Content for this post was provided by Isabel Teuton, a MGKF summer associate.

In National Fuel Gas Supply Corp. v. Schueckler, 2020 WL 3453939 (N.Y. June 25, 2020),the State of New York Court of Appeals held that the issuance of a certificate of convenience and necessity by the Federal Energy Regulatory Commission (FERC) under the Natural Gas Act (NGA) exempted the holder of the certificate from complying with the public notice and hearing requirements of New York’s Eminent Domain Procedure Law (EDPL) even where the certificate holder had not yet met other conditions attached to the certificate. The Court reasoned that since FERC placed no condition on the vested eminent domain power granted with the certificate and had completed its mandated analysis of the pipeline’s effect on the public interest, there was a valid exemption from further review under EDPL 206(A), thus permitting the condemnation to move forward.

The NGA, 15 USC § 717, regulates the interstate sale and transport of natural gas, confers FERC with exclusive jurisdiction over those matters, and requires companies building interstate pipelines to obtain a certificate of public convenience and necessity. Upon receipt of a certificate, pipeline entities may use the right of eminent domain to obtain necessary land rights if they are not able to do so through negotiations with the landowners. FERC considers the public interest when deciding whether to issue a certificate and FERC can only grant a certificate if it finds that the public benefits outweigh the adverse effects. However, so as not to abridge the rights of states to, among other things, establish their own water quality standards, FERC must also ensure that the proposed construction complies with all applicable federal, state and local regulations, including the state’s implementation of the Clean Water Act.

National Fuel plans to construct a natural gas pipeline crossing through New York and Pennsylvania. In 2017, it obtained a certificate of public convenience and necessity from FERC. National Fuel then sought to acquire temporary construction easements and a 50-foot wide permanent easement over property owned by respondent landowners Joseph and Theresa Schueckler. When National Fuel and the Schuecklers failed to negotiate a consensual purchase of those rights, National Fuel sought to obtain them by eminent domain.

During the same time period when National Fuel was seeking to acquire its land interests, National Fuel’s application for a water quality certification (WQC) from the New York Department of Environmental Conservation (DEC) was denied. During the eminent domain proceedings, the Schuecklers argued that the denial invalidated the certificate and National Fuel was thus obligated to comply with Sections 201 - 204 of the EDPL. These sections require condemnors to hold public hearings and publish an appealable determination of the impact of the proposed project on the public, the environment and local residents. National Fuel had not undertaken this process, relying instead on Section 206(A) which exempts from compliance holders of FERC certificates who have undergone a public interest review. National Fuel, which was in the process of challenging DEC’s denial of the WQC before FERC and in the Second Circuit Court of Appeals and ultimately prevailed in having its certificate validated, responded that regardless of the DEC denial, its certificate was final as to condemnation rights.

New York’s trial division, the Supreme Court, disagreed with the Schuecklers by distinguishing the requirements for the assertion of eminent domain rights from the requirements for actual construction and holding that the failure of National Fuel to obtain the WQC fell into the later category, leaving the eminent domain rights in place. On appeal, and notwithstanding the fact that FERC had by then found that DEC had waived its right to deny the WQC, the Appellate Division reversed and dismissed National Fuel’s petition, holding that because National Fuel had not obtained the necessary Clean Water Act permit, the certificate was inoperative and thus could not be used to excuse the necessary state law review – at least until the denial of the WQC was finally annulled or withdrawn, at which time National Fuel could reinitiate condemnation proceedings.

In its June decision, the Court of Appeals reversed again, reinstating the Supreme Court’s finding that compliance in obtaining a WQC did not affect the issuance of the certificate of public convenience and necessity itself, but was only a precedent to the actual construction of the pipeline. Moreover, the Court of Appeals noted that the exemption of the public interest inquiry in the EDPL for certificate holders is premised on the fact that a meaningful review of the public and environmental impact is conducted, and that in the case before it, the failure to obtain the WQC did not alter the fact that the project had undergone exactly this analysis by FERC, a position that the lengthy dissent by Judge Rivera took issue with. (Indeed, Judge Rivera asserted that the fact that the WQC has been denied was evidence that the FERC public interest review process was far from definitive). Finally, the majority held that it is not for the state courts to independently review and analyze the actions of FERC and determine whether there has been compliance with a certificate’s conditions, but rather that was an issue the Court stated was firmly within the purview of FERC.