condemnor to make its public purpose showing in a different forum.

The alternative procedure relevant to this case is set forth in EDPL 206 (A).  Under that provision, a condemnor is deemed “exempt from compliance from the provision of [EDPL article 2]” when “pursuant to…federal…law or regulation it considers and submits factors similar to those enumerated in [EDPL 204 (B)] to a…federal agency, board or commission…and obtains a license, a permit, a certificate of public convenience or necessity or other similar approval from such agency, board or commission” (EDPL 206 [A]).  By virtue of this exemption, the condemnor can bypass the procedural requirements of EDPL article 2 – including the paramount obligation to show a public purpose for the condemnation under EDPL 204 (B) – by obtaining a certificate of public necessity from a federal commission that weighed the risks and benefits of a project and concluded that it served a public purpose.  EDPL 206 (A), in short, protects the condemnor from duplicative public purpose inquiries; it does not eliminate the condemnor’s obligation to show a public purpose in the first place.

The pipeline contended it was exempt from the public hearing requirement of Article 2 of the EDPL because it had the FERC certificate, but the certificate was conditioned on compliance with environmental conditions.  It was explicitly conditioned on the pipeline obtaining a WQC from the State of New York.  While the application for its WQC was pending, the pipeline commenced the instant condemnation case in Supreme Court, Allegany County.  The Lower Court granted the petition to condemn.  The Fourth Department reversed.

The Court stated, “The main thrust of respondents’ appellate arguments can be distilled to a single central point; petitioner is not exempt from EDPL article 2 because, following the State’s WQC denial, petitioner no longer holds a qualifying federal certificate for purposes of the EDPL 206 (A) exemption.  As respondents put it, petitioner no longer has a valid and operative “FERC Certificate that exempts the company from the burden of demonstrating [the] project’s public purpose” under article 2.  We agree.

Petitioner obviously did not conduct a hearing under EDPL 203 or make findings pursuant to EDPL 204.  Petitioner therefore looks – as it must – to the alternative procedure permitted by EDPL 206 (A).  That reliance, however, is misplaced.  Although it is true that a federal commission issued a certificate of public necessity approving petitioner’s pipeline project, the certificate nevertheless authorized construction of the pipeline “subject to” various conditions, including, as discussed above, the State’s issuance of a WQC. “[S]ubject to’ … language means what it says: no vested rights are created … prior to” the occurrence of the condition to which the instrument is subject (Moran v Erk,11 NY3d 452, 456 [2008]).  Thus, when the State denied the very permit upon which petitioner’s authority to construct the pipeline was conditioned, petitioner – by definition – lost its contingent right to construct the public project that undergirds its demand for eminent domain in this proceeding (see Islander E. Pipeline Co., LLC, 482 F3d at 91 [recognizing that Connecticut’s WQC denial “continues to prevent Islander East from proceeding with its FERC-approved natural gas pipeline project”]).

Accordingly, as a result of the State’s WQC denial, petitioner does not currently hold a qualifying federal permit for purposes of EDPL 206 (A), i.e., a federal permit that (at a minimum) authorizes construction of the public project for which the condemnor seeks to exercise its power of eminent domain (compare e.g. Matter of County of Tompkins [Perkins], 237 AD2d 667, 668-669 [3d Dept 1997]).  Without a qualifying federal permit under EDPL 206 (A), petitioner is not entitled to bypass the standard hearing and findings procedure of EDPL article 2.  And because there is no dispute that petitioner did not comply with the standard procedure set forth in EDPL article 2, it has no right to proceed directly to an EDPL article 4 vesting proceeding.  The article 4 vesting petition must therefore be dismissed.”

There was a dissenting opinion by Justice Lindley with another Judge concurring, so this case is likely to be heard by the Court of Appeals.  There is an interesting comment to the dissent by the majority which appears in footnote 3.  The majority noted that the dissent’s insistence on deciding this state-law case by reference to inapplicable principles of federal law undercuts a key pillar of the system of cooperative federalism – the notion that state courts adjudicating proceedings under State Law are bound not by federal requirements for an action brought under a federal statute but by this state’s own requirements and controlling state cases.

 

Posted in EDPL Article 2, FERC Certificate, Natural Gas Act, Pipeline Easements
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