There's a bit of Inception-level dream-within-a-dream stuff in the U.S. Court of Appeals for the Third Circuit's opinion in Tennessee Gas Pipeline Co. LLC v. Permanent Easement for 7.053 Acres, No. 17-3700 (July 23, 2019), because the court held in takings by a private condemnor exercising the delegated power of eminent domain under the federal Natural Gas Act, the governing rules about just compensation are provided by federal common law. But "[b]ecause 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." Slip op. at 3.
So the applicable federal common law of just compensation incorporates state law. Got it.
Here, the fight was over "consequential damages" which the property owner incurred as a result of the pipeline taking, such as professional fees and development costs. Pennsylvania eminent domain law recognizes a right to recover such costs as part of just compensation. Federal eminent domain does not. And here, the amount was pretty significant: one million dollars. The District Court concluded federal law provided the rule of decision.
Third Circuit, 2-1 held otherwise. Although the NGA says that state "practice and procedure" incorporates a state's eminent domain process, it does not expressly incorporate the governing substantive law of just compensation (and besides, Federal Rules of Civil Procedure 71.1 supersedes the "thousand flowers of thought" procedures, and created a uniform federal eminent domain process).
Pennsylvania's just compensation law differs from the Fifth Amendment "floor" in two ways (recall that federal just comp standards are merely a minimum requirement, and state law may recognize more. First, in partial takings both federal and Pennsylvania law use the "before and after" method which looks at the fair market value of the property before the taking and after. "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." Slip op. at 10.
The second way in which Pennsylvania law differs from federal compensation law is the above-mentioned consequential damages, and the recover of profession fees.
The Third Circuit majority agreed with the District Court that federal common law of just compensation applied:
where federal law governs a controversy but there is no federal rule of decision on a particular matter, a federal court must fill the void through common lawmaking, either by fashioning a uniform, national rule or by incorporating state law as the federal standard.
Slip op. at 12-13. But that is not the end of the inquiry, because the applicable federal common law incorporates state substantive just compensation law.
There are a lot of reasons why, and we recommend you read the opinion, especially focusing on pages 15 onward for the details: federalism, the fact that a private condemnor is doing the taking here (and this isn't an essential government function that would call for a uniform national rule of compensation), the NGA's silence, and more. This part of the opinion is fascinating, and a good read. Have at it.
One judge disagreed (so we think we have not seen the end of this case or issue). Judge Chargares would have concluded that this is a federal taking, thus federal substantive law applies. None of that dream-within-a-dream incorporation stuff! See Dissent at 1 ("I believe that the standard by which we measure just compensation due for an exercise of the Fifth Amendment eminent domain power is the same regardless of whether it is the Government or a Government-delegatee that exercises that power.").
We've been down this path recently, over in the Eleventh Circuit. There, the court is considering the same issue, in that case whether Florida's attorneys fee shifting rule (under that state's "full compensation" imperative) are recoverable in a private NGA taking in federal court. Our brief in which we argued that the right to recover fees is one of the owner's property rights and therefore cannot be ignored because state law defined property in federal eminent domain cases, is available here. The Fifth and the Sixth Circuit agree, too.
Stay tuned, as always.
Tennessee Gas Pipeline Co., LLC v. Permanent Easement for 7.053 Acres, No. 17-3700 (3d Cir. July 23, 2019)