PennEast to Supreme Court: Constitution Did Not Make the U.S. a Junior Varsity Sovereign

What’s the issue?

On Wednesday of this week, PennEast Pipeline made its case to the Supreme Court about why it should be able to condemn land owned by New Jersey to build its FERC-approved project.

Why does it matter?

A loss by PennEast at the Supreme Court could be devastating to the industry because it would likely mean that states could block a FERC-approved project simply by buying land in the path of the project and refusing to allow the pipeline to cross. In fact, New Jersey even told the court that the state could do this even after FERC approved the route and continually frustrate any proposed re-routes that would avoid state-owned land.

What’s our view?

While projecting a justice’s vote based on his or her questions is more of an art than a science, our view is that PennEast will prevail in this case, but that the basis for that decision may be on varying grounds that may not resolve the question with finality. But we also sourced the wisdom of the crowd from a listening session we co-sponsored with Macquarie Energy, and that crowd is slightly more optimistic than we are that a win for PennEast is likely.



 

On Wednesday of this week, PennEast Pipeline made its case to the Supreme Court as to why it should be able to condemn land owned by New Jersey to build its FERC-approved project. We provided a preview of this argument in Future of Pipeline Projects Rests with Supreme Court in PennEast Case, where we noted that many of the filings in support of PennEast warned that if the decision of the lower court were applied nationwide, it would have serious practical consequences for the nation’s natural gas infrastructure and supply, and would essentially give the states something akin to an absolute veto over federally-approved interstate pipeline projects. That concern seemed to resonate with some of the justices during their questioning of the parties on Wednesday, but the focus of most of the justices was on history, either of the colonial period leading up to the adoption of the U.S. Constitution or of the period leading up to the passage of the Natural Gas Act.

Arbo and Macquarie Energy hosted a “listening session” for a number of our customers in the energy industry, and today we provide not only our own ArboIQ analysis of the argument and a prediction of the outcome, but also provide the wisdom of the attendees — mostly non-lawyers — about how they collectively construed the arguments and to what prediction of the outcome that leads. As we discuss below, our analysis and the wisdom of the attendees both lead to a positive outcome for PennEast, but that is not as clear-cut as one would hope, given how adverse the consequences would be for the industry if PennEast were to lose.

What Were We Listening For?

Trying to judge the outcome of a Supreme Court case by listening to the oral arguments is a perilous adventure because a justice’s questions may not have anything to do with that justice’s views about the outcome of the case. That being said, the oral argument questions are the only insight we get about the justices’ views before they issue the decision, and they provide the best information available on the nine justices’ specific views of the case. In our pre-game chat at the listening session, we alerted the attendees that this case has three interlocking questions that the justices would consider.

First, at the highest level, there is a constitutional aspect to the case concerning whether the Eleventh Amendment prohibits lawsuits like the one PennEast brought against New Jersey. That amendment simply states that the “Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.” (Emphasis added.) This seemed to be the main focus of Justice Gorsuch who repeatedly asked, “Isn’t this a suit by a Delaware citizen, PennEast, against the State of New Jersey and so how is it not clearly barred by the plain language of the Eleventh Amendment?” While PennEast and the Solicitor General, who was supporting the reversal of the Third Circuit decision, were well prepared for this line of questioning, it remains unclear whether they fully addressed Justice Gorsuch’s concerns, however, and so he goes in our “Against PennEast” column.

The second issue under consideration was the actual holding of the Third Circuit: that even assuming there is no Eleventh Amendment bar to such actions, Congress has not clearly evidenced its intent to delegate to a private company its authority to bring a condemnation suit against a sovereign state. PennEast and the Solicitor General were again well prepared to address this question.

The PennEast argument had followed another argument involving the suspension of a high school student from her junior varsity cheerleading squad for a social media post directed at those who made the decision to put her on junior varsity rather than varsity. In an adept play on that argument, PennEast’s lawyer responded to questions about the federal government’s sovereign power by saying the Constitution had clearly not made the federal government a “junior varsity” sovereign, and since the senior sovereign has always been able to delegate its authority to private parties, there was no need for a clear statement by Congress of such a delegation because it had always been presumed to be part of the senior sovereign’s power. PennEast’s combined argument about this issue and the Eleventh Amendment focused on the history of condemnation actions leading up the framing of the Constitution and appears to have been directed at the three justices most concerned about the original intent of the framers, Justices Thomas, Alito and Coney Barrett.

However, it is unclear whether this succeeded and so those three justices remain firmly in our “Undecided” column. A sub-branch of this argument was the focus of Justice Kagan. Her questioning appeared to assume that the U.S. government was not a junior varsity sovereign, but she questioned whether it needed to retain some oversight of the private company to which it had delegated its power. She seemed to be leaning toward a holding that would require the U.S. government to participate in the condemnation action to assure that there was respect for the sovereign dignity of the states by requiring there to be active oversight by the senior sovereign. While it is unclear whether there are other justices who would support this view, it appears to put Justice Kagan clearly in the camp for upholding the Third Circuit decision.

The final issue under consideration was whether the district court in New Jersey, and by extension the Third Circuit, even had the authority to hear a challenge by New Jersey to the condemnation action. An argument advanced by the Solicitor General asserted that New Jersey could not challenge the use of eminent domain other than by appealing the FERC certificate, which should have been done in this case at the DC Circuit. Based on the questioning of the justices, this argument did not appear to have much traction with any justice.

Based on our analysis of the argument, we would put the justices into three camps. Chief Justice Roberts and Justices Breyer, Kavanaugh and Sotomayor appear to be in favor of reversing the decision of the Third Circuit and allowing PennEast to condemn the state lands. Justices Gorsuch and Kagan appear prepared to uphold the Third Circuit decision. That leaves three justices in the indeterminate category, Justices Thomas, Alito and Coney Barrett, and, as such, they are the critical votes. We expect that PennEast will be able to piece together a majority for overturning the Third Circuit’s decision, but there may be as many opinions for that result as there are votes, which may reduce the importance of the decision for the rest of the industry but would certainly be much better than a loss.

Wisdom of the Crowd

There are studies that show that when a group of people are asked to guess the number of jelly beans in a jar, the average guess of the group is almost always better than every single member’s estimate. In a similar manner, we asked those who attended our listening session to predict the outcome of the case by telling us how each individual justice would vote and on what argument they would base their decision. The aggregated decision is shown below.

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As seen above, the wisdom of the group is slightly different from our assessment. The group agrees that Chief Justice Roberts and Justices Breyer and Kavanaugh will vote to reverse the Third Circuit decision. They are less sure of Justice Kagan than we are, however. They also agree that Justice Gorsuch is likely to uphold the Third Circuit, but are less sure that Justice Sotomayor is in that group. Finally, with respect to the three swing voters, the group expects that Justices Thomas and Coney Barrett will vote to reverse the Third Circuit decision. So the group’s wisdom is more favorable to PennEast with a fair degree of certainty that at least six justices will side with PennEast, with only one sure dissent and two that could go either way.

The group, however, also supports our conclusion that the basis for those supportive votes for PennEast may split into two camps, with one camp reaching the critical constitutional issues and the other relying more on a reading of the Natural Gas Act. Of course, those two arguments are somewhat interrelated because the Natural Gas Act could not have granted PennEast the right to condemn if it was prohibited by the Constitution -- so that may just reflect a split between the justices as to which is most critical to their reasoning. Given how late we are in this year’s Supreme Court term, we expect that the decision will not be issued until late in June. Until then, all the industry can do is wait and hope that PennEast didn’t misjudge the court.

If you would like to discuss how the different outcomes of this case could impact the broader industry, please contact us.

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